10-Q 1 a10-q_q32017.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
_______________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8572
___________________________
TRIBUNE MEDIA COMPANY
(Exact name of registrant as specified in its charter)
___________________________
Delaware
 
36-1880355
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
515 North State Street, Chicago, Illinois
 
60654
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (212) 210-2786.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
ý
Accelerated Filer
o
Non-Accelerated Filer
o
Smaller Reporting Company
o
Emerging Growth Company
o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes o No ý
As of October 31, 2017, 87,300,994 shares of the registrant’s Class A Common Stock and 5,605 shares of the registrant’s Class B Common Stock were outstanding.
 


TRIBUNE MEDIA COMPANY
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item No.
Part I. Financial Information
Page
Item 1.
Financial Statements
 
 
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and September 30, 2016
 
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2017 and September 30, 2016
 
Unaudited Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016
 
Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the Nine Months Ended September 30, 2017
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and September 30, 2016
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
Note 1:
Basis of Presentation and Significant Accounting Policies
 
Note 2:
Discontinued Operations
 
Note 3:
Changes in Operations
 
Note 4:
Real Estate Sales and Assets Held for Sale
 
Note 5:
Goodwill and Other Intangible Assets
 
Note 6:
Investments
 
Note 7:
Debt
 
Note 8:
Fair Value Measurements
 
Note 9:
Commitments and Contingencies
 
Note 10:
Income Taxes
 
Note 11:
Pension and Other Retirement Plans
 
Note 12:
Capital Stock
 
Note 13:
Stock-Based Compensation
 
Note 14:
Earnings Per Share
 
Note 15:
Accumulated Other Comprehensive (Loss) Income
 
Note 16:
Related Party Transactions
 
Note 17:
Business Segments
 
Note 18:
Condensed Consolidating Financial Statements
 
Note 19:
Subsequent Events
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
Part II. Other Information
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signature
Exhibit Index








PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per share data)
(Unaudited)


 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Operating Revenues   
 
 
 
 
 
 
 
Television and Entertainment
$
447,307


$
460,164

 
$
1,349,401

 
$
1,384,173

Other
3,226

 
9,874

 
10,559

 
34,133

Total operating revenues
450,533

 
470,038

 
1,359,960

 
1,418,306

Operating Expenses
 
 
 
 
 
 
 
Programming
199,118

 
149,480

 
497,448

 
396,450

Direct operating expenses
98,419

 
99,150

 
294,166

 
293,245

Selling, general and administrative
120,869

 
143,974

 
422,604

 
452,286

Depreciation
14,263

 
14,764

 
41,761

 
43,673

Amortization
41,678

 
41,668

 
125,001

 
125,003

Gain on sales of real estate, net
(65
)
 
(213,168
)
 
(365
)
 
(212,719
)
Total operating expenses
474,282

 
235,868

 
1,380,615

 
1,097,938

Operating (Loss) Profit
(23,749
)
 
234,170

 
(20,655
)
 
320,368

Income on equity investments, net
21,058

 
31,737

 
98,856

 
114,295

Interest and dividend income
827

 
476

 
1,880

 
836

Interest expense
(40,389
)
 
(38,296
)
 
(119,332
)
 
(114,508
)
Loss on extinguishments and modification of debt
(1,435
)
 
—

 
(20,487
)
 
—

Gain on investment transactions, net
5,667

 
—

 
10,617

 
—

Write-downs of investment
—

 
—

 
(180,800
)
 
—

Other non-operating gain, net
—

 
57

 
45

 
478

Reorganization items, net
(753
)
 
(434
)
 
(1,452
)
 
(1,234
)
(Loss) Income from Continuing Operations Before Income Taxes
(38,774
)
 
227,710

 
(231,328
)
 
320,235

Income tax (benefit) expense
(20,087
)
 
73,871

 
(81,606
)
 
303,922

(Loss) Income from Continuing Operations
(18,687
)
 
153,839

 
(149,722
)
 
16,313

(Loss) Income from Discontinued Operations, net of taxes (Note 2)
—

 
(8,074
)
 
15,039

 
(21,018
)
Net (Loss) Income
$
(18,687
)
 
$
145,765

 
$
(134,683
)
 
$
(4,705
)
 
 
 
 
 
 
 
 
Basic (Loss) Earnings Per Common Share from:
 
 
 
 
 
 
 
Continuing Operations
$
(0.21
)
 
$
1.71

 
$
(1.72
)
 
$
0.18

Discontinued Operations
—

 
(0.09
)
 
0.17

 
(0.23
)
Net (Loss) Earnings Per Common Share
$
(0.21
)
 
$
1.62

 
$
(1.55
)
 
$
(0.05
)
 
 
 
 
 
 
 
 
Diluted (Loss) Earnings Per Common Share from:
 
 
 
 
 
 
 
Continuing Operations
$
(0.21
)
 
$
1.70

 
$
(1.72
)
 
$
0.18

Discontinued Operations
—

 
(0.09
)
 
0.17

 
(0.23
)
Net (Loss) Earnings Per Common Share
$
(0.21
)
 
$
1.61

 
$
(1.55
)
 
$
(0.05
)
 
 
 
 
 
 
 
 
Regular dividends declared per common share
$
0.25

 
$
0.25

 
$
0.75

 
$
0.75

 
 
 
 
 
 
 
 
Special dividends declared per common share
$
—

 
$
—

 
$
5.77

 
$
—


See Notes to Unaudited Condensed Consolidated Financial Statements
2


TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands of dollars)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Net (Loss) Income
$
(18,687
)
 
$
145,765

 
$
(134,683
)
 
$
(4,705
)
Less: (Loss) Income from Discontinued Operations, net of taxes
—

 
(8,074
)
 
15,039

 
(21,018
)
Net (Loss) Income from Continuing Operations
(18,687
)
 
153,839

 
(149,722
)
 
16,313

 
 
 
 
 
 
 
 
Other Comprehensive (Loss) Income from Continuing Operations, net of taxes
 
 
 
 
 
 
 
Pension and other post-retirement benefit items:
 
 
 
 
 
 
 
Change in unrecognized benefit plan gains and losses arising during the period, net of taxes of $(285) and $2,367 for the nine months ended September 30, 2017 and September 30, 2016, respectively
—

 
—

 
(442
)
 
3,671

Adjustment for previously unrecognized benefit plan gains and losses included in net income, net of taxes of $(26) and $(28) for the three months ended September 30, 2017 and September 30, 2016, respectively, and $(77) and $(85) for the nine months ended September 30, 2017 and September 30, 2016, respectively
(40
)
 
(44
)
 
(120
)
 
(132
)
Change in unrecognized benefit plan gains and losses, net of taxes
(40
)
 
(44
)
 
(562
)
 
3,539

Marketable securities:
 
 
 
 
 
 
 
Change in unrealized holding gains and losses arising during the period, net of taxes of $341 for the three months ended September 30, 2016 and $(60) and $1,026 for the nine months ended September 30, 2017 and September 30, 2016, respectively
—

 
593

 
(95
)
 
1,591

Adjustment for loss (gain) on investment sales included in net income, net of taxes of $40 and $(1,921) for the three and nine months ended September 30, 2017
62

 
—

 
(2,980
)
 
—

Change in marketable securities, net of taxes
62

 
593

 
(3,075
)
 
1,591

Cash flow hedging instruments:
 
 
 
 
 
 
 
Unrealized gains and losses, net of taxes of $(497) and $(3,950) for the three and nine months ended September 30, 2017
(769
)
 
—

 
(6,126
)
 
—

Gains and losses reclassified to net income, net of taxes of $509 and $1,638 for the three and nine months ended September 30, 2017
789

 
—

 
2,540

 
—

Change in unrecognized gains and losses on cash flow hedging instruments, net of taxes
20

 
—

 
(3,586
)
 
—

Foreign currency translation adjustments:
 
 
 
 
 
 
 
Change in foreign currency translation adjustments, net of taxes of $42 and $(103) for the three months ended September 30, 2017 and September 30, 2016, respectively, and $2,752 and $(1,198) for the nine months ended September 30, 2017 and September 30, 2016, respectively
583

 
(77
)
 
5,987

 
(1,232
)
Other Comprehensive (Loss) Income from Continuing Operations, net of taxes
625

 
472

 
(1,236
)
 
3,898

Comprehensive (Loss) Income from Continuing Operations, net of taxes
(18,062
)
 
154,311

 
(150,958
)
 
20,211

Comprehensive (Loss) Income from Discontinued Operations, net of taxes
—

 
(5,862
)
 
26,810

 
(17,784
)
Comprehensive (Loss) Income
$
(18,062
)
 
$
148,449

 
$
(124,148
)
 
$
2,427


See Notes to Unaudited Condensed Consolidated Financial Statements
3


TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except for share and per share data)
(Unaudited)

 
September 30, 2017
 
December 31, 2016
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
602,739

 
$
577,658

Restricted cash and cash equivalents
17,566

 
17,566

Accounts receivable (net of allowances of $21,252 and $12,504)
390,472

 
429,112

Broadcast rights
148,976

 
157,817

Income taxes receivable
14,994

 
9,056

Current assets of discontinued operations
—

 
62,605

Prepaid expenses
22,617

 
35,862

Other
8,677

 
6,624

Total current assets
1,206,041

 
1,296,300

Properties
 
 
 
Property, plant and equipment
654,872

 
711,068

Accumulated depreciation
(224,306
)
 
(187,148
)
Net properties
430,566

 
523,920

Other Assets
 
 
 
Broadcast rights
144,303

 
153,457

Goodwill
3,228,869

 
3,227,930

Other intangible assets, net
1,655,467

 
1,819,134

Non-current assets of discontinued operations
—

 
608,153

Assets held for sale
93,188

 
17,176

Investments
1,273,857

 
1,674,883

Other
141,790

 
80,098

Total other assets
6,537,474

 
7,580,831

Total Assets (1)
$
8,174,081

 
$
9,401,051


See Notes to Unaudited Condensed Consolidated Financial Statements
4


TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except for share and per share data)
(Unaudited)

 
September 30, 2017
 
December 31, 2016
Liabilities and Shareholders’ Equity
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
42,215

 
$
60,553

Debt due within one year (net of unamortized discounts and debt issuance costs of $7,917)
—

 
19,924

Income taxes payable
71,741

 
21,166

Employee compensation and benefits
60,407

 
77,123

Contracts payable for broadcast rights
273,176

 
241,255

Deferred revenue
12,565

 
13,690

Interest payable
14,095

 
30,305

Current liabilities of discontinued operations
—

 
54,284

Other (Note 4)
212,609

 
32,553

Total current liabilities
686,808

 
550,853

Non-Current Liabilities
 
 
 
Long-term debt (net of unamortized discounts and debt issuance costs of $38,063 and $38,830)
2,917,454

 
3,391,627

Deferred income taxes
759,167

 
984,248

Contracts payable for broadcast rights
326,654

 
314,840

Pension obligations, net
428,732

 
444,401

Postretirement, medical, life and other benefits
9,941

 
11,385

Other obligations
155,948

 
62,700

Non-current liabilities of discontinued operations
—

 
95,314

Total non-current liabilities
4,597,896

 
5,304,515

Total Liabilities (1)
5,284,704

 
5,855,368

Commitments and Contingent Liabilities (Note 9)


 


Shareholders’ Equity
 
 
 
Preferred stock ($0.001 par value per share)
 
 
 
Authorized: 40,000,000 shares; No shares issued and outstanding at September 30, 2017 and at December 31, 2016
—

 
—

Class A Common Stock ($0.001 par value per share)
 
 
 
Authorized: 1,000,000,000 shares; 101,402,202 shares issued and 87,300,017 shares outstanding at September 30, 2017 and 100,416,516 shares issued and 86,314,063 shares outstanding at December 31, 2016
101

 
100

Class B Common Stock ($0.001 par value per share)
 
 
 
Authorized: 1,000,000,000 shares; Issued and outstanding: 5,605 shares at September 30, 2017 and at December 31, 2016
—

 
—

Treasury stock, at cost: 14,102,185 shares at September 30, 2017 and 14,102,453 shares at December 31, 2016
(632,194
)
 
(632,207
)
Additional paid-in-capital
4,028,524

 
4,561,760

Retained deficit
(443,042
)
 
(308,105
)
Accumulated other comprehensive loss
(71,247
)
 
(81,782
)
Total Tribune Media Company shareholders’ equity
2,882,142

 
3,539,766

Noncontrolling interest
7,235

 
5,917

Total shareholders’ equity
2,889,377

 
3,545,683

Total Liabilities and Shareholders’ Equity  
$
8,174,081

 
$
9,401,051

 
(1)
The Company’s consolidated total assets as of September 30, 2017 and December 31, 2016 include total assets of variable interest entities (“VIEs”) of $101 million and $97 million, respectively, which can only be used to settle the obligations of the VIEs. The Company’s consolidated total liabilities as of September 30, 2017 and December 31, 2016 include total liabilities of the VIEs of $25 million and $3 million, respectively, for which the creditors of the VIEs have no recourse to the Company (see Note 1).

See Notes to Unaudited Condensed Consolidated Financial Statements
5


TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except for share data)
(Unaudited)

 
 
Retained Deficit
Accumulated Other Comprehensive (Loss) Income
Additional Paid-In Capital
 
 
Common Stock
 
Total
 
 
Class A
 
Class B
Treasury Stock
Non-
controlling Interest
Amount (at Cost)
Shares
 
Amount (at Cost)
Shares
Balance at December 31, 2016
$
3,545,683

$
(308,105
)
$
(81,782
)
$
4,561,760

$
(632,207
)
$
5,917

$
100

100,416,516

 
$
—

5,605

Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Net loss
(134,683
)
(134,683
)
—

—

—

—

—

—

 
—

—

Other comprehensive income, net of taxes
10,535

—

10,535

—

—

—

—

—

 
—

—

Comprehensive loss
(124,148
)
 
 
 
 
 
 
 
 
 
 
Special dividends declared to shareholders and warrant holders, $5.77 per share
(499,107
)
—

—

(499,107
)
—

—

—

—

 
—

—

Regular dividends declared to shareholders and warrant holders, $0.75 per share
(65,392
)
—

—

(65,392
)
—

—

—

—

 
—

—

Warrant exercises
—

—

—

—

—

—

—

91,650

 
—

—

Stock-based compensation
27,658

—

—

27,658

—

—

—

—

 
—

—

Net share settlements of stock-based awards
3,201

—

—

3,187

13

—

1

894,036

 
—

—

Cumulative effect of a change in accounting principle
164

(254
)
—

418

—

—

—

—

 
—

—

Contributions from noncontrolling interest
1,318

—

—

—

—

1,318

—

—

 
—

—

Balance at September 30, 2017
$
2,889,377

$
(443,042
)
$
(71,247
)
$
4,028,524

$
(632,194
)
$
7,235

$
101

101,402,202

 
$
—

5,605



See Notes to Unaudited Condensed Consolidated Financial Statements
6


TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)

 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
Operating Activities
 
 
 
Net loss
$
(134,683
)
 
$
(4,705
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Stock-based compensation
27,432

 
27,608

Pension credit, net of contributions
(16,535
)
 
(18,083
)
Depreciation
41,761

 
53,567

Amortization of contract intangible assets and liabilities
649

 
(10,778
)
Amortization of other intangible assets
125,001

 
148,195

Income on equity investments, net
(98,856
)
 
(114,295
)
Distributions from equity investments
177,953

 
143,557

Non-cash loss on extinguishments and modification of debt
8,258

 
—

Original issue discount payments
(7,360
)
 
—

Write-downs of investment
180,800

 
—

Amortization of debt issuance costs and original issue discount
5,990

 
8,368

Gain on sale of business
(34,510
)
 
—

Gain on investment transactions, net
(10,617
)
 
—

Impairments of real estate
757

 
15,102

Gain on sales of real estate, net
(365
)
 
(212,719
)
Other non-operating gain, net
(45
)
 
(478
)
Changes in working capital items:
 
 
 
Accounts receivable, net
39,192

 
42,183

Prepaid expenses and other current assets
13,219

 
8,856

Accounts payable
(12,001
)
 
2,325

Employee compensation and benefits, accrued expenses and other current liabilities
(43,415
)
 
(38,200
)
Deferred revenue
(1,801
)
 
(90
)
Income taxes
44,710

 
100,861

Change in broadcast rights, net of liabilities
61,642

 
(19,913
)
Deferred income taxes
(219,236
)
 
40,160

Other, net
23,471

 
15,019

Net cash provided by operating activities
171,411

 
186,540

 
 
 
 
Investing Activities
 
 
 
Capital expenditures
(41,423
)
 
(61,855
)
Investments
(25
)
 
(3,451
)
Net proceeds from the sale of business (Note 2)
557,793

 
—

Proceeds from FCC spectrum auction (Note 4)
172,102

 
—

Sale of partial interest of equity method investment (Note 6)
142,552

 
—

Proceeds from sales of real estate and other assets
61,240

 
507,050

Proceeds from the sale of investments
5,769

 
—

Distributions from equity investment
4,608

 
—

Distribution from cost investment
805

 
—

Transfers from restricted cash
—

 
297

Net cash provided by investing activities
903,421

 
442,041


See Notes to Unaudited Condensed Consolidated Financial Statements
7


TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)

 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
Financing Activities
 
 
 
Long-term borrowings
202,694

 
—

Repayments of long-term debt
(703,527
)
 
(20,881
)
Long-term debt issuance costs
(1,689
)
 
(784
)
Payments of dividends
(564,499
)
 
(68,684
)
Tax withholdings related to net share settlements of share-based awards
(8,030
)
 
(4,540
)
Proceeds from stock option exercises
11,231

 
—

Common stock repurchases
—

 
(149,147
)
Contributions from noncontrolling interest
1,318

 
145

Settlements of contingent consideration
—

 
(3,636
)
Net cash used in financing activities
(1,062,502
)
 
(247,527
)
 
 
 
 
Net Increase in Cash and Cash Equivalents
12,330

 
381,054

Cash and cash equivalents, beginning of period (1)
590,409

 
262,644

Cash and cash equivalents, end of period
$
602,739

 
$
643,698

 
 
 
 
Supplemental Schedule of Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
   Interest
$
130,694

 
$
137,417

   Income taxes, net
$
105,678

 
$
159,152

 
(1)
Cash and cash equivalents at the beginning of the nine months ended September 30, 2017 of $590 million are comprised of $578 million of cash and cash equivalents from continuing operations as reflected in the Company’s unaudited Condensed Consolidated Balance Sheets and $13 million of cash and cash equivalents reflected in current assets of discontinued operations, as further described in Note 2.

See Notes to Unaudited Condensed Consolidated Financial Statements
8

    

TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

        

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Presentation—All references to Tribune Media Company or Tribune Company in the accompanying unaudited condensed consolidated financial statements encompass the historical operations of Tribune Media Company and its subsidiaries (collectively, the “Company”).
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K.
In the opinion of management, the financial statements contain all adjustments necessary to state fairly the financial position of the Company as of September 30, 2017 and the results of operations and cash flows for the three and nine months ended September 30, 2017 and September 30, 2016. All adjustments reflected in the accompanying unaudited condensed consolidated financial statements, which management believes necessary to state fairly the financial position, results of operations and cash flows, have been reflected and are of a normal recurring nature. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
On January 31, 2017, the Company completed the Gracenote Sale (as defined below). The historical results of operations for the businesses included in the Gracenote Sale are presented in discontinued operations for all periods presented (see Note 2). Unless indicated otherwise, the information in the notes to the accompanying unaudited condensed consolidated financial statements relates to the Company’s continuing operations.
Sinclair Merger Agreement—On May 8, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sinclair Broadcast Group, Inc. (“Sinclair”), providing for the acquisition by Sinclair of all of the outstanding shares of the Company’s Class A common stock (“Class A Common Stock”) and Class B common stock (“Class B Common Stock” and, together with the Class A Common Stock, the “Common Stock”) by means of a merger of Samson Merger Sub Inc., a wholly owned subsidiary of Sinclair, with and into Tribune Media Company (the “Merger”), with Tribune Media Company surviving the Merger as a wholly owned subsidiary of Sinclair.
In the Merger, each share of the Company’s Common Stock will be converted into the right to receive (i) $35.00 in cash, without interest and less any required withholding taxes (such amount, the “Cash Consideration”), and (ii) 0.2300 (the “Exchange Ratio”) of a validly issued, fully paid and nonassessable share of Class A common stock, $0.01 par value per share (the “Sinclair Common Stock”), of Sinclair (the “Stock Consideration”, and together with the Cash Consideration, the “Merger Consideration”). The Merger Agreement provides that each holder of an outstanding Tribune Media Company stock option (whether or not vested) will receive, for each share of the Company’s Common Stock subject to such stock option, a cash payment equal to the excess, if any, of the value of the Merger Consideration (with the Stock Consideration valued over a specified period prior to the consummation of the Merger) and the exercise price per share of such option, without interest and less any required withholding taxes. Each outstanding Tribune Media Company restricted stock unit award will be converted into a cash-settled restricted stock unit award reflecting a number of shares of Sinclair Common Stock equal to the number of shares of the Company’s Common Stock subject to such award multiplied by a ratio equal to (a) the sum of (i) the Exchange Ratio plus (ii) the Cash Consideration divided by (b) the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger. Otherwise, each such award will continue to be subject to the same terms and conditions as such award was subject prior to the Merger. Each outstanding Tribune Media Company performance stock unit (other than supplemental performance stock units) will automatically become vested at “target” level of performance and will be entitled to receive an amount of cash equal to (a) the number of shares of the Company’s Common Stock that are subject to such unit as so vested multiplied by (b) the sum of (i) the Cash Consideration and (ii) the Exchange Ratio multiplied by the trading value of the Sinclair Common Stock over



9



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



a specified period prior to the consummation of the Merger without interest and less any required withholding taxes. Each holder of an outstanding Tribune Media Company supplemental performance stock unit that will vest in accordance with its existing terms will be entitled to receive an amount of cash equal to (a) the number of shares of the Company’s Common Stock that are subject to such unit as so vested multiplied by (b) the sum of (i) the Cash Consideration and (ii) the Exchange Ratio multiplied by the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger without interest and less any required withholding taxes. Any supplemental performance stock units that do not vest in accordance with their terms will be canceled without any consideration. Each holder of an outstanding Tribune Media Company deferred stock unit will be entitled to receive an amount of cash equal to (a) the number of shares of the Company’s Common Stock that are subject to such unit multiplied by (b) the sum of (i) the Cash Consideration and (ii) the Exchange Ratio multiplied by the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger without interest and subject to all applicable withholding. Each outstanding Tribune Media Company Warrant will become a warrant exercisable, at its current exercise price, for the Merger Consideration in respect of each share of the Company’s Common Stock subject to the Warrant prior to the Merger.
The consummation of the Merger is subject to the satisfaction or waiver of certain customary conditions, including, among others: (i) the approval of the Merger by the Company’s stockholders, (ii) the receipt of approval from the Federal Communications Commission (the “FCC”) and the expiration or termination of the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (iii) the effectiveness of a registration statement on Form S-4 registering the Sinclair Common Stock to be issued in connection with the Merger and no stop order or proceedings seeking the same having been initiated by the Securities and Exchange Commission (the “SEC”), (iv) the listing of the Sinclair Common Stock to be issued in the Merger on the NASDAQ Global Select Market and (v) the absence of certain legal impediments to the consummation of the Merger.
On September 6, 2017, Sinclair’s registration statement on Form S-4 registering the Sinclair Common Stock to be issued in the Merger was declared effective by the SEC.
On October 19, 2017, holders of a majority of the outstanding shares of the Company’s Class A Common Stock and Class B Common Stock, voting as a single class, voted on and approved the Merger Agreement and the transactions contemplated by the Merger Agreement at a duly called special meeting of Tribune shareholders.
The applications seeking FCC approval of the transactions contemplated by the Merger Agreement (the “Applications”) were filed on June 26, 2017, and the FCC issued a public notice of the filing of the Applications and establishing a comment cycle on July 6, 2017. Several petitions to deny the Applications, and numerous other comments, both opposing and supporting the transaction, were filed in response to the public notice. Sinclair and Tribune jointly filed an opposition to the petitions to deny on August 22, 2017 (the “Joint Opposition”). Petitioners and others filed replies to the Joint Opposition on August 29, 2017. On September 14, 2017, the FCC’s Media Bureau issued a Request for Information (“RFI”) seeking additional information regarding certain matters discussed in the Applications. Sinclair submitted a response to the RFI on October 5, 2017. On October 18, 2017, the FCC’s Media Bureau issued a public notice pausing the FCC’s 180-day transaction review “shot-clock” for 15 days to afford interested parties an opportunity to comment on the response to the RFI.
On August 2, 2017, the Company received a request for additional information and documentary material, often referred to as a “second request,” from the United States Department of Justice (the “DOJ”) in connection with the Merger Agreement. The second request was issued under the HSR Act. Sinclair received a substantively identical request for additional information and documentary material from the DOJ in connection with the transactions contemplated by the Merger Agreement. Issuance of the second request extends the waiting period under the HSR Act until 30 days after Sinclair and the Company have substantially complied with the second request, unless the waiting period is terminated earlier by the DOJ or the parties voluntarily extend the time for closing. The parties entered into an agreement with the DOJ on September 15, 2017, by which they agreed not to consummate the Merger Agreement before December 31, 2017, or 60 days following the date on which both parties have certified



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TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



compliance with the second request, whichever is later. On October 30, 2017, the parties agreed to extend the date before which they may not consummate the Merger Agreement to January 30, 2018.
Sinclair’s and the Company’s respective obligation to consummate the Merger are also subject to certain additional customary conditions, including (i) material accuracy of representations and warranties in the Merger Agreement of the other party, (ii) performance by the other party of its covenants in the Merger Agreement in all material respects and (iii) since the date of the Merger Agreement, no material adverse effect with respect to the other party having occurred.
If the Merger Agreement is terminated in connection with the Company entering into a definitive agreement with respect to a superior proposal, as well as under certain other circumstances, the termination fee payable by the Company to Sinclair will be $135.5 million. If the Merger Agreement is terminated (i) by either the Company or Sinclair because the Merger has not occurred by the end date described below or (ii) by Sinclair in respect of a willful breach of the Company’s covenants or agreements that would give rise to the failure of a closing condition that is incapable of being cured within the time periods prescribed by the Merger Agreement, and an alternative acquisition proposal has been made to the Company and publicly announced and not withdrawn prior to the termination, and within twelve months after termination of the Merger Agreement, the Company enters into a definitive agreement with respect to an alternative acquisition proposal (and subsequently consummates such transaction) or consummates a transaction with respect to an alternative acquisition proposal, the Company will pay Sinclair $135.5 million less Sinclair’s costs and expenses paid.
In addition to the foregoing termination rights, either party may terminate the Merger Agreement if the Merger is not consummated on or before May 8, 2018, with an automatic extension to August 8, 2018, if necessary to obtain regulatory approval under circumstances specified in the Merger Agreement.
Change in Accounting Principles—In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-09, “Compensation - Stock Compensation (Topic 718).” The Company adopted ASU 2016-09 on January 1, 2017. The Company made a policy election to account for forfeitures of equity awards as they occur and implemented this provision using a modified retrospective transition method. The cumulative-effect adjustment to retained earnings in the first quarter of 2017 as a result of this election was immaterial. The Company adopted the other provisions of ASU 2016-09 on a prospective basis. The adoption of these provisions did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350).” The Company adopted the standard on a prospective basis, effective January 1, 2017. The standard simplifies the subsequent measure of goodwill by eliminating Step 2 from the goodwill impairment test. Under ASU 2017-04, companies should recognize an impairment charge for the amount the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized cannot exceed the total goodwill allocated to that reporting unit. The adoption of this standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718).” The Company adopted the standard on a prospective basis, effective April 1, 2017. The standard addresses the diversity in practice of when companies apply modification accounting when there are changes in terms or conditions to share-based payment awards. The guidance states that a company should consider changes as a modification unless all of the following are met (i) there is no change in the fair value of the award as a result of the modification, (ii) the vesting conditions have not changed and (iii) the classification of the award as an equity instrument or a liability instrument has not changed. The adoption of this standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.



11



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Derivative Instruments—The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates. The Company’s risk management policy allows for the use of derivative financial instruments to manage interest rate exposures and does not permit derivatives to be used for speculative purposes.
The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This process includes linking the derivatives designated as cash flow hedges to specific forecasted transactions or variability of cash flow. The Company also formally assesses, both at hedge inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flow of hedged items as well as monitors the credit worthiness of the counterparties to ensure no issues exist which would affect the value of the derivatives. When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, the Company discontinues hedge accounting prospectively, in accordance with derecognition criteria for hedge accounting.
The Company records derivative financial instruments at fair value in its unaudited Condensed Consolidated Balance Sheets in either other current liabilities or other noncurrent assets. Changes in the fair value of a derivative that is designated as a cash flow hedge, to the extent that the hedge is effective, are recorded in accumulated other comprehensive (loss) income and reclassified to earnings when the hedged item affects earnings. Cash flows from derivative financial instruments are classified in the unaudited Condensed Consolidated Statements of Cash Flows based on the nature of the derivative contract.
No other significant accounting policies and estimates have changed from those detailed in Note 1 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016.
Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.
Dreamcatcher—Dreamcatcher Broadcasting LLC (“Dreamcatcher”) was formed in 2013 specifically to comply with the cross-ownership rules of the FCC related to the Company’s acquisition of Local TV, LLC on December 27, 2013 (the “Local TV Acquisition”). See Note 1 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016 for additional information. The Company’s unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2017 and September 30, 2016 include the results of operations and the financial position of Dreamcatcher, a fully-consolidated variable interest entity (“VIE”). Net revenues of the Dreamcatcher stations (WTKR-TV, Norfolk, VA, WGNT-TV, Portsmouth, VA and WNEP-TV, Scranton, PA) included in the Company’s unaudited Condensed Consolidated Statements of Operations for each of the three months ended September 30, 2017 and September 30, 2016 were $17 million and for each of the nine months ended September 30, 2017 and September 30, 2016, were $52 million. Operating profits of the Dreamcatcher stations included in the Company’s unaudited Condensed Consolidated Statements of Operations for each of the three months ended September 30, 2017 and September 30, 2016 were $3 million and for the nine months ended September 30, 2017 and September 30, 2016, were $8 million and $10 million, respectively. In the third quarter of 2017, Dreamcatcher received a payment from the counterparty of approximately $21 million as one of the Dreamcatcher stations will act as host in a spectrum sharing arrangement. The payment has been deferred and will begin to be amortized to the unaudited Condensed Consolidated Statement of Operations upon commencement of the sharing arrangement. See Note 9 for additional information regarding the Company’s participation in the FCC spectrum auction. During the third quarter of 2017, the Company used $12.6 million of after-tax proceeds from the FCC spectrum auction to prepay the Dreamcatcher Credit Facility, as further described in Note 7.



12



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



The Company’s unaudited Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 include the following assets and liabilities of the Dreamcatcher stations (in thousands):
 
September 30, 2017
 
December 31, 2016
Property, plant and equipment, net
$
23

 
$
91

Broadcast rights
3,545

 
2,634

Other intangible assets, net
74,546

 
82,442

Other assets
8,140

 
134

Total Assets
$
86,254

 
$
85,301

 
 
 
 
Debt due within one year
$
—

 
$
4,003

Contracts payable for broadcast rights
3,544

 
2,758

Long-term debt
—

 
10,767

Long-term deferred revenue
20,312

 
—

Other liabilities
661

 
85

Total Liabilities
$
24,517

 
$
17,613

New Accounting Standards—In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815).” The standard simplifies the application of the hedge accounting guidance and enables entities to better portray the economic results of their risk management activities in the financial statements. The new guidance eliminates the requirement and the ability to separately record ineffectiveness on cash flow and net investment hedges and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The standard requires certain additional disclosures that focus on the effect of hedge accounting whereas the disclosure of hedge ineffectiveness is eliminated. The amendments expand the types of permissible hedging strategies. Additionally, the amendment makes the hedge documentation and effectiveness assessment less complex. The standard is effective for fiscal years beginning after December 15, 2018, and the interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2017-12 related to cash flow hedge relationships that exist on the date of adoption should be applied using a modified retrospective approach with the cumulative effect of initially applying ASU 2017-12 at the date of initial application. The presentation and disclosure requirements apply prospectively. The Company is currently evaluating the impact of adopting ASU 2017-12 on its consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715).” The standard changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the statement of operations. Under the new guidance, employers are required to present the service cost component of net periodic benefit cost in the same statement of operations caption as other employee compensation costs arising from services rendered during the period. Employers are required to present the other components of the net periodic benefit cost separately from the caption that includes the service costs and outside of any subtotal of operating profit and are required to disclose the caption used to present the other components of net periodic benefit cost, if not presented separately on the statement of operations. Additionally, only the service cost component will be eligible for capitalization in assets. The standard is effective for fiscal years beginning after December 15, 2017, and the interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2017-07 must be applied retrospectively. Upon adoption, the Company is required to provide the relevant disclosures under Topic 250, Accounting Changes and Error Corrections. The Company is currently evaluating the impact of adopting ASU 2017-07 on its consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).” The standard clarifies that ASC 610-20 provides guidance for recognizing gains and losses from the transfer of nonfinancial assets and in substance nonfinancial assets in



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TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



contracts with noncustomers. As a result of the new guidance, the guidance specific to real estate sales in ASC 360-20 will be eliminated. Instead, sales and partial sales of real estate will be subject to the same recognition model as all other nonfinancial assets. The standard is effective for fiscal years beginning after December 15, 2017, and the interim periods within those fiscal periods. Early adoption is permitted. The amendments in ASU 2017-05 may be applied either retrospectively to each prior period presented or retrospectively with the cumulative effect of initially applying ASU 2017-05 at the date of initial application. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230).” The standard addresses the diversity in classification and presentation of changes in restricted cash on the statement of cash flows. The standard requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. In addition, transfers between cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents are not reported as cash flow activities. The standard also requires additional disclosures related to a reconciliation of the balance sheet line items related to cash, cash equivalents, restricted cash and restricted cash equivalents to the statement of cash flows, which can be presented either on the face of the statement of cash flows or separately in the notes to the financial statements. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230).” The standard addresses several specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash activities are presented and classified in the statement of cash flows. The cash flow issues addressed include debt prepayment or extinguishment costs, settlement of debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, distributions received from equity method investees and cash receipts and payments that may have aspects of more than one class of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted but all of the guidance must be adopted in the same period. The Company is currently evaluating the impact of adopting ASU 2016-15 on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The standard requires entities to estimate loss of financial assets measured at amortized cost, including trade receivables, debt securities and loans, using an expected credit loss model. The expected credit loss differs from the previous incurred losses model primarily in that the loss recognition threshold of “probable” has been eliminated and that expected loss should consider reasonable and supportable forecasts in addition to the previously considered past events and current conditions. Additionally, the guidance requires additional disclosures related to the further disaggregation of information related to the credit quality of financial assets by year of the asset’s origination for as many as five years. Entities must apply the standard provision as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-13 on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Subtopic 842).” The new guidance requires lessees to recognize assets and liabilities arising from leases as well as extensive quantitative and qualitative disclosures. A lessee will need to recognize on its balance sheet a right-of-use asset and a lease liability for the majority of its leases (other than leases that meet the definition of a short-term lease). The lease liabilities will be equal to the present value of lease payments. The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as



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TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



of the effective date and provides for certain practical expedients. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10).” The new guidance requires entities to measure equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) at fair value, with changes in fair value recognized in net income and requires entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Further, entities will no longer be able to recognize unrealized holding gains and losses on equity securities classified today as available for sale in other comprehensive income and they will no longer be able to use the cost method of accounting for equity securities that do not have readily determinable fair values. The guidance has additional amendments to presentation and disclosure requirements of financial instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The amendments in ASU 2014-09 create Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-09 are effective for annual periods beginning after December 15, 2016, and interim periods within that reporting period. However, in August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 by one year for annual periods beginning after December 15, 2017, while allowing early adoption as of the original public entity date. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing,” which amends the revenue recognition guidance on accounting for licenses of intellectual property and identifying performance obligations as well as clarifies when a promised good or service is separately identifiable. In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients,” which provides clarifying guidance in certain narrow areas such as an assessment of collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition as well as adds some practical expedients. In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” to clarify or to correct unintended application of the Topic 606, including disclosure requirements related to performance obligations. The amendments in ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 may be applied either retrospectively to each prior period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 at the date of initial application. The Company is currently evaluating the impact of adopting ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 on its consolidated financial statements.
The Company will adopt the new revenue guidance effective January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed at that date. A project plan was created, consisting of an assessment and implementation phase, which included a comprehensive contract review. As further described below, the Company is finalizing the assessment phase, and at this stage does not believe the standard will have a material impact on the consolidated financial statements. The only identified impact to the Company’s financial statements relates to barter revenue and expense as well as barter related broadcast rights and contracts payable for broadcast rights which will no longer be recognized. Barter revenue and expense for the three months ended September 30, 2017 and September 30, 2016 was $7 million and $8 million, respectively, and $21 million and $22 million for the nine months ended September 30, 2017 and September 30, 2016, respectively. Barter-related



15



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



broadcast rights and contracts payable for broadcast rights on the Company’s unaudited Condensed Consolidated Balance Sheets were $52 million and $37 million as of September 30, 2017 and December 31, 2016, respectively. The standard also requires capitalization of certain costs; however, as part of the implementation process, the Company did not identify any costs that should be capitalized under the new guidance. Although the Company’s analysis is continuing, the following is a summary of the preliminary evaluation by revenue stream within the Television and Entertainment segment.
Advertising Revenues—Under the new guidance, advertising revenue will be recognized over time primarily as ads are aired, which is consistent with current practice. Advertising revenue will continue to be recognized net of agency commissions.
Retransmission Revenues and Carriage Fees—Revenue under the Company’s retransmission and carriage agreements are considered licenses of functional intellectual property under the guidance in the new revenue standard. Based on the guidance, the Company will recognize revenue at the point in time the content is transferred to the customer, which will result in revenue recognition that is consistent with current practice.
The Company is continuing to finalize the internal review and documentation process as well an evaluation of the impact to internal controls over financial reporting, if any, and financial statement disclosures related to the new revenue recognition standard. The Company expects to complete the assessment by December 31, 2017.
NOTE 2: DISCONTINUED OPERATIONS
Sale of Digital and Data Businesses—On December 19, 2016, the Company entered into a definitive share purchase agreement (the “Gracenote SPA”) with Nielsen Holding and Finance B.V. (“Nielsen”) to sell equity interests in substantially all of the Digital and Data business operations, which includes Gracenote Inc., Gracenote Canada, Inc., Gracenote Netherlands Holdings B.V., Tribune Digital Ventures LLC and Tribune International Holdco, LLC (the “Gracenote Companies”), for $560 million in cash, subject to certain purchase price adjustments (the “Gracenote Sale”). The Company retained its ownership of Covers Media Group (“Covers”), which was previously included in the Digital and Data reportable segment, and reclassified Covers’ previously reported amounts into the Television and Entertainment reportable segment to conform to the current segment presentation; the impact of this reclassification was immaterial. The Gracenote Sale was completed on January 31, 2017 and the Company received gross proceeds of $581 million. In the second quarter of 2017, the Company received additional proceeds of $3 million as a result of purchase price adjustments. In the nine months ended September 30, 2017, the Company recognized a pretax gain of $35 million as a result of the Gracenote Sale. On February 1, 2017, the Company used $400 million of proceeds from the Gracenote Sale to prepay a portion of its Term Loan Facility (as defined and described in Note 7).
As of December 31, 2016, the assets and liabilities of the businesses included in the Gracenote Sale are reflected as assets and liabilities of discontinued operations in the Company’s unaudited Condensed Consolidated Balance Sheets, and the operating results are presented as discontinued operations in the Company’s unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for all periods presented.
The Company entered into a transition services agreement (the “Nielsen TSA”) and certain other agreements with Nielsen that govern the relationships between Nielsen and the Company following the Gracenote Sale. The Company and Nielsen have extended their respective transitional services through November 30, 2017. Upon mutual agreement between the Company and Nielsen, the Nielsen TSA may be extended further. Pursuant to the Nielsen TSA, the Company provides Nielsen with certain specified services on a transitional basis, including support in areas such as human resources, treasury, technology, legal and finance. In addition, the Nielsen TSA outlines the services that Nielsen provides to the Company on a transitional basis, including in areas such as human resources, technology, and finance and other areas where the Company may need assistance and information following the Gracenote Sale. The charges for the transition services generally allow the providing company to fully recover all out-of-pocket costs and expenses it actually incurs in connection with providing the services, plus, in



16



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



some cases, the allocated direct costs of providing the services, generally without profit. Based on the Company’s assessment of the specific factors identified in ASC Topic 205, “Presentation of Financial Statements,” the Company concluded that it will not have significant continuing involvement in the Gracenote Companies.
The following table shows the components of the results from discontinued operations associated with the Gracenote Sale as reflected in the unaudited Condensed Consolidated Statements of Operations (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017 (1)
 
September 30, 2016
Operating revenues
$
—

 
$
48,579

 
$
18,168

 
$
148,055

Direct operating expenses
—

 
19,921

 
7,292

 
55,477

Selling, general and administrative
—

 
28,733

 
15,349

 
84,083

Depreciation (2)
—

 
3,946

 
—

 
9,894

Amortization (2)
—

 
7,728

 
—

 
23,192

Operating loss
—

 
(11,749
)
 
(4,473
)
 
(24,591
)
Interest income
—

 
57

 
16

 
83

Interest expense (3)
—

 
(3,826
)
 
(1,261
)
 
(11,497
)
Loss before income taxes
—

 
(15,518
)
 
(5,718
)
 
(36,005
)
Pretax gain on the disposal of discontinued operations
—

 
—

 
34,510

 
—

Total pretax (loss) income on discontinued operations
—

 
(15,518
)
 
28,792

 
(36,005
)
Income tax (benefit) expense (4)
—

 
(7,444
)
 
13,753

 
(14,987
)
(Loss) income from discontinued operations, net of taxes
$
—

 
$
(8,074
)
 
$
15,039

 
$
(21,018
)
 
(1)
Results of operations for the Gracenote Companies are reflected through January 31, 2017, the date of the Gracenote Sale.
(2)
No depreciation expense or amortization expense was recorded by the Company in 2017 as the Gracenote Companies’ assets were held for sale as of December 31, 2016.
(3)
The Company used $400 million of proceeds from the Gracenote Sale to prepay a portion of its outstanding borrowings under the Company’s Term Loan Facility (as defined and described in Note 7). Interest expense associated with the Company’s outstanding Term Loan Facility was allocated to discontinued operations based on the ratio of the $400 million prepayment to the total outstanding indebtedness under the Term Loan Facility in effect in each respective period.
(4)
The effective tax rates on pretax (loss) income from discontinued operations were 48.0% for the three months ended September 30, 2016, 47.8% for the nine months ended September 30, 2017 and 41.6% for the nine months ended September 30, 2016. The 2017 rate differs from the U.S. federal statutory rate of 35% primarily due to state income taxes (net of federal benefit), foreign tax rate differences, and an adjustment relating to the sale of the Gracenote Companies. The 2016 rates differ from the U.S. federal statutory rate of 35% primarily due to state income taxes (net of federal benefit) and foreign tax rate differences.
The results of discontinued operations include selling costs and transactions costs, including legal and professional fees incurred by the Company to complete the Gracenote Sale, of $10 million and $1 million for the nine months ended September 30, 2017 and September 30, 2016, respectively.



17



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



The following is a summary of the assets and liabilities of discontinued operations (in thousands):
 
December 31, 2016
Carrying Amounts of Major Classes of Current Assets Included as Part of Discontinued Operations
 
Cash and cash equivalents
$
12,751

Accounts receivable, net
38,727

Prepaid expenses and other
11,127

Total current assets of discontinued operations
62,605

 
 
Carrying Amounts of Major Classes of Non-Current Assets Included as Part of Discontinued Operations
 
Property, plant and equipment, net
49,348

Goodwill
333,258

Other intangible assets, net
219,287

Other long-term assets
6,260

Total non-current assets of discontinued operations
608,153

Total Assets Classified as Discontinued Operations in the Unaudited Condensed Consolidated Balance Sheets
$
670,758

 
 
Carrying Amounts of Major Classes of Current Liabilities Included as Part of Discontinued Operations
 
Accounts payable
$
6,237

Employee compensation and benefits
17,011

Deferred revenue
27,113

Accrued expenses and other current liabilities
3,923

Total current liabilities of discontinued operations
54,284

 
 
Carrying Amounts of Major Classes of Non-Current Liabilities Included as Part of Discontinued Operations
 
Deferred income taxes
89,029

Postretirement, medical, life and other benefits
2,786

Other obligations
3,499

Total non-current liabilities discontinued operations
95,314

Total Liabilities Classified as Discontinued Operations in the Unaudited Condensed Consolidated Balance Sheets
$
149,598

 
 
Net Assets Classified as Discontinued Operations
$
521,160

The Gracenote SPA provides for indemnification against specified losses and damages which became effective upon completion of the transaction. The Company does not expect to incur material costs in connection with these indemnifications. The Company has no material contingent liabilities relating to the Gracenote Sale as of September 30, 2017.



18



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



The following table represents the components of the results from discontinued operations associated with the Gracenote Sale as reflected in the Company’s unaudited Condensed Consolidated Statements of Cash Flows (in thousands):
 
Nine Months Ended
 
September 30, 2017 (1)
 
September 30, 2016
Significant operating non-cash items:
 
 
 
Stock-based compensation
$
1,992

 
$
3,066

Depreciation (2)
—

 
9,894

Amortization (2)
—

 
23,192

 
 
 
 
Significant investing items (3):
 
 
 
Capital expenditures
1,578

 
16,514

Net proceeds from the sale of business (4)
557,793

 
—

 
 
 
 
Significant financing items (3):
 
 
 
Settlements of contingent consideration
—

 
(3,636
)
 
(1)
Results of operations for the Gracenote Companies are reflected through January 31, 2017, the date of the Gracenote Sale.
(2)
No depreciation expense or amortization expense was recorded by the Company in 2017 as the Gracenote Companies’ assets were held for sale as of December 31, 2016.
(3)
Non-cash investing and financing activities of Digital and Data businesses included in the Gracenote Sale were immaterial.
(4)
Net proceeds from the sale of business reflects the gross proceeds from the Gracenote sale of $584 million, net of $17 million of the Gracenote Companies’ cash and cash equivalents included in the sale and $9 million of selling costs.
NOTE 3: CHANGES IN OPERATIONS
Employee Reductions—The Company recorded pretax charges, primarily consisting of employee severance costs and associated termination benefits and related expenses, totaling less than $1 million and $7 million for the three months ended September 30, 2017 and September 30, 2016, respectively, and $5 million and $8 million in the nine months ended September 30, 2017 and September 30, 2016, respectively. These charges are included in direct operating expenses or selling, general and administrative expenses (“SG&A”), as appropriate, in the Company’s unaudited Condensed Consolidated Statements of Operations.
The following table summarizes these severance and related charges by business segment for the three and nine months ended September 30, 2017 and September 30, 2016 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Television and Entertainment
$
78

 
$
6,844

 
$
4,413

 
$
6,865

Corporate and Other
33

 
408

 
107

 
1,157

Total
$
111

 
$
7,252

 
$
4,520

 
$
8,022

Severance and related expenses included in (loss) income from discontinued operations, net of taxes totaled less than $1 million for each of the three and nine months ended September 30, 2016.



19



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Changes to the accrued liability for severance and related expenses during the nine months ended September 30, 2017 were as follows (in thousands):
 
 
Balance at December 31, 2016
$
8,981

Additions
4,520

Payments and other
(7,637
)
Balance at September 30, 2017
$
5,864

NOTE 4: REAL ESTATE SALES AND ASSETS HELD FOR SALE
Assets Held for Sale—Assets held for sale in the Company’s unaudited Condensed Consolidated Balance Sheets consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Real estate
$
54,288

 
$
17,176

FCC licenses
38,900

 
—

Total assets held for sale
$
93,188

 
$
17,176

Real Estate Assets Held for Sale—As of September 30, 2017, the Company had two real estate properties held for sale. The Company recorded charges of $1 million in the three months ended September 30, 2016 and $1 million and $15 million in the nine months ended September 30, 2017 and September 30, 2016, respectively, to write down certain properties to their estimated fair value, less the expected selling costs, which were determined based on certain assumptions and judgments that are Level 3 within the fair value hierarchy. These charges are included in SG&A in the Company’s unaudited Condensed Consolidated Statements of Operations.
Sales of Real Estate—In the nine months ended September 30, 2017 and September 30, 2016, the Company sold several properties for net pretax proceeds totaling $61 million and $505 million, respectively, and recognized a net pretax gain of less than $1 million for the three and nine months ended September 30, 2017 and $213 million in the three and nine months ended September 30, 2016, as further described below. The Company defines net proceeds as pretax cash proceeds on the sale of properties, net of associated selling costs.
On January 26, 2017, the Company sold its Denver, CO property for net proceeds of $23 million, which approximated the carrying value, and entered into a lease for the property. On January 31, 2017, the Company sold one of its Chicago, IL properties for net proceeds of $22 million and entered into a lease with a term of 10 years, subject to renewal, retaining the use of more than a minor portion of the property. The Company recorded a deferred pretax gain of $13 million on the sale, which will be amortized over the life of the lease in accordance with sale-leaseback accounting guidance. On April 21, 2017, the Company sold two of its Chicago, IL properties for net proceeds of less than $1 million. On May 22, 2017, the Company sold two of its Baltimore, MD properties for net proceeds of $15 million which approximated their respective carrying values. On August 4, 2017, the Company sold its Williamsburg, VA property for net proceeds of $1 million, which approximated its carrying value.
As of November 8, 2017, the Company has agreements for the sales of certain properties located in Costa Mesa, CA and Fort Lauderdale, FL. These transactions are expected to close during the fourth quarter of 2017. However, the closing of these transactions is subject to certain adjustments and customary closing conditions and there can be no assurance that these sales will be completed in a timely manner or at all.
On May 2, 2016, the Company sold its Deerfield Beach, FL property for net proceeds of $24 million and on June 2, 2016, the Company sold its Allentown, PA property for net proceeds of $8 million. In the second quarter of 2016, the Company recorded a net loss of less than $1 million on the sale of these properties that is included in



20



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



SG&A. On July 7, 2016, the Company sold its Seattle, WA property for net proceeds of $19 million and entered into a lease retaining the use of more than a minor portion of the property. The Company recorded a deferred pretax gain of $8 million on the sale which will be amortized over the life of the lease due to the transaction being a sale-leaseback. On July 12, 2016, the Company sold two of its Orlando, FL properties for net proceeds of $34 million and recorded a pretax gain of $2 million. On July 14, 2016, the Company sold its Arlington Heights, IL property for net proceeds of $0.4 million. On September 26, 2016, the Company sold Tribune Tower and the north block of the Los Angeles Times Square property (“LA Times Property”) for net proceeds of $200 million and $102 million, respectively, and recognized a pretax gain of $93 million and $59 million, respectively. Pursuant to the terms of the sale agreements, the Company could receive contingent payments of up to an additional $35 million related to the Tribune Tower transaction and an additional $10 million related to the LA Times Property transaction. For both the Tribune Tower and LA Times Property sales, the contingent payments become payable if certain conditions are met pertaining to development rights related to the respective buyer’s plans for development of portions of the two properties. The contingency period for both properties ends five years from the sale date with the possibility of extension in certain circumstances. On September 27, 2016, the Company sold the Olympic Printing Plant facility for net proceeds of $119 million and recognized a pretax gain of $59 million.
FCC Licenses Held for Sale—As of September 30, 2017, certain FCC licenses that were part of the FCC spectrum auction are included in assets held for sale. The gross proceeds received for these licenses totaled $172 million, which is currently reflected in other current liabilities in the Company’s unaudited Condensed Consolidated Balance Sheet at September 30, 2017. The Company expects to recognize a net gain of approximately $133 million at the time the spectrum associated with these licenses is relinquished to the FCC. See Note 9 for additional information regarding the Company’s participation in the FCC spectrum auction.
NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Other intangible assets subject to amortization
 
 
 
 
 
 
 
 
 
 
 
Affiliate relationships (useful life of 16 years)
$
212,000

 
$
(62,938
)
 
$
149,062

 
$
212,000

 
$
(53,000
)
 
$
159,000

Advertiser relationships (useful life of 8 years)
168,000

 
(99,750
)
 
68,250

 
168,000

 
(84,000
)
 
84,000

Network affiliation agreements (useful life of 5 to 16 years)
362,000

 
(164,934
)
 
197,066

 
362,000

 
(133,725
)
 
228,275

Retransmission consent agreements (useful life of 7 to 12 years)
830,100

 
(354,524
)
 
475,576

 
830,100

 
(286,994
)
 
543,106

Other (useful life of 5 to 15 years)
16,524

 
(6,111
)
 
10,413

 
15,448

 
(4,695
)
 
10,753

Total
$
1,588,624

 
$
(688,257
)
 
900,367

 
$
1,587,548

 
$
(562,414
)
 
1,025,134

Other intangible assets not subject to amortization
 
 
 
 
 
 
 
 
 
 
 
FCC licenses
 
 
 
 
740,300

 
 
 
 
 
779,200

Trade name
 
 
 
 
14,800

 
 
 
 
 
14,800

Total other intangible assets, net
 
 
 
 
1,655,467

 
 
 
 
 
1,819,134

Goodwill
 
 
 
 
3,228,869

 
 
 
 
 
3,227,930

Total goodwill and other intangible assets
 
 
 
 
$
4,884,336

 
 
 
 
 
$
5,047,064





21



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



The changes in the carrying amounts of intangible assets, which are in the Company’s Television and Entertainment segment, during the nine months ended September 30, 2017 were as follows (in thousands):
Other intangible assets subject to amortization
 
Balance as of December 31, 2016
$
1,025,134

Amortization
(125,662
)
Balance sheet reclassifications
86

Foreign currency translation adjustment
809

Balance as of September 30, 2017
$
900,367

 
 
Other intangible assets not subject to amortization
 
Balance at December 31, 2016
$
794,000

Reclassification to assets held for sale (1)
(38,900
)
Balance as of September 30, 2017
$
755,100

 
 
Goodwill
 
Gross balance as of December 31, 2016
$
3,608,930

Accumulated impairment losses at December 31, 2016
(381,000
)
Balance at December 31, 2016
3,227,930

Foreign currency translation adjustment
939

Balance as of September 30, 2017
$
3,228,869

Total goodwill and other intangible assets as of September 30, 2017
$
4,884,336

 
(1)
See Note 4 for additional information regarding FCC licenses reclassified to assets held for sale.
Amortization expense relating to amortizable intangible assets is expected to be approximately $42 million for the remainder of 2017, $167 million in 2018, $140 million in 2019, $134 million in 2020, $103 million in 2021 and $84 million in 2022.
NOTE 6: INVESTMENTS
Investments consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Equity method investments
$
1,247,914

 
$
1,642,117

Cost method investments
25,943

 
26,748

Marketable equity securities
—

 
6,018

Total investments
$
1,273,857

 
$
1,674,883




22



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Equity Method Investments—Income from equity investments, net reported in the Company’s unaudited Condensed Consolidated Statements of Operations consisted of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Income from equity investments, net, before amortization of basis difference
$
33,609

 
$
45,381

 
$
139,808

 
$
155,254

Amortization of basis difference
(12,551
)
 
(13,644
)
 
(40,952
)
 
(40,959
)
Income from equity investments, net
$
21,058

 
$
31,737

 
$
98,856

 
$
114,295

As discussed in Note 8 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016, the carrying value of the Company’s investments was increased by $1.615 billion to a fair value aggregating $2.224 billion as a result of fresh start reporting adopted on the Effective Date (as defined in Note 9). Of the $1.615 billion increase, $1.108 billion was attributable to the Company’s share of theoretical increases in the carrying values of the investees’ amortizable intangible assets had the fair value of the investments been allocated to the identifiable intangible assets of the investees’ in accordance with ASC Topic 805 “Business Combinations.” The remaining $507 million of the increase was attributable to goodwill and other identifiable intangibles not subject to amortization, including trade names. The Company amortizes the differences between the fair values and the investees’ carrying values of the identifiable intangible assets subject to amortization and records the amortization (the “amortization of basis difference”) as a reduction of income on equity investments, net in its unaudited Condensed Consolidated Statements of Operations. The remaining identifiable net intangible assets subject to amortization of basis difference as of September 30, 2017 totaled $698 million and have a weighted average remaining useful life of approximately 16 years.
Cash distributions from the Company’s equity method investments were as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Cash distributions from equity investments
$
32,911

 
$
17,953

 
$
182,561

 
$
143,557


TV Food Network—The Company’s 31% investment in Television Food Network, G.P. (“TV Food Network”) totaled $1.215 billion and $1.279 billion at September 30, 2017 and December 31, 2016, respectively. The Company recognized equity income from TV Food Network of $26 million and $24 million for the three months ended September 30, 2017 and September 30, 2016, respectively, and equity income of $103 million and $94 million for the nine months ended September 30, 2017 and September 30, 2016, respectively. The Company received cash distributions from TV Food Network of $17 million and $18 million for the three months ended September 30, 2017 and September 30, 2016, respectively, and cash distributions of $167 million and $144 million in the nine months ended September 30, 2017 and September 30, 2016, respectively.
CareerBuilder—The Company’s investment in CareerBuilder, LLC (through its investment in Camaro Parent, LLC) (“CareerBuilder”) totaled $11 million and $341 million at September 30, 2017 and December 31, 2016, respectively. The Company recognized an equity loss from CareerBuilder of $5 million for the three months ended September 30, 2017 and equity income of $8 million for the three months ended September 30, 2016, and an equity loss, excluding impairment charges, of $3 million for the nine months ended September 30, 2017 and equity income of $22 million for the nine months ended September 30, 2016.



23



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



On September 7, 2016, TEGNA Inc. (“TEGNA”) announced that it began evaluating strategic alternatives for CareerBuilder, including a possible sale. In March 2017, the range of possible outcomes was narrowed and based on operating performance and updated bids received by TEGNA, the Company determined that there was sufficient indication that the carrying value of its investment in CareerBuilder may be impaired. As of the assessment date in the first quarter of 2017, the carrying value of the Company’s investment in CareerBuilder included $72 million of unamortized basis difference that the Company recorded as a result of fresh start reporting discussed above. In the first quarter of 2017, the Company recorded a non-cash pretax impairment charge of $122 million to write down its investment in CareerBuilder, which eliminated the remaining fresh start reporting basis difference. The write down resulted from a decline in the fair value of the investment that the Company determined to be other than temporary.
On June 19, 2017, TEGNA announced that it entered into an agreement (the “CareerBuilder Sale Agreement”), together with the other owners of CareerBuilder, including Tribune Media Company, to sell a majority interest in CareerBuilder to an investor group led by investment funds managed by affiliates of Apollo Global Management, LLC and the Ontario Teachers’ Pension Plan Board. As a result, in the second quarter of 2017, the Company recorded an additional non-cash pretax impairment charge of $59 million to further write down its investment in CareerBuilder based on the transaction value contemplated in the CareerBuilder Sale Agreement, subject to certain purchase price adjustments. The transaction closed on July 31, 2017 and the Company received cash of $158 million, which included an excess cash distribution of $16 million. The Company recognized a gain on sale of $6 million in the third quarter of 2017. Subsequent to the sale, the Company’s ownership in CareerBuilder declined from 32% to approximately 7%, on a fully diluted basis. Pursuant to ASC Topic 323 “Investments - Equity Method and Joint Ventures,” the Company continues to account for CareerBuilder as an equity method investment.
In the nine months ended September 30, 2017, the total non-cash pretax impairment charges to write down the Company’s investment in CareerBuilder totaled $181 million. The impairment charges resulted from declines in the fair value of the investment that the Company determined to be other than temporary. The investment constitutes a nonfinancial asset measured at fair value on a nonrecurring basis in the Company’s unaudited Condensed Consolidated Balance Sheets and is classified as a Level 3 asset in the fair value hierarchy. See Note 8 for a description of the fair value hierarchy’s three levels.
Dose Media—The Company’s 25% investment in Dose Media, LLC (“Dose Media”) totaled $11 million and $12 million at September 30, 2017 and December 31, 2016, respectively.
Summarized Financial Information—Summarized financial information for TV Food Network is as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2017

September 30, 2016

September 30, 2017

September 30, 2016
Revenues, net
$
274,754

 
$
275,758

 
$
880,868

 
$
851,209

Operating income
$
157,207

 
$
150,471

 
$
547,363

 
$
520,848

Net income
$
123,009

 
$
116,431

 
$
447,348

 
$
421,961

Summarized financial information for CareerBuilder and Dose Media is as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Revenues, net
$
165,961

 
$
182,339

 
$
505,383

 
$
537,347

Operating (loss) income
$
(9,661
)
 
$
26,482

 
$
373

 
$
70,671

Net (loss) income
$
(14,090
)
 
$
26,396

 
$
(842
)
 
$
70,758




24



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Marketable Equity Securities—As further described in Note 2 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016, on August 4, 2014, the Company completed the Publishing Spin-off and retained 381,354 shares of tronc, Inc. (“tronc”) common stock, representing at that time 1.5% of the outstanding common stock of tronc. As of December 31, 2016, shares of tronc common stock were classified as available-for-sale securities. On January 31, 2017, the Company sold its tronc shares for net proceeds of $5 million and recognized a pretax gain of $5 million.

Cost Method Investments—All of the Company’s cost method investments in private companies are recorded at cost, net of write-downs resulting from periodic evaluations of the carrying value of the investments.
Chicago Cubs Transactions—As defined and further described in Note 8 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016, the Company consummated the closing of the Chicago Cubs Transactions on October 27, 2009. Concurrent with the closing of the transactions, the Company executed guarantees of collection of certain debt facilities entered into by Chicago Entertainment Ventures, LLC (formerly Chicago Baseball Holdings, LLC), and its subsidiaries (collectively, “New Cubs LLC”). The guarantees are capped at $699 million plus unpaid interest. The guarantees are reduced as New Cubs LLC makes principal payments on the underlying loans. To the extent that payments are made under the guarantees, the Company will be subrogated to, and will acquire, all rights of the debt lenders against New Cubs LLC.
Variable Interests—At September 30, 2017 and December 31, 2016, the Company held variable interests in Topix, LLC (through its investment in TKG Holdings II, LLC) (“Topix”) and TREH 200E Las Olas Venture, LLC (“Las Olas LLC”). See Note 1 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016 for additional information relating to these entities.
The Company has determined that it is not the primary beneficiary of Topix and therefore has not consolidated it as of and for the periods presented in the unaudited condensed consolidated financial statements. The Company’s maximum loss exposure related to Topix is limited to its equity investment, which was $5 million at both September 30, 2017 and December 31, 2016.
Las Olas LLC was determined to be a VIE where the Company is the primary beneficiary. The Company consolidates the financial position and results of operations of this VIE. The financial position and results of operations of the VIE as of and for the nine months ended September 30, 2017 were not material.
As further disclosed in Note 1, the Company consolidates the financial position and results of operations of Dreamcatcher, a VIE where the Company is the primary beneficiary.



25



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



NOTE 7: DEBT
Debt consisted of the following (in thousands):

September 30, 2017

December 31, 2016
Term Loan Facility
 
 
 
Term B Loans due 2020, effective interest rate of 3.84% and 3.82%, net of unamortized discount and debt issuance costs of $2,059 and $31,230
$
187,566

 
$
2,312,218

Term C Loans due 2024, effective interest rate of 3.85%, net of unamortized discount and debt issuance costs of $22,653
1,643,239

 
—

5.875% Senior Notes due 2022, net of debt issuance costs of $13,351 and $15,437
1,086,649

 
1,084,563

Dreamcatcher Credit Facility due 2018, effective interest rate of 4.08%, net of unamortized discount and debt issuance costs of $80
—


14,770

Total debt
2,917,454

 
3,411,551

Less: Debt due within one year
—

 
19,924

Long-term debt, net of current portion
$
2,917,454

 
$
3,391,627

Secured Credit Facility—On December 31, 2016, the Company’s secured credit facility (the “Secured Credit Facility”) consisted of a term loan facility (the “Term Loan Facility”), under which $2.343 billion of term B loans (the “Term B Loans”) were outstanding, and a $300 million revolving credit facility (the “Revolving Credit Facility”). At December 31, 2016, there were no borrowings outstanding under the Revolving Credit Facility; however, there were standby letters of credit outstanding of $23 million, primarily in support of the Company’s workers’ compensation insurance programs. See Note 9 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016 for further information and significant terms and conditions associated with the Term Loan Facility and the Revolving Credit Facility, including but not limited to interest rates, repayment terms, fees, restrictions and affirmative and negative covenants.
2017 Amendment
On January 27, 2017, the Company entered into an amendment (the “2017 Amendment”) to the Secured Credit Facility, pursuant to which, among other things, (i) certain term lenders converted a portion of their Term B Loans outstanding immediately prior to the closing of the 2017 Amendment (the “Former Term B Loans”) into a new tranche of term loans in an aggregate amount (after giving effect to the Term Loan Increase Supplement (as defined below)) of approximately $1.761 billion (the “Term C Loans”), electing to extend the maturity date of the Term C Loans from December 27, 2020 to the earlier of (A) January 27, 2024 and (B) solely to the extent that more than $600 million in aggregate principal amount of the Company’s 5.875% Senior Notes due 2022 remain outstanding on such date, the date that is 91 days prior to July 15, 2022 (as such date may be extended from time to time) and (ii) certain revolving lenders under the Revolving Credit Facility converted all of their revolving commitments into a new tranche of revolving commitments (the “New Initial Revolving Credit Commitments;” the existing tranche of revolving commitments of the remaining revolving lenders, the “Existing Revolving Tranche”), electing to extend the maturity date of the New Initial Revolving Credit Commitments from December 27, 2018 to January 27, 2022.
Under the Secured Credit Facility, the Term C Loans bear interest, at the Company’s election, at a rate per annum equal to either (i) the sum of LIBOR, adjusted for statutory reserve requirements on Euro currency liabilities (“Adjusted LIBOR”), subject to a minimum rate of 0.75%, plus an applicable margin of 3.0% or (ii) the sum of a base rate determined as the highest of (a) the federal funds effective rate from time to time plus 0.5%, (b) the prime rate of interest announced by the administrative agent as its prime rate, and (c) Adjusted LIBOR plus 1.0%, plus an



26



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



applicable margin of 2.0%. Under the Revolving Credit Facility, the loans made pursuant to a New Initial Revolving Credit Commitments bear interest initially, at the Company’s election, at a rate per annum equal to either (i) the sum of Adjusted LIBOR, subject to a minimum rate of zero, plus an applicable margin of 3.0% or (ii) the sum of a base rate determined as the highest of (a) the federal funds effective rate from time to time plus 0.5%, (b) the prime rate of interest announced by the administrative agent as its prime rate, and (c) Adjusted LIBOR plus 1.0%, plus an applicable margin of 2.0%. The interest rate and other terms specific to the Term B Loans and Existing Revolving Tranche were unchanged by the 2017 Amendment.
The Term C Loans and the New Initial Revolving Credit Commitments are secured by the same collateral and guaranteed by the same guarantors as the Former Term B Loans. Voluntary prepayments of the Term C Loans are permitted at any time, in minimum principal amounts, without premium or penalty, subject to a 1.00% premium payable in connection with certain repricing transactions within the first six months after the 2017 Amendment. The Revolving Credit Facility includes a covenant that requires the Company to maintain a net first lien leverage ratio of no greater than 5.25 to 1.00 for each period of four consecutive fiscal quarters most recently ended. The covenant is only required to be tested at the end of each fiscal quarter if the aggregate amount of revolving loans, swingline loans and letters of credit (other than undrawn letters of credit and letters of credit that have been fully cash collateralized) outstanding exceed 35% of the aggregate amount of revolving commitments as of the date of the 2017 Amendment (after giving effect to Revolving Credit Facility Increase (as defined below)). The other terms of the Term C Loans and the New Initial Revolving Credit Commitments are also generally the same as the terms of the Former Term B Loans and the Existing Revolving Tranche, as applicable. A portion of each of the Former Term B Loans and the Existing Revolving Tranche remained in place following the 2017 Amendment and each will mature on its respective existing maturity date. Concurrent with the 2017 Amendment, the Company entered into certain interest rate swaps with a notional value of $500 million to hedge variable rate interest payments associated with the Term C Loans due under the 2017 Amendment. See Note 8 for further information on the interest rate swaps.
On January 27, 2017, immediately following effectiveness of the 2017 Amendment, the Company increased (A) the amount of its Term C Loans pursuant to an Increase Supplement (the “Term Loan Increase Supplement”) between the Company and the term lender party thereto and (B) the amount of commitments under its Revolving Credit Facility from $300 million to $420 million (the “Revolving Credit Facility Increase”), pursuant to (i) an Increase Supplement, among the Company and certain existing revolving lenders and (ii) a Lender Joinder Agreement, among the Company, a new revolving lender and JPMorgan Chase Bank N.A., as administrative agent. In connection with the 2017 Amendment of the Revolving Credit Facility, the Company incurred fees of $2 million, all of which were deferred. At September 30, 2017, there were no borrowings outstanding under the Revolving Credit Facility, however, there were $21 million of standby letters of credit outstanding, primarily in support of the Company’s workers’ compensation insurance programs.
As of the date of the 2017 Amendment, the aggregate unamortized debt issuance costs related to the Term Loan Facility totaled $25 million and unamortized discount totaled $6 million. In connection with the 2017 Amendment, the Company paid fees to Term C Loan lenders of $4 million, which are considered a debt discount, all of which were deferred, and incurred transaction costs of $13 million, of which $1 million was deferred with the remainder expensed as part of loss on extinguishment and modification of debt, as further described below. Subsequent to the 2017 Amendment, the Company had $600 million of Term B Loans outstanding. On February 1, 2017, the Company used $400 million from the proceeds from the Gracenote Sale to prepay a portion of its Term B Loans. Subsequent to this payment, the Company’s quarterly installments related to the remaining principal amount of Term B Loans are no longer due. As a result of the 2017 Amendment and the $400 million prepayment, the Company recorded charges of $19 million on the extinguishment and modification of debt in the Company’s unaudited Condensed Consolidated Statements of Operations in the first quarter of 2017. The loss consisted of a write-off of unamortized debt issuance costs of $6 million and an unamortized discount of $1 million associated with the Term B Loans as a portion of the Term Loan Facility was considered extinguished for accounting purposes as well as an expense of $12 million of third parties fees as a portion of the Term Loan Facility was considered a modification transaction under ASC 470, “Debt.”



27



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



During the third quarter of 2017, the Company used $102 million of after-tax proceeds received from its participation in the FCC spectrum auction to prepay $10 million of the Term B Loans and $91 million of the Term C Loans. Subsequent to these payments, the Company’s quarterly installments related to the remaining principal amount of the Term C Loans are not due until the third quarter of 2022. The Company recorded charges of $1 million associated with debt extinguishment in the three months ended September 30, 2017. See Note 9 for additional information regarding the Company’s participation in the FCC’s incentive auction.
The Company’s unamortized transaction costs and unamortized discount related to the Term Loan Facility were $25 million and $31 million at September 30, 2017 and December 31, 2016, respectively. These deferred costs are recorded as a direct deduction from the carrying amount of an associated debt liability in the Company’s unaudited Condensed Consolidated Balance Sheets and amortized to interest expense over the contractual term of either the Term B Loans or Term C Loans, as appropriate.
5.875% Senior Notes due 2022—On April 1, 2016, the SEC declared effective the exchange offer registration statement on Form S-4 to exchange the Company’s 5.875% Senior Notes due 2022 and the related guarantees of certain subsidiaries of the Company for substantially identical securities registered under the Securities Act of 1933, as amended (the “Securities Act”). On May 4, 2016, the Company and the subsidiary guarantors completed the exchange offer of the 5.875% Senior Notes due 2022 and related guarantees for $1.100 billion of the Company’s 5.875% Senior Notes due 2022 (the “Notes”) and the related guarantees, which have been registered under the Securities Act.
During the first half of 2016, the Company incurred and deferred $1 million of transaction costs related to filing the exchange offer registration statement for the Notes. See Note 9 to the audited consolidated financial statements for the fiscal year ended December 31, 2016 for further information and significant terms and conditions associated with the Notes, including but not limited to interest rates, repayment terms, fees, restrictions and affirmative and negative covenants. The Company’s unamortized transaction costs related to the Notes were $13 million and $15 million at September 30, 2017 and December 31, 2016, respectively.
Consent Solicitation
On June 22, 2017, the Company announced that it received consents from 93.23% of holders of the Notes outstanding as of the record date of June 12, 2017, to effect certain proposed amendments to the Indenture (as defined below). The Company undertook the consent solicitation (the “Consent Solicitation”) at the request and expense of Sinclair in accordance with the terms of the Merger Agreement. In conjunction with receiving the requisite consents, on June 22, 2017, the Company, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee for the Notes, entered into the fourth supplemental indenture (the “Supplemental Indenture”) to the indenture governing the Notes, dated as of June 24, 2015 (as supplemented and amended, the “Indenture”), to effect the proposed amendments to (i) eliminate any requirement for the Company to make a “Change of Control Offer” (as defined in the Indenture) to holders of the Notes in connection with the transactions contemplated by the Merger Agreement, (ii) clarify the treatment under the Indenture of the proposed structure of the Merger and to facilitate the integration of the Company and its subsidiaries and the Notes with and into Sinclair’s debt capital structure, and (iii) eliminate the expense associated with producing and filing with the SEC separate financial reports for Sinclair Television Group, Inc., a wholly-owned subsidiary of Sinclair, as successor issuer of the Notes, if Sinclair or any other parent entity of the successor issuer of the Notes, in its sole discretion, provides an unconditional guarantee of the payment obligations of the successor issuer under the Notes (collectively, the “Amendments”). The Supplemental Indenture became effective immediately upon execution, but the Amendments will not become operative until immediately prior to the effective time of the Merger.
Dreamcatcher—The Company and the guarantors guarantee the obligations of Dreamcatcher under its senior secured credit facility (the “Dreamcatcher Credit Facility”). The obligations of the Company and the guarantors under the Dreamcatcher Credit Facility are secured on a pari passu basis with the Company’s and the guarantors’ obligations under the Secured Credit Facility. As further described in Note 9, on April 13, 2017, the FCC announced the conclusion of the incentive auction, the results of the reverse and forward auction and the repacking of broadcast television spectrum. The Company participated in the auction and a Dreamcatcher station received $21 million of



28



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



pretax proceeds in July 2017, as further described in Note 9. Any proceeds received by Dreamcatcher as a result of the incentive auction were required to be first used to repay the Dreamcatcher Credit Facility. During the third quarter of 2017, the Company used $12.6 million of after-tax proceeds from the FCC spectrum auction to prepay the Dreamcatcher Credit Facility. The debt extinguishment charge recorded by the Company in the three months ended September 30, 2017 associated with this prepayment was immaterial. The Company made the final payment to pay off the Dreamcatcher Credit Facility in September 2017.
NOTE 8: FAIR VALUE MEASUREMENTS
The Company measures and records in its consolidated financial statements certain assets and liabilities at fair value. ASC Topic 820 “Fair Value Measurement and Disclosures,” establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). This hierarchy consists of the following three levels:
•
Level 1 – Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market.
•
Level 2 – Assets and liabilities whose values are based on inputs other than those included in Level 1, including quoted market prices in markets that are not active; quoted prices of assets or liabilities with similar attributes in active markets; or valuation models whose inputs are observable or unobservable but corroborated by market data.
•
Level 3 – Assets and liabilities whose values are based on valuation models or pricing techniques that utilize unobservable inputs that are significant to the overall fair value measurement.
On January 27, 2017, concurrent with the 2017 Amendment, the Company entered into interest rate swaps with certain financial institutions for a total notional value of $500 million with a duration that matches the maturity of the Company’s Term C Loans. The interest rate swaps are designated as cash flow hedges and are considered highly effective. As a result, no ineffectiveness has been recognized in the unaudited Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2017. Additionally, for the interest rate swaps, no amounts are excluded from the assessment of hedge effectiveness. The monthly net interest settlements under the interest rate swaps are reclassified out of accumulated other comprehensive (loss) income and recognized in interest expense consistent with the recognition of interest expense on the Company’s Term C Loans. For the three and nine months ended September 30, 2017, realized losses of $1 million and $4 million, respectively, were recognized in interest expense. As of September 30, 2017, the fair value of the interest rate swaps was recorded in other current liabilities in the amount of $6 million with the unrealized loss recognized in other comprehensive (loss) income. As of September 30, 2017, the Company expects approximately $4 million to be reclassified out of accumulated other comprehensive (loss) income and into interest expense over the next twelve months. The interest rate swap fair value is considered Level 2 within the fair value hierarchy as it includes quoted prices for similar instruments as well as interest rates and yield curves that are observable in the market.
The Company held certain marketable equity securities traded on national stock exchanges. These securities were recorded at fair value and were categorized as Level 1 within the fair value hierarchy. These investments were measured at fair value on a recurring basis. On January 31, 2017, the Company sold its tronc shares for net proceeds of $5 million and recognized a pretax gain of $5 million in the first quarter of 2017. As of December 31, 2016, the fair value and cost basis was $5 million and $0, respectively.
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
The carrying values of cash and cash equivalents, restricted cash and cash equivalents, trade accounts receivable and trade accounts payable approximate fair value due to their short term to maturity. Certain of the



29



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Company’s cash equivalents are held in money market funds which are valued using net asset value (“NAV”) per share, which would be considered Level 1 in the fair value hierarchy.
Estimated fair values and carrying amounts of the Company’s financial instruments that are not measured at fair value on a recurring basis were as follows (in thousands):
 
September 30, 2017
 
December 31, 2016
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
Cost method investments
$
25,943

 
$
25,943

 
$
26,748

 
$
26,748

Term Loan Facility
 
 
 
 
 
 
 
Term B Loans due 2020
$
191,105

 
$
187,566

 
$
2,359,571

 
$
2,312,218

Term C Loans due 2024
$
1,675,788

 
$
1,643,239

 
$
—

 
$
—

5.875% Senior Notes due 2022
$
1,148,455

 
$
1,086,649

 
$
1,120,482

 
$
1,084,563

Dreamcatcher Credit Facility
$
—

 
$
—

 
$
14,952

 
$
14,770

The following methods and assumptions were used to estimate the fair value of each category of financial instruments.
Cost Method Investments—Cost method investments in private companies are recorded at cost, net of write-downs resulting from periodic evaluations of the carrying value of the investments. No events or changes in circumstances occurred during the nine months ended September 30, 2017 that suggested a significant adverse effect on the fair value of the Company’s investments. The carrying value of the cost method investments at both September 30, 2017 and December 31, 2016 approximated fair value. The cost method investments would be classified in Level 3 of the fair value hierarchy.
Term Loan Facility—The fair value of the outstanding principal balance of the term loans under the Company’s Term Loan Facility at both September 30, 2017 and December 31, 2016 is based on pricing from observable market information in a non-active market and would be classified in Level 2 of the fair value hierarchy.
5.875% Senior Notes due 2022—The fair value of the outstanding principal balance of the Company’s 5.875% Senior Notes due 2022 at September 30, 2017 and December 31, 2016 is based on pricing from observable market information in a non-active market and would be classified in Level 2 of the fair value hierarchy.
Dreamcatcher Credit Facility—The fair value of the outstanding principal balance of the Company’s Dreamcatcher Credit Facility at December 31, 2016 is based on pricing from observable market information for similar instruments in a non-active market and would be classified in Level 2 of the fair value hierarchy.
NOTE 9: COMMITMENTS AND CONTINGENCIES
Chapter 11 Reorganization— On December 8, 2008 (the “Petition Date”), Tribune Company and 110 of its direct and indirect wholly-owned subsidiaries (collectively, the “Debtors” or “Predecessor”) filed voluntary petitions for relief (collectively, the “Chapter 11 Petitions”) under chapter 11 (“Chapter 11”) of title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Fourth Amended Joint Plan of Reorganization for Tribune Company and its Subsidiaries (as subsequently modified, the “Plan”) became effective and the Debtors emerged from Chapter 11 on December 31, 2012 (the “Effective Date”). The Bankruptcy Court entered final decrees collectively closing 106 of the Debtors’ Chapter 11 cases. The remaining Debtors’ Chapter 11 proceedings continue to be jointly administered under the caption In re Tribune Media Company, et al., Case No. 08-13141. See Note 3 to the Company’s audited consolidated financial



30



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



statements for the fiscal year ended December 31, 2016 for additional information regarding the Debtors’ Chapter 11 cases and for a description of the terms and conditions of the Plan.
Confirmation Order Appeals—Notices of appeal of the Bankruptcy Court’s order confirming the Plan (the “Confirmation Order”) were filed by (i) Aurelius Capital Management, LP, on behalf of its managed entities that were holders of the Predecessor’s senior notes and Exchangeable Subordinated Debentures due 2029 (“PHONES”); (ii) Law Debenture Trust Company of New York (“Law Debenture”) and Deutsche Bank Trust Company Americas (“Deutsche Bank”), each successor trustees under the respective indentures for the Predecessor’s senior notes; (iii) Wilmington Trust Company, as successor indenture trustee for the PHONES, and (iv) EGI-TRB, L.L.C., a Delaware limited liability company wholly-owned by Sam Investment Trust (a trust established for the benefit of Samuel Zell and his family) (the “Zell Entity”). The appellants sought, among other relief, to overturn the Confirmation Order and certain prior orders of the Bankruptcy Court embodied in the Plan, including the settlement of certain claims and causes of action related to the series of transactions (collectively, the “Leveraged ESOP Transactions”) consummated by the Predecessor, the Tribune Company employee stock ownership plan, the Zell Entity and Samuel Zell in 2007. As of September 30, 2017, each of the Confirmation Order appeals have been dismissed or otherwise resolved by a final order, with the exception of the appeals of Law Debenture and Deutsche Bank, which remain pending before the U.S. District Court for the District of Delaware. See Note 3 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016 for a further description of the Leveraged ESOP Transactions and the Confirmation Order appeals. If the remaining appellants succeed on their appeal, the Company’s financial condition may be adversely affected.
Resolution of Outstanding Prepetition Claims—As of the Effective Date, approximately 7,400 proofs of claim had been filed against the Debtors. Amounts and payment terms for these claims, if applicable, were established in the Plan. The Plan requires the Company to reserve cash in amounts sufficient to make certain additional payments that may become due and owing pursuant to the Plan subsequent to the Effective Date. As of September 30, 2017, restricted cash held by the Company to satisfy the remaining claim obligations was $18 million and is estimated to be sufficient to satisfy such obligations.
As of September 30, 2017, all but 403 proofs of claim against the Debtors had been withdrawn, expunged, settled or otherwise satisfied. The majority of the remaining proofs of claim were filed by certain of the Company’s former directors and officers, asserting indemnity and other related claims against the Company for claims brought against them in lawsuits arising from the Leveraged ESOP Transactions. Those lawsuits are pending in multidistrict litigation (“MDL”) before the U.S. District Court for the Southern District of New York (the “NY District Court”) in proceedings captioned In re Tribune Co. Fraudulent Conveyance Litigation. See “Certain Causes of Action Arising from the Leveraged ESOP Transactions” in Note 3 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016 for a description of the MDL proceedings. Under the Plan, the indemnity claims of the Company’s former directors and officers must be set off against any recovery by the litigation trust formed pursuant to the Plan (the “Litigation Trust”) against any of those directors and officers, and the Litigation Trust is authorized to object to the allowance of any such indemnity-type claims.
The ultimate amounts to be paid in resolutions of the remaining proofs of claim, including indemnity claims, will continue to be subject to uncertainty for a period of time after the Effective Date. If the aggregate allowed amount of the remaining claims exceeds the restricted cash held for satisfying such claims, the Company would be required to satisfy the allowed claims from its cash on hand from operations.
Reorganization Items, Net—ASC Topic 852, “Reorganizations,” requires that the financial statements for periods subsequent to the filing of the Chapter 11 Petitions distinguish transactions and events that are directly associated with the reorganization from the operations of the business. Reorganization items, net included in the Company’s unaudited Condensed Consolidated Statements of Operations primarily include professional advisory fees and other costs related to the resolution of unresolved claims and totaled approximately $1 million for each of the nine months ended September 30, 2017 and September 30, 2016. The Company expects to continue to incur certain expenses pertaining to the Chapter 11 proceedings throughout 2017 and potentially in future periods.



31



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



FCC Regulation—Various aspects of the Company’s operations are subject to regulation by governmental authorities in the United States. The Company’s television and radio broadcasting operations are subject to FCC jurisdiction under the Communications Act of 1934, as amended. FCC rules, among other things, govern the term, renewal and transfer of radio and television broadcasting licenses, and limit the number of media interests in a local market that a single entity can own. Federal law also regulates the rates charged for political advertising and the quantity of advertising within children’s programs. As of November 8, 2017, the Company had FCC authorization to operate 39 television stations and one AM radio station.
The Company is subject to the FCC’s “Local Television Multiple Ownership Rule,” the “Newspaper Broadcast Cross Ownership Rule” and the “National Television Multiple Ownership Rule,” among others, as further described in Note 12 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016.
The FCC’s “National Television Multiple Ownership Rule” prohibits the Company from owning television stations that, in the aggregate, reach more than 39% of total U.S. television households, subject to a 50% discount of the number of television households attributable to UHF stations (the “UHF Discount”). On April 20, 2017, the FCC reinstated the UHF Discount (which had previously been eliminated in August 2016). The Company’s current national reach exceeds the 39% cap on an undiscounted basis, but complies with the cap on a discounted basis. In reinstating the UHF Discount, the FCC stated its intent to undertake a new rulemaking proceeding later this year during which it will consider the UHF Discount in conjunction with the national TV ownership cap. The Company cannot predict the outcome of any such proceeding, or the effect on its business.
Federal legislation enacted in February 2012 authorized the FCC to conduct a voluntary “incentive auction” in order to reallocate certain spectrum currently occupied by television broadcast stations to mobile wireless broadband services, to “repack” television stations into a smaller portion of the existing television spectrum band and to require television stations that do not participate in the auction to modify their transmission facilities, subject to reimbursement for reasonable relocation costs up to an industry-wide total of $1.750 billion. On April 13, 2017, the FCC announced the conclusion of the incentive auction, the results of the reverse and forward auction and the repacking of broadcast television spectrum. The Company participated in the auction and has received approximately $185 million in pretax proceeds (including $21 million of proceeds received by a Dreamcatcher station) as of November 8, 2017, with approximately $5 million in pretax proceeds remaining to be paid to the Company by one of its channel sharing partners at the commencement of the sharing arrangement agreement between the parties. The Company expects to receive the remaining auction proceeds in the fourth quarter of 2017; however, the Company cannot predict the exact timing of the remaining payment. In the third quarter of 2017, the Company used $102 million of after-tax proceeds to prepay a portion of the Term Loan Facility. After-tax proceeds of $12.6 million received by a Dreamcatcher station were used to prepay a substantial portion of the Dreamcatcher Credit Facility. The Company received gross proceeds of $172 million from licenses sold by the Company in the FCC spectrum auction and expects to recognize a net gain of $133 million when it surrenders the spectrum by the end of the first quarter of 2018. The Company also received $79 million of pretax proceeds for sharing arrangements where the Company will provide hosting services to the counterparties of the sharing arrangements while $66 million of proceeds were paid to the counterparties who will host the Company under the sharing arrangements. The proceeds received by the Company for hosting the counterparties have been recorded in deferred revenue and other long term liabilities and will be amortized to other income. The proceeds paid to the counterparties for hosting the Company have been recorded in prepaid and other long term assets and will be amortized to direct operating expense.
Twenty-two of the Company’s television stations (including WTTK, which operates as a satellite station of WTTV) will be required to change frequencies or otherwise modify their operations as a result of the repacking. In doing so, the stations could incur substantial conversion costs, reduction or loss of over-the-air signal coverage or an inability to provide high definition programming and additional program streams. The Company expects that the reimbursements from the FCC’s special fund will cover the majority of the Company’s expenses related to the repack. However, the Company cannot currently predict the effect of the repacking, whether the special fund will be sufficient to reimburse all of the Company’s expenses related to the repack, the timing of reimbursements or any spectrum-related FCC regulatory action.



32



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



As described in Note 1 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016, the Company completed the Local TV Acquisition on December 27, 2013 pursuant to FCC staff approval granted on December 20, 2013 in the Local TV Transfer Order. On January 22, 2014, Free Press filed an Application for Review seeking review by the full Commission of the Local TV Transfer Order. The Company filed an Opposition to the Application for Review on February 21, 2014. Free Press filed a reply on March 6, 2014. The matter is pending.
From time to time, the FCC revises existing regulations and policies in ways that could affect the Company’s broadcasting operations. In addition, Congress from time to time considers and adopts substantive amendments to the governing communications legislation. The Company cannot predict such actions or their resulting effect upon the Company’s business and financial position.
Other Contingencies—The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. See Note 10 for a discussion of potential income tax liabilities.
In July 2017, following the initial filing of the proxy statement/prospectus (the “Proxy Statement/Prospectus”) by each of Sinclair and the Company with the SEC relating to the Merger, four purported Tribune shareholders (the “Plaintiffs”) filed putative class action lawsuits against the Company, members of the Company’s Board of Directors, and, in certain instances, Sinclair and Samson Merger Sub, Inc. (collectively, the “Parties”) in the United States District Courts for the Districts of Delaware and Illinois. The actions are captioned McEntire v. Tribune Media Company, et al., 1:17-cv-05179 (N.D. Ill.), Duffy v. Tribune Media Company, et al., 1:17-cv-00919 (D. Del.), Berg v. Tribune Media Company, et al., 1:17-cv-00938 (D. Del.), and Pill v. Tribune Media Company, et al., 1:17-cv-00961 (D. Del.) (collectively, the “Actions”). These lawsuits allege that the Proxy Statement/Prospectus omitted material information and was materially misleading in violation of the Securities Exchange Act of 1934, as amended, and SEC Rule 14a-9 and generally seek, as relief, class certification, preliminary and permanent injunctive relief, rescission or rescissory damages, and unspecified damages. On September 15, 2017, the Parties entered into a memorandum of understanding (the “MOU”) to resolve the individual claims asserted by the Plaintiffs. The MOU acknowledges that the Company, in part in response to the claims asserted in the Actions, filed certain supplemental disclosures with the SEC on August 16, 2017 and that the Company, solely in response to the Actions, communicated to four third parties that participated in the sale process and twenty-three third parties that have signed confidentiality agreements in connection with potential divestitures that the “standstill” obligations of such third parties were waived. The Parties further agreed that the Company would make the additional supplemental disclosures, which are set forth in the Company’s Current Report on Form 8-K, filed with the SEC on September 15, 2017. Further, the MOU specifies that within five business days of the closing of the Merger, the Parties will file stipulations of dismissal for the Actions pursuant to Federal Rule of Civil Procedure 41(a), which will dismiss Plaintiffs’ individual claims with prejudice, and dismiss the claims asserted on behalf of a purported class of the Company’s shareholders without prejudice. The MOU will not affect the timing of the Merger or the amount or form of consideration to be paid in the Merger.
NOTE 10: INCOME TAXES
In the three and nine months ended September 30, 2017 the Company recorded an income tax benefit from continuing operations of $20 million and $82 million, respectively. The effective tax rate on pretax loss from continuing operations was 51.8% for the three months ended September 30, 2017. The rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), the domestic production activities deduction, certain transaction costs and other expenses not fully deductible for tax purposes, and a $1 million charge related to the resolution of federal and state income tax matters and other adjustments. The effective tax rate on pretax loss from continuing operations was 35.3% for the nine months ended September 30, 2017. For the nine months ended September 30, 2017, the rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), the domestic production activities deduction, certain transaction costs and other



33



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



expenses not fully deductible for tax purposes, a $1 million charge related to the resolution of federal and state income tax matters and other adjustments, a $3 million benefit related to expected refunds of interest paid on prior tax assessments and a $1 million charge related to the write-off of unrealized deferred tax assets related to stock-based compensation.
In the three and nine months ended September 30, 2016, the Company recorded income tax expense from continuing operations of $74 million and $304 million, respectively. For the three months ended September 30, 2016, the rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), the domestic production activities deduction, other non-deductible expenses, a $9 million benefit related to the resolution of certain federal and state income tax matters, a $3 million benefit to adjust the Company’s deferred taxes, as described below, and a $4 million benefit resulting from a change in the Company’s state tax rates. For the nine months ended September 30, 2016, the rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), a $102 million charge to establish a reserve net of federal and state tax benefit for interest on the Newsday transaction, and a related $88 million charge to adjust the Company’s deferred taxes, as described below, the domestic production activities deduction, other non-deductible expenses, a $10 million benefit related to the resolution of certain federal and state income tax matters and other adjustments, a $5 million charge related to the write-off of unrealized deferred tax assets related to stock-based compensation and a $4 million benefit resulting from a change in the Company’s state tax rates.
Chicago Cubs Transactions—As further described in Note 8 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016, the Company consummated the closing of the Chicago Cubs Transactions on October 27, 2009. As a result of these transactions, Ricketts Acquisition LLC owns 95% and the Company owns 5% of the membership interests in New Cubs LLC. The fair market value of the contributed assets exceeded the tax basis and did not result in an immediate taxable gain because the transaction was structured to comply with the partnership provisions of the Internal Revenue Code (“IRC”) and related regulations. On June 28, 2016, the IRS issued the Company a Notice of Deficiency (“Notice”) which presents the IRS’s position that the gain should have been included in the Company’s 2009 taxable income. Accordingly, the IRS has proposed a $182 million tax and a $73 million gross valuation misstatement penalty. In addition, after-tax interest on the aforementioned proposed tax and penalty through September 30, 2017 would be approximately $48 million. The Company continues to disagree with the IRS’s position that the transaction generated a taxable gain in 2009, the proposed penalty and the IRS’s calculation of the gain. During the third quarter of 2016, the Company filed a petition in U.S. Tax Court to contest the IRS’s determination. The Company continues to pursue resolution of this disputed tax matter with the IRS. If the IRS prevails in their position, the gain on the Chicago Cubs Transactions would be deemed to be taxable in 2009. The Company estimates that the federal and state income taxes would be approximately $225 million before interest and penalties. Any tax, interest and penalty due will be offset by tax payments made relating to this transaction subsequent to 2009. As of September 30, 2017, the Company has paid or accrued approximately $50 million of federal and state tax payments through its regular tax reporting process. The Company does not maintain any tax reserves relating to the Chicago Cubs Transactions. In accordance with ASC Topic 740 “Income Taxes,” the Company’s unaudited Condensed Consolidated Balance Sheet at September 30, 2017 and December 31, 2016 includes a deferred tax liability of $149 million and $158 million, respectively, related to the future recognition of taxable income related to the Chicago Cubs Transactions.
Newsday Transactions—As further described in Note 8 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016, the Company formed a partnership (the “Newsday Transaction”) in 2008. The fair market value of the contributed Newsday Media Group business’ net assets exceeded their tax basis and did not result in an immediate taxable gain because the transaction was structured to comply with the partnership provisions of the IRC and related regulations. In March 2013, the IRS issued its audit report on the Company’s federal income tax return for 2008 which concluded that the gain from the Newsday Transactions should have been included in the Company’s 2008 taxable income. Accordingly, the IRS proposed a $190 million tax and a $38 million accuracy-related penalty. The Company disagreed with the IRS’s position and timely filed a protest in response to the IRS’s proposed tax adjustments. In addition, if the IRS prevailed, the Company also would have been subject to state income taxes, interest and penalties.



34



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



During the second quarter of 2016, as a result of extensive discussions with the IRS administrative appeals division, the Company reevaluated its tax litigation position related to the Newsday transaction and re-measured the cumulative most probable outcome of such proceedings. As a result, during the second quarter of 2016, the Company recorded a $102 million charge which was reflected as a $125 million current income tax reserve and a $23 million reduction in deferred income tax liabilities. The income tax reserve included federal and state taxes, interest and penalties while the deferred income tax benefit is primarily related to deductible interest expense. The Company also recorded $91 million of income tax expense to increase the Company’s deferred income tax liability to reflect the reduction in the tax basis of the Company’s assets. The reduction in tax basis was required to reflect the reduction in the amount of the Company’s guarantee of the Newsday partnership debt which was included in the reported tax basis previously determined upon emergence from bankruptcy.
During the third quarter of 2016, the Company reached an agreement with the IRS administrative appeals division regarding the Newsday transaction which applies for tax years 2008 through 2015. As a result of the final agreement, in the third quarter of 2016, the Company recorded an additional income tax benefit of $3 million to adjust the previously recorded estimate of the deferred tax liability. During the second half of 2016, the Company paid $122 million of federal taxes, state taxes (net of state refunds), interest and penalties. The payments were recorded as a reduction in the Company’s current income tax reserve described above. During the fourth quarter of 2016, the Company recorded an additional $1 million of income tax expense primarily related to the additional accrual of interest. The remaining $4 million of state tax liabilities were included in the income taxes payable account on the Company’s unaudited Condensed Consolidated Balance Sheet at September 30, 2017 and December 31, 2016.
Other—Although management believes its estimates and judgments are reasonable, the resolutions of the Company’s tax issues are unpredictable and could result in tax liabilities that are significantly higher or lower than that which has been provided by the Company. The Company accounts for uncertain tax positions in accordance with ASC Topic 740, which addresses the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company’s liability for unrecognized tax benefits totaled $23 million at September 30, 2017 and December 31, 2016. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $11 million within the next twelve months due to the resolution of tax examination issues and statute of limitations expirations.
NOTE 11: PENSION AND OTHER RETIREMENT PLANS
The components of net periodic benefit credit for Company-sponsored pension plans, net of taxes, for the three and nine months ended September 30, 2017 and September 30, 2016 were as follows (in thousands):
 
Pension Benefits
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Service cost
$
192

 
$
173

 
$
576

 
$
519

Interest cost
19,549

 
20,681

 
58,646

 
62,043

Expected return on plans’ assets
(25,281
)
 
(26,905
)
 
(75,844
)
 
(80,713
)
Amortization of prior service costs
29

 
23

 
87

 
68

Net periodic benefit credit
$
(5,511
)
 
$
(6,028
)
 
$
(16,535
)
 
$
(18,083
)
Net periodic benefit cost related to other post retirement benefit plans was not material for all periods presented. For 2017, the Company does not expect to make any contributions to its qualified pension plans and expects to contribute $1 million to its other postretirement plans. In the three and nine months ended September 30, 2017 and September 30, 2016, the Company’s contributions were not material.



35



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



NOTE 12: CAPITAL STOCK
The Company is authorized to issue up to one billion shares of Class A Common Stock, up to one billion shares of Class B Common Stock and up to 40 million shares of preferred stock, each par value $0.001 per share, in one or more series. The Class A Common Stock and Class B Common Stock generally provide identical economic rights, but holders of Class B Common Stock have limited voting rights, including that such holders have no right to vote in the election of directors. Subject to certain ownership limitations, as further described in Note 15 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016, each share of Class A Common Stock is convertible into one share of Class B Common Stock and each share of Class B Common Stock is convertible into one share of Class A Common Stock, in each case, at the option of the holder at any time. The Company’s Class A Common Stock is traded on the New York Stock Exchange under the symbol “TRCO.” The Company’s Class B Common Stock and Warrants are traded on the OTC Pink market under the symbols “TRBAB” and “TRBNW,” respectively. On the Effective Date, the Company entered into the Warrant Agreement, pursuant to which the Company issued 16,789,972 Warrants to purchase Common Stock (the “Warrants”). Each Warrant entitles the holder to purchase from the Company, at the option of the holder and subject to certain restrictions set forth in the Warrant Agreement and as described in Note 15 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016, one share of Class A Common Stock or one share of Class B Common Stock at an exercise price of $0.001 per share, subject to adjustment and a cashless exercise feature. The Warrants may be exercised at any time on or prior to December 31, 2032.
Pursuant to the Company’s amended and restated certificate of incorporation and the Warrant Agreement, in the event the Company determines that the ownership or proposed ownership of Common Stock or Warrants, as applicable, would be inconsistent with or violate any federal communications laws, materially limit or impair any business activities or proposed business activities of the Company under any federal communications laws, or subject the Company to any regulation under any federal communications laws to which the Company would not be subject, but for such ownership or proposed ownership, the Company may impose certain limitations on the rights of holders of Common Stock and Warrants, as further described in Note 15 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016.
There were no conversions of the Company’s Common Stock between Class A Common Stock and Class B Common Stock during the nine months ended September 30, 2017 and September 30, 2016. During the three months ended September 30, 2017, 46,802 Warrants were exercised for 46,802 shares of Class A Common Stock. No Warrants were exercised during the three months ended September 30, 2016. During the nine months ended September 30, 2017 and September 30, 2016, 91,650 and 132,066 Warrants, respectively, were exercised for 91,650 and 132,066 shares, respectively, of Class A Common Stock. No Warrants were exercised for Class B Common Stock during the nine months ended September 30, 2017 and September 30, 2016.
At September 30, 2017, the following amounts were issued: 36,582 Warrants, 101,402,202 shares of Class A Common Stock, of which 14,102,185 were held in treasury, and 5,605 shares of Class B Common Stock. The Company has not issued any shares of preferred stock.
On the Effective Date, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with certain entities related to Angelo, Gordon & Co., L.P. (the “AG Group”), Oaktree Tribune, L.P., an affiliate of Oaktree Capital Management, L.P. (the “Oaktree Group”) and Isolieren Holding Corp., an affiliate of JPMorgan (the “JPM Group,” and each of the JPM Group, AG Group and Oaktree Group, a “Stockholder Group”) and certain other holders of Registrable Securities who become a party thereto. See Note 15 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016 for additional information relating to the Registration Rights Agreement.
Common Stock Repurchases—On February 24, 2016, the Board authorized a new stock repurchase program, under which the Company may repurchase up to $400 million of its outstanding Class A Common Stock. Under the stock repurchase program, the Company may repurchase shares in open-market purchases in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as



36



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



amended. During 2016, the Company repurchased 6,432,455 shares for $232 million at an average price of $36.08 per share. The Company did not repurchase any shares of Common Stock during the nine months ended September 30, 2017. As of September 30, 2017, the remaining authorized amount under the current authorization totaled $168 million. The Merger Agreement does not permit the Company to repurchase shares of its Common Stock except in narrow circumstances involving payment in satisfaction of options and conversion of Class B Common Stock into Class A Common Stock. See Note 1 for additional information about the Merger Agreement.
Under the previous stock repurchase program which commenced on October 13, 2014 and was completed by December 31, 2015, the Company had repurchased $400 million of outstanding Class A Common Stock, totaling 7,670,216 shares.
Special Cash Dividend—On January 2, 2017, the Board authorized and declared a special cash dividend of $5.77 per share of Common Stock (the “2017 Special Cash Dividend”), which was paid on February 3, 2017 to holders of record of Common Stock at the close of business on January 13, 2017. In addition, pursuant to the terms of the Warrant Agreement, the Company made a cash payment of $5.77 per Warrant on February 3, 2017 to holders of record of Warrants at the close of business on January 13, 2017. The total aggregate payment on February 3, 2017 totaled $499 million, including the payment to holders of Warrants.
Quarterly Cash Dividends—The Board declared quarterly cash dividends per share on Common Stock to holders of record of Common Stock and Warrants as follows (in thousands, except per share data):
 
2017
 
2016
 
Per Share
 
Total
Amount
 
Per Share
 
Total
Amount
First quarter
$
0.25

 
$
21,742

 
$
0.25

 
$
23,215

Second quarter
0.25

 
21,816

 
0.25

 
22,959

Third quarter
0.25

 
21,834

 
0.25

 
22,510

Total quarterly cash dividends declared and paid
$
0.75

 
$
65,392

 
$
0.75

 
$
68,684

On October 26, 2017, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share to be paid on December 5, 2017 to holders of record of Common Stock and Warrants as of November 20, 2017. Future dividends will be subject to the discretion of the Board and the terms of the Merger Agreement, which limits the Company’s ability to pay dividends, except for the payment of quarterly cash dividends not to exceed $0.25 per share and consistent with record and payment dates in 2016.
The payment of quarterly cash dividends also results in the issuance of Dividend Equivalent Units (“DEUs”) to holders of restricted stock units (“RSUs”) and performance share units (“PSUs”), as described in Note 15 and Note 16 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016.



37



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



NOTE 13: STOCK-BASED COMPENSATION
On May 5, 2016, the 2016 Incentive Compensation Plan (the “Incentive Compensation Plan”) and the Stock Compensation Plan for Non-Employee Directors (the “Directors Plan” and, together with the Incentive Compensation Plan, the “2016 Equity Plans”) were approved by the Company’s shareholders for the purpose of granting stock awards to officers, employees and Board members of the Company and its subsidiaries, as further described in Note 16 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2016. There are 5,100,000 shares of Class A Common Stock authorized for issuance under the Incentive Compensation Plan and 200,000 shares of Class A Common Stock authorized for issuance under the Directors Plan, of which 3,001,556 shares and 164,399 shares, respectively, were available for grant as of September 30, 2017.
In connection with the 2017 Special Cash Dividend and pursuant to the terms of the Company’s equity plans, the number of the Company’s outstanding equity awards and the exercise price of the non-qualified stock options (“NSOs”), were adjusted to preserve the fair value of the awards immediately before and after the 2017 Special Cash Dividend. The Company’s Class A Common Stock began trading ex-dividend on January 11, 2017 (the “Ex-dividend Date”). The conversion ratio (the “Ratio”) used to adjust the awards was based on the ratio of (a) unaffected closing price of Class A Common Stock on the day before the Ex-dividend Date to (b) the opening price of Class A Common Stock on the Ex-dividend Date. As the above adjustments were made pursuant to existing anti-dilution provisions of the Company’s equity plans, the Company did not record any incremental compensation expense related to the conversion of the equity awards. The equity awards continue to vest over the original vesting period. The impact of this award activity is separately included in the line item “Adjustments due to the 2017 Special Cash Dividend” in the tables below.
The awards held as of the Ex-dividend Date were modified as follows:
•
Non-Qualified Stock Options - The number of NSOs outstanding as of the Ex-dividend Date was increased via the calculated Ratio and the strike price of NSOs was decreased via the Ratio in order to preserve the fair value of NSOs;
•
Restricted Stock Units - The number of outstanding restricted stock units (“RSUs”) as of the Ex-dividend Date was increased utilizing the calculated Ratio in order to preserve the fair value of RSUs; and
•
Performance Share Units - The number of outstanding performance share units (“PSUs”) as of the Ex-dividend Date was increased utilizing the calculated Ratio in order to preserve the fair value of PSUs.
Stock-based compensation for the three months ended September 30, 2017 and September 30, 2016 totaled $5 million and $10 million, respectively. There was no stock-based compensation expense recorded for the three months ended September 30, 2017 attributable to discontinued operations. Stock-based compensation expense attributable to discontinued operations for the three months ended September 30, 2016 totaled $1 million. Stock-based compensation for the nine months ended September 30, 2017 and September 30, 2016 totaled $27 million and $28 million, respectively, including the expense attributable to discontinued operations of $2 million and $3 million, respectively.
For NSOs and RSUs granted prior to the 2017 Special Cash Dividend, the weighted-average exercise prices and weighted-average fair values, respectively, in the tables below reflect the historical values without giving effect to the adjustments due to the 2017 Special Cash Dividend.



38



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



A summary of activity and weighted average exercise prices related to the NSOs is reflected in the table below.
 
Nine Months Ended
 September 30, 2017
 
Shares
 
Weighted Avg.
Exercise Price
Outstanding, beginning of period
2,396,160

 
$
45.82

Granted
931,913

 
32.12

Exercised
(396,217
)
 
28.35

Forfeited
(426,406
)
 
29.16

Cancelled
(77,793
)
 
48.09

Adjustment due to the 2017 Special Cash Dividend
452,738

 
*

Outstanding, end of period
2,880,395

 
$
38.96

Vested and exercisable, end of period
1,197,862

 
$
48.45

 
*
Not meaningful
A summary of activity and weighted average fair values related to the RSUs is reflected in the table below.
 
Nine Months Ended
 September 30, 2017
 
Shares
 
Weighted Avg.
Fair Value
Outstanding, beginning of period
1,230,676

 
$
40.92

Granted
624,591

 
32.77

Dividend equivalent units granted
23,686

 
38.63

Vested
(558,603
)
 
38.28

Dividend equivalent units vested
(19,502
)
 
32.34

Forfeited
(337,235
)
 
32.06

Dividend equivalent units forfeited
(10,191
)
 
32.20

Adjustment due to the 2017 Special Cash Dividend
223,698

 
*

Outstanding and nonvested, end of period
1,177,120

 
$
32.75

 
*
Not meaningful
A summary of activity and weighted average fair values related to the unrestricted stock awards is as follows:
 
Nine Months Ended
 September 30, 2017
 
Shares
 
Weighted Avg.
Fair Value
Outstanding, beginning of period
—

 
$
—

Granted
10,147

 
34.98

Vested
(10,147
)
 
34.98

Outstanding and nonvested, end of period
—

 
$
—




39



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



A summary of activity and weighted average fair values related to the PSUs and Supplemental PSUs is reflected in the table below.
 
Nine Months Ended
 September 30, 2017
 
Shares
 
Weighted Avg.
Fair Value
Outstanding, beginning of period
347,000

 
$
27.23

Granted (1)
117,777

 
31.45

Dividend equivalent units granted
3,503

 
38.68

Vested
(165,113
)
 
32.67

Dividend equivalent units vested
(3,726
)
 
32.50

Forfeited
(46,836
)
 
33.73

Dividend equivalent units forfeited
(5,601
)
 
40.72

Adjustment due to the 2017 Special Cash Dividend (1)(2)
24,244

 
*

Outstanding and nonvested, end of period
271,248

 
$
22.20

 
*
Not meaningful
(1)
Represents shares of PSUs for which performance targets have been established and which are deemed granted under U.S. GAAP.
(2)
Excludes 19,725 PSUs which have not yet been deemed granted under U.S. GAAP.
As of September 30, 2017, the Company had not yet recognized compensation cost on nonvested awards as follows (dollars in thousands):
 
Unrecognized Compensation Cost
 
Weighted Average Remaining Recognition Period
Nonvested awards
$
40,543

 
2.5

NOTE 14: EARNINGS PER SHARE
The Company computes earnings (loss) per common share (“EPS”) from continuing operations, discontinued operations and net earnings (loss) per common share under the two-class method which requires the allocation of all distributed and undistributed earnings to common stock and other participating securities based on their respective rights to receive distributions of earnings or losses. The Company’s Class A Common Stock and Class B Common Stock equally share in distributed and undistributed earnings. In a period when the Company’s distributed earnings
exceed undistributed earnings, no allocation to participating securities or dilutive securities is performed. The Company accounts for the Warrants as participating securities, as holders of the Warrants, in accordance with and subject to the terms and conditions of the Warrant Agreement, are entitled to receive ratable distributions of the Company’s earnings concurrently with such distributions made to the holders of Common Stock, subject to certain restrictions relating to FCC rules and requirements. Under the terms of the Company’s RSU and PSU agreements, unvested RSUs and PSUs contain forfeitable rights to dividends and DEUs. Because the DEUs are forfeitable, they are defined as non-participating securities. As of September 30, 2017, there were 47,356 DEUs outstanding, which will vest at the time that the underlying RSU or PSU vests.
The Company computes basic EPS by dividing net (loss) income from continuing operations, income (loss) from discontinued operations, and net (loss) income, respectively, applicable to common shares by the weighted average number of common shares outstanding during the period. In accordance with the two-class method, undistributed earnings applicable to the Warrants are excluded from the computation of basic EPS. Diluted EPS is computed by dividing net (loss) income from continuing operations, income (loss) from discontinued operations,



40



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



and net (loss) income, respectively, by the weighted average number of common shares outstanding during the period as adjusted for the assumed exercise of all outstanding stock awards. The calculation of diluted EPS assumes that stock awards outstanding were exercised at the beginning of the period. The stock awards are included in the calculation of diluted EPS only when their inclusion in the calculation is dilutive.
ASC Topic 260, “Earnings per Share,” states that the presentation of basic and diluted EPS is required only for common stock and not for participating securities. For the three and nine months ended September 30, 2017, 64,751 and 83,493, respectively, of the weighted-average Warrants outstanding have been excluded from the below table. For the three and nine months ended September 30, 2016, 159,243 and 194,943, respectively, of the weighted-average Warrants outstanding, have been excluded from the below table. The calculation of basic and diluted EPS is presented below (in thousands, except for per share data):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
EPS numerator:
 
 
 
 
 
 
 
(Loss) income from continuing operations, as reported
$
(18,687
)
 
$
153,839

 
$
(149,722
)
 
$
16,313

Less: Dividends distributed to Warrants
14

 
40

 
60

 
127

Less: Undistributed earnings allocated to Warrants
—

 
218

 
—

 
—

(Loss) income from continuing operations attributable to common shareholders for basic EPS
$
(18,701
)
 
$
153,581

 
$
(149,782
)
 
$
16,186

Add: Undistributed earnings allocated to dilutive securities
—

 
1

 
—

 
—

(Loss) income from continuing operations attributable to common shareholders for diluted EPS
$
(18,701
)
 
$
153,582

 
$
(149,782
)
 
$
16,186

(Loss) income from discontinued operations attributable to common shareholders for basic and diluted EPS
$
—

 
$
(8,074
)
 
$
15,039

 
$
(21,018
)
Net (loss) income attributable to common shareholders for basic EPS
$
(18,701
)
 
$
145,507

 
$
(134,743
)
 
$
(4,832
)
Net (loss) income attributable to common shareholders for diluted EPS
$
(18,701
)
 
$
145,508

 
$
(134,743
)
 
$
(4,832
)
 
 
 
 
 
 
 
 
EPS denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
87,257

 
89,950

 
86,984

 
91,367

Impact of dilutive securities
—

 
503

 
—

 
363

Weighted average shares outstanding - diluted
87,257

 
90,453

 
86,984

 
91,730

 
 
 
 
 
 
 
 
Basic (Loss) Earnings Per Common Share from:
 
 
 
 
 
 
 
Continuing Operations
$
(0.21
)
 
$
1.71

 
$
(1.72
)
 
$
0.18

Discontinued Operations
—

 
(0.09
)
 
0.17

 
(0.23
)
Net (Loss) Income Per Common Share
$
(0.21
)
 
$
1.62

 
$
(1.55
)
 
$
(0.05
)
 
 
 
 
 
 
 
 
Diluted (Loss) Earnings Per Common Share from:
 
 
 
 
 
 
 
Continuing Operations
$
(0.21
)
 
$
1.70

 
$
(1.72
)
 
$
0.18

Discontinued Operations
—

 
(0.09
)
 
0.17

 
(0.23
)
Net (Loss) Income Per Common Share
$
(0.21
)
 
$
1.61

 
$
(1.55
)
 
$
(0.05
)



41



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Since the Company was in a net loss position for the three and nine months ended September 30, 2017, there was no difference between the number of shares used to calculate basic and diluted loss per share. For the nine months ended September 30, 2016, even though the Company had a net loss, pursuant to ASC 260, since the Company had net income from continuing operations, it considered the impact of dilutive securities when calculating diluted EPS. Because of their anti-dilutive effect, 2,102,827 and 3,036,885 common share equivalents, comprised of NSOs, PSUs, Supplemental PSUs and RSUs, have been excluded from the diluted EPS calculation for the three and nine months ended September 30, 2017, respectively. Because of their anti-dilutive effect, 1,714,643 and 1,786,255 common share equivalents, comprised of NSOs, PSUs, Supplemental PSUs and RSUs, have been excluded from the diluted EPS calculation for the three and nine months ended September 30, 2016, respectively.
NOTE 15: ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive (loss) income (“AOCI”) is a separate component of shareholders’ equity in the Company’s unaudited Condensed Consolidated Balance Sheets. The following table summarizes the changes in AOCI, net of taxes by component for the nine months ended September 30, 2017 (in thousands):
 
Pension and Other Post-Retirement Benefit Items
 
Marketable Securities
 
Cash Flow Hedging Instruments
 
Foreign Currency Translation Adjustments
 
Total
Balance at December 31, 2016
$
(64,883
)
 
$
3,075

 
$
—

 
$
(19,974
)
 
$
(81,782
)
Other comprehensive (loss) income before reclassifications
(442
)
 
(95
)
 
(6,126
)
 
4,993

 
(1,670
)
Amounts reclassified from AOCI
(120
)
 
(2,980
)
 
2,540

 
12,765

 
12,205

Balance at September 30, 2017
$
(65,445
)
 
$
—

 
$
(3,586
)
 
$
(2,216
)
 
$
(71,247
)
NOTE 16: RELATED PARTY TRANSACTIONS
The Secured Credit Facility syndicate of lenders includes funds affiliated with Oaktree Capital Management, L.P. These funds held $30 million and $31 million of the Company’s Term C Loans and Former Term B Loans at both September 30, 2017 and December 31, 2016, respectively.



42



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



NOTE 17: BUSINESS SEGMENTS
The following table summarizes business segment financial data for the three and nine months ended September 30, 2017 and September 30, 2016 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Operating Revenues from Continuing Operations (1)
 
 
 
 
 
 
 
Television and Entertainment
$
447,307

 
$
460,164

 
$
1,349,401

 
$
1,384,173

Corporate and Other
3,226

 
9,874

 
10,559

 
34,133

Total operating revenues
$
450,533

 
$
470,038

 
$
1,359,960

 
$
1,418,306

Operating (loss) profit from Continuing Operations (1)(2)
 
 
 
 
 
 
 
Television and Entertainment
$
(1,357
)
 
$
46,024

 
$
68,875

 
$
187,975

Corporate and Other
(22,392
)
 
188,146

 
(89,530
)
 
132,393

Total operating (loss) profit
$
(23,749
)
 
$
234,170

 
$
(20,655
)
 
$
320,368

Depreciation from Continuing Operations (3)
 
 
 
 
 
 
 
Television and Entertainment
$
10,844

 
$
11,267

 
$
31,413

 
$
33,392

Corporate and Other
3,419

 
3,497

 
10,348

 
10,281

Total depreciation
$
14,263

 
$
14,764

 
$
41,761

 
$
43,673

Amortization from Continuing Operations (3)
 
 
 
 
 
 
 
Television and Entertainment
$
41,678

 
$
41,668

 
$
125,001

 
$
125,003

Capital Expenditures
 
 
 
 
 
 
 
Television and Entertainment
$
8,140

 
$
16,122

 
$
30,674

 
$
29,558

Corporate and Other
5,184

 
4,757

 
9,171

 
15,783

Discontinued Operations
—

 
5,545

 
1,578

 
16,514

Total capital expenditures
$
13,324

 
$
26,424

 
$
41,423

 
$
61,855




September 30, 2017
 
December 31, 2016
Assets
 
 
 
Television and Entertainment
$
7,211,563

 
$
7,484,591

Corporate and Other
869,330

 
1,228,526

Assets held for sale (4)
93,188

 
17,176

Discontinued Operations
—

 
670,758

Total assets
$
8,174,081

 
$
9,401,051

 
(1)
See Note 2 for the disclosures of operating revenues and operating loss included in discontinued operations for the historical periods.
(2)
Operating (loss) profit for each segment excludes income and loss on equity investments, interest and dividend income, interest expense, non-operating items, reorganization costs and income taxes.
(3)
Depreciation and amortization from discontinued operations totaled $4 million and $8 million respectively, for the three months ended September 30, 2016 and $10 million and $23 million, respectively, for the nine months ended September 30, 2016.
(4)
See Note 4 for information regarding assets held for sale.




43



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



NOTE 18: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Company is the issuer of the Notes (see Note 7) and such debt is guaranteed by the Company’s subsidiary guarantors (the “Subsidiary Guarantors”). The Subsidiary Guarantors are direct or indirect 100% owned domestic subsidiaries of the Company. The Company’s payment obligations under the Notes are jointly and severally guaranteed by the Subsidiary Guarantors, and all guarantees are full and unconditional. The subsidiaries of the Company that do not guarantee the Notes (the “Non-Guarantor Subsidiaries”) include certain direct or indirect subsidiaries of the Company.
The guarantees are subject to release under certain circumstances, including: (a) upon the sale, exchange, disposition or other transfer (including through merger, consolidation or dissolution) of the interests in such Subsidiary Guarantor, after which such Subsidiary Guarantor is no longer a restricted subsidiary of the Company, or all or substantially all the assets of such Subsidiary Guarantor, in any case, if such sale, exchange, disposition or other transfer is not prohibited by the Indenture, (b) upon the Company designating such Subsidiary Guarantor to be an unrestricted subsidiary in accordance with the Indenture, (c) in the case of any restricted subsidiary of the Company that after the issue date is required to guarantee the Notes, upon the release or discharge of the guarantee by such restricted subsidiary of any indebtedness of the Company or another Subsidiary Guarantor or the repayment of any indebtedness of the Company or another Subsidiary Guarantor, in each case, which resulted in the obligation to guarantee the Notes, (d) upon the Company’s exercise of its legal defeasance option or covenant defeasance option in accordance with the Indenture or if the Company’s obligations under the Indenture are discharged in accordance with the terms of the Indenture, (e) upon the release or discharge of direct obligations of such Subsidiary Guarantor, or the guarantee by such guarantor of the obligations, under the Senior Credit Agreement, or (f) during the period when the rating of the Notes is changed to investment grade.
On January 31, 2017, the Company completed the Gracenote Sale, as further described in Note 2. The Gracenote Sale included certain Subsidiary Guarantors as well as Non-Guarantor Subsidiaries. The results of operations of these entities are included in their respective categories through the date of sale.
In lieu of providing separate audited financial statements for the Subsidiary Guarantors, the Company has included the accompanying unaudited condensed consolidating financial statements in accordance with the requirements of Rule 3-10(f) of SEC Regulation S-X. The following unaudited Condensed Consolidating Financial Statements present the Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income (Loss) and Consolidated Statements of Cash Flows of Tribune Media Company, the Subsidiary Guarantors, the Non-Guarantor Subsidiaries and the eliminations necessary to arrive at the Company’s information on a consolidated basis.
These statements are presented in accordance with the disclosure requirements under SEC Regulation S-X, Rule 3-10.



44



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2017
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Operating Revenues
$
—

 
$
448,248

 
$
2,285

 
$
—

 
$
450,533

 
 
 
 
 
 
 
 
 
 
Programming and direct operating expenses
—

 
296,987

 
550

 
—

 
297,537

Selling, general and administrative
20,252

 
99,738

 
879

 
—

 
120,869

Depreciation and amortization
2,902

 
49,902

 
3,137

 
—

 
55,941

Gain on sales of real estate, net
—

 
(65
)
 
—

 
—

 
(65
)
Total Operating Expenses
23,154

 
446,562

 
4,566

 
—

 
474,282

 
 
 
 
 
 
 
 
 
 
Operating (Loss) Profit
(23,154
)
 
1,686

 
(2,281
)
 
—

 
(23,749
)
 
 
 
 
 
 
 
 
 
 
(Loss) income on equity investments, net
(482
)
 
21,540

 
—

 
—

 
21,058

Interest and dividend income
813

 
14

 
—

 
—

 
827

Interest expense
(40,313
)
 
—

 
(76
)
 
—

 
(40,389
)
Loss on extinguishments and modification of debt
(1,384
)
 
—

 
(51
)
 
—

 
(1,435
)
(Loss) gain on investment transactions, net
(143
)
 
5,810

 
—

 
—

 
5,667

Other non-operating items
(753
)
 
—

 
—

 
—

 
(753
)
Intercompany income (charges)
19,221

 
(19,179
)
 
(42
)
 
—

 
—

(Loss) Income from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries
(46,195
)
 
9,871

 
(2,450
)
 
—

 
(38,774
)
Income tax benefit
(15,668
)
 
(3,562
)
 
(857
)
 
—

 
(20,087
)
Equity (deficit) in earnings of consolidated subsidiaries, net of taxes
11,840

 
(123
)
 
—

 
(11,717
)
 
—

(Loss) Income from Continuing Operations
$
(18,687
)
 
$
13,310

 
$
(1,593
)
 
$
(11,717
)
 
$
(18,687
)
(Loss) Income from Discontinued Operations, net of taxes
—

 
—

 
—

 
—

 
—

Net (Loss) Income
$
(18,687
)
 
$
13,310

 
$
(1,593
)
 
$
(11,717
)
 
$
(18,687
)
 
 
 
 
 
 
 
 
 
 
Comprehensive (Loss) Income
$
(18,062
)
 
$
13,374

 
$
(1,074
)
 
$
(12,300
)
 
$
(18,062
)



45



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2016
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Operating Revenues
$
—

 
$
467,697

 
$
2,341

 
$
—

 
$
470,038

 
 
 
 
 
 
 
 
 
 
Programming and direct operating expenses
—

 
248,094

 
536

 
—

 
248,630

Selling, general and administrative
24,968

 
118,114

 
892

 
—

 
143,974

Depreciation and amortization
2,973

 
50,283

 
3,176

 
—

 
56,432

Gain on sales of real estate, net
—

 
(213,168
)
 
—

 
—

 
(213,168
)
Total Operating Expenses
27,941

 
203,323


4,604


—

 
235,868

 
 
 
 
 
 
 
 
 
 
Operating (Loss) Profit
(27,941
)
 
264,374

 
(2,263
)
 
—

 
234,170

 
 
 
 
 
 
 
 
 
 
(Loss) income on equity investments, net
(599
)
 
32,336

 
—

 
—

 
31,737

Interest and dividend income
464

 
12

 
—

 
—

 
476

Interest expense
(38,102
)
 
—

 
(194
)
 
—

 
(38,296
)
Other non-operating items
(377
)
 
—

 
—

 
—

 
(377
)
Intercompany income (charges)
22,341

 
(22,283
)
 
(58
)
 
—

 
—

(Loss) Income from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries
(44,214
)
 
274,439

 
(2,515
)
 
—

 
227,710

Income tax (benefit) expense
(19,002
)
 
94,496

 
(1,623
)
 
—

 
73,871

Equity (deficit) in earnings of consolidated subsidiaries, net of taxes
179,051

 
367

 
—

 
(179,418
)
 
—

Income (Loss) from Continuing Operations
$
153,839

 
$
180,310

 
$
(892
)
 
$
(179,418
)
 
$
153,839

(Loss) Income from Discontinued Operations, net of taxes
(8,074
)
 
(5,540
)
 
(3,319
)
 
8,859

 
(8,074
)
Net Income (Loss)
$
145,765

 
$
174,770

 
$
(4,211
)
 
$
(170,559
)
 
$
145,765

 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
$
148,449

 
$
174,425

 
$
(1,916
)
 
$
(172,509
)
 
$
148,449





46



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2017
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Operating Revenues
$
—

 
$
1,352,933

 
$
7,027

 
$
—

 
$
1,359,960

 
 
 
 
 
 
 
 
 
 
Programming and direct operating expenses
—

 
785,816

 
5,798

 
—

 
791,614

Selling, general and administrative
83,077

 
336,931

 
2,596

 
—

 
422,604

Depreciation and amortization
8,788

 
148,591

 
9,383

 
—

 
166,762

Gain on sales of real estate, net
—

 
(365
)
 
—

 
—

 
(365
)
Total Operating Expenses
91,865

 
1,270,973

 
17,777

 
—

 
1,380,615

 
 
 
 
 
 
 
 
 
 
Operating (Loss) Profit
(91,865
)
 
81,960

 
(10,750
)
 
—

 
(20,655
)
 
 
 
 
 
 
 
 
 
 
(Loss) income on equity investments, net
(1,521
)
 
100,377

 
—

 
—

 
98,856

Interest and dividend income
1,829

 
51

 
—

 
—

 
1,880

Interest expense
(118,929
)
 
—

 
(403
)
 
—

 
(119,332
)
Loss on extinguishments and modification of debt
(20,436
)
 
—

 
(51
)
 
—

 
(20,487
)
Gain on investment transactions, net
4,807

 
5,810

 
—

 
—

 
10,617

Write-downs of investment
—

 
(180,800
)
 
—

 
—

 
(180,800
)
Other non-operating items
(1,407
)
 
—

 
—

 
—

 
(1,407
)
Intercompany income (charges)
66,907

 
(66,756
)
 
(151
)
 
—

 
—

Loss from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries
(160,615
)
 
(59,358
)
 
(11,355
)
 
—

 
(231,328
)
Income tax benefit
(56,260
)
 
(21,035
)
 
(4,311
)
 
—

 
(81,606
)
(Deficit) equity in earnings of consolidated subsidiaries, net of taxes
(45,367
)
 
(2,797
)
 
—

 
48,164

 
—

(Loss) Income from Continuing Operations
$
(149,722
)
 
$
(41,120
)
 
$
(7,044
)
 
$
48,164

 
$
(149,722
)
Income (Loss) from Discontinued Operations, net of taxes
15,039

 
(1,904
)
 
807

 
1,097

 
15,039

Net (Loss) Income
$
(134,683
)
 
$
(43,024
)
 
$
(6,237
)
 
$
49,261

 
$
(134,683
)
 
 
 
 
 
 
 
 
 
 
Comprehensive (Loss) Income
$
(124,148
)
 
$
(37,036
)
 
$
6,653

 
$
30,383

 
$
(124,148
)



47



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2016
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Operating Revenues
$
—

 
$
1,411,158

 
$
7,148

 
$
—

 
$
1,418,306

 
 
 
 
 
 
 
 
 
 
Programming and direct operating expenses
—

 
686,994

 
2,701

 
—

 
689,695

Selling, general and administrative
74,378

 
375,352

 
2,556

 
—

 
452,286

Depreciation and amortization
8,310

 
150,800

 
9,566

 
—

 
168,676

Gain on sales of real estate, net
—

 
(212,719
)
 
—

 
—

 
(212,719
)
Total Operating Expenses
82,688

 
1,000,427

 
14,823

 
—

 
1,097,938

 
 
 
 
 
 
 
 
 
 
Operating (Loss) Profit
(82,688
)
 
410,731

 
(7,675
)
 
—

 
320,368

 
 
 
 
 
 
 
 
 
 
(Loss) income on equity investments, net
(1,997
)
 
116,292

 
—

 
—

 
114,295

Interest and dividend income
772

 
64

 
—

 
—

 
836

Interest expense
(113,864
)
 
—

 
(644
)
 
—

 
(114,508
)
Other non-operating items
(756
)
 
—

 
—

 
—

 
(756
)
Intercompany income (charges)
66,322

 
(66,152
)
 
(170
)
 
—

 
—

(Loss) Income from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries
(132,211
)
 
460,935

 
(8,489
)
 
—

 
320,235

Income tax expense
22,057

 
179,173

 
102,692

 
—

 
303,922

Equity (deficit) in earnings of consolidated subsidiaries, net of taxes
170,581

 
(959
)
 
—

 
(169,622
)
 
—

Income (Loss) from Continuing Operations
$
16,313

 
$
280,803

 
$
(111,181
)
 
$
(169,622
)
 
$
16,313

(Loss) Income from Discontinued Operations, net of taxes
(21,018
)
 
(16,960
)
 
(2,367
)
 
19,327

 
(21,018
)
Net (Loss) Income
$
(4,705
)
 
$
263,843

 
$
(113,548
)
 
$
(150,295
)
 
$
(4,705
)
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
$
2,427

 
$
261,800

 
$
(109,688
)
 
$
(152,112
)
 
$
2,427





48



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 2017
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
598,258

 
$
1,806

 
$
2,675

 
$
—

 
$
602,739

Restricted cash and cash equivalents
17,566

 
—

 
—

 
—

 
17,566

Accounts receivable, net
291

 
390,181

 
—

 
—

 
390,472

Broadcast rights
—

 
145,582

 
3,394

 
—

 
148,976

Income taxes receivable
—

 
14,994

 
—

 
—

 
14,994

Prepaid expenses
10,950

 
11,458

 
209

 
—

 
22,617

Other
6,761

 
1,916

 
—

 
—

 
8,677

Total current assets
633,826

 
565,937

 
6,278

 
—

 
1,206,041

Properties
 
 
 
 
 
 
 
 
 
Property, plant and equipment
58,856

 
484,122

 
111,894

 
—

 
654,872

Accumulated depreciation
(30,252
)
 
(187,101
)
 
(6,953
)
 
—

 
(224,306
)
Net properties
28,604

 
297,021

 
104,941

 
—

 
430,566

 
 
 
 
 
 
 
 
 
 
Investments in subsidiaries
9,989,160

 
56,136

 
—

 
(10,045,296
)
 
—

 
 
 
 
 
 
 
 
 
 
Other Assets
 
 
 
 
 
 
 
 
 
Broadcast rights
—

 
144,152

 
151

 
—

 
144,303

Goodwill
—

 
3,220,300

 
8,569

 
—

 
3,228,869

Other intangible assets, net
—

 
1,573,824

 
81,643

 
—

 
1,655,467

Assets held for sale
—

 
93,188

 
—

 
—

 
93,188

Investments
11,540

 
1,245,227

 
17,090

 
—

 
1,273,857

Intercompany receivables
2,443,253

 
6,419,210

 
362,170

 
(9,224,633
)
 
—

Other
124,739

 
137,998

 
372

 
(121,319
)
 
141,790

Total other assets
2,579,532

 
12,833,899

 
469,995

 
(9,345,952
)
 
6,537,474

Total Assets
$
13,231,122

 
$
13,752,993

 
$
581,214

 
$
(19,391,248
)
 
$
8,174,081






49



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 2017
(In thousands of dollars)

 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Liabilities and Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$
22,537

 
$
18,511

 
$
1,167

 
$
—

 
$
42,215

Debt due within one year
—

 
—

 
—

 
—

 
—

Income taxes payable
—

 
71,741

 
—

 
—

 
71,741

Contracts payable for broadcast rights
—

 
269,632

 
3,544

 
—

 
273,176

Deferred revenue
—

 
12,072

 
493

 
—

 
12,565

Interest payable
14,095

 
—

 
—

 
—

 
14,095

Other
49,059

 
223,532

 
425

 
—

 
273,016

Total current liabilities
85,691

 
595,488

 
5,629

 
—

 
686,808

 
 
 
 
 
 
 
 
 
 
Non-Current Liabilities
 
 
 
 
 
 
 
 
 
Long-term debt
2,917,454

 
—

 
—

 
—

 
2,917,454

Deferred income taxes
—

 
736,506

 
143,980

 
(121,319
)
 
759,167

Contracts payable for broadcast rights
—

 
326,455

 
199

 
—

 
326,654

Intercompany payables
6,892,059

 
2,067,198

 
265,376

 
(9,224,633
)
 
—

Other
453,776

 
120,533

 
20,312

 
—

 
594,621

Total non-current liabilities
10,263,289

 
3,250,692

 
429,867

 
(9,345,952
)
 
4,597,896

Total liabilities
10,348,980

 
3,846,180

 
435,496

 
(9,345,952
)
 
5,284,704

 
 
 
 
 
 
 
 
 
 
Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Common stock
101

 
—

 
—

 
—

 
101

Treasury stock
(632,194
)
 
—

 
—

 
—

 
(632,194
)
Additional paid-in-capital
4,028,524

 
9,039,884

 
202,761

 
(9,242,645
)
 
4,028,524

Retained (deficit) earnings
(443,042
)
 
869,641

 
(64,774
)
 
(804,867
)
 
(443,042
)
Accumulated other comprehensive (loss) income
(71,247
)
 
(2,712
)
 
496

 
2,216

 
(71,247
)
Total Tribune Media Company shareholders’ equity (deficit)
2,882,142

 
9,906,813

 
138,483

 
(10,045,296
)
 
2,882,142

Noncontrolling interests
—

 
—

 
7,235

 
—

 
7,235

Total shareholders’ equity (deficit)
2,882,142

 
9,906,813

 
145,718

 
(10,045,296
)
 
2,889,377

Total Liabilities and Shareholders’ Equity (Deficit)
$
13,231,122

 
$
13,752,993

 
$
581,214

 
$
(19,391,248
)
 
$
8,174,081




50



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2016
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
574,638

 
$
720

 
$
2,300

 
$
—

 
$
577,658

Restricted cash and cash equivalents
17,566

 
—

 
—

 
—

 
17,566

Accounts receivable, net
198

 
428,254

 
660

 
—

 
429,112

Broadcast rights
—

 
155,266

 
2,551

 
—

 
157,817

Income taxes receivable
—

 
9,056

 
—

 
—

 
9,056

Current assets of discontinued operations
—

 
37,300

 
25,305

 
—

 
62,605

Prepaid expenses
11,640

 
24,074

 
148

 
—

 
35,862

Other
4,894

 
1,729

 
1

 
—

 
6,624

Total current assets
608,936

 
656,399

 
30,965

 
—

 
1,296,300

Properties
 
 
 
 
 
 
 
 
 
Property, plant and equipment
55,529

 
547,601

 
107,938

 
—

 
711,068

Accumulated depreciation
(21,635
)
 
(159,472
)
 
(6,041
)
 
—

 
(187,148
)
Net properties
33,894

 
388,129

 
101,897

 
—

 
523,920

 
 
 
 
 
 
 
 
 
 
Investments in subsidiaries
10,502,544

 
106,486

 
—

 
(10,609,030
)
 
—

 
 
 
 
 
 
 
 
 
 
Other Assets
 
 
 
 
 
 
 
 
 
Broadcast rights
—

 
153,374

 
83

 
—

 
153,457

Goodwill
—

 
3,220,300

 
7,630

 
—

 
3,227,930

Other intangible assets, net
—

 
1,729,829

 
89,305

 
—

 
1,819,134

Non-current assets of discontinued operations
—

 
514,200

 
93,953

 
—

 
608,153

Assets held for sale
—

 
17,176

 
—

 
—

 
17,176

Investments
19,079

 
1,637,909

 
17,895

 
—

 
1,674,883

Intercompany receivables
2,326,261

 
5,547,542

 
358,834

 
(8,232,637
)
 
—

Intercompany loan receivable
27,000

 
—

 
—

 
(27,000
)
 
—

Other
51,479

 
75,191

 
2,707

 
(49,279
)
 
80,098

Total other assets
2,423,819

 
12,895,521

 
570,407

 
(8,308,916
)
 
7,580,831

Total Assets
$
13,569,193

 
$
14,046,535

 
$
703,269

 
$
(18,917,946
)
 
$
9,401,051








51



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2016
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Liabilities and Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$
29,827

 
$
29,703

 
$
1,023

 
$
—

 
$
60,553

Debt due within one year
15,921

 
—

 
4,003

 
—

 
19,924

Income taxes payable
—

 
21,130

 
36

 
—

 
21,166

Contracts payable for broadcast rights
—

 
238,497

 
2,758

 
—

 
241,255

Deferred revenue
—

 
13,593

 
97

 
—

 
13,690

Interest payable
30,301

 
—

 
4

 
—

 
30,305

Current liabilities of discontinued operations
—

 
44,763

 
9,521

 
—

 
54,284

Other
38,867

 
70,589

 
220

 
—

 
109,676

Total current liabilities
114,916

 
418,275

 
17,662

 
—

 
550,853

 
 
 
 
 
 
 
 
 
 
Non-Current Liabilities
 
 
 
 
 
 
 
 
 
Long-term debt
3,380,860

 
—

 
10,767

 
—

 
3,391,627

Intercompany loan payable
—

 
27,000

 
—

 
(27,000
)
 
—

Deferred income taxes
—

 
871,923

 
161,604

 
(49,279
)
 
984,248

Contracts payable for broadcast rights
—

 
314,755

 
85

 
—

 
314,840

Intercompany payables
6,065,424

 
1,912,259

 
254,954

 
(8,232,637
)
 
—

Other
468,227

 
50,239

 
20

 
—

 
518,486

Non-current liabilities of discontinued operations
—

 
86,517

 
8,797

 
—

 
95,314

Total non-current liabilities
9,914,511

 
3,262,693

 
436,227

 
(8,308,916
)
 
5,304,515

Total Liabilities
10,029,427

 
3,680,968

 
453,889

 
(8,308,916
)
 
5,855,368

 
 
 
 
 
 
 
 
 
 
Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Common stock
100

 
—

 
—

 
—

 
100

Treasury stock
(632,207
)
 
—

 
—

 
—

 
(632,207
)
Additional paid-in-capital
4,561,760

 
9,486,179

 
289,818

 
(9,775,997
)
 
4,561,760

Retained (deficit) earnings
(308,105
)
 
888,088

 
(33,961
)
 
(854,127
)
 
(308,105
)
Accumulated other comprehensive (loss) income
(81,782
)
 
(8,700
)
 
(12,394
)
 
21,094

 
(81,782
)
Total Tribune Media Company shareholders’ equity (deficit)
3,539,766

 
10,365,567

 
243,463

 
(10,609,030
)
 
3,539,766

Noncontrolling interests
—

 
—

 
5,917

 
—

 
5,917

Total shareholders’ equity (deficit)
3,539,766

 
10,365,567

 
249,380

 
(10,609,030
)
 
3,545,683

Total Liabilities and Shareholders’ Equity (Deficit)
$
13,569,193

 
$
14,046,535

 
$
703,269

 
$
(18,917,946
)
 
$
9,401,051






52



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Net cash (used in) provided by operating activities
$
(184,784
)
 
$
346,685

 
$
9,510

 
$
—

 
$
171,411

 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(3,812
)
 
(33,645
)
 
(3,966
)
 
—

 
(41,423
)
Investments
—

 
(25
)
 
—

 
—

 
(25
)
Net proceeds from the sale of business
574,817

 
(5,249
)
 
(11,775
)
 
—

 
557,793

Proceeds from FCC spectrum auction
—

 
172,102

 
—

 
—

 
172,102

Sale of partial interest of equity method investment
—

 
142,552

 
—

 
—

 
142,552

Proceeds from sales of real estate and other assets
—

 
61,240

 
—

 
—

 
61,240

Proceeds from the sale of investments
5,769

 
—

 
—

 
—

 
5,769

Distributions from equity investments
—

 
4,608

 
—

 
—

 
4,608

Distribution from cost investment
—

 
—

 
805

 
—

 
805

Net cash provided by (used in) investing activities
576,774

 
341,583

 
(14,936
)
 
—

 
903,421

 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
Long-term borrowings
202,694

 
—

 
—

 
—

 
202,694

Repayments of long-term debt
(688,708
)
 
—

 
(14,819
)
 
—

 
(703,527
)
Long-term debt issuance costs
(1,689
)
 
—

 
—

 
—

 
(1,689
)
Payments of dividends
(564,499
)
 
—

 
—

 
—

 
(564,499
)
Tax withholdings related to net share settlements of share-based awards
(8,030
)
 
—

 
—

 
—

 
(8,030
)
Proceeds from stock option exercises
11,231

 
—

 
—

 
—

 
11,231

Contributions from noncontrolling interests
—

 
—

 
1,318

 
—

 
1,318

Change in intercompany receivables and payables and intercompany contributions (1)
680,631

 
(690,989
)
 
10,358

 
—

 
—

Net cash used in financing activities
(368,370
)
 
(690,989
)
 
(3,143
)
 
—

 
(1,062,502
)
 
 
 
 
 
 
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
23,620

 
(2,721
)
 
(8,569
)
 
—

 
12,330

Cash and cash equivalents, beginning of year
574,638

 
4,527

 
11,244

 
—

 
590,409

Cash and cash equivalents, end of year
$
598,258

 
$
1,806

 
$
2,675

 
$
—

 
$
602,739

 
(1)
Excludes the impact of a $54 million non-cash settlement of intercompany balances upon the sale of certain Guarantor and Non-Guarantor subsidiaries included in the Gracenote Sale.



53



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Net cash (used in) provided by operating activities
$
(73,507
)
 
$
364,608

 
$
(104,561
)
 
$
—

 
$
186,540

 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(9,433
)
 
(46,419
)
 
(6,003
)
 
—

 
(61,855
)
Investments
(850
)
 
(101
)
 
(2,500
)
 
—

 
(3,451
)
Proceeds from sales of real estate and other assets
—

 
506,369

 
681

 
—

 
507,050

Transfers from restricted cash
—

 
297

 
—

 
—

 
297

Intercompany dividend
3,326

 
—

 
—

 
(3,326
)
 
—

Net cash (used in) provided by investing activities
(6,957
)
 
460,146

 
(7,822
)
 
(3,326
)
 
442,041

 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
Repayments of long-term debt
(17,844
)
 
—

 
(3,037
)
 
—

 
(20,881
)
Long-term debt issuance costs
(784
)
 
—

 
—

 
—

 
(784
)
Payments of dividends
(68,684
)
 
—

 
—

 
—

 
(68,684
)
Tax withholdings related to net share settlements of share-based awards
(4,540
)
 
—

 
—

 
—

 
(4,540
)
Common stock repurchases
(149,147
)
 
—

 
—

 
—

 
(149,147
)
Contributions from noncontrolling interests
—

 
—

 
145

 
—

 
145

Settlements of contingent consideration
—

 
(750
)
 
(2,886
)
 
—

 
(3,636
)
Intercompany dividend
—

 
(3,326
)
 
—

 
3,326

 
—

Change in intercompany receivables and payables (1)
706,331

 
(823,087
)
 
116,756

 
—

 
—

Net cash provided by (used in) financing activities
465,332

 
(827,163
)
 
110,978

 
3,326

 
(247,527
)
 
 
 
 
 
 
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
384,868

 
(2,409
)
 
(1,405
)
 
—

 
381,054

Cash and cash equivalents, beginning of year
235,508

 
13,054

 
14,082

 
—

 
262,644

Cash and cash equivalents, end of year
$
620,376

 
$
10,645

 
$
12,677

 
$
—

 
$
643,698

 
(1)
Excludes the impact of a $56 million non-cash settlement of intercompany balances upon dissolution of certain Guarantor subsidiaries.




54



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



NOTE 19: SUBSEQUENT EVENTS
On October 19, 2017, holders of a majority of the outstanding shares of the Company’s Class A Common Stock and Class B Common Stock, voting as a single class, voted on and approved the Merger Agreement and the transactions contemplated by the Merger Agreement at a duly called special meeting of Tribune shareholders.



55


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this management’s discussion and analysis, unless otherwise specified or the context otherwise requires, “Tribune,” “we,” “our,” “us” and the “Company” refer to Tribune Media Company and its consolidated subsidiaries.
This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes as well as our audited consolidated financial statements for the fiscal year ended December 31, 2016. As a result of the Gracenote Sale (as further described below), the historical results of operations for the businesses included in the Gracenote Sale are reported as discontinued operations for all periods presented. Accordingly, all references made to financial data in this Quarterly Report are to Tribune Media Company’s continuing operations, unless specifically noted.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the three and nine months ended September 30, 2017 (the “Quarterly Report”), as well as other public documents and statements of the Company, includes “forward-looking statements” within the meaning of the federal securities laws, including, without limitation, statements concerning the conditions in our industry, our operations, our economic performance and financial condition. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as “may,” “might,” “will,” “should,” “estimate,” “project,” “plan,” “anticipate,” “expect,” “intend,” “outlook,” “believe” and other similar expressions. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those identified or referenced under “Item 1A. Risk Factors” included elsewhere in this Quarterly Report.
The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:
•
risks associated with the ability to consummate the merger between us and Sinclair Broadcast Group, Inc. (“Sinclair”) (the “Merger”) (see “—Significant Events—Sinclair Merger Agreement” for further information) and the timing of the closing of the Merger;
•
the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;
•
the risk that the regulatory approvals for the proposed Merger with Sinclair may not be obtained or may be obtained subject to conditions that are not anticipated;
•
risks related to the disruption of management time from ongoing business operations due to the Merger;
•
the effect of the announcement of the Merger on our ability to retain and hire key personnel, on our ability to maintain relationships with advertisers and customers and on our operating results and businesses generally;
•
litigation in connection with the Merger;
•
changes in advertising demand and audience shares;
•
competition and other economic conditions including incremental fragmentation of the media landscape and competition from other media alternatives;
•
changes in the overall market for broadcast and cable television advertising, including through regulatory and judicial rulings;
•
our ability to protect our intellectual property and other proprietary rights;
•
our ability to adapt to technological changes;
•
availability and cost of quality network, syndicated and sports programming affecting our television ratings;
•
the loss, cost and/or modification of our network affiliation agreements;



56


•
our ability to renegotiate retransmission consent agreements, or resolve disputes, with multichannel video programming distributors (“MVPDs”);
•
the incurrence of additional tax-related liabilities related to historical income tax returns;
•
our ability to realize the full value, or successfully complete the planned divestitures, of our real estate assets;
•
the potential impact of the modifications to and/or surrender of spectrum on the operation of our television stations, the costs, terms and restrictions associated with the actions necessary to modify and/or surrender the spectrum;
•
the incurrence of costs to address contamination issues at physical sites owned, operated or used by our businesses;
•
adverse results from litigation, governmental investigations or tax-related proceedings or audits;
•
our ability to settle unresolved claims filed in connection with the Debtors’ Chapter 11 cases and resolve the appeals seeking to overturn the Confirmation Order;
•
our ability to satisfy future pension and other postretirement employee benefit obligations;
•
our ability to attract and retain employees;
•
the effect of labor strikes, lock-outs and labor negotiations;
•
our ability to realize benefits or synergies from acquisitions or divestitures or to operate our businesses effectively following acquisitions or divestitures;
•
the financial performance and valuation of our equity method investments;
•
the impairment of our existing goodwill and other intangible assets;
•
compliance with, and the effect of changes or developments in, government regulations applicable to the television and radio broadcasting industry;
•
changes in accounting standards;
•
the payment of cash dividends on our common stock;
•
impact of increases in interest rates on our variable rate indebtedness or refinancings thereof;
•
our indebtedness and ability to comply with covenants applicable to our debt financing and other contractual commitments;
•
our ability to satisfy future capital and liquidity requirements;
•
our ability to access the credit and capital markets at the times and in the amounts needed and on acceptable terms;
•
the factors discussed under “Risk Factors” of the Company’s filings with the Securities and Exchange Commission (the “SEC”); and
•
other events beyond our control that may result in unexpected adverse operating results.
We caution you that the foregoing list of important factors is not exhaustive. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Should one or more of the risks or uncertainties described in this Quarterly Report or our other filings with the SEC occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
OVERVIEW
We are a diversified media and entertainment company comprised of 42 local television stations, which we refer to as “our television stations,” that are either owned by us or owned by others, but to which we provide certain services, along with a national general entertainment cable network, a radio station, a production studio, a portfolio of real estate assets and investments in a variety of media, websites and other related assets. We believe our diverse portfolio of assets distinguishes us from traditional pure-play broadcasters through our ownership of high-quality original and syndicated programming, cash distributions from our equity investments and revenues from our real estate assets.



57


As further described in Note 2 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017, on December 19, 2016, we entered into a definitive share purchase agreement (the “Gracenote SPA”) with Nielsen Holding and Finance B.V. (“Nielsen”) to sell equity interests in substantially all of the Digital and Data business operations, which includes Gracenote Inc., Gracenote Canada, Inc., Gracenote Netherlands Holdings B.V., Tribune Digital Ventures LLC and Tribune International Holdco, LLC (the “Gracenote Companies”), for $560 million in cash, subject to certain purchase price adjustments (the “Gracenote Sale”), which was completed on January 31, 2017. Prior to the Gracenote Sale, we reported our operations through the Television and Entertainment and Digital and Data reportable segments. Our Digital and Data segment consisted of several businesses driven by our expertise in collection, creation and distribution of data and innovation in unique services and recognition technology that used data, including Gracenote Video, Gracenote Music and Gracenote Sports. In accordance with Accounting Standards Update No. 2014-08, “Reporting Discontinued Operations and Disclosure of Disposal of Components of an Entity,” assets and liabilities of Digital and Data businesses included in the Gracenote Sale are classified as discontinued operations in our unaudited Condensed Consolidated Balance Sheet at December 31, 2016, and the results of operations are reported as discontinued operations in our unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for all periods presented.
Our business consists of our Television and Entertainment operations and the management of certain of our real
estate assets. We also hold a variety of investments in cable and digital assets, including equity investments in Television Food Network, G.P. (“TV Food Network”) and CareerBuilder, LLC (through our investment in Camaro Parent, LLC) (“CareerBuilder”). Television and Entertainment is a reportable segment, which provides audiences across the country with news, entertainment and sports programming on Tribune Broadcasting local television stations and distinctive, high quality television series and movies on WGN America, including content produced by Tribune Studios and its production partners, as well as news, entertainment and sports information via our websites and other digital assets. Television and Entertainment consists of 42 local television stations and related websites, including 39 owned stations and 3 stations to which we provide certain services with Dreamcatcher Broadcasting LLC (“Dreamcatcher”); WGN America, a national general entertainment cable network; Tribune Studios, a production company that sources and produces original and exclusive content for WGN America and our local television stations; Antenna TV and THIS TV, national multicast networks; and WGN-AM, a radio station in Chicago.
In addition, we report and include under Corporate and Other the management of certain of our real estate assets, including revenues from leasing our owned office and production facilities and any gains or losses from the sales of our owned real estate, as well as certain administrative activities associated with operating corporate office functions and managing our predominantly frozen company-sponsored defined benefit pension plans.
Our results of operations, when examined on a quarterly basis, reflect the historical seasonality of our advertising revenues. Typically, second and fourth quarter advertising revenues are higher than first and third quarter advertising revenues. Results for the second quarter usually reflect spring seasonal advertising, while the fourth quarter includes advertising related to the holiday season. In addition, our operating results are subject to fluctuations from political advertising as political spending is usually significantly higher in even numbered years due to advertising expenditures preceding local and national elections. For additional information on the businesses we operate, see “Item 1. Business” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “2016 Annual Report”) and our other filings with the SEC.

SIGNIFICANT EVENTS
Sinclair Merger Agreement
On May 8, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sinclair, providing for the acquisition by Sinclair of all of the outstanding shares of our Class A common stock (“Class A Common Stock”) and Class B common stock (“Class B Common Stock” and, together with the Class A Common Stock, the “Common Stock”) by means of a merger of Samson Merger Sub Inc., a wholly owned subsidiary of



58


Sinclair, with and into Tribune Media Company, with Tribune Media Company surviving the Merger as a wholly owned subsidiary of Sinclair.
In the Merger, each share of our Common Stock will be converted into the right to receive (i) $35.00 in cash, without interest and less any required withholding taxes (such amount, the “Cash Consideration”), and (ii) 0.2300 (the “Exchange Ratio”) of a validly issued, fully paid and nonassessable share of Class A common stock, $0.01 par value per share (the “Sinclair Common Stock”), of Sinclair (the “Stock Consideration”, and together with the Cash Consideration, the “Merger Consideration”). The Merger Agreement provides that each holder of an outstanding Tribune Media Company stock option (whether or not vested) will receive, for each share of our Common Stock subject to such stock option, a cash payment equal to the excess, if any, of the value of the Merger Consideration (with the Stock Consideration valued over a specified period prior to the consummation of the Merger) and the exercise price per share of such option, without interest and less any required withholding taxes. Each outstanding Tribune Media Company restricted stock unit award will be converted into a cash-settled restricted stock unit award reflecting a number of shares of Sinclair Common Stock equal to the number of shares of our Common Stock subject to such award multiplied by a ratio equal to (a) the sum of (i) the Exchange Ratio plus (ii) the Cash Consideration divided by (b) the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger. Otherwise, each such award will continue to be subject to the same terms and conditions as such award was subject prior to the Merger. Each outstanding Tribune Media Company performance stock unit (other than supplemental performance stock units) will automatically become vested at “target” level of performance and will be entitled to receive an amount of cash equal to (a) the number of shares of our Common Stock that are subject to such unit as so vested multiplied by (b) the sum of (i) the Cash Consideration and (ii) the Exchange Ratio multiplied by the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger without interest and less any required withholding taxes. Each holder of an outstanding Tribune Media Company supplemental performance stock unit that will vest in accordance with its existing terms will be entitled to receive an amount of cash equal to (a) the number of shares of our Common Stock that are subject to such unit as so vested multiplied by (b) the sum of (i) the Cash Consideration and (ii) the Exchange Ratio multiplied by the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger without interest and less any required withholding taxes. Any supplemental performance stock units that do not vest in accordance with their terms will be canceled without any consideration. Each holder of an outstanding Tribune Media Company deferred stock unit will be entitled to receive an amount of cash equal to (a) the number of shares of our Common Stock that are subject to such unit multiplied by (b) the sum of (i) the Cash Consideration and (ii) the Exchange Ratio multiplied by the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger without interest and subject to all applicable withholding. Each outstanding Tribune Media Company Warrant will become a warrant exercisable, at its current exercise price, for the Merger Consideration in respect of each share of our Common Stock subject to the Warrant prior to the Merger.
The consummation of the Merger is subject to the satisfaction or waiver of certain customary conditions, including, among others: (i) the approval of the Merger by our stockholders, (ii) the receipt of approval from the Federal Communications Commission (the “FCC”) and the expiration or termination of the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (iii) the effectiveness of a registration statement on Form S-4 registering the Sinclair Common Stock to be issued in connection with the Merger and no stop order or proceedings seeking the same having been initiated by the SEC, (iv) the listing of the Sinclair Common Stock to be issued in the Merger on the NASDAQ Global Select Market and (v) the absence of certain legal impediments to the consummation of the Merger.
On September 6, 2017, Sinclair’s registration statement on Form S-4 registering the Sinclair Common Stock to be issued in the Merger was declared effective by the SEC.
On October 19, 2017, holders of a majority of the outstanding shares of our Class A Common Stock and Class B Common Stock, voting as a single class, voted on and approved the Merger Agreement and the transactions contemplated by the Merger Agreement at a duly called special meeting of Tribune shareholders.



59


The applications seeking FCC approval of the transactions contemplated by the Merger Agreement (the “Applications”) were filed on June 26, 2017, and the FCC issued a public notice of the filing of the Applications and establishing a comment cycle on July 6, 2017. Several petitions to deny the Applications, and numerous other comments, both opposing and supporting the transaction, were filed in response to the public notice. Sinclair and us jointly filed an opposition to the petitions to deny on August 22, 2017 (the “Joint Opposition”). Petitioners and others filed replies to the Joint Opposition on August 29, 2017. On September 14, 2017, the FCC’s Media Bureau issued a Request for Information (“RFI”) seeking additional information regarding certain matters discussed in the Applications. Sinclair submitted a response to the RFI on October 5, 2017. On October 18, 2017, the FCC’s Media Bureau issued a public notice pausing the FCC’s 180-day transaction review “shot-clock” for 15 days to afford interested parties an opportunity to comment on the response to the RFI.
On August 2, 2017, we received a request for additional information and documentary material, often referred to as a “second request,” from the United States Department of Justice (the “DOJ”) in connection with the Merger Agreement. The second request was issued under the HSR Act. Sinclair received a substantively identical request for additional information and documentary material from the DOJ in connection with the transactions contemplated by the Merger Agreement. Issuance of the second request extends the waiting period under the HSR Act until 30 days after we and Sinclair have substantially complied with the second request, unless the waiting period is terminated earlier by the DOJ or the parties voluntarily extend the time for closing. The parties entered into an agreement with the DOJ on September 15, 2017, by which they agreed not to consummate the Merger Agreement before December 31, 2017, or sixty days following the date on which both parties have certified compliance with the second request, whichever is later. On October 30, 2017, the parties agreed to extend the date before which they may not consummate the Merger Agreement to January 30, 2018.
Sinclair’s and our respective obligation to consummate the Merger are also subject to certain additional customary conditions, including (i) material accuracy of representations and warranties in the Merger Agreement of the other party, (ii) performance by the other party of its covenants in the Merger Agreement in all material respects and (iii) since the date of the Merger Agreement, no material adverse effect with respect to the other party having occurred.
If the Merger Agreement is terminated in connection with us entering into a definitive agreement with respect to a superior proposal, as well as under certain other circumstances, the termination fee payable by us to Sinclair will be $135.5 million. If the Merger Agreement is terminated (i) by either us or Sinclair because the Merger has not occurred by the end date described below or (ii) by Sinclair in respect of a willful breach of our covenants or agreements that would give rise to the failure of a closing condition that is incapable of being cured within the time periods prescribed by the Merger Agreement, and an alternative acquisition proposal has been made to us and publicly announced and not withdrawn prior to the termination, and within twelve months after termination of the Merger Agreement, we enter into a definitive agreement with respect to an alternative acquisition proposal (and subsequently consummate such transaction) or consummate a transaction with respect to an alternative acquisition proposal, we will pay Sinclair $135.5 million less Sinclair’s costs and expenses paid.
In addition to the foregoing termination rights, either party may terminate the Merger Agreement if the Merger is not consummated on or before May 8, 2018, with an automatic extension to August 8, 2018, if necessary to obtain regulatory approval under circumstances specified in the Merger Agreement.
Sale of Digital and Data Business
On December 19, 2016, we entered into the Gracenote SPA with Nielsen to sell equity interests in substantially all of the Digital and Data business operations for $560 million in cash, subject to certain purchase price adjustments. We completed the Gracenote Sale on January 31, 2017 and received gross proceeds of $581 million. In the second quarter of 2017, we received additional proceeds of $3 million as a result of purchase price adjustments. In the nine months ended September 30, 2017, we recognized a pretax gain of $35 million as a result of the Gracenote Sale. On February 1, 2017, we used $400 million of proceeds from the Gracenote Sale to prepay a portion of our Term Loan Facility (as defined below). See Note 2 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017 for further information.



60


Discontinued Operations
Results of operations for the Digital and Data businesses included in the Gracenote Sale are presented as discontinued operations in our unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for all periods presented.
The following table shows the components of the results from discontinued operations associated with the Gracenote Sale as reflected in our unaudited Condensed Consolidated Statements of Operations (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017 (1)
 
September 30, 2016
Operating revenues
$
—

 
$
48,579

 
$
18,168

 
$
148,055

Direct operating expenses
—

 
19,921

 
7,292

 
55,477

Selling, general and administrative
—

 
28,733

 
15,349

 
84,083

Depreciation (2)
—

 
3,946

 
—

 
9,894

Amortization (2)
—

 
7,728

 
—

 
23,192

Operating loss
—

 
(11,749
)
 
(4,473
)
 
(24,591
)
Interest income
—

 
57

 
16

 
83

Interest expense (3)
—

 
(3,826
)
 
(1,261
)
 
(11,497
)
Loss before income taxes
—

 
(15,518
)
 
(5,718
)
 
(36,005
)
Pretax gain on the disposal of discontinued operations
—

 
—

 
34,510

 
—

Total pretax (loss) income on discontinued operations
—

 
(15,518
)
 
28,792

 
(36,005
)
Income tax (benefit) expense (4)
—

 
(7,444
)
 
13,753

 
(14,987
)
(Loss) income from discontinued operations, net of taxes
$
—

 
$
(8,074
)
 
$
15,039

 
$
(21,018
)
 
(1)
Results of operations for the Gracenote Companies are reflected through January 31, 2017, the date of the Gracenote Sale.
(2)
No depreciation expense or amortization expense was recorded by us in 2017 as the Gracenote Companies’ assets were held for sale as of December 31, 2016.
(3)
We used $400 million of proceeds from the Gracenote Sale to prepay a portion of our outstanding borrowings under the Term Loan Facility (as defined below). Interest expense was allocated to discontinued operations based on the ratio of the $400 million prepayment to the total outstanding indebtedness under the Term Loan Facility in effect in each respective period.
(4)
The effective tax rates on pretax (loss) income from discontinued operations were 48.0% for the three months ended September 30, 2016, 47.8% for the nine months ended September 30, 2017 and 41.6% for the nine months ended September 30, 2016. The 2017 rate differs from the U.S. federal statutory rate of 35% primarily due to state income taxes (net of federal benefit), foreign tax rate differences, and an adjustment relating to the sale of the Gracenote Companies. The 2016 rates differ from the U.S. federal statutory rate of 35% primarily due to state income taxes (net of federal benefit) and foreign tax rate differences.
The results of discontinued operations include selling costs and transaction costs, including legal and professional fees incurred by us to complete the Gracenote Sale, of $10 million and $1 million for the nine months ended September 30, 2017 and September 30, 2016, respectively.
The net assets of discontinued operations included in our unaudited Condensed Consolidated Balance Sheet as of December 31, 2016 totaled $521 million, as further described in Note 2 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017.
The Gracenote SPA provides for indemnification against specified losses and damages which became effective upon completion of the transaction. We do not expect to incur material costs in connection with these indemnifications. We have no material contingent liabilities relating to the Gracenote Sale as of September 30, 2017.



61


Special Cash Dividend
On February 3, 2017, we paid a special cash dividend of $5.77 per share to holders of record of our Class A Common Stock and Class B Common Stock at the close of business on January 13, 2017. The total aggregate payment on February 3, 2017 totaled $499 million, including the payment to holders of Warrants.
Chapter 11 Reorganization
On December 8, 2008 (the “Petition Date”), Tribune Company and 110 of its direct and indirect wholly-owned subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief (collectively, the “Chapter 11 Petitions”) under chapter 11 (“Chapter 11”) of title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Fourth Amended Joint Plan of Reorganization for Tribune Company and its Subsidiaries (as subsequently modified, the “Plan”) became effective and the Debtors emerged from Chapter 11 on December 31, 2012 (the “Effective Date”). The Bankruptcy Court entered final decrees collectively closing 106 of the Debtors’ Chapter 11 cases. The remaining Debtors’ Chapter 11 proceedings continue to be jointly administered under the caption In re Tribune Media Company, et al., Case No. 08-13141.
See Note 3 to our audited consolidated financial statements for the fiscal year ended December 31, 2016 for additional information regarding the Debtors’ Chapter 11 cases and for a description of the terms and conditions of the Plan.
At September 30, 2017, restricted cash held by us to satisfy the remaining claim obligations was $18 million and is estimated to be sufficient to satisfy such obligations. If the aggregate allowed amount of the remaining claims exceeds the restricted cash held for satisfying such claims, we would be required to satisfy the allowed claims from our cash from operations.
Secured Credit Facility
On January 27, 2017, we entered into an amendment (the “2017 Amendment”) to our secured credit facility (the “Secured Credit Facility”), comprised of a term loan facility (the “Term Loan Facility”) and a revolving credit facility (the “Revolving Credit Facility”) pursuant to which, among other things, (i) certain term lenders under the Term Loan Facility converted a portion of their term B loans (the “Term B Loans”) outstanding immediately prior to the closing of the 2017 Amendment (the “Former Term B Loans”) into a new tranche of term loans in an aggregate amount (after giving effect to the Term Loan Increase Supplement (as defined below)) of approximately $1.761 billion (the “Term C Loans”), electing to extend the maturity date of the Term C Loans from December 27, 2020 to the earlier of (A) January 27, 2024 and (B) solely to the extent that more than $600 million in aggregate principal amount of the 5.875% Senior Notes due 2022 remain outstanding on such date, the date that is 91 days prior to July 15, 2022 (as such date may be extended from time to time) and (ii) certain revolving lenders under the Revolving Credit Facility converted all of their revolving commitments into a new tranche of revolving commitments (the “New Initial Revolving Credit Commitments”; the existing tranche of revolving commitments of the remaining revolving lenders, the “Existing Revolving Tranche”), electing to extend the maturity date of the New Initial Revolving Credit Commitments from December 27, 2018 to January 27, 2022. See Note 7 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017 for further information on the Secured Credit Facility.
On January 27, 2017, immediately following effectiveness of the 2017 Amendment, we increased (A) the amount of the Term C Loans pursuant to an Increase Supplement (the “Term Loan Increase Supplement”) between us and the term lender party thereto and (B) the amount of commitments under the Revolving Credit Facility from $300 million to $420 million, pursuant to (i) an Increase Supplement, among us and certain existing revolving lenders and (ii) a Lender Joinder Agreement, among us, a new revolving lender and JPMorgan, as administrative agent. On February 1, 2017, we used $400 million of proceeds from the Gracenote Sale to prepay a portion of our outstanding Term B Loans under the Secured Credit Facility.



62


In the first quarter of 2017, as a result of the 2017 Amendment and the $400 million prepayment, we recorded a charge of $19 million on the extinguishment and modification of debt.
In the third quarter of 2017, we used after-tax proceeds of $102 million from our participation in the FCC spectrum auction to prepay a portion of the Term Loan Facility and as a result recorded charges of $1 million on the extinguishment of debt. See Note 7 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017 for additional information.
5.875% Senior Notes due 2022
On April 1, 2016, the SEC declared effective the exchange offer registration statement on Form S-4 to exchange our 5.875% Senior Notes due 2022 and the related guarantees of certain subsidiaries for substantially identical securities registered under the Securities Act of 1933, as amended (the “Securities Act”). On May 4, 2016, we and the subsidiary guarantors completed the exchange offer of the 5.875% Senior Notes due 2022 and related guarantees for $1.100 billion of our 5.875% Senior Notes due 2022 (the “Notes”) and the related guarantees, which have been registered under the Securities Act.
Consent Solicitation
On June 22, 2017, we announced that we received consents from 93.23% of holders of the Notes outstanding as of the record date of June 12, 2017 to effect certain proposed amendments to the Indenture (as defined below). We undertook the consent solicitation (the “Consent Solicitation”) at the request and expense of Sinclair in accordance with the terms of the Merger Agreement. In conjunction with receiving the requisite consents, on June 22, 2017, we, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee for the Notes, entered into the fourth supplemental indenture (the “Supplemental Indenture”) to the indenture governing the Notes, dated as of June 24, 2015 (as supplemented and amended, the “Indenture”), to effect the proposed amendments to (i) eliminate any requirement for us to make a “Change of Control Offer” (as defined in the Indenture) to holders of the Notes in connection with the transactions contemplated by the Merger Agreement, (ii) clarify the treatment under the Indenture of the proposed structure of the Merger and to facilitate the integration of the Company and its subsidiaries and the Notes with and into Sinclair's debt capital structure, and (iii) eliminate the expense associated with producing and filing with the SEC separate financial reports for Sinclair Television Group, Inc., a wholly-owned subsidiary of Sinclair, as successor issuer of the Notes, if Sinclair or any other parent entity of the successor issuer of the Notes, in its sole discretion, provides an unconditional guarantee of the payment obligations of the successor issuer under the Notes (collectively, the “Amendments”). The Supplemental Indenture became effective immediately upon execution, but the Amendments will not become operative until immediately prior to the effective time of the Merger.
Dreamcatcher Credit Facility
In the third quarter of 2017, we used $12.6 million of after-tax proceeds from the FCC spectrum auction to prepay the Dreamcatcher Credit Facility. The debt extinguishment charge recorded in the three months ended September 30, 2017 associated with this prepayment was immaterial. We made the final payment to pay off the Dreamcatcher Credit Facility in September 2017. See Note 7 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017 for additional information.
Newsday and Chicago Cubs Transactions
As further described in Note 13 to our audited consolidated financial statements for the fiscal year ended December 31, 2016, we reached a final agreement with the IRS administrative appeals division regarding the Newsday Transactions (as defined and described in Note 8 to our audited consolidated financial statements for the fiscal year ended December 31, 2016), for tax years 2008 through 2015 in the third quarter of 2016. During the second quarter of 2016, we recorded a $102 million income tax charge which was reflected as a $125 million current income tax reserve and a $23 million reduction in deferred income tax liabilities. The income tax reserve included federal and state taxes, interest and penalties while the deferred income tax benefit is primarily related to deductible interest expense. We also recorded $91 million of income tax expense to increase our deferred income tax liability to



63


reflect the estimated reduction in the tax basis of our assets. The reduction in tax basis was required to reflect the expected negotiated reduction in the amount of our guarantee of the Newsday partnership debt which was included in the reported tax basis previously determined upon emergence from bankruptcy. In connection with the final agreement, we recorded an income tax benefit of $3 million to adjust the estimate of the deferred tax liability recorded in the second quarter of 2016. During the second half of 2016, we paid $122 million of federal taxes, state taxes (net of state refunds), interest and penalties. The tax payments were recorded as a reduction in our current income tax reserve. During the fourth quarter of 2016, we recorded an additional $1 million of tax expense primarily related to the additional accrual of interest. The remaining $4 million of state tax liabilities are included in the income taxes payable account on the unaudited Condensed Consolidated Balance Sheet at September 30, 2017.
As further described in Note 13 to our audited consolidated financial statements for the fiscal year ended December 31, 2016, on June 28, 2016, the IRS issued to us a Notice of Deficiency (“Notice”) which presents the IRS’s position that the gain on the Chicago Cubs Transactions (as defined and described in Note 8 to our audited consolidated financial statements for the year ended December 31, 2016) should have been included in our 2009 taxable income. Accordingly, the IRS has proposed a $182 million tax and a $73 million gross valuation misstatement penalty. After-tax interest on the proposed tax and penalty through September 30, 2017 would be approximately $48 million. We continue to disagree with the IRS’s position that the transaction generated a taxable gain in 2009, the proposed penalty and the IRS’s calculation of the gain. During the third quarter of 2016, we filed a petition in U.S. Tax Court to contest the IRS’s determination. We continue to pursue resolution of this disputed tax matter with the IRS. If the gain on the Chicago Cubs Transactions is deemed to be taxable in 2009, we estimate that the federal and state income taxes would be approximately $225 million before interest and penalties. Any tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2009. As of September 30, 2017, we have paid or accrued approximately $50 million of federal and state tax payments through our regular tax reporting process. We do not maintain any tax reserves relating to the Chicago Cubs Transactions. In accordance with ASC Topic 740, “Income Taxes,” our unaudited Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016 include a deferred tax liability of $149 million and $158 million, respectively, related to the future recognition of taxable income related to the Chicago Cubs Transactions.
CareerBuilder
On September 7, 2016, TEGNA Inc. (“TEGNA”) announced that it began evaluating strategic alternatives, including a possible sale, for CareerBuilder. In March 2017, the range of possible outcomes was narrowed and based on operating performance and updated bids received by TEGNA, we determined that there was sufficient indication that the carrying value of our investment in CareerBuilder may be impaired. As of the assessment date in the first quarter of 2017, the carrying value of our investment in CareerBuilder included $72 million of unamortized basis difference that we recorded as a result of fresh start reporting, as further described in Note 6 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017. In the first quarter of 2017, we recorded a non-cash pretax impairment charge of $122 million to write down our investment in CareerBuilder, which eliminated the remaining fresh start reporting basis difference. The write down resulted from a decline in the fair value of the investment that we determined to be other than temporary.
On June 19, 2017, TEGNA announced that it entered into an agreement (the “CareerBuilder Sale Agreement”), together with the other owners of CareerBuilder, including us, to sell a majority interest in CareerBuilder to an investor group led by investment funds managed by affiliates of Apollo Global Management, LLC and the Ontario Teachers’ Pension Plan Board. As a result, in the second quarter of 2017, we recorded an additional non-cash pretax impairment charge of $59 million to further write down our investment in CareerBuilder based on the transaction value contemplated in the CareerBuilder Sale Agreement. The transaction closed on July 31, 2017 and we received cash of $158 million, which included an excess cash distribution of $16 million. We recognized a gain on sale of $6 million in the third quarter of 2017. Subsequent to the sale, our ownership in CareerBuilder declined from 32% to approximately 7%, on a fully diluted basis.
In the nine months ended September 30, 2017, the total non-cash pretax impairment charges to write down our investment in CareerBuilder totaled $181 million. The impairment charges resulted from declines in the fair value of the investment that we determined to be other than temporary.



64


FCC Spectrum Auction
On April 13, 2017, the FCC announced the conclusion of the incentive auction, the results of the reverse and forward auction and the repacking of broadcast television spectrum. We participated in the auction and have received approximately $185 million in pretax proceeds (including $21 million of proceeds received by a Dreamcatcher station), as of November 8, 2017, with approximately $5 million in pretax proceeds remaining to be paid to us by our channel sharing partner pursuant to an agreement between the parties. We expect to receive the remaining auction proceeds in the fourth quarter of 2017; however, we cannot predict the exact timing of the remaining payment. The proceeds reflect the FCC’s acceptance of one or more bids placed by us or channel share partners of television stations owned or operated by us during the auction to modify and/or surrender spectrum used by certain of such bidder’s television stations. FCC licenses with a carrying value of approximately $39 million have been reclassified to held for sale as of September 30, 2017. We received approximately $172 million in gross proceeds for these licenses as part of the FCC spectrum auction and expect to recognize a gain of $133 million related to these licenses at the time we release the spectrum to the FCC. We used $102 million of after-tax proceeds to prepay a portion of our Term Loan Facility. After-tax proceeds of $12.6 million received by a Dreamcatcher station were used to prepay a substantial portion of the Dreamcatcher Credit Facility. Twenty-two of our television stations (including WTTK, which operates as a satellite station of WTTV) will be required to change frequencies or otherwise modify their operations as a result of the repacking, as further described in Note 9 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017. In doing so, the stations could incur substantial conversion costs, reduction or loss of over-the-air signal coverage or an inability to provide high definition programming and additional program streams. The legislation authorizing the incentive auction provides the FCC with a $1.750 billion fund to reimburse reasonable capital costs and expenses incurred by stations that are reassigned to new channels in the repacking. We expect that the reimbursements from the FCC’s special fund will cover the majority of our capital costs and expenses related to the repacking. However, we cannot currently predict the effect of the repacking, whether the special fund will be sufficient to reimburse all of our expenses related to the repack, the timing of reimbursements or any spectrum-related FCC regulatory action.
Non-Operating Items
Non-operating items for the three and nine months ended September 30, 2017 and September 30, 2016 are summarized as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Loss on extinguishments and modification of debt
$
(1,435
)
 
$
—

 
$
(20,487
)
 
$
—

Gain on investment transactions, net
5,667

 
—

 
10,617

 
—

Write-downs of investment
—

 
—

 
(180,800
)
 
—

Other non-operating gain, net
—

 
57

 
45

 
478

Total non-operating gain (loss), net
$
4,232

 
$
57

 
$
(190,625
)
 
$
478

Non-operating items for the three months ended September 30, 2017 included a $1 million pretax loss on the extinguishment of debt associated with the prepayment of a portion of the Term Loan Facility and the prepayment of the Dreamcatcher Credit Facility during the third quarter of 2017. Gain on investment transactions, net included a pretax gain of $6 million from the partial sale of CareerBuilder.
Non-operating items for the nine months ended September 30, 2017 included a $20 million pretax loss on the extinguishment and modification of debt. The loss included a write-off of unamortized debt issuance costs of $7 million and an unamortized discount of $2 million as a portion of the Term Loan Facility was considered extinguished for accounting purposes as well as an expense of $12 million of third party fees as a portion of the Term Loan Facility was considered a modification transaction under ASC 470, “Debt.” Gain on investment



65


transactions, net for the nine months ended September 30, 2017 included a pretax gain of $5 million from the sale of our tronc, Inc. (“tronc”) shares and a pretax gain of $6 million from the partial sale of CareerBuilder. Write-downs of investment for the nine months ended September 30, 2017 included non-cash pretax impairment charges of $181 million to write down our investment in CareerBuilder, as further described above.
Monetization of Real Estate Assets
See Note 4 to our unaudited condensed consolidated financial statements for details on real estate sales in the three and nine months ended September 30, 2017 and September 30, 2016.

RESULTS OF OPERATIONS
As described under “Significant Events—Sale of Digital and Data Business,” on December 19, 2016, we entered into the Gracenote SPA with Nielsen to sell equity interests in substantially all of the Digital and Data business operations and the Gracenote Sale closed on January 31, 2017. As a result, the historical results of operations for businesses included in the Gracenote Sale are reported in discontinued operations for all periods presented.
Beginning in the fourth quarter of 2016, the Television and Entertainment reportable segment includes the operations of Covers, a business-to-consumer website, which was previously included in the Digital and Data reportable segment. The impact of the inclusion of Covers in the Television and Entertainment reportable segment was immaterial. The following discussion and analysis presents a review of our continuing operations as of and for the three and nine months ended September 30, 2017 and September 30, 2016, unless otherwise noted.
CONSOLIDATED
Consolidated operating results for the three and nine months ended September 30, 2017 and September 30, 2016 are shown in the table below:
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
September 30, 2017
 
September 30, 2016
 
Change
 
September 30, 2017
 
September 30, 2016
 
Change
Operating revenues
$
450,533

 
$
470,038

 
-4
 %
 
$
1,359,960

 
$
1,418,306

 
-4
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating (loss) profit
$
(23,749
)
 
$
234,170

 
*

 
$
(20,655
)
 
$
320,368

 
*

 
 
 
 
 
 
 
 
 
 
 
 
Income on equity investments, net
$
21,058

 
$
31,737

 
-34
 %
 
$
98,856

 
$
114,295

 
-14
 %
 
 
 
 
 


 
 
 
 
 
 
(Loss) income from continuing operations
$
(18,687
)
 
$
153,839

 
*

 
$
(149,722
)
 
$
16,313

 
*

 
 
 
 
 


 
 
 
 
 
 
(Loss) income from discontinued operations, net of taxes
$
—

 
$
(8,074
)
 
*

 
$
15,039

 
$
(21,018
)
 
*

 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(18,687
)
 
$
145,765

 
*

 
$
(134,683
)
 
$
(4,705
)
 
*

 
*
Represents positive or negative change equal to, or in excess of 100%



66


Operating Revenues and Operating (Loss) Profit—Consolidated operating revenues and operating (loss) profit by business segment for the three and nine months ended September 30, 2017 and September 30, 2016 were as follows:
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
September 30, 2017
 
September 30, 2016
 
Change
 
September 30, 2017
 
September 30, 2016
 
Change
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
Television and Entertainment
$
447,307

 
$
460,164

 
-3
 %
 
$
1,349,401

 
$
1,384,173

 
-3
 %
Corporate and Other
3,226

 
9,874

 
-67
 %
 
10,559

 
34,133

 
-69
 %
Total operating revenues
$
450,533

 
$
470,038

 
-4
 %
 
$
1,359,960

 
$
1,418,306

 
-4
 %
Operating (loss) profit
 
 
 
 
 
 
 
 
 
 
 
Television and Entertainment
$
(1,357
)
 
$
46,024

 
*

 
$
68,875

 
$
187,975

 
-63
 %
Corporate and Other
(22,392
)
 
188,146

 
*

 
(89,530
)
 
132,393

 
*

Total operating (loss) profit
$
(23,749
)
 
$
234,170

 
*

 
$
(20,655
)
 
$
320,368

 
*

 
*
Represents positive or negative change equal to, or in excess of 100%

Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016
Consolidated operating revenues fell 4%, or $20 million, in the three months ended September 30, 2017 primarily due to a decrease of $13 million at Television and Entertainment driven by lower advertising revenue and other revenue, partially offset by higher retransmission revenues and carriage fees. Additionally, Corporate and Other revenues decreased $7 million largely due to the loss of revenue from real estate properties sold in 2016 and 2017. Consolidated operating profit decreased $258 million to an operating loss of $24 million in the three months ended September 30, 2017, from operating profit of $234 million in the three months ended September 30, 2016. The decrease is primarily due to $213 million of gains recorded on the sales of real estate in the third quarter of 2016 along with an operating loss at Television and Entertainment driven by an $80 million program impairment charge for the syndicated programs Elementary and Person of Interest at WGN America in the third quarter of 2017, compared to a $37 million program impairment charge in the third quarter of 2016.
Nine Months Ended September 30, 2017 compared to the Nine Months Ended September 30, 2016
Consolidated operating revenues decreased 4%, or $58 million, in the nine months ended September 30, 2017 due to a decrease of $35 million in Television and Entertainment revenues driven by lower advertising revenue and other revenue, partially offset by increased retransmission revenues and carriage fees, along with a decrease in Corporate and Other revenues of $24 million primarily due to the loss of revenue from real estate properties sold in 2016 and 2017. Consolidated operating profit decreased $341 million to an operating loss of $21 million in the nine months ended September 30, 2017, from operating profit of $320 million in the nine months ended September 30, 2016. The decrease is primarily due to $213 million of gains recorded on the sales of real estate in 2016, a decline in revenue, higher professional fees and increased compensation expense principally related to the resignation of the CEO in the first quarter of 2017, along with an operating loss at Television and Entertainment driven by an $80 million program impairment charge for syndicated programs Elementary and Person of Interest at WGN America, compared to a $37 million program impairment charge in the nine months ended September 30, 2016.



67


Operating Expenses—Consolidated operating expenses for the three and nine months ended September 30, 2017 and September 30, 2016 were as follows:
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
September 30, 2017
 
September 30, 2016
 
Change
 
September 30, 2017
 
September 30, 2016
 
Change
Programming
$
199,118

 
$
149,480

 
+33
 %
 
$
497,448

 
$
396,450

 
+25
 %
Direct operating expenses
98,419

 
99,150

 
-1
 %
 
294,166

 
293,245

 
—
 %
Selling, general and administrative
120,869

 
143,974

 
-16
 %
 
422,604

 
452,286

 
-7
 %
Depreciation
14,263

 
14,764

 
-3
 %
 
41,761

 
43,673

 
-4
 %
Amortization
41,678

 
41,668

 
—
 %
 
125,001

 
125,003

 
—
 %
Gain on sales of real estate, net
(65
)
 
(213,168
)
 
-100
 %
 
(365
)
 
(212,719
)
 
-100
 %
Total operating expenses
$
474,282

 
$
235,868

 
*

 
$
1,380,615

 
$
1,097,938

 
+26
 %
 
*
Represents positive or negative change equal to, or in excess of 100%
Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016
Programming expense, which represented 44% of revenues for the three months ended September 30, 2017 compared to 32% for the three months ended September 30, 2016, increased 33%, or $50 million, primarily due to an increase of $43 million in program impairment charges and higher network affiliate fees of $7 million. The Company recorded an $80 million program impairment charge for the syndicated programs Elementary and Person of Interest at WGN America in the third quarter of 2017, compared to a $37 million program impairment charge in the third quarter of 2016 for Elementary.
Direct operating expenses, which represented 22% of revenues for the three months ended September 30, 2017 compared to 21% for the three months ended September 30, 2016, were essentially flat.
SG&A expenses, which represented 27% of revenues for the three months ended September 30, 2017 compared to 31% for the three months ended September 30, 2016, were down 16%, or $23 million, due mainly to lower compensation, outside services and other expenses. Compensation expense decreased 16%, or $11 million, primarily due to an $8 million reduction in severance and a $3 million decrease in stock-based compensation. The decline in other expenses was primarily the result of a $3 million decrease in promotion expense and a $3 million decrease in real estate taxes and other costs associated with real estate sold in 2016. Outside services decreased 23%, or $6 million, primarily due to a $4 million decrease in technology professional fees, a $1 million decrease in costs for operating the websites of our television stations and a $1 million decrease in costs associated with real estate sold in 2016.
Gain on sales of real estate, net of $213 million for the three months ended September 30, 2016 primarily related to the sales of Tribune Tower, the north block of the Los Angeles Times Square property (“LA Times Property”) and the Olympic Printing Plant facility.
Depreciation expense fell 3%, or less than $1 million, in the three months ended September 30, 2017. The decrease in depreciation expense is primarily due lower levels of depreciable property. Amortization expense remained flat for the three months ended September 30, 2017.
Nine Months Ended September 30, 2017 compared to the Nine Months Ended September 30, 2016
Programming expenses, which represented 37% of revenues for the nine months ended September 30, 2017 compared to 28% for the nine months ended September 30, 2016, increased 25%, or $101 million, primarily due to the increase of $43 million in program impairment charges described above, and a total of $20 million of expense related to a shift in programming strategy at WGN America in the second quarter of 2017. This includes cancellation



68


costs for Outsiders and Underground and the associated accelerated amortization of remaining programming assets for both shows as well as the write-off of certain other capitalized program development projects. The remaining increase was due to higher network affiliate fees of $23 million and $21 million of higher amortization of license fees primarily related to original programming that aired during 2017.
Direct operating expenses, which represented 22% of revenues for the nine months ended September 30, 2017 and 21% for the nine months ended September 30, 2016, were essentially flat as a $2 million increase in compensation expense at Television and Entertainment was almost fully offset by declines in all other direct operating expenses.
SG&A expenses, which represented 31% of revenues for the nine months ended September 30, 2017 and 32% for the nine months ended September 30, 2016, decreased 7%, or $30 million, as lower other expenses and outside services expense were partially offset by higher compensation. Outside services expense decreased 6%, or $5 million, as an increase in professional and legal fees of $13 million related to the Merger were largely offset by a $12 million decrease in technology professional fees, a $2 million decrease in costs for operating websites and a $3 million decrease in costs associated with real estate sold in 2016. Other expenses decreased 16%, or $28 million, primarily due to a $14 million reduction of impairment charges associated with certain real estate properties, a $9 million decrease in real estate taxes and other costs associated with real estate sold in 2016 and a $6 million decrease in promotion expense. Compensation expense increased 2%, or $3 million, mainly due to a $7 million increase at Corporate and Other driven by separation costs related to the resignation of the CEO in the first quarter of 2017, partially offset by a $3 million decrease Television and Entertainment mainly due to a decrease in severance expense.
Gain on sales of real estate, net of $213 million for the nine months ended September 30, 2016 primarily related to the sales of Tribune Tower, the LA Times Property and the Olympic Printing Plant facility.
Depreciation expense decreased 4%, or $2 million, in the nine months ended September 30, 2017. The decrease in depreciation expense is primarily due to lower levels of depreciable property. Amortization expense remained flat for the nine months ended September 30, 2017.
(Loss) Income From Discontinued Operations, Net of Taxes—The results of discontinued operations for the three months ended September 30, 2016 and the nine months ended September 30, 2017 and September 30, 2016 include the operating results of the Digital and Data businesses included in the Gracenote Sale. Loss from discontinued operations, net of taxes totaled $8 million for the three months ended September 30, 2016. Income from discontinued operations, net of taxes totaled $15 million for the nine months ended September 30, 2017, including a pretax gain on the sale of $35 million compared to a loss from discontinued operations, net of taxes of $21 million for the nine months ended September 30, 2016. Interest expense allocated to discontinued operations totaled $4 million for the three months ended September 30, 2016 and $1 million and $11 million for the nine months ended September 30, 2017 and September 30, 2016, respectively. The results of discontinued operations also include selling and transaction costs, including legal and professional fees, incurred by us to complete the Gracenote Sale, of $10 million and $1 million for the nine months ended September 30, 2017 and September 30, 2016, respectively. See Note 2 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017 for further information.



69


TELEVISION AND ENTERTAINMENT
Operating Revenues and Operating (Loss) Profit—The table below presents Television and Entertainment operating revenues, operating expenses and operating (loss) profit for the three and nine months ended September 30, 2017 and September 30, 2016.
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
September 30, 2017
 
September 30, 2016
 
Change
 
September 30, 2017
 
September 30, 2016
 
Change
Operating revenues
$
447,307

 
$
460,164

 
-3
 %
 
$
1,349,401

 
$
1,384,173

 
-3
 %
Operating expenses
448,664

 
414,140

 
+8
 %
 
1,280,526

 
1,196,198

 
+7
 %
Operating (loss) profit
$
(1,357
)
 
$
46,024

 
*

 
$
68,875

 
$
187,975

 
-63
 %
 
*
Represents positive or negative change equal to, or in excess of 100%
Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016
Television and Entertainment operating revenues fell 3%, or $13 million, in the three months ended September 30, 2017 largely due to a decrease in advertising revenue and other revenue, partially offset by an increase in retransmission revenues and carriage fees, as further described below.
Television and Entertainment operating profit decreased $47 million to an operating loss of $1 million in the three months ended September 30, 2017, from operating profit of $46 million in the three months ended September 30, 2016, mainly due to higher programming expenses of $50 million driven by program impairment charges, as further described below.
Nine Months Ended September 30, 2017 compared to the Nine Months Ended September 30, 2016
Television and Entertainment operating revenues decreased 3%, or $35 million, in the nine months ended September 30, 2017 largely due to a decrease in advertising revenue and other revenue, partially offset by an increase in retransmission revenues and carriage fees, as further described below.
Television and Entertainment operating profit decreased 63%, or $119 million, in the nine months ended September 30, 2017 mainly due to lower operating revenues and increased programming expense, as further described below.
Operating Revenues—Television and Entertainment operating revenues, by classification, for the three and nine months ended September 30, 2017 and September 30, 2016 were as follows:
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
September 30, 2017
 
September 30, 2016
 
Change
 
September 30, 2017
 
September 30, 2016
 
Change
Advertising
$
295,130

 
$
330,309

 
-11
 %
 
$
899,701

 
$
989,991

 
-9
 %
Retransmission revenues
104,587

 
78,731

 
+33
 %
 
303,800

 
245,536

 
+24
 %
Carriage fees
30,930

 
28,984

 
+7
 %
 
96,407

 
90,394

 
+7
 %
Barter/trade
9,559

 
9,801

 
-2
 %
 
28,052

 
29,107

 
-4
 %
Other
7,101

 
12,339

 
-42
 %
 
21,441

 
29,145

 
-26
 %
Total operating revenues
$
447,307

 
$
460,164

 
-3
 %
 
$
1,349,401

 
$
1,384,173

 
-3
 %



70


Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016

Advertising Revenues—Advertising revenues, net of agency commissions, decreased 11%, or $35 million, in the three months ended September 30, 2017 primarily due to a $26 million decrease in net political advertising revenues and a $9 million decrease in net core advertising revenues (comprised of local and national advertising, excluding political and digital). The decrease in net core advertising revenue was primarily due to a decline in market revenues. Net political advertising revenues, which are a component of total advertising revenues, were $5 million for the three months ended September 30, 2017 compared to $31 million for the three months ended September 30, 2016, as 2016 was a presidential election year.
Retransmission Revenues—Retransmission revenues increased 33%, or $26 million, in the three months ended September 30, 2017 primarily due to a $21 million increase from higher rates included in retransmission consent renewals of our MVPD agreements, partially offset by a decrease in the number of subscribers. Additionally, the third quarter of 2016 was negatively impacted by the blackout of our stations by DISH Network from June 12, 2016 to September 3, 2016.
Carriage Fees—Carriage fees increased 7%, or $2 million, in the three months ended September 30, 2017 mainly due to higher rates for the distribution of WGN America.
Barter/Trade Revenues—Barter/trade revenues declined 2%, or less than $1 million, in the three months ended September 30, 2017.
Other Revenues—Other revenues are primarily derived from profit sharing, revenue on syndicated content and copyright royalties. Other revenues decreased 42%, or $5 million, in the three months ended September 30, 2017 as 2016 included profit sharing from an original program that was cancelled.
Nine Months Ended September 30, 2017 compared to the Nine Months Ended September 30, 2016
Advertising Revenues—Advertising revenues, net of agency commissions, fell 9%, or $90 million, in the nine months ended September 30, 2017 primarily due to a $49 million decrease in net political advertising revenues and a $44 million decrease in net core advertising revenues (comprised of local and national advertising, excluding political and digital), partially offset by a $3 million increase in digital revenues. The decrease in net core advertising revenue was primarily due to a decline in market revenues, partially offset by an increase in revenues associated with airing the Super Bowl on 14 FOX-affiliated stations in 2017 compared to six CBS-affiliated stations in 2016. Net political advertising revenues, which are a component of total advertising revenues, were approximately $11 million for the nine months ended September 30, 2017 compared to $60 million for the nine months ended September 30, 2016, as 2016 was a presidential election year.
Retransmission Revenues—Retransmission revenues increased 24%, or $58 million, in the nine months ended September 30, 2017 primarily due to a $54 million increase from higher rates included in retransmission consent renewals of our MVPD agreements, partially offset by a decrease in the number of subscribers. Additionally, 2016 was negatively impacted due to the blackout of our stations by DISH Network during 2016, as noted above.
Carriage Fees—Carriage fees were up 7%, or $6 million, in the nine months ended September 30, 2017 due mainly to an $8 million increase from higher rates for the distribution of WGN America, partially offset by a decline in revenue due to a decrease in the number of subscribers.
Barter/Trade Revenues—Barter/trade revenues decreased 4%, or $1 million, in the nine months ended September 30, 2017.



71


Other Revenues—Other revenues are primarily derived from profit sharing, revenue on syndicated content and copyright royalties. Other revenues decreased 26%, or $8 million, in the nine months ended September 30, 2017 as 2016 included profit sharing from an original program that was cancelled.
Operating Expenses—Television and Entertainment operating expenses for the three and nine months ended September 30, 2017 and September 30, 2016 were as follows:
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
September 30, 2017
 
September 30, 2016
 
Change
 
September 30, 2017
 
September 30, 2016
 
Change
Compensation
$
132,935

 
$
141,772

 
-6
 %
 
$
412,019

 
$
413,466

 
—
 %
Programming
199,118

 
149,480

 
+33
 %
 
497,448

 
396,450

 
+25
 %
Depreciation
10,844

 
11,267

 
-4
 %
 
31,413

 
33,392

 
-6
 %
Amortization
41,678

 
41,668

 
—
 %
 
125,001

 
125,003

 
—
 %
Other
64,089

 
69,953

 
-8
 %
 
214,645

 
227,887

 
-6
 %
Total operating expenses
$
448,664

 
$
414,140

 
+8
 %
 
$
1,280,526

 
$
1,196,198

 
+7
 %

Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016
Television and Entertainment operating expenses were up 8%, or $35 million, in the three months ended September 30, 2017 compared to the prior year period largely due to a $50 million increase in programming expense, partially offset by lower compensation expense and other expenses, as further described below.
Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, fell 6%, or $9 million, in the three months ended September 30, 2017. The decrease was primarily due to a $7 million decrease in severance expense and a $2 million decrease in incentive compensation.
Programming Expense—Programming expense increased 33%, or $50 million, in the three months ended September 30, 2017 primarily due to a $43 million increase in program impairment charges and a $7 million increase in network affiliate fees. The Company recorded an $80 million program impairment charge for the syndicated programs Elementary and Person of Interest at WGN America in the third quarter of 2017, compared to a $37 million program impairment charge in the third quarter of 2016 for Elementary. The increase in network affiliate fees of $7 million was mainly related to renewals of certain network affiliate agreements in the third quarter of 2016, as well as other contractual increases.
Depreciation and Amortization Expense—Depreciation expense declined 4%, or less than $1 million, in the three months ended September 30, 2017 due to lower levels of depreciable property. Amortization expense was flat for the three months ended September 30, 2017.
Other Expenses—Other expenses include sales and marketing, occupancy, outside services and other miscellaneous expenses, which are included in direct operating expenses or SG&A expense, as applicable. Other expenses decreased 8%, or $6 million, for the three months ended September 30, 2017 resulting from a $3 million decrease in promotion expense and a $2 million decrease in outside services, primarily related to professional fees and costs for operating the websites of our television stations.
Nine Months Ended September 30, 2017 compared to the Nine Months Ended September 30, 2016
Television and Entertainment operating expenses were up 7%, or $84 million, in the nine months ended September 30, 2017 compared to the prior year period largely due to higher programming expense, partially offset by lower other expenses, as further described below.



72


Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, decreased $1 million, in the nine months ended September 30, 2017 primarily due to a $3 million decrease in severance expense, a $2 million decrease in incentive compensation, partially offset by a $2 million increase in stock-based compensation and a $1 million increase in direct pay and benefits.
Programming Expense—Programming expense increased 25%, or $101 million, in the nine months ended September 30, 2017 primarily due to the increase of $43 million in program impairment charges and the $20 million of additional expenses related to the shift in programming strategy at WGN America as described above, higher amortization of license fees for original programming aired in the first half of 2017 and higher network affiliate fees. The increase in amortization of license fees of $21 million was primarily attributable to three first-run originals airing in the first half of 2017 (Outsiders, Underground and Salem) versus two first-run originals in the first half of 2016 (Outsiders and Underground), along with higher amortization for Outsiders and Underground as episodes of both shows were re-aired in 2017. Network affiliate fees increased by $23 million mainly due to renewals of certain network affiliate agreements in the third quarter of 2016, as well as other contractual increases.
Depreciation and Amortization Expense—Depreciation expense decreased 6%, or $2 million, in the nine months ended September 30, 2017 due to lower levels of depreciable property. Amortization expense remained flat in the nine months ended September 30, 2017.
Other Expenses—Other expenses include sales and marketing, occupancy, outside services and other miscellaneous expenses, which are included in direct operating expenses or SG&A expense, as applicable. Other expenses decreased 6%, or $13 million, in the nine months ended September 30, 2017 primarily due to a $6 million decline in promotion expense, a $3 million decrease due to impairment charges recorded in 2016 associated with one real estate property, a $2 million decrease in outside services primarily related to professional fees and costs for operating websites of our television stations and a $2 million decrease in bad debt write-offs.
CORPORATE AND OTHER
Operating Revenues and Expenses—Corporate and Other operating results for the three and nine months ended September 30, 2017 and September 30, 2016 were as follows:
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
September 30, 2017
 
September 30, 2016
 
Change
 
September 30, 2017
 
September 30, 2016
 
Change
Real estate revenues
$
3,226

 
$
9,874

 
-67
 %
 
$
10,559

 
$
34,133

 
-69
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Real estate (1)
$
2,529

 
$
6,956

 
-64
 %
 
$
8,271

 
$
31,773

 
-74
 %
Corporate (2)
28,665

 
33,968

 
-16
 %
 
108,402

 
100,769

 
+8
 %
Pension credit
(5,511
)
 
(6,028
)
 
-9
 %
 
(16,535
)
 
(18,083
)
 
-9
 %
Gain on sales of real estate, net
(65
)
 
(213,168
)
 
-100
 %
 
(49
)
 
(212,719
)
 
-100
 %
Total operating expenses
$
25,618

 
$
(178,272
)
 
*

 
$
100,089

 
$
(98,260
)
 
*

 
*
Represents positive or negative change equal to, or in excess of 100%
(1)
Real estate operating expenses included less than $1 million of depreciation expense for each of the three months ended September 30, 2017 and September 30, 2016 and $2 million of depreciation expense for each of the nine months ended September 30, 2017 and September 30, 2016.
(2)
Corporate operating expenses included $3 million of depreciation expense for each of the three months ended September 30, 2017 and September 30, 2016 and $9 million and $8 million of depreciation expense for the nine months ended September 30, 2017 and September 30, 2016, respectively.



73


Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016
Real Estate Revenues—Real estate revenues decreased 67%, or $7 million, in the three months ended September 30, 2017 primarily due to the loss of revenue from real estate properties sold during 2016 and 2017.
Real Estate Expenses—Real estate expenses decreased 64%, or $4 million, in the three months ended September 30, 2017 primarily resulting from a decrease in real estate taxes and other costs associated with real estate sold in 2016.
Gain on sales of real estate, net—During the three months ended September 30, 2016, we recorded net pretax gains on real estate of $213 million primarily related to the sales of Tribune Tower, the LA Times Property and the Olympic Printing Plant facility.
Corporate Expenses—Corporate expenses decreased 16%, or $5 million, in the three months ended September 30, 2017 primarily due to a $3 million decrease in compensation expense as equity compensation expense related to the resignation of the CEO was accelerated in the first quarter of 2017 along with lower outside service expense of $3 million largely due to a decrease in professional fees related to technology.
Pension Credit—The pension credit decreased 9%, or $1 million, in three months ended September 30, 2017.
Nine Months Ended September 30, 2017 compared to the Nine Months Ended September 30, 2016
Real Estate Revenues—Real estate revenues decreased 69%, or $24 million, in the nine months ended September 30, 2017 primarily due to the loss of revenue from real estate properties sold in 2016 and 2017.
Real Estate Expenses—Real estate expenses decreased 74%, or $24 million, in the nine months ended September 30, 2017 primarily resulting from an $11 million reduction of impairment charges associated with certain real estate properties. The sales of properties in 2016 also resulted in an $11 million decrease in real estate taxes and other costs associated with real estate sold in 2016.
Gain on sales of real estate, net—During the nine months ended September 30, 2016, we recorded net pretax gains on real estate of $213 million primarily related to the sales of Tribune Tower, the LA Times Property and the Olympic Printing Plant facility.
Corporate Expenses—Corporate expenses increased 8%, or $8 million, in the nine months ended September 30, 2017 primarily due to a $5 million increase in compensation expense, largely due to $6 million of severance expense related to the resignation of the CEO in the first quarter of 2017. Additionally, outside services were higher by $1 million driven by a $13 million increase in professional and legal fees primarily associated with the Merger, partially offset by a $12 million decrease in professional fees primarily related to technology.
Pension Credit—The pension credit decreased 9%, or $2 million, in the nine months ended September 30, 2017.



74


INCOME ON EQUITY INVESTMENTS, NET
Income on equity investments, net for the three and nine months ended September 30, 2017 and September 30, 2016 was as follows:
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
September 30, 2017
 
September 30, 2016
 
Change
 
September 30, 2017
 
September 30, 2016
 
Change
Income from equity investments, net, before amortization of basis difference
$
33,609

 
$
45,381

 
-26
 %
 
$
139,808

 
$
155,254

 
-10
 %
Amortization of basis difference (1)
(12,551
)
 
(13,644
)
 
-8
 %
 
(40,952
)
 
(40,959
)
 
—
 %
Income on equity investments, net
$
21,058

 
$
31,737

 
-34
 %
 
$
98,856

 
$
114,295

 
-14
 %
 
(1)
See Note 6 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017 for the discussion of the amortization of basis difference.
Income on equity investments, net decreased 34%, or $11 million, in the three months ended September 30, 2017 and decreased 14%, or $15 million, in the nine months ended September 30, 2017, primarily due to lower equity income from CareerBuilder as a result of a decline in our ownership due to the sale of a majority of our interest in CareerBuilder on July 31, 2017, as well as non-recurring transaction expenses incurred by CareerBuilder in connection with the transaction.
As described under “—Significant Events—CareerBuilder,” in the nine months ended September 30, 2017, we recorded non-cash pretax impairment charges of $181 million to write down our investment in CareerBuilder which is included in write-downs of investment in our unaudited Condensed Consolidated Statements of Operations.
Cash distributions from our equity method investments were as follows:
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
September 30, 2017
 
September 30, 2016
 
Change
 
September 30, 2017
 
September 30, 2016
 
Change
Cash distributions from equity investments
$
32,911

 
$
17,953

 
+83
%
 
$
182,561

 
$
143,557

 
+27
%
Cash distributions from equity investments increased 83%, or $15 million, in the three months ended September 30, 2017 and increased 27%, or $39 million, in the nine months ended September 30, 2017. The increase in the three months ended September 30, 2017 was primarily due to a $16 million distribution of excess cash from CareerBuilder prior to the closing of the CareerBuilder sale. The increase in the nine months ended September 30, 2017 also includes a $23 million increase in cash distributions from TV Food Network. Cash distributions in 2016 all relate to TV Food Network.



75


INTEREST AND DIVIDEND INCOME, INTEREST EXPENSE AND INCOME TAX EXPENSE
Interest and dividend income, interest expense and income tax expense for the three and nine months ended September 30, 2017 and September 30, 2016 were as follows:
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
(in thousands)
September 30, 2017
 
September 30, 2016
 
Change
 
September 30, 2017
 
September 30, 2016
 
Change
Interest and dividend income
$
827

 
$
476

 
+74
%
 
$
1,880

 
$
836

 
*

 
 
 
 
 
 
 
 
 
 
 
 
Interest expense (1)
$
40,389

 
$
38,296

 
+5
%
 
$
119,332

 
$
114,508

 
+4
%
 
 
 
 
 
 
 
 
 
 
 
 
Income tax (benefit) expense (2)
$
(20,087
)
 
$
73,871

 
*

 
$
(81,606
)
 
$
303,922

 
*

 
*
Represents positive or negative change equal to, or in excess of 100%
(1)
Interest expense excludes $4 million for the three months ended September 30, 2016, and $1 million and $11 million for the nine months ended September 30, 2017 and September 30, 2016, respectively, related to discontinued operations. We used $400 million of the proceeds from the Gracenote Sale to prepay a portion of our Term Loan Facility and the interest expense associated with our outstanding debt was allocated to discontinued operations based on the ratio of the $400 million prepayment to the total outstanding borrowings under the Term Loan Facility.
(2)
Income tax (benefit) expense excludes a benefit of $7 million for the three months ended September 30, 2016 and an expense of $14 million and a benefit of $15 million for the nine months ended September 30, 2017 and September 30, 2016, respectively, related to discontinued operations.
Interest Expense—Interest expense from continuing operations for each of the three months ended September 30, 2017 and September 30, 2016 includes amortization of debt issuance costs of $2 million. Interest expense from continuing operations for the nine months ended September 30, 2017 and September 30, 2016 includes the amortization of debt issuance costs of $5 million and $7 million, respectively.
Income Tax (Benefit) Expense—In the three and nine months ended September 30, 2017, we recorded an income tax benefit from continuing operations of $20 million and $82 million, respectively. The effective tax rate on pretax loss from continuing operations was 51.8% for the three months ended September 30, 2017. The rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), the domestic production activities deduction, certain transaction costs and other expenses not fully deductible for tax purposes, and a $1 million charge related to the resolution of federal and state income tax matters and other adjustments. The effective tax rate on pretax loss from continuing operations was 35.3% for the nine months ended September 30, 2017. For the nine months ended September 30, 2017, the rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), the domestic production activities deduction, certain transaction costs and other expenses not fully deductible for tax purposes, a $1 million charge related to the resolution of federal and state income tax matters and other adjustments, a $3 million benefit related to expected refunds of interest paid on prior tax assessments and a $1 million charge related to the write-off of unrealized deferred tax assets related to stock-based compensation.
In the three and nine months ended September 30, 2016, we recorded income tax expense from continuing operations of $74 million and $304 million, respectively. For the three months ended September 30, 2016, the rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), the domestic production activities deduction, other non-deductible expenses, a $9 million benefit related to the resolution of certain federal and state income tax matters, a $3 million benefit to adjust our deferred taxes and a $4 million benefit resulting from a change in our state tax rates. For the nine months ended September 30, 2016, the rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), a $102 million charge to establish a reserve net of federal and state tax benefit for interest on the Newsday transaction, and a related $88 million charge to adjust our deferred taxes, as described below, the domestic production activities deduction, other non-deductible expenses, a $10 million benefit related to the resolution of certain federal and state income tax



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matters and other adjustments, a $5 million charge related to the write-off of unrealized deferred tax assets related to stock-based compensation and a $4 million benefit resulting from a change in the Company’s state tax rates.
Although we believe our estimates and judgments are reasonable, the resolutions of our income tax matters are unpredictable and could result in income tax liabilities that are significantly higher or lower than that which has been provided by us.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from operating activities is our primary source of liquidity. We expect to fund capital expenditures, acquisitions, interest and principal payments on our indebtedness, income tax payments, potential payments related to our uncertain tax positions, dividend payments on our Common Stock (see “—Cash Dividends” below) and related distributions to holders of Warrants and other operating requirements in the next twelve months through a combination of cash flows from operations, cash on our balance sheet, distributions from or sales of our investments, sales of real estate assets, available borrowings under our Revolving Credit Facility, and any refinancings thereof, additional debt financing, if any, and disposals of assets or operations, if any. We have continued the monetization of our real estate portfolio. As of September 30, 2017, we had two real estate properties held for sale, as further described in Note 4 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017. We expect to broaden this sales activity to other properties to take advantage of robust market conditions although there can be no assurance that any such divestitures can be completed in a timely manner, on favorable terms or at all. The Merger Agreement for the proposed merger with Sinclair, described in the introduction to this management’s discussion and analysis, places certain limitations on our use of cash, including our application of cash to repurchase shares, our ability to declare any dividends other than quarterly dividends of $0.25 or less per share, our ability to make certain capital expenditures (except pursuant to our 2017 capital expenditures budget), and pursue significant business acquisitions.
For our long-term liquidity needs, in addition to these sources, we may rely upon the issuance of long-term debt, the issuance of equity or other instruments convertible into or exchangeable for equity, or the sale of non-core assets. The Merger Agreement for the proposed Merger places certain limitations on the amount of debt we can incur.
Our financial and operating performance remains subject to prevailing economic and industry conditions and to financial, business and other factors, some of which are beyond our control and, despite our current liquidity position, no assurances can be made that cash flows from operations and investments, future borrowings under the Revolving Credit Facility, and any refinancings thereof, or dispositions of assets or operations will be sufficient to satisfy our future liquidity needs.
Sources and Uses
The table below details the total operating, investing and financing activity cash flows for the nine months ended September 30, 2017 and September 30, 2016:
 
Nine Months Ended
(in thousands)
September 30, 2017
 
September 30, 2016
Net cash provided by operating activities
$
171,411

 
$
186,540

Net cash provided by investing activities
903,421

 
442,041

Net cash used in financing activities
(1,062,502
)
 
(247,527
)
Net increase in cash and cash equivalents
$
12,330

 
$
381,054




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Operating activities
Net cash provided by operating activities for the nine months ended September 30, 2017 was $171 million compared to $187 million for the nine months ended September 30, 2016. The decrease was primarily due to lower operating cash flows from operating results and unfavorable working capital changes, largely offset by lower cash paid for income taxes and higher distributions from equity investments. Cash paid for income taxes, net of income tax refunds, decreased by $53 million. Distributions from equity investments increased by $34 million to $178 million for the nine months ended September 30, 2017 from $144 million for the nine months ended September 30, 2016.
Investing activities
Net cash provided by investing activities totaled $903 million for the nine months ended September 30, 2017. Our capital expenditures in the nine months ended September 30, 2017 totaled $41 million. In the nine months ended September 30, 2017, we received net proceeds of $558 million from the Gracenote Sale, $172 million related to gross proceeds from the sale of certain FCC licenses in the FCC spectrum auction, $143 million related to the partial sale of CareerBuilder, $61 million related to the sales of real estate and $6 million related to the sale of marketable equity securities.
Net cash provided by investing activities totaled $442 million for the nine months ended September 30, 2016. Our capital expenditures in the nine months ended September 30, 2016 totaled $62 million. In the nine months ended September 30, 2016, we received net proceeds of $507 million related to the sales of real estate and other assets, as further described in Note 4 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017.
Financing activities
Net cash used in financing activities was $1.063 billion for the nine months ended September 30, 2017. During the nine months ended September 30, 2017, we repaid $704 million of borrowings under our Term Loan Facility and the Dreamcatcher Credit Facility, which included using $400 million of proceeds from the Gracenote Sale to prepay a portion of our Term B Loans in the first quarter of 2017 and using $102 million of after-tax proceeds received from our participation in the FCC spectrum auction to prepay $10 million of the Term B Loans and $91 million of the Term C Loans in the third quarter of 2017. Additionally, we used $203 million of long-term borrowings of Term C Loans to repay $184 million of Term B Loans, with the remainder used to pay fees associated with the 2017 Amendment. We paid dividends of $564 million consisting of quarterly cash dividends of $65 million and the special cash dividend of $499 million.
Net cash used in financing activities was $248 million for the nine months ended September 30, 2016. During the nine months ended September 30, 2016, we paid quarterly cash dividends of $69 million and paid $149 million for the Class A Common Stock repurchases pursuant to our $400 million stock repurchase program (see “—Repurchases of Equity Securities” below for further information). We also repaid $21 million of borrowings under our Term Loan Facility and the Dreamcatcher Credit Facility.



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Debt
Our debt consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Term Loan Facility
 
 
 
Term B Loans due 2020, effective interest rate of 3.84% and 3.82%, net of unamortized discount and debt issuance costs of $2,059 and $31,230
$
187,566

 
$
2,312,218

Term C Loans due 2024, effective interest rate of 3.85%, net of unamortized discount and debt issuance costs of $22,653
1,643,239

 
—

5.875% Senior Notes due 2022, net of debt issuance costs of $13,351 and $15,437
1,086,649

 
1,084,563

Dreamcatcher Credit Facility due 2018, effective interest rate of 4.08%, net of unamortized discount and debt issuance costs of $80
—

 
14,770

Total debt (1)
$
2,917,454

 
$
3,411,551

 
 
(1)
Under the terms of the Merger Agreement, Sinclair will assume all of our outstanding debt on the date the Merger is closed.
Secured Credit Facility—As of December 31, 2016, our Secured Credit Facility consisted of the Term Loan Facility, under which $2.343 billion of Term B Loans were outstanding, and a $300 million Revolving Credit Facility. See Note 9 to our audited consolidated financial statements for the fiscal year ended December 31, 2016 for further information and significant terms and conditions associated with the Secured Credit Facility, including, but not limited to, interest rates, repayment terms, fees, restrictions and affirmative and negative covenants. The proceeds of the Revolving Credit Facility are available for working capital and other purposes not prohibited under the Secured Credit Facility.
As described under “—Significant Events—Secured Credit Facility,” on January 27, 2017, we entered into the 2017 Amendment pursuant to which we converted Former Term B Loans into a new tranche of Term C Loans of approximately $1.761 billion, extended the maturity date of the Term C Loans and revised certain terms under the Term Loan Facility. On January 27, 2017, immediately following effectiveness of the 2017 Amendment, we increased the amount of commitments under our Revolving Credit Facility from $300 million to $420 million. At September 30, 2017, there were no borrowings outstanding under the Revolving Credit Facility; however, there were $21 million of standby letters of credit outstanding primarily in support of our workers’ compensation insurance programs.
As further described in Note 2 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017, on February 1, 2017, we used $400 million of proceeds from the Gracenote Sale to prepay a portion of our Term B Loans.
In the first quarter of 2017, as a result of the 2017 Amendment and the $400 million prepayment, we recorded a loss of $19 million on the extinguishment and modification of debt, as further described in Note 7 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017.
During the third quarter of 2017, we used $102 million of after-tax proceeds received from our participation in the FCC spectrum auction to prepay $10 million of the Term B Loans and $91 million of the Term C Loans. Subsequent to these payments, our quarterly installments related to the remaining principal amount of the Term C Loans are not due until the third quarter of 2022. We recorded charges of $1 million associated with debt extinguishment in the three months ended September 30, 2017. See Note 9 for additional information regarding our participation in the FCC’s incentive auction.
Under the Merger Agreement, we may not incur debt, other than pursuant to our Revolving Credit Facility.



79


5.875% Senior Notes due 2022—On June 24, 2015, we issued $1.100 billion aggregate principal amount of our 5.875% Senior Notes due 2022, which we exchanged for substantially identical securities registered under the Securities Act of 1933, as amended, on May 4, 2016 (the “Notes”). The Notes bear interest at a rate of 5.875% per annum and interest is payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2016. The Notes mature on July 15, 2022. See “—Significant Events—5.875% Senior Notes due 2022” for additional information regarding the Consent Solicitation undertaken by us in the second quarter of 2017 relating to the Supplemental Indenture.
Dreamcatcher Credit Facility—We and the guarantors guarantee the obligations of Dreamcatcher under its senior secured credit facility (the “Dreamcatcher Credit Facility”). See Note 9 to our audited consolidated financial statements for the fiscal year ended December 31, 2016 for the description of the Dreamcatcher Credit Facility. Our obligations and the obligators of the guarantors under the Dreamcatcher Credit Facility are secured on a pari passu basis with our obligations and the obligations of the guarantors under the Secured Credit Facility. During the three months ended September 30, 2017, we used $12.6 million of after-tax proceeds from the FCC spectrum auction to prepay the Dreamcatcher Credit Facility as any proceeds received by Dreamcatcher as a result of the FCC spectrum auction were required to be first used to repay the Dreamcatcher Credit Facility. Debt extinguishment charge recorded in the three months ended September 30, 2017 associated with this prepayment was immaterial. We made the final payment to pay off the Dreamcatcher Credit Facility in September 2017.
Contractual Obligations
The table below includes our future payments for the contractual obligations which were materially affected by
the 2017 Amendment, the $400 million prepayment of the Term B Loans on February 1, 2017, as a result of the Gracenote Sale which closed on January 31, 2017, and the $102 million prepayment of a portion of the Term Loan Facility, as further described under “—Significant Events—Secured Credit Facility,” as well as the payoff of the Dreamcatcher Credit Facility in the third quarter of 2017, as further described in the “—Significant Events—Dreamcatcher Credit Facility” section above.
 
Payments Due for the 12-Month Period Ended September 30,
(in thousands)
Total
 
2018
 
2019-2020
 
2021-2022
 
Thereafter
Long-term debt (1)
$
2,955,517

 
$
—

 
$
—

 
$
1,290,949

 
$
1,664,568

Interest on long-term debt (1)(2)
834,435

 
149,682

 
299,242

 
284,599

 
100,912

Total
$
3,789,952

 
$
149,682

 
$
299,242

 
$
1,575,548

 
$
1,765,480

 
(1)
As of September 30, 2017, the Company has $1.666 billion of Term C Loans outstanding. The Term C Loans maturity date is the earlier of (A) January 27, 2024 and (B) solely to the extent that more than $600 million in aggregate principal amount of the 5.875% Senior Notes due 2022 remain outstanding on such date, the date that is 91 days prior to July 15, 2022 (as such date may be extended from time to time), as further described in Note 7 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017. For purposes of the above table, Term C Loans are deemed to mature in 2024.
(2)
Interest payments on long-term debt include the impact of our hedging program with respect to $500 million of Term C Loans, as further described in Note 8 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017.
Repurchases of Equity Securities
On February 24, 2016, the Board of Directors (the “Board”) authorized a stock repurchase program, under which we may repurchase up to $400 million of our outstanding Class A Common Stock (the “2016 Stock Repurchase Program”). Under the stock repurchase program, we may repurchase shares in open-market purchases in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act. The repurchase program may be suspended or discontinued at any time. During 2016, we repurchased 6,432,455 shares for $232 million at an average price of $36.08 per share. During the nine months ended September 30, 2017, we did not make any share repurchases. As of September 30, 2017, the remaining authorized amount under the current



80


authorization totaled $168 million. The Merger Agreement prohibits us from engaging in additional share repurchases.
Cash Dividends
On February 3, 2017, we paid a special cash dividend of $5.77 per share to holders of record of our Common Stock at the close of business on January 13, 2017. The total aggregate payment on February 3, 2017 totaled $499 million, including the payment to holders of Warrants.
The Board declared quarterly cash dividends on Common Stock to holders of record of Common Stock and Warrants as follows (in thousands, except per share data):
 
2017
 
2016
 
Per Share
 
Total
Amount
 
Per Share
 
Total
Amount
First quarter
$
0.25

 
$
21,742

 
$
0.25

 
$
23,215

Second quarter
0.25

 
21,816

 
0.25

 
22,959

Third quarter
0.25

 
21,834

 
0.25

 
22,510

Total quarterly cash dividends declared and paid
$
0.75

 
$
65,392

 
$
0.75

 
$
68,684

On October 26, 2017, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share to be paid on December 5, 2017 to holders of record of Common Stock and Warrants as of November 20, 2017.
Any determination to pay dividends on our Common Stock, and the establishment of the per share amount, record dates and payment dates, is subject to the discretion of our Board and will depend upon various factors then existing, including our earnings and cash flows, financial condition, results of operations, capital requirements, level of indebtedness, contractual restrictions (including the restricted payment covenant contained in the credit agreement governing the Secured Credit Facility and the indenture governing the Notes, as further described in Note 7 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017), restrictions imposed by applicable law, general business conditions and other factors that our Board may deem relevant. Under the Merger Agreement, we may not pay dividends other than quarterly dividends of $0.25 or less per share. In addition, pursuant to the terms of the Warrant Agreement, concurrently with any cash dividend made to holders of our Common Stock, holders of Warrants are entitled to receive a cash payment equal to the amount of the dividend paid per share of Common Stock for each Warrant held.
Off-Balance Sheet Arrangements
There have been no material changes from the Off-Balance Sheet Arrangements discussion previously disclosed in our audited consolidated financial statements for the fiscal year ended December 31, 2016 contained in our 2016 Annual Report.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There were no changes to critical accounting policies and estimates from those disclosed in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” of our 2016 Annual Report.
New Accounting Standards—See Note 1 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017 for a discussion of new accounting guidance.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the quantitative and qualitative discussion about market risk previously disclosed in our audited consolidated financial statements for the fiscal year ended December 31, 2016.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms such that information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act, as of September 30, 2017. Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the date of their evaluation, the Company’s disclosure controls and procedures were effective as of September 30, 2017.
Our management concluded that our consolidated financial statements in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with generally accepted accounting principles (“GAAP”).
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting that occurred during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to various legal proceedings and claims that have arisen in the ordinary course of business. The legal entities comprising our operations are defendants from time to time in actions for matters arising out of their business operations. In addition, the legal entities comprising our operations are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies.
On December 31, 2012, the Debtors that had filed voluntary petitions for relief under Chapter 11 in the Bankruptcy Court on December 8, 2008 (or on October 12, 2009, in the case of Tribune CNLBC, LLC) emerged from Chapter 11. The Company and certain of the other legal entities included in our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017 were Debtors or, as a result of the restructuring transactions undertaken at the time of the Debtors’ emergence, are successor legal entities to legal entities that were Debtors. The Bankruptcy Court entered final decrees collectively closing 106 of the Debtors’ Chapter 11 cases. The remaining Debtors’ Chapter 11 cases have not yet been closed by the Bankruptcy Court, and certain claims asserted against the Debtors in the Chapter 11 cases remain unresolved. As a result, we expect to continue to incur certain expenses pertaining to the Chapter 11 proceedings in future periods, which may be material. See Note 3 to our audited consolidated financial statements for the fiscal year ended December 31, 2016 for further information.



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In March 2013, the IRS issued its audit report on our federal income tax return for 2008 which concluded that the gain from the Newsday Transactions should have been included in our 2008 taxable income. Accordingly, the IRS proposed a $190 million tax and a $38 million accuracy-related penalty. We also would be subject to interest on
the tax and penalty due. We disagreed with the IRS’s position and timely filed a protest in response to the IRS’s
proposed tax adjustments. In addition, if the IRS prevailed, we also would have been subject to state income taxes,
interest and penalties.
During the second quarter of 2016, as a result of extensive discussions with the IRS administrative appeals division, we reevaluated our tax litigation position related to the Newsday transaction and re-measured the cumulative most probable outcome of such proceedings. As a result, during the second quarter of 2016, we recorded a $102 million charge which was reflected as a $125 million current income tax reserve and a $23 million reduction in deferred income tax liabilities. The income tax reserve included federal and state taxes, interest and penalties while the deferred income tax benefit is primarily related to deductible interest expense. In connection with the potential resolution of the matter, we also recorded $91 million of income tax expense to increase our deferred income tax liability to reflect the estimated reduction in the tax basis of our assets. The reduction in tax basis is required to reflect the expected negotiated reduction in the amount of the Company’s guarantee of the Newsday partnership debt which was included in the reported tax basis previously determined upon emergence from bankruptcy. During the third quarter of 2016, we reached an agreement with the IRS administrative appeals division regarding the Newsday transaction which applies for tax years 2008 through 2015. The terms of the agreement reached with the IRS appeals office were materially consistent with our reserve at June 30, 2016. In connection with the final agreement, we also recorded an income tax benefit of $3 million to adjust the previously recorded estimate of the deferred tax liability adjustment described above. During the fourth quarter of 2016, we recorded an additional $1 million of tax expense primarily related to the additional accrual of interest. During the second half of 2016, we paid $122 million of federal taxes, state taxes (net of state refunds), interest and penalties. The tax payments were recorded as a reduction in our current income tax reserve described above. The remaining $4 million of state liabilities are included in the income taxes payable account on the unaudited Condensed Consolidated Balance Sheet at September 30, 2017.
As further described in Note 13 to our audited consolidated financial statements for the fiscal year ended December 31, 2016, on June 28, 2016, the IRS issued to us a Notice of Deficiency (“Notice”) which presents the IRS’s position that the gain on the Chicago Cubs Transactions (as defined and described in Note 8 to our audited consolidated financial statements for the year ended December 31, 2016) should have been included in our 2009 taxable income. Accordingly, the IRS has proposed a $182 million tax and a $73 million gross valuation misstatement penalty. After-tax interest on the proposed tax and penalty through September 30, 2017 would be approximately $48 million. We continue to disagree with the IRS’s position that the transaction generated a taxable gain in 2009, the proposed penalty and the IRS’s calculation of the gain. During the third quarter of 2016, we filed a petition in U.S. Tax Court to contest the IRS’s determination. We continue to pursue resolution of this disputed tax matter with the IRS. If the gain on the Chicago Cubs Transactions is deemed to be taxable in 2009, we estimate that the federal and state income taxes would be approximately $225 million before interest and penalties. Any tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2009. Through September 30, 2017, we have paid or accrued approximately $50 million through our regular tax reporting process.
We do not maintain any tax reserves related to the Chicago Cubs Transactions. In accordance with ASC Topic 740, “Income Taxes,” our unaudited Condensed Consolidated Balance Sheet as of September 30, 2017 includes deferred tax liabilities of $149 million related to the future recognition of taxable income and gain from the Chicago Cubs Transactions. Our liability for unrecognized tax benefits totaled $23 million at September 30, 2017 and December 31, 2016.
In July 2017, following the initial filing of the proxy statement/prospectus (the “Proxy Statement/Prospectus”) by each of Sinclair and us with the SEC relating to the Merger, four purported Tribune shareholders (the “Plaintiffs”) filed putative class action lawsuits against us, members of our Board, and, in certain instances, Sinclair and Samson Merger Sub, Inc. (collectively, the “Parties”) in the United States District Courts for the Districts of Delaware and Illinois. The actions are captioned McEntire v. Tribune Media Company, et al., 1:17-cv-05179 (N.D. Ill.), Duffy v.



83


Tribune Media Company, et al., 1:17-cv-00919 (D. Del.), Berg v. Tribune Media Company, et al., 1:17-cv-00938 (D. Del.), and Pill v. Tribune Media Company, et al., 1:17-cv-00961 (D. Del.) (collectively, the “Actions”). These lawsuits allege that the Proxy Statement/Prospectus omitted material information and was materially misleading in violation of the Securities Exchange Act of 1934, as amended, and SEC Rule 14a-9 and generally seek preliminary and permanent injunctive relief, rescission or rescissory damages, and unspecified damages. On September 15, 2017, the Parties entered into a memorandum of understanding (the “MOU”) to resolve the individual claims asserted by the Plaintiffs. The MOU acknowledges that we, in part in response to the claims asserted in the Actions, filed certain supplemental disclosures with the SEC on August 16, 2017 and that we, solely in response to the Actions, communicated to four third parties that participated in the sale process and twenty-three third parties that have signed confidentiality agreements in connection with potential divestitures that the “standstill” obligations of such third parties were waived. The Parties further agreed that we would make the additional supplemental disclosures, which are set forth in our Current Report on Form 8-K, filed with the SEC on September 15, 2017. Further, the MOU specifies that within five business days of the closing of the Merger, the Parties will file stipulations of dismissal for the Actions pursuant to Federal Rule of Civil Procedure 41(a), which will dismiss Plaintiffs’ individual claims with prejudice, and dismiss the claims asserted on behalf of a purported class of our shareholders without prejudice. The MOU will not affect the timing of the Merger or the amount or form of consideration to be paid in the Merger.
We do not believe that any other matters or proceedings presently pending will have a material adverse effect, individually or in the aggregate, on our consolidated financial position, results of operations or liquidity. However, legal matters and proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. As such, there can be no assurance that the final outcome of these matters and proceedings will not materially and adversely affect our consolidated financial position, results of operations or liquidity.
ITEM 1A. RISK FACTORS
We discuss in our filings with the SEC various risks that may materially affect our business. There have been no material changes to the risk factors disclosed in our 2016 Annual Report and our Quarterly Report on Form 10-Q for the three month period ended March 31, 2017 (the “Q1 2017 Form 10Q”). The materialization of any risks and uncertainties identified in forward-looking statements contained in this report together with those previously disclosed in our 2016 Annual Report and our Q1 2017 Form 10-Q and our other filings with the SEC or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-looking Statements.”
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
On the Effective Date, we issued 78,754,269 shares of Class A Common Stock, 4,455,767 shares of Class B Common Stock, and 16,789,972 Warrants, which are governed by the Warrant Agreement. The Warrants are exercisable at the holder’s option into Class A Common Stock, Class B Common Stock, or a combination thereof, at an exercise price of $0.001 per share or through “cashless exercise,” whereby the number of shares to be issued to the holder is reduced, in lieu of a cash payment for the exercise price.
Since the initial issuance of the Warrants on December 31, 2012 through September 30, 2017, we have issued 16,609,860 shares of Class A Common Stock and 143,477 shares of our Class B Common Stock upon the exercise of 16,753,390 Warrants. Of these exercises, we issued 12,636,807 shares of Class A Common Stock and 25,244 shares of Class B Common Stock, respectively, for cash, receiving total proceeds of $12,662 from the exercises. In addition, we issued 3,973,053 shares of Class A Common Stock and 118,233 shares of Class B Common Stock, respectively, upon “cashless exercises.”
The issuance of shares of Class A Common Stock and Class B Common Stock and Warrants at the time of emergence from Chapter 11 bankruptcy, and the issuance of shares of Common Stock upon exercise of the Warrants,



84


were exempt from the registration requirements of Section 5 of the Securities Act pursuant to Section 1145 of the Bankruptcy Code, which generally exempts distributions of securities in connection with plans of reorganization.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions.
Repurchases of Equity Securities
During the nine months ended September 30, 2017, we did not make any share repurchases pursuant to the 2016 Stock Repurchase Program, as further described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Repurchases of Equity Securities.” As of September 30, 2017, the remaining authorized amount under the current authorization totaled $168 million. The Merger Agreement prohibits us from engaging in additional share repurchases.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Incorporated by reference to the Exhibit Index attached hereto and made a part hereof.



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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized on November 8, 2017.
 
TRIBUNE MEDIA COMPANY
 
 
By:
/s/ Chandler Bigelow
Name:
Chandler Bigelow
Title:
Executive Vice President and Chief Financial Officer





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EXHIBIT INDEX
Exhibit No.
 
Description
 
 
 
3.3
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
32.2
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase






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