UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016March 31, 2017
OR
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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)
___________________________
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| | |
Delaware | | 36-1880355 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
435 North Michigan Avenue, Chicago, Illinois | | 60611 |
(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, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| | | | | | | |
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, 2016, 87,408,778April 30, 2017, 86,918,686 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, 2016MARCH 31, 2017
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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| | | |
Item No. | | Page |
Part I. Financial Information |
Item 1. | Financial Statements | |
| Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 | |
| Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income (Loss) for the Three and Nine Months Ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 | |
| Unaudited Condensed Consolidated Balance Sheets at September 30, 2016March 31, 2017 and December 31, 20152016 | |
| Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the NineThree Months Ended September 30, 2016March 31, 2017 | |
| Unaudited Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 | |
| Notes to Unaudited Condensed Consolidated Financial Statements | |
| Note 1: | Basis of Presentation and Significant Accounting Policies | |
| Note 2: | AcquisitionsDiscontinued Operations | |
| Note 3: | Changes in Operations | |
| Note 4: | Real Estate Sales and Assets Held for Sale and Sales of Real Estate | |
| Note 5:4: | Goodwill and Other Intangible Assets and Liabilities | |
| Note 6:5: | Investments | |
| Note 6: | Debt | |
| Note 7: | DebtFair Value Measurements | |
| Note 8: | Fair Value MeasurementsCommitments and Contingencies | |
| Note 9: | CommitmentsIncome Taxes | |
| Note 10: | Pension and ContingenciesOther Retirement Plans | |
| Note 10:11: | Income TaxesCapital Stock | |
| Note 12: | Stock-Based Compensation | |
| Note 13: | Earnings Per Share | |
| Note 11:14: | Pension andAccumulated Other Retirement PlansComprehensive (Loss) Income | |
| Note 12:15: | Capital StockRelated Party Transactions | |
| Note 13:16: | Stock-Based CompensationBusiness Segments | |
| Note 17: | Condensed Consolidating Financial Statements | |
| Note 14:18: | Earnings Per ShareSubsequent Events | |
| Note 15: | Accumulated Other Comprehensive Income (Loss) | |
| Note 16: | Related Party Transactions | |
| Note 17: | Business Segments | |
| Note 18: | Condensed Consolidating Financial Information | |
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 | Three Months Ended |
| September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 | March 31, 2017 | | March 31, 2016 |
Operating Revenues | | | | | | | | | | |
Television and Entertainment | $ | 459,145 |
|
| $ | 429,700 |
| | $ | 1,380,991 |
| | $ | 1,285,622 |
| $ | 436,033 |
| | $ | 455,875 |
|
Digital and Data | 49,064 |
| | 46,561 |
| | 149,651 |
| | 140,388 |
| |
Other | 9,860 |
| | 12,333 |
| | 34,055 |
| | 36,845 |
| 3,877 |
| | 12,597 |
|
Total operating revenues | 518,069 |
| | 488,594 |
| | 1,564,697 |
| | 1,462,855 |
| 439,910 |
| | 468,472 |
|
Operating Expenses | | | | | | | | | | |
Programming | 149,480 |
| | 116,295 |
| | 396,450 |
| | 347,493 |
| 141,246 |
| | 124,167 |
|
Direct operating expenses | 119,002 |
| | 110,808 |
| | 348,276 |
| | 326,329 |
| 98,807 |
| | 97,572 |
|
Selling, general and administrative | 172,229 |
| | 153,876 |
| | 535,152 |
| | 469,374 |
| 159,859 |
| | 160,634 |
|
Depreciation | 18,710 |
| | 19,027 |
| | 53,567 |
| | 54,047 |
| 13,571 |
| | 14,442 |
|
Amortization | 49,396 |
| | 49,780 |
| | 148,195 |
| | 145,988 |
| 41,659 |
| | 41,665 |
|
(Gain) loss on sales of real estate, net | (213,168 | ) | | — |
| | (212,719 | ) | | 97 |
| |
Total operating expenses | 295,649 |
| | 449,786 |
| | 1,268,921 |
| | 1,343,328 |
| 455,142 |
| | 438,480 |
|
Operating Profit | 222,420 |
| | 38,808 |
| | 295,776 |
| | 119,527 |
| |
Operating (Loss) Profit | | (15,232 | ) | | 29,992 |
|
Income on equity investments, net | 31,737 |
| | 36,987 |
| | 114,295 |
| | 119,834 |
| 37,037 |
| | 38,252 |
|
Interest and dividend income | 534 |
| | 162 |
| | 920 |
| | 572 |
| 505 |
| | 132 |
|
Interest expense | (42,121 | ) | | (42,529 | ) | | (126,004 | ) | | (122,115 | ) | (38,758 | ) | | (38,141 | ) |
Loss on extinguishment of debt | — |
| | — |
| | — |
| | (37,040 | ) | |
Gain on investment transactions | — |
| | 3,250 |
| | — |
| | 12,070 |
| |
Other non-operating gain, net | 57 |
| | 2,306 |
| | 478 |
| | 2,517 |
| |
Loss on extinguishment and modification of debt | | (19,052 | ) | | — |
|
Gain on investment transaction | | 4,950 |
| | — |
|
Write-down of investment | | (122,000 | ) | | — |
|
Other non-operating (loss) gain, net | | (26 | ) | | 496 |
|
Reorganization items, net | (434 | ) | | 188 |
| | (1,234 | ) | | (1,432 | ) | (250 | ) | | (434 | ) |
Income Before Income Taxes | 212,193 |
| | 39,172 |
| | 284,231 |
| | 93,933 |
| |
Income tax expense | 66,428 |
| | 11,314 |
| | 288,936 |
| | 32,923 |
| |
Net Income (Loss) | $ | 145,765 |
| | $ | 27,858 |
| | $ | (4,705 | ) | | $ | 61,010 |
| |
(Loss) Income from Continuing Operations Before Income Taxes | | (152,826 | ) | | 30,297 |
|
Income tax (benefit) expense | | (51,614 | ) | | 15,195 |
|
(Loss) Income from Continuing Operations | | (101,212 | ) | | 15,102 |
|
Income (Loss) from Discontinued Operations, net of taxes (Note 2) | | 15,618 |
| | (4,009 | ) |
Net (Loss) Income | | $ | (85,594 | ) | | $ | 11,093 |
|
| | | | | | | | | | |
Net Earnings (Loss) Per Common Share: | | | | | | | | |
Basic | $ | 1.62 |
| | $ | 0.29 |
| | $ | (0.05 | ) | | $ | 0.63 |
| |
Diluted | $ | 1.61 |
| | $ | 0.29 |
| | $ | (0.05 | ) | | $ | 0.63 |
| |
Basic (Loss) Earnings Per Common Share from: | | | | |
Continuing Operations | | $ | (1.17 | ) | | $ | 0.16 |
|
Discontinued Operations | | 0.18 |
| | (0.04 | ) |
Net (Loss) Earnings Per Common Share | | $ | (0.99 | ) | | $ | 0.12 |
|
| | | | |
Diluted (Loss) Earnings Per Common Share from: | | | | |
Continuing Operations | | $ | (1.17 | ) | | $ | 0.16 |
|
Discontinued Operations | | 0.18 |
| | (0.04 | ) |
Net (Loss) Earnings Per Common Share | | $ | (0.99 | ) | | $ | 0.12 |
|
| | | | | | | | | | |
Regular dividends declared per common share | $ | 0.25 |
| | $ | 0.25 |
| | $ | 0.75 |
| | $ | 0.50 |
| $ | 0.25 |
| | $ | 0.25 |
|
| | | | | | | | | | |
Special dividends declared per common share | $ | — |
| | $ | — |
| | $ | — |
| | $ | 6.73 |
| $ | 5.77 |
| | $ | — |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.Statements
2
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands of dollars) (Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 |
Net Income (Loss) | $ | 145,765 |
| | $ | 27,858 |
| | $ | (4,705 | ) | | $ | 61,010 |
|
| | | | | | | |
Other Comprehensive Income (Loss), net of taxes | | | | | | | |
Unrecognized benefit plan gains and losses: | | | | | | | |
Change in unrecognized benefit plan losses arising during the period, net of taxes of $1,303 for the three months ended September 30, 2015, and $2,367 and $(434) for the nine months ended September 30, 2016 and September 30, 2015, respectively | — |
| | 2,021 |
| | 3,671 |
| | (673 | ) |
Adjustment for previously unrecognized benefit plan gains and losses included in net income, net of taxes of $(28) and $2 for the three months ended September 30, 2016 and September 30, 2015, respectively, and $(85) and $7 for the nine months ended September 30, 2016 and September 30, 2015, respectively | (44 | ) | | 4 |
| | (132 | ) | | 11 |
|
Change in unrecognized benefit plan gains and losses, net of taxes | (44 | ) | | 2,025 |
| | 3,539 |
| | (662 | ) |
Unrealized gain on marketable securities: | | | | | | | |
Change in unrealized holding gain arising during the period, net of taxes of $341 and $(1,152) for three months ended September 30, 2016 and September 30, 2015, respectively, and $1,026 and $(2,340) for the nine months ended September 30, 2016 and September 30, 2015, respectively | 593 |
| | (1,785 | ) | | 1,591 |
| | (3,628 | ) |
Foreign currency translation adjustments: | | | | | | | |
Change in foreign currency translation adjustments, net of taxes of $(103) and $(741) for the three months ended September 30, 2016 and September 30, 2015, respectively, and $(1,198) and $(1,148) for the nine months ended September 30, 2016 and September 30, 2015, respectively | 2,135 |
| | (4,011 | ) | | 2,002 |
| | (8,879 | ) |
Other Comprehensive Income (Loss), net of taxes | 2,684 |
| | (3,771 | ) | | 7,132 |
| | (13,169 | ) |
Comprehensive Income | $ | 148,449 |
| | $ | 24,087 |
| | $ | 2,427 |
| | $ | 47,841 |
|
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (In thousands of dollars) (Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, 2017 | | March 31, 2016 |
Net (Loss) Income | $ | (85,594 | ) | | $ | 11,093 |
|
Less: Income (Loss) from Discontinued Operations, net of taxes | 15,618 |
| | (4,009 | ) |
Net (Loss) Income from Continuing Operations | (101,212 | ) | | 15,102 |
|
| | | |
Other Comprehensive (Loss) Income from Continuing Operations, net of taxes | | | |
Pension and other post-retirement benefit items: | | | |
Adjustment for previously unrecognized benefit plan gains and losses included in net income, net of taxes of $(28) and $(37) for the three months ended March 31, 2017 and March 31, 2016, respectively | (44 | ) | | (58 | ) |
Marketable securities: | | | |
Change in unrealized holding gains and losses arising during the period, net of taxes of $(60) and $(224) for the three months ended March 31, 2017 and March 31, 2016, respectively | (94 | ) | | (348 | ) |
Adjustment for gain on investment sale included in net income, net of taxes of $(1,961) | (3,042 | ) | | — |
|
Change in marketable securities, net of taxes | (3,136 | ) | | (348 | ) |
Cash flow hedging instruments: | | | |
Unrealized gains and losses, net of taxes of $(1,346) for the three months ended March 31, 2017 | (2,088 | ) | | — |
|
Gains and losses reclassified to net income, net of taxes of $508 for the three months ended March 31, 2017 | 788 |
| | — |
|
Change in unrecognized gains and losses on cash flow hedging instruments, net of taxes | (1,300 | ) | | — |
|
Foreign currency translation adjustments: | | | |
Change in foreign currency translation adjustments, net of taxes of $101 and $66 for the three months ended March 31, 2017 and March 31, 2016, respectively | 352 |
| | 835 |
|
Other Comprehensive (Loss) Income from Continuing Operations, net of taxes | (4,128 | ) | | 429 |
|
Comprehensive (Loss) Income from Continuing Operations, net of taxes | (105,340 | ) | | 15,531 |
|
Comprehensive Income (Loss) from Discontinued Operations, net of taxes | 27,389 |
| | (801 | ) |
Comprehensive (Loss) Income | $ | (77,951 | ) | | $ | 14,730 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.Statements
3
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except for share and per share data) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except for share and per share data) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except for share and per share data) (Unaudited)
|
| | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
Assets | | | | | | |
Current Assets | | | | | | |
Cash and cash equivalents | $ | 643,698 |
| | $ | 262,644 |
| $ | 346,221 |
| | $ | 577,658 |
|
Restricted cash and cash equivalents | 17,566 |
| | 17,595 |
| 17,566 |
| | 17,566 |
|
Accounts receivable (net of allowances of $11,006 and $8,176) | 425,264 |
| | 466,628 |
| |
Accounts receivable (net of allowances of $14,189 and $12,504) | | 384,567 |
| | 429,112 |
|
Broadcast rights | 186,906 |
| | 160,240 |
| 137,181 |
| | 157,817 |
|
Income taxes receivable | 2,764 |
| | 42,838 |
| 7,897 |
| | 9,056 |
|
Current assets of discontinued operations | | — |
| | 62,605 |
|
Prepaid expenses | 53,645 |
| | 63,337 |
| 32,084 |
| | 35,862 |
|
Other | 9,293 |
| | 8,663 |
| 11,538 |
| | 6,624 |
|
Total current assets | 1,339,136 |
| | 1,021,945 |
| 937,054 |
| | 1,296,300 |
|
Properties | | | | | | |
Property, plant and equipment | 752,838 |
| | 818,658 |
| 686,537 |
| | 711,068 |
|
Accumulated depreciation | (202,563 | ) | | (160,801 | ) | (198,125 | ) | | (187,148 | ) |
Net properties | 550,275 |
| | 657,857 |
| 488,412 |
| | 523,920 |
|
Other Assets | | | | | | |
Broadcast rights | 174,112 |
| | 203,422 |
| 148,832 |
| | 153,457 |
|
Goodwill | 3,563,522 |
| | 3,561,812 |
| 3,228,047 |
| | 3,227,930 |
|
Other intangible assets, net | 2,092,925 |
| | 2,240,199 |
| 1,777,360 |
| | 1,819,134 |
|
Non-current assets of discontinued operations | | — |
| | 608,153 |
|
Assets held for sale | 17,878 |
| | 206,422 |
| 16,356 |
| | 17,176 |
|
Investments | 1,667,411 |
| | 1,692,700 |
| 1,473,510 |
| | 1,674,883 |
|
Other | 92,417 |
| | 124,506 |
| 82,410 |
| | 80,098 |
|
Total other assets | 7,608,265 |
| | 8,029,061 |
| 6,726,515 |
| | 7,580,831 |
|
Total Assets | $ | 9,497,676 |
| | $ | 9,708,863 |
| |
Total Assets (1) | | $ | 8,151,981 |
| | $ | 9,401,051 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.Statements
4
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except for share and per share data) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except for share and per share data) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except for share and per share data) (Unaudited)
|
| | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
Liabilities and Shareholders’ Equity | | | | | | |
Current Liabilities | | | | | | |
Accounts payable | $ | 65,418 |
| | $ | 60,394 |
| $ | 49,539 |
| | $ | 60,553 |
|
Debt due within one year (net of unamortized discounts and debt issuance costs of $7,927 and $7,979) | 19,914 |
| | 19,862 |
| |
Debt due within one year (net of unamortized discounts and debt issuance costs of $3,789 and $7,917) | | 17,876 |
| | 19,924 |
|
Income taxes payable | 64,269 |
| | 3,458 |
| 97,134 |
| | 21,166 |
|
Employee compensation and benefits | 75,830 |
| | 87,976 |
| 51,905 |
| | 77,123 |
|
Contracts payable for broadcast rights | 253,259 |
| | 236,676 |
| 220,024 |
| | 241,255 |
|
Deferred revenue | 45,032 |
| | 44,721 |
| 12,030 |
| | 13,690 |
|
Interest payable | 13,899 |
| | 33,828 |
| 13,873 |
| | 30,305 |
|
Current liabilities of discontinued operations | | — |
| | 54,284 |
|
Other | 41,452 |
| | 53,885 |
| 34,940 |
| | 32,553 |
|
Total current liabilities | 579,073 |
| | 540,800 |
| 497,321 |
| | 550,853 |
|
Non-Current Liabilities | | | | | | |
Long-term debt (net of unamortized discounts and debt issuance costs of $41,572 and $48,809) | 3,395,845 |
| | 3,409,489 |
| |
Long-term debt (net of unamortized discounts and debt issuance costs of $39,224 and $38,830) | | 3,014,397 |
| | 3,391,627 |
|
Deferred income taxes | 1,026,745 |
| | 984,032 |
| 861,490 |
| | 984,248 |
|
Contracts payable for broadcast rights | 348,096 |
| | 385,107 |
| 292,264 |
| | 314,840 |
|
Contract intangible liability, net | 25 |
| | 13,772 |
| |
Pension obligations, net | 431,935 |
| | 456,073 |
| 438,829 |
| | 444,401 |
|
Postretirement, medical, life and other benefits | 15,028 |
| | 16,092 |
| 11,137 |
| | 11,385 |
|
Other obligations | 69,934 |
| | 71,776 |
| 78,975 |
| | 62,700 |
|
Non-current liabilities of discontinued operations | | — |
| | 95,314 |
|
Total non-current liabilities | 5,287,608 |
| | 5,336,341 |
| 4,697,092 |
| | 5,304,515 |
|
Total Liabilities | 5,866,681 |
| | 5,877,141 |
| |
| | | | |
Commitments and Contingent Liabilities (Note 9) |
|
| |
|
| |
| | | | |
Total Liabilities (1) | | 5,194,413 |
| | 5,855,368 |
|
Commitments and Contingent Liabilities (Note 8) | |
|
| |
|
|
Shareholders’ Equity | | | | | | |
Preferred stock ($0.001 par value per share) | | | | | | |
Authorized: 40,000,000 shares; No shares issued and outstanding at September 30, 2016 and at December 31, 2015 | — |
| | — |
| |
Authorized: 40,000,000 shares; No shares issued and outstanding at March 31, 2017 and at December 31, 2016 | | — |
| | — |
|
Class A Common Stock ($0.001 par value per share) | | | | | | |
Authorized: 1,000,000,000 shares; 100,384,850 shares issued and 88,765,174 shares outstanding at September 30, 2016 and 100,015,546 shares issued and 92,345,330 shares outstanding at December 31, 2015 | 100 |
| | 100 |
| |
Authorized: 1,000,000,000 shares; 100,979,448 shares issued and 86,877,263 shares outstanding at March 31, 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, 2016 and at December 31, 2015 | — |
| | — |
| |
Treasury stock, at cost: 11,619,676 shares at September 30, 2016 and 7,670,216 shares at December 31, 2015 | (557,688 | ) | | (400,153 | ) | |
Authorized: 1,000,000,000 shares; Issued and outstanding: 5,605 shares at March 31, 2017 and at December 31, 2016 | | — |
| | — |
|
Treasury stock, at cost: 14,102,185 shares at March 31, 2017 and 14,102,453 shares at December 31, 2016 | | (632,194 | ) | | (632,207 | ) |
Additional paid-in-capital | 4,573,854 |
| | 4,619,618 |
| 4,051,836 |
| | 4,561,760 |
|
Retained deficit | (327,056 | ) | | (322,351 | ) | (393,953 | ) | | (308,105 | ) |
Accumulated other comprehensive loss | (63,884 | ) | | (71,016 | ) | (74,139 | ) | | (81,782 | ) |
Total Tribune Media Company shareholders’ equity | 3,625,326 |
| | 3,826,198 |
| 2,951,651 |
| | 3,539,766 |
|
Noncontrolling interest | 5,669 |
| | 5,524 |
| 5,917 |
| | 5,917 |
|
Total shareholders’ equity | 3,630,995 |
| | 3,831,722 |
| 2,957,568 |
| | 3,545,683 |
|
Total Liabilities and Shareholders’ Equity | $ | 9,497,676 |
| | $ | 9,708,863 |
| $ | 8,151,981 |
| | $ | 9,401,051 |
|
| |
(1) | The Company’s consolidated total assets as of March 31, 2017 and December 31, 2016 include total assets of variable interest entities (“VIEs”) of $94 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 March 31, 2017 and December 31, 2016 include total liabilities of the VIEs of $2 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.Statements
5
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (In thousands, except for share data) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (In thousands, except for share data) (Unaudited)
| 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 | | Retained Deficit | Accumulated Other Comprehensive (Loss) Income | Additional Paid-In Capital | | Common Stock |
| Total | | Class A | | Class B | Total | | Class A | | Class B |
Accumulated Other Comprehensive (Loss) Income | Additional Paid-In Capital | Non- controlling Interest | Amount (at Cost) | Shares | | Amount (at Cost) | Shares | Accumulated Other Comprehensive (Loss) Income | Additional Paid-In Capital | Non- controlling Interest | Amount (at Cost) | Shares | | Amount (at Cost) | Shares |
Balance at December 31, 2015 | $ | 3,831,722 |
| $ | (322,351 | ) | $ | (71,016 | ) | $ | 4,619,618 |
| 5,524 |
| $ | 100 |
| 100,015,546 |
| | $ | — |
| 5,605 |
| |
Comprehensive income: | | | | | | |
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 | (4,705 | ) | (4,705 | ) | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| (85,594 | ) | (85,594 | ) | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
|
Other comprehensive income, net of taxes | 7,132 |
| — |
| 7,132 |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| 7,643 |
| — |
| 7,643 |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
|
Comprehensive income | 2,427 |
| | | | | | |
Regular dividends declared to shareholders and warrant holders, $0.75 per share (1) | (68,684 | ) | — |
| — |
| (68,684 | ) | — |
| — |
| — |
| — |
| | — |
| — |
| |
Comprehensive loss | | (77,951 | ) | | | | | |
Special dividends declared to shareholders and warrant holders, $5.77 per share | | (499,107 | ) | — |
| — |
| (499,107 | ) | — |
| — |
| — |
| — |
| | — |
| — |
|
Regular dividends declared to shareholders and warrant holders, $0.25 per share | | (21,742 | ) | — |
| — |
| (21,742 | ) | — |
| — |
| — |
| — |
| | — |
| — |
|
Warrant exercises | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 132,066 |
| | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 28,475 |
| | — |
| — |
|
Stock-based compensation | 27,471 |
| — |
| — |
| 27,471 |
| — |
| — |
| — |
| — |
| | — |
| — |
| 15,189 |
| — |
| — |
| 15,189 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
Net share settlements of stock-based awards | (4,540 | ) | — |
| — |
| (4,551 | ) | 11 |
| — |
| — |
| 237,238 |
| | — |
| — |
| (4,668 | ) | — |
| — |
| (4,682 | ) | 13 |
| — |
| 1 |
| 534,457 |
| | — |
| — |
|
Common stock repurchases | (157,546 | ) | — |
| — |
| — |
| (157,546 | ) | — |
| — |
| — |
| | — |
| — |
| |
Contributions from noncontrolling interest | 145 |
| — |
| — |
| — |
| — |
| 145 |
| — |
| — |
| | — |
| — |
| |
Balance at September 30, 2016 | $ | 3,630,995 |
| $ | (327,056 | ) | $ | (63,884 | ) | $ | 4,573,854 |
| $ | (557,688 | ) | $ | 5,669 |
| $ | 100 |
| 100,384,850 |
| | $ | — |
| 5,605 |
| |
Cumulative effect of a change in accounting principle | | 164 |
| (254 | ) | — |
| 418 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
Balance at March 31, 2017 | | $ | 2,957,568 |
| $ | (393,953 | ) | $ | (74,139 | ) | $ | 4,051,836 |
| $ | (632,194 | ) | $ | 5,917 |
| $ | 101 |
| 100,979,448 |
| | $ | — |
| 5,605 |
|
(1) Includes $1.1 million of granted dividend equivalent units.
See Notes to Unaudited Condensed Consolidated Financial Statements.Statements
6
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited)
|
| | Nine Months Ended | Three Months Ended |
| September 30, 2016 | | September 30, 2015 | March 31, 2017 | | March 31, 2016 |
Operating Activities | | | | | | |
Net (loss) income | $ | (4,705 | ) | | $ | 61,010 |
| $ | (85,594 | ) | | $ | 11,093 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | |
Stock-based compensation | 27,608 |
| | 24,129 |
| 14,963 |
| | 8,493 |
|
Pension credit, net of contributions | (18,083 | ) | | (21,875 | ) | (5,549 | ) | | (5,993 | ) |
Depreciation | 53,567 |
| | 54,047 |
| 13,571 |
| | 17,338 |
|
Amortization of contract intangible assets and liabilities | (10,778 | ) | | (10,842 | ) | 208 |
| | (4,003 | ) |
Amortization of other intangible assets | 148,195 |
| | 145,988 |
| 41,659 |
| | 49,378 |
|
Income on equity investments, net | (114,295 | ) | | (119,834 | ) | (37,037 | ) | | (38,252 | ) |
Distributions from equity investments | 143,557 |
| | 156,395 |
| 111,509 |
| | 89,346 |
|
Non-cash loss on extinguishment of debt | — |
| | 33,480 |
| |
Non-cash loss on extinguishment and modification of debt | | 6,823 |
| | — |
|
Original issue discount payments | — |
| | (6,158 | ) | (6,873 | ) | | — |
|
Write-down of investment | | 122,000 |
| | — |
|
Amortization of debt issuance costs and original issue discount | 8,368 |
| | 9,475 |
| 2,170 |
| | 2,786 |
|
Gain on investment transactions | — |
| | (12,070 | ) | |
Impairment of real estate | 15,102 |
| | — |
| |
(Gain) loss on sales of real estate | (212,719 | ) | | 97 |
| |
Other non-operating gain | (478 | ) | | (553 | ) | |
Change in excess tax benefits from stock-based awards | — |
| | 570 |
| |
Changes in working capital items, excluding effects from acquisitions: | | | | |
Gain on sale of business | | (35,462 | ) | | — |
|
Gain on investment transaction | | (4,950 | ) | | — |
|
Impairments of real estate | | 754 |
| | 7,834 |
|
Other non-operating loss (gain) | | 26 |
| | (496 | ) |
Changes in working capital items: | | | | |
Accounts receivable, net | 42,183 |
| | 15,996 |
| 44,963 |
| | 33,210 |
|
Prepaid expenses and other current assets | 8,856 |
| | (54,125 | ) | 4,568 |
| | 2,775 |
|
Accounts payable | 2,325 |
| | (15,343 | ) | (6,797 | ) | | 9,448 |
|
Employee compensation and benefits, accrued expenses and other current liabilities | (38,200 | ) | | 39,569 |
| (49,580 | ) | | (44,797 | ) |
Deferred revenue | (90 | ) | | 5,442 |
| (2,326 | ) | | (3,941 | ) |
Income taxes | 100,861 |
| | (189,866 | ) | 77,201 |
| | 14,406 |
|
Change in broadcast rights, net of liabilities | (19,913 | ) | | 8,746 |
| (18,546 | ) | | (46,949 | ) |
Deferred income taxes | 40,160 |
| | (107,196 | ) | (115,922 | ) | | 1,722 |
|
Other, net | 15,019 |
| | (9,157 | ) | 3,434 |
| | 18,901 |
|
Net cash provided by operating activities | 186,540 |
| | 7,925 |
| 75,213 |
| | 122,299 |
|
| | | | | | |
Investing Activities | | | | | | |
Capital expenditures | (61,855 | ) | | (63,775 | ) | (14,634 | ) | | (17,848 | ) |
Acquisitions, net of cash acquired | — |
| | (75,000 | ) | |
Investments | | — |
| | (88 | ) |
Net proceeds from the sale of business (Note 2) | | 554,725 |
| | — |
|
Proceeds from sales of real estate and other assets | | 44,315 |
| | 1,486 |
|
Proceeds from the sale of investment | | 4,950 |
| | — |
|
Transfers from restricted cash | 297 |
| | 1,091 |
| — |
| | 4 |
|
Investments | (3,451 | ) | | (3,011 | ) | |
Distributions from equity investments | — |
| | 4,707 |
| |
Proceeds from sales of real estate and other assets | 507,050 |
| | 22,050 |
| |
Net cash provided by (used in) investing activities | 442,041 |
| | (113,938 | ) | 589,356 |
| | (16,446 | ) |
See Notes to Unaudited Condensed Consolidated Financial Statements.Statements
7
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited)
|
| | Nine Months Ended | Three Months Ended |
| September 30, 2016 | | September 30, 2015 | March 31, 2017 | | March 31, 2016 |
Financing Activities | | | | | | |
Long-term borrowings | — |
| | 1,100,000 |
| 202,694 |
| | — |
|
Repayments of long-term debt | (20,881 | ) | | (1,107,302 | ) | (584,245 | ) | | (6,960 | ) |
Long-term debt issuance costs | (784 | ) | | (20,202 | ) | (1,689 | ) | | (622 | ) |
Payments of dividends | (68,684 | ) | | (696,364 | ) | (520,849 | ) | | (23,215 | ) |
Settlements of contingent consideration, net | (3,636 | ) | | 1,174 |
| |
Common stock repurchases | (149,147 | ) | | (272,812 | ) | — |
| | (8,938 | ) |
Change in excess tax benefits from stock-based awards | — |
| | (570 | ) | |
Tax withholdings related to net share settlements of share-based awards | (4,540 | ) | | (4,264 | ) | (7,053 | ) | | (4,126 | ) |
Proceeds from stock option exercises | — |
| | 166 |
| 2,385 |
| | — |
|
Contributions from noncontrolling interest | 145 |
| | 1,324 |
| |
Net cash used in financing activities | (247,527 | ) | | (998,850 | ) | (908,757 | ) | | (43,861 | ) |
| | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents | 381,054 |
| | (1,104,863 | ) | |
Cash and cash equivalents, beginning of period | 262,644 |
| | 1,455,183 |
| |
Net (Decrease) Increase in Cash and Cash Equivalents | | (244,188 | ) | | 61,992 |
|
Cash and cash equivalents, beginning of period (1) | | 590,409 |
| | 262,644 |
|
Cash and cash equivalents, end of period | $ | 643,698 |
| | $ | 350,320 |
| $ | 346,221 |
| | $ | 324,636 |
|
| | | | | | |
Supplemental Schedule of Cash Flow Information | | | | | | |
Cash paid during the period for: | | | | |
Cash paid (received) during the period for: | | | | |
Interest | $ | 137,417 |
| | $ | 106,987 |
| $ | 54,246 |
| | $ | 59,065 |
|
Income taxes, net | $ | 159,152 |
| | $ | 331,145 |
| $ | 752 |
| | $ | (3,613 | ) |
| |
(1) | Cash and cash equivalents at the beginning of the three months ended March 31, 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.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, 20152016 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, 2016March 31, 2017 and the results of operations and cash flows for the three and nine months ended September 30, 2016March 31, 2017 and September 30, 2015.March 31, 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 April 16, 2015,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 Boardcontinuing operations.
On May 8, 2017, the Company entered into an Agreement and Plan of DirectorsMerger (the “Board”“Merger Agreement”) approvedwith Sinclair Broadcast Group, Inc. (“Sinclair”), providing for the changeacquisition by Sinclair of all of the outstanding shares of the Company’s fiscal year end from the last Sunday in December of each year to December 31 of each yearClass A common stock (“Class A Common Stock”) and to change the Company’s fiscal quarter end to the last calendar day of each quarter. This change in fiscal year end was effectiveClass B common stock (“Class B Common Stock” and, together with the Company’s second fiscal quarterClass A Common Stock, the “Common Stock”) by means of 2015, which ended on June 30, 2015.a merger of a wholly owned subsidiary of Sinclair with and into Tribune Media Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Sinclair, as further described in Note 18.
Change in Accounting Principles—In November 2015,March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting StandardsStandard Update (“ASU”) 2015-17, “Balance Sheet Classification of Deferred Taxes.2016-09, “Compensation - Stock Compensation (Topic 718).” The Company electedadopted ASU 2016-09 on January 1, 2017. The Company made a policy election to early adopt ASU 2015-17 prospectivelyaccount 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 fourthfirst quarter of fiscal 2015 and present all deferred tax assets and liabilities, along with any related valuation allowances2017 as a result of December 31, 2015, as noncurrentthis 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 auditedConsolidated Balance Sheets.unaudited condensed consolidated financial statements.
In April 2015,January 2017, the FASB issued ASU No. 2015-03, “Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”2017-04, “Intangibles - Goodwill and in August 2015, the FASB issued ASU No. 2015-15, “Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)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 2015-03 and ASU 2015-15 retrospectively in2017-04, companies should recognize an impairment charge for the first quarter of fiscal 2016 and presented debt issuance costs as a direct deduction fromamount the carrying amount of an associated debt liability, withexceeds the exception of debt issuance costs relatedreporting unit’s fair value. However, the loss recognized cannot exceed the total goodwill allocated to the Company’s Revolving Credit Facility which continue to be presented as an asset and amortized over the appropriate term. As a resultthat reporting unit. The adoption of this reclassification, the carrying value of the Company’s debt as of December 31, 2015 decreased by $50 million (see Note 7 for additional information).
Broadcast Rights—The Company amortizes its broadcast rights costs over the period in which an economic benefit is expected to be derived basedstandard did not have a material impact on the timing of the usage and benefit from such programming. Newer licensed/acquired programming and original produced programming are generally amortized on an accelerated basis as the episodes are aired. For certain categories of licensed programming and feature films that have been exploited through previous cycles, amortization expense is recorded on a straight-line basis. The Company also has commitments for network and sports programming that are expensed on a straight-line basis as the programs are available to air. Management’s judgment is required in determining the timing of the expensing of these costs, and includes analyses of historical and estimated future revenue and ratings patterns for similar programming. The Company regularly reviews, and revises when necessary, its revenue estimates, which may result in a change in the rate of amortization. Amortization of broadcast rights are expensed to programming in the Company’s unaudited Condensed Consolidated Statementscondensed consolidated financial statements.
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 Operations.derivative financial instruments to manage interest rate exposures and does not permit derivatives to be used for speculative purposes.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company carries its broadcast rightsformally 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 the lowerhedge’s 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 unamortized costhedged 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 estimated net realizable value. the underlying hedged transaction is no longer probable, the Company discontinues hedge accounting prospectively, in accordance with derecognition criteria for hedge accounting.
The Company evaluatesrecords 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 net realizablefair value of broadcast rights on a daypart, series, or title-by-title basis,derivative that is designated as appropriate. Changesa cash flow hedge, to the extent that the hedge is effective, are recorded in management’s intended usage of a specific daypart, series, or program would result in a reassessment ofaccumulated other comprehensive (loss) income and reclassified to earnings when the net realizable value, which could result in an impairment. The Company determines the net realizable value and estimated fair value, as appropriate, based on a projection of the estimated advertising revenues and carriage/retransmission revenues, less certain direct costs of delivery, expected to be generated by the program material, all of whichhedged item affects earnings. Cash flows from derivative financial instruments are classified in Level 3 of the fair value hierarchy. If the Company’s estimates of future revenues decline, amortization expense could be accelerated or impairment adjustments may be required. The Company assesses future seasons of syndicated programs that the Company is committed to acquire for impairment as they become available to the Company for airing. Any impairments of programming rights are expensed to programming in the Company’s unaudited Condensed Consolidated Statements of Operations. As a resultCash Flows based on the nature of the evaluation of the recoverability of the unamortized costs associated with broadcast rights, the Company recognized an impairment charge of $37 million for the syndicated program Elementary at WGN America in the third quarter of 2016.
As a result of an updated analysis completed in the first quarter of 2016, the Company updated its amortization model for certain categories of programming effective January 1, 2016. Program amortization for these programs is now calculated on either an accelerated or straight-line basis based upon the greater amortization resulting from either the number of episodes aired or the portion of the license period consumed.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, 2015.2016.
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 Federal Communications Commission (the “FCC”) related to the Company’s acquisition of Local TV, LLC on December 27, 2013 (the “Local TV Acquisition”). See Note 51 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 20152016 for additional information. The Company’s unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 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,March 31, 2017 and March 31, 2016, and September 30, 2015 were $17 million and $16 million, respectively, and for the nine months ended September 30, 2016 and September 30, 2015, were $52 million and $48 million, respectively.million. Operating profits of the Dreamcatcher stations included in the Company’s unaudited Condensed Consolidated Statements of Operations for the three months ended September 30,March 31, 2017 and March 31, 2016, and September 30, 2015 were $3$2 million and $2 million, respectively, and for the nine months ended September 30, 2016 and September 30, 2015, were $10 million and $9$3 million, respectively.
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, 2016March 31, 2017 and December 31, 20152016 include the following assets and liabilities of the Dreamcatcher stations (in thousands): |
| | | | | | | |
| September 30, 2016 | | December 31, 2015 (1) |
Property, plant and equipment, net | $ | 161 |
| | $ | 371 |
|
Broadcast rights | 3,573 |
| | 2,748 |
|
Other intangible assets, net | 85,074 |
| | 92,970 |
|
Other assets | 187 |
| | 111 |
|
Total Assets | $ | 88,995 |
| | $ | 96,200 |
|
| | | |
Debt due within one year | $ | 3,999 |
| | $ | 3,989 |
|
Contracts payable for broadcast rights | 3,675 |
| | 3,016 |
|
Long-term debt | 11,769 |
| | 14,736 |
|
Other liabilities | 104 |
| | 55 |
|
Total Liabilities | $ | 19,547 |
| | $ | 21,796 |
|
(1) December 31, 2015 balances have been reclassified to present debt issuance costs as a direct deduction from the carrying amount of an associated debt liability in accordance with ASU 2015-03. |
| | | | | | | |
| March 31, 2017 | | December 31, 2016 |
Property, plant and equipment, net | $ | 68 |
| | $ | 91 |
|
Broadcast rights | 1,712 |
| | 2,634 |
|
Other intangible assets, net | 79,810 |
| | 82,442 |
|
Other assets | 208 |
| | 134 |
|
Total Assets | $ | 81,798 |
| | $ | 85,301 |
|
| | | |
Debt due within one year | $ | 4,006 |
| | $ | 4,003 |
|
Contracts payable for broadcast rights | 1,846 |
| | 2,758 |
|
Long-term debt | 9,764 |
| | 10,767 |
|
Other liabilities | 66 |
| | 85 |
|
Total Liabilities | $ | 15,682 |
| | $ | 17,613 |
|
New Accounting Standards—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 interims 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 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 Company is currently evaluating the method and the impact of adopting ASU 2017-05 on its 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
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 on 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 “probably” 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 March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718).” The new guidance requires companies to record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, which will eliminate additional paid-in capital pools. Companies are to apply this amendment prospectively. The guidance also requires companies to present excess tax benefits as an operating activity on the statement of cash flows, which can be applied retrospectively or prospectively. The guidance in ASU
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2016-09 will allow an employer to repurchase more of an employees’ shares than it can today for tax withholding purposes without triggering liability accounting. Additionally, the guidance requires companies to make a policy election to account for forfeitures of share-based payments by either recognizing forfeitures of awards as they occur or estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change. The election must be adopted using a modified retrospective transition method, with a cumulative-effect adjustment to retained earnings. The standard is effective for fiscal years beginning after December 15, 2016, 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 timing and the impact of adopting ASU 2016-09 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 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, includingand interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-01 on its consolidated financial statements.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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, includingand 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,
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 2016-122016-20 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 2016-122016-20 at the date of initial application. The Company is currently evaluating adoption methods and the impact of adopting ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-122016-20 on its consolidated financial statements. Currently,The Company is finalizing the initial assessment phase of the new standard and expects to adopt the standard under the modified retrospective approach. Additionally, the Company expectshas determined that under the new standard, certain barter revenue recognition standardand the related expense will have anno longer be recognized. The Company is continuing to evaluate the impact on revenue recognition under certain contracts in bothof adopting the Television and Entertainment andstandard.
NOTE 2: DISCONTINUED OPERATIONS
Sale of Digital and Data segments.
NOTE 2: ACQUISITIONS
2015 Acquisitions
In May 2015,Businesses—On December 19, 2016, the Company completed the acquisitions of all issuedentered into a definitive share purchase agreement (the “Gracenote SPA”) with Nielsen Holding and outstandingFinance B.V. (“Nielsen”) to sell equity interests in Infostrada Statistics B.V. (“Infostrada Sports”), SportsDirect Inc. (“SportsDirect”) and Covers Media Group (“Covers”). In conjunction with these acquisitions, the Company launched Gracenote Sports, which is a partsubstantially all of the Digital and Data segment’s product offerings. Infostrada Sportsbusiness operations, which includes Gracenote Inc., Gracenote Canada, Inc., Gracenote Netherlands Holdings B.V., Tribune Digital Ventures LLC and SportsDirect provide theTribune International Holdco, LLC (the “Gracenote Companies”), for $560 million in cash, subject to certain purchase price adjustments (the “Gracenote Sale”). The Company with in-depth sports data, including schedules, scores, play-by-play statistics, as well as team and player information for the major professional leagues around the world, including the National Football League, Major League Baseball, National Basketball Association, National Hockey League, European Football League, and the Olympics.retained its ownership of Covers is the operator of Covers.com, a North American online sports gaming destination for scores, odds and matchups, unique editorial analysis, and industry news coverage. In May 2015, the Company also completed an acquisition of all issued and outstanding equity interests in Enswers Inc.Media Group (“Enswers”Covers”), a leading provider of automatic content recognition technology and systems basedwhich was previously included in South Korea, which expanded the Digital and Data segment’s product offerings. The total acquisition price for Infostrada Sports, SportsDirect, Coversreportable segment, and Enswers was $70 million, net of cash acquired.
The purchase prices forreclassified Covers’ previously reported amounts into the above acquisitions were allocatedTelevision and Entertainment reportable segment to conform to the tangiblecurrent segment presentation; the impact of this reclassification was immaterial. The Gracenote Sale was completed on January 31, 2017 and intangiblethe Company received gross proceeds of $581 million. The Company expects to receive additional proceeds of approximately $4 million as a result of purchase price adjustments. The Company recognized a pretax gain of $35 million as a result of the Gracenote Sale in the first quarter of 2017. On February 1, 2017, the Company used $400 million of proceeds from the Gracenote Sale to pay down a portion of its Term Loan Facility (as defined and described in Note 6).
As of December 31, 2016, the assets acquired and liabilities assumed. The excess of the fair valuesbusinesses included in the Gracenote Sale are reflected as assets and the related deferred taxes were allocated to goodwill, which will not be deductible for tax purposes due to the acquisitions being stock acquisitions. In connection with these acquisitions, the Company incurred a totalliabilities of $3 million of transaction costs, which were recorded in selling, general and administrative expenses (“SG&A”)discontinued operations in the Company’s unaudited Condensed Consolidated Statements of Operations.Balance Sheets, and the operating results are presented as discontinued operations in the Company’s unaudited
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for all periods presented.
The total purchase priceCompany 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. Pursuant to the Nielsen TSA, the Company provides Nielsen with certain specified services on a transitional basis for a period of up to six months following the Gracenote Sale, 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 for a period of up to six months following the Gracenote Sale, 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 Nielsen TSA may be extended, in certain circumstances and for certain services, upon mutual agreement between the Company and Nielsen. The charges for the Infostrada Sports, SportsDirect, Coverstransition services generally allow the providing company to fully recover all out-of-pocket costs and Enswers acquisitions assigned toexpenses it actually incurs in connection with providing the acquired assets and assumed liabilitiesservices, plus, in some cases, the allocated direct costs of these companies isproviding 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 followsreflected in the Company’s unaudited Condensed Consolidated Statements of Operations (in thousands):
|
| | | |
Consideration: | |
Cash | $ | 71,768 |
|
Less: cash acquired | (1,919 | ) |
Net cash | $ | 69,849 |
|
| |
Allocated Fair Value of Acquired Assets and Assumed Liabilities: | |
Restricted cash and cash equivalents | $ | 404 |
|
Accounts receivable and other current assets | 2,481 |
|
Property and equipment | 805 |
|
Deferred tax assets | 3,816 |
|
Other long term assets | 157 |
|
Intangible assets subject to amortization | |
Customer relationships (useful lives of 6 to 16 years) | 17,000 |
|
Content databases (useful lives of 10 to 16 years) | 13,900 |
|
Technologies (useful lives 4 to 10 years) | 6,900 |
|
Trade name and trademarks (useful life of 15 years) | 5,200 |
|
Non-competition agreement (useful life 5 years) | 1,100 |
|
Accounts payable and other current liabilities | (1,507 | ) |
Deferred revenue | (339 | ) |
Deferred tax liabilities | (10,097 | ) |
Other liabilities | (477 | ) |
Total identifiable net assets | 39,343 |
|
Goodwill | 30,506 |
|
Total net assets acquired | $ | 69,849 |
|
|
| | | | | | | |
| Three Months Ended |
| March 31, 2017 (1) | | March 31, 2016 |
Operating revenues | $ | 18,168 |
| | $ | 52,592 |
|
Direct operating expenses | 7,292 |
| | 16,694 |
|
Selling, general and administrative | 15,349 |
| | 28,065 |
|
Depreciation (2) | — |
| | 2,896 |
|
Amortization (2) | — |
| | 7,713 |
|
Operating loss | (4,473 | ) | | (2,776 | ) |
Interest income | 16 |
| | 13 |
|
Interest expense (3) | (1,261 | ) | | (3,835 | ) |
Loss before income taxes | (5,718 | ) | | (6,598 | ) |
Pretax gain on the disposal of discontinued operations | 35,462 |
| | — |
|
Total pretax gain (loss) on discontinued operations | 29,744 |
| | (6,598 | ) |
Income tax expense (benefit) (4) | 14,126 |
| | (2,589 | ) |
Gain (loss) from discontinued operations, net of taxes | $ | 15,618 |
| | $ | (4,009 | ) |
| |
(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 pay down a portion of its outstanding borrowings under the Company’s Term Loan Facility (as defined and described in Note 6). 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 allocation presented above is based upon management’s estimateeffective tax rates on pretax income from discontinued operations were 47.5% and 39.2% for the three months ended March 31, 2017 and March 31, 2016, respectively. 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 fair values usingGracenote Companies. The 2016 rate differs from the U.S. federal statutory rate of 35% primarily due to state income cost,taxes (net of federal benefit) and market approaches. In estimating the fair value of acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. The definite-lived intangible assets will be amortized over a total weighted average period of 12 years that include weighted average periods of 11 years for customer relationships, 14 years for content databases, 8 years for technologies, 15 years for trade name and trademarks, and 5 years for non-competition agreements. The acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, and noncontractual relationships, as well as expected future cost and revenue synergies.foreign tax rate differences.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Other
On July 4, 2014,The results of discontinued operations include selling costs and transactions costs, including legal and professional fees incurred by the Company completedto complete the acquisitionGracenote Sale, of all of the outstanding and issued equity interests of What’s On India Media Private Limited (“What’s ON”)$10 million for a purchase price of $27 million, net of cash acquired, consisting of $21 million, net initial cash consideration and $6 million recorded as the net present value (“NPV”) of additional deferred payments. At the time of the acquisition, the Company determined that the acquisition of What’s ON may also include additional payments in 2015 and 2016 to selling management shareholders totaling up to $8 million, which should be accounted for as compensation expense as the payments are earned, in accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations” (“ASC Topic 805”). In each of the second quarter of 2015 and third quarter of 2016, the Company made payments of $4 million, to selling management shareholders pursuant to such arrangements.
NOTE 3: CHANGES IN OPERATIONS
Employee Reductions—The Company recorded pretax charges, mainly consisting of employee severance costs and associated termination benefits, totaling $8 million in both the three and nine months ended September 30, 2016. Additionally, the Company recorded pretax charges for severance and related expenses totaling $3 million and $4 million in the three and nine months ended September 30, 2015, respectively. These charges are included in direct operating expenses or SG&A, as appropriate, in the Company’s unaudited Condensed Consolidated Statements of Operations.March 31, 2017.
The following table summarizes these severanceis a summary of the assets and related charges by business segment for the three and nine months ended September 30, 2016 and September 30, 2015liabilities of discontinued operations (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 |
Television and Entertainment | $ | 6,844 |
| | $ | 1,470 |
| | $ | 6,865 |
| | $ | 2,006 |
|
Digital and Data | 476 |
| | 759 |
| | 476 |
| | 570 |
|
Corporate and Other | 408 |
| | 373 |
| | 1,157 |
| | 1,262 |
|
Total | $ | 7,728 |
| | $ | 2,602 |
| | $ | 8,498 |
| | $ | 3,838 |
|
|
| | | |
| 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 |
|
ChangesThe 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 contingent liabilities relating to the accrued liability for severance and related expenses during the nine months ended September 30, 2016 wereGracenote Sale as follows (in thousands):
|
| | | |
Balance at December 31, 2015 | $ | 4,453 |
|
Additions | 8,498 |
|
Payments and other | (4,146 | ) |
Balance at September 30, 2016 | $ | 8,805 |
|
of March 31, 2017.
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):
|
| | | | | | | |
| Three Months Ended |
| March 31, 2017 (1) | | March 31, 2016 |
Significant operating non-cash items: | | | |
Stock-based compensation | $ | 1,992 |
| | $ | 989 |
|
Depreciation (2) | — |
| | 2,896 |
|
Amortization (2) | — |
| | 7,713 |
|
| | | |
Significant investing items (3): | | | |
Capital expenditures | 1,578 |
| | 4,923 |
|
Net proceeds from the sale of business (4) | 554,725 |
| | — |
|
| |
(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 $581 million, net of $17 million of the Gracenote Companies’ cash and cash equivalents included in the sale and $9 million of selling costs. |
NOTE 4:3: REAL ESTATE SALES AND ASSETS HELD FOR SALE AND SALES OF REAL ESTATE
Real Estate Assets Held for Sale—AssetsReal estate assets held for sale in the Company’s unaudited Condensed Consolidated Balance SheetSheets consisted of the following (in thousands):
|
| | | | | | | |
| September 30, 2016 | | December 31, 2015 |
Real estate | $ | 17,878 |
| | $ | 206,422 |
|
|
| | | | | | | |
| March 31, 2017 | | December 31, 2016 |
Real estate | $ | 16,356 |
| | $ | 17,176 |
|
As of September 30, 2016,March 31, 2017, the Company had 8five real estate properties held for sale. As of December 31, 2015, the real estate properties held for sale included Tribune Tower in Chicago, IL (“Tribune Tower”), the north block of the Los Angeles Times Square property in downtown Los Angeles, CA (“LA Times Property”) and the Olympic Printing Plant facility in the Arts District of downtown Los Angeles, CA (“Olympic Facility”). The combined net carrying value of $18 million and $206 million for the properties held for sale is included in assets held for sale in the Company’s Consolidated Balance Sheet at September 30, 2016 and December 31, 2015, respectively.
The Company recorded charges of $1 million and $15$8 million in the three and nine months ended September 30,March 31, 2017 and March 31, 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 selling, general and administrative expenses (“SG&A”) in the Company’s unaudited Condensed Consolidated Statements of Operations.
Sales of Real Estate—In the three and nine months ended September 30, 2016,March 31, 2017, the Company sold severaltwo properties for net pretax proceeds totaling $473$44 million, and $505 million, respectively, and recognized a net pretax gain of $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 May 2, 2016,January 26, 2017, the Company sold its Deerfield Beach, FLDenver, CO property for net proceeds of $24$23 million, which approximated the carrying value, and on June 2, 2016,entered into a lease for the property. On January 31, 2017, the Company sold one of its Allentown, PA propertyChicago, IL properties for net proceeds of $8 million. In the second quarter of 2016, the Company recorded a net pretax loss of less than $1 million on the sale of these properties that is included in SG&A.
On July 7, 2016, the Company sold its Seattle, WA property for net proceeds of $19$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 $8$13 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 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 datein accordance with the possibility of extension in certain circumstances. On September 27, 2016, the Company sold the Olympic Facility for net proceeds of $119 million and recognized a pretax gain of $59 million.
Additionally, as of November 9, 2016, the Company has agreements for the sales of certain broadcasting real estate properties located in Chicago, IL and Portsmouth, VA, some of which will qualify as sale-leasebacks. All of these transactions are expected to close during the fourth quarter of 2016. 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.
In the nine months ended September 30, 2015, the Company sold two properties which were located in Bel Air, MD and Newport News, VA for net proceeds of $5 million and recorded a net pretax loss of less than $1 million.sale-leaseback accounting guidance.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 5:4: GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES
Goodwill and other intangible assets consisted of the following (in thousands):
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
| Gross Amount | | Accumulated Amortization | | Net Amount | | Gross Amount | | Accumulated Amortization | | Net Amount | 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 |
| | $ | (49,688 | ) | | $ | 162,312 |
| | $ | 212,000 |
| | $ | (39,750 | ) | | $ | 172,250 |
| $ | 212,000 |
| | $ | (56,313 | ) | | $ | 155,687 |
| | $ | 212,000 |
| | $ | (53,000 | ) | | $ | 159,000 |
|
Advertiser relationships (useful life of 8 years) | 168,000 |
| | (78,750 | ) | | 89,250 |
| | 168,000 |
| | (63,000 | ) | | 105,000 |
| 168,000 |
| | (89,250 | ) | | 78,750 |
| | 168,000 |
| | (84,000 | ) | | 84,000 |
|
Network affiliation agreements (useful life of 5 to 16 years) | 362,000 |
| | (123,322 | ) | | 238,678 |
| | 362,000 |
| | (92,113 | ) | | 269,887 |
| 362,000 |
| | (144,128 | ) | | 217,872 |
| | 362,000 |
| | (133,725 | ) | | 228,275 |
|
Retransmission consent agreements (useful life of 7 to 12 years) | 830,100 |
| | (264,484 | ) | | 565,616 |
| | 830,100 |
| | (196,955 | ) | | 633,145 |
| 830,100 |
| | (309,504 | ) | | 520,596 |
| | 830,100 |
| | (286,994 | ) | | 543,106 |
|
Other customer relationships (useful life of 3 to 16 years) | 115,729 |
| | (31,860 | ) | | 83,869 |
| | 114,827 |
| | (23,315 | ) | | 91,512 |
| |
Content databases (useful life of 5 to 16 years) | 134,864 |
| | (31,721 | ) | | 103,143 |
| | 134,299 |
| | (23,623 | ) | | 110,676 |
| |
Other technology (useful life of 4 to 10 years) | 47,275 |
| | (14,611 | ) | | 32,664 |
| | 47,011 |
| | (9,733 | ) | | 37,278 |
| |
Trade names and trademarks (useful life of 3 to15 years) | 14,121 |
| | (2,511 | ) | | 11,610 |
| | 13,853 |
| | (1,625 | ) | | 12,228 |
| |
Other (useful life of 3 to 11 years) | 14,626 |
| | (6,243 | ) | | 8,383 |
| | 16,337 |
| | (5,514 | ) | | 10,823 |
| |
Trade names and trademarks (useful life of 15 years) | | 4,876 |
| | (606 | ) | | 4,270 |
| | 4,802 |
| | (516 | ) | | 4,286 |
|
Other (useful life of 5 to 12 years) | | 10,698 |
| | (4,513 | ) | | 6,185 |
| | 10,646 |
| | (4,179 | ) | | 6,467 |
|
Total | $ | 1,898,715 |
| | $ | (603,190 | ) | | 1,295,525 |
| | $ | 1,898,427 |
| | $ | (455,628 | ) | | 1,442,799 |
| $ | 1,587,674 |
| | $ | (604,314 | ) | | 983,360 |
| | $ | 1,587,548 |
| | $ | (562,414 | ) | | 1,025,134 |
|
Other intangible assets not subject to amortization | | | | | | | | | | | | | | | | | | | | | | |
FCC licenses | | | | | 782,600 |
| | | | | | 782,600 |
| | | | | 779,200 |
| | | | | | 779,200 |
|
Trade name | | | | | 14,800 |
| | | | | | 14,800 |
| | | | | 14,800 |
| | | | | | 14,800 |
|
Total other intangible assets, net | | | | | 2,092,925 |
| | | | | | 2,240,199 |
| | | | | 1,777,360 |
| | | | | | 1,819,134 |
|
Goodwill | | | | | | | | | | | | | | | | 3,228,047 |
| | | | | | 3,227,930 |
|
Television and Entertainment | | | | | 3,220,300 |
| | | | | | 3,220,300 |
| |
Digital and Data | | | | | 343,222 |
| | | | | | 341,512 |
| |
Total goodwill | | | | | 3,563,522 |
| | | | | | 3,561,812 |
| |
Total goodwill and other intangible assets | | | | | $ | 5,656,447 |
| | | | | | $ | 5,802,011 |
| | | | | $ | 5,005,407 |
| | | | | | $ | 5,047,064 |
|
The changes in the carrying amounts of intangible assets, which are in the Company’s Television and Entertainment segment, during the three months ended March 31, 2017 were as follows (in thousands):
|
| | | |
Other intangible assets subject to amortization | |
Balance as of December 31, 2016 | $ | 1,025,134 |
|
Amortization | (41,879 | ) |
Foreign currency translation adjustment | 105 |
|
Balance as of March 31, 2017 | $ | 983,360 |
|
| |
Other intangible assets not subject to amortization | |
Balance as of March 31, 2017 and December 31, 2016 | $ | 794,000 |
|
| |
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 | 117 |
|
Balance as of March 31, 2017 | $ | 3,228,047 |
|
Total goodwill and other intangible assets as of March 31, 2017 | $ | 5,005,407 |
|
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The changes in the carrying amounts ofAmortization expense relating to amortizable intangible assets duringis expected to be approximately $125 million for the nine months ended September 30, 2016 were as follows (in thousands): |
| | | | | | | | | | | |
| Television and Entertainment | | Digital and Data | | Total |
Other intangible assets subject to amortization | | | | | |
Balance as of December 31, 2015 | $ | 1,185,215 |
| | $ | 257,584 |
| | $ | 1,442,799 |
|
Amortization (1) | (125,258 | ) | | (23,786 | ) | | (149,044 | ) |
Balance sheet reclassifications | 9 |
| | — |
| | 9 |
|
Foreign currency translation adjustment | — |
| | 1,761 |
| | 1,761 |
|
Balance as of September 30, 2016 | $ | 1,059,966 |
| | $ | 235,559 |
| | $ | 1,295,525 |
|
| | | | | |
Other intangible assets not subject to amortization | | | | | |
Balance as of September 30, 2016 and December 31, 2015 | $ | 797,400 |
| | $ | — |
| | $ | 797,400 |
|
| | | | | |
Goodwill | | | | | |
Gross balance as of December 31, 2015 | $ | 3,601,300 |
| | $ | 341,512 |
| | $ | 3,942,812 |
|
Accumulated impairment losses as of December 31, 2015 | (381,000 | ) | | — |
| | (381,000 | ) |
Balance as of December 31, 2015 | $ | 3,220,300 |
| | $ | 341,512 |
| | $ | 3,561,812 |
|
Foreign currency translation adjustment | — |
| | 1,710 |
| | 1,710 |
|
Balance as of September 30, 2016 | $ | 3,220,300 |
| | $ | 343,222 |
| | $ | 3,563,522 |
|
Total goodwill and other intangible assets as of September 30, 2016 | $ | 5,077,666 |
| | $ | 578,781 |
| | $ | 5,656,447 |
|
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 5: INVESTMENTS
| |
(1) | Amortization of intangible assets includes $1 million related to lease contract intangible assets and is recorded in SG&A in the Company’s unaudited Condensed Consolidated Statements of Operations. |
The Company's intangible liabilities subject to amortizationInvestments consisted of the following (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2016 | | December 31, 2015 |
| Gross Amount | | Accumulated Amortization | | Net Amount | | Gross Amount | | Accumulated Amortization | | Net Amount |
Intangible liabilities subject to amortization | | | | | | | | | | | |
Broadcast rights intangible liabilities | $ | — |
| | $ | — |
| | $ | — |
| | $ | 80,440 |
| | $ | (66,729 | ) | | $ | 13,711 |
|
Lease contract intangible liabilities | 209 |
| | (184 | ) | | 25 |
| | 209 |
| | (148 | ) | | 61 |
|
Total intangible liabilities subject to amortization | $ | 209 |
| | $ | (184 | ) | | $ | 25 |
| | $ | 80,649 |
| | $ | (66,877 | ) | | $ | 13,772 |
|
|
| | | | | | | |
| March 31, 2017 | | December 31, 2016 |
Equity method investments | $ | 1,445,901 |
| | $ | 1,642,117 |
|
Cost method investments | 26,748 |
| | 26,748 |
|
Marketable equity securities | 861 |
| | 6,018 |
|
Total investments | $ | 1,473,510 |
| | $ | 1,674,883 |
|
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 |
| March 31, 2017 | | March 31, 2016 |
Income from equity investments, net, before amortization of basis difference | $ | 52,888 |
| | $ | 51,923 |
|
Amortization of basis difference | (15,851 | ) | | (13,671 | ) |
Income from equity investments, net | $ | 37,037 |
| | $ | 38,252 |
|
As describeddiscussed in Note 48 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015, the Company recorded contract intangible liabilities totaling $227 million in connection with the adoption of fresh-start reporting on the Effective Date (as defined in Note 9). Of this amount, approximately $226 million was related to contracts for broadcast rights programming not yet available for broadcast. In addition, the Company recorded $9 million of intangible liabilities related to contracts for broadcast rights programming in connection with the Local TV Acquisition (see Note 5 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015). These intangible liabilities are reclassified as a reduction of broadcast rights assets in the Company’s unaudited Condensed Consolidated Balance Sheet as the programming becomes available for broadcast and subsequently amortized as a reduction of programming expenses in the unaudited
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Condensed Consolidated Statement of Operations in accordance with the Company’s methodology for amortizing the related broadcast rights.
The net changes in the carrying amounts of intangible liabilities during the nine months ended September 30, 2016, were as follows (in thousands): |
| | | |
| Television and Entertainment |
Intangible liabilities subject to amortization | |
Balance as of December 31, 2015 | $ | 13,772 |
|
Amortization | (11,627 | ) |
Balance sheet reclassifications (1) | (2,120 | ) |
Balance as of September 30, 2016 | $ | 25 |
|
| |
(1) | Represents net reclassifications which are reflected as an increase to broadcast rights assets in the Company’s unaudited Consolidated Balance Sheet at September 30, 2016. |
Amortization expense relating to amortizable intangible assets, excluding lease contract intangible assets, is expected to be approximately $50 million for the remainder of 2016, $198 million in 2017, $197 million in 2018, $169 million in 2019, $161 million in 2020 and $127 million in 2021.
NOTE 6: INVESTMENTS
Investments consisted of the following (in thousands): |
| | | | | | | |
| September 30, 2016 | | December 31, 2015 |
Equity method investments | $ | 1,636,068 |
| | $ | 1,668,316 |
|
Cost method investments | 24,248 |
| | 20,868 |
|
Marketable equity securities | 7,095 |
| | 3,516 |
|
Total investments | $ | 1,667,411 |
| | $ | 1,692,700 |
|
Equity Method Investments—As discussed in Note 4 and Note 9 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015, 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)8). 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 805.805 “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 March 31, 2017 totaled $723 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 |
| March 31, 2017 | | March 31, 2016 |
Cash distributions from equity investments | $ | 111,509 |
| | $ | 89,346 |
|
TV Food Network—The Company’s 31% investment in Television Food Network, G.P. (“TV Food Network”) totaled $1.206 billion and $1.279 billion at March 31, 2017 and December 31, 2016, respectively. The Company recognized equity income from TV Food Network of $38 million and $34 million for the three months ended March
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
31, 2017 and March 31, 2016, respectively. The Company received cash distributions from TV Food Network of $112 million and $89 million in the three months ended March 31, 2017 and March 31, 2016, respectively.
CareerBuilder—The Company’s 32% investment in CareerBuilder, LLC (“CareerBuilder”) totaled $219 million and $341 million at March 31, 2017 and December 31, 2016, respectively. The Company recognized an equity loss from CareerBuilder of $0.3 million for the three months ended March 31, 2017 and equity income of $5 million for the three months ended March 31, 2016.
On September 7, 2016, TEGNA Inc. (“TEGNA”) announced that it began evaluating strategic alternatives for CareerBuilder, in which the Company owns a 32% interest, including a possible sale. In March 2017, the range of possible outcomes was narrowed and 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, the carrying value of the Company’s investment in CareerBuilder included $72 million of basis difference that the Company recorded as a result of fresh start reporting discussed above. In the three months ended March 31, 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. The Company estimated the fair value based on the best available evidence from recent developments related to TEGNA’s evaluation of strategic alternatives for CareerBuilder. 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 7 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 $12 million at both March 31, 2017 and December 31, 2016.
Summarized Financial Information—Summarized financial information for TV Food Network is as follows (in thousands):
|
| | | | | | | |
| Three Months Ended |
| March 31, 2017 |
| March 31, 2016 |
Revenues, net | $ | 297,356 |
| | $ | 277,176 |
|
Operating income | $ | 192,682 |
| | $ | 181,996 |
|
Net income | $ | 159,461 |
| | $ | 148,317 |
|
Summarized financial information for CareerBuilder and Dose Media is as follows (in thousands):
|
| | | | | | | |
| Three Months Ended |
| March 31, 2017 | | March 31, 2016 |
Revenues, net | $ | 170,019 |
| | $ | 172,733 |
|
Operating income | $ | 6,854 |
| | $ | 16,932 |
|
Net income | $ | 7,740 |
| | $ | 17,885 |
|
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
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 |
Income from equity investments, net, before amortization of basis difference | $ | 45,381 |
| | $ | 50,549 |
| | $ | 155,254 |
| | $ | 160,520 |
|
Amortization of basis difference | (13,644 | ) | | (13,562 | ) | | (40,959 | ) | | (40,686 | ) |
Income from equity investments, net | $ | 31,737 |
| | $ | 36,987 |
| | $ | 114,295 |
| | $ | 119,834 |
|
Cash distributions from the Company’s equity method investments wereclassified as follows (in thousands): |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 |
Cash distributions from equity investments | $ | 17,953 |
| | $ | 31,954 |
| | $ | 143,557 |
| | $ | 161,102 |
|
TV Food Network—The Company’s 31% investment in Television Food Network, G.P. (“TV Food Network”) totaled $1.266 billion and $1.314 billion at September 30, 2016 and Decemberavailable-for-sale securities. On January 31, 2015, respectively. The Company recognized equity income from TV Food Network of $24 million and $26 million for the three months ended September 30, 2016 and September 30, 2015, respectively, and equity income of $94 million and $92 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. The Company received cash distributions from TV Food Network of $18 million and $16 million for the three months ended September 30, 2016 and September 30, 2015, respectively, and cash distributions of $144 million and $145 million in the nine months ended September 30, 2016 and September 30, 2015, respectively.
On October 24, 2016, Tribune (FN) Cable Ventures, LLC, a wholly-owned subsidiary of the Company, entered into an extension of the partnership agreement governing TV Food Network, which extended the term of the partnership until December 31, 2020.
CareerBuilder—The Company’s 32% investment in CareerBuilder, LLC (“CareerBuilder”) totaled $349 million and $331 million at September 30, 2016 and December 31, 2015, respectively. The Company recognized equity income from CareerBuilder of $8 million and $11 million for the three months ended September 30, 2016 and September 30, 2015, respectively, and equity income of $22 million and $28 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. The Company received cash distributions from CareerBuilder of $16 million in the three and nine months ended September 30, 2015.
Dose Media—The Company’s 25% investment in Dose Media, LLC (“Dose Media”) totaled $13 million and $15 million at September 30, 2016 and December 31, 2015, respectively.
Classified Ventures—As further described in Note 9 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015, on October 1, 2014,2017, the Company sold its entire 27.8% equity interest in Classified Ventures, LLC (“CV”) to TEGNA, Inc. (“TEGNA”). The Company’s portiontronc shares for net proceeds of the proceeds from the transaction was $686 million before taxes ($426 million after taxes), of which $28 million was held in escrow and paid in the fourth quarter of 2015. Prior to closing, CV made a final distribution of all cash on hand from operations to the current owners. On April 2, 2015, the Company received an additional cash distribution of $8 million pursuant to CV’s collection of a contingent receivable, which is reflected as a non-operating gain in the Company’s Consolidated Statement of Operations for the nine months ended September 30, 2015.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Summarized Financial Information—Summarized financial information for TV Food Network is as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| Nine Months Ended |
| September 30, 2016 |
| September 30, 2015 |
| September 30, 2016 |
| September 30, 2015 |
Revenues, net | $ | 275,758 |
| | $ | 264,997 |
| | $ | 851,209 |
| | $ | 804,630 |
|
Operating income | $ | 150,471 |
| | $ | 123,579 |
| | $ | 520,848 |
| | $ | 405,605 |
|
Net income | $ | 116,431 |
| | $ | 124,347 |
| | $ | 421,961 |
| | $ | 414,272 |
|
Summarized financial information for CareerBuilder is as follows (in thousands): |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 |
Revenues, net | $ | 180,917 |
| | $ | 175,540 |
| | $ | 532,823 |
| | $ | 526,728 |
|
Operating income | $ | 28,506 |
| | $ | 37,353 |
| | $ | 77,433 |
| | $ | 101,293 |
|
Net income | $ | 28,446 |
| | $ | 36,470 |
| | $ | 77,600 |
| | $ | 97,884 |
|
Marketable Equity Securities—As further described in Note 2 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015, on August 4, 2014, the Company completed the Publishing Spin-off and retained 381,354 shares of tronc, Inc. (“tronc”) (formerly Tribune Publishing Company) common stock, representing 1.5% of the then-outstanding common stock of tronc. The Company classified the shares of tronc common stock as available-for-sale securities. As of September 30, 2016, the fair value and cost basis of the Company’s investment in tronc was $6$5 million and $0, respectively. Asrecognized a pretax gain of September 30, 2016, the gross unrealized holding gain relating to the Company’s investment in tronc was $6 million and is reflected in accumulated other comprehensive income, net of taxes, in the Company’s unaudited Condensed Consolidated Balance Sheet.$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 98 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015,2016, 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.
Newsday Transactions—As defined and further described in Note 9 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015, the Company consummated the closing of the Newsday Transactions on July 29, 2008. On September 2, 2015, the Company sold its 3% interest in Newsday Holdings LLC (“NHLLC”) to CSC Holdings, LLC (“CSC”) for $8 million and recognized a $3 million gain in connection with the sale. The Company’s remaining deferred tax liability of $101 million (as described in Note 10) became payable upon consummation of the sale. The tax payments were made in the fourth quarter of 2015.
Variable Interests—The Company evaluates its investments and other transactions to determine whether any entities associated with the investments or transactions should be consolidated under the provisions of ASC Topic
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
810, “Consolidation.” ASC Topic 810 requires an ongoing qualitative assessment of VIEs to assess which entity is the primary beneficiary as it has the power to direct matters that most significantly impact the activities of a VIE and has the obligation to absorb losses or benefits that could be potentially significant to the VIE. At September 30, 2016March 31, 2017 and December 31, 2015,2016, 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, 20152016 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 $4$5 million at both September 30, 2016March 31, 2017 and December 31, 2015.2016.
The 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 ninethree months ended September 30, 2016March 31, 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.
NOTE 7:6: DEBT
Debt consisted of the following (in thousands): |
| | | | | | | |
| September 30, 2016 |
| December 31, 2015 (1) |
Term Loan Facility due 2020, effective interest rate of 3.82%, net of unamortized discount and debt issuance costs of $33,218 and $39,147 | $ | 2,316,178 |
| | $ | 2,328,092 |
|
5.875% Senior Notes due 2022, net of debt issuance costs of $16,187 and $17,466 | 1,083,813 |
| | 1,082,534 |
|
Dreamcatcher Credit Facility due 2018, effective interest rate of 4.08%, net of unamortized discount and debt issuance costs of $94 and $175 | 15,768 |
|
| 18,725 |
|
Total debt | 3,415,759 |
| | 3,429,351 |
|
Less: Debt due within one year | 19,914 |
| | 19,862 |
|
Long-term debt, net of current portion | $ | 3,395,845 |
| | $ | 3,409,489 |
|
(1) December 31, 2015 balances have been reclassified to present debt issuance costs as a direct deduction from the carrying amount of an associated debt liability in accordance with ASU 2015-03. See Note 1 for further information.
Secured Credit Facility—On December 27, 2013, in connection with its acquisition of Local TV, the Company as borrower, entered into a $4.073 billion secured credit facility with a syndicate of lenders led by JPMorgan Chase Bank, N.A. (“JPMorgan”) (the “Secured Credit Facility”). The Secured Credit Facility consisted of a $3.773 billion term loan facility (the “Term Loan Facility”) and a $300 million revolving credit facility (the “Revolving Credit Facility”). The proceeds of the Term Loan Facility were used to pay the purchase price for Local TV and refinance the existing indebtedness of Local TV and the Term Loan Exit Facility (see Notes 3 and 5 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015). The proceeds of the Revolving Credit Facility are available for working capital and other purposes not prohibited under the Secured Credit Facility. The Revolving Credit Facility includes borrowing capacity for letters of credit and for borrowings on same-day notice, referred to as “swingline loans.” Borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including absence of defaults and accuracy of representations and warranties. |
| | | | | | | |
| March 31, 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 $2,503 and $31,230 | $ | 197,497 |
| | $ | 2,312,218 |
|
Term C Loans due 2024, effective interest rate of 3.85%, net of unamortized discount and debt issuance costs of $25,694 | 1,735,755 |
| | — |
|
5.875% Senior Notes due 2022, net of debt issuance costs of $14,749 and $15,437 | 1,085,251 |
| | 1,084,563 |
|
Dreamcatcher Credit Facility due 2018, effective interest rate of 4.08%, net of unamortized discount and debt issuance costs of $67 and $80 | 13,770 |
|
| 14,770 |
|
Total debt | 3,032,273 |
| | 3,411,551 |
|
Less: Debt due within one year | 17,876 |
| | 19,924 |
|
Long-term debt, net of current portion | $ | 3,014,397 |
| | $ | 3,391,627 |
|
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
UnderSecured Credit Facility—On December 31, 2016, the termsCompany’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 Secured Credit Facility,Company’s workers’ compensation insurance programs. See Note 9 to the amount ofCompany’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/orand the Revolving Credit Facility, may be increased and/or one or more additional term or revolving facilities may be addedincluding 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, by entering into one or more incremental facilities, subject to a cap equal to the greater of (x) $1.000 billion and (y) the maximum amount that would not cause the Company’s net first lien senior secured leverage ratio (treating debt incurred in reliance of this basket as secured on a first lien basis whether or not so secured), as determined pursuant to the terms of the Secured Credit Facility, to exceed 4.50:1.00.
The obligations of the Company under the Secured Credit Facility are guaranteed by all of the Company’s wholly-owned domestic subsidiaries, other than certain excluded subsidiaries (the “Guarantors”). The Secured Credit Facility is secured by a first priority lien on substantially all of the personal property and assets of the Company and the Guarantors, subject to certain exceptions. The Secured Credit Facility contains customary limitations, including,which, among other things, on(i) certain term lenders converted a portion of their Term B Loans outstanding immediately prior to the abilityclosing of the Company and its subsidiaries to incur indebtedness and liens, sell assets, make investments and pay dividends to its shareholders.
2017 Amendment
On June 24, 2015, the Company, the Guarantors and JPMorgan, as administrative agent, entered into an amendment (the “Amendment”) to the Secured Credit Facility. Prior to the Amendment and the Prepayment (as defined below), $3.479 billion of term loans (the “Former Term B Loans”) were outstanding under the Secured Credit Facility. Pursuant to the Amendment, certain lenders under the Secured Credit Facility converted their Former Term Loans into a new tranche of term loans (the “Converted Term B Loans”), along with certain new lenders who advanced $1.802 billion into the new tranche of term loans (the “New Term B Loans” and, together with the Converted Term B Loans, the “Term B Loans”). The proceeds of Term B Loans advanced by the new lenders were used to prepay in full all of the Former Term Loans that were not converted into Term B Loans. In connection with the Amendment, the Company used the net proceeds from the sale of the Notes (as defined below), together with cash on hand, to prepay (the “Prepayment”) $1.100 billion of the Term B Loans. Afteran aggregate amount (after giving effect to the AmendmentTerm 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 Prepayment, there were $2.379 billionextent that more than $600 million in aggregate principal amount of Term B Loansthe 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.
Term Loan Facility,
As a result of the Amendment, the Term BC 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 applicable margin of 2.0%. Overdue amounts under the Term Loan Facility are subject to additional interest of 2.0% per annum. The Term B Loans mature on December 27, 2020. Quarterly installments in an amount equal to 0.25% of the new principal amount of the Term B Loans are due on a quarterly basis. Voluntary prepayments of the Term B 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 twelve months after the Amendment. The Company is required to prepay the Term B Loans: (i) with the proceeds from certain material asset dispositions (but excluding proceeds from dispositions of publishing assets, real estate and its equity investments in CareerBuilder, LLC and, in certain instances, Television Food Network, G.P.), provided that the Company has rights to reinvest the proceeds to acquire assets for use in its business, within specified periods of time, (ii) with the proceeds from the issuance of new debt (other than debt permitted to be incurred under the Secured Credit Facility) and (iii) 50% (or, if the Company’s net first lien senior secured leverage ratio, as determined pursuant to the terms of the Secured Credit Facility, is less than or equal to 4.00:1.00, then 0%) of “excess cash flow” generated by the Company for the fiscal year, as determined pursuant to the terms of the Secured Credit Facility, less the aggregate amount of optional prepayments underUnder the Revolving Credit Facility, the loans made pursuant to the extent that such prepayments are accompanied by a permanent reduction in commitments under theNew Initial Revolving Credit Facility, and subject to a $500 million minimum liquidity threshold before any such prepayment is required, provided thatCommitments bear interest initially, at the Company’s
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
mandatory prepayment obligations in the case of clause (i) and clause (iii) above do not apply at any time during which the Company’s corporate rating issued by Moody’s is Baa3 or better and BBB- or better by S&P.
Prior to the Amendment, the Term Loan Facility bore interest, at the election, of the Company, at a rate per annum equal to either (i) the sum of Adjusted LIBOR, subject to a minimum rate of 1.00%,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% (“Alternative Base Rate”), 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.
Quarterly installments in an amount equal to 0.25% ofThe Term C Loans and the original principal amountNew 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 Loan Facility were due beginning March 31, 2014. On August 4, 2014, the Company used a $275 million cash dividend from tronc to permanently repay $275 million of outstanding borrowings under the Term Loan Facility.
The Former TermC Loans were issued at a discount of 25 basis points, totaling $9 million, which was being amortized to interest expense over the expected term of the Term Loan Facility. The Company incurred and deferred transaction costs totaling $78 million in connection with the Former Term Loans in fiscal 2013. Transaction costs of $6 million relating to the Term Loan Exit Facility (as defined and described in Note 3 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015), which was extinguished in the fourth quarter of 2013, continued to be amortized over the term of the Term Loan Facility pursuant to ASC Topic 470 “Debt.” As of the date of the Amendment, the aggregate unamortized debt issuance costs totaled $64 million and unamortized debt issue discount totaled $8 million.
In connection with the Amendment, the Company paid fees to Term B Loan lenders of $6 million, which are considered a debt discount, of which $4 million was deferred, and incurred transaction costs of $2 million, of which $1 million was deferred. The Company recorded a loss of $37 million on the extinguishment of the Former Term Loans in the Company’s unaudited Condensed Consolidated Statement of Operations in the nine months ended September 30, 2015 as a portion of the facility was considered extinguished for accounting purposes. The loss included the write-off of unamortized transaction costs of $30 million, an unamortized discount of $4 million and other transaction costs of $4 million. The Company’s unamortized transaction costs related to the Term Loan Facility were $27 million and $32 million at September 30, 2016 and December 31, 2015, 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 Sheet and amortized to interest expense over the contractual term of the Term Loan Facility.
Revolving Credit Facility
Loans under the Revolving Credit Facility bear interest, at the election of the Company, at a rate per annum equal to either (i) Adjusted LIBOR plus an applicable margin in the range of 2.75% to 3.0% or (ii) the Alternative Base Rate plus an applicable margin in the range of 1.75% to 2.0%, based on the Company’s net first lien senior secured leverage ratio for the applicable period. The Revolving Credit Facility also includes a fee on letters of credit equal to the applicable margin for Adjusted LIBOR loans and a letter of credit issuer fronting fee equal to 0.125% per annum, in each case, calculated based on the stated amount of letters of credit and payable quarterly in arrears, in addition to the customary charges of the issuing bank. Under the terms of the Revolving Credit Facility, the Company is also required to pay a commitment fee, payable quarterly in arrears, calculated based on the unused portion of the Revolving Credit Facility; the commitment fee will be 0.25%, 0.375% or 0.50% based on the Company’s net first lien senior secured leverage ratio for the applicable period. Overdue amounts under the Revolving Credit Facility are subject to additional interest of 2.0% per annum.
Availability under the Revolving Credit Facility will terminate, and all amounts outstanding under the Revolving Credit Facility will be due and payable on December 27, 2018, but the Company may repay outstanding loans under the Revolving Credit Facilitypermitted at any time, in minimum principal amounts, without premium or penalty, subject to breakage costsa 1.00% premium payable in connection with certain circumstances. The loans underrepricing transactions within the Revolving Credit Facility also must be prepaid andfirst six months after the letters of credit cash collateralized or terminated to the extent the extensions of credit under the Revolving Credit Facility exceed the amount of the revolving commitments.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2017 Amendment. The Revolving Credit Facility includes a covenant whichthat 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 25%35% of the aggregate amount of revolving commitments. This covenant was not requiredcommitments as of the date of the 2017 Amendment (after giving effect to be tested for the quarterly period ended September 30, 2016.
At September 30, 2016 and December 31, 2015, there were no borrowings outstanding under the Revolving Credit Facility; however, there were $23 million, as of both periods, of standby letters of credit outstanding, primarily in supportFacility Increase (as defined below)). The other terms of the Company’s workers’ compensation insurance programs.
5.875% Senior Notes due 2022—On June 24, 2015,Term C Loans and the Company issued $1.100 billion aggregate principal amount of its 5.875% Senior Notes due 2022 (the “Notes”) under an Indenture, datedNew Initial Revolving Credit Commitments are also generally the same as of June 24, 2015 (the “Base Indenture”), among the Company, certain subsidiariesterms of the Company, as guarantors (the “Subsidiary Guarantors”), and The Bank of New York Mellon Trust Company, N.A. (in such capacity, the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of June 24, 2015, among the Company, the Subsidiary GuarantorsFormer Term B Loans and the Trustee (the “First Supplemental Indenture”), the Second Supplemental Indenture, datedExisting Revolving Tranche, as applicable. A portion of September 8, 2015, among the Company, the Subsidiary Guarantors party thereto and the Trustee (the “Second Supplemental Indenture”), and the Third Supplemental Indenture, dated as of October 8, 2015, among the Company, the Subsidiary Guarantors party thereto and the Trustee (the “Third Supplemental Indenture” and, together with the Base Indenture, the First Supplemental Indenture and the Second Supplemental Indenture, the “Indenture”). The Company used the net proceeds from the sale of the Notes, together with cash on hand, to make the Prepayment discussed above.
During the second quarter of 2015, the Company incurred and deferred transaction costs of $19 million, which are classified as a debt discount in the Company’s unaudited Condensed Consolidated Balance Sheet and amortized to interest expense over the contractual term of the Notes. During the first half of 2016, the Company incurred and deferred an additional $1 million of transaction costs related to filing an exchange offer registration statement (as discussed below) for the Notes. The Company’s unamortized transaction costs related to the Notes were $16 million and $17 million at September 30, 2016 and December 31, 2015, respectively.
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. The Notes are unsecured senior indebtedness of the Company and are effectively subordinated to the Company’s and the Subsidiary Guarantors’ existing and future secured indebtedness, including indebtedness under the Secured Credit Facility, to the extent of the value of the assets securing such indebtedness. The Indenture provides that the guarantee of each Subsidiary Guarantor is an unsecured senior obligation of that Subsidiary Guarantor. The Notes are, subject to certain exceptions, guaranteed by each of the Company’s domestic subsidiaries that guaranteeFormer Term B Loans and the Company’s obligations underExisting Revolving Tranche remained in place following the Secured Credit Facility.
The Company may redeem2017 Amendment and each will mature on its respective existing maturity date. Concurrent with the Notes, in whole or in part, at any time prior to July 15, 2018, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to (but excluding) the redemption date, plus the applicable make-whole premium. The Company may redeem the Notes, in whole or in part, at any time (i) on and after July 15, 2018 and prior to July 15, 2019, at a price equal to 102.938% of the principal amount of the Notes, (ii) on or after July 15, 2019 and prior to July 15, 2020, at a price equal to 101.469% of the principal amount of the Notes, and (iii) on or after July 15, 2020, at a price equal to 100.000% of the principal amount of the Notes, in each case, plus accrued and unpaid interest, if any, to (but excluding) the applicable redemption date. In addition, at any time prior to July 15, 2018,2017 Amendment, the Company may redeem upentered into certain interest rate swaps with a notional value of $500 million to 40% of the aggregate principal amount of the Notes with the proceeds of certain equity offerings at a redemption price of 105.875%, plus accrued and unpaidhedge variable rate interest if any, to (but excluding) the date of redemption.payments associated
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Indenture contains covenants that, among other things, limitwith the abilityTerm C Loans due under the 2017 Amendment. See Note 7 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 Company’s restricted subsidiaries to: incur additional indebtedness, guarantee indebtedness or issue certain preferred shares; pay dividends on, redeem or repurchase stock or make other distributions in respectterm lender party thereto and (B) the amount of commitments under its capital stock; repurchase, prepay or redeem subordinated indebtedness; make loans and investments; create restrictions on the ability of the Company’s restricted subsidiariesRevolving Credit Facility from $300 million to pay dividends$420 million (the “Revolving Credit Facility Increase”), pursuant to (i) an Increase Supplement, among the Company or the Subsidiary Guarantors or make other intercompany transfers; create liens; transfer or sell assets; consolidate, merge or sell or otherwise dispose of all or substantially all of its assets; enter intoand certain transactions with affiliates;existing revolving lenders and designate subsidiaries as unrestricted subsidiaries. Upon the occurrence of certain events constituting(ii) a change of control triggering event,Lender Joinder Agreement, among the Company, is required to make an offer to repurchase all of the Notes (unless otherwise redeemed) at a purchase price equal to 101% of their principal amount, plus accruednew revolving lender and unpaid interest, if any to (but excluding) the repurchase date. If the Company sells assets under certain circumstances, it must use the proceeds to make an offer to purchase the Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to (but excluding) the repurchase date.
Notes Registration Rights Agreement
JPMorgan Chase Bank N.A., as administrative agent. In connection with the issuance2017 Amendment of the Notes,Revolving Credit Facility, the Company incurred fees of $2 million, all of which were deferred. At March 31, 2017, there were no borrowings outstanding under the Revolving Credit Facility, however, there were $22 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 pay down 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 Subsidiary Guarantors entered into$400 million pay down, the Company recorded charges of $19 million on the extinguishment and modification of debt in the Company’s unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2017. The loss consisted of a write-off of unamortized debt issuance costs of $6 million and an exchangeunamortized 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.” The Company’s unamortized transaction costs and registration rights agreement, dated as of June 24, 2015, with Deutsche Bank Securities Inc. and Citigroup Global Markets Inc. (the “Notes Registration Rights Agreement”). Pursuantunamortized discount related to the Term Loan Facility were $28 million and $31 million at March 31, 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 Registration Rights Agreement, the Company and the Subsidiary Guarantors filed an exchange offer registration statement withdue 2022—On April 1, 2016, the Securities and Exchange Commission (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 Guaranteesrelated guarantees of certain subsidiaries of the Company for substantially identical securities registered under the Securities Act of 1933, as amended (the “Securities Act”). The exchange offer registration statement on Form S-4 was declared effective on April 1, 2016, and onOn May 4, 2016, the Company and the subsidiary guarantors completed the exchange of $1.100 billionoffer of the 5.875% Senior Notes due 2022 and the Guaranteesrelated 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 $15 million at both March 31, 2017 and December 31, 2016.
Dreamcatcher—The Company and the Guarantorsguarantors guarantee the obligations of Dreamcatcher under its senior secured credit facility (the “Dreamcatcher Credit Facility”) entered into in connection with Dreamcatcher’s acquisition of the Dreamcatcher stations (see Note 5 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015). The obligations of the Company and the Guarantorsguarantors under the Dreamcatcher Credit Facility are secured on a pari passu basis with itsthe Company’s and the guarantors’ obligations under the Secured Credit Facility.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 8:7: 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 months ended March 31, 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 months ended March 31, 2017, realized losses of $1 million were recognized in interest expense. As of March 31, 2017, the fair value of the interest rate swaps was recorded in other current liabilities in the amount of $2 million with the unrealized loss recognized in other comprehensive (loss) income. As of March 31, 2017, the Company expects approximately $5 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 holds certain marketable equity securities which are traded on national stock exchanges. These securities are recorded at fair value and are categorized as Level 1 within the fair value hierarchy. These investments are 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 September 30,December 31, 2016, the fair value and cost basis of the Company’s investment in tronc was $6 million and $0, respectively. As of December 31, 2015, the fair value and
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
cost basis was $4$5 million and $0, respectively. The fair value and the cost basis of other marketable equity securities held by the Company as of September 30, 2016 wasMarch 31, 2017 were not material.
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 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.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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, 2016 | | December 31, 2015 |
| Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount (1) |
Cost method investments | $ | 24,248 |
| | $ | 24,248 |
| | $ | 20,868 |
| | $ | 20,868 |
|
Term Loan Facility | $ | 2,364,808 |
| | $ | 2,316,178 |
| | $ | 2,328,038 |
| | $ | 2,328,092 |
|
5.875% Senior Notes due 2022 | $ | 1,115,620 |
| | $ | 1,083,813 |
| | $ | 1,108,250 |
| | $ | 1,082,534 |
|
Dreamcatcher Credit Facility | $ | 15,967 |
| | $ | 15,768 |
| | $ | 18,587 |
| | $ | 18,725 |
|
(1) December 31, 2015 balances have been reclassified to present debt issuance costs as a direct deduction from the carrying amount of an associated debt liability in accordance with ASU 2015-03. See Note 1 for further information. |
| | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount |
Cost method investments | $ | 26,748 |
| | $ | 26,748 |
| | $ | 26,748 |
| | $ | 26,748 |
|
Term Loan Facility | | | | | | | |
Term B Loans due 2020 | $ | 201,416 |
| | $ | 197,497 |
| | $ | 2,359,571 |
| | $ | 2,312,218 |
|
Term C Loans due 2024 | $ | 1,773,919 |
| | $ | 1,735,755 |
| | $ | — |
| | $ | — |
|
5.875% Senior Notes due 2022 | $ | 1,148,576 |
| | $ | 1,085,251 |
| | $ | 1,120,482 |
| | $ | 1,084,563 |
|
Dreamcatcher Credit Facility | $ | 13,935 |
| | $ | 13,770 |
| | $ | 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 ninethree months ended September 30, 2016March 31, 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, 2016March 31, 2017 and December 31, 20152016 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, 2016March 31, 2017 and December 31, 20152016 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, 2016March 31, 2017 and December 31, 20152016 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 both September 30, 2016March 31, 2017 and December 31, 20152016 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.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 9:8: 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 United StatesU.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On October 12, 2009,The Fourth Amended Joint Plan of Reorganization for Tribune CNLBC, LLC (formerly known as Chicago National League Ball Club, LLC) (“Tribune CNLBC”), which heldCompany and its Subsidiaries (as subsequently modified, the majority of the assets and liabilities related to the businesses of the Chicago Cubs Major League Baseball franchise (the “Chicago Cubs”“Plan”), also filed a Chapter 11 Petition and thereafter became a Debtor. As further described in Note 3 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015, a plan of reorganization for the Debtors became effective and the Debtors emerged from Chapter 11 on December 31, 2012 (the “Effective Date”). On March 16, 2015, July 24, 2015, May 11, 2016, and August 12, 2016, theThe 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.
From the Petition Date and until the Effective Date, the Debtors operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and applicable orders of the Bankruptcy Court. See Note 3 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015 for additional information regarding the Debtors’ Chapter 11 cases.
Where appropriate, the Company and its business operations as conducted on or prior to December 30, 2012 are also herein referred to collectively as the “Predecessor.” The Company and its business operations as conducted on or subsequent to the Effective Date are also herein referred to collectively as the “Successor,” “Reorganized Debtors” or “Reorganized Tribune Company.”
On April 12, 2012, the Debtors, the official committee of unsecured creditors appointed in the Debtors’ Chapter 11 cases, and creditors under certain of the Predecessor’s prepetition debt facilities filed the Fourth Amended Joint Plan of Reorganization for Tribune Company and its Subsidiaries with the Bankruptcy Court (as subsequently modified, the “Plan”). On July 23, 2012, the Bankruptcy Court issued an order confirming the Plan (the “Confirmation Order”). The Plan constitutes a separate plan of reorganization for each of the Debtors and sets forth the terms and conditions of the Debtors’ reorganization. See the “Terms of the Plan” section in Note 3 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015 for a description of the terms and conditions of the confirmed Plan.
Since the Effective Date, Reorganized Tribune Company has substantially consummated the various transactions contemplated under the Plan. In particular, the Company has made all distributions of cash, Common Stock and Warrants (each as defined and described in Note 12) that were required to be made under the terms of the Plan to creditors holding allowed claims as of December 31, 2012. Claims of general unsecured creditors that become allowed claims on or after the Effective Date have been or will be paid on the next quarterly distribution date after such allowance.
Pursuant to the terms of the Plan, the Company is also obligated to make certain additional payments to certain creditors, including certain distributions that may become due and owing subsequent to the Effective Date and certain payments to holders of administrative expense priority claims and fees earned by professional advisors during the Chapter 11 proceedings. On the Effective Date, Reorganized Tribune Company held restricted cash of $187 million which was estimated to be sufficient to satisfy such obligations. At September 30, 2016, 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. 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.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
See Note 3 to the Company’s 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.
Confirmation Order Appeals—Notices of appeal of the Confirmation OrderBankruptcy Court’s order confirming the Plan (the “Confirmation Order”) were filed on July 23, 2012 by (i) Aurelius Capital Management, LP, (“Aurelius”), on behalf of its managed entities that were holders of the Predecessor’s senior notes and Exchangeable Subordinated Debentures due 2029 (“PHONES”) and; (ii) Law Debenture Trust Company of New York (“Law Debenture”), successor trustee under the indenture for the Predecessor’s prepetition 6.61% debentures due 2027 and the 7.25% debentures due 2096, and Deutsche Bank Trust Company Americas (“Deutsche Bank”), each successor trusteetrustees under the respective indentures for the Predecessor’s prepetition medium-term notes due 2008, 4.875% notes due 2010, 5.25% notes due 2015, 7.25% debentures due 2013 and 7.5% debentures due 2023. Additional notices of appeal were filed on August 2, 2012senior notes; (iii) by Wilmington Trust Company, (“WTC”), as successor indenture trustee for the PHONES, and on August 3, 2012 by(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,” and, together with Aurelius, Law Debenture, Deutsche Bank and WTC, the “Appellants”Entity”). The confirmation appeals were transmitted to the United States District Court for the District of Delaware (the “Delaware District Court”) and were consolidated, together with two previously-filed appeals by WTC of the Bankruptcy Court’s orders relating to certain provisions in the Plan, under the caption Wilmington Trust Co. v. Tribune Co. (In re Tribune Co.), and under lead Case No. 12-cv-128 (GMS).
The Appellantsappellants 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. See “TermsAs of March 31, 2017, each of the Plan” inConfirmation 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, 20152016 for a description of the terms and conditions of the confirmed Plan and “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, 2015 for afurther description of the Leveraged ESOP Transactions. WTCTransactions and the Zell Entity also sought to overturn determinations made by the Bankruptcy Court concerning the priority in right of payment of the PHONES and the subordinated promissory notes held by the Zell Entity and its permitted assignees, respectively. There is currently no stay of the Confirmation Order in place pending resolution of the confirmation-related appeals. In January 2013, the Company filed a motion to dismiss the appeals as equitably moot, based on the substantial consummation of the Plan. On June 18, 2014, the Delaware District Court entered an order granting in part and denying in part the motion to dismiss. The effect of the order was to dismiss all of the appeals, with the exception of the relief requested by the Zell Entity concerning the priority in right of payment of the subordinated promissory notes held by the Zell Entity and its permitted assignees with respect to any state law fraudulent transfer claim recoveries from a creditor trust that was proposed to be formed under a prior version of the Plan, but was not formed under the Plan as confirmed by the Bankruptcy Court. The Delaware District Court vacated the Bankruptcy Court’s ruling to the extent it opined on that issue. On July 16, 2014, Aurelius, Law Debenture and Deutsche Bank timely appealed the Delaware District Court’s order to the U.S. Court of Appeals for the Third Circuit. On August 19, 2015, the Third Circuit affirmed the Delaware District Court’s dismissal of Aurelius’s appeal of the Confirmation Order. The Third Circuit, however, reversed the Delaware District Court’s dismissal of Law Debenture’s and Deutsche Bank’s appeals of the Confirmation Order, and remanded those appeals to the District Court for further proceedings on the merits. On September 11, 2015, the Third Circuit denied Aurelius’s petition for en banc review of the court’s decision and on January 11, 2016, Aurelius filed a petition for writ of certiorari to the U.S. Supreme Court. That petition was denied on March 31, 2016. If the remaining Appellantsappellants succeed on their appeal, ourthe 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. Additional claims were filed after the Effective Date, including to amend or supplement previously filed claims. Additional claims were also included in the Debtors’ respective schedules of assets and liabilities which were filed with the Bankruptcy Court. Amounts and payment terms for these claims, if applicable, were established in the Plan. As of October 31, 2016, approximately 3,295 proofs of claim had been withdrawn or expunged as a result ofThe Plan requires the Debtors’ evaluation of the filed proofs of claimCompany to reserve cash in amounts sufficient to make certain additional payments that may become due and their efforts to reduce
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
and/or eliminate invalid, duplicative and/or over-stated claims. In addition, approximately 3,755 proofs of claim had been settled or otherwise satisfiedowing pursuant to the termsPlan subsequent to the Effective Date. As of March 31, 2017, restricted cash held by the Plan.Company to satisfy the remaining claim obligations was $18 million and is estimated to be sufficient to satisfy such obligations.
As of OctoberMarch 31, 2016,2017, all but approximately 403 proofs of claim remain subject to further evaluation and adjustments.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 United StatesU.S. District Court for the Southern District of New York (the “NY District Court”) in proceedings captioned In re Tribune Co. Fraudulent Conveyance Litigation, under the consolidated docket numbers 1:11-md-02296 and 1:12-mc-02296.. See “Certain Causes of Action Arising Fromfrom the Leveraged ESOP Transactions” in Note 3 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 20152016 for a description of the MDL proceedings inproceedings. Under the NY District Court as of February 29, 2016. On March 24, 2016,Plan, the U.S. Court of Appeals for the Second Circuit (the “Second Circuit”) issued a decision upholding the NY District Court’s dismissalindemnity claims of the state law constructive fraudulent transfer causes of action commenced by Deutsche Bank, Law DebentureCompany’s former directors and WTC, as indenture trustees for the Predecessor’s senior noteholders and PHONES, and, separately, certain retirees (collectively and as subsequently amended, the “SLCFC Actions”), on the alternative groundsofficers must be set forth in the cross-appeal of the defendants’ liaison counsel on behalf of the defendants. The Second Circuit issued a corrected opinion upholding the dismissal of the SLCFC Actions on March 29, 2016. On September 9, 2016, the plaintiffs in the SLCFC Actions filed a petition for writ of certiorari to the U.S. Supreme Court, seeking review of the Second Circuit’s decision. The remaining lawsuits pending in the MDL proceedings are assertedoff against any recovery by the litigation trust formed pursuant to the Plan to pursue certain causes of action arising from the Leveraged ESOP Transactions for the benefit of certain creditors that received interests in the litigation trust as part of their distributions under the Plan (the “Litigation Trust”). Under the Plan, such indemnity-type claims against the Company must be set off against any recovery by the Litigation Trust against any of thethose directors and officers, and the Litigation Trust is authorized to object to the allowance of any such indemnity-type claims.
Adjustments to prepetition claims may result from, among other things, negotiations with creditors, further orders of the Bankruptcy Court and, in certain instances, litigation. The ultimate amounts to be paid in settlementresolutions of eachthe remaining proofs of these claims,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 less than $1 million for each of the nine
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
three months ended September 30, 2016March 31, 2017 and September 30, 2015.March 31, 2016. The Company expects to continue to incur certain expenses pertaining to the Chapter 11 proceedings throughout 20162017 and potentially in future periods.
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.
Television and radio broadcast station licenses are granted for terms of up to eight years and are subject to renewal by the FCC in the ordinary course, at which time they may be subject to petitions to deny the license renewal applications. As of November 9, 2016,May 10, 2017, the Company had FCC authorization to operate 39 television stations and one AM radio station.
UnderThe Company is subject to the FCC’s “Local Television Multiple Ownership Rule” (the “Duopoly Rule”),Rule,” the Company may own up to two television stations within the same Nielsen Designated Market Area (“DMA”) (i) provided certain specified signal contours of the stations do not overlap, (ii) where certain specified signal contours of the stations
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
overlap but, at the time the station combination was created, no more than one of the stations was a top-4-rated station and the market would continue to have at least eight independently-owned full power stations after the station combination is created or (iii) where certain waiver criteria are met. In a report and order issued in August 2016 (the “2014 Quadrennial Review Order”), the FCC, among other things, adopted a rule applying the “top-4” ownership limitation within a market to “affiliation swaps,” that will prohibit transactions between networks and their local station affiliates pursuant to which affiliations are reassigned in a way that results in common ownership or control of two of the top-four rated stations in the DMA. The prohibition is prospective only and does not apply to multiple top-4 network multicast streams broadcast by a single station. The new rule has not yet become effective. The Company owns duopolies permitted under the “top-4/8 voices” test in the Seattle, Denver, St. Louis, Indianapolis, Oklahoma City and New Orleans DMAs. The Indianapolis duopoly is permitted under the Duopoly Rule because it met the top-4/8 voices test at the time we acquired WTTV(TV)/WTTK(TV) in July 2002. Duopoly Rule waivers granted in connection with the FCC’s approval of the Company’s plan of reorganization (the “Exit Order”) or the Local TV Acquisition (the “Local TV Transfer Order”) authorize the Company’s ownership of duopolies in the New Haven-Hartford and Fort Smith-Fayetteville DMAs, and full power “satellite” stations in the Denver and Indianapolis DMAs.
Under the FCC’s “Newspaper Broadcast Cross Ownership Rule” (the “NBCO Rule”),and the Company and holders of “attributable interests”“National Television Multiple Ownership Rule,” among others, as further described in the Company generally are prohibited from owning or holding attributable interests in both daily newspapers and broadcast stations in the same market. On August 4, 2014, the Company completed the Publishing Spin-off and retained 381,354 shares of tronc common stock, then representing 1.5% of the outstanding common stock of tronc (see Note 212 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015 for further information). The Company determined that it does not have an attributable interest in the daily newspaper business or operations of tronc. As a result of the pro rata distribution of tronc stock to shareholders of the Company, the three attributable shareholders of the Company (collectively, the “Attributable Shareholders”) became attributable shareholders of tronc. The residual common attributable interests of the Attributable Shareholders in the Company and tronc maintain the status quo with respect to these shareholders’ interests in the companies.
The Company’s television/newspaper interests are subject to a temporary waiver of the NBCO Rule which was granted by the FCC in conjunction with its approval of the Plan (the “Exit Order”). On November 12, 2013, the Company filed with the FCC a request for extension of the temporary NBCO Rule waivers granted in the Exit Order. That request is pending. In the 2014 Quadrennial Order the FCC modified the NBCO Rule by providing an exception for failed or failing entities and allowing for consideration of waivers of the rule on a case-by-case basis. The new rules have not yet become effective.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 August 2016, the FCC adopted rules eliminatingreinstating the UHF Discount, except for “grandfathered” existing combinations that exceeded the 39% cap as of September 26, 2013. Under theFCC stated its intent to undertake a new rule (effective November 23, 2016), absent a waiver, a grandfathered station group would have to come into compliance with the modified cap upon a sale or transfer of control. The elimination ofrulemaking proceeding later this year during which it will consider the UHF Discount will affectin conjunction with the Company’s ability to acquire additional television stations (including the Dreamcatcher stations that are the subject of certain option rights held by the Company, see Note 5 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015 for further information).
national TV ownership cap. The Company provides certain operational support and other services to Dreamcatcher pursuant to shared services agreement (“SSA”). Incannot predict the 2014 Quadrennial Order,outcome of any such proceeding, or the FCC adopted reporting requirements for SSAs. Meanwhile, in a public notice releasedeffect on March 12, 2014, the FCC announced that pending and future transactions involving SSAs will be subject to a higher level of scrutiny if they include a combination of certain operational and economic features. Although the Company currently has no transactions pending before the FCC that would be subject to such higher scrutiny, this policy could limit the Company’s future ability to enter into SSAs or similar arrangements.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In a Report and Order and Further Notice of Proposed Rulemaking issued on March 31, 2014, the FCC sought comment on whether to eliminate or modify its “network non-duplication” and “syndicated exclusivity” rules, pursuant to which local television stations may enforce their contractual exclusivity rights with respect to network and syndicated programming. That proceeding remains pending. Pursuant to the Satellite Television Extension and Localism Act of 2010 (“STELA”) Reauthorization Act, enacted in December 2014 (“STELAR”), the FCC has adopted regulations prohibiting a television station from coordinating retransmission consent negotiations or negotiating retransmission consent on a joint basis with a separately owned television station in the same market. The Company does not currently engage in retransmission consent negotiations jointly with any other stations in its markets. In response to Congress’s directive in STELAR, on September 2, 2015, the FCC issued a Notice of Proposed Rulemaking (“NPRM”) seeking comment on whether the FCC should make changes to its rules requiring that commercial broadcast television stations and multichannel video programming distributors (“MVPDs”) negotiate in “good faith” for the retransmission by MVPDs of local television signals. On July 14, 2016, Chairman Wheeler announced that the FCC will not adopt additional rules governing parties’ good faith negotiation obligations, (however, the FCC has not yet formally terminated the proceeding).business.
Federal legislation enacted in February 2012 authorizes the FCC to conduct a voluntary “incentive auctions”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. If anyOn 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 anticipates receiving approximately $190 million in pretax proceeds resulting from the auction. The Company cannot predict the timing of FCC incentive auction payments. Any proceeds received by the Dreamcatcher stations as a result of the incentive auction are required to be first used to repay the Dreamcatcher Credit Facility. Twenty-two of the Company’s television stations are(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 FCC adopted rules to implement the incentive auction and repacking through a number of orders and public notices. Applications to participate in the auction, were due January 12, 2016. The Company has filed applications to participate in the auction and the auction is currently underway. The Company cannot currently predict the likelihood, timing or outcomeeffect of the incentive auction,repacking or any relatedspectrum-related FCC regulatory action. The FCC has adopted strict communications prohibitions with respect to the auction, which went into effect on January 12, 2016, and will remain in effect until the FCC publicly announces that the auction has ended (which could be as late as fourth quarter 2016 or later). During such time, the Company and its agents, employees, officers and directors are prohibited from directly or indirectly communicating (both internally and externally) certain information regarding the Company’s auction participation.
As described in Note 51 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015,2016, 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.
On January 27, 2016, the FCC announced the initiation of a proceeding entitled “Proposal to Unlock the Set-Top Box: Creating Choice & Innovation.” On February 18, 2016, the FCC released a Notice of Proposed Rule Making that proposed, among other things, to require program providers to pass through information about what programming is available, such as channel and program information and “entertainment identifier register IDs.” Adoption of this requirement without, among other things, adequately protecting proprietary and intellectual property rights in program guide content of which we are a major producer and distributor, and respecting contracts between entertainment data providers and their customers could negatively affect our entertainment data licensing business. This proceeding is currently pending and the Company cannot predict its outcome or timing.
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.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 109 for a discussion of potential income tax liabilities.
The Company does not believe that any other matters or proceedings presently pending will have a material adverse effect, individually or in the aggregate, on its consolidated financial position, results of operations or liquidity.
NOTE 10:9: INCOME TAXES
In the three and nine months ended September 30, 2016,March 31, 2017, the Company recorded an income tax expensebenefit from continuing operations of $66 million and $289 million, respectively. For$52 million. The effective tax rate on pretax loss from continuing operations was 33.8% for the three months ended September 30, 2016, theMarch 31, 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, 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$1 million benefit related to the resolution of certain federal and state income tax matters and other adjustments, and a $5$1 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.compensation.
In the three and nine months ended September 30, 2015,March 31, 2016, the Company recorded income tax expense from continuing operations of $11 million and $33 million, respectively.$15 million. The rates differeffective tax rate on pretax income from continuing operations was 50.2% in the three months ended March 31, 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, and other non-deductible expenses. In addition, the threeexpenses and nine months ended September 30, 2015 had favorable adjustments totalinga $4 million charge related to the resolutionwrite-off of certain federal incomeunrealized deferred tax matters and other adjustments.assets related to stock-based compensation.
Newsday and Chicago Cubs Transactions—As further described in Note 98 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015,2016, the Company consummated the closing of the NewsdayChicago Cubs Transactions on July 29, 2008.October 27, 2009. As a result of these transactions, CSC, through NMG Holdings, Inc., owned approximately 97%Ricketts Acquisition LLC owns 95% and the Company ownedowns 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 March 31, 2017 would be approximately 3%$42 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 NHLLC.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 March 31, 2017, the Company has paid or accrued approximately $45 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 March 31, 2017 and December 31, 2016 includes a deferred tax liability of $155 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 (“NMG”)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
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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. After-tax interest on the proposed tax and penalty through September 30, 2016 would have been approximately $48 million. The Company disagreed with the IRS’s position and timely filed a protest in response to the IRS’s proposed tax adjustments. TheIn addition, if the IRS prevailed, the Company also would have also been subject to approximately $22 million, net of tax benefits, of state income taxes, interest and penalties through September 30, 2016.penalties.
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. In connection with the potential resolution of the matter, theThe Company also recorded $91 million of income tax expense to increase the Company’s deferred income tax liability to reflect the estimated reduction in the tax basis of the
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Company’s assets. The reduction in tax basis iswas 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, the Company reached an agreement with the IRS administrative appeals division regarding the Newsday transaction which applies for tax years 2008 through 2015. Under the termsAs a result of the final agreement, reached with the IRS appeals office, which were materially consistent with the Company’s reserve at June 30, 2016, the Company paid $115 million for federal tax, interest and penalties in the third quarter of 2016. The tax payment was recorded as a reduction in the Company’s current income tax reserve described above. The Company expects to make payments of an additional $10 million by the end of the first quarter of 2017 for state tax, interest and penalties. In connection with the agreement,2016, the Company also recorded an additional income tax benefit of $3 million to adjust the previously recorded estimate of the deferred tax liability adjustment described above.
Through December 31, 2015,liability. During the second half of 2016, the Company also made approximately $136paid $122 million of federal taxes, state taxes (net of state refunds), interest and state taxpenalties. The payments through its regular tax reporting process which included $101 million that became payable upon closing of the sale of the Newsday partnership interestwere recorded as further described in Note 6.
As further described in Note 9 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015, 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 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 includedreduction in the Company’s 2009 taxable income. Accordingly, the IRS has proposed a $182 millioncurrent income tax and a $73 million gross valuation misstatement penalty. After-tax interest on the proposed tax and penalty through September 30, 2016 would be approximately $38 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.reserve described above. During the thirdfourth quarter of 2016, the Company filed a petitionrecorded 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 U.S. Tax Court to contest the IRS’s determination. If the gain on the Chicago Cubs Transactions is 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. However, if the IRS prevails in their position, any tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2009. Through September 30, 2016, the Company has paid approximately $39 million 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,payable account on the Company’s unaudited Condensed Consolidated Balance Sheet at September 30, 2016 includes a deferred tax liability of $160 million related to the future recognition of taxable income related to the Chicago Cubs Transactions.March 31, 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, 2016March 31, 2017 and $34 million at December 31, 2015.2016. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $8$9 million within the next twelve months due to the resolution of tax examination issues and statute of limitations expirations.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 11:10: 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,March 31, 2017 and March 31, 2016 and September 30, 2015 were as follows (in thousands):
| | | Pension Benefits | Pension Benefits |
| Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 | March 31, 2017 | | March 31, 2016 |
Service cost | $ | 173 |
| | $ | 177 |
| | $ | 519 |
| | $ | 531 |
| $ | 186 |
| | $ | 169 |
|
Interest cost | 20,681 |
| | 20,453 |
| | 62,043 |
| | 61,361 |
| 19,569 |
| | 20,751 |
|
Expected return on plans’ assets | (26,905 | ) | | (27,922 | ) | | (80,713 | ) | | (83,767 | ) | (25,327 | ) | | (26,913 | ) |
Amortization of prior service costs | 23 |
| | — |
| | 68 |
| | — |
| 23 |
| | — |
|
Net periodic benefit credit | $ | (6,028 | ) | | $ | (7,292 | ) | | $ | (18,083 | ) | | $ | (21,875 | ) | $ | (5,549 | ) | | $ | (5,993 | ) |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Net periodic benefit (credit) cost related to other post retirement benefit plans was not material infor all periods presented. For 2016,2017, 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,March 31, 2017 and March 31, 2016, and September 30, 2015, the Company’s contributions were not material.
NOTE 12:11: CAPITAL STOCK
As of the Effective Date, Reorganized Tribune Company issued 78,754,269 shares of Class A Common Stock, par value $0.001 per share (“Class A Common Stock”), and 4,455,767 shares of Class B Common Stock, par value $0.001 per share (“Class B Common Stock” and together with Class A Common Stock, “Common Stock”). Certain creditors that were entitled to receive Common Stock, either voluntarily elected to receive Class B Common Stock in lieu of Class A Common Stock or were allocated Class B Common Stock in lieu of Class A Common Stock in order to comply with the FCC’s ownership rules and requirements. 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 the ownership limitations described below, 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. During the three months ended September 30, 2015, no shares of Class B Common Stock or Class A Common Stock were converted to the other class. During the nine months ended September 30, 2015, on a net basis, 2,401,409 shares of Class B Common Stock were converted into 2,401,409 shares of Class A Common Stock. There were no conversions during the three and nine months ended September 30, 2016.
In addition, on the Effective Date, Reorganized Tribune Company entered into the Warrant Agreement, pursuant to which the Company issued 16,789,972 Warrants to purchase Common Stock (the “Warrants”). The Company issued the Warrants in lieu of Common Stock to creditors that were otherwise eligible to receive Common Stock in connection with the implementation of the Plan in order to comply with the FCC’s foreign ownership restrictions. 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 described below, 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. During the three months ended September 30, 2015, 10,380 Warrants were exercised for 10,380 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, 2016 and September 30, 2015, 132,066 and 1,705,368 Warrants, respectively, were exercised for 132,066 and 1,705,361 shares, respectively, of Class A Common Stock. No Warrants were exercised for Class B
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Common Stock during the nine months ended September 30, 2016 and September 30, 2015. At September 30, 2016, the following amounts were issued: 159,243 Warrants, 100,384,850 shares of Class A Common Stock, of which 11,619,676 were held in treasury, and 5,605 shares of Class B Common 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 Company has not issuedClass 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 shares of preferred stock.time. The Company’s Class A Common Stock is currently traded on the New York Stock Exchange under the symbol “TRCO.” The Company’s Class B Common Stock and Warrants are currently traded over-the-counteron 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 among other things: (i) require a holder of Common Stock or Warrants to promptly furnish information reasonably requested by the Company, including information with respect to citizenship, ownership structure, and other ownership interests and affiliations; (ii) refuse to permit a proposed transfer or conversion of Common Stock, or condition transfer or conversionimpose certain limitations on the prior consent of the FCC; (iii) refuse to permit a proposed exercise of Warrants, or condition exercise on the prior consent of the FCC; (iv) suspend the rights of ownership of the holders of Common Stock or Warrants; (v) requireand Warrants, as further described in Note 15 to the conversionCompany’s audited consolidated financial statements for the fiscal year ended December 31, 2016.
There were no conversions of any or all shares ofthe Company’s Common Stock held by a stockholder intobetween Class A Common Stock and Class B Common Stock during the three months ended March 31, 2017 and March 31, 2016. During the three months ended March 31, 2017 and March 31, 2016, 28,475 and 100,108 Warrants, respectively, were exercised for 28,475 and 100,108 shares, respectively, of any other class of capital stock ofClass A Common Stock. No Warrants were exercised for Class B Common Stock during the Company with equivalent economic value, includingthree months ended March 31, 2017 and March 31, 2016.
At March 31, 2017, the conversion offollowing amounts were issued: 99,757 Warrants, 100,979,448 shares of Class A Common Stock, intoof which 14,102,185 were held in treasury, and 5,605 shares of Class B Common Stock or the conversion ofStock. The Company has not issued any shares of Class B Common Stock into shares of Class A Common Stock; (vi) require the exchange of any or all shares of Common Stock held by any stockholder of the Company for warrants to acquire the same number and class of shares of capital stock in the Company; (vii) to the extent the foregoing are not reasonably feasible, redeem any or all such shares of Common Stock; or (viii) exercise any and all appropriate remedies, at law or in equity, in any court of competent jurisdiction to prevent or cure any such situation.preferred stock.
On the Effective Date, Reorganized Tribunethe 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 1615 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 20152016 for additional information relating to the Registration Rights Agreement.
Secondary Public Offering—Following the exercise of one of the demand registration rights by the stockholders under the Registration Rights Agreement described above, the Company filed a registration statement on Form S-1 and on April 22, 2015 it was declared effective by the SEC for a secondary offering of Class A Common Stock. On April 28, 2015, the selling stockholders completed the sale of 9,240,073 shares of Class A Common Stock at a price of $56.00 per share. The Company did not receive any of the proceeds from the shares of Class A Common Stock sold by the selling stockholders.
Common Stock Repurchases—On October 13, 2014, the Board authorized a stock repurchase program, under which the Company could repurchase up to $400 million of its outstanding Class A Common Stock 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 amended. During fiscal 2015, the Company repurchased 6,569,056 shares of Class A Common Stock in open market transactions for $332 million at an average price of $50.59 per share, which is exclusive of 125,566 shares, valued at $8 million, for which the Company placed trades prior to December 28, 2014 that were not settled until the first three business days of the first quarter of 2015. As of December 31, 2015, the
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Company had repurchased the full $400 million of outstanding Class A Common Stock totaling 7,670,216 shares, authorized under this repurchase program.
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 amended. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations. During the three and nine months ended September 30, 2016, the Company repurchased 2,364,1736,432,455 shares for $88$232 million at an average price of $37.35$36.08 per share and 4,179,085 shares for $158 million at an average price of $37.70 per share, respectively, inclusive of 229,407 shares, valued at $8 million, for whichshare. The Company repurchased no Common Stock during the Company placed trades on or prior to September 30, 2016 that were not settled until the fourth quarter of 2016.three months ended March 31, 2017. As of September 30, 2016,March 31, 2017, the remaining authorized amount under the current authorization totaled approximately $242$168 million.
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.
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. Additional information about the Merger Agreement is set forth in the Company’s Current Report on Form 8-K filed with the SEC on May 9, 2017.
Special Cash Dividend—On March 5, 2015,January 2, 2017, the Board authorized and declared a special cash dividend of $6.73$5.77 per share of Common Stock (the “Special“2017 Special Cash Dividend”), which was paid on April 9, 2015February 3, 2017 to holders of record of Common Stock at the close of business on March 25, 2015.January 13, 2017. In addition, pursuant to the terms of the Warrant Agreement, the Company made a cash payment of $6.73$5.77 per Warrant on April 9, 2015February 3, 2017 to holders of record of Warrants at the close of business on March 25, 2015.January 13, 2017. The total aggregate payment on April 9, 2015February 3, 2017 totaled $649$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):
|
| | | | | | | | | | | | | | | |
| 2016 | | 2015 |
| Per Share | | Total Amount | | Per Share | | Total Amount |
First quarter | $ | 0.25 |
| | $ | 23,215 |
| | $ | — |
| | $ | — |
|
Second quarter | 0.25 |
| | 22,959 |
| | 0.25 |
| | 24,100 |
|
Third quarter | 0.25 |
| | 22,510 |
| | 0.25 |
| | 23,620 |
|
Total quarterly cash dividends declared and paid | $ | 0.75 |
| | $ | 68,684 |
| | $ | 0.50 |
| | $ | 47,720 |
|
|
| | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Per Share | | Total Amount | | Per Share | | Total Amount |
First quarter | $ | 0.25 |
| | $ | 21,742 |
| | $ | 0.25 |
| | $ | 23,215 |
|
On November 3, 2016,May 10, 2017, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share to be paid on DecemberJune 6, 20162017 to holders of record of Common Stock and Warrants as of November 21, 2016.May 22, 2017.
The payment of quarterly cash dividends also results in the issuance of Dividend Equivalent Units (“DEUs”) to holders of RSUsrestricted stock units (“RSUs”) and PSUs each,performance share units (“PSUs”), as defined and described in Note 13. The DEUs will be reinvested in RSUs15 and PSUs and settled concurrently with the vesting of associated RSUs and PSUs. PursuantNote 16 to the Company’s policy,audited consolidated financial statements for the forfeitable DEUs and dividends payable in cash are treated as a reduction of retained earnings or, if the Company is in a retained deficit position, as a reduction of additional paid-in capital.fiscal year ended December 31, 2016.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 13:12: 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”) was approved by the Company’s shareholders for the purpose of granting stock awards to officers, employees and employeesBoard members of the Company and its subsidiaries.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 4,451,9482,995,690 shares and 165,143 shares, respectively, were available for grant as of September 30, 2016. On May 5, 2016, the Stock Compensation Plan for Non-Employee Directors (the “Directors Plan” and, togetherMarch 31, 2017.
In connection with the Incentive Compensation Plan, “2016 Equity Plans”) was approved by2017 Special Cash Dividend and pursuant to the terms of the Company’s shareholdersequity 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 purposethree months ended March 31, 2017 and March 31, 2016 totaled $15 million and $8 million, respectively, including the expense attributable to discontinued operations of granting$2 million and $1 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.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
stock awards to the Company’s Board members. There are 200,000 shares of Class A Common Stock authorized for issuance under the Directors Plan, of which 200,000 shares were available for grant as of September 30, 2016.
On March 1, 2013, the Compensation Committee of the Board adopted the 2013 Equity Incentive Plan (the “Equity Incentive Plan”) for the purpose of granting stock awards to directors, officers and employees of the Company and its subsidiaries. Stock awarded pursuant to the Equity Incentive Plan was limited to five percent of the outstanding Common Stock on a fully diluted basis as of the Effective Date. There were 5,263,000 shares of Common Stock authorized for issuance under the Equity Incentive Plan. Prior to the adoption of the 2016 Equity Plans, the Company had 616,332 shares of Class A Common Stock available for grant under the Equity Incentive Plan. Subsequent to the approval of the 2016 Equity Plans by the Company’s shareholders, no additional awards will be granted under the Equity Incentive Plan.
The Incentive Compensation Plan provides for the granting of non-qualified stock options (“NSOs”), incentive stock options (“ISOs”), stock appreciation rights (“SARs”), restricted stock units (“RSUs”), performance share units (“PSUs”), restricted stock awards and other stock-based awards (collectively “Equity Awards”). The Directors Plan provides for the granting of shares, stock options and other stock-based awards (collectively “Director Equity Awards”). Pursuant to ASC Topic 718, “Compensation-Stock Compensation,” the Company measures stock-based compensation costs on the grant date based on the estimated fair value of the award and recognizes compensation costs on a straight-line basis over the requisite service period for the entire award. The Company’s equity plans allow employees and directors to surrender to the Company shares of vested common stock upon vesting of their stock awards or at the time they exercise their NSOs in lieu of their payment of the required withholdings for employee taxes. The Company does not withhold taxes on Equity Awards in excess of minimum required statutory requirements.
Holders of RSUs and PSUs also receive DEUs until the RSUs or PSUs vest. See Note 12 for further information. The number of DEUs granted for each RSU or PSU is calculated based on the value of the dividends per share paid on the Company’s Common Stock and the closing price of the Company’s Common Stock on the dividend payment date. The DEUs vest with the underlying RSU or PSU.
NSO and RSU awards generally vest 25% on each anniversary of the date of the grant. Under the 2016 Equity Plans, the exercise price of an NSO award cannot be less than the market price of the Class A Common Stock at the time the NSO award is granted and has a maximum contractual term of 10 years.
PSU awards generally cliff vest at the end of the three-year performance periods, depending on the period specified in each respective PSU agreement. The number of PSUs that ultimately vest depends on the Company’s performance relative to specified financial targets for fiscal years 2016, 2017 and 2018. In the second quarter of 2016, the Company granted 214,416 supplemental PSU awards (“Supplemental PSUs”) to certain executive officers. A portion of the Supplemental PSUs will be eligible to vest until March 1, 2018 if a closing stock price of the Company’s Class A Common Stock is maintained for 10 consecutive trading days that equals or exceeds $44 and each increment of $2 thereafter, up to a maximum of $64, as adjusted for dividends declared (each such increment, a “Stock Price Hurdle”). No Stock Price Hurdle will be counted twice, and none of the Supplemental PSUs will vest unless the minimum $44 Stock Price Hurdle is achieved by March 1, 2018.
Unrestricted stock awards have been issued to certain members of the Board as compensation for retainer fees and long-term awards. The Company intends to facilitate settlement of all vested awards in common stock, with the exception of certain RSUs granted to non-US based employees which the Company expects to settle in cash.
The Company estimates the fair value of NSO awards using the Black-Scholes option-pricing model, which incorporates various assumptions including the expected term of the awards, volatility of the stock price, risk-free rates of return and dividend yield. The Company determines the fair value of PSU, RSU and unrestricted and restricted stock awards by reference to the quoted market price of the Class A Common Stock on the date of the grant. The Company determined the fair value of Supplemental PSUs using a Monte Carlo simulation model.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Stock-based compensation for the three months ended September 30, 2016 and September 30, 2015 totaled $10 million and $7 million, respectively. Stock-based compensation expense for the nine months ended September 30, 2016 and September 30, 2015 totaled $28 million and $24 million, respectively.
A summary of activity and weighted average exercise prices related to the NSOs is reflected in the table below.
| | | Nine Months Ended September 30, 2016 | Three Months Ended March 31, 2017 |
| Shares | | Weighted Avg. Exercise Price | Shares | | Weighted Avg. Exercise Price |
Outstanding, beginning of period | 1,374,456 |
| | $ | 60.62 |
| 2,396,160 |
| | $ | 45.82 |
|
Granted | 1,359,033 |
| | 30.41 |
| 916,245 |
| | 32.01 |
|
Exercised | | (97,223 | ) | | 24.53 |
|
Forfeited | (220,601 | ) | | 40.28 |
| (302,455 | ) | | 28.48 |
|
Cancelled | (54,018 | ) | | 60.65 |
| (7,952 | ) | | 52.46 |
|
Adjustment due to the 2017 Special Cash Dividend | | 452,738 |
| | * |
|
Outstanding, end of period | 2,458,870 |
| | $ | 45.74 |
| 3,357,513 |
| | $ | 38.04 |
|
Vested and exercisable, end of period | 575,682 |
| | $ | 61.10 |
| 1,513,171 |
| | $ | 45.08 |
|
A summary of activity and weighted average fair values related to the RSUs is reflected in the table below.
|
| | | | | | |
| Nine Months Ended September 30, 2016 |
| Shares | | Weighted Avg. Fair Value |
Outstanding, beginning of period | 839,789 |
| | $ | 58.39 |
|
Granted | 819,301 |
| | 29.91 |
|
Dividend equivalent units granted | 25,208 |
| | 38.17 |
|
Vested | (306,564 | ) | | 58.43 |
|
Dividend equivalent units vested | (5,732 | ) | | 41.33 |
|
Forfeited | (123,695 | ) | | 42.60 |
|
Dividend equivalent units forfeited | (2,489 | ) | | 39.12 |
|
Outstanding and nonvested, end of period (1) | 1,245,818 |
| | $ | 40.01 |
|
|
| | | | | | |
| Three Months Ended March 31, 2017 |
| Shares | | Weighted Avg. Fair Value |
Outstanding, beginning of period | 1,230,676 |
| | $ | 40.92 |
|
Granted | 530,680 |
| | 31.87 |
|
Dividend equivalent units granted | 7,853 |
| | 37.20 |
|
Vested | (520,056 | ) | | 38.49 |
|
Dividend equivalent units vested | (18,272 | ) | | 32.19 |
|
Forfeited | (269,415 | ) | | 31.93 |
|
Dividend equivalent units forfeited | (7,969 | ) | | 31.77 |
|
Adjustment due to the 2017 Special Cash Dividend | 223,698 |
| | * |
|
Outstanding and nonvested, end of period | 1,177,195 |
| | $ | 32.24 |
|
(1) Includes 22,309 RSUs which were granted to foreign employees and which the Company expects to settle in cash. The fair value of these RSUs at September 30, 2016 was not material. These RSUs generally vest over a fouryear period.
A summary of activity and weighted average fair values related to the unrestricted stock awards is as follows:
| | | Nine Months Ended September 30, 2016 | Three Months Ended March 31, 2017 |
| Shares | | Weighted Avg. Fair Value | Shares | | Weighted Avg. Fair Value |
Outstanding, beginning of period | — |
| | $ | — |
| — |
| | $ | — |
|
Granted | 16,898 |
| | 33.73 |
| 10,147 |
| | 34.98 |
|
Vested | (16,898 | ) | | 33.73 |
| (10,147 | ) | | 34.98 |
|
Outstanding and nonvested, end of period | — |
| | $ | — |
| — |
| | $ | — |
|
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, 2016 | Three Months Ended March 31, 2017 |
| Shares | | Weighted Avg. Fair Value | Shares | | Weighted Avg. Fair Value |
Outstanding, beginning of period | 106,964 |
| | $ | 65.50 |
| 347,000 |
| | $ | 27.23 |
|
Granted (1) | 295,390 |
| | 21.26 |
| 117,777 |
| | 31.45 |
|
Dividend equivalent units granted | 6,417 |
| | 39.05 |
| 1,235 |
| | 37.20 |
|
Vested | (55,720 | ) | | 65.06 |
| (126,129 | ) | | 35.92 |
|
Dividend equivalent units vested | (1,009 | ) | | 41.64 |
| (3,726 | ) | | 32.50 |
|
Forfeited | (8,096 | ) | | 49.85 |
| (40,808 | ) | | 33.89 |
|
Dividend equivalent units forfeited | (199 | ) | | 39.79 |
| (5,319 | ) | | 38.67 |
|
Adjustment due to the 2017 Special Cash Dividend (1)(2) | | 24,244 |
| | * |
|
Outstanding and nonvested, end of period | 343,747 |
| | $ | 27.66 |
| 314,274 |
| | $ | 22.32 |
|
(1) Represents shares of PSUs for which performance targets have been established and which are deemed granted under U.S. GAAP. Includes 214,416 Supplemental
(2) Excludes 19,725 PSUs with an average fair value of $16.13 which was determined using a Monte Carlo simulation model, as further described above.have not yet been deemed granted under U.S. GAAP.
As of September 30, 2016,March 31, 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 | $ | 63,589 |
| | 2.6 |
|
| | | | | |
| Unrecognized Compensation Cost | | Weighted Average Remaining Recognition Period |
Nonvested awards | $ | 53,263 |
| | 2.9 |
NOTE 14:13: 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, 2016,March 31, 2017, there were 39,62832,988 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,
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.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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,March 31, 2017 and March 31, 2016, 159,243102,217 and 194,943, respectively, of the weighted-average Warrants outstanding, have been excluded from the below table. For the three and nine months ended September 30, 2015, 308,612 and 1,069,798, respectively,258,306 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 | Three Months Ended |
| September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 | March 31, 2017 | | March 31, 2016 |
EPS numerator: | | | | | | | | | | |
Net income (loss), as reported | $ | 145,765 |
| | $ | 27,858 |
| | $ | (4,705 | ) | | $ | 61,010 |
| |
(Loss) income from continuing operations, as reported | | $ | (101,212 | ) | | $ | 15,102 |
|
Less: Dividends distributed to Warrants | 40 |
| | 77 |
| | 127 |
| | 249 |
| 25 |
| | 48 |
|
Less: Undistributed earnings allocated to Warrants | 218 |
| | 91 |
| | — |
| | 679 |
| — |
| | — |
|
Net income (loss) attributable to common shareholders for basic EPS | $ | 145,507 |
| | $ | 27,690 |
| | $ | (4,832 | ) | | $ | 60,082 |
| |
(Loss) income from continuing operations attributable to common shareholders for basic EPS | | $ | (101,237 | ) | | $ | 15,054 |
|
Add: Undistributed earnings allocated to dilutive securities | 1 |
| | — |
| | — |
| | 2 |
| — |
| | — |
|
Net income (loss) attributable to common shareholders for diluted EPS | $ | 145,508 |
| | $ | 27,690 |
| | $ | (4,832 | ) | | $ | 60,084 |
| |
(Loss) income from continuing operations attributable to common shareholders for diluted EPS | | $ | (101,237 | ) | | $ | 15,054 |
|
| | | | |
Income (loss) from discontinued operations attributable to common shareholders for basic and diluted EPS | | $ | 15,618 |
| | $ | (4,009 | ) |
| | | | |
Net (loss) income attributable to common shareholders for basic EPS | | $ | (85,619 | ) | | $ | 11,045 |
|
Net (loss) income attributable to common shareholders for diluted EPS | | $ | (85,619 | ) | | $ | 11,045 |
|
| | | | | | | | | | |
EPS denominator: | | | | | | | | | | |
Weighted average shares outstanding - basic | 89,950 |
| | 94,437 |
| | 91,367 |
| | 95,060 |
| 86,632 |
| | 92,491 |
|
Impact of dilutive securities | 503 |
| | 75 |
| | — |
| | 214 |
| — |
| | 132 |
|
Weighted average shares outstanding - diluted | 90,453 |
| | 94,512 |
| | 91,367 |
| | 95,274 |
| 86,632 |
| | 92,623 |
|
| | | | | | | | | | |
Net income (loss) per share attributable to common shareholders: | | | | | | | | |
Basic | $ | 1.62 |
| | $ | 0.29 |
| | $ | (0.05 | ) | | $ | 0.63 |
| |
Diluted | $ | 1.61 |
| | $ | 0.29 |
| | $ | (0.05 | ) | | $ | 0.63 |
| |
Basic (Loss) Earnings Per Common Share from: | | | | |
Continuing Operations | | $ | (1.17 | ) | | $ | 0.16 |
|
Discontinued Operations | | 0.18 |
| | (0.04 | ) |
Net (Loss) Earnings Per Common Share | | $ | (0.99 | ) | | $ | 0.12 |
|
| | | | |
Diluted (Loss) Earnings Per Common Share | | | | |
Continuing Operations | | $ | (1.17 | ) | | $ | 0.16 |
|
Discontinued Operations | | 0.18 |
| | (0.04 | ) |
Net (Loss) Earnings Per Common Share | | $ | (0.99 | ) | | $ | 0.12 |
|
Since the Company was in a net loss position for the ninethree months ended September 30, 2016,March 31, 2017, there was no difference between the number of shares used to calculate basic and diluted loss per share in the period. Because of their anti-dilutive effect, 1,714,6432,802,923 and 2,148,7962,624,524 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,March 31, 2017 and March 31, 2016, respectively. Because of their anti-dilutive effect, 2,189,552 and 1,489,698 common share equivalents, comprised of NSOs, PSUs and RSUs, have been excluded from the diluted EPS calculation for the three and nine months ended September 30, 2015, respectively.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 15:14: ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (LOSS)
Accumulated other comprehensive (loss) income (loss)(“AOCI”) is a separate component of shareholders’ equity in the Company’s unaudited Condensed Consolidated Balance Sheets. The following table summarizes the changes in accumulated other comprehensive loss,AOCI, net of taxes by component for the ninethree months ended September 30, 2016March 31, 2017 (in thousands):
|
| | | | | | | | | | | | | | | |
| Unrecognized Benefit Plan Gains and Losses | | Foreign Currency Translation Adjustments | | Unrealized Holding Gain on Marketable Securities | | Total |
Balance at December 31, 2015 | $ | (57,391 | ) | | $ | (15,764 | ) | | $ | 2,139 |
| | $ | (71,016 | ) |
Other comprehensive income | 3,539 |
| | 2,002 |
| | 1,591 |
| | 7,132 |
|
Balance at September 30, 2016 | $ | (53,852 | ) | | $ | (13,762 | ) | | $ | 3,730 |
| | $ | (63,884 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| 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 income (loss) before reclassifications | — |
| | (94 | ) | | (2,088 | ) | | 3,169 |
| | 987 |
|
Amounts reclassified from AOCI | (44 | ) | | (3,042 | ) | | 788 |
| | 8,954 |
| | 6,656 |
|
Balance at March 31, 2017 | $ | (64,927 | ) | | $ | (61 | ) | | $ | (1,300 | ) | | $ | (7,851 | ) | | $ | (74,139 | ) |
NOTE 16:15: RELATED PARTY TRANSACTIONS
The Company’s company-sponsored pension plan assets included an investment in a loan fund limited partnership managed by Oaktree Capital Management, L.P. (“Oaktree”), which is affiliated with Oaktree Tribune, L.P., a principal shareholder of Tribune Media Company. In April 2016, the Company requested a full withdrawal of its investment from the fund managed by Oaktree which had a fair value of $30 million at December 31, 2015. The withdrawal was completed and proceeds were received in June 2016.
The Secured Credit Facility syndicate of lenders includes funds affiliated with Oaktree. These funds held $31 million and $38 million of the Company’s Term BC Loans and Former Term B Loans at September 30, 2016both March 31, 2017 and December 31, 2015, respectively.2016.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 17:16: BUSINESS SEGMENTS
The following table summarizes business segment financial data for the three and nine months ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 |
Operating revenues: | | | | | | | |
Television and Entertainment | $ | 459,145 |
| | $ | 429,700 |
| | $ | 1,380,991 |
| | $ | 1,285,622 |
|
Digital and Data | 49,064 |
| | 46,561 |
| | 149,651 |
| | 140,388 |
|
Corporate and Other | 9,860 |
| | 12,333 |
| | 34,055 |
| | 36,845 |
|
Total operating revenues | $ | 518,069 |
| | $ | 488,594 |
| | $ | 1,564,697 |
| | $ | 1,462,855 |
|
Operating profit (loss): | | | | | | | |
Television and Entertainment | $ | 46,186 |
| | $ | 64,061 |
| | $ | 188,519 |
| | $ | 190,497 |
|
Digital and Data | (11,637 | ) | | (6,207 | ) | | (24,847 | ) | | (6,623 | ) |
Corporate and Other | 187,871 |
| | (19,046 | ) | | 132,104 |
| | (64,347 | ) |
Total operating profit | $ | 222,420 |
| | $ | 38,808 |
| | $ | 295,776 |
| | $ | 119,527 |
|
Depreciation: | | | | | | | |
Television and Entertainment | $ | 11,267 |
| | $ | 12,194 |
| | $ | 33,389 |
| | $ | 35,640 |
|
Digital and Data | 3,946 |
| | 2,456 |
| | 9,897 |
| | 6,882 |
|
Corporate and Other | 3,497 |
| | 4,377 |
| | 10,281 |
| | 11,525 |
|
Total depreciation | $ | 18,710 |
| | $ | 19,027 |
| | $ | 53,567 |
| | $ | 54,047 |
|
Amortization: | | | | | | | |
Television and Entertainment | $ | 41,475 |
| | $ | 41,475 |
| | $ | 124,426 |
| | $ | 124,460 |
|
Digital and Data | 7,921 |
| | 8,305 |
| | 23,769 |
| | 21,528 |
|
Total amortization | $ | 49,396 |
| | $ | 49,780 |
| | $ | 148,195 |
| | $ | 145,988 |
|
Capital Expenditures: | | | | | | | |
Television and Entertainment | $ | 16,122 |
| | $ | 5,405 |
| | $ | 29,558 |
| | $ | 19,681 |
|
Digital and Data | 5,545 |
| | 6,740 |
| | 16,514 |
| | 17,262 |
|
Corporate and Other | 4,757 |
| | 12,913 |
| | 15,783 |
| | 26,832 |
|
Total capital expenditures | $ | 26,424 |
| | $ | 25,058 |
| | $ | 61,855 |
| | $ | 63,775 |
|
|
| | | | | | | |
| September 30, 2016 | | December 31, 2015 (1) |
Assets: | | | |
Television and Entertainment | $ | 7,495,346 |
| | $ | 7,748,010 |
|
Digital and Data | 701,933 |
| | 725,151 |
|
Corporate and Other | 1,282,519 |
| | 1,029,280 |
|
Assets held for sale | 17,878 |
| | 206,422 |
|
Total assets | $ | 9,497,676 |
| | $ | 9,708,863 |
|
|
| | | | | | | |
| Three Months Ended |
| March 31, 2017 | | March 31, 2016 |
Operating Revenues from Continuing Operations (1) | | | |
Television and Entertainment | $ | 436,033 |
| | $ | 455,875 |
|
Corporate and Other | 3,877 |
| | 12,597 |
|
Total operating revenues | $ | 439,910 |
| | $ | 468,472 |
|
Operating profit (loss) from Continuing Operations (1)(2) | | | |
Television and Entertainment | $ | 20,013 |
| | $ | 58,605 |
|
Corporate and Other | (35,245 | ) | | (28,613 | ) |
Total operating (loss) profit | $ | (15,232 | ) | | $ | 29,992 |
|
Depreciation from Continuing Operations (3) | | | |
Television and Entertainment | $ | 10,039 |
| | $ | 11,017 |
|
Corporate and Other | 3,532 |
| | 3,425 |
|
Total depreciation | $ | 13,571 |
| | $ | 14,442 |
|
Amortization from Continuing Operations (3) | | | |
Television and Entertainment | $ | 41,659 |
| | $ | 41,665 |
|
Capital Expenditures: | | | |
Television and Entertainment | $ | 10,807 |
| | $ | 6,833 |
|
Corporate and Other | 2,249 |
| | 6,092 |
|
Discontinued Operations | 1,578 |
| | 4,923 |
|
Total capital expenditures | $ | 14,634 |
| | $ | 17,848 |
|
|
| | | | | | | |
| March 31, 2017 | | December 31, 2016 |
Assets: | | | |
Television and Entertainment | $ | 7,263,209 |
| | $ | 7,484,591 |
|
Corporate and Other | 872,416 |
| | 1,228,526 |
|
Assets held for sale (4) | 16,356 |
| | 17,176 |
|
Discontinued Operations | — |
| | 670,758 |
|
Total assets | $ | 8,151,981 |
| | $ | 9,401,051 |
|
| |
(1) | See Note 2 for the disclosures of operating revenues and operating profit included in discontinued operations for the historical periods. |
| |
(2) | Operating profit (loss) 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 $3 million and $8 million, respectively, for the three months ended March 31, 2016. |
| |
(4) | See Note 3 for information regarding real estate assets held for sale. |
(1) December 31, 2015 balances have been reclassified to present debt issuance costs as a direct deduction from the carrying amount of an associated debt liability in accordance with ASU 2015-03. See Note 1 for further information.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 18:17: CONDENSED CONSOLIDATING FINANCIAL INFORMATIONSTATEMENTS
The Company is the Issuerissuer of the registered debtNotes (see Note 7)6) and such debt is guaranteed by the 100% owned, domestic Subsidiary Guarantors.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”) are direct or indirect subsidiaries of the Company that primarily include the Company’s international operations.
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 Guarantorguarantor 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) Income and Consolidated Statements of Cash Flows of Tribune Media Company, the Subsidiary Guarantors, the Non-guarantorNon-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.
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 INCOME (LOSS)
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 | $ | — |
| | $ | 509,039 |
| | $ | 13,536 |
| | $ | (4,506 | ) | | $ | 518,069 |
|
| | | | | | | | | |
Programming and direct operating expenses | — |
| | 261,974 |
| | 6,755 |
| | (247 | ) | | 268,482 |
|
Selling, general and administrative | 25,254 |
| | 143,237 |
| | 7,997 |
| | (4,259 | ) | | 172,229 |
|
Depreciation and amortization | 2,973 |
| | 60,058 |
| | 5,075 |
| | — |
| | 68,106 |
|
Gain on sales of real estate | — |
| | (213,168 | ) | | — |
| | — |
| | (213,168 | ) |
Total Operating Expenses | 28,227 |
| | 252,101 |
| | 19,827 |
| | (4,506 | ) | | 295,649 |
|
| | | | | | | | | |
Operating (Loss) Profit | (28,227 | ) | | 256,938 |
| | (6,291 | ) | | — |
| | 222,420 |
|
| | | | | | | | | |
(Loss) income on equity investments, net | (599 | ) | | 32,336 |
| | — |
| | — |
| | 31,737 |
|
Interest and dividend income | 464 |
| | 13 |
| | 57 |
| | — |
| | 534 |
|
Interest expense | (41,922 | ) | | — |
| | (199 | ) | | — |
| | (42,121 | ) |
Other non-operating items | (377 | ) | | — |
| | — |
| | — |
| | (377 | ) |
Intercompany interest income (expense) | 438 |
| | (438 | ) | | — |
| | — |
| | — |
|
Intercompany income (charges) | 24,112 |
| | (24,054 | ) | | (58 | ) | | — |
| | — |
|
(Loss) Income Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | (46,111 | ) | | 264,795 |
| | (6,491 | ) | | — |
| | 212,193 |
|
Income tax (benefit) expense | (19,758 | ) | | 88,466 |
| | (2,280 | ) | | — |
| | 66,428 |
|
Equity (deficit) in earnings of consolidated subsidiaries, net of taxes | 172,118 |
| | (1,559 | ) | | — |
| | (170,559 | ) | | — |
|
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 |
|
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 INCOME (LOSS)
THREE MONTHS ENDED SEPTEMBER 30, 2015MARCH 31, 2017
(In thousands of dollars)
| | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
Operating Revenues | $ | — |
| | $ | 480,578 |
| | $ | 12,903 |
| | $ | (4,887 | ) | | $ | 488,594 |
| $ | — |
| | $ | 437,487 |
| | $ | 2,423 |
| | $ | — |
| | $ | 439,910 |
|
| | | | | | | | | | | | | | | | | | |
Programming and direct operating expenses | — |
| | 226,597 |
| | 3,896 |
| | (3,390 | ) | | 227,103 |
| — |
| | 239,232 |
| | 821 |
| | — |
| | 240,053 |
|
Selling, general and administrative | 20,448 |
| | 126,381 |
| | 8,544 |
| | (1,497 | ) | | 153,876 |
| 32,967 |
| | 126,089 |
| | 803 |
| | — |
| | 159,859 |
|
Depreciation and amortization | 2,068 |
| | 61,432 |
| | 5,307 |
| | — |
| | 68,807 |
| 2,948 |
| | 49,162 |
| | 3,120 |
| | — |
| | 55,230 |
|
Total Operating Expenses | 22,516 |
| | 414,410 |
| | 17,747 |
| | (4,887 | ) | | 449,786 |
| 35,915 |
| | 414,483 |
| | 4,744 |
| | — |
| | 455,142 |
|
| | | | | | | | | | | | | | | | | | |
Operating (Loss) Profit | (22,516 | ) | | 66,168 |
| | (4,844 | ) | | — |
| | 38,808 |
| (35,915 | ) | | 23,004 |
| | (2,321 | ) | | — |
| | (15,232 | ) |
| | | | | | | | | | | | | | | | | | |
Income on equity investments, net | — |
| | 36,987 |
| | — |
| | — |
| | 36,987 |
| |
(Loss) income on equity investments, net | | (469 | ) | | 37,506 |
| | — |
| | — |
| | 37,037 |
|
Interest and dividend income | 96 |
| | 25 |
| | 41 |
| | — |
| | 162 |
| 482 |
| | 23 |
| | — |
| | — |
| | 505 |
|
Interest expense | (42,243 | ) | | — |
| | (286 | ) | | — |
| | (42,529 | ) | (38,592 | ) | | — |
| | (166 | ) | | — |
| | (38,758 | ) |
Gain on investment transaction, net | — |
| | — |
| | 3,250 |
| | — |
| | 3,250 |
| |
Loss on extinguishment and modification of debt | | (19,052 | ) | | — |
| | — |
| | — |
| | (19,052 | ) |
Gain on investment transaction | | 4,950 |
| | — |
| | — |
| | — |
| | 4,950 |
|
Write-down of investment | | — |
| | (122,000 | ) | | — |
| | — |
| | (122,000 | ) |
Other non-operating items | 1,582 |
| | 912 |
| | — |
| | — |
| | 2,494 |
| (276 | ) | | — |
| | — |
| | — |
| | (276 | ) |
Intercompany interest income (expense) | 438 |
| | (438 | ) | | — |
| | — |
| | — |
| |
Intercompany income (charges) | 25,065 |
| | (24,976 | ) | | (89 | ) | | — |
| | — |
| 28,218 |
| | (28,151 | ) | | (67 | ) | | — |
| | — |
|
(Loss) Income Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | (37,578 | ) | | 78,678 |
| | (1,928 | ) | | — |
| | 39,172 |
| |
Income tax (benefit) expense | (13,907 | ) | | 25,406 |
| | (185 | ) | | — |
| | 11,314 |
| |
Equity (deficit) in earnings of consolidated subsidiaries, net of taxes | 51,529 |
| | (1,875 | ) | | — |
| | (49,654 | ) | | — |
| |
Net Income (Loss) | $ | 27,858 |
| | $ | 51,397 |
| | $ | (1,743 | ) | | $ | (49,654 | ) | | $ | 27,858 |
| |
Loss from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | | (60,654 | ) | | (89,618 | ) | | (2,554 | ) | | — |
| | (152,826 | ) |
Income tax benefit | | (23,715 | ) | | (26,941 | ) | | (958 | ) | | — |
| | (51,614 | ) |
(Deficit) equity in earnings of consolidated subsidiaries, net of taxes | | (64,273 | ) | | (226 | ) | | — |
| | 64,499 |
| | — |
|
(Loss) Income from Continuing Operations | | $ | (101,212 | ) | | $ | (62,903 | ) | | $ | (1,596 | ) | | $ | 64,499 |
| | $ | (101,212 | ) |
Income (Loss) from Discontinued Operations, net of taxes | | 15,618 |
| | (1,904 | ) | | 807 |
| | 1,097 |
| | 15,618 |
|
Net (Loss) Income | | $ | (85,594 | ) | | $ | (64,807 | ) | | $ | (789 | ) | | $ | 65,596 |
| | $ | (85,594 | ) |
| | | | | | | | | | | | | | | | | | |
Comprehensive Income (Loss) | $ | 24,087 |
| | $ | 48,417 |
| | $ | (2,809 | ) | | $ | (45,608 | ) | | $ | 24,087 |
| |
Comprehensive (Loss) Income | | $ | (77,951 | ) | | $ | (62,931 | ) | | $ | 10,578 |
| | $ | 52,353 |
| | $ | (77,951 | ) |
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 INCOME (LOSS)
NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2016
(In thousands of dollars)
|
| | | | | | | | | | | | | | | | | | | |
| Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
Operating Revenues | $ | — |
| | $ | 1,533,303 |
| | $ | 44,690 |
| | $ | (13,296 | ) | | $ | 1,564,697 |
|
| | | | | | | | | |
Programming and direct operating expenses | — |
| | 732,616 |
| | 18,546 |
| | (6,436 | ) | | 744,726 |
|
Selling, general and administrative | 74,673 |
| | 444,851 |
| | 22,488 |
| | (6,860 | ) | | 535,152 |
|
Depreciation and amortization | 8,310 |
| | 178,303 |
| | 15,149 |
| | — |
| | 201,762 |
|
Gain on sales of real estate, net | — |
| | (212,719 | ) | | — |
| | — |
| | (212,719 | ) |
Total Operating Expenses | 82,983 |
| | 1,143,051 |
| | 56,183 |
| | (13,296 | ) | | 1,268,921 |
|
| | | | | | | | | |
Operating (Loss) Profit | (82,983 | ) | | 390,252 |
| | (11,493 | ) | | — |
| | 295,776 |
|
| | | | | | | | | |
(Loss) income on equity investments, net | (1,997 | ) | | 116,292 |
| | — |
| | — |
| | 114,295 |
|
Interest and dividend income | 772 |
| | 66 |
| | 82 |
| | — |
| | 920 |
|
Interest expense | (125,324 | ) | | — |
| | (680 | ) | | — |
| | (126,004 | ) |
Other non-operating items | (756 | ) | | — |
| | — |
| | — |
| | (756 | ) |
Intercompany interest income (expense) | 1,316 |
| | (1,316 | ) | | — |
| | — |
| | — |
|
Intercompany income (charges) | 71,634 |
| | (71,464 | ) | | (170 | ) | | — |
| | — |
|
(Loss) Income Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | (137,338 | ) | | 433,830 |
| | (12,261 | ) | | — |
| | 284,231 |
|
Income tax expense | 20,027 |
| | 167,622 |
| | 101,287 |
| | — |
| | 288,936 |
|
Equity (deficit) in earnings of consolidated subsidiaries, net of taxes | 152,660 |
| | (2,365 | ) | | — |
| | (150,295 | ) | | — |
|
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 |
|
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 INCOME (LOSS)
NINE MONTHS ENDED SEPTEMBER 30, 2015
(In thousands of dollars)
| | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
Operating Revenues | $ | — |
| | $ | 1,438,056 |
| | $ | 40,407 |
| | $ | (15,608 | ) | | $ | 1,462,855 |
| $ | — |
| | $ | 465,970 |
| | $ | 2,502 |
| | $ | — |
| | $ | 468,472 |
|
| | | | | | | | | | | | | | | | | | |
Programming and direct operating expenses | — |
| | 665,252 |
| | 18,571 |
| | (10,001 | ) | | 673,822 |
| — |
| | 220,527 |
| | 1,212 |
| | — |
| | 221,739 |
|
Selling, general and administrative | 69,637 |
| | 384,488 |
| | 20,856 |
| | (5,607 | ) | | 469,374 |
| 25,429 |
| | 134,386 |
| | 819 |
| | — |
| | 160,634 |
|
Depreciation and amortization | 4,536 |
| | 181,720 |
| | 13,779 |
| | — |
| | 200,035 |
| 2,569 |
| | 50,358 |
| | 3,180 |
| | — |
| | 56,107 |
|
Loss on sales of real estate | — |
| | 97 |
| | — |
| | — |
| | 97 |
| |
Total Operating Expenses | 74,173 |
| | 1,231,557 |
| | 53,206 |
| | (15,608 | ) | | 1,343,328 |
| 27,998 |
| | 405,271 |
| | 5,211 |
| | — |
| | 438,480 |
|
| | | | | | | | | | | | | | | | | | |
Operating (Loss) Profit | (74,173 | ) | | 206,499 |
| | (12,799 | ) | | — |
| | 119,527 |
| (27,998 | ) | | 60,699 |
| | (2,709 | ) | | — |
| | 29,992 |
|
| | | | | | | | | | | | | | | | | | |
Income on equity investments, net | — |
| | 119,834 |
| | — |
| | — |
| | 119,834 |
| |
(Loss) income on equity investments, net | | (720 | ) | | 38,972 |
| | — |
| | — |
| | 38,252 |
|
Interest and dividend income | 396 |
| | 76 |
| | 100 |
| | — |
| | 572 |
| 91 |
| | 41 |
| | — |
| | — |
| | 132 |
|
Interest expense | (121,268 | ) | | (5 | ) | | (842 | ) | | — |
| | (122,115 | ) | (37,894 | ) | | — |
| | (247 | ) | | — |
| | (38,141 | ) |
Loss on extinguishment of debt | (37,040 | ) | | — |
| | — |
| | — |
| | (37,040 | ) | |
Gain on investment transaction, net | 688 |
| | 8,132 |
| | 3,250 |
| | — |
| | 12,070 |
| |
Other non-operating items | 239 |
| | 846 |
| | — |
| | — |
| | 1,085 |
| 62 |
| | — |
| | — |
| | — |
| | 62 |
|
Intercompany interest income (expense) | 1,316 |
| | (1,316 | ) | | — |
| | — |
| | — |
| |
Intercompany income (charges) | 75,195 |
| | (74,928 | ) | | (267 | ) | | — |
| | — |
| 21,992 |
| | (21,936 | ) | | (56 | ) | | — |
| | — |
|
(Loss) Income Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | (154,647 | ) | | 259,138 |
| | (10,558 | ) | | — |
| | 93,933 |
| |
(Loss) Income from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | | (44,467 | ) | | 77,776 |
| | (3,012 | ) | | — |
| | 30,297 |
|
Income tax (benefit) expense | (58,811 | ) | | 95,423 |
| | (3,689 | ) | | — |
| | 32,923 |
| (17,324 | ) | | 33,660 |
| | (1,141 | ) | | — |
| | 15,195 |
|
Equity (deficit) in earnings of consolidated subsidiaries, net of taxes | 156,846 |
| | (4,586 | ) | | — |
| | (152,260 | ) | | — |
| 42,245 |
| | (749 | ) | | — |
| | (41,496 | ) | | — |
|
Income (Loss) from Continuing Operations | | $ | 15,102 |
| | $ | 43,367 |
| | $ | (1,871 | ) | | $ | (41,496 | ) | | $ | 15,102 |
|
(Loss) Income from Discontinued Operations, net of taxes | | (4,009 | ) | | (2,731 | ) | | 1,383 |
| | 1,348 |
| | (4,009 | ) |
Net Income (Loss) | $ | 61,010 |
| | $ | 159,129 |
| | $ | (6,869 | ) | | $ | (152,260 | ) | | $ | 61,010 |
| $ | 11,093 |
| | $ | 40,636 |
| | $ | (488 | ) | | $ | (40,148 | ) | | $ | 11,093 |
|
| | | | | | | | | | | | | | | | | | |
Comprehensive Income (Loss) | $ | 47,841 |
| | $ | 155,417 |
| | $ | (11,731 | ) | | $ | (143,686 | ) | | $ | 47,841 |
| $ | 14,730 |
| | $ | 40,739 |
| | $ | 3,449 |
| | $ | (44,188 | ) | | $ | 14,730 |
|
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, 2016MARCH 31, 2017
(In thousands of dollars)
| | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
Assets | | | | | | | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 620,376 |
| | $ | 10,645 |
| | $ | 12,677 |
| | $ | — |
| | $ | 643,698 |
| $ | 342,957 |
| | $ | 1,381 |
| | $ | 1,883 |
| | $ | — |
| | $ | 346,221 |
|
Restricted cash and cash equivalents | 17,566 |
| | — |
| | — |
| | — |
| | 17,566 |
| 17,566 |
| | — |
| | — |
| | — |
| | 17,566 |
|
Accounts receivable, net | 116 |
| | 416,709 |
| | 8,439 |
| | — |
| | 425,264 |
| 1,184 |
| | 382,795 |
| | 588 |
| | — |
| | 384,567 |
|
Broadcast rights | — |
| | 183,435 |
| | 3,471 |
| | — |
| | 186,906 |
| — |
| | 135,533 |
| | 1,648 |
| | — |
| | 137,181 |
|
Income taxes receivable | — |
| | 2,593 |
| | 171 |
| | — |
| | 2,764 |
| — |
| | 7,897 |
| | — |
| | — |
| | 7,897 |
|
Prepaid expenses | 15,471 |
| | 34,163 |
| | 4,011 |
| | — |
| | 53,645 |
| 9,313 |
| | 22,544 |
| | 227 |
| | — |
| | 32,084 |
|
Other | 5,950 |
| | 3,088 |
| | 255 |
| | — |
| | 9,293 |
| 9,716 |
| | 1,822 |
| | — |
| | — |
| | 11,538 |
|
Total current assets | 659,479 |
| | 650,633 |
| | 29,024 |
| | — |
| | 1,339,136 |
| 380,736 |
| | 551,972 |
| | 4,346 |
| | — |
| | 937,054 |
|
Properties | | | | | | | | | | | | | | | | | | |
Property, plant and equipment | 53,682 |
| | 585,815 |
| | 113,341 |
| | — |
| | 752,838 |
| 55,762 |
| | 521,699 |
| | 109,076 |
| | — |
| | 686,537 |
|
Accumulated depreciation | (18,695 | ) | | (176,384 | ) | | (7,484 | ) | | — |
| | (202,563 | ) | (24,412 | ) | | (167,368 | ) | | (6,345 | ) | | — |
| | (198,125 | ) |
Net properties | 34,987 |
| | 409,431 |
| | 105,857 |
| | — |
| | 550,275 |
| 31,350 |
| | 354,331 |
| | 102,731 |
| | — |
| | 488,412 |
|
| | | | | | | | | | | | | | | | | | |
Investments in subsidiaries | 10,470,498 |
| | 102,003 |
| | — |
| | (10,572,501 | ) | | — |
| 9,962,162 |
| | 56,249 |
| | — |
| | (10,018,411 | ) | | — |
|
| | | | | | | | | | | | | | | | | | |
Other Assets | | | | | | | | | | | | | | | | | | |
Broadcast rights | — |
| | 174,010 |
| | 102 |
| | — |
| | 174,112 |
| — |
| | 148,768 |
| | 64 |
| | — |
| | 148,832 |
|
Goodwill | — |
| | 3,508,718 |
| | 54,804 |
| | — |
| | 3,563,522 |
| — |
| | 3,220,300 |
| | 7,747 |
| | — |
| | 3,228,047 |
|
Other intangible assets, net | — |
| | 1,955,221 |
| | 137,704 |
| | — |
| | 2,092,925 |
| — |
| | 1,690,765 |
| | 86,595 |
| | — |
| | 1,777,360 |
|
Assets held for sale | — |
| | 17,878 |
| | — |
| | — |
| | 17,878 |
| — |
| | 16,356 |
| | — |
| | — |
| | 16,356 |
|
Investments | 20,051 |
| | 1,629,465 |
| | 17,895 |
| | — |
| | 1,667,411 |
| 13,453 |
| | 1,442,162 |
| | 17,895 |
| | — |
| | 1,473,510 |
|
Intercompany receivables | 2,152,363 |
| | 5,445,408 |
| | 357,751 |
| | (7,955,522 | ) | | — |
| 2,282,927 |
| | 5,810,551 |
| | 352,870 |
| | (8,446,348 | ) | | — |
|
Intercompany loan receivable | 27,000 |
| | — |
| | — |
| | (27,000 | ) | | — |
| |
Other | 107,334 |
| | 83,650 |
| | 6,535 |
| | (105,102 | ) | | 92,417 |
| 124,675 |
| | 75,549 |
| | 2,823 |
| | (120,637 | ) | | 82,410 |
|
Total other assets | 2,306,748 |
| | 12,814,350 |
| | 574,791 |
| | (8,087,624 | ) | | 7,608,265 |
| 2,421,055 |
| | 12,404,451 |
| | 467,994 |
| | (8,566,985 | ) | | 6,726,515 |
|
Total Assets | $ | 13,471,712 |
| | $ | 13,976,417 |
| | $ | 709,672 |
| | $ | (18,660,125 | ) | | $ | 9,497,676 |
| $ | 12,795,303 |
| | $ | 13,367,003 |
| | $ | 575,071 |
| | $ | (18,585,396 | ) | | $ | 8,151,981 |
|
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, 2016MARCH 31, 2017
(In thousands of dollars)
| | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
Liabilities and Shareholders’ Equity (Deficit) | | | | | | | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | | | | | | | |
Accounts payable | $ | 34,638 |
| | $ | 27,043 |
| | $ | 3,737 |
| | $ | — |
| | $ | 65,418 |
| $ | 25,182 |
| | $ | 22,826 |
| | $ | 1,531 |
| | $ | — |
| | $ | 49,539 |
|
Debt due within one year | 15,915 |
| | — |
| | 3,999 |
| | — |
| | 19,914 |
| 13,870 |
| | — |
| | 4,006 |
| | — |
| | 17,876 |
|
Income taxes payable | — |
| | 64,269 |
| | — |
| | — |
| | 64,269 |
| — |
| | 97,137 |
| | (3 | ) | | — |
| | 97,134 |
|
Contracts payable for broadcast rights | — |
| | 249,585 |
| | 3,674 |
| | — |
| | 253,259 |
| — |
| | 218,178 |
| | 1,846 |
| | — |
| | 220,024 |
|
Deferred revenue | — |
| | 40,453 |
| | 4,579 |
| | — |
| | 45,032 |
| — |
| | 11,923 |
| | 107 |
| | — |
| | 12,030 |
|
Interest payable | 13,897 |
| | — |
| | 2 |
| | — |
| | 13,899 |
| 13,871 |
| | — |
| | 2 |
| | — |
| | 13,873 |
|
Other | 42,053 |
| | 71,015 |
| | 4,214 |
| | — |
| | 117,282 |
| 37,274 |
| | 49,289 |
| | 282 |
| | — |
| | 86,845 |
|
Total current liabilities | 106,503 |
| | 452,365 |
| | 20,205 |
| | — |
| | 579,073 |
| 90,197 |
| | 399,353 |
| | 7,771 |
| | — |
| | 497,321 |
|
| | | | | | | | | | | | | | | | | | |
Non-Current Liabilities | | | | | | | | | | | | | | | | | | |
Long-term debt | 3,384,076 |
| | — |
| | 11,769 |
| | — |
| | 3,395,845 |
| 3,004,633 |
| | — |
| | 9,764 |
| | — |
| | 3,014,397 |
|
Intercompany loan payable | — |
| | 27,000 |
| | — |
| | (27,000 | ) | | — |
| |
Deferred income taxes | — |
| | 959,553 |
| | 172,294 |
| | (105,102 | ) | | 1,026,745 |
| — |
| | 823,944 |
| | 158,183 |
| | (120,637 | ) | | 861,490 |
|
Contracts payable for broadcast rights | — |
| | 347,992 |
| | 104 |
| | — |
| | 348,096 |
| — |
| | 292,198 |
| | 66 |
| | — |
| | 292,264 |
|
Contract intangible liability, net | — |
| | 25 |
| | — |
| | — |
| | 25 |
| |
Intercompany payables | 5,894,575 |
| | 1,809,972 |
| | 250,975 |
| | (7,955,522 | ) | | — |
| 6,282,611 |
| | 1,910,337 |
| | 253,400 |
| | (8,446,348 | ) | | — |
|
Other | 461,232 |
| | 54,057 |
| | 1,608 |
| | — |
| | 516,897 |
| 466,211 |
| | 62,710 |
| | 20 |
| | — |
| | 528,941 |
|
Total non-current liabilities | 9,739,883 |
| | 3,198,599 |
| | 436,750 |
| | (8,087,624 | ) | | 5,287,608 |
| 9,753,455 |
| | 3,089,189 |
| | 421,433 |
| | (8,566,985 | ) | | 4,697,092 |
|
Total liabilities | 9,846,386 |
| | 3,650,964 |
| | 456,955 |
| | (8,087,624 | ) | | 5,866,681 |
| 9,843,652 |
| | 3,488,542 |
| | 429,204 |
| | (8,566,985 | ) | | 5,194,413 |
|
| | | | | | | | | | | | | | | | | | |
Shareholders’ Equity (Deficit) | | | | | | | | | | | | | | | | | | |
Common stock | 100 |
| | — |
| | — |
| | — |
| | 100 |
| 101 |
| | — |
| | — |
| | — |
| | 101 |
|
Treasury stock | (557,688 | ) | | — |
| | — |
| | — |
| | (557,688 | ) | (632,194 | ) | | — |
| | — |
| | — |
| | (632,194 | ) |
Additional paid-in-capital | 4,573,854 |
| | 9,486,179 |
| | 289,818 |
| | (9,775,997 | ) | | 4,573,854 |
| 4,051,836 |
| | 9,037,427 |
| | 200,304 |
| | (9,237,731 | ) | | 4,051,836 |
|
Retained (deficit) earnings | (327,056 | ) | | 847,621 |
| | (36,051 | ) | | (811,570 | ) | | (327,056 | ) | (393,953 | ) | | 847,858 |
| | (59,327 | ) | | (788,531 | ) | | (393,953 | ) |
Accumulated other comprehensive (loss) income | (63,884 | ) | | (8,347 | ) | | (6,719 | ) | | 15,066 |
| | (63,884 | ) | (74,139 | ) | | (6,824 | ) | | (1,027 | ) | | 7,851 |
| | (74,139 | ) |
Total Tribune Media Company shareholders’ equity (deficit) | 3,625,326 |
| | 10,325,453 |
| | 247,048 |
| | (10,572,501 | ) | | 3,625,326 |
| 2,951,651 |
| | 9,878,461 |
| | 139,950 |
| | (10,018,411 | ) | | 2,951,651 |
|
Noncontrolling interests | — |
| | — |
| | 5,669 |
| | — |
| | 5,669 |
| — |
| | — |
| | 5,917 |
| | — |
| | 5,917 |
|
Total shareholders’ equity (deficit) | 3,625,326 |
| | 10,325,453 |
| | 252,717 |
| | (10,572,501 | ) | | 3,630,995 |
| 2,951,651 |
| | 9,878,461 |
| | 145,867 |
| | (10,018,411 | ) | | 2,957,568 |
|
Total Liabilities and Shareholders’ Equity (Deficit) | $ | 13,471,712 |
| | $ | 13,976,417 |
| | $ | 709,672 |
| | $ | (18,660,125 | ) | | $ | 9,497,676 |
| $ | 12,795,303 |
| | $ | 13,367,003 |
| | $ | 575,071 |
| | $ | (18,585,396 | ) | | $ | 8,151,981 |
|
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, 20152016
(In thousands of dollars)
| | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
Assets | | | | | | | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 235,508 |
| | $ | 13,054 |
| | $ | 14,082 |
| | $ | — |
| | $ | 262,644 |
| $ | 574,638 |
| | $ | 720 |
| | $ | 2,300 |
| | $ | — |
| | $ | 577,658 |
|
Restricted cash and cash equivalents | 17,595 |
| | — |
| | — |
| | — |
| | 17,595 |
| 17,566 |
| | — |
| | — |
| | — |
| | 17,566 |
|
Accounts receivable, net | 672 |
| | 452,722 |
| | 13,234 |
| | — |
| | 466,628 |
| 198 |
| | 428,254 |
| | 660 |
| | — |
| | 429,112 |
|
Broadcast rights | — |
| | 157,538 |
| | 2,702 |
| | — |
| | 160,240 |
| — |
| | 155,266 |
| | 2,551 |
| | — |
| | 157,817 |
|
Income taxes receivable | — |
| | 42,816 |
| | 22 |
| | — |
| | 42,838 |
| — |
| | 9,056 |
| | — |
| | — |
| | 9,056 |
|
Current assets of discontinued operations | | — |
| | 37,300 |
| | 25,305 |
| | — |
| | 62,605 |
|
Prepaid expenses | 16,747 |
| | 44,817 |
| | 1,773 |
| | — |
| | 63,337 |
| 11,640 |
| | 24,074 |
| | 148 |
| | — |
| | 35,862 |
|
Other | 4,494 |
| | 3,818 |
| | 351 |
| | — |
| | 8,663 |
| 4,894 |
| | 1,729 |
| | 1 |
| | — |
| | 6,624 |
|
Total current assets | 275,016 |
| | 714,765 |
| | 32,164 |
| | — |
| | 1,021,945 |
| 608,936 |
| | 656,399 |
| | 30,965 |
| | — |
| | 1,296,300 |
|
Properties | | | | | | | | | | | | | | | | | | |
Property, plant and equipment | 47,909 |
| | 662,094 |
| | 108,655 |
| | — |
| | 818,658 |
| 55,529 |
| | 547,601 |
| | 107,938 |
| | — |
| | 711,068 |
|
Accumulated depreciation | (10,607 | ) | | (144,089 | ) | | (6,105 | ) | | — |
| | (160,801 | ) | (21,635 | ) | | (159,472 | ) | | (6,041 | ) | | — |
| | (187,148 | ) |
Net properties | 37,302 |
| | 518,005 |
| | 102,550 |
| | — |
| | 657,857 |
| 33,894 |
| | 388,129 |
| | 101,897 |
| | — |
| | 523,920 |
|
| | | | | | | | | | | | | | | | | | |
Investments in subsidiaries | 10,374,921 |
| | 104,432 |
| | — |
| | (10,479,353 | ) | | — |
| 10,502,544 |
| | 106,486 |
| | — |
| | (10,609,030 | ) | | — |
|
| | | | | | | | | | | | | | | | | | |
Other Assets | | | | | | | | | | | | | | | | | | |
Broadcast rights | — |
| | 203,376 |
| | 46 |
| | — |
| | 203,422 |
| — |
| | 153,374 |
| | 83 |
| | — |
| | 153,457 |
|
Goodwill | — |
| | 3,508,718 |
| | 53,094 |
| | — |
| | 3,561,812 |
| — |
| | 3,220,300 |
| | 7,630 |
| | — |
| | 3,227,930 |
|
Other intangible assets, net | — |
| | 2,091,010 |
| | 149,189 |
| | — |
| | 2,240,199 |
| — |
| | 1,729,829 |
| | 89,305 |
| | — |
| | 1,819,134 |
|
Non-current assets of discontinued operations | | — |
| | 514,200 |
| | 93,953 |
| | — |
| | 608,153 |
|
Assets held for sale | — |
| | 206,422 |
| | — |
| | — |
| | 206,422 |
| — |
| | 17,176 |
| | — |
| | — |
| | 17,176 |
|
Investments | 18,276 |
| | 1,659,029 |
| | 15,395 |
| | — |
| | 1,692,700 |
| 19,079 |
| | 1,637,909 |
| | 17,895 |
| | — |
| | 1,674,883 |
|
Intercompany receivables | 1,560,781 |
| | 4,265,957 |
| | 331,873 |
| | (6,158,611 | ) | | — |
| 2,326,261 |
| | 5,547,542 |
| | 358,834 |
| | (8,232,637 | ) | | — |
|
Intercompany loan receivable | 27,000 |
| | — |
| | — |
| | (27,000 | ) | | — |
| 27,000 |
| | — |
| | — |
| | (27,000 | ) | | — |
|
Other (1) | 189,517 |
| | 117,124 |
| | 5,167 |
| | (187,302 | ) | | 124,506 |
| |
Other | | 51,479 |
| | 75,191 |
| | 2,707 |
| | (49,279 | ) | | 80,098 |
|
Total other assets | 1,795,574 |
| | 12,051,636 |
| | 554,764 |
| | (6,372,913 | ) | | 8,029,061 |
| 2,423,819 |
| | 12,895,521 |
| | 570,407 |
| | (8,308,916 | ) | | 7,580,831 |
|
Total Assets | $ | 12,482,813 |
| | $ | 13,388,838 |
| | $ | 689,478 |
| | $ | (16,852,266 | ) | | $ | 9,708,863 |
| $ | 13,569,193 |
| | $ | 14,046,535 |
| | $ | 703,269 |
| | $ | (18,917,946 | ) | | $ | 9,401,051 |
|
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, 20152016
(In thousands of dollars)
| | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
Liabilities and Shareholders’ Equity (Deficit) | | | | | | | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | | | | | | | |
Accounts payable | $ | 29,587 |
| | $ | 24,153 |
| | $ | 6,654 |
| | $ | — |
| | $ | 60,394 |
| $ | 29,827 |
| | $ | 29,703 |
| | $ | 1,023 |
| | $ | — |
| | $ | 60,553 |
|
Debt due within one year (1) | 15,874 |
| | — |
| | 3,988 |
| | — |
| | 19,862 |
| 15,921 |
| | — |
| | 4,003 |
| | — |
| | 19,924 |
|
Income taxes payable | — |
| | 2,700 |
| | 758 |
| | — |
| | 3,458 |
| — |
| | 21,130 |
| | 36 |
| | — |
| | 21,166 |
|
Contracts payable for broadcast rights | — |
| | 233,660 |
| | 3,016 |
| | — |
| | 236,676 |
| — |
| | 238,497 |
| | 2,758 |
| | — |
| | 241,255 |
|
Deferred revenue | — |
| | 39,654 |
| | 5,067 |
| | — |
| | 44,721 |
| — |
| | 13,593 |
| | 97 |
| | — |
| | 13,690 |
|
Interest payable | 33,826 |
| | — |
| | 2 |
| | — |
| | 33,828 |
| 30,301 |
| | — |
| | 4 |
| | — |
| | 30,305 |
|
Current liabilities of discontinued operations | | — |
| | 44,763 |
| | 9,521 |
| | — |
| | 54,284 |
|
Other | 44,615 |
| | 91,384 |
| | 5,862 |
| | — |
| | 141,861 |
| 38,867 |
| | 70,589 |
| | 220 |
| | — |
| | 109,676 |
|
Total current liabilities | 123,902 |
| | 391,551 |
| | 25,347 |
| | — |
| | 540,800 |
| 114,916 |
| | 418,275 |
| | 17,662 |
| | — |
| | 550,853 |
|
| | | | | | | | | | | | | | | | | | |
Non-Current Liabilities | | | | | | | | | | | | | | | | | | |
Long-term debt (1) | 3,394,753 |
| | — |
| | 14,736 |
| | — |
| | 3,409,489 |
| |
Long-term debt | | 3,380,860 |
| | — |
| | 10,767 |
| | — |
| | 3,391,627 |
|
Intercompany loan payable | — |
| | 27,000 |
| | — |
| | (27,000 | ) | | — |
| — |
| | 27,000 |
| | — |
| | (27,000 | ) | | — |
|
Deferred income taxes | — |
| | 994,083 |
| | 177,251 |
| | (187,302 | ) | | 984,032 |
| — |
| | 871,923 |
| | 161,604 |
| | (49,279 | ) | | 984,248 |
|
Contracts payable for broadcast rights | — |
| | 385,052 |
| | 55 |
| | — |
| | 385,107 |
| — |
| | 314,755 |
| | 85 |
| | — |
| | 314,840 |
|
Contract intangible liability, net | — |
| | 13,772 |
| | — |
| | — |
| | 13,772 |
| |
Intercompany payables | 4,652,289 |
| | 1,397,981 |
| | 108,341 |
| | (6,158,611 | ) | | — |
| 6,065,424 |
| | 1,912,259 |
| | 254,954 |
| | (8,232,637 | ) | | — |
|
Other | 485,671 |
| | 55,779 |
| | 2,491 |
| | — |
| | 543,941 |
| 468,227 |
| | 50,239 |
| | 20 |
| | — |
| | 518,486 |
|
Non-current liabilities of discontinued operations | | — |
| | 86,517 |
| | 8,797 |
| | — |
| | 95,314 |
|
Total non-current liabilities | 8,532,713 |
| | 2,873,667 |
| | 302,874 |
| | (6,372,913 | ) | | 5,336,341 |
| 9,914,511 |
| | 3,262,693 |
| | 436,227 |
| | (8,308,916 | ) | | 5,304,515 |
|
Total Liabilities | 8,656,615 |
| | 3,265,218 |
| | 328,221 |
| | (6,372,913 | ) | | 5,877,141 |
| 10,029,427 |
| | 3,680,968 |
| | 453,889 |
| | (8,308,916 | ) | | 5,855,368 |
|
| | | | | | | | | | | | | | | | | | |
Shareholders’ Equity (Deficit) | | | | | | | | | | | | | | | | | | |
Common stock | 100 |
| | — |
| | — |
| | — |
| | 100 |
| 100 |
| | — |
| | — |
| | — |
| | 100 |
|
Treasury stock | (400,153 | ) | | — |
| | — |
| | — |
| | (400,153 | ) | (632,207 | ) | | — |
| | — |
| | — |
| | (632,207 | ) |
Additional paid-in-capital | 4,619,618 |
| | 9,529,071 |
| | 288,814 |
| | (9,817,885 | ) | | 4,619,618 |
| 4,561,760 |
| | 9,486,179 |
| | 289,818 |
| | (9,775,997 | ) | | 4,561,760 |
|
Retained (deficit) earnings | (322,351 | ) | | 600,853 |
| | 77,498 |
| | (678,351 | ) | | (322,351 | ) | (308,105 | ) | | 888,088 |
| | (33,961 | ) | | (854,127 | ) | | (308,105 | ) |
Accumulated other comprehensive (loss) income | (71,016 | ) | | (6,304 | ) | | (10,579 | ) | | 16,883 |
| | (71,016 | ) | (81,782 | ) | | (8,700 | ) | | (12,394 | ) | | 21,094 |
| | (81,782 | ) |
Total Tribune Media Company shareholders’ equity (deficit) | 3,826,198 |
| | 10,123,620 |
| | 355,733 |
| | (10,479,353 | ) | | 3,826,198 |
| 3,539,766 |
| | 10,365,567 |
| | 243,463 |
| | (10,609,030 | ) | | 3,539,766 |
|
Noncontrolling interests | — |
| | — |
| | 5,524 |
| | — |
| | 5,524 |
| — |
| | — |
| | 5,917 |
| | — |
| | 5,917 |
|
Total shareholders’ equity (deficit) | 3,826,198 |
| | 10,123,620 |
| | 361,257 |
| | (10,479,353 | ) | | 3,831,722 |
| 3,539,766 |
| | 10,365,567 |
| | 249,380 |
| | (10,609,030 | ) | | 3,545,683 |
|
Total Liabilities and Shareholders’ Equity (Deficit) | $ | 12,482,813 |
| | $ | 13,388,838 |
| | $ | 689,478 |
| | $ | (16,852,266 | ) | | $ | 9,708,863 |
| $ | 13,569,193 |
| | $ | 14,046,535 |
| | $ | 703,269 |
| | $ | (18,917,946 | ) | | $ | 9,401,051 |
|
(1) December 31, 2015 balances have been reclassified to present debt issuance costs as a direct deduction from the carrying amount of an associated debt liability in accordance with ASU 2015-03.
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 NINETHREE MONTHS ENDED SEPTEMBER 30, 2016MARCH 31, 2017
(In thousands of dollars)
| | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | 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 |
| $ | (133,188 | ) | | $ | 209,446 |
| | $ | (1,045 | ) | | $ | — |
| | $ | 75,213 |
|
| | | | | | | | | | | | | | | | | | |
Investing Activities | | | | | | | | | | | | | | | | | | |
Capital expenditures | (9,433 | ) | | (46,419 | ) | | (6,003 | ) | | — |
| | (61,855 | ) | (1,413 | ) | | (12,468 | ) | | (753 | ) | | — |
| | (14,634 | ) |
Transfers from restricted cash | — |
| | 297 |
| | — |
| | — |
| | 297 |
| |
Investments | (850 | ) | | (101 | ) | | (2,500 | ) | | — |
| | (3,451 | ) | |
Intercompany dividend | 3,326 |
| | — |
| | — |
| | (3,326 | ) | | — |
| |
Net proceeds from the sale of business | | 571,749 |
| | (5,249 | ) | | (11,775 | ) | | — |
| | 554,725 |
|
Proceeds from sales of real estate and other assets | — |
| | 506,369 |
| | 681 |
| | — |
| | 507,050 |
| — |
| | 44,315 |
| | — |
| | — |
| | 44,315 |
|
Net cash (used in) provided by investing activities | (6,957 | ) | | 460,146 |
| | (7,822 | ) | | (3,326 | ) | | 442,041 |
| |
Proceeds from the sale of investment | | 4,950 |
| | — |
| | — |
| | — |
| | 4,950 |
|
Net cash provided by (used in) investing activities | | 575,286 |
| | 26,598 |
| | (12,528 | ) | | — |
| | 589,356 |
|
| | | | | | | | | | | | | | | | | | |
Financing Activities | | | | | | | | | | | | | | | | | | |
Long-term borrowings | | 202,694 |
| | — |
| | — |
| | — |
| | 202,694 |
|
Repayments of long-term debt | (17,844 | ) | | — |
| | (3,037 | ) | | — |
| | (20,881 | ) | (583,232 | ) | | — |
| | (1,013 | ) | | — |
| | (584,245 | ) |
Long-term debt issuance costs | (784 | ) | | — |
| | — |
| | — |
| | (784 | ) | (1,689 | ) | | — |
| | — |
| | — |
| | (1,689 | ) |
Payment of dividends | (68,684 | ) | | — |
| | — |
| | — |
| | (68,684 | ) | (520,849 | ) | | — |
| | — |
| | — |
| | (520,849 | ) |
Settlements of contingent consideration | — |
| | (750 | ) | | (2,886 | ) | | — |
| | (3,636 | ) | |
Common stock repurchases | (149,147 | ) | | — |
| | — |
| | — |
| | (149,147 | ) | |
Tax withholdings related to net share settlements of share-based awards | (4,540 | ) | | — |
| | — |
| | — |
| | (4,540 | ) | (7,053 | ) | | — |
| | — |
| | — |
| | (7,053 | ) |
Contributions from noncontrolling interests | — |
| | — |
| | 145 |
| | — |
| | 145 |
| |
Intercompany dividend | — |
| | (3,326 | ) | | — |
| | 3,326 |
| | — |
| |
Proceeds from stock option exercises | | 2,385 |
| | — |
| | — |
| | — |
| | 2,385 |
|
Change in intercompany receivables and payables (1) | 706,331 |
| | (823,087 | ) | | 116,756 |
| | — |
| | — |
| 233,965 |
| | (239,190 | ) | | 5,225 |
| | — |
| | — |
|
Net cash provided by (used in) financing activities | 465,332 |
| | (827,163 | ) | | 110,978 |
| | 3,326 |
| | (247,527 | ) | |
Net cash (used in) provided by financing activities | | (673,779 | ) | | (239,190 | ) | | 4,212 |
| | — |
| | (908,757 | ) |
| | | | | | | | | | | | | | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents | 384,868 |
| | (2,409 | ) | | (1,405 | ) | | — |
| | 381,054 |
| |
Net (Decrease) in Cash and Cash Equivalents | | (231,681 | ) | | (3,146 | ) | | (9,361 | ) | | — |
| | (244,188 | ) |
Cash and cash equivalents, beginning of year | 235,508 |
| | 13,054 |
| | 14,082 |
| | — |
| | 262,644 |
| 574,638 |
| | 4,527 |
| | 11,244 |
| | — |
| | 590,409 |
|
Cash and cash equivalents, end of year | $ | 620,376 |
| | $ | 10,645 |
| | $ | 12,677 |
| | $ | — |
| | $ | 643,698 |
| $ | 342,957 |
| | $ | 1,381 |
| | $ | 1,883 |
| | $ | — |
| | $ | 346,221 |
|
(1) Excludes the impact of a $56$54 million non-cash settlement of intercompany balances upon dissolutionthe sale of certain Guarantor subsidiaries.and Non-Guarantor subsidiaries included in the Gracenote Sale.
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 NINETHREE MONTHS ENDED SEPTEMBER 30, 2015MARCH 31, 2016
(In thousands of dollars)
| | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
Net cash (used in) provided by operating activities | $ | (52,491 | ) | | $ | 176,453 |
| | $ | (116,037 | ) | | $ | — |
| | $ | 7,925 |
| $ | (56,143 | ) | | $ | 181,150 |
| | $ | (2,708 | ) | | $ | — |
| | $ | 122,299 |
|
| | | | | | | | | | | | | | | | | | |
Investing Activities | | | | | | | | | | | | | | | | | | |
Capital expenditures | (18,594 | ) | | (42,956 | ) | | (2,225 | ) | | — |
| | (63,775 | ) | (4,336 | ) | | (12,115 | ) | | (1,397 | ) | | — |
| | (17,848 | ) |
Acquisitions, net of cash acquired | — |
| | (5,109 | ) | | (69,891 | ) | | — |
| | (75,000 | ) | |
Transfers to restricted cash | — |
| | 1,091 |
| | — |
| | — |
| | 1,091 |
| |
Investments | — |
| | (511 | ) | | (2,500 | ) | | — |
| | (3,011 | ) | — |
| | (88 | ) | | — |
| | — |
| | (88 | ) |
Distributions from equity investments | — |
| | 4,707 |
| | — |
| | — |
| | 4,707 |
| |
Proceeds from sales of real estate and other assets | — |
| | 13,750 |
| | 8,300 |
| | — |
| | 22,050 |
| — |
| | 805 |
| | 681 |
| | — |
| | 1,486 |
|
Transfers from restricted cash | | — |
| | 4 |
| | — |
| | — |
| | 4 |
|
Intercompany dividends | | 3,326 |
| | — |
| | — |
| | (3,326 | ) | | — |
|
Net cash used in investing activities | (18,594 | ) | | (29,028 | ) | | (66,316 | ) | | — |
| | (113,938 | ) | (1,010 | ) | | (11,394 | ) | | (716 | ) | | (3,326 | ) | | (16,446 | ) |
| | | | | | | | | | | | | | | | | | |
Financing Activities | | | | | | | | | | | | | | | | | | |
Long-term borrowings | 1,100,000 |
| | — |
| | — |
| | — |
| | 1,100,000 |
| |
Repayments of long-term debt | (1,103,199 | ) | | (54 | ) | | (4,049 | ) | | — |
| | (1,107,302 | ) | (5,948 | ) | | — |
| | (1,012 | ) | | — |
| | (6,960 | ) |
Long-term debt issuance costs | (20,202 | ) | | — |
| | — |
| | — |
| | (20,202 | ) | (622 | ) | | — |
| | — |
| | — |
| | (622 | ) |
Payments of dividends | (696,364 | ) | | — |
| | — |
| | — |
| | (696,364 | ) | (23,215 | ) | | — |
| | — |
| | — |
| | (23,215 | ) |
Settlements of contingent considerations | — |
| | 4,088 |
| | (2,914 | ) | | — |
| | 1,174 |
| |
Common stock repurchases | (272,812 | ) | | — |
| | — |
| | — |
| | (272,812 | ) | (8,938 | ) | | — |
| | — |
| | — |
| | (8,938 | ) |
Change in excess tax benefits from stock-based awards | (570 | ) | | — |
| | — |
| | — |
| | (570 | ) | |
Tax withholdings related to net share settlements of share-based awards | (4,264 | ) | | — |
| | — |
| | — |
| | (4,264 | ) | (4,126 | ) | | — |
| | — |
| | — |
| | (4,126 | ) |
Proceeds from stock option exercises | 166 |
| | — |
| | — |
| | — |
| | 166 |
| |
Contributions from noncontrolling interest | — |
| | — |
| | 1,324 |
| | — |
| | 1,324 |
| |
Change in intercompany receivables and payables | (39,504 | ) | | (150,676 | ) | | 190,180 |
| | — |
| | — |
| |
Net cash (used in) provided by financing activities | (1,036,749 | ) | | (146,642 | ) | | 184,541 |
| | — |
| | (998,850 | ) | |
Intercompany dividends | | — |
| | (3,326 | ) | | — |
| | 3,326 |
| | — |
|
Change in intercompany receivables and payables (1) | | 164,960 |
| | (169,323 | ) | | 4,363 |
| | — |
| | — |
|
Net cash provided by (used in) financing activities | | 122,111 |
| | (172,649 | ) | | 3,351 |
| | 3,326 |
| | (43,861 | ) |
| | | | | | | | | | | | | | | | | | |
Net (Decrease) Increase in Cash and Cash Equivalents | (1,107,834 | ) | | 783 |
| | 2,188 |
| | — |
| | (1,104,863 | ) | |
Net Increase (Decrease) in Cash and Cash Equivalents | | 64,958 |
| | (2,893 | ) | | (73 | ) | | — |
| | 61,992 |
|
Cash and cash equivalents, beginning of year | 1,433,388 |
| | 12,204 |
| | 9,591 |
| | — |
| | 1,455,183 |
| 235,508 |
| | 13,054 |
| | 14,082 |
| | — |
| | 262,644 |
|
Cash and cash equivalents, end of year | $ | 325,554 |
| | $ | 12,987 |
| | $ | 11,779 |
| | $ | — |
| | $ | 350,320 |
| $ | 300,466 |
| | $ | 10,161 |
| | $ | 14,009 |
| | $ | — |
| | $ | 324,636 |
|
(1) Excludes the impact of a $56 million non-cash settlement of intercompany balances upon dissolution of certain Guarantor subsidiaries.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 18: SUBSEQUENT EVENTS
On May 8, 2017, the Company entered into the Merger Agreement with Sinclair, providing for the acquisition by Sinclair of all of the outstanding shares of the Company’s Common Stock by means of a merger of a wholly owned subsidiary of Sinclair with and into Tribune Media Company, with the Company surviving the Merger as a wholly owned subsidiary of Sinclair.
In the Merger, each share of Tribune Media Company 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 the 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 subject to all applicable withholding. 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 (i) the Exchange Ratio plus (ii) the Cash Consideration divided by 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 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 the number of shares of the Company’s Common Stock that are subject to such unit as so vested multiplied by 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 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 the number of shares of the Company’s Common Stock that are subject to such unit as so vested multiplied by 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. Any supplemental performance stock units that do not vest 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 the number of shares of the Company’s Common Stock that are subject to such unit as so vested multiplied by 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 stockholders of Tribune Media Company, (ii) the receipt of approval from the Federal Communications Commission 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, (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 have been initiated by the Securities and Exchange Commission, (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.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Sinclair’s and Tribune Media Company’s respective obligation to consummate the Merger are also subject to certain additional customary conditions, including (i) material accuracy of representations and warranties of the other party, (ii) performance by the other party of its covenants 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.
Additional information about the Merger Agreement is set forth in our Current Report on Form 8-K filed with the SEC on May 9, 2017.
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, 2015.2016. 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 ninethree months ended September 30, 2016March 31, 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”) and the timing of the closing of the transaction;
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;
potential litigation in the 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;
our ability to renegotiate retransmission consent agreements with multichannel video programming distributors (“MVPDs”);
the incurrence of additional tax-related liabilities related to historical income tax returns;
our ability to expand our Digital and Data business operations internationally;
our ability to realize the full value, or successfully complete the planned divestitures, of our real estate assets;
the payment of proceeds associated with the spectrum auction, the potential impact of the modifications to and/or surrender of spectrum on operation of our television stations, the costs, terms and
restrictions associated with the actions necessary to modify and/or surrender the spectrum;
the timing and administration by the FCCoutcome of a potential auctionTEGNA’s evaluation of spectrum and our ability to monetize our spectrum through sales, channel sharing arrangements or relocation;strategic alternatives for CareerBuilder;
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;
our ability to successfully execute our business strategy, including our exploration of strategic and financial alternatives to enhance shareholder value;
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;
impact of foreign currency exchange rate changes;
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 digital and data technology business, 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, our ability to capitalize on revenue growth from our Digital and Data assets, cash distributions from our equity investments and revenues from our real estate assets.
As further described in Note 2 to our unaudited condensed consolidated financial statements, 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 operatesconsists of our Television and Entertainment operations and the management of certain of our real
estate assets. We also hold a variety of investments in the following two reportable segments:
cable and digital assets, including equity investments in Television Food Network, G.P. (“TV Food Network”) and CareerBuilder, LLC (“CareerBuilder”). Television and Entertainment:Entertainment Providesis 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. Our Television and Entertainment reportable segment consists of 42 local television stations and related websites, including 39 owned stations and 3 stations to which we provide certain services (the “SSAs”) 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; www.screenertv.com (formerly www.Zap2it.com); and WGN,WGN- AM, a radio station in Chicago.
Digital and Data: Provides innovative technology and services that collect and distribute video, music, sports and entertainment data primarily through wholesale distribution channels to consumers globally. Our Digital and Data reportable segment consists of several businesses driven by our expertise in collection, creation and distribution of data and innovation in unique services and recognition technology that use data, including Gracenote Video, Gracenote Music and Gracenote Sports.
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 (“CareerBuilder”). 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, 20152016 (the “2015“2016 Annual Report”) and our other filings with the SEC.
SIGNIFICANT EVENTS
Exploration of Strategic and Financial Alternatives
On February 29, 2016, we announced that the Board of Directors (the “Board”) and the Company have retained financial advisors and initiated a process to explore a full range of strategic and financial alternatives to enhance shareholder value. The strategic and financial alternatives under consideration include, but are not limited to, the sale or separation of select lines of business or assets, strategic partnerships, programming alliances and return of capital initiatives. We continue to work with our financial advisors on a strategic review of our assets. In this regard, we are pleased with the closing of several real estate transactions and with the announcement by TEGNA Inc. (“TEGNA”) of its decision to evaluate strategic alternatives for CareerBuilder. In addition, we are considering a variety of other actions, including but not limited to returns of capital to shareholders and debt repayment, but have nothing definitive to report at this time.
Monetization of Real Estate Assets
As previously disclosed in our 2015 Annual Report, we have accelerated the monetization of a significant portion of our real estate portfolio. In the three and nine months ended September 30, 2016, we sold several properties for net pretax proceeds totaling $473 million and $505 million, respectively, and recognized a net pretax gain of $213 million in the three and the nine months ended September 30, 2016, as further described below. We define net proceeds as pretax cash proceeds on the sale of properties, net of associated selling costs.Sinclair Merger Agreement
On May 2, 2016,8, 2017, we soldentered 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 Deerfield Beach, FL property for net proceedsClass 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 $24 million,a merger of a wholly owned subsidiary of Sinclair with and on June 2, 2016, we sold our Allentown, PA property for net proceedsinto Tribune Media Company, with Tribune Media Company surviving the Merger as a wholly owned subsidiary of $8 million. Sinclair.
In the second quarterMerger, each share of 2016, we recorded a net pretax loss of less than $1 million on the sale of these properties that is included in selling, general and administrative expenses (“SG&A”).
On July 7, 2016, we sold our 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. We recorded a deferred pretax gain of $8 million on this sale whichCommon Stock will be amortized overconverted into the life ofright to receive (i) $35.00 in cash, without interest and less any required withholding taxes (such amount, the lease due to the transaction being a sale-leaseback. On July 12, 2016, we sold two of our Orlando, FL properties for net proceeds of $34 million“Cash Consideration”), and recorded a net pretax gain of $2 million on the sale of these properties. On July 14, 2016, we sold our Arlington Heights, IL property for net proceeds(ii) 0.2300
(the “Exchange Ratio”) of $0.4 million. 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 the 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 subject to all applicable withholding. 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 (i) the Exchange Ratio plus (ii) the Cash Consideration divided by 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 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 the number of shares of our Common Stock that are subject to such unit as so vested multiplied by 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 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 the number of shares of our Common Stock that are subject to such unit as so vested multiplied by 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. Any supplemental performance stock units that do not vest 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 the number of shares of our Common Stock that are subject to such unit as so vested multiplied by 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 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, (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 have been initiated by the Securities and Exchange Commission, (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.
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 of the other party, (ii) performance by the other party of its covenants 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.
Sale of Digital and Data Business
On September 26,December 19, 2016, we soldentered into the Tribune TowerGracenote SPA with Nielsen to sell equity interests in Chicago, IL (“Tribune Tower”) and the north blocksubstantially all of the Los Angeles Times Square propertyDigital and Data business operations for $560 million in downtown Los Angeles, CA (“LA Times Property”) for netcash, subject to certain purchase price adjustments. We completed the Gracenote Sale on January 31, 2017 and received gross proceeds of $200$581 million. We expect to receive additional proceeds of approximately $4 million and $102 million, respectively, andas a result of purchase price adjustments. We recognized a pretax gain of $93$35 million as a result of the Gracenote Sale in the first quarter of 2017. On February 1, 2017, we used $400 million of proceeds from the Gracenote Sale to pay down a portion of our Term Loan Facility (as defined below). See Note 2 to our unaudited condensed consolidated financial statements for further information.
Discontinued Operations
Results of operations for the Digital and $59Data 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 |
| March 31, 2017 (1) | | March 31, 2016 |
Operating revenues | $ | 18,168 |
| | $ | 52,592 |
|
Direct operating expenses | 7,292 |
| | 16,694 |
|
Selling, general and administrative | 15,349 |
| | 28,065 |
|
Depreciation (2) | — |
| | 2,896 |
|
Amortization (2) | — |
| | 7,713 |
|
Operating loss | (4,473 | ) | | (2,776 | ) |
Interest income | 16 |
| | 13 |
|
Interest expense (3) | (1,261 | ) | | (3,835 | ) |
Loss before income taxes | (5,718 | ) | | (6,598 | ) |
Pretax gain on the disposal of discontinued operations | 35,462 |
| | — |
|
Total pretax gain (loss) on discontinued operations | 29,744 |
| | (6,598 | ) |
Income tax expense (benefit) (4) | 14,126 |
| | (2,589 | ) |
Gain (loss) from discontinued operations, net of taxes | $ | 15,618 |
| | $ | (4,009 | ) |
| |
(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 pay down 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 income from discontinued operations were 47.5% and 39.2% for the three months ended March 31, 2017 and March 31, 2016, respectively. PursuantThe 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 termssale of the sale agreements, we could receiveGracenote Companies. The 2016 rate differs 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 us to complete the Gracenote Sale, of $10 million for the three months ended March 31, 2017. 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.
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 contingent payments of up to an additional $35 million relatedliabilities relating 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 developmentGracenote Sale as 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, we sold the Olympic Printing Plant facility in the Arts District of downtown Los Angeles, CA for net proceeds of $119 million and recognized a pretax gain of $59 million.
As of November 9, 2016, we have agreements for the sales of certain broadcasting real estate properties located in Chicago, IL, Denver, CO and Portsmouth, VA, some of which will qualify as sale-leasebacks. All of these transactions are expected to close during the fourth quarter of 2016. 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. We expect to broaden this sales activity to other properties depending on market conditions.March 31, 2017.
DISH Network Programming AgreementSpecial Cash Dividend
On June 12, 2016, Tribune Broadcasting’s programming agreement with DISH Network expiredFebruary 3, 2017, we paid a special cash dividend of $5.77 per share to holders of record of our Class A Common Stock and as a result our local television stations and WGN America were temporarily off DISH Network. On SeptemberClass B Common Stock at the close of business on January 13, 2017. The total aggregate payment on February 3, 2016, we announced that a long-term, comprehensive agreement with DISH Network on carriage and retransmission consent fees had been signed, covering our local television stations and WGN America.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 United StatesU.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). As further describedThe Fourth Amended Joint Plan of Reorganization for Tribune Company and defined in Note 3 to our audited consolidated financial statements forits Subsidiaries (as subsequently modified, the fiscal year ended December 31, 2015, a plan of reorganization (the “Plan”) for the Debtors became effective and the Debtors emerged from Chapter 11 on December 31, 2012 (the “Effective Date”). On March 16, 2015, July 24, 2015, May 11, 2016, and August 12, 2016, theThe 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.
From the Petition Date and until the Effective Date, the Debtors operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and applicable orders of the Bankruptcy Court.
On the Effective Date, all of the conditions precedent to the effectiveness of the Plan were satisfied or waived, the Debtors emerged from Chapter 11, and the settlements, agreements and transactions contemplated by the Plan to be effected on the Effective Date were implemented, including, among other things, the appointment of a new board of directors and the initiation of distributions to creditors. As a result, our ownership changed from the employee stock ownership plan (“ESOP”) to certain of our creditors on the Effective Date (as defined and described inSee Note 3 to ourthe Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015). On January 17, 2013, our Board appointed2016 for additional information regarding the Debtors’ Chapter 11 cases and for a chairmandescription of the boardterms and a new chief executive officer. Such appointments were effective immediately.
Since the Effective Date, we have substantially consummated the various transactions contemplated under the Plan. In particular, we have made all distributions of cash, common stock and warrants that were required to be
made under the termsconditions of the Plan to creditors holding allowed claims as of DecemberPlan.
At March 31, 2012. Claims of general unsecured creditors that become allowed claims on or after the Effective Date have been or will be paid on the next quarterly distribution date after such allowance. At September 30, 2016,2017, 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 willwould be required to satisfy the allowed claims from our cash on hand 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 96 to our unaudited condensed consolidated financial statements for further information on the threeSecured 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 nine months ended September 30, 2016the 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 pay down a portion of our outstanding Term B Loans under the Secured Credit Facility.
In the first quarter of 2017, as a result of the 2017 Amendment and the $400 million pay down, we recorded a charge of $19 million on the extinguishment and modification of debt, as further described in Note 36 to our unaudited condensed consolidated financial statements.
Newsday and Chicago Cubs Transactions
As further described in Note 13 to our audited consolidated financial statements for the fiscal year ended December 31, 2015 for further information2016, we reached a final agreement with the IRS administrative appeals division regarding the Chapter 11 proceedings.
Secured Credit Facility
On December 27, 2013, in connection with our acquisition of Local TV, we as borrower, along with certain of our operating subsidiaries as guarantors, entered into a $4.073 billion secured credit facility with a syndicate of lenders led by JPMorgan Chase Bank, N.A. (“JPMorgan”) (the “Secured Credit Facility”). The Secured Credit Facility consists of a $3.773 billion term loan facility (the “Term Loan Facility”) and a $300 million revolving credit facility (the “Revolving Credit Facility”). The proceeds of the Term Loan Facility were used to pay the purchase price for Local TV and refinance the existing indebtedness of Local TV and the Term Loan Exit Facility. On June 24, 2015, we, the GuarantorsNewsday Transactions (as defined below) and JPMorgan, as administrative agent, entered into an amendment (the “Amendment”) to the Secured Credit Facility. Prior to the Amendment and the Prepayment (as defined below), $3.479 billion of term loans (the “Former Term Loans”) were outstanding under the Secured Credit Facility. Pursuant to the Amendment, certain lenders under the Secured Credit Facility converted their Former Term Loans into the new tranche of term loans (the “Converted Term B Loans”), along with term loans advanced by certain new lenders, of $1.802 billion (the “New Term B Loans” and, together with the Converted Term B Loans, the “Term B Loans”). The proceeds of Term B Loans advanced by the new lenders were used to prepay in full all of the Former Term Loans that were not converted into Term B Loans. In addition, we used the net proceeds from the sale of the Notes (as defined below), together with cash on hand, to prepay (the “Prepayment”) $1.100 billion of Term B Loans. After giving effect to the Amendment and all prepayments contemplated thereby (including the Prepayment), there were $2.379 billion of Term B Loans outstanding under the Secured Credit Facility. All amounts outstanding under the Term Loan Facility are due and payable on December 27, 2020. We may repay the term loans at any time without premium penalty, subject to certain breakage costs. Availability under the Revolving Credit Facility will terminate, and all amounts outstanding under the Revolving Credit Facility will be due and payable on December 27, 2018, but we may repay outstanding loans under the Revolving Credit Facility at any time without premium or penalty, subject to breakage costs in certain circumstances. We recorded a loss of $37 million on the extinguishment of the Former Term Loans in our unaudited Condensed Consolidated Statement of Operations for the nine months ended September 30, 2015 as a portion of the facility was considered extinguished for accounting purposes.
Our obligations under the Secured Credit Facility are guaranteed by all of our domestic subsidiaries, other than certain excluded subsidiaries (the “Guarantors”). The Secured Credit Facility is secured by a first priority lien on substantially all of the personal property and assets of our Company and the Guarantors, subject to certain exceptions. The Secured Credit Facility contains customary limitations, including, among other things, on the ability of us and our subsidiaries to incur indebtedness and liens, sell assets, make investments and pay dividends to our shareholders.
The proceeds of the Revolving Credit Facility are available for working capital and other purposes not prohibited under the Secured Credit Facility. The Revolving Credit Facility includes borrowing capacity for letters of credit and for borrowings on same-day notice, referred to as “swingline loans.” Borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including absence of defaults and accuracy of representations and warranties. Under the terms of the Secured Credit Facility, the amount of the Term Loan Facility and/or the Revolving Credit Facility may be increased and/or one or more additional term or revolving facilities may be added to the Secured Credit Facility by entering into one or more incremental facilities, subject to a cap equal to the greater of (x) $1.000 billion and (y) the maximum amount that would not cause our net first lien senior secured
leverage ratio (treating debt incurred in reliance of this basket as secured on a first lien basis whether or not so secured), as determined pursuant to the terms of the Secured Credit Facility, to exceed 4.50:1.00, subject to certain conditions. See Note 7 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 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.
5.875% Senior Notes due 2022
On June 24, 2015, we issued $1.100 billion aggregate principal amount of 5.875% Senior Notes due 2022 (the “Notes”) under an Indenture, dated as of June 24, 2015 (the “Base Indenture”), among us, certain of our subsidiaries, as guarantors (the “Subsidiary Guarantors”), and The Bank of New York Mellon Trust Company, N.A. (in such capacity, the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of June 24, 2015, among us, the Subsidiary Guarantors and the Trustee (the “First Supplemental Indenture”), the Second Supplemental Indenture, dated as of September 8, 2015, among us, the Subsidiary Guarantors parties thereto and the Trustee (the “Second Supplemental Indenture”), and the Third Supplemental Indenture, dated as of October 8, 2015, among the Company, the Subsidiary Guarantors party thereto and the Trustee (the “Third Supplemental Indenture” and, together with the Base Indenture, the First Supplemental Indenture and the Second Supplemental Indenture, the “Indenture”). We used the net proceeds from the sale of the Notes, together with cash on hand, to prepay $1.100 billion of Term B Loans under the Secured Credit Facility. 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. The Notes are unsecured senior indebtedness and are effectively subordinated to our and the Subsidiary Guarantors’ existing and future secured indebtedness, including indebtedness under the Secured Credit Facility, to the extent of the value of the assets securing such indebtedness. The Indenture provides that the guarantee of each Subsidiary Guarantor is an unsecured senior obligation of that Subsidiary Guarantor. The Notes are, subject to certain exceptions, guaranteed by each of our domestic subsidiaries that guarantee our obligations under the Secured Credit Facility.
In connection with the issuance of the Notes, the Company and the Subsidiary Guarantors entered into an exchange and registration rights agreement, dated as of June 24, 2015, with Deutsche Bank Securities Inc. and Citigroup Global Markets Inc. (the “Notes Registration Rights Agreement”). Pursuant to the Notes Registration Rights Agreement, the Company and the Subsidiary Guarantors filed an exchange offer registration statement with the Securities and Exchange Commission to exchange the Notes and the Guarantees for substantially identical securities registered under the Securities Act of 1933, as amended (the “Securities Act”). The exchange offer registration statement on Form S-4 was declared effective on April 1, 2016, and on May 4, 2016, we completed the exchange of $1.100 billion of the Notes and the Guarantees for $1.100 billion of our 5.875% Senior Notes due 2022 and the related guarantees, which have been registered under the Securities Act.
See Note 7 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016 for further information and significant terms and conditions associated with the Notes, including but not limited to repayment terms, fees, restrictions, and affirmative and negative covenants.
Newsday and Chicago Cubs Transactions
As further described in Note 98 to our audited consolidated financial statements for the fiscal year ended December 31, 2016), for tax years 2008 through 2015 we consummatedin the closing of the Newsday Transactions on July 29, 2008. As a result of these transactions, CSC Holdings, LLC (“CSC”), formerly CSC Holdings, Inc., through NMG Holdings, Inc., owned approximately 97% and we owned approximately 3% of Newsday Holdings LLC (“NHLLC”). 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 Internal Revenue Code (“IRC”) and related regulations. In March 2013, the IRS issued its audit report on our federal income tax return for 2008 which concluded that the gain should have been included in our 2008 taxable income. Accordingly, the IRS proposed a $190 million tax and a $38 million accuracy-related penalty. After-tax interest on the proposed tax and penalty through September 30, 2016 would have been approximately $48 million. We disagreed with the IRS’s position and timely filed a protest in response to the IRS’s proposed tax adjustments. We
would have also been subject to approximately $22 million, net of tax benefits, of state income taxes, interest and penalties through September 30, 2016.
During the secondthird 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, during2016. 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. In connection with the potential resolution of the matter, weWe 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 the our assets. The reduction in tax basis iswas required to reflect the expected negotiated reduction in the amount of the Company’sour 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. Under the terms of the agreement reached with the IRS appeals office, which were materially consistent with our reserve at June 30, 2016, we paid $115 million for federal tax, interest and penalties in the third quarter of 2016. The tax payment was recorded as a reduction in our current income tax reserve described above. We expect to make payments of an additional $10 million by the end of the first quarter of 2017 for state tax, interest and penalties. 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. Through December 31, 2015,recorded in the second quarter of 2016. During the fourth quarter of 2016, we also made approximately $136recorded 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. The remaining $4 million of state tax payments through our regular tax reporting process whichliabilities are included $101 million that becamein the income taxes payable upon closing ofaccount on the sale of the Newsday partnership interest as further described in Note 6 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016.Condensed Consolidated Balance Sheet at March 31, 2017.
As further described in Note 913 to our audited consolidated financial statements for the fiscal year ended December 31, 2015, we consummated the closing of the Chicago Cubs Transactions2016, on October 27, 2009. As a result of these transactions, Ricketts Acquisition LLC owns 95% and we own 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 IRC and related regulations. 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, 2016March 31, 2017 would be approximately $38$42 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. However, if the IRS prevails in their position, anyAny tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2009. Through September 30, 2016,As of March 31, 2017, we have paid or accrued approximately $39$45 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,March 31, 2017 and December 31, 2016 include a deferred tax liability of $160$155 million and $158 million, respectively, related to the future recognition of taxable income related to the Chicago Cubs Transactions.
TV Food Network
On October 24, 2016, Tribune (FN) Cable Ventures, LLC, a wholly-owned subsidiary of the Company, entered into an extension of the partnership agreement governing TV Food Network, which extended the term of the partnership until December 31, 2020.
CareerBuilder
On September 7, 2016, TEGNA Inc. (“TEGNA”) announced that it is evaluating strategic alternatives for CareerBuilder, in which we own a 32% interest, including a possible sale. There are no guarantees that any of the options under review will result in a transaction.
2015 Acquisitions
In May 2015,March 2017, the range of possible outcomes was narrowed and we completeddetermined that there was sufficient indication that the acquisitionscarrying value of all issued and outstanding equity interestsour investment in Infostrada Sports, SportsDirect and Covers. In conjunction with these acquisitions, we launched Gracenote Sports, which is a partCareerBuilder may be impaired. As of the Digital and Data segment’s product offerings. Infostrada Sports and SportsDirect provide us with in-depth sports data, including schedules, scores, play-by-play statistics,assessment date, CareerBuilder’s carrying value included $72 million of basis difference that we recorded as wella result of fresh start reporting, as team and player information for the major professional leagues around the world including the National Football League, Major League Baseball, National Basketball Association, National Hockey League, European Football League, and the Olympics. Covers is the operator of Covers.com, a North American online sports gaming destination for scores, odds and matchups, unique editorial analysis, and industry news coverage. In May 2015, we also completed an acquisition of all issued and outstanding equity interestsfurther described in Enswers, a leading provider of automatic content recognition technology and systems based in South Korea, which expanded our Digital and Data segment’s product offerings. The total acquisition price for Infostrada Sports, SportsDirect, Covers and Enswers totaled $70 million, net of cash acquired. See Note 25 to our unaudited condensed consolidated financial statementsstatements. In the three months ended March 31, 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. We estimated the fair value based on the best available evidence from recent developments related to TEGNA’s evaluation of strategic alternatives for CareerBuilder.
FCC Spectrum Auction
On April 13, 2017, the Federal Communications Commission (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 anticipate receiving approximately $190 million in pretax proceeds resulting from the auction. The anticipated 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. We expect to receive the proceeds in the second half of 2017.
We cannot predict the timing of FCC incentive auction payments. Any proceeds received by the Dreamcatcher stations as a result of the incentive auction are required to be first used to repay the Dreamcatcher Credit Facility.
Non-Operating Items
Non-operating items for the three and nine months ended September 30,March 31, 2017 and March 31, 2016 for additional details on these acquisitions.are summarized as follows (in thousands):
Employee Reductions |
| | | | | | | |
| Three Months Ended |
| March 31, 2017 | | March 31, 2016 |
Loss on extinguishment and modification of debt | $ | (19,052 | ) | | $ | — |
|
Gain on investment transaction | 4,950 |
| | — |
|
Write-down of investment | (122,000 | ) | | — |
|
Other non-operating (loss) gain, net | (26 | ) | | 496 |
|
Total non-operating (loss) gain, net | $ | (136,128 | ) | | $ | 496 |
|
We recorded pretax charges, mainly consisting of employee severance costs and associated termination benefits, totaling $8 million in both
Non-operating items for the three and nine months ended September 30, 2016. Additionally, we recordedMarch 31, 2017 included a $19 million pretax charges for severanceloss on the extinguishment and related expenses totaling $3modification of debt. The loss consisted of a write-off of unamortized debt issuance costs of $6 million and $4an unamortized discount of $1 million inassociated 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 party fees as a portion of the Term Loan Facility was considered a modification transaction under ASC 470, “Debt.” Gain on investment transaction for the three and nine months ended September 30, 2015, respectively. These charges areMarch 31, 2017 included a pretax gain of $5 million from the sale of our tronc, Inc. (“tronc”) shares. Write-down of investment for the three months ended March 31, 2017 included a non-cash pretax impairment charge of $122 million to write down our investment in direct operating expenses or SG&A,CareerBuilder, as appropriate, in our unaudited Condensed Consolidated Statements of Operations. The accrued liability for severance and related expenses is reflected in employee compensation and benefits in our unaudited Condensed Consolidated Balance Sheets and was $9 million and $4 million at September 30, 2016 and December 31, 2015, respectively.further described above.
RESULTS OF OPERATIONS
On April 16, 2015,As described under “Significant Events—Digital and Data Sale,” on December 19, 2016, we entered into the Board approvedGracenote SPA with Nielsen to sell equity interests in substantially all of the change of our fiscal year end fromDigital and Data business and the last Sunday in December of each year to DecemberGracenote Sale closed on January 31, of each year and to change our fiscal quarter end to the last calendar day of each quarter. This change in fiscal year end was effective with the second fiscal quarter of 2015, which ended on June 30, 2015.2017. As a result, the historical results of this change,operations for businesses included in the nine months ended September 30,Gracenote Sale are reported in discontinued operations for all periods presented.
Beginning in the fourth quarter of 2016, have two fewer days compared to the nine months ended September 30, 2015.
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 following discussion and analysis presents a review of our continuing operations as of and for the three and nine months ended September 30,March 31, 2017 and March 31, 2016, and September 30, 2015.unless otherwise noted.
CONSOLIDATED
Consolidated operating results for the three and nine months ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 are shown in the table below:
| | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change | March 31, 2017 | | March 31, 2016 | | Change |
Operating revenues | $ | 518,069 |
| | $ | 488,594 |
| | +6 | % | | $ | 1,564,697 |
| | $ | 1,462,855 |
| | +7 | % | $ | 439,910 |
| | $ | 468,472 |
| | -6 | % |
| | | | | | | | | | | | | | | | |
Operating profit | $ | 222,420 |
| | $ | 38,808 |
| | * |
| | $ | 295,776 |
| | $ | 119,527 |
| | * |
| |
Operating (loss) profit | | $ | (15,232 | ) | | $ | 29,992 |
| | * |
|
| | | | | | | | | | | | | | | | |
Income on equity investments, net | $ | 31,737 |
| | $ | 36,987 |
| | -14 | % | | $ | 114,295 |
| | $ | 119,834 |
| | -5 | % | $ | 37,037 |
| | $ | 38,252 |
| | -3 | % |
| | | | | | | | | | | | | | | | |
Net income (loss) | $ | 145,765 |
| | $ | 27,858 |
| | * |
| | $ | (4,705 | ) | | $ | 61,010 |
| | * |
| |
(Loss) income from continuing operations | | $ | (101,212 | ) | | $ | 15,102 |
| | * |
|
| | | | | | |
Income (loss) from discontinued operations, net of taxes | | $ | 15,618 |
| | $ | (4,009 | ) | | * |
|
| | | | | | |
Net (loss) income | | $ | (85,594 | ) | | $ | 11,093 |
| | * |
|
| |
* | Represents positive or negative change equal to, or in excess of 100% |
Operating Revenues and Operating (Loss) Profit (Loss)—Consolidated operating revenues and operating (loss) profit (loss) by business segment for the three and nine months ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 were as follows:
| | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change | March 31, 2017 | | March 31, 2016 | | Change |
Operating revenues | | | | | | | | | | | | | | | | |
Television and Entertainment | $ | 459,145 |
| | $ | 429,700 |
| | +7 | % | | $ | 1,380,991 |
| | $ | 1,285,622 |
| | +7 | % | $ | 436,033 |
| | $ | 455,875 |
| | -4 | % |
Digital and Data | 49,064 |
| | 46,561 |
| | +5 | % | | 149,651 |
| | 140,388 |
| | +7 | % | |
Corporate and Other | 9,860 |
| | 12,333 |
| | -20 | % | | 34,055 |
| | 36,845 |
| | -8 | % | 3,877 |
| | 12,597 |
| | -69 | % |
Total operating revenues | $ | 518,069 |
| | $ | 488,594 |
| | +6 | % | | $ | 1,564,697 |
| | $ | 1,462,855 |
| | +7 | % | $ | 439,910 |
| | $ | 468,472 |
| | -6 | % |
Operating profit (loss) | | | | | | | | | | | | |
Operating (loss) profit | | | | | | |
Television and Entertainment | $ | 46,186 |
| | $ | 64,061 |
| | -28 | % | | $ | 188,519 |
| | $ | 190,497 |
| | -1 | % | $ | 20,013 |
| | $ | 58,605 |
| | -66 | % |
Digital and Data | (11,637 | ) | | (6,207 | ) | | +87 | % | | (24,847 | ) | | (6,623 | ) | | * |
| |
Corporate and Other | 187,871 |
| | (19,046 | ) | | * |
| | 132,104 |
| | (64,347 | ) | | * |
| (35,245 | ) | | (28,613 | ) | | +23 | % |
Total operating profit | $ | 222,420 |
| | $ | 38,808 |
| | * |
| | $ | 295,776 |
| | $ | 119,527 |
| | * |
| |
Total operating (loss) profit | | $ | (15,232 | ) | | $ | 29,992 |
| | * |
|
| |
* | Represents positive or negative change equal to, or in excess of 100% |
Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015
Consolidated operating revenues increaseddecreased 6%, or $29$29 million,, in the three months ended September 30, 2016March 31, 2017 primarily due to an increasea decrease of $29$20 million in Television and Entertainment revenues, driven by higherlower advertising revenue, retransmission consent fees and carriage fees and an increase of $3 million in Digital and Data revenues, partially offset by a $2 million decline inincreased retransmission revenues and carriage fees. Additionally, Corporate and Other revenues decreased by $9 million primarily due to the loss of revenue as a result of the sales of certainfrom real estate properties duringsold in 2016. Consolidated operating profit increased$184decreased $45 million in the three months ended September 30, 2016 primarilyMarch 31, 2017 due to $213 million of gains recorded on the sales of real estate, partially offset by lower Television and Entertainment operating profit, primarily due to a $37 million program impairment charge for the syndicated program Elementary at WGN America and higher severance expense, a higher operating loss in Digital and Data driven by increased costs and a higher operating loss in Corporate and Other (excluding real estate gains).
Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015
Consolidated operating revenues increased 7%, or $102 million, in the nine months ended September 30, 2016 primarily due to an increase of $95 million in Television and Entertainment revenues, driven by higher advertising revenue, retransmission consent fees, and carriage fees, partially offset by lower copyright royalties and an increase of $9 million in Digital and Data revenues, primarily as a result of the acquisitions of Infostrada Sports, SportsDirect, Covers and Enswers, which were acquired in May 2015 (the “2015 Acquisitions”) and higher video revenues, partially offset by a decline in music revenue. Consolidated operating profit increased $176 million in the nine months ended September 30, 2016. The increase was primarily due to $213 million of gains recorded on the sales of real estate, partially offset by slightly lower Television and Entertainment operating profit as a result of lower advertising revenues, higher revenues were mostly offset by the $37 million program impairment charge, higher severance expense and other cost increases, a higher operating loss in Digital and Data driven by increased costsprogramming expenses and a higher Corporate and Other operating loss (excluding real estate gains) primarily due to $12 milliona decline in revenue and increased compensation expense principally related to the resignation of impairment charges associated with certain real estate properties.the CEO in the first quarter of 2017.
Operating Expenses—Consolidated operating expenses for the three and nine months ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 were as follows:
| | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change | March 31, 2017 | | March 31, 2016 | | Change |
Programming | $ | 149,480 |
| | $ | 116,295 |
| | +29 | % | | $ | 396,450 |
| | $ | 347,493 |
| | +14 | % | $ | 141,246 |
| | $ | 124,167 |
| | +14 | % |
Direct operating expenses | 119,002 |
| | 110,808 |
| | +7 | % | | 348,276 |
| | 326,329 |
| | +7 | % | 98,807 |
| | 97,572 |
| | +1 | % |
Selling, general and administrative | 172,229 |
| | 153,876 |
| | +12 | % | | 535,152 |
| | 469,374 |
| | +14 | % | 159,859 |
| | 160,634 |
| | — | % |
Depreciation | 18,710 |
| | 19,027 |
| | -2 | % | | 53,567 |
| | 54,047 |
| | -1 | % | 13,571 |
| | 14,442 |
| | -6 | % |
Amortization | 49,396 |
| | 49,780 |
| | -1 | % | | 148,195 |
| | 145,988 |
| | +2 | % | 41,659 |
| | 41,665 |
| | — | % |
(Gain) loss on sales of real estate, net | (213,168 | ) | | — |
| | * |
| | (212,719 | ) | | 97 |
| | * |
| |
Total operating expenses | $ | 295,649 |
| | $ | 449,786 |
| | -34 | % | | $ | 1,268,921 |
| | $ | 1,343,328 |
| | -6 | % | $ | 455,142 |
| | $ | 438,480 |
| | +4 | % |
| |
* | Represents positive or negative change equal to, or in excess of 100% |
Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015
Programming expense,expenses, which represented 29%32% of revenues for the three months ended September 30, 2016March 31, 2017 compared to 24%27% for the three months ended September 30, 2015,March 31, 2016, increased 29%14%, or $33$17 million, primarily due to a $37higher amortization of license fees of $13 million impairment charge for the syndicated program Elementary at WGN America and an increase inhigher network affiliate fees of $7 million, partially offset by a reduction$3 million decrease in outside production expenses and lower amortization of license fees.expenses.
Direct operating expenses, which represented 23%22% of revenues for both the three months ended September 30,March 31, 2017 and 21% for the three months ended March 31, 2016, and September 30, 2015, increased 7%1%, or $8$1 million. Compensation expense increased 7%, or $6$1 million primarily due to higher direct payat Television and benefitsEntertainment and increased Digital and Data staffing as the business enters new markets. Allall other direct operating expenses, such as outside services, occupancy expense and royalty expense, increased 10%, or $2 million.remained essentially flat with the prior year.
Selling, general and administrative expenses (“SG&A expenses,&A”), which represented 33%36% of revenues for the three months ended September 30, 2016March 31, 2017 compared to 31%34% for the three months ended September 30, 2015, increased 12%, or $18 million, due mainly to higher compensation andMarch 31, 2016, remained flat as lower outside services expenses.and other expenses were offset by higher compensation. Compensation expense increased 16%21%, or $12$13 million, mainly due to a $5an $11 million increase in severance, a $2 million increase in incentive compensation primarily at Corporate and Other adriven by separation costs related to the resignation of the CEO in the first quarter of 2017. Compensation expense also increased $2 million increase in stock-based compensationat Television and Entertainment mainly due to merit increases and higher severance costs, partially offset by headcount reductions. Outside services expense across all segments anddecreased 20%, or $5 million, primarily due to a $1$4 million decrease in the amount of labor capitalized for software and content development at Digital and Data. Outside services increased 32%, or $7 million, primarily related to costs for operating the websites of our television stations associated with
higher digital revenues, higher professional and legal fees and license fees relatedfees. Other expenses decreased 13%, or $9 million, primarily due to technology application implementations.
Gain on salesa $7 million reduction of impairment charges associated with certain real estate net of $213properties and a $3 million for the three months ended September 30, 2016 primarily related to the sales of Tribune Tower, the LA Times Propertydecrease in real estate taxes and the Olympic Printing Plant facility.other costs associated with real estate sold in 2016.
Depreciation expense fell 2%decreased 6%, or less than $1 million, in the three months ended September 30, 2016.March 31, 2017. The decrease in depreciation expense is primarily due to property sales and the real estate properties classified as assets held for sale which are no longer depreciable.
lower levels of depreciable property. Amortization expense decreased 1%, or less than $1 million, inremained flat for the three months ended September 30, 2016.March 31, 2017.
Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015
Programming expenses, which represented 25%Income (Loss) From Discontinued Operations, Net of revenuesTaxes—The results of discontinued operations for the ninethree months ended September 30,March 31, 2017 and March 31, 2016 compared to 24% forinclude the nine months ended September 30, 2015, increased 14%, or $49 million, primarily due to a $37 million impairment charge foroperating results of the syndicated program Elementary at WGN America and higher amortization of license fees and network affiliate fees, partially offset by lower outside production costs.
Direct operating expenses, which represented 22% of revenues for both the nine months ended September 30, 2016 and September 30, 2015, increased 7%, or $22 million. Compensation expense increased 4%, or $11 million, due to a $5 million increase at Television and Entertainment driven by merit increases and a $6 million increase at Digital and Data primarily due to the 2015 Acquisitions and higher direct pay and benefits due to an increase in staffing levels. All other direct operating expenses, such as outside services, occupancy expense and royalty expense increased by 18%, or $11 million, primarily due to the absence of a $6 million payment receivedbusinesses included in the first quarter of 2015 related to the settlement of a music license fee class action lawsuit, a $3 million increase in royalty expense at Digital and Data and a $3 million increase in costs for data processing related to the development of Automatic Content Recognition (“ACR”) services at Digital and Data.
SG&A expenses, which represented 34% of revenues for the nine months ended September 30, 2016 compared to 32% for the nine months ended September 30, 2015, increased 14%, or $66 million, due mainly to higher compensation, promotion expenses, outside services and other expenses. Compensation expense increased 11%, or $25 million, due to a $5 million increase in severance related to employee reductions, a $5 million increase at Television and Entertainment driven by merit increases, an $8 million increase at Digital and Data primarily due to higher direct pay and benefits due to an increase in staffing levels and the 2015 Acquisitions, as well as a $4 million increase in stock-based compensation expense across all segments. Promotion expense increased 13%, or $11 million, primarily for first-run original programs and syndicated programs airing on WGN America, increased advertising related to the DISH Network blackout and increased sales research services. Outside services expense was up 24%, or $16 million, primarily due to a $5 million increase in costs of operating the websites of our television stations resulting in higher digital revenues, a $4 million increase in professional and legal fees and a $4 million increase for license fees related to technology application implementations. Other expenses increased primarily due to $15 million of impairment charges associated with certain real estate properties.
Gain on sales of real estate,Gracenote Sale. Income from discontinued operations, net of $213taxes totaled $16 million for the ninethree months ended September 30, 2016 primarily relatedMarch 31, 2017, including a pretax gain on the sale of $35 million. Loss from discontinued operations, net of taxes was $4 million for the three months ended March 31, 2016. Interest expense allocated to the sales of Tribune Tower, the LA Times Property and the Olympic Printing Plant facility.
Depreciation expense decreased 1%, or less thandiscontinued operations totaled $1 million inand $4 million for the ninethree months ended September 30, 2016.March 31, 2017 and March 31, 2016, respectively. The decrease in depreciation expense is primarily dueresults of discontinued operations also include selling and transaction costs, including legal and professional fees, incurred by us to property sales andcomplete the real estate properties classified as assets heldGracenote Sale, of $10 million for sale which are no longer depreciable.
Amortization expense increased 2%, or $2 million, in the ninethree months ended September 30, 2016, which resulted from intangible assets acquired in connection with the 2015 Acquisitions.March 31, 2017. See Note 2 to our unaudited condensed consolidated financial statements for further information.
TELEVISION AND ENTERTAINMENT
Operating Revenues and Operating Profit—The table below presents Television and Entertainment operating revenues, operating expenses and operating profit for the three and nine months ended September 30, 2016March 31, 2017 and September 30, 2015.March 31, 2016.
| | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change | March 31, 2017 | | March 31, 2016 | | Change |
Operating revenues | $ | 459,145 |
| | $ | 429,700 |
| | +7 | % | | $ | 1,380,991 |
| | $ | 1,285,622 |
| | +7 | % | $ | 436,033 |
| | $ | 455,875 |
| | -4 | % |
Operating expenses | 412,959 |
| | 365,639 |
| | +13 | % | | 1,192,472 |
| | 1,095,125 |
| | +9 | % | 416,020 |
| | 397,270 |
| | +5 | % |
Operating profit | $ | 46,186 |
| | $ | 64,061 |
| | -28 | % | | $ | 188,519 |
| | $ | 190,497 |
| | -1 | % | $ | 20,013 |
| | $ | 58,605 |
| | -66 | % |
Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015
Television and Entertainment operating revenues increased7%decreased 4%, or $29$20 million,, in the three months ended September 30, 2016March 31, 2017 largely due to increasesa decrease in advertising revenue, partially offset by an increase in retransmission consent feesrevenues and carriage fees.fees, as further described below.
Television and Entertainment operating profit decreased 28%, or $18$39 million in the three months ended September 30, 2016March 31, 2017 mainly due to higher programming expenses resulting from a $37 million program impairment charge for the syndicated program Elementary at WGN America and higher compensation expense, partially offset by an increase in operating revenue of $29 million, as further described below.
Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015
Television and Entertainment operating revenues increased 7%, or $95 million, in the nine months ended September 30, 2016 largely due to increases in advertising revenue, retransmission consent fees and carriage fees.
Television and Entertainment operating profit decreased $2 million in the nine months ended September 30, 2016 as an increase inlower operating revenues of $95$20 million was more than offset byand increased programming expense of $17 million, primarily due to higher programming expensesamortization of $49 million resulting from a $37 million program impairment charge for the syndicated program Elementary at WGN America along with higher original programming content and networklicense fees and higher compensation of $17 million and other expenses of $33 million, as further described below.network affiliate fees.
Operating Revenues—Television and Entertainment operating revenues, by classification, for the three and nine months ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change |
Advertising | $ | 329,290 |
| | $ | 319,510 |
| | +3 | % | | $ | 986,809 |
| | $ | 953,769 |
| | +3 | % |
Retransmission consent fees | 78,731 |
| | 69,925 |
| | +13 | % | | 245,536 |
| | 208,816 |
| | +18 | % |
Carriage fees | 28,984 |
| | 19,548 |
| | +48 | % | | 90,394 |
| | 62,668 |
| | +44 | % |
Barter/trade | 9,801 |
| | 10,013 |
| | -2 | % | | 29,107 |
| | 28,800 |
| | +1 | % |
Copyright royalties | 2,781 |
| | 3,221 |
| | -14 | % | | 5,124 |
| | 11,318 |
| | -55 | % |
Other | 9,558 |
| | 7,483 |
| | +28 | % | | 24,021 |
| | 20,251 |
| | +19 | % |
Total operating revenues | $ | 459,145 |
| | $ | 429,700 |
| | +7 | % | | $ | 1,380,991 |
| | $ | 1,285,622 |
| | +7 | % |
Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015
|
| | | | | | | | | | |
| Three Months Ended | | |
(in thousands) | March 31, 2017 | | March 31, 2016 | | Change |
Advertising | $ | 291,707 |
| | $ | 321,462 |
| | -9 | % |
Retransmission revenues | 94,214 |
| | 83,527 |
| | +13 | % |
Carriage fees | 33,610 |
| | 31,014 |
| | +8 | % |
Barter/trade | 9,012 |
| | 10,076 |
| | -11 | % |
Other | 7,490 |
| | 9,796 |
| | -24 | % |
Total operating revenues | $ | 436,033 |
| | $ | 455,875 |
| | -4 | % |
Advertising Revenues—Advertising revenues, net of agency commissions, increased 3%fell 9%, or $10$30 million, in the three months ended September 30, 2016March 31, 2017 primarily due to a $26$14 million increasedecrease in net political advertising revenuerevenues and a $2an $18 million increasedecrease in digital advertising revenue. The increase was partially offset by lower net core advertising revenuesrevenue (comprised of local and national advertising, excluding political and digital) of $18 million. 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 2016 Summer Olympics which negatively impacted advertising revenues forSuper Bowl on 14 FOX-affiliated stations other than NBC affiliates.in 2017 compared to six CBS-affiliated stations in 2016. Net political advertising revenues, which are a component of total advertising revenues, were $31approximately $2 million for the three months ended September 30, 2016March 31, 2017 compared to $6$15 million for the three months ended September 30, 2015 due toMarch 31, 2016, beingas 2016 was an election year.
Retransmission Consent FeesRevenues—Retransmission consent feesrevenues increased 13%, or $9$11 million, in the three months ended September 30, 2016March 31, 2017 primarily due to an $18a $15 million increase from higher rates included in retransmission consent renewals of our MVPD agreements, partially offset by a decline in revenue due to a decrease in the number of subscribers resulting from a move to alternative platforms for media consumption. Additionally, there was a decline in revenue due to the blackout of our stations by DISH Network from June 12, 2016 to September 3, 2016.subscribers.
Carriage Fees—Carriage fees increased 48%were up 8%, or $9$3 million, in the three months ended September 30, 2016March 31, 2017 due mainly due to a $6 million increase from higher rates for the distribution of WGN America and additional revenue of $3 million resulting from an increase in the number of subscribers due to expanded distribution.America.
Barter/Trade Revenues—Barter/trade revenues declined 2%decreased 11%, or less than $1 million, in the three months ended September 30, 2016.
Copyright Royalties—Copyright royalties decreased 14%, or less than $1 million, in the three months ended September 30, 2016 as the full conversion of WGN America from a superstation to a cable network occurred in 2015. As a cable network, WGN America no longer generates copyright royalties revenue.March 31, 2017.
Other Revenues—Other revenues are primarily derived from profit sharing, and revenue on syndicated content.content and copyright royalties. Other revenues increased 28%decreased 24%, or $2 million, in the three months ended September 30,March 31, 2017 as 2016 mainly due toincluded profit sharing from Outsiders and Manhattan.
Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015
Advertising Revenues—Advertising revenues, net of agency commissions, increased $33 million in the nine months ended September 30, 2016 primarily due to a $48 million increase in net political advertising revenues and a $4 million increase in digital advertising revenue. The increasean original program that was partially offset by lower net core advertising revenues (comprised of local and national advertising, excluding political and digital) of $20 million primarily due to the 2016 Summer Olympics which negatively impacted advertising revenues for stations other than NBC affiliates. Net political advertising revenues, which are a component of total advertising revenues, were $60 million for the nine months ended September 30, 2016 compared to $12 million for the nine months ended September 30, 2015 due to 2016 being an election year.
Retransmission Consent Fees—Retransmission consent fees increased 18%, or $37 million, in the nine months ended September 30, 2016 primarily due to a $54 million increase from higher rates included in retransmission consent renewals of our MVPD agreements, partially offset by a decline in revenue due to a decrease in the number of subscribers resulting from a move to alternative platforms for media consumption. Additionally, there was a decline in revenue due to the blackout of our stations by DISH Network, as noted above.
Carriage Fees—Carriage fees were up 44%, or $28 million, in the nine months ended September 30, 2016 due mainly to a $19 million increase from higher rates for the distribution of WGN America and additional revenue of $9 million resulting from an increase in the number of subscribers.
Barter/Trade Revenues—Barter/trade revenues increased 1%, or less than $1 million, in the nine months ended September 30, 2016.
Copyright Royalties—Copyright royalties decreased 55%, or $6 million, in the nine months ended September 30, 2016. The decrease was attributable to the full conversion in 2015 of WGN America from a superstation to a cable network. As a cable network, WGN America no longer generates copyright royalties revenue.
Other Revenues—Otherrevenues are primarily derived from profit sharing and revenue on syndicated content. Other revenues increased 19%, or $4 million, in the nine months ended September 30, 2016 primarily due to additional profit sharing from Outsiders and Manhattan.cancelled.
Operating Expenses—Television and Entertainment operating expenses for the three and nine months ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 were as follows:
| | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change | March 31, 2017 | | March 31, 2016 | | Change |
Compensation | $ | 141,682 |
| | $ | 130,925 |
| | +8 | % | | $ | 413,125 |
| | $ | 395,743 |
| | +4 | % | $ | 138,162 |
| | $ | 135,136 |
| | +2 | % |
Programming | 149,480 |
| | 116,295 |
| | +29 | % | | 396,450 |
| | 347,493 |
| | +14 | % | 141,246 |
| | 124,167 |
| | +14 | % |
Depreciation | 11,267 |
| | 12,194 |
| | -8 | % | | 33,389 |
| | 35,640 |
| | -6 | % | 10,039 |
| | 11,017 |
| | -9 | % |
Amortization | 41,475 |
| | 41,475 |
| | — | % | | 124,426 |
| | 124,460 |
| | — | % | 41,659 |
| | 41,665 |
| | — | % |
Other | 69,055 |
| | 64,750 |
| | +7 | % | | 225,082 |
| | 191,789 |
| | +17 | % | 84,914 |
| | 85,285 |
| | — | % |
Total operating expenses | $ | 412,959 |
| | $ | 365,639 |
| | +13 | % | | $ | 1,192,472 |
| | $ | 1,095,125 |
| | +9 | % | $ | 416,020 |
| | $ | 397,270 |
| | +5 | % |
Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015
Television and Entertainment operating expenses were up 13%5%, or $47$19 million, in the three months ended September 30, 2016March 31, 2017 compared to the prior year period largely due to a $37 million program impairment chargehigher programming and higher compensation expenses, as further described below.
Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, increased 8%2%, or $11$3 million, in the three months ended September 30, 2016. The increase was primarily due to a $5 million increase in direct pay and benefits mainly due to higher staffing levels at various television stations and merit increases, along with a $6 million increase in severance expense. Severance expense was $7 million for the three months ended September 30, 2016 compared to $1 million for the three months ended September 30, 2015.
Programming Expense—Programming expense increased 29%, or $33 million, in the three months ended September 30, 2016 primarily due to a $37 million impairment charge for the syndicated program Elementary at WGN America and an increase in network affiliate fees, partially offset by a reduction in outside production expenses and lower amortization of license fees. The reduction in outside production expenses primarily related to the first seasons of the original programs Underground and Outsiders, which premiered in 2016 but were produced in 2015 with no comparable productions in 2016. Amortization of license fees decreased primarily due to the cancellation of Manhattan, partially offset by the syndicated program Person of Interest.
Depreciation and Amortization Expense—Depreciation expense declined 8%, or $1 million, in the three months ended September 30, 2016 due to lower levels of depreciable property. Amortization expense was flat for the three months ended September 30, 2016.
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 increased 7%, or $4 million, for the three months ended September 30, 2016 resulting from a $4 million increase in outside services, primarily related to costs for operating the websites of our television stations.
Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015
Television and Entertainment operating expenses were up 9%, or $97 million, in the nine months ended September 30, 2016 compared to the prior year period largely due to a $37 million program impairment charge and higher programming, compensation and other expenses, as further described below.
Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, increased 4%, or $17 million, in the nine months ended September 30, 2016March 31, 2017 primarily due to higher direct pay and benefits as a result of $9 million, a $5 million increase inmerit increases and higher severance, expense and an increase of $3 million for incentive compensation and stock-based compensation expenses. Severance expense was $7 million for the nine months ended September 30, 2016 compared to $2 million for the nine months ended September 30, 2015.partially offset by headcount reductions.
Programming Expense—Programming expense increased 14%, or $49$17 million, in the ninethree months ended September 30, 2016March 31, 2017 primarily due to a $37 million impairment charge for the syndicated program Elementary at WGN America, higher network affiliate fees of $20 million and higher amortization of license fees of $13 million and higher network affiliate fees of $7 million, partially offset by a $22$3 million reduction in outside production costs.expenses. The increase in amortization of license fees was primarily attributable to original programming at WGN America as three first-run originals aired in the first quarter of 2017 (Outsiders, Underground and Salem) versus two first-run originals in the first quarter of 2016 (Outsiders and Underground). Additionally, amortization for Outsiders and Underground was higher in 2017 as episodes from season 1 were re-aired in the first quarter of 2017. The increase in network affiliate fees was mainly related to renewals of certain network affiliationaffiliate agreements in the second quarter of 2015 and the third quarter of 2016, as well as other contractual increases. The increaseThese increases were partially offset by a $3 million decrease in amortization of license fees wasoutside production expenses primarily due to first-run original programs Outsiders and Underground and syndicated programs Person of Interest and Elementary, partially offset by the delay in airing Salem season 3 to fall of 2016 and the cancellation of Manhattan. The reduction in outside production expenses was related to the first seasons of the original programs Underground and Outsiders, which premiered in 2016 but were produced in 2015along with no comparable productions in 2016.a decrease from other syndicated programming.
Depreciation and Amortization Expense—Depreciation expense decreased 6%9%, or $2$1 million, in the ninethree months ended September 30, 2016March 31, 2017 due to lower levels of depreciable property. Amortization expense remained flat in the ninethree months ended September 30, 2016.March 31, 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 increased 17%, or $33 million,were flat in the ninethree months ended September 30, 2016. The increase was due to a $10 million increase in promotion costs primarily for first-run original programs and syndicated programs airing on WGN America, advertising related to the DISH Network blackout and sales research services, a $7 million increase in costs of operating the websites of our television stations, $3 million of impairment charges associated with one real estate property, the absence of a $6 million payment received in the first quarter of 2015 related to the settlement of a music license fee class action lawsuit and the absence of a $2 million gain in the first quarter of 2015 resulting from the relinquishment for compensation of our CW network affiliation in Indianapolis.March 31, 2017.
DIGITALCORPORATE AND DATAOTHER
Operating Revenues and Operating LossExpenses—The table below presents DigitalCorporate and DataOther operating revenues, operating expenses and operating lossresults for the three and nine months ended September 30,March 31, 2017 and March 31, 2016 were as follows:
|
| | | | | | | | | | |
| Three Months Ended | | |
(in thousands) | March 31, 2017 | | March 31, 2016 | | Change |
Real estate revenues | $ | 3,877 |
| | $ | 12,597 |
| | -69 | % |
| | | | | |
Operating Expenses | | | | | |
Real estate (1) | $ | 3,207 |
| | $ | 13,196 |
| | -76 | % |
Corporate (2) | 41,464 |
| | 34,007 |
| | +22 | % |
Pension credit | (5,549 | ) | | (5,993 | ) | | -7 | % |
Total operating expenses | $ | 39,122 |
| | $ | 41,210 |
| | -5 | % |
(1) Real estate operating expenses included $1 million of depreciation expense in each of the three months ended March 31, 2017 and September 30, 2015.March 31, 2016.
| |
(2) | Corporate operating expenses included $3 million of depreciation expense in each of the three months ended March 31, 2017 and March 31, 2016. |
Real Estate Revenues—Real estate revenues decreased 69%, or $9 million, in the three months ended March 31, 2017 primarily due to the loss of revenue from real estate properties sold in 2016.
Real Estate Expenses—Real estate expenses decreased 76%, or $10 million, in the three months ended March 31, 2017 primarily resulting from a $6 million reduction of impairment charges associated with certain real estate properties. The sales of properties in 2016 also resulted in a $3 million decrease in real estate taxes and other costs associated with real estate sold in 2016.
Corporate Expenses—Corporate expenses increased 22%, or $7 million, in the three months ended March 31, 2017 primarily due to an $11 million increase in compensation expense due to $6 million of severance expense and $5 million of accelerated equity compensation expense related to the resignation of the CEO in the first quarter of 2017, partially offset by a $4 million decrease in professional fees primarily in technology.
Pension Credit—The pension credit decreased 7%, or $0.4 million, in the three months ended March 31, 2017.
INCOME ON EQUITY INVESTMENTS, NET
Income on equity investments, net for the three months ended March 31, 2017 and March 31, 2016 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change |
Operating revenues | $ | 49,064 |
| | $ | 46,561 |
| | +5 | % | | $ | 149,651 |
| | $ | 140,388 |
| | +7 | % |
Operating expenses | 60,701 |
| | 52,768 |
| | +15 | % | | 174,498 |
| | 147,011 |
| | +19 | % |
Operating loss | $ | (11,637 | ) | | $ | (6,207 | ) | | +87 | % | | $ | (24,847 | ) | | $ | (6,623 | ) | | * |
|
|
| | | | | | | | | | |
| Three Months Ended | | |
(in thousands) | March 31, 2017 | | March 31, 2016 | | Change |
Income from equity investments, net, before amortization of basis difference | $ | 52,888 |
| | $ | 51,923 |
| | +2 | % |
Amortization of basis difference (1) | (15,851 | ) | | (13,671 | ) | | +16 | % |
Income on equity investments, net | $ | 37,037 |
| | $ | 38,252 |
| | -3 | % |
(1) See Note 5 to our unaudited condensed consolidated financial statements for the three months ended March 31, 2017 for the discussion of the amortization of basis difference.
As described under “—Significant Events—CareerBuilder,” in the three months ended March 31, 2017, we recorded a non-cash pretax impairment charge of $122 million to write down our investment in CareerBuilder which is included in write-down of investment in our unaudited Condensed Consolidated Statements of Operations. The write down resulted from a decline in the fair value of the investment that we determined to be other than temporary.
Cash distributions from our equity method investments were as follows:
|
| | | | | | | | | | |
| Three Months Ended | | |
(in thousands) | March 31, 2017 | | March 31, 2016 | | Change |
Cash distributions from equity investments | $ | 111,509 |
| | $ | 89,346 |
| | +25 | % |
Cash distributions from TV Food Network increased 25%, or $22 million, in the three months ended March 31, 2017.
INTEREST AND DIVIDEND INCOME, INTEREST EXPENSE AND INCOME TAX EXPENSE
Interest and dividend income, interest expense and income tax expense for the three months ended March 31, 2017 and March 31, 2016 were as follows:
|
| | | | | | | | | | |
| Three Months Ended | | |
(in thousands) | March 31, 2017 | | March 31, 2016 | | Change |
Interest and dividend income | $ | 505 |
| | $ | 132 |
| | * |
|
| | | | | |
Interest expense (1) | $ | 38,758 |
| | $ | 38,141 |
| | +2 | % |
| | | | | |
Income tax (benefit) expense (2) | $ | (51,614 | ) | | $ | 15,195 |
| | * |
|
| |
* | Represents positive or negative change equal to, or in excess of 100% |
Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015
Digital and Data operating revenues increased 5%, or $3 million, in the three months ended September 30, 2016 largely due to higher video revenues, partially offset by declines in music revenue, as further described below. Digital and Data operating loss increased $5 million in the three months ended September 30, 2016, primarily driven by higher operating expenses, as further described below.
Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015
Digital and Data operating revenues increased 7%, or $9 million, in the nine months ended September 30, 2016 largely due to additional revenue attributed to the 2015 Acquisitions and higher video revenues, partially offset by declines in music revenue, as further described below. Digital and Data operating loss increased $18 million in the nine months ended September 30, 2016, primarily related to the increase in operating expenses, as described below.
Operating Revenues—Digital and Data operating revenues, by classification, for the three and nine months ended September 30, 2016 and September 30, 2015 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change |
Video and other | $ | 33,952 |
| | $ | 30,718 |
| | +11 | % | | $ | 105,050 |
| | $ | 86,269 |
| | +22 | % |
Music | 15,112 |
| | 15,843 |
| | -5 | % | | 44,601 |
| | 54,119 |
| | -18 | % |
Total operating revenues | $ | 49,064 |
| | $ | 46,561 |
| | +5 | % | | $ | 149,651 |
| | $ | 140,388 |
| | +7 | % |
Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015
Video and Other Revenues—Video and other revenues increased 11%, or $3 million, due largely to higher ACR service revenue and growth in the digital customer base.
Music Revenues—Musicrevenues decreased 5%, or $1 million, largely due to the loss of a customer no longer in business.
Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015
Video and Other Revenues—Video and other revenues increased 22%, or $19 million, due largely to the 2015 Acquisitions as well as higher video revenue attributed to growth in the digital customer base and international markets.
Music Revenues—Musicrevenues decreased 18%, or $10 million, in the nine months ended September 30, 2016 primarily due to timing of revenues recognized from auto and other customer contracts.
Operating Expenses—Digital and Data operating expenses for the three and nine months ended September 30, 2016 and September 30, 2015 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change |
Compensation | $ | 30,769 |
| | $ | 25,723 |
| | +20 | % | | $ | 90,787 |
| | $ | 75,330 |
| | +21 | % |
Outside services | 5,649 |
| | 5,436 |
| | +4 | % | | 16,819 |
| | 14,305 |
| | +18 | % |
Depreciation | 3,946 |
| | 2,456 |
| | +61 | % | | 9,897 |
| | 6,882 |
| | +44 | % |
Amortization | 7,921 |
| | 8,305 |
| | -5 | % | | 23,769 |
| | 21,528 |
| | +10 | % |
Other | 12,416 |
| | 10,848 |
| | +14 | % | | 33,226 |
| | 28,966 |
| | +15 | % |
Total operating expenses | $ | 60,701 |
| | $ | 52,768 |
| | +15 | % | | $ | 174,498 |
| | $ | 147,011 |
| | +19 | % |
Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015
Digital and Data operating expenses increased 15%, or $8 million, in the three months ended September 30, 2016 as further described below.
Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, increased 20%, or $5 million, due primarily to higher direct pay and benefits due to an increase in staffing levels, including the opening of offices in Brazil and Argentina in early 2016, the hiring of key personnel in leadership roles and a decrease in the amount of capitalized labor as a result of a reduction in the number of software development projects subject to capitalization.
Outside Services—Outside services expenses, which is included in both direct operating expenses and SG&A expense and primarily consists of expenses for consulting and professional services, remained flat, as decreases in temporary labor costs were offset by higher legal and consulting fees.
Depreciation and Amortization Expense—Depreciation expense increased 61%, or $1 million, in the three months ended September 30, 2016, primarily due to an increase in capitalized projects previously placed in service. Amortization expense decreased less than $1 million.
Other Expenses—Other expenses include sales and marketing, occupancy, repairs and maintenance and other miscellaneous expenses, which are included in direct operating expenses or SG&A expense, as applicable. Other expenses increased 14%, or $2 million, primarily due to increased costs for data processing related to the development of ACR services and higher royalty expenses.
Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015
Digital and Data operating expenses increased 19%, or $27 million, in the nine months ended September 30, 2016. The increase was due primarily to the 2015 Acquisitions as well as increased operating expenses.
Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, increased 21%, or $15 million, due primarily to direct pay and benefits related to the 2015 Acquisitions, higher direct pay and benefits due to an increase in staffing levels, including the opening of offices in Brazil and Argentina in early 2016, the hiring of key personnel in leadership roles, and a decrease in the amount of capitalized labor as a result of a reduction in the number of software development projects subject to capitalization.
Outside Services—Outside services expense, which is included in both direct operating expenses and SG&A expense and primarily consists of expenses for consulting and professional services, increased 18%, or $3 million, due largely to increased temporary labor costs in part to integrate acquired businesses and higher costs associated with the development and defense of patents.
Depreciation and Amortization Expense—Depreciation expense increased 44%, or $3 million, in the nine months ended September 30, 2016 due to an increase in capitalized projects previously placed in service. Amortization expense increased 10%, or $2 million, in the nine months ended September 30, 2016 primarily due to higher amortization expense as a result of the intangible assets acquired from the 2015 Acquisitions.
Other Expenses—Other expenses include sales and marketing, occupancy, repairs and maintenance and other miscellaneous expenses, which are included in direct operating expenses or SG&A, as applicable. Other expenses increased 15%, or $4 million, due primarily to the 2015 Acquisitions, a $3 million increase in costs for data processing related to ACR services as well as higher royalty expense.
CORPORATE AND OTHER
Operating Revenues and Expenses—Our Corporate and Other operations include certain administrative activities associated with operating the corporate office functions and managing our predominantly frozen company-sponsored defined benefit pension plans, as well as the management of certain real estate assets, including revenues from leasing office and production facilities and any gain or loss from the sale of real estate.
Corporate and Other operating results for the three and nine months ended September 30, 2016 and September 30, 2015 were as follows: |
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change |
Real estate revenues | $ | 9,860 |
| | $ | 12,333 |
| | -20 | % | | $ | 34,055 |
| | $ | 36,845 |
| | -8 | % |
| | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | |
Real estate (1) | $ | 6,930 |
| | $ | 8,670 |
| | -20 | % | | $ | 31,689 |
| | $ | 26,276 |
| | +21 | % |
Corporate (2) | 34,255 |
| | 30,001 |
| | +14 | % | | 101,064 |
| | 96,694 |
| | +5 | % |
Pension credit | (6,028 | ) | | (7,292 | ) | | -17 | % | | (18,083 | ) | | (21,875 | ) | | -17 | % |
(Gain) loss on sales of real estate, net | (213,168 | ) | | — |
| | * |
| | (212,719 | ) | | 97 |
| | * |
|
Total operating expenses | $ | (178,011 | ) | | $ | 31,379 |
| | * |
| | $ | (98,049 | ) | | $ | 101,192 |
| | * |
|
| |
*(1) | Represents positive or negative change equalInterest expense excludes $1 million and $4 million for the three months ended March 31, 2017 and March 31, 2016, respectively, related to or in excessdiscontinued operations as we used $400 million of 100%the proceeds from the Gracenote Sale to pay down a portion of our Term Loan Facility. 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. |
(1) Real estate operating expenses included $1 million and $2 million of depreciation expense in the three months ended September 30, 2016 and September 30, 2015, respectively, and $2 million and $7 million in the nine months ended September 30, 2016 and September 30, 2015, respectively.
| |
(2) | Corporate operating expenses includedIncome tax (benefit) expense excludes expense of $14 million and a benefit of $3 million and $2 million of depreciation expense infor the three months ended September 30,March 31, 2017 and March 31, 2016, and September 30, 2015, respectively, and $8 million and $5 million of depreciation expense in the nine months ended September 30, 2016 and September 30, 2015, respectively. |
Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015
Real Estate Revenues—Real estate revenuesdecreased 20%, or $2 million, in the three months ended September 30, 2016 primarily due to the loss of revenue from the sales of real estate properties during 2016.
Real Estate Expenses—Real estate expenses decreased 20%, or $2 million, in the three months ended September 30, 2016 primarily resulting from a $2 million decrease in depreciation expense resulting from properties sold and real estate properties classified as assets held for sale which are no longer depreciable.
(Gain) loss 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 increased 14%, or $4 million, in the three months ended September 30, 2016 primarily due to higher outside service expense for professional and legal fees and an increase in depreciation expense primarily associated with our investments in computer hardware and software.
Pension Credit—The pension credit decreased 17%, or $1 million, in three months ended September 30, 2016.
Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015
Real Estate Revenues—Real estate revenues decreased 8%, or $3 million, in the nine months ended September 30, 2016 primarily due to the loss of revenue from the sales of real estate properties during 2016.
Real Estate Expenses—Real estate expenses increased 21%, or $5 million, in the nine months ended September 30, 2016 primarily resulting from $12 million of impairment charges associated with certain real estate properties, partially offset by a $5 million decrease in depreciation primarily due to properties sold and the real estate properties held for sale which are no longer depreciable.
(Gain) loss on sale 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 5%, or $4 million, in the nine months ended September 30, 2016 primarily due to a $4 million increase in professional fees and a $4 million increase in depreciation expense primarily due to our investments in computer hardware and software, partially offset by a $2 million decrease in compensation expense and a $2 million decrease in other expenses.
Pension Credit—The pension credit decreased 17%, or $4 million, in the nine months ended September 30, 2016.
INCOME ON EQUITY INVESTMENTS, NET
Income on equity investments, net for the three and nine months ended September 30, 2016 and September 30, 2015 was as follows: |
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change |
Income from equity investments, net, before amortization of basis difference | $ | 45,381 |
| | $ | 50,549 |
| | -10 | % | | $ | 155,254 |
| | $ | 160,520 |
| | -3 | % |
Amortization of basis difference (1) | (13,644 | ) | | (13,562 | ) | | +1 | % | | (40,959 | ) | | (40,686 | ) | | +1 | % |
Income on equity investments, net | $ | 31,737 |
| | $ | 36,987 |
| | -14 | % | | $ | 114,295 |
| | $ | 119,834 |
| | -5 | % |
(1) See Note 6 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016 for the discussion of the amortization of basis difference.
Cash distributions from our equity method investments were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change |
Cash distributions from equity investments | $ | 17,953 |
| | $ | 31,954 |
| | -44 | % | | $ | 143,557 |
| | $ | 161,102 |
| | -11 | % |
Cash distributions from equity investments decreased 44%, or $14 million, in the three months ended September 30, 2016 and decreased 11%, or $18 million, in the nine months ended September 30, 2016. The decrease was primarily due to a $16 million cash distribution from CareerBuilder received in 2015. Cash distributions in 2016 all relate to TV Food Network.
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, 2016 and September 30, 2015 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
(in thousands) | September 30, 2016 | | September 30, 2015 | | Change | | September 30, 2016 | | September 30, 2015 | | Change |
Interest and dividend income | $ | 534 |
| | $ | 162 |
| | * |
| | $ | 920 |
| | $ | 572 |
| | +61 | % |
| | | | | | | | | | | |
Interest expense | $ | 42,121 |
| | $ | 42,529 |
| | -1 | % | | $ | 126,004 |
| | $ | 122,115 |
| | +3 | % |
| | | | | | | | | | | |
Income tax expense | $ | 66,428 |
| | $ | 11,314 |
| | * |
| | $ | 288,936 |
| | $ | 32,923 |
| | * |
|
| |
* | Represents positive or negative change equal to or in excess of 100%discontinued operations. |
Interest Expense—Interest expense from continuing operations for each of the three months ended September 30,March 31, 2017 and March 31, 2016 and September 30, 2015 includes the amortization of debt issuance costs of $2 million and $2 million, respectively. Interest expense for the nine months ended September 30, 2016 and September 30, 2015 includes the amortization of debt issuance costs of $7 million and $9 million, respectively.million.
Income Tax (Benefit) Expense—In the three and nine months ended September 30, 2016,March 31, 2017, we recorded income tax expensebenefit from continuing operations of $66 million and $289 million, respectively. For$52 million. The effective tax rate on pretax loss from continuing operations was 33.8% for the three months ended September 30, 2016, theMarch 31, 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, 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 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 our deferred taxes (as further described in Note 10 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016 ), the domestic production activities deduction, other non-deductible expenses, a $10$1 million benefit related to the resolution of certain federal and state income tax matters and other adjustments, and a $5$1 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.compensation.
In the three and nine months ended September 30, 2015,March 31, 2016, we recorded income tax expense from continuing operations of $11 million and $33 million, respectively.$15 million. The rates differeffective tax rate on pretax income from continuing operations was 50.2% for the three months ended March 31, 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, and other non-deductible expenses. In addition, the threeexpenses and nine months ended September 30, 2015 had favorable adjustments totalinga $4 million charge related to the resolutionwrite-off of certain federal incomeunrealized deferred tax matters and other adjustments.assets related to stock-based compensation.
Although management believes itswe believe our estimates and judgments are reasonable, the resolutions of our income tax issuesmatters 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, purchases of our common stockCommon Stock pursuant to our share repurchase program (see “—Repurchases of Equity Securities” below), interest and principal payments on our indebtedness, income tax payments, potential payments related to our uncertain tax positions, dividend payments on our common stockCommon 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 recently decided to acceleratecontinued the monetization of our real estate portfolio. As of September 30, 2016,March 31, 2017, we had 8five real estate properties held for sale, as further described in Note 43 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016.March 31, 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, 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 assume.
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 ninethree months ended September 30, 2016March 31, 2017 and September 30, 2015:March 31, 2016:
| | | Nine Months Ended | Three Months Ended |
(in thousands) | September 30, 2016 | | September 30, 2015 | March 31, 2017 | | March 31, 2016 |
Net cash provided by operating activities | $ | 186,540 |
| | $ | 7,925 |
| $ | 75,213 |
| | $ | 122,299 |
|
Net cash provided by (used in) investing activities | 442,041 |
| | (113,938 | ) | 589,356 |
| | (16,446 | ) |
Net cash used in financing activities | (247,527 | ) | | (998,850 | ) | (908,757 | ) | | (43,861 | ) |
Net increase (decrease) in cash and cash equivalents | $ | 381,054 |
| | $ | (1,104,863 | ) | |
Net (decrease) increase in cash and cash equivalents | | $ | (244,188 | ) | | $ | 61,992 |
|
Operating activities
Net cash provided by operating activities for the ninethree months ended September 30, 2016March 31, 2017 was $187$75 million compared to net cash provided of $8$122 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasedecrease was primarily due to lower operating cash paid for income taxesflows from operating results and favorableunfavorable working capital changes, partially offset by higher cash payments for broadcast rights.
distributions from equity investments. Cash paid for income taxes, net of income tax refunds, decreasedincreased by $172 million to $159 million for the nine months ended September 30, 2016 from $331 million for the nine months ended September 30, 2015. The decrease was primarily due to the payment of taxes in 2015 on the gain from the sale of our equity interest in CV in the fourth quarter of 2014, partially offset by the payment of taxes in the third quarter of 2016 related to the Newsday settlement.$4 million. Distributions from equity investments decreasedincreased by $13$22 million to $144$112 million for the ninethree months ended September 30, 2016March 31, 2017 from $156$89 million for the ninethree months ended September 30, 2015.March 31, 2016.
Investing activities
Net cash provided by investing activities totaled $442$589 million for the ninethree months ended September 30, 2016.March 31, 2017. Our capital expenditures in the ninethree months ended September 30, 2016March 31, 2017 totaled $62$15 million. In the ninethree months ended September 30, 2016,March 31, 2017, we received net proceeds of $507$555 million from the Gracenote Sale, $44 million related to the sale of real estate and other assets, as further described in Note 4$5 million related to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016.sale of tronc shares.
Net cash used in investing activities totaled $114$16 million for the ninethree months ended September 30, 2015. Our acquisitions totaled $75 million, net of cash acquired, and included the 2015 Acquisitions.March 31, 2016. Our capital expenditures in the ninethree months ended September 30, 2015March 31, 2016 totaled $64$18 million. In the nine monthsfirst quarter of 2015,2016, we received net proceeds of approximately $22 million from the sales of our investments and real estate of which $8$1 million related to the sale of our investment in Newsday Holdings LLC, $8 million related to a cash distribution pursuant to CV’s collection of a contingent receivable and $5 million related to the sale of two real estate properties which were held for sale as of December 28, 2014.other assets.
Financing activities
Net cash used in financing activities was $248$909 million for the ninethree months ended September 30, 2016.March 31, 2017. During the ninethree months ended September 30, 2016,March 31, 2017, we paid quarterly cash dividends totaling $69 million. Cash paid for the Class A Common Stock repurchases, which were made pursuant to our $400 million stock repurchase program authorized on February 26, 2016, totaled $149 million (see “—Repurchases of Equity Securities” below for further information). We also repaid $21$584 million of borrowings under our Term Loan Facility and the Dreamcatcher Credit Facility.
Facility, which included using $400 million of proceeds from the Gracenote Sale to pay down a portion of our Term B Loans. 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 $521 million consisting of quarterly cash dividends of $22 million and the special cash dividends of $499 million.
Net cash used in financing activities was $1.0 billion$44 million for the ninethree months ended September 30, 2015. In conjunction with the Amendment of our Secured Credit Facility on June 24, 2015, we issued $1.1 billion aggregate principal amount of the Notes and used the net proceeds from the sale of the Notes, together with cash on hand, to prepay $1.100 billion of Term B Loans under the Secured Credit Facility, as further described below.March 31, 2016. During the ninethree months ended September 30, 2015,March 31, 2016, we paid dividends of $696 million, including the quarterlyregular cash dividends of $48$23 million and the special cash dividend of $649 million. During the first nine months of 2015, cash paid $9 million for the Class A Common Stock repurchases pursuant to our $400 million stock repurchase program authorized on October 13, 2014 totaled $273 million (see “—Repurchases of Equity Securities” below for further information). We also repaid $7 million of borrowings under our Term Loan Facility and the Dreamcatcher Credit Facility.
Debt
Our debt consisted of the following (in thousands):
|
| | | | | | | |
| September 30, 2016 | | December 31, 2015 (1) |
Term Loan Facility due 2020, effective interest rate of 3.82%, net of unamortized discount and debt issuance costs of $33,218 and $39,147 | $ | 2,316,178 |
| | $ | 2,328,092 |
|
5.875% Senior Notes due 2022, net of debt issuance costs of $16,187 and $17,466 | 1,083,813 |
| | 1,082,534 |
|
Dreamcatcher Credit Facility due 2018, effective interest rate of 4.08%, net of unamortized discount and debt issuance costs of $94 and $175 | 15,768 |
| | 18,725 |
|
Total debt | $ | 3,415,759 |
| | $ | 3,429,351 |
|
|
| | | | | | | |
| March 31, 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 $2,503 and $31,230 | $ | 197,497 |
| | $ | 2,312,218 |
|
Term C Loans due 2024, effective interest rate of 3.85%, net of unamortized discount and debt issuance costs of $25,694 | 1,735,755 |
| | — |
|
5.875% Senior Notes due 2022, net of debt issuance costs of $14,749 and $15,437 | 1,085,251 |
| | 1,084,563 |
|
Dreamcatcher Credit Facility due 2018, effective interest rate of 4.08%, net of unamortized discount and debt issuance costs of $67 and $80 | 13,770 |
| | 14,770 |
|
Total debt (1) | $ | 3,032,273 |
| | $ | 3,411,551 |
|
(1) December 31, 2015 balances have been reclassified to presentUnder the terms of the Merger Agreement, Sinclair will assume all of our outstanding debt issuance costs as a direct deduction fromon the carrying amount of an associated debt liability in accordance with ASU 2015-03. See Note 1 for further information.date the Merger is closed.
Secured Credit Facility—OnAs of December 27, 2013, in connection with31, 2016, our acquisition of Local TV, we as borrower, along with certain of our operating subsidiaries as guarantors, entered into a $4.073 billion Secured Credit Facility. The Secured Credit Facility consisted of the $3.773 billion Term Loan Facility, under which $2.343 billion of Term B Loans were outstanding, and a $300 million Revolving Credit Facility. On June 24, 2015, we, the Guarantors and JPMorgan, as administrative agent, entered into the Amendment to the Secured Credit Facility. Prior to the Amendment and the Prepayment, $3.479 billion of Former Term Loans were outstanding under the Secured Credit Facility. Pursuant to the Amendment, certain lenders under the Secured Credit Facility converted their Former Term Loans into the Converted Term B Loans in an aggregate amount, along with term loans advanced by certain new lenders, of $1.802 billion. The proceeds of Term B Loans advanced by the new lenders were used to prepay in full all of the Former Term Loans that were not converted into Term B Loans. In addition, we used the net proceeds from the sale of the Notes, together with cash on hand, to make the Prepayment of $1.100 billion of Term B Loans. After giving effect to the Amendment and all prepayments contemplated thereby (including the Prepayment), there were $2.379 billion of Term B Loans outstanding under the Secured Credit Facility. We recorded a loss of $37 million on the extinguishment of the Former Term Loans in our unaudited Condensed Consolidated Statement of Operations in the second quarter of 2015 as a portion of the facility was considered extinguished for accounting purposes. The Term B Loans mature on December 27, 2020. Availability under the Revolving Credit Facility will terminate, and all amounts outstanding under the Revolving Credit Facility will be due and payable on December 27, 2018. See Note 79 to our unaudited condensedaudited consolidated financial statements for the three and nine monthsfiscal year ended September 30,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, 2016,March 31, 2017, there were no borrowings outstanding under the Revolving Credit Facility; however, there were $23$22 million of standby letters of credit outstanding primarily in support of our workersworkers’ compensation insurance programs.
As further described in Note 2 to our unaudited condensed consolidated financial statements for the three months ended March 31, 2017, on February 1, 2017, we used $400 million of proceeds from the Gracenote Sale to pay down a portion of our Term B Loans.
In the first quarter of 2017, as a result of the 2017 Amendment and the $400 million pay down, we recorded a loss of $19 million on the extinguishment and modification of debt, as further described in Note 6 to our unaudited condensed consolidated financial statements.
77
Under the Merger Agreement, we may not incur debt, other than pursuant to our Revolving Credit Facility.
5.875% Senior Notes due 2022—On June 24, 2015, we issued $1.100 billion aggregate principal amount of theour 5.875% Senior Notes due 2022, which we exchanged for substantially identical securities registered under the Indenture. We used the net proceeds from the saleSecurities Act of the Notes, together with cash1933, as amended, on hand, to prepay $1.100 billion of Term B Loans under the Secured Credit Facility.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.
Dreamcatcher Credit Facility—We and the Guarantorsguarantors guarantee the obligations of Dreamcatcher under its Dreamcatchersenior secured credit facility (the “Dreamcatcher Credit Facility.Facility”). See Note 9 to our audited consolidated financial statements for the fiscal year ended December 31, 20152016 for the description of the Dreamcatcher Credit Facility. Our obligations and the obligators of the Guarantorsguarantors 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.
Contractual Obligations
The table below includes our future payments for the contractual obligations which were materially affected by
the 2017 Amendment as further described under “—Significant Events—Secured Credit Facility” and the $400 million pay down of Term B Loans under our Term Loan Facility on February 1, 2017, as a result of the Gracenote Sale which closed on January 31, 2017.
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due for the 12-Month Period Ended March 31, |
(in thousands) | Total | | 2018 | | 2019-2020 | | 2021-2022 | | Thereafter |
Long-term debt (1) | $ | 3,075,285 |
| | $ | 21,664 |
| | $ | 45,016 |
| | $ | 235,229 |
| | $ | 2,773,376 |
|
Interest on long-term debt (1)(2) | 900,218 |
| | 150,294 |
| | 298,655 |
| | 284,884 |
| | 166,385 |
|
Total | $ | 3,975,503 |
| | $ | 171,958 |
| | $ | 343,671 |
| | $ | 520,113 |
| | $ | 2,939,761 |
|
(1) As of March 31, 2017, the Company has $1.736 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 6 to our unaudited condensed consolidated financial statements. 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 7 to our unaudited condensed consolidated financial statements.
Repurchases of Equity Securities
On October 13, 2014, ourFebruary 24, 2016, the Board of Directors authorized a stock repurchase program, under which we may repurchase up to $400 million of our outstanding Class A Common Stock in open-market purchases in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act. During fiscal 2014, we repurchased 1,101,160 shares in open market transactions for $68 million at an average price of $61.58 per share which includes 125,566 shares, valued at $8 million, for which we placed trades prior to December 28, 2014 that were not settled until the first three days of the first fiscal quarter of 2015. During fiscal 2015, we repurchased 6,569,056 shares of Class A Common(the “2016 Stock in open market transactions for $332 million at an average price of $50.59 per share, of which 4,724,463 shares were repurchased in the nine months ended September 30, 2015, at an average price of $56.14 per share. As of December 31, 2015, we repurchased the full $400 million, totaling 7,670,216 shares, authorized under the repurchase program.
On February 24, 2016, the Board authorized a new stock repurchase program, under which we may repurchase up to $400 million of our outstanding Class A Common 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 extent to which we repurchase our shares and the timing of such repurchases will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by our management team. The repurchase program may be suspended or discontinued at any time. We expect to finance the purchases with available cash, cash flows from operations or debt facilities. During the nine months ended September 30, 2016, we repurchased 4,179,0856,432,455 shares of Class A Common Stock in open market transactions for $158$232 million at an average price of $37.70$36.08 per share, inclusive of 229,407 shares, valued at $8 million, for whichshare. During the Company placed trades on or prior to September 30, 2016 that were not settled until the fourthfirst quarter of 2016. See “Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds—Repurchases of Equity Securities” for the table summarizing monthly repurchases of our Class A Common Stock during the quarter ended September 30, 2016.2017, we did not make any share repurchases. As of September 30, 2016,March 31, 2017, the remaining authorized amount under the current authorization totaled approximately $242$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):
|
| | | | | | | | | | | | | | | |
| 2016 | | 2015 |
| Per Share | | Total Amount | | Per Share | | Total Amount |
First quarter | $ | 0.25 |
| | $ | 23,215 |
| | $ | — |
| | $ | — |
|
Second quarter | 0.25 |
| | 22,959 |
| | 0.25 |
| | 24,100 |
|
Third quarter | 0.25 |
| | 22,510 |
| | 0.25 |
| | 23,620 |
|
Total quarterly cash dividends declared and paid | $ | 0.75 |
| | $ | 68,684 |
| | $ | 0.50 |
| | $ | 47,720 |
|
|
| | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Per Share | | Total Amount | | Per Share | | Total Amount |
First quarter | $ | 0.25 |
| | $ | 21,742 |
| | $ | 0.25 |
| | $ | 23,215 |
|
On November 3, 2016,May 10, 2017, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share to be paid on DecemberJune 6, 20162017 to holders of record of Common Stock and Warrants as of November 21, 2016.May 22, 2017.
On April 9, 2015, we paid a special cash dividend of $6.73 per share to holders of record of our Common Stock at the close of business on March 25, 2015. The total aggregate payment on April 9, 2015 totaled $649 million, including the payment to holders of Warrants.
Any determination to pay dividends on our common stock,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 Indentureindenture governing the Notes, as further described in Note 76 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016)March 31, 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,Common Stock, holders of Warrants are entitled to receive a cash payment equal to the amount of the dividend paid per share of common stockCommon 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, 20152016 contained in our 20152016 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 20152016 Annual Report.
New Accounting Standards—See Note 1 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016March 31, 2017 for a discussion of new accounting guidance.
Broadcast Rights—We amortize broadcast rights costs over the period in which an economic benefit is expected to be derived based on the timing of the usage and benefit from such programming. Newer licensed/acquired programming and original produced programming are generally amortized on an accelerated basis as the episodes are aired. For certain categories of licensed programming and feature films that have been exploited through previous cycles, amortization expense is recorded on a straight-line basis. We also have commitments for network and sports programming that are expensed on a straight-line basis as the programs are available to air. Management’s judgment is required in determining the timing of the expensing of these costs, and includes analyses of historical and estimated future revenue and ratings patterns for similar programming. We regularly review, and revise when necessary, our revenue estimates, which may result in a change in the rate of amortization. Amortization of broadcast rights are expensed to programming in our unaudited Condensed Consolidated Statements of Operations.
We carry the broadcast rights at the lower of unamortized cost or estimated net realizable value. We evaluate the net realizable value of broadcast rights on a daypart, series, or title-by-title basis, as appropriate. Changes in management’s intended usage of a specific daypart, series, or program would result in a reassessment of the net realizable value, which could result in an impairment. We determine the net realizable value and estimated fair value, as appropriate, based on a projection of the estimated advertising revenues and carriage/retransmission revenues, less certain direct costs of delivery, expected to be generated by the program material, all of which are classified in Level 3 of the fair value hierarchy. If our estimates of future revenues decline, amortization expense could be accelerated or impairment adjustments may be required. We assess future seasons of syndicated programs that we are committed to acquire for impairment as they become available to us for airing. Any impairments of
programming rights are expensed to programming in our unaudited Condensed Consolidated Statements of Operations.
As a result of the evaluation of the recoverability of the unamortized costs associated with broadcast rights, we recognized an impairment charge of $37 million for the syndicated program Elementary at WGN America in the third quarter of 2016. We have commitments to acquire additional seasons produced of Elementary in future periods. Additional impairments may be required when these seasons become available to air if estimates of future revenues for these programs have not improved.
As a result of an updated analysis completed in the first quarter of 2016, we updated our amortization model for certain categories of programming effective January 1, 2016. Program amortization for these programs is now calculated on either an accelerated or straight-line basis based upon the greater amortization resulting from either the number of episodes aired or the portion of the license period consumed.
Goodwill and Other Intangible Assets—We review goodwill and other indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount (a “Triggering Event”), in accordance with ASC Topic 350. The estimated fair values of the reporting units to which goodwill has been allocated are determined using many critical factors, including projected future operating cash flows, revenue and market growth, market multiples, discount rates and consideration of market valuations of comparable companies. The estimated fair value of other intangible assets subject to the annual impairment review, which include FCC licenses and trade name, are generally calculated based on projected future discounted cash flow analyses. The development of estimated fair values requires the use of assumptions, including assumptions regarding revenue and market growth as well as specific economic factors in the broadcasting and media entertainment industries. These assumptions reflect our best estimates, but these items involve inherent uncertainties based on market conditions generally outside our control.
We did not identify any Triggering Events during the nine months ended September 30, 2016. Adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in additional non-cash impairment charges.
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, 2015.2016.
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.
As previously disclosed in Part II, Item 9A, “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, management identified a material weakness in the Company’s internal control over financial reporting. Because of this material weakness, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2015.
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, 2016.March 31, 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 not effective as of September 30, 2016 due to the previously identified material weakness, which continued to exist as of September 30, 2016.March 31, 2017.
Notwithstanding such material weakness in internal control over financial reporting, ourOur 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”).
Remediation Plan
Our management has made progress in remediating the previously identified material weakness in our internal control over financial reporting. The remediation efforts that are continuing to be executed include the following:
Enhancing processes and procedures across all information systems that are relevant to the preparation of the Company’s consolidated financial statements.
Improving existing program change management control activities and policies, including processes to maintain sufficient documentation evidencing the execution of these policies.66
Implementing additional tools to better capture and monitor changes to relevant financial systems.
Improving the design and operation of control activities and procedures associated with user and administrator access to the affected IT systems, including both preventive and detective control activities.
Educating and re-training control owners regarding risks, controls and maintaining adequate evidence.
Clarifying and communicating appropriate roles and responsibilities for controls and systems for both IT and business users.
Increasing resources dedicated to monitoring IT general controls to ensure compliance with policies, procedures, and processes.
Management believes the foregoing efforts will effectively remediate the identified material weakness in internal control over financial reporting. Because the reliability of the internal control process requires repeatable execution, the successful remediation of the material weakness will require review and evidence of effectiveness prior to management concluding that the Company’s internal control over financial reporting is effective. The previously identified material weakness will not be considered fully addressed until the enhanced internal controls over the design and operating effectiveness of IT general controls for information systems have been in operation for a sufficient period of time for our management to conclude that the material weakness has been fully remediated. Management will continue to test and evaluate the implementation of these new processes and internal controls to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material error in our financial statements. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above.
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, 2016March 31, 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 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. On March 16, 2015, July 24, 2015, May 11, 2016, and August 12, 2016, theThe 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, 20152016 for further information.
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. After-taxWe also would be subject to interest on
the proposed tax through September 30, 2016 would have been approximately $48 million.and penalty due. We disagreed with the IRS’s position and timely filed a protest in response to the IRS’s
proposed tax adjustments. WeIn addition, if the IRS prevailed, we also would have been subject to approximately $22 million, net of tax benefits, of state income taxes,
interest and penalties through September 30, 2016.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 the 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. Under theThe terms of the agreement reached with the IRS appeals office which were materially consistent with our reserve at June 30, 2016, we paid $115 million for federal tax, interest and penalties in the third quarter of 2016. The tax payment was recorded as a reduction in our current income tax reserve described above. We expect to make payments of an additional $10 million by the end of the first quarter of 2017 for state tax, interest and penalties. 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. Through December 31, 2015,During the fourth quarter of 2016, we also made approximately $136recorded an additional $1 million of tax expense primarily relate 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 statepenalties. The tax payments throughwere recorded as a reduction in our regularcurrent income tax reporting process whichreserve described above. The remaining $4 million of state liabilities are included $101 million that becamein the income taxes payable upon closing ofaccount on the sale of the Newsday partnership interest as further described in Note 6 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016.Condensed Consolidated Balance Sheet at March 31, 2017.
As further described in Note 913 to our audited consolidated financial statements for the fiscal year ended December 31, 2015, we consummated the closing of the Chicago Cubs Transactions2016, on October 27, 2009. As a result of these transactions, Ricketts Acquisition LLC owns 95% and we own 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 IRC and related regulations. 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, 2016March 31, 2017 would be approximately $38$42 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. However, if the IRS prevails in their position, anyAny tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2009. Through September 30, 2016,March 31, 2017, we have paid or accrued approximately $39$45 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, 2016March 31, 2017 includes deferred tax liabilities of $160$155 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, 2016March 31, 2017 and $34 million at December 31, 2015.2016.
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 20152016 Annual Report. The materialization of any risks and uncertainties identified in forward-looking statements contained in this report together with those previously disclosed in our 20152016 Annual Report 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.”
There have been no material changes to the risk factors disclosed in our 2016 Annual Report, other than as set forth below:
Risks Related to the Company’s Proposed Merger with Sinclair
Our stockholders cannot be sure of the value of the merger consideration they will receive in the Merger.
Pursuant to the Merger Agreement, Sinclair will acquire all of the issued and outstanding shares of Tribune Media Company Common Stock for $35.00 in cash and 0.2300 shares of Sinclair Class A common stock for each share of our Common Stock (the “Exchange Ratio”). The Exchange Ratio is fixed and will not be adjusted for changes in the market price of Sinclair’s Class A common stock or our Common Stock. The market value of our Common Stock at the time of the Merger may vary significantly from its price on the date the Merger Agreement was executed, the date of this Quarterly Report on Form 10-Q or the date on which our stockholders vote on the Merger. Because the Exchange Ratio will not be adjusted to reflect any changes in the market price of our Common Stock, the market value of the Sinclair Class A common stock issued in the Merger and the market value of our Common Stock surrendered in the Merger may each be higher or lower than the values of those shares on earlier dates. Accordingly, at the time of our shareholder special meeting, our stockholders will not know or be able to determine the value of the Sinclair Class A common stock they will receive upon completion of the Merger.
Changes in the market prices of our Common Stock may result from a variety of factors that are beyond our control, including changes in our businesses, operations and prospects, regulatory considerations, governmental actions, and legal proceedings and developments. Market assessments of the benefits of the Merger, the likelihood that the Merger will be completed and general and industry-specific market and economic conditions may also have an effect on the market price of our Common Stock. Changes in market prices of our Common Stock may also be caused by fluctuations and developments affecting domestic and global securities markets. We are not permitted to terminate the Merger Agreement solely because of changes in the market prices of our Common Stock.
In addition, the market values of our Common Stock may vary from the date of the special meeting to the date of the completion of the Merger. You are urged to obtain up-to-date prices for our Common Stock. There is no assurance that the Merger will be completed, that there will not be a delay in the completion of the Merger or that all or any of the anticipated benefits of the Merger will be obtained.
The proposed acquisition of Tribune Media Company by Sinclair may cause disruption in our business.
On May 8, 2017, we entered into the Merger Agreement with Sinclair, pursuant to which Sinclair will acquire all of the issued and outstanding shares of our Common Stock in a stock-and-cash transaction. The Merger Agreement generally requires us to operate our business in the ordinary course pending consummation of the proposed Merger and restricts us, without Sinclair’s consent, from taking certain specified actions until the Merger is completed. These restrictions may affect our ability to execute our business strategies and attain our financial and other goals and may impact our financial condition, results of operations and cash flows.
In connection with the pending Merger, current and prospective employees of Tribune Media Company may experience uncertainty about their future roles with the combined company following the Merger, which may materially adversely affect our ability to attract and retain key personnel while the Merger is pending. Key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following the Merger. Accordingly, no assurance can be given that we will be able to attract and retain key employees to the same extent that we have been able to in the past.
The proposed Merger further could cause disruptions to our business or business relationships, which could have an adverse impact on results of operations. Parties with which we have business relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties. The pursuit of the Merger and the preparation for the integration may also place a significant burden on management and internal resources. The diversion of management’s attention away from day-to-day business concerns could adversely affect our financial results.
We also could be subject to litigation related to the Merger, which could result in significant costs and expenses. In addition to potential litigation-related expenses, we have incurred and will continue to incur other significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Merger, and many of these fees and costs are payable regardless of whether or not the proposed Merger is consummated.
Failure to complete the Merger in a timely manner, or at all, could negatively impact the market price of our Common Stock, as well as our future business and our financial condition, results of operations and cash flows.
We currently anticipate the Merger will close in the fourth quarter of fiscal 2017, but we cannot be certain when or if the conditions for the proposed Merger will be satisfied or waived. The Merger cannot be completed until the conditions to closing are satisfied or waived, including the approval of the Merger Agreement by the holders of our Common Stock and the receipt of required FCC and antitrust approvals. In the event that the Merger is not completed for any reason, including due to the lack of available financing to Sinclair, the holders of our Common Stock will not receive any payment for their shares of our Common Stock in connection with the proposed Merger. Instead, we will remain an independent public company and holders of Common Stock will continue to own their shares of Common Stock.
Additionally, if the Merger is not consummated in a timely manner, or at all, our ongoing business may be adversely affected as follows:
we may experience negative reactions from financial markets and the stock price could decline;
we may experience negative reactions from employees, customers, suppliers or other third parties;
management’s focus would have been diverted from pursuing other opportunities that could have been beneficial to Tribune Media Company; and
the costs of pursuing the Merger may be higher than anticipated and would be born entirely by us.
If the Merger with Sinclair is not completed, there can be no assurance that these risks will not materialize and will not materially adversely affect our Common Stock price, business, financial condition, results of operations or cash flows.
Tribune Media Company and Sinclair may be unable to obtain the approvals required to complete the proposed Merger.
The consummation of the proposed Merger is subject to the satisfaction or waiver of certain closing conditions, including our stockholders approval and receipt of approval from 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. If Tribune Media Company and Sinclair are unable to obtain these approvals, they may be unable to consummate the proposed Merger. As a result, there can be no assurance that the various closing conditions will be satisfied and the proposed Merger will be completed or that any required conditions will not materially adversely affect the combined company following the consummation of the Merger or will not result in the abandonment or delay of the proposed Merger.
Delays in completing the Merger may substantially reduce the expected benefits of the Merger.
Satisfying the conditions to, and completion of, the Merger may take longer than, and could cost more than, Tribune Media Company and Sinclair expect. Any delay in completing or any additional conditions imposed in order to complete the Merger may materially adversely affect the synergies and other benefits that Tribune Media Company and Sinclair expect to achieve from the Merger and the integration of their respective businesses. Further, there can be no assurances that the conditions to the closing of the Merger and the other transactions contemplated by the Merger Agreement will be satisfied or waived or that the Merger will be completed at all. In addition, each of Tribune Media Company and Sinclair has the right to terminate the Merger Agreement if the Merger is not completed by May 8, 2018, subject to an automatic extension to August 8, 2018, if necessary, to obtain regulatory approval under certain circumstances.
The Merger Agreement limits our ability to pursue alternatives to the Merger, which could discourage a potential acquirer of Tribune Media Company from making an alternative transaction proposal and, in certain circumstances, could require us to pay to the other a significant termination fee.
Under the Merger Agreement, we are restricted, subject to limited exceptions, from pursuing or entering into alternative transactions in lieu of the Merger. In general, unless and until the Merger Agreement is terminated, we are restricted from, among other things, soliciting, initiating, causing, knowingly encouraging or knowingly facilitating any inquiries or the making of any proposals from any person that is or is reasonably likely to lead to an alternative transaction proposal. Our board of directors is limited in its ability to change its recommendation with respect to the Merger-related proposals. Further, even if our board of directors withdraws or qualifies its recommendation with respect to the Merger, we will still be required to submit each of their Merger-related proposals to a vote at a special meeting and will be prohibited from submitting any alternative transaction proposal to our stockholders at such special meeting, even if such alternative transaction proposal, if consummated, would result in a transaction that is more favorable to our stockholders, from a financial point of view, than the Merger. We have the right to terminate the Merger Agreement and enter into an agreement with respect to a “superior proposal” only if specified conditions have been satisfied and a termination fee of $135.5 million is paid to Sinclair. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of us from considering or proposing such an acquisition, even if such third party were prepared to pay consideration with a higher per share cash or market value than the consideration proposed to be received or realized in the Merger, or
might result in a potential acquirer proposing to pay a lower price than it would otherwise have proposed to pay because of the added expense of the termination fee that may become payable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
On December 31, 2012,the Effective Date, we emerged from Chapter 11 bankruptcy and pursuant to the Plan, 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, 2016,March 31, 2017, we have issued 16,487,19916,546,685 shares of Class A Common Stock and 143,477 shares of our Class B Common Stock upon the exercise of 16,630,72916,690,215 Warrants. Of these exercises, we issued 12,589,21212,593,712 shares of Class A Common Stock and 25,244 shares of Class B Common Stock, respectively, for cash, receiving total proceeds of $12,615$12,619 from the exercises.
In addition, we issued 3,897,9873,952,973 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, 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
The following table summarizes repurchases of our Class A Common Stock inDuring the quarter ended September 30, 2016March 31, 2017, we did not make any share repurchases pursuant to the $400 million stock repurchase program2016 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 March 31, 2017, the remaining authorized by our Board on February 24, 2016:
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Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) |
July 1, 2016 - July 31, 2016 (1) | | 462,169 |
| | $ | 38.40 |
| | 462,169 |
| | $ | 313,013 |
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August 1, 2016 - August 31, 2016 | | 819,865 |
| | $ | 37.88 |
| | 819,865 |
| | $ | 281,959 |
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September 1, 2016 - September 30, 2016 (2) | | 1,082,139 |
| | $ | 36.51 |
| | 1,082,139 |
| | $ | 242,454 |
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Quarter Ended September 30, 2016 (2) | | 2,364,173 |
| | $ | 37.35 |
| | 2,364,173 |
| | $ | 242,454 |
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(1) Excludes 69,719 shares of Class A Common Stock for whichamount under the Company placed trade orders valued at $3 million prior to June 30, 2016 but which were not settled until the third quarter of 2016.
(2) Includes 229,407 shares of Class A Common Stock for which the Company placed trade orders valued at $8 million prior to September 30, 2016 but which were not settled until the fourth quarter of 2016.current authorization totaled approximately $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.On May 5, 2017, the Company’s Board of Directors approved the Company’s entry into indemnification agreements with each of its directors. The indemnification agreements provide our directors with contractual rights to the indemnification and expense advancement rights provided under our second amended and restated certificate of incorporation, as well as contractual rights to additional indemnification as provided in the indemnification agreements.
ITEM 6. EXHIBITS
Incorporated by reference to the Exhibit Index attached hereto and made a part hereof.
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 9, 2016.May 10, 2017.
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TRIBUNE MEDIA COMPANY |
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By: | /s/ Chandler Bigelow |
Name: | Chandler Bigelow |
Title: | Executive Vice President and Chief Financial Officer |
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Exhibit No. | | Description |
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10.36§2.1 | | Employment Agreement datedand Plan of Merger, as of July 18, 2016,May 8, 2017, between Tribune Media Company and Lawrence WertSinclair Broadcast Group, Inc. (incorporated by reference to Exhibit 10.362.1 to the QuarterlyCurrent Report on Form 10-Q8-K of Tribune Media Company, filed AugustMay 9, 2016).2017) |
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10.24 | | Amendment No. 2 to the Credit Agreement, dated January 27, 2017, between Tribune Media Company, the Guarantors party thereto, JPMorgan Chase Bank N.A. and the lenders thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Tribune Media Company, filed January 30, 2017) |
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10.37§ | | Separation Agreement, dated January 24, 2017, between Tribune Media Company and Peter Liguori (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K of Tribune Media Company, filed March 1, 2017) |
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10.3710.38§t
| | Employment Letter Agreement, dated March 6, 2017, between Tribune Media Company and Peter M. Kern |
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10.39§t | | Form of Purchase and Sale, dated as of the August 26, 2016, by and between CIM Group Acquisitions, LLC and IL-Tribune Tower, LLC.Tribune Media Company Director Indemnification Agreement |
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31.1 | | Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
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31.2 | | Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
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32.1 | | Section 1350 Certification |
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32.2 | | Section 1350 Certification |
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101.INS | | XBRL Instance Document |
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101.SCH | | XBRL Taxonomy Extension Schema |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
§ Constitutes a compensatory plan or arrangement.
t Filed herein