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EX-32.2 - EXHIBIT 32.2 - TRIBUNE MEDIA COq12016-ex_322.htm
EX-31.2 - EXHIBIT 31.2 - TRIBUNE MEDIA COq12016-ex_312.htm
EX-32.1 - EXHIBIT 32.1 - TRIBUNE MEDIA COq12016-ex_321.htm
EX-31.1 - EXHIBIT 31.1 - TRIBUNE MEDIA COq12016-ex_311.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
_______________________________
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8572
___________________________
TRIBUNE MEDIA COMPANY
(Exact name of registrant as specified in its charter)
___________________________
Delaware
 
36-1880355
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
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. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
ý
Accelerated Filer
o
Non-Accelerated Filer
o
Smaller Reporting Company
o
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 April 30, 2016, 91,999,363 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 MARCH 31, 2016
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item No.
 
Page
Part I. Financial Information
Item 1.
Financial Statements
 
 
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and March 29, 2015
 
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and March 29, 2015
 
Unaudited Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015
 
Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the Three Months Ended March 31, 2016
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and March 29, 2015
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
Note 1:
Basis of Presentation and Significant Accounting Policies
 
Note 2:
Acquisitions
 
Note 3:
Assets Held for Sale
 
Note 4:
Goodwill, Other Intangible Assets and Liabilities
 
Note 5:
Investments
 
Note 6:
Debt
 
Note 7:
Fair Value Measurements
 
Note 8:
Commitments and Contingencies
 
Note 9:
Income Taxes
 
Note 10:
Pension and Other Retirement Plans
 
Note 11:
Capital Stock
 
Note 12:
Stock-Based Compensation
 
Note 13:
Earnings Per Share
 
Note 14:
Accumulated Other Comprehensive Income (Loss)
 
Note 15:
Related Party Transactions
 
Note 16:
Business Segments
 
Note 17:
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
 
March 31, 2016
 
March 29, 2015
Operating Revenues   
 
 
 
Television and Entertainment
$
454,697

 
$
410,300

Digital and Data
53,253

 
50,202

Other
12,565

 
12,235

Total operating revenues
520,515

 
472,737

Operating Expenses
 
 
 
Programming
124,167

 
93,516

Direct operating expenses
114,076

 
102,988

Selling, general and administrative
188,340

 
150,473

Depreciation
17,338

 
17,054

Amortization
49,378

 
47,771

Total operating expenses
493,299

 
411,802

Operating Profit   
27,216

 
60,935

Income on equity investments, net
38,252

 
36,934

Interest and dividend income
145

 
367

Interest expense
(41,976
)
 
(39,212
)
Gain on investment transaction

 
687

Other non-operating gain
496

 

Reorganization items, net
(434
)
 
(992
)
Income Before Income Taxes   
23,699

 
58,719

Income tax expense
12,606

 
22,302

Net Income
$
11,093

 
$
36,417

 
 
 
 
Net Earnings Per Common Share:
 
 
 
Basic
$
0.12

 
$
0.37

Diluted
$
0.12

 
$
0.37

 
 
 
 
Regular dividends declared per common share
$
0.25

 
$

 
 
 
 
Special dividends declared per common share
$

 
$
6.73


See Notes to Condensed Consolidated Financial Statements.
2



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

 
Three Months Ended
 
March 31, 2016
 
March 29, 2015
Net Income
$
11,093

 
$
36,417

 
 
 
 
Other Comprehensive Income (Loss), net of taxes
 
 
 
Unrecognized benefit plan gains and losses:
 
 
 
Adjustment for previously unrecognized benefit plan gains and losses included in net income, net of taxes of $(37) and $(3) for the three months ended March 31, 2016 and March 29, 2015, respectively
(58
)
 
(5
)
Unrealized gain on marketable securities:
 
 
 
Change in unrealized holding gain arising during the period, net of taxes of $(224) and $(605) for three months ended March 31, 2016 and March 29, 2015, respectively
(348
)
 
(939
)
Foreign currency translation adjustments:
 
 
 
Change in foreign currency translation adjustments, net of taxes of $66 and $(1,173) for the three months ended March 31, 2016 and March 29, 2015, respectively
4,043

 
(5,391
)
Other Comprehensive Income (Loss), net of taxes
3,637

 
(6,335
)
Comprehensive Income   
$
14,730

 
$
30,082


See Notes to Condensed Consolidated Financial Statements.
3



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

 
March 31, 2016
 
December 31, 2015
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
324,636

 
$
262,644

Restricted cash and cash equivalents
17,579

 
17,595

Accounts receivable (net of allowances of $7,605 and $8,176)
433,883

 
466,628

Broadcast rights
158,319

 
160,240

Income taxes receivable
29,153

 
42,838

Prepaid expenses
42,822

 
63,337

Other
26,392

 
8,663

Total current assets
1,032,784

 
1,021,945

Properties
 
 
 
Property, plant and equipment
700,313

 
818,658

Accumulated depreciation
(164,548
)
 
(160,801
)
Net properties
535,765

 
657,857

Other Assets
 
 
 
Broadcast rights
186,580

 
203,422

Goodwill
3,563,657

 
3,561,812

Other intangible assets, net
2,192,431

 
2,240,199

Assets held for sale
313,235

 
206,422

Investments
1,641,291

 
1,692,700

Other
107,779

 
124,506

Total other assets
8,004,973

 
8,029,061

Total Assets
$
9,573,522

 
$
9,708,863


See Notes to Condensed Consolidated Financial Statements.
4



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

 
March 31, 2016
 
December 31, 2015
Liabilities and Shareholders’ Equity
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
67,698

 
$
60,394

Debt due within one year (net of unamortized discounts and debt issuance costs of $7,947 and $7,979)
19,894

 
19,862

Income taxes payable
4,198

 
3,458

Employee compensation and benefits
70,191

 
87,976

Contracts payable for broadcast rights
206,283

 
236,676

Deferred revenue
40,704

 
44,721

Interest payable
13,901

 
33,828

Other
47,183

 
53,885

Total current liabilities
470,052

 
540,800

Non-Current Liabilities
 
 
 
Long-term debt (net of unamortized discounts and debt issuance costs of $46,776 and $48,809)
3,404,562

 
3,409,489

Deferred income taxes
985,966

 
984,032

Contracts payable for broadcast rights
349,788

 
385,107

Contract intangible liability, net
9,436

 
13,772

Pension obligations, net
450,080

 
456,073

Postretirement, medical, life and other benefits
15,854

 
16,092

Other obligations
72,946

 
71,776

Total non-current liabilities
5,288,632

 
5,336,341

Total Liabilities
5,758,684

 
5,877,141

 
 
 
 
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 March 31, 2016 and at December 31, 2015

 

Class A Common Stock ($0.001 par value per share)
 
 
 
Authorized: 1,000,000,000 shares; 100,334,466 shares issued and 92,422,791 shares outstanding at March 31, 2016 and 100,015,546 shares issued and 92,345,330 shares outstanding at December 31, 2015
100

 
100

Class B Common Stock ($0.001 par value per share)
 
 
 
Authorized: 1,000,000,000 shares; Issued and outstanding: 5,605 shares at March 31, 2016 and at December 31, 2015

 

Treasury stock, at cost: 7,911,675 shares at March 31, 2016 and 7,670,216 shares at December 31, 2015 (Note 11)
(412,892
)
 
(400,153
)
Additional paid-in-capital
4,600,743

 
4,619,618

Retained deficit
(311,258
)
 
(322,351
)
Accumulated other comprehensive loss
(67,379
)
 
(71,016
)
Total Tribune Media Company shareholders’ equity
3,809,314

 
3,826,198

Noncontrolling interest
5,524

 
5,524

Total shareholders’ equity
3,814,838

 
3,831,722

Total Liabilities and Shareholders’ Equity  
$
9,573,522

 
$
9,708,863


See Notes to Condensed Consolidated Financial Statements.
5



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

 
 
Retained Deficit
Accumulated Other Comprehensive (Loss) Income
Additional Paid-In Capital
 
 
Common Stock
 
Total
 
 
Class A
 
Class B
Treasury Stock
Non-
controlling Interest
Amount (at Cost)
Shares
 
Amount (at Cost)
Shares
Balance at December 31, 2015
$
3,831,722

$
(322,351
)
$
(71,016
)
$
4,619,618

$
(400,153
)
$
5,524

$
100

100,015,546

 
$

5,605

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income
11,093

11,093







 


Other comprehensive income, net of taxes
3,637


3,637






 


Comprehensive income
14,730

 
 
 
 
 
 
 
 
 
 
Regular dividends declared to shareholders and warrant holders, $0.25 per share (1)
(23,215
)


(23,215
)




 


Warrant exercises







100,108

 


Stock-based compensation
8,466



8,466





 


Net share settlements of stock-based awards
(4,126
)


(4,126
)



218,812

 


Common stock repurchases
(12,739
)



(12,739
)



 


Balance at March 31, 2016
$
3,814,838

$
(311,258
)
$
(67,379
)
$
4,600,743

$
(412,892
)
$
5,524

$
100

100,334,466

 
$

5,605

 
(1) Includes $0.3 million of granted dividend equivalent units.

See Notes to Condensed Consolidated Financial Statements.
6



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

 
Three Months Ended
 
March 31, 2016
 
March 29, 2015
Operating Activities
 
 
 
Net income
$
11,093

 
$
36,417

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Stock-based compensation
8,493

 
7,845

Pension credit, net of contributions
(5,993
)
 
(7,303
)
Depreciation
17,338

 
17,054

Amortization of contract intangible assets and liabilities
(4,003
)
 
(3,461
)
Amortization of other intangible assets
49,378

 
47,771

Income on equity investments, net
(38,252
)
 
(36,934
)
Distributions from equity investments
89,346

 
94,906

Amortization of debt issuance costs and original issue discount
2,786

 
3,330

Gain on investment transaction

 
(687
)
Loss on sale of real estate

 
97

Other non-operating gain
(496
)
 

Change in excess tax benefits from stock-based awards

 
402

Changes in working capital items, excluding effects from acquisitions:
 
 
 
Accounts receivable, net
33,210

 
25,802

Prepaid expenses and other current assets
2,775

 
(12,036
)
Accounts payable
9,448

 
(5,343
)
Employee compensation and benefits, accrued expenses and other current liabilities
(44,797
)
 
(7,225
)
Deferred revenue
(3,941
)
 
(938
)
Income taxes
14,406

 
(239,850
)
Change in broadcast rights, net of liabilities
(46,949
)
 
(11,259
)
Deferred income taxes
1,722

 
172

Other, net
26,735

 
(3,066
)
Net cash provided by (used in) operating activities
122,299

 
(94,306
)
 
 
 
 
Investing Activities
 
 
 
Capital expenditures
(17,848
)
 
(16,299
)
Acquisitions

 
(109
)
Transfers from restricted cash
4

 

Investments
(88
)
 
(411
)
Proceeds from sales of real estate and other assets
1,486

 
5,617

Net cash used in investing activities
(16,446
)
 
(11,202
)

See Notes to Condensed Consolidated Financial Statements.
7



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

 
Three Months Ended
 
March 31, 2016
 
March 29, 2015
Financing Activities
 
 
 
Repayments of long‑term debt
(6,960
)
 
(1,067
)
Long-term debt issuance costs
(622
)
 

Payments of dividends
(23,215
)
 

Common stock repurchases
(8,938
)
 
(172,777
)
Change in excess tax benefits from stock-based awards

 
(402
)
Tax withholdings related to net share settlements of share-based awards
(4,126
)
 
(3,618
)
Proceeds from stock option exercises

 
19

Net cash used in financing activities
(43,861
)
 
(177,845
)
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
61,992

 
(283,353
)
Cash and cash equivalents, beginning of period
262,644

 
1,455,183

Cash and cash equivalents, end of period
$
324,636

 
$
1,171,830

 
 
 
 
Supplemental Schedule of Cash Flow Information
 
 
 
Cash paid (received) during the period for:
 
 
 
   Interest
$
59,065

 
$
35,593

   Income taxes, net
$
(3,613
)
 
$
261,914


See Notes to Condensed Consolidated Financial Statements.
8


    

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

        

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Presentation—All references to Tribune Media Company or Tribune Company in the accompanying unaudited condensed consolidated financial statements encompass the historical operations of Tribune Media Company and its subsidiaries (collectively, the “Company”).
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015 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 March 31, 2016 and the results of operations and cash flows for the three months ended March 31, 2016 and March 29, 2015. 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, the Company’s Board of Directors (the “Board”) approved the change of the Company’s fiscal year end from the last Sunday in December of each year to December 31 of each year and to change the Company’s fiscal quarter end to the last calendar day of each quarter. This change in fiscal year end was effective with the Company’s second fiscal quarter of 2015, which ended on June 30, 2015.
Change in Accounting Principles—In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, “Balance Sheet Classification of Deferred Taxes.” The Company elected to early adopt ASU 2015-17 prospectively in the fourth quarter of fiscal 2015 and present all deferred tax assets and liabilities, along with any related valuation allowances as of December 31, 2015, as noncurrent on the Company’s audited Consolidated Balance Sheets. The adoption of ASU 2015-17 was required to be treated as a change in accounting principle.
In April 2015, the FASB issued ASU No. 2015-03, “Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” 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),” as further discussed below. The Company adopted ASU 2015-03 and ASU 2015-15 retrospectively in the first quarter of fiscal 2016 and presented debt issuance costs as a direct deduction from the carrying amount of an associated debt liability, with the exception of debt issuance costs related to the Company’s Revolving Credit Facility which continue to be presented as an asset and amortized over the appropriate term. As a result of this reclassification, the carrying value of the Company’s debt as of December 31, 2015 decreased by $50 million (see Note 6 for additional information). The adoption of ASU 2015-03 and ASU 2015-15 was required to be treated as a change in accounting principle.
Broadcast Rights—The Company amortizes its 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. 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



9




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



rate of amortization. Amortization of broadcast rights are expensed to programming in the Company’s Consolidated Statements of Operations.
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.
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.
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 5 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015 for additional information. The Company’s unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2016 and March 29, 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 March 31, 2016 and March 29, 2015 were $17 million and $15 million, respectively. Operating profits of the Dreamcatcher stations included in the Company’s unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and March 29, 2015 were $3 million and $2 million, respectively.
The Company’s unaudited Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 include the following assets and liabilities of the Dreamcatcher stations (in thousands):
 
March 31, 2016
 
December 31, 2015 (1)
Property, plant and equipment, net
$
348

 
$
371

Broadcast rights
1,764

 
2,748

Other intangible assets, net
90,338

 
92,970

Other assets
160

 
111

Total Assets
$
92,610

 
$
96,200

 
 
 
 
Debt due within one year
$
3,992

 
$
3,989

Contracts payable for broadcast rights
2,007

 
3,016

Long-term debt
13,770

 
14,736

Other liabilities
38

 
55

Total Liabilities
$
19,807

 
$
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.
New Accounting Standards—In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718)”. The new guidance requires companies to record all excess tax benefits and tax



10




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



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 2016-09 will allow an employer to repurchase more of an employees’ shares that 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, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-01 on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The amendments in ASU 2014-09 create Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-09 are effective for annual periods beginning after December 15, 2016, including 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.



11




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



2016-12, “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients,” which provides clarifying guidance in certain narrow areas such as an assessment of collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition as well as adds some practical expedients. The amendments in ASU 2014-09, ASU 2016-08, ASU 2016-10 and ASU 2016-12 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 and ASU 2016-12 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 and ASU 2016-12 on its consolidated financial statements.
NOTE 2: ACQUISITIONS
2015 Acquisitions
In May 2015, the Company completed the acquisitions of all issued and outstanding 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 part of the Digital and Data segment’s product offerings. Infostrada Sports and SportsDirect provide 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. 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. (“Enswers”), a leading provider of automatic content recognition technology and systems based in South Korea, which expanded the Digital and Data segment’s product offerings. The total acquisition price for Infostrada Sports, SportsDirect, Covers and Enswers was $70 million, net of cash acquired.
The purchase prices for the above acquisitions were allocated to the tangible and intangible assets acquired and liabilities assumed. The excess of the fair values 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 total of $3 million of transaction costs, which were recorded in selling, general and administrative expenses in the Company’s unaudited Condensed Consolidated Statements of Operations.



12




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



The total purchase price for the Infostrada Sports, SportsDirect, Covers and Enswers acquisitions assigned to the acquired assets and assumed liabilities of these companies is as follows (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

The allocation presented above is based upon management’s estimate of the fair values using income, cost, 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.



13




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



NOTE 3: ASSETS HELD FOR SALE
Assets Held for Sale—Assets held for sale in the Company’s unaudited Condensed Consolidated Balance Sheet consisted of the following (in thousands):
 
March 31, 2016
 
December 31, 2015
Real estate
$
313,235

 
$
206,422

As of March 31, 2016, the Company has 17 real estate properties held for sale, including Tribune Tower in Chicago, IL, the north block of the Los Angeles Times Square property in downtown Los Angeles, CA and the Olympic Printing Plant facility in the Arts District of downtown Los Angeles, CA (the “Marquee Properties”). The combined net carrying value of $313 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 March 31, 2016 and December 31, 2015, respectively, of which $206 million is attributable to the Marquee Properties at both March 31, 2016 and December 31, 2015.
In the first quarter of 2016, the Company began the process to sell 13 real estate properties and recorded charges of $8 million 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.
Sales of Real Estate—On May 2, 2016, the Company sold its Deerfield Beach, FL property for net proceeds of $24 million. On April 13, 2016, the Company entered into an agreement to sell a property located in Pennsylvania, and on May 5, 2016, the Company entered into agreements for the sales of the Los Angeles Times Square property and the Olympic Printing Plant facility. Each of the agreements is subject to certain adjustments and customary closing conditions. There can be no assurance that these sales will be completed in a timely manner or at all. The previous agreement for the sale of the Los Angeles Times Square property, which was entered into on December 28, 2015, was terminated during the first quarter of 2016.
During the first quarter of 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 loss of less than $1 million that is included in selling, general and administrative expenses.



14




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



NOTE 4: GOODWILL, OTHER INTANGIBLE ASSETS AND LIABILITIES
Goodwill and other intangible assets consisted of the following (in thousands):
 
March 31, 2016
 
December 31, 2015
 
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

 
$
(43,063
)
 
$
168,937

 
$
212,000

 
$
(39,750
)
 
$
172,250

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

 
(68,250
)
 
99,750

 
168,000

 
(63,000
)
 
105,000

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

 
(102,516
)
 
259,484

 
362,000

 
(92,113
)
 
269,887

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

 
(219,465
)
 
610,635

 
830,100

 
(196,955
)
 
633,145

Other customer relationships (useful life of 3 to 16 years)
115,517

 
(26,222
)
 
89,295

 
114,827

 
(23,315
)
 
91,512

Content databases (useful life of 5 to 16 years)
135,001

 
(26,262
)
 
108,739

 
134,299

 
(23,623
)
 
110,676

Other technology (useful life of 4 to 10 years)
47,439

 
(11,506
)
 
35,933

 
47,011

 
(9,733
)
 
37,278

Trade names and trademarks (useful life of 3 to15 years)
14,148

 
(1,929
)
 
12,219

 
13,853

 
(1,625
)
 
12,228

Other (useful life of 3 to 11 years)
16,065

 
(6,026
)
 
10,039

 
16,337

 
(5,514
)
 
10,823

Total
$
1,900,270

 
$
(505,239
)
 
1,395,031

 
$
1,898,427

 
$
(455,628
)
 
1,442,799

Other intangible assets not subject to amortization
 
 
 
 
 
 
 
 
 
 
 
FCC licenses
 
 
 
 
782,600

 
 
 
 
 
782,600

Trade name
 
 
 
 
14,800

 
 
 
 
 
14,800

Total other intangible assets, net
 
 
 
 
2,192,431

 
 
 
 
 
2,240,199

Goodwill
 
 
 
 
 
 
 
 
 
 
 
Television and Entertainment
 
 
 
 
3,220,300

 
 
 
 
 
3,220,300

Digital and Data
 
 
 
 
343,357

 
 
 
 
 
341,512

Total goodwill
 
 
 
 
3,563,657

 
 
 
 
 
3,561,812

Total goodwill and other intangible assets
 
 
 
 
$
5,756,088

 
 
 
 
 
$
5,802,011






15




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



The changes in the carrying amounts of intangible assets during the three months ended March 31, 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)
(41,802
)
 
(7,909
)
 
(49,711
)
Foreign currency translation adjustment

 
1,943

 
1,943

Balance as of March 31, 2016
$
1,143,413

 
$
251,618

 
$
1,395,031

 
 
 
 
 
 
Other intangible assets not subject to amortization
 
 
 
 
 
Balance as of March 31, 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

 
1,845

 
1,845

Balance as of March 31, 2016
$
3,220,300

 
$
343,357

 
$
3,563,657

Total goodwill and other intangible assets as of March 31, 2016
$
5,161,113

 
$
594,975

 
$
5,756,088

 
(1)
Amortization of intangible assets includes $0.3 million related to lease contract intangible assets and is recorded in direct operating expenses or selling, general and administrative expense, as applicable, in the Company’s unaudited Condensed Consolidated Statements of Operations.
The Company's intangible liabilities subject to amortization consisted of the following (in thousands):
 
March 31, 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

 
$
(71,053
)
 
$
9,387

 
$
80,440

 
$
(66,729
)
 
$
13,711

Lease contract intangible liabilities
209

 
(160
)
 
49

 
209

 
(148
)
 
61

Total intangible liabilities subject to amortization
$
80,649

 
$
(71,213
)
 
$
9,436

 
$
80,649

 
$
(66,877
)
 
$
13,772

As described in Note 4 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 8). 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



16




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



available for broadcast and subsequently amortized as a reduction of programming expenses in the 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 three months ended March 31, 2016 were as follows (in thousands):
 
Television and Entertainment
Intangible liabilities subject to amortization
 
Balance as of December 31, 2015
$
13,772

Amortization
(4,336
)
Balance as of March 31, 2016
$
9,436

Amortization expense relating to amortizable intangible assets, excluding lease contract intangible assets, is expected to be approximately $149 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. Amortization of broadcast rights contract intangible assets and liabilities is expected to result in a net reduction in broadcast rights expense of approximately $7 million for the remainder of 2016, $1 million in each of 2017 and 2018, and less than $1 million in 2019, 2020, and 2021, respectively.
NOTE 5: INVESTMENTS
Investments consisted of the following (in thousands):
 
March 31, 2016
 
December 31, 2015
Equity method investments
$
1,617,449

 
$
1,668,316

Cost method investments
20,898

 
20,868

Marketable equity securities
2,944

 
3,516

Total investments
$
1,641,291

 
$
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 of the Effective Date (as defined in Note 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. 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. Income on equity investments, net was reduced by such amortization of $14 million in each of the three months ended March 31, 2016 and March 29, 2015.



17




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
 
March 31, 2016
 
March 29, 2015
Income from equity investments, net, before amortization of basis difference
$
51,923

 
$
50,496

Amortization of basis difference
(13,671
)
 
(13,562
)
Income from equity investments, net
$
38,252

 
$
36,934

Cash distributions from the Company’s equity method investments were as follows (in thousands):
 
Three Months Ended
 
March 31, 2016
 
March 29, 2015
Cash distributions from equity investments
$
89,346

 
$
94,906

TV Food Network—The Company’s 31% investment in Television Food Network, G.P. (“TV Food Network”) totaled $1.260 billion and $1.314 billion at March 31, 2016 and December 31, 2015, respectively. The Company recognized equity income from TV Food Network of $34 million and $29 million for the three months ended March 31, 2016 and March 29, 2015, respectively. The Company received cash distributions from TV Food Network of $89 million and $95 million in the three months ended March 31, 2016 and March 29, 2015, respectively.
CareerBuilder—The Company’s 32% investment in CareerBuilder, LLC (“CareerBuilder”) totaled $335 million and $331 million at March 31, 2016 and December 31, 2015, respectively. The Company recognized equity income from CareerBuilder of $5 million and $8 million for the three months ended March 31, 2016 and March 29, 2015, respectively.
Dose Media—The Company’s 25% investment in Dose Media, LLC (“Dose Media”) totaled $14 million and $15 million at March 31, 2016 and December 31, 2015, respectively.
Summarized Financial Information—Summarized financial information for TV Food Network is as follows (in thousands):

Three Months Ended

March 31, 2016

March 29, 2015
Revenues, net
$
277,176

 
$
261,223

Operating income
$
181,996

 
$
130,202

Net income
$
148,317

 
$
133,643




18




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



Summarized financial information for CareerBuilder is as follows (in thousands):
 
Three Months Ended
 
March 31, 2016
 
March 29, 2015
Revenues, net
$
171,158

 
$
175,154

Operating income
$
19,239

 
$
30,326

Net income
$
20,312

 
$
28,351


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 Tribune Publishing common stock, representing 1.5% of the outstanding common stock of Tribune Publishing. The Company classified the shares of Tribune Publishing common stock as available-for-sale securities. As of March 31, 2016, the fair value and cost basis of the Company’s investment in Tribune Publishing was $3 million and $0, respectively. As of March 31, 2016, the gross unrealized holding gain relating the Company’s investment in Tribune Publishing was $3 million and is reflected in accumulated other comprehensive income, net of taxes, in the Company’s unaudited Condensed Consolidated Balance Sheet. The Company has no current plans to sell its shares of Tribune Publishing.

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 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. 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 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 9) 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 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 March 31, 2016 and December 31, 2015, 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, 2015 for additional information relating to these entities.



19




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



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 $3 million and $4 million at March 31, 2016 and December 31, 2015, respectively.
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 results of operations of the VIE as of and for the three months ended March 31, 2016 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 6: DEBT
Debt consisted of the following (in thousands):

March 31, 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 $37,177 and $39,147
$
2,324,115

 
$
2,328,092

5.875% Senior Notes due 2022, net of debt issuance costs of $17,421 and $17,466
1,082,579

 
1,082,534

Dreamcatcher Credit Facility due 2018, effective interest rate of 4.08%, net of unamortized discount and debt issuance costs of $125 and $175
17,762


18,725

Total debt
3,424,456

 
3,429,351

Less: Debt due within one year
19,894

 
19,862

Long-term debt, net of current portion
$
3,404,562

 
$
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. 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 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.



20




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



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, among other things, on the ability of the Company and its subsidiaries to incur indebtedness and liens, sell assets, make investments and pay dividends to its shareholders.
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 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. After giving effect to the Amendment and the Prepayment, there were $2.379 billion of Term B Loans outstanding under the Secured Credit Facility.
Term Loan Facility
As a result of the amendment, the Term B Loans bear interest, at the Company’s election, at a rate per annum equal to either (i) 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 under the Revolving Credit Facility to the extent that such prepayments are accompanied by a permanent reduction in commitments under the Revolving Credit Facility, and subject to a $500 million minimum liquidity threshold before any such prepayment is required, provided that the Company’s 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) Adjusted LIBOR, subject to a minimum rate of 1.00%, 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%.



21




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



Quarterly installments in an amount equal to 0.25% of the original principal amount of the Term Loan Facility were due beginning March 31, 2014. On August 4, 2014, the Company used a $275 million cash dividend from Tribune Publishing to permanently repay $275 million of outstanding borrowings under the Term Loan Facility.
The Former Term 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 second quarter of 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 $30 million and $32 million at March 31, 2016 and December 31, 2015, respectively. These deferred costs are recorded as a direct deduction from the carrying amount of an associate 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 Facility at any time without premium or penalty, subject to breakage costs in certain circumstances. The loans under the Revolving Credit Facility also must be prepaid and 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.
The Revolving Credit Facility includes a covenant which 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% of the amount of revolving commitments. This covenant was not required to be tested for the quarterly period ended March 31, 2016.



22




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



At March 31, 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 support of the Company’s workers’ compensation insurance programs.
5.875% Senior Notes due 2022—On June 24, 2015, the Company issued $1.100 billion aggregate principal amount of its 5.875% Senior Notes due 2022 (the “Notes”) under an Indenture, dated as of June 24, 2015 (the “Base Indenture”), among the Company, certain subsidiaries 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 Guarantors and the Trustee (the “First Supplemental Indenture”), the Second Supplemental Indenture, dated as 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 quarter 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 $17 million at March 31, 2016 and December 31, 2015.
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 guarantee the Company’s obligations under the Secured Credit Facility.
The Company may redeem 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, the Company may redeem up 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 unpaid interest, if any, to (but excluding) the date of redemption.
The Indenture contains covenants that, among other things, limit the ability of 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 respect of its capital stock; repurchase, prepay or redeem subordinated indebtedness; make loans and investments; create restrictions on the ability of the Company’s restricted subsidiaries to pay dividends to 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 into certain transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries. Upon the occurrence of certain events constituting a change of control triggering event, the Company is required to make an offer to repurchase all of the Notes (unless otherwise



23




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



redeemed) at a purchase price equal to 101% of their principal amount, plus accrued 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
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 (the “SEC”) 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 (the “Notes Registration Statement”) was declared effective on April 1, 2016, and on May 4, 2016, the Company completed the exchange of $1.100 billion of the Notes and the Guarantees for $1.100 billion of the Company’s 5.875% Senior Notes due 2022 and the related guarantees, which have been registered under the Securities Act.
Dreamcatcher—In addition, the Company and the Guarantors guarantee the obligations of Dreamcatcher under its $27 million 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 Guarantors under the Dreamcatcher Credit Facility are secured on a pari passu basis with its obligations under the Secured Credit Facility.
NOTE 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.
The Company’s investment in Tribune Publishing is recorded at fair value and is categorized as Level 1 within the fair value hierarchy as the common stock of Tribune Publishing is publicly traded on the NYSE. The Company’s investment in Tribune Publishing is measured at fair value on a recurring basis. As of March 31, 2016, the fair value and cost basis of the Company’s investment in Tribune Publishing was $3 million and $0, respectively. As of December 31, 2015, the fair value and cost basis was $4 million and $0, respectively.
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
The carrying values of cash and cash equivalents, restricted cash and cash equivalents, trade accounts receivable and trade accounts payable approximate fair value due to their short term to maturity.



24




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):
 
March 31, 2016
 
December 31, 2015
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount (1)
Cost method investments
$
20,898

 
$
20,898

 
$
20,868

 
$
20,868

Term Loan Facility
$
2,350,477

 
$
2,324,115

 
$
2,328,038

 
$
2,328,092

5.875% Senior Notes due 2022
$
1,075,250

 
$
1,082,579

 
$
1,108,250

 
$
1,082,534

Dreamcatcher Credit Facility
$
17,806

 
$
17,762

 
$
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.
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 three months ended March 31, 2016 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 March 31, 2016 and December 31, 2015 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 March 31, 2016 and December 31, 2015 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 March 31, 2016 is based on pricing from observable market information in a non-active market and would be classified in Level 2 of the fair value hierarchy.
Dreamcatcher Credit Facility—The fair value of the outstanding principal balance of the Company’s Dreamcatcher Credit Facility at both March 31, 2016 and December 31, 2015 is based on pricing from observable market information for similar instruments in a non-active market and would be classified in Level 2 of the fair value hierarchy.
NOTE 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”) 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 States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On October 12, 2009, Tribune CNLBC, LLC (formerly known as Chicago National League Ball Club, LLC) (“Tribune CNLBC”), which held the majority of the assets and liabilities related to the businesses of the Chicago Cubs Major League Baseball franchise (the “Chicago Cubs”), 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 and July 24, 2015, the



25




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



Bankruptcy Court entered final decrees collectively closing 96 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 11) 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 March 31, 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.
Confirmation Order Appeals—Notices of appeal of 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”), successor trustee under the 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, 2012 by Wilmington Trust Company (“WTC”), as successor indenture trustee for the PHONES, and on August 3, 2012 by 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”). 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



26




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



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.), Case Nos. 12-cv-128, 12-mc-108, 12-cv-1072, 12-cv-1073, 12-cv-1100 and 12-cv-1106. Case No. 12-mc-108 was closed without disposition on January 14, 2014.
The Appellants sought, among other relief, to overturn the Confirmation Order and certain prior orders of the Bankruptcy Court embodied in the Plan, including the settlement of certain claims and causes of action related to the series of transactions (collectively, the “Leveraged ESOP Transactions”) consummated by the Predecessor, the Tribune Company employee stock ownership plan, the Zell Entity and Samuel Zell in 2007. See “Terms of the Plan” 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 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 a description of the Leveraged ESOP Transactions. WTC 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 Appellants succeed on their appeal, our 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 April 30, 2016, approximately 3,290 proofs of claim had been withdrawn or expunged as a result of the Debtors’ evaluation of the filed proofs of claim and their efforts to reduce and/or eliminate invalid, duplicative and/or over-stated claims. In addition, approximately 3,755 proofs of claim had been settled or otherwise satisfied pursuant to the terms of the Plan.
As of April 30, 2016, approximately 410 proofs of claim remain subject to further evaluation and adjustments, of which 2 proofs of claim relate to Tribune Publishing Debtor cases and were assumed by Tribune Publishing in connection with the Publishing Spin-off. 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 States 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 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 a description of the MDL proceedings in the NY District Court as of February 29, 2016. On March 24, 2016, the U.S. Court of Appeals for the Second Circuit (the “Second Circuit”) issued a



27




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



decision upholding the NY District Court’s dismissal of the state law constructive fraudulent transfer causes of action commenced by Deutsche Bank, Law Debenture 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 grounds 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. The remaining lawsuits pending in the MDL proceedings are asserted 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 the 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 settlement of each of these claims, including indemnity claims, will continue to be subject to uncertainty for a period of time after the Effective Date.
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. Accordingly, revenues, expenses (including professional fees), realized gains and losses, and provisions for losses directly associated with the reorganization and restructuring of the business are reported in reorganization items, net in the Company’s unaudited Condensed Consolidated Statements of Operations included herein. Reorganization costs include provisions and adjustments to reflect the carrying value of certain prepetition liabilities at their estimated allowable claim amounts as well as professional advisory fees and other costs directly associated with the Debtors’ Chapter 11 cases.
Reorganization items, net included in the Company’s unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and March 29, 2015 totaled $0.4 million and $1 million, respectively.
The Company expects to continue to incur certain expenses pertaining to the Chapter 11 proceedings throughout 2016 and in future periods. These expenses will include primarily professional advisory fees and other costs related to the resolution of unresolved claims.
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 May 10, 2016, the Company had FCC authorization to operate 39 television stations and one AM radio station.
Under the FCC’s “Local Television Multiple Ownership Rule” (the “Duopoly 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 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. 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



28




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



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”), the Company and holders of “attributable interests” 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 Tribune Publishing common stock, representing 1.5% of the outstanding common stock of Tribune Publishing (see Note 2 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 Tribune Publishing. As a result of the pro rata distribution of Tribune Publishing stock to shareholders of the Company, the three attributable shareholders of the Company (collectively, the “Attributable Shareholders”) became attributable shareholders of Tribune Publishing. The residual common attributable interests of the Attributable Shareholders in the Company and Tribune Publishing 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. Meanwhile, in its pending 2014 Quadrennial Review of the ownership rules, the FCC is considering a proposal that would modify the NBCO Rule by establishing a favorable presumption with respect to certain daily newspaper/broadcast combinations in the 20 largest markets and a rebuttable negative presumption with respect to such combinations in all other markets. The proceeding is pending. The Company cannot predict the outcome of this proceeding or whether the FCC will allow the Company’s existing temporary waiver to remain in effect pending the conclusion of the proceeding.
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”). The Company’s current national reach would exceed the 39% cap on an undiscounted basis. In a pending rulemaking proceeding the FCC has proposed to repeal the UHF Discount but to grandfather existing combinations that exceed the 39% cap. Under the FCC’s proposal, absent a waiver, a grandfathered station group would have to come into compliance with the modified cap upon a sale or transfer of control. If adopted as proposed, the elimination of the UHF Discount would affect 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).
The Company provides certain operational support and other services to Dreamcatcher pursuant to shared services agreement (“SSA”). In its pending 2014 Quadrennial Review proceeding, the FCC is seeking comment on proposals to adopt reporting requirements for SSAs. The Company cannot predict the outcome of that proceeding or its effect on the Company’s business or operations. Meanwhile, in a public notice released 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.
In a Report and Order and Further Notice of Proposed Rulemaking issued on March 31, 2014, the FCC is seeking 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. 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



29




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



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. Under the Communications Act, MVPDs may not retransmit a commercial broadcast television station’s signal without the station’s consent (unless the station has elected “must-carry” status). Stations and MVPDs are required to negotiate for retransmission consent in “good faith.” The FCC’s rules implementing the good faith requirement identify certain practices that presumptively violate the obligation to negotiate in good faith. The FCC also may consider whether other practices violate the good faith requirement under the “totality of the circumstances.” The NPRM seeks comment generally on the state of the retransmission consent market and the effectiveness of the FCC’s existing rules. Although the NPRM does not propose any changes to the existing rules, it asks whether several practices should be considered consistent with, or a violation of, the good faith requirement. The Company cannot predict the impact of the FCC’s proposals on the Company’s business.
Federal legislation enacted in February 2012 authorizes the FCC to conduct voluntary “incentive auctions” 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 any of the Company’s television stations are required to change frequencies or otherwise modify their operations, 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 and initial commitments (indicating the official commencement of the auction) were due on March 29, 2016. The FCC has announced May 31, 2016 as the commencement date for auction bidding rounds, however, that date may be cancelled, delayed or materially altered. The Company has filed applications to participate in the auction. The Company cannot predict the likelihood, timing or outcome of the incentive auction, or any 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 5 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015, 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. While the period to comment on this NPRM is still on-going, one proposed requirement in the NPRM is that program providers 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.



30




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



From time to time, the FCC revises existing regulations and policies in ways that could affect the Company’s broadcasting operations. In addition, Congress from time to time considers and adopts substantive amendments to the governing communications legislation. The Company cannot predict such actions or their resulting effect upon the Company’s business and financial position.
Other Contingencies—The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. See Note 9 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 9: INCOME TAXES
In the three months ended March 31, 2016, the Company recorded income tax expense of $13 million. The effective tax rate on pretax income was 53.2% in the three months ended March 31, 2016. This 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 and a $4 million charge related to the write-off of unrealized deferred tax assets related to stock-based compensation.
In the three months ended March 29, 2015, the Company recorded income tax expense of $22 million. The effective tax rate on pretax income was 38.0% in the three months ended March 29, 2015. This 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.
Newsday and Chicago Cubs Transactions—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 Newsday Transactions on July 29, 2008. As a result of these transactions, CSC, through NMG Holdings, Inc., owned approximately 97% and the Company owned approximately 3% of NHLLC. The fair market value of the contributed Newsday Media Group business (“NMG”) net assets exceeded their tax basis and did not result in an immediate taxable gain because the transaction was structured to comply with the partnership provisions of the IRC and related regulations. In March 2013, the IRS issued its audit report on the Company’s federal income tax return for 2008 which concluded that the gain should have been included in the Company’s 2008 taxable income. Accordingly, the IRS has proposed a $190 million tax and a $38 million accuracy-related penalty. After-tax interest on the proposed tax and penalty through March 31, 2016 would be approximately $38 million. The Company disagrees with the IRS’s position and has timely filed a protest in response to the IRS’s proposed tax adjustments. The Company is contesting the IRS’s position in the IRS administrative appeals division. If the IRS position prevails, the Company would also be subject to approximately $32 million, net of tax benefits, of state income taxes through March 31, 2016. If the IRS prevails, the tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2008. Through December 31, 2015, the Company has made approximately $137 million of federal and state tax payments through its regular tax reporting process and does not expect to make additional tax payments. The Company does not maintain any tax reserves relating to the Newsday Transactions. As further described in Note 5, on September 2, 2015, the Company sold its remaining interest in the Newsday partnership. The Company’s remaining deferred tax liability of $101 million became payable upon the consummation of the sale. The tax payments were made in the fourth quarter of 2015 and are included in the aggregate payments of $137 million referenced above. The sale of its partnership interest does not impact the ongoing IRS audit, nor does it change the Company’s view on the tax position(s) taken on the original transaction.
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



31




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



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. The IRS is currently auditing the Company’s 2009 federal income tax return which includes the Chicago Cubs Transactions. On March 31, 2016, the IRS issued the Company a Notice of Proposed Adjustment (“NOPA”) which presents the IRS’s position that the gain should have been included in the Company’s 2009 taxable income. The NOPA also proposes that the Company be subject to penalties ranging from 20% to 40% of the tax due. The NOPA is only a notice of proposed adjustment and is not an actual tax assessment. The Company disagrees with the IRS’s position that the transaction generated taxable gain in 2009, the penalty assertion and the IRS’s calculation of the gain. The Company continues 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, 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 March 31, 2016, the Company has paid approximately $35 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, the Company’s unaudited Condensed Consolidated Balance Sheet at March 31, 2016 includes a deferred tax liability of $161 million related to the future recognition of taxable income related to the Chicago Cubs Transactions.
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 $34 million at March 31, 2016 and $34 million at December 31, 2015. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $10 million within the next twelve months due to the resolution of tax examination issues and statute of limitations expirations.



32




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



NOTE 10: PENSION AND OTHER RETIREMENT PLANS
The components of net periodic benefit credit for Company-sponsored pension and other postretirement benefits plans, net of taxes, for the three months ended March 31, 2016 and March 29, 2015 were as follows (in thousands):
 
Pension Benefits
 
Three Months Ended
 
March 31, 2016
 
March 29, 2015
Service cost
$
169

 
$
156

Interest cost
20,751

 
20,377

Expected return on plans’ assets
(26,913
)
 
(27,836
)
Net periodic benefit credit
$
(5,993
)
 
$
(7,303
)
 
Other Post Retirement Benefits

Three Months Ended

March 31, 2016

March 29, 2015
Service cost
$

 
$
34

Interest cost
81

 
110

Recognized actuarial gain

 
(8
)
Amortization of prior service credits
(95
)
 

Net periodic benefit cost
$
(14
)
 
$
136

For 2016, 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 months ended March 31, 2016 and March 29, 2015, the Company’s contributions were not material.
NOTE 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 March 31, 2016 and March 29, 2015, on a net basis, 0 and 46,123 shares, respectively, of Class B Common Stock were converted into 0 and 46,123 shares, respectively, of Class A Common Stock.
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



33




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



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 March 31, 2016 and March 29, 2015, 100,108 and 421,643 Warrants, respectively, were exercised for 100,108 and 421,643 shares, respectively, of Class A Common Stock. No Warrants were exercised for Class B Common Stock during the three months ended March 31, 2016 and March 29, 2015. At March 31, 2016, the following amounts were issued: 191,201 Warrants, 100,334,466 shares of Class A Common Stock, of which 7,911,675 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 issued any shares of preferred stock. 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-counter under the symbols “TRBAB” and “TRBNW,” respectively.
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 conversion 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) require the conversion of any or all shares of Common Stock held by a stockholder into shares of any other class of capital stock of the Company with equivalent economic value, including the conversion of shares of Class A Common Stock into shares of Class B Common Stock or the conversion of 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.
On the Effective Date, Reorganized Tribune 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 16 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015 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



34




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



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 Company had repurchased the full $400 million of outstanding Class A Common Stock authorized under this repurchase program.
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 first quarter of 2016, the Company repurchased 341,548 shares in open market transactions for $13 million at an average price of $37.30 per share, inclusive of 100,089 shares, valued at $4 million, for which the Company placed trades on or prior to March 31, 2016 that were not settled until the second quarter of 2016. As of March 31, 2016, the remaining authorized amount under the current authorization totaled approximately $387 million.
Special Cash Dividend—On March 5, 2015, the Board authorized and declared a special cash dividend of $6.73 per share of Common Stock (the “Special Cash Dividend”), which was paid on April 9, 2015 to holders of record of Common Stock at the close of business on March 25, 2015. In addition, pursuant to the terms of the Warrant Agreement, the Company made a cash payment of $6.73 per Warrant on April 9, 2015 to holders of record of Warrants 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.
Quarterly Cash Dividends—On February 24, 2016, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share paid on March 24, 2016 to holders of record of Common Stock as of March 10, 2016. In addition, pursuant to the terms of the Warrant Agreement, the Company made a cash payment of $0.25 per Warrant on March 24, 2016 to holders of record of Warrants at the close of business on March 10, 2016. The total aggregate payment on March 24, 2016 totaled $23 million.
On May 5, 2016, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share to be paid on June 6, 2016 to holders of record of Common Stock and Warrants as of May 20, 2016.
The payment of cash dividends also results in the issuance of Dividend Equivalent Units (“DEUs”) to holders of RSUs and PSUs each, as defined and described in Note 12. The DEUs will be reinvested in RSUs and PSUs and settled concurrently with the vesting of associated RSUs and PSUs. Pursuant to the Company’s policy, the forfeitable DEUs and dividends payable in cash are treated as a reduction of retained deficit.
The declaration of any future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends are at the discretion of the Board and will depend upon various factors then existing, including earnings, financial condition, results of operations, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends (including the restricted payment covenant contained in the credit agreement governing the Secured Credit Facility), restrictions imposed by applicable law, general business conditions and other factors that the Board may deem relevant. In addition, pursuant to the terms of the Warrant Agreement, concurrently with any cash dividend made to holders of the Company’s Common Stock, holders of Warrants are entitled to receive a cash payment equal to the amount of the dividend paid per share of Common Stock for each Warrant held.



35




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



NOTE 12: STOCK-BASED COMPENSATION
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 is limited to five percent of the outstanding Common Stock on a fully diluted basis as of the Effective Date. There are 5,263,000 shares of Common Stock authorized for issuance under the Equity Incentive Plan. As of March 31, 2016, the Company had 587,649 shares of Common Stock available for grant.
The Equity Incentive Plan provides for the granting of non-qualified stock options (“NSOs”), restricted stock units (“RSUs”), performance share units (“PSUs”) and restricted and unrestricted stock awards (collectively “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 Incentive Plan allows employees 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 11 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 Equity Incentive Plan, the exercise price of an NSO award cannot be less than the market price of the Common Stock at the time the NSO award is granted and has a maximum contractual term of 10 years. PSU awards 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. 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.
Stock-based compensation expense for the three months ended March 31, 2016 and March 29, 2015 totaled $8 million in each period.



36




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



A summary of activity and weighted average exercise prices related to the NSOs is reflected in the table below.
 
Three Months Ended
 March 31, 2016
 
Shares
 
Weighted Avg.
 Exercise Price
Outstanding, beginning of period
1,374,456

 
$
60.62

Granted
1,241,354

 
29.22

Forfeited
(44,240
)
 
43.26

Cancelled
(9,112
)
 
58.44

Outstanding, end of period
2,562,458

 
$
45.71

Vested and exercisable, end of period
605,559

 
$
61.11


A summary of activity and weighted average fair values related to the RSUs is reflected in the table below.
 
Three Months Ended
 March 31, 2016
 
Shares
 
Weighted Avg.
Fair Value
Outstanding, beginning of period
839,789

 
$
58.39

Granted
764,973

 
29.31

Dividend equivalent units granted
9,044

 
35.95

Vested
(277,580
)
 
58.38

Dividend equivalent units vested
(4,993
)
 
41.64

Forfeited
(21,264
)
 
47.29

Dividend equivalent units forfeited
(332
)
 
39.72

Outstanding and nonvested, end of period (1)
1,309,637

 
$
41.51

 
(1) Includes 19,954 RSUs which were granted to foreign employees and which the Company expects to settle in cash. The fair value of these RSUs at March 31, 2016 was not material. These RSUs generally vest over a four year period.

A summary of activity and weighted average fair values related to the unrestricted stock awards is as follows:
 
Three Months Ended
 March 31, 2016
 
Shares
 
Weighted Avg.
Fair Value
Outstanding, beginning of period

 
$

Granted
16,898

 
33.73

Vested
(16,898
)
 
33.73

Outstanding and nonvested, end of period

 
$





37




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 is reflected in the table below.
 
Three Months Ended
 March 31, 2016
 
Shares
 
Weighted Avg.
Fair Value
Outstanding, beginning of period
106,964

 
$
65.50

Granted (1)
34,728

 
30.96

Dividend equivalent units granted
734

 
36.19

Vested
(55,720
)
 
65.06

Dividend equivalent units vested
(1,009
)
 
41.64

Forfeited
(948
)
 
65.06

Outstanding and nonvested, end of period
84,749

 
$
42.79

 
(1) Represents shares of PSUs for which performance targets have been established and which are deemed granted under U.S. GAAP.
As of March 31, 2016, 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
$
81,291

 
3.1

NOTE 13: EARNINGS PER SHARE
The Company computes earnings (loss) per common share (“EPS”) 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. 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 March 31, 2016, there were 20,876 DEUs outstanding, which will vest at the time that the underlying RSU or PSU vests.
The Company computes basic EPS by dividing net income (loss) 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 income (loss) by the weighted average number of common shares outstanding during the period as adjusted for the assumed exercise of all outstanding stock awards. The calculation of diluted EPS assumes that stock awards outstanding were exercised at the beginning of the period. The stock awards are included in the calculation of diluted EPS only when their inclusion in the calculation is dilutive.
ASC Topic 260, “Earnings per Share,” states that the presentation of basic and diluted EPS is required only for common stock and not for participating securities. For the three months ended March 31, 2016 and March 29, 2015,



38




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



258,306 and 1,885,431, respectively, of the weighted-average Warrants outstanding, have been excluded from the below table.
The calculation of basic and diluted EPS is presented below (in thousands, except for per share data):
 
Three Months Ended
 
March 31, 2016
 
March 29, 2015
EPS numerator:
 
 
 
Net income, as reported
$
11,093

 
$
36,417

Less: Dividends distributed to Warrants
48

 

Less: Undistributed earnings allocated to Warrants

 
706

Net income attributable to common shareholders for basic EPS
$
11,045

 
$
35,711

Add: Undistributed earnings allocated to dilutive securities

 
1

Net income attributable to common shareholders for diluted EPS
$
11,045

 
$
35,712

 
 
 
 
EPS denominator:
 
 
 
Weighted average shares outstanding - basic
92,491

 
95,411

Impact of dilutive securities
132

 
125

Weighted average shares outstanding - diluted
92,623

 
95,536

 
 
 
 
Net income per share attributable to common shareholders:
 
 
 
Basic
$
0.12

 
$
0.37

Diluted
$
0.12

 
$
0.37

Because of their anti-dilutive effect, 2,624,524 and 1,215,011 common share equivalents, comprised of NSOs, PSUs and RSUs, have been excluded from the diluted EPS calculation for the three months ended March 31, 2016 and March 29, 2015, respectively.
NOTE 14: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) 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, net of taxes by component for the three months ended March 31, 2016 (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 (loss) income
(58
)
 
4,043

 
(348
)
 
3,637

Balance at March 31, 2016
$
(57,449
)
 
$
(11,721
)
 
$
1,791

 
$
(67,379
)



39




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



NOTE 15: RELATED PARTY TRANSACTIONS
The Company’s company-sponsored pension plan assets include 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. The fair value of this investment was $29 million at March 31, 2016 and $30 million and December 31, 2015. The pension plan assets have included an investment in this fund since 2008.
The Secured Credit Facility syndicate of lenders includes funds affiliated with Oaktree. These funds held $37 million and $38 million of the Company’s Term B Loans and Former Term Loans at March 31, 2016 and December 31, 2015, respectively.



40




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



NOTE 16: BUSINESS SEGMENTS
The following table summarizes business segment financial data for the three months ended March 31, 2016 and March 29, 2015 (in thousands):
 
Three Months Ended
 
March 31, 2016
 
March 29, 2015
Operating revenues:
 
 
 
Television and Entertainment
$
454,697

 
$
410,300

Digital and Data
53,253

 
50,202

Corporate and Other
12,565

 
12,235

Total operating revenues
$
520,515

 
$
472,737

Operating profit (loss):
 
 
 
Television and Entertainment
$
58,745

 
$
79,348

Digital and Data
(2,912
)
 
3,734

Corporate and Other
(28,617
)
 
(22,147
)
Total operating profit
$
27,216

 
$
60,935

Depreciation:
 
 
 
Television and Entertainment
$
11,016

 
$
11,423

Digital and Data
2,897

 
2,105

Corporate and Other
3,425

 
3,526

Total depreciation
$
17,338

 
$
17,054

Amortization:
 
 
 
Television and Entertainment
$
41,475

 
$
41,510

Digital and Data
7,903

 
6,261

Total amortization
$
49,378

 
$
47,771

Capital Expenditures:
 
 
 
Television and Entertainment
$
6,833

 
$
9,250

Digital and Data
4,923

 
2,605

Corporate and Other
6,092

 
4,444

Total capital expenditures
$
17,848

 
$
16,299




March 31, 2016
 
December 31, 2015 (1)
Assets:
 
 
 
Television and Entertainment
$
7,529,699

 
$
7,748,010

Digital and Data
712,241

 
725,151

Corporate and Other
1,018,347

 
1,029,280

Assets held for sale
313,235

 
206,422

Total assets
$
9,573,522

 
$
9,708,863

 
(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.



41




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



NOTE 17: CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company is the Issuer of the registered debt (see Note 6) and such debt is guaranteed by the 100% owned, domestic 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 Guarantor of the obligations, under the Senior Credit Agreement, or (f) during the period when the rating of the Notes is changed to investment grade.
In lieu of providing separate audited financial statements for the Subsidiary Guarantors, the Company has included the accompanying condensed consolidating financial statements in accordance with the requirements of Rule 3-10(f) of SEC Regulation S-X. The following Condensed Consolidating Financial Statements present the Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive (Loss) Income and Consolidated Statements of Cash Flows of Tribune Media Company, the Subsidiary Guarantors, the Non-guarantor Subsidiaries and the eliminations necessary to arrive at the Company’s information on a consolidated basis.
These statements are presented in accordance with the disclosure requirements under SEC Regulation S-X, Rule 3-10.




42




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 MARCH 31, 2016
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Operating Revenues
$

 
$
508,445

 
$
16,477

 
$
(4,407
)
 
$
520,515

 
 
 
 
 
 
 
 
 
 
Programming and direct operating expenses

 
235,866

 
5,375

 
(2,998
)
 
238,243

Selling, general and administrative
25,429

 
157,254

 
7,066

 
(1,409
)
 
188,340

Depreciation and amortization
2,569

 
59,151

 
4,996

 

 
66,716

Total Operating Expenses
27,998

 
452,271

 
17,437

 
(4,407
)
 
493,299

 
 
 
 
 
 
 
 
 
 
Operating (Loss) Profit
(27,998
)
 
56,174

 
(960
)
 

 
27,216

 
 
 
 
 
 
 
 
 
 
(Loss) income on equity investments, net
(720
)
 
38,972

 

 

 
38,252

Interest and dividend income
91

 
41

 
13

 

 
145

Interest expense
(41,714
)
 

 
(262
)
 

 
(41,976
)
Other non-operating items
62

 

 

 

 
62

Intercompany interest income (expense)
438

 
(438
)
 

 

 

Intercompany income (charges)
23,762

 
(23,706
)
 
(56
)
 

 

(Loss) Income Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries
(46,079
)
 
71,043

 
(1,265
)
 

 
23,699

Income tax (benefit) expense
(17,960
)
 
31,343

 
(777
)
 

 
12,606

Equity (deficit) in earnings of consolidated subsidiaries, net of taxes
39,212

 
936

 

 
(40,148
)
 

Net Income (Loss)
$
11,093

 
$
40,636

 
$
(488
)
 
$
(40,148
)
 
$
11,093

 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
$
14,730

 
$
40,739

 
$
3,449

 
$
(44,188
)
 
$
14,730




43




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 MARCH 29, 2015
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Operating Revenues
$

 
$
463,541

 
$
14,834

 
$
(5,638
)
 
$
472,737

 
 
 
 
 
 
 
 
 
 
Programming and direct operating expenses

 
189,688

 
9,227

 
(2,411
)
 
196,504

Selling, general and administrative
23,940

 
124,722

 
5,038

 
(3,227
)
 
150,473

Depreciation and amortization
1,169

 
59,792

 
3,864

 

 
64,825

Total Operating Expenses
25,109

 
374,202

 
18,129

 
(5,638
)
 
411,802

 
 
 
 
 
 
 
 
 
 
Operating (Loss) Profit
(25,109
)
 
89,339

 
(3,295
)
 

 
60,935

 
 
 
 
 
 
 
 
 
 
Income on equity investments, net

 
36,934

 

 

 
36,934

Interest and dividend income
300

 
26

 
41

 

 
367

Interest expense
(38,923
)
 
(5
)
 
(284
)
 

 
(39,212
)
Gain on investment transaction, net
687

 

 

 

 
687

Other non-operating items
(926
)
 
(66
)
 

 

 
(992
)
Intercompany interest income (expense)
439

 
(439
)
 

 

 

Intercompany income (charges)
25,065

 
(24,976
)
 
(89
)
 

 

(Loss) Income Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries
(38,467
)
 
100,813

 
(3,627
)
 

 
58,719

Income tax (benefit) expense
(15,122
)
 
39,892

 
(2,468
)
 

 
22,302

Equity (deficit) in earnings of consolidated subsidiaries, net of taxes
59,762

 
(1,324
)
 

 
(58,438
)
 

Net Income (Loss)
$
36,417

 
$
59,597

 
$
(1,159
)
 
$
(58,438
)
 
$
36,417

 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
$
30,082

 
$
57,732

 
$
(4,685
)
 
$
(53,047
)
 
$
30,082





44




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



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2016
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
300,466

 
$
10,161

 
$
14,009

 
$

 
$
324,636

Restricted cash and cash equivalents
17,579

 

 

 

 
17,579

Accounts receivable, net
871

 
421,145

 
11,867

 

 
433,883

Broadcast rights

 
156,587

 
1,732

 

 
158,319

Income taxes receivable

 
28,974

 
179

 

 
29,153

Prepaid expenses
13,688

 
26,709

 
2,425

 

 
42,822

Other
22,276

 
3,811

 
305

 

 
26,392

Total current assets
354,880

 
647,387

 
30,517

 

 
1,032,784

Properties
 
 
 
 
 
 
 
 
 
Property, plant and equipment
50,300

 
540,845

 
109,168

 

 
700,313

Accumulated depreciation
(13,176
)
 
(145,183
)
 
(6,189
)
 

 
(164,548
)
Net properties
37,124

 
395,662

 
102,979

 

 
535,765

 
 
 
 
 
 
 
 
 
 
Investments in subsidiaries
10,359,278

 
105,303

 

 
(10,464,581
)
 

 
 
 
 
 
 
 
 
 
 
Other Assets
 
 
 
 
 
 
 
 
 
Broadcast rights

 
186,548

 
32

 

 
186,580

Goodwill

 
3,508,718

 
54,939

 

 
3,563,657

Other intangible assets, net

 
2,045,695

 
146,736

 

 
2,192,431

Assets held for sale

 
313,235

 

 

 
313,235

Investments
16,984

 
1,608,912

 
15,395

 

 
1,641,291

Intercompany receivables
1,603,188

 
4,510,471

 
451,058

 
(6,564,717
)
 

Intercompany loan receivable
27,000

 

 

 
(27,000
)
 

Other
182,572

 
99,673

 
5,983

 
(180,449
)
 
107,779

Total other assets
1,829,744

 
12,273,252

 
674,143

 
(6,772,166
)
 
8,004,973

Total Assets
$
12,581,026

 
$
13,421,604

 
$
807,639

 
$
(17,236,747
)
 
$
9,573,522






45




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



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2016
(In thousands of dollars)

 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Liabilities and Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$
31,616

 
$
32,780

 
$
3,302

 
$

 
$
67,698

Debt due within one year
15,902

 

 
3,992

 

 
19,894

Income taxes payable

 
2,730

 
1,468

 

 
4,198

Contracts payable for broadcast rights

 
204,276

 
2,007

 

 
206,283

Deferred revenue

 
37,154

 
3,550

 

 
40,704

Interest payable
13,899

 

 
2

 

 
13,901

Other
35,809

 
75,273

 
6,292

 

 
117,374

Total current liabilities
97,226

 
352,213

 
20,613

 

 
470,052

 
 
 
 
 
 
 
 
 
 
Non-Current Liabilities
 
 
 
 
 
 
 
 
 
Long-term debt
3,390,792

 

 
13,770

 

 
3,404,562

Intercompany loan payable

 
27,000

 

 
(27,000
)
 

Deferred income taxes

 
992,605

 
173,810

 
(180,449
)
 
985,966

Contracts payable for broadcast rights

 
349,750

 
38

 

 
349,788

Contract intangible liability, net

 
9,436

 

 

 
9,436

Intercompany payables
4,804,029

 
1,528,799

 
231,889

 
(6,564,717
)
 

Other
479,665

 
55,540

 
3,675

 

 
538,880

Total non-current liabilities
8,674,486

 
2,963,130

 
423,182

 
(6,772,166
)
 
5,288,632

Total liabilities
8,771,712

 
3,315,343

 
443,795

 
(6,772,166
)
 
5,758,684

 
 
 
 
 
 
 
 
 
 
Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Common stock
100

 

 

 

 
100

Treasury stock
(412,892
)
 

 

 

 
(412,892
)
Additional paid-in-capital
4,600,743

 
9,488,052

 
287,950

 
(9,776,002
)
 
4,600,743

Retained earnings (deficit)
(311,258
)
 
624,410

 
77,012

 
(701,422
)
 
(311,258
)
Accumulated other comprehensive (loss) income
(67,379
)
 
(6,201
)
 
(6,642
)
 
12,843

 
(67,379
)
Total Tribune Media Company shareholders’ equity (deficit)
3,809,314

 
10,106,261

 
358,320

 
(10,464,581
)
 
3,809,314

Noncontrolling interests

 

 
5,524

 

 
5,524

Total shareholders’ equity (deficit)
3,809,314

 
10,106,261

 
363,844

 
(10,464,581
)
 
3,814,838

Total Liabilities and Shareholders’ Equity (Deficit)
$
12,581,026

 
$
13,421,604

 
$
807,639

 
$
(17,236,747
)
 
$
9,573,522




46




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



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS (1)
AS OF DECEMBER 31, 2015
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
235,508

 
$
13,054

 
$
14,082

 
$

 
$
262,644

Restricted cash and cash equivalents
17,595

 

 

 

 
17,595

Accounts receivable, net
672

 
452,722

 
13,234

 

 
466,628

Broadcast rights

 
157,538

 
2,702

 

 
160,240

Income taxes receivable

 
42,816

 
22

 

 
42,838

Prepaid expenses
16,747

 
44,817

 
1,773

 

 
63,337

Other
4,494

 
3,818

 
351

 

 
8,663

Total current assets
275,016

 
714,765

 
32,164

 

 
1,021,945

Properties
 
 
 
 
 
 
 
 
 
Property, plant and equipment
47,909

 
662,094

 
108,655

 

 
818,658

Accumulated depreciation
(10,607
)
 
(144,089
)
 
(6,105
)
 

 
(160,801
)
Net properties
37,302

 
518,005

 
102,550

 

 
657,857

 
 
 
 
 
 
 
 
 
 
Investments in subsidiaries
10,374,921

 
104,432

 

 
(10,479,353
)
 

 
 
 
 
 
 
 
 
 
 
Other Assets
 
 
 
 
 
 
 
 
 
Broadcast rights

 
203,376

 
46

 

 
203,422

Goodwill

 
3,508,718

 
53,094

 

 
3,561,812

Other intangible assets, net

 
2,091,010

 
149,189

 

 
2,240,199

Assets held for sale

 
206,422

 

 

 
206,422

Investments
18,276

 
1,659,029

 
15,395

 

 
1,692,700

Intercompany receivables
1,560,781

 
4,265,957

 
331,873

 
(6,158,611
)
 

Intercompany loan receivable
27,000

 

 

 
(27,000
)
 

Other
189,517

 
117,124

 
5,167

 
(187,302
)
 
124,506

Total other assets
1,795,574

 
12,051,636

 
554,764

 
(6,372,913
)
 
8,029,061

Total Assets
$
12,482,813

 
$
13,388,838

 
$
689,478

 
$
(16,852,266
)
 
$
9,708,863








47




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



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS (1)
AS OF DECEMBER 31, 2015
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Liabilities and Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$
29,587

 
$
24,153

 
$
6,654

 
$

 
$
60,394

Debt due within one year
15,874

 

 
3,988

 

 
19,862

Income taxes payable

 
2,700

 
758

 

 
3,458

Contracts payable for broadcast rights

 
233,660

 
3,016

 

 
236,676

Deferred revenue

 
39,654

 
5,067

 

 
44,721

Interest payable
33,826

 

 
2

 

 
33,828

Other
44,615

 
91,384

 
5,862

 

 
141,861

Total current liabilities
123,902

 
391,551

 
25,347

 

 
540,800

 
 
 
 
 
 
 
 
 
 
Non-Current Liabilities
 
 
 
 
 
 
 
 
 
Long-term debt
3,394,753

 

 
14,736

 

 
3,409,489

Intercompany loan payable

 
27,000

 

 
(27,000
)
 

Deferred income taxes

 
994,083

 
177,251

 
(187,302
)
 
984,032

Contracts payable for broadcast rights

 
385,052

 
55

 

 
385,107

Contract intangible liability, net

 
13,772

 

 

 
13,772

Intercompany payables
4,652,289

 
1,397,981

 
108,341

 
(6,158,611
)
 

Other
485,671

 
55,779

 
2,491

 

 
543,941

Total non-current liabilities
8,532,713

 
2,873,667

 
302,874

 
(6,372,913
)
 
5,336,341

Total Liabilities
8,656,615

 
3,265,218

 
328,221

 
(6,372,913
)
 
5,877,141

 
 
 
 
 
 
 
 
 
 
Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Common stock
100

 

 

 

 
100

Treasury stock
(400,153
)
 

 

 

 
(400,153
)
Additional paid-in-capital
4,619,618

 
9,529,071

 
288,814

 
(9,817,885
)
 
4,619,618

Retained (deficit) earnings
(322,351
)
 
600,853

 
77,498

 
(678,351
)
 
(322,351
)
Accumulated other comprehensive (loss) income
(71,016
)
 
(6,304
)
 
(10,579
)
 
16,883

 
(71,016
)
Total Tribune Media Company shareholders’ equity (deficit)
3,826,198

 
10,123,620

 
355,733

 
(10,479,353
)
 
3,826,198

Noncontrolling interests

 

 
5,524

 

 
5,524

Total shareholders’ equity (deficit)
3,826,198

 
10,123,620

 
361,257

 
(10,479,353
)
 
3,831,722

Total Liabilities and Shareholders’ Equity (Deficit)
$
12,482,813

 
$
13,388,838

 
$
689,478

 
$
(16,852,266
)
 
$
9,708,863

 
(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.




48




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 THREE MONTHS ENDED MARCH 31, 2016
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Net cash (used in) provided by operating activities
$
(56,143
)
 
$
181,150

 
$
(2,708
)
 
$

 
$
122,299

 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(4,336
)
 
(12,115
)
 
(1,397
)
 

 
(17,848
)
Transfers from restricted cash

 
4

 

 

 
4

Investments

 
(88
)
 

 

 
(88
)
Intercompany dividend
3,326

 

 

 
(3,326
)
 

Proceeds from sales of real estate and other assets

 
805

 
681

 

 
1,486

Net cash used in investing activities
(1,010
)
 
(11,394
)
 
(716
)
 
(3,326
)
 
(16,446
)
 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
Repayments of long-term debt
(5,948
)
 

 
(1,012
)
 

 
(6,960
)
Long-term debt issuance costs
(622
)
 

 

 

 
(622
)
Payment of dividends
(23,215
)
 

 

 

 
(23,215
)
Common stock repurchases
(8,938
)
 

 

 

 
(8,938
)
Tax withholdings related to net share settlements of share-based awards
(4,126
)
 

 

 

 
(4,126
)
Intercompany dividend

 
(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 Increase (Decrease) in Cash and Cash Equivalents
64,958

 
(2,893
)
 
(73
)
 

 
61,992

Cash and cash equivalents, beginning of year
235,508

 
13,054

 
14,082

 

 
262,644

Cash and cash equivalents, end of year
$
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.



49




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 THREE MONTHS ENDED MARCH 29, 2015
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Net cash used in operating activities
$
(20,111
)
 
$
(69,753
)
 
$
(4,442
)
 
$

 
$
(94,306
)
 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(6,157
)
 
(9,739
)
 
(403
)
 

 
(16,299
)
Acquisitions, net of cash acquired

 
(109
)
 

 

 
(109
)
Investments

 
(411
)
 

 

 
(411
)
Proceeds from sales of real estate and other assets

 
5,617

 

 

 
5,617

Net cash used in investing activities
(6,157
)
 
(4,642
)
 
(403
)
 

 
(11,202
)
 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
Repayments of long-term debt

 
(54
)
 
(1,013
)
 

 
(1,067
)
Common stock repurchases
(172,777
)
 

 

 

 
(172,777
)
Change in excess tax benefits from stock-based awards
(402
)
 

 

 

 
(402
)
Tax withholdings related to net share settlements of share-based awards
(3,618
)
 

 

 

 
(3,618
)
Proceeds from stock option exercises
19

 

 

 

 
19

Change in intercompany receivables and payables
(78,930
)
 
73,139

 
5,791

 

 

Net cash (used in) provided by financing activities
(255,708
)
 
73,085

 
4,778

 

 
(177,845
)
 
 
 
 
 
 
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
(281,976
)
 
(1,310
)
 
(67
)
 

 
(283,353
)
Cash and cash equivalents, beginning of year
1,433,388

 
12,204

 
9,591

 

 
1,455,183

Cash and cash equivalents, end of year
$
1,151,412

 
$
10,894

 
$
9,524

 
$

 
$
1,171,830





50



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.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the three months ended March 31, 2016 (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:
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 timing and administration by the FCC of a potential auction of spectrum and our ability to monetize our spectrum through sales, channel sharing arrangements or relocation;
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;



51



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 of our equity method investments;
the impairment of our existing goodwill and other intangible assets;
compliance with 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 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 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.
Our business operates in the following two reportable segments:
Television and Entertainment: 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 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.Zap2it.com; and WGN, a radio station in Chicago.



52



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 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, 2015 (the “2015 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.
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 States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). As further described and defined in Note 3 to our audited consolidated financial statements for 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 and July 24, 2015, the Bankruptcy Court entered final decrees closing 96 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 in Note 3 to our audited consolidated financial statements for the fiscal year ended December 31, 2015). On January 17, 2013,



53



our Board appointed a chairman of the board 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 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. At March 31, 2016, 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 will be required to satisfy the allowed claims from our cash on hand from operations. See Note 8 to our unaudited condensed consolidated financial statements for the three months ended March 31, 2016 and Note 3 to our audited consolidated financial statements for the fiscal year ended December 31, 2015 for further information 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 Guarantors (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.
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



54



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 6 to our unaudited condensed consolidated financial statements for the three months ended March 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.
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 6 to our unaudited condensed consolidated financial statements for the three months ended March 31, 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 9 to our audited consolidated financial statements for the fiscal year ended December 31, 2015, we consummated 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.



55



Accordingly, the IRS has proposed a $190 million tax and a $38 million accuracy-related penalty. After-tax interest on the proposed tax and penalty through March 31, 2016 would be approximately $38 million. We disagree with the IRS’s position and have timely filed a protest in response to the IRS’s proposed tax adjustments. We are contesting the IRS’s position in the IRS administrative appeals division. If the IRS position prevails, we would also be subject to approximately $32 million, net of tax benefits, of state income taxes through March 31, 2016. If the IRS prevails, the tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2008. Through December 31, 2015, we have made approximately $137 million of federal and state tax payments through our regular tax reporting process, and we do not expect to make additional tax payments. We do not maintain any tax reserves relating to the Newsday Transactions. In accordance with ASC Topic 740, “Income Taxes,” our audited Consolidated Balance Sheets at December 28, 2014 included a deferred tax liability of $110 million related to the future recognition of taxable income related to the Newsday Transactions. As further described in Note 5, on September 2, 2015 we sold our remaining interest in the Newsday partnership. Our remaining deferred tax liability of $101 million became payable upon the consummation of the sale. The tax payments were made in the fourth quarter of 2015 and are included in the aggregate payments of $137 million referenced above. The sale of our partnership interest does not impact the ongoing IRS audit, nor does it change our view on the tax position(s) taken on the original transaction.
As further described in Note 9 to our audited consolidated financial statements for the fiscal year ended December 31, 2015, we consummated the closing of the Chicago Cubs Transactions 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. The IRS is currently auditing the Company’s 2009 federal income tax return which includes the Chicago Cubs Transactions. On March 31, 2016, the IRS issued the Company a Notice of Proposed Adjustment (“NOPA”) which presents the IRS’s position that the gain should have been included in the Company’s 2009 taxable income. The NOPA also proposes that the Company be subject to penalties ranging from 20% to 40% of the tax due. The NOPA is only a notice of proposed adjustment and is not an actual tax assessment. We disagree with the IRS’s position that the transaction generated taxable gain in 2009, the penalty assertion and the IRS’s calculation of the gain. 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, any tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2009. Through March 31, 2016, we have paid approximately $35 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, our unaudited Condensed Consolidated Balance Sheets at March 31, 2016 include a deferred tax liability of $161 million related to the future recognition of taxable income related to the Chicago Cubs Transactions.
2015 Acquisitions
In May 2015, we completed the acquisitions of all issued and outstanding equity interests in Infostrada Sports, SportsDirect and Covers. In conjunction with these acquisitions, we launched Gracenote Sports, which is a part 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, 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. 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 interests 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 2 to our unaudited condensed consolidated financial statements for the three months ended March 31, 2016 for additional details on these acquisitions.



56




RESULTS OF OPERATIONS
On April 16, 2015, the Board approved the change of our fiscal year end from the last Sunday in December of each year to December 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.
The following discussion and analysis presents a review of our operations as of and for the three months ended March 31, 2016 and March 29, 2015.
CONSOLIDATED
Consolidated operating results for the three months ended March 31, 2016 and March 29, 2015 are shown in the table below:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Operating revenues
$
520,515

 
$
472,737

 
+10
 %
 
 
 
 
 
 
Operating profit
$
27,216

 
$
60,935

 
-55
 %
 
 
 
 
 
 
Income on equity investments, net
$
38,252

 
$
36,934

 
+4
 %
 
 
 
 
 
 
Net income
$
11,093

 
$
36,417

 
-70
 %

Operating Revenues and Operating Profit (Loss)—Consolidated operating revenues and operating profit (loss) by business segment for the three months ended March 31, 2016 and March 29, 2015 were as follows:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Operating revenues
 
 
 
 
 
Television and Entertainment
$
454,697

 
$
410,300

 
+11
 %
Digital and Data
53,253

 
50,202

 
+6
 %
Corporate and Other
12,565

 
12,235

 
+3
 %
Total operating revenues
$
520,515

 
$
472,737

 
+10
 %
Operating profit (loss)
 
 
 
 
 
Television and Entertainment
$
58,745

 
$
79,348

 
-26
 %
Digital and Data
(2,912
)
 
3,734

 
*

Corporate and Other
(28,617
)
 
(22,147
)
 
+29
 %
Total operating profit
$
27,216

 
$
60,935

 
-55
 %
 
*
Represents positive or negative change equal to, or in excess of 100%
Consolidated operating revenues increased 10%, or $48 million, in the three months ended March 31, 2016 primarily due to an increase of $44 million in Television and Entertainment revenues, driven by higher advertising revenue, retransmission consent and carriage fees, partially offset by lower copyright royalties, and an increase of $3 million in Digital and Data revenues, primarily as a result of the acquisitions of Infostrada Sports, SportsDirect, Covers and Enswers, which were acquired in the second quarter of 2015 (the “2015 Acquisitions”) and higher video



57



revenues at the legacy business, partially offset by a decline in music revenue. Consolidated operating profit decreased 55%, or $34 million, in the three months ended March 31, 2016 primarily due to a decrease in Television and Entertainment operating profit driven by higher programming costs and other expenses, an operating loss in Digital and Data driven by the 2015 Acquisitions and higher Corporate and Other operating losses primarily due to a $7 million impairment charge associated with certain real estate properties.
Operating Expenses—Consolidated operating expenses for the three months ended March 31, 2016 and March 29, 2015 were as follows:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Programming
$
124,167

 
$
93,516

 
+33
%
Direct operating expenses
114,076

 
102,988

 
+11
%
Selling, general and administrative
188,340

 
150,473

 
+25
%
Depreciation
17,338

 
17,054

 
+2
%
Amortization
49,378

 
47,771

 
+3
%
Total operating expenses
$
493,299

 
$
411,802

 
+20
%
Programming expenses, which represented 24% of revenues for the three months ended March 31, 2016 compared to 20% for the three months ended March 29, 2015, increased 33%, or $31 million, primarily due to higher amortization of license fees of $25 million for first-run original programs Outsiders and Underground at WGN America and higher network affiliate fees of $7 million related to renewals of certain network affiliation agreements in the second quarter of 2015 as well as other contractual increases.
Direct operating expenses, which represented 22% of revenues for both the three months ended March 31, 2016 and March 29, 2015, increased 11%, or $11 million. Compensation expense increased 4%, or $4 million, primarily due to a $3 million increase at Television and Entertainment driven by merit increases and a $1 million increase at Digital and Data primarily due to the 2015 Acquisitions. All other direct operating expenses, such as outside services expense, occupancy expense and royalty expense increased by 45%, or $7 million, primarily due to 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.
SG&A expenses, which represented 36% of revenues for the three months ended March 31, 2016 compared to 32% for the three months ended March 29, 2015, increased 25%, or $38 million, due mainly to higher promotion expenses, compensation, outside services and other expenses. Promotion expense increased 67%, or $17 million, primarily for first-run original programs and syndicated programs airing on WGN America. Compensation expense increased 7%, or $6 million, due to a $2 million increase at Television and Entertainment driven by merit increases, a $3 million increase at Digital and Data primarily due to the 2015 Acquisitions, partially offset by higher capitalized labor associated with software development at Digital and Data, and a $1 million increase in stock-based compensation expense across all segments. Outside services was up 27%, or $6 million, due to an increase of $2 million at Digital and Data related to additional temporary help costs for the implementation of new technology applications, a $1 million increase in costs of operating the websites of our television stations in Television and Entertainment associated with higher digital revenues and a $4 million increase at Corporate and Other primarily for technology application implementations. Other expenses increased by $10 million largely due to an $8 million impairment charge associated with certain real estate properties and the absence of a $2 million gain recorded in the first quarter of 2015 resulting from the relinquishment for compensation of our CW network affiliation in Indianapolis.
Depreciation expense increased 2%, or less than $1 million, in the three months ended March 31, 2016. The increase is due to the depreciation of property and equipment acquired in connection with the 2015 Acquisitions.



58



Amortization expense increased 3%, or $2 million, in the three months ended March 31, 2016, which resulted from intangible assets acquired in connection with the 2015 Acquisitions.
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 months ended March 31, 2016 and March 29, 2015.
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Operating revenues
$
454,697

 
$
410,300

 
+11
 %
Operating expenses
395,952

 
330,952

 
+20
 %
Operating profit
$
58,745

 
$
79,348

 
-26
 %
Television and Entertainment operating revenues increased 11%, or $44 million, in the three months ended March 31, 2016 largely due to increases in advertising revenue and retransmission consent and carriage fees, partially offset by lower copyright royalties, as further described below.
Television and Entertainment operating profit decreased $21 million in the three months ended March 31, 2016 due mainly to an increase in programming expenses of $31 million, primarily due to original programming content and increased network fees as well as higher other expenses of $29 million as further described below. These items were largely offset by the increase in operating revenues of $44 million.
Operating Revenues—Television and Entertainment operating revenues, by classification, for the three months ended March 31, 2016 and March 29, 2015 were as follows:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Advertising
$
320,284

 
$
299,702

 
+7
 %
Retransmission consent fees
83,527

 
68,813

 
+21
 %
Carriage fees
31,014

 
21,502

 
+44
 %
Barter/trade
10,076

 
9,226

 
+9
 %
Copyright royalties
1,343

 
4,265

 
-69
 %
Other
8,453

 
6,792

 
+24
 %
Total operating revenues
$
454,697

 
$
410,300

 
+11
 %
Advertising Revenues—Advertising revenues, net of agency commissions, increased $21 million, in the three months ended March 31, 2016 primarily due to a $13 million increase in net political advertising revenues, a $2 million increase in revenue from Antenna TV due to additional affiliates in 2016, higher core advertising revenues at KCPQ/KZJO-Seattle and WDAF-Kansas City driven by market share gains, an increase in revenue at WGN America from higher direct response and general advertising and an increase in digital advertising revenue. Net political advertising revenues, which are a component of total advertising revenues, increased by $13 million to $15 million for the three months ended March 31, 2016 compared to $2 million for the three months ended March 29, 2015 due to 2016 being an election year.



59



Retransmission Consent Fees—Retransmission consent fees increased 21%, or $15 million, in the three months ended March 31, 2016 primarily due to an $18 million increase from higher rates included in retransmission consent agreement renewals of our MVPD agreements, partially offset by a decline in revenue of $4 million resulting from a decrease in the number of subscribers resulting from a move to alternative platforms for media consumption.
Carriage Fees—Carriage fees were up 44%, or $10 million, in the three months ended March 31, 2016 due mainly to a $7 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.
Barter/Trade Revenues—Barter/trade revenues increased 9%, or $1 million, in the three months ended March 31, 2016 due primarily to an increase in rates associated with syndicated programs.
Copyright Royalties—Copyright royalties decreased 69%, or $3 million, in the three months ended March 31, 2016. The decrease was attributable to the full conversion in 2015 of the subscribers of WGN America from a superstation to a cable network. As a cable network, WGN America will no longer generate copyright royalties revenue.
Other Revenues—Other revenues are primarily derived from profit sharing and revenue on syndicated content. Other revenues increased 24%, or $2 million, in the three months ended March 31, 2016 primarily due to additional profit sharing from the second season of Manhattan.
Operating Expenses—Television and Entertainment operating expenses for three months ended March 31, 2016 and March 29, 2015 were as follows:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Compensation
$
134,996

 
$
129,452

 
+4
 %
Programming
124,167

 
93,516

 
+33
 %
Depreciation
11,016

 
11,423

 
-4
 %
Amortization
41,475

 
41,510

 
 %
Other
84,298

 
55,051

 
+53
 %
Total operating expenses
$
395,952

 
$
330,952

 
+20
 %

Television and Entertainment operating expenses were up 20%, or $65 million, in the three months ended March 31, 2016 compared to the prior year period largely due to 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 $6 million, in the three months ended March 31, 2016 primarily due to higher direct pay and benefits of $4 million and an increase of $1 million of stock-based compensation expense.
Programming Expense—Programming expense increased 33%, or $31 million, in the three months ended March 31, 2016 primarily due to higher amortization of license fees of $25 million for first-run original programs Outsiders and Underground on WGN America and higher network affiliate fees of $7 million mainly related to renewals of certain network affiliation agreements in the second quarter of 2015 as well as other contractual increases.
Depreciation and Amortization Expense—Depreciation expense decreased 4%, or less than $1 million, in the three months ended March 31, 2016 due to lower levels of depreciable property. Amortization expense remained flat in the three months ended March 31, 2016.



60



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 53%, or $29 million, in the three months ended March 31, 2016. The increase was due primarily to a $16 million increase in promotion costs for first-run original programs and syndicated programs airing on WGN America, a $1 million increase in costs of operating the websites of our television stations, a $1 million impairment charge 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.
DIGITAL AND DATA
Operating Revenues and Operating (Loss) Profit—The table below presents Digital and Data operating revenues, operating expenses and operating (loss) profit for the three months ended March 31, 2016 and March 29, 2015. The largest drivers of change to the results of operations for the Digital and Data segment in the three months ended March 31, 2016 compared to the three months ended March 29, 2015 were the acquisitions of SportsDirect and Covers on May 19, 2015, Infostrada Sports on May 22, 2015, and Enswers on May 29, 2015.
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Operating revenues
$
53,253

 
$
50,202

 
+6
%
Operating expenses
56,165

 
46,468

 
+21
%
Operating (loss) profit
$
(2,912
)
 
$
3,734

 
*

 
*
Represents positive or negative change equal to, or in excess of 100%
Digital and Data operating revenues increased 6%, or $3 million, in the three months ended March 31, 2016 largely due to additional revenue attributed to the 2015 Acquisitions and higher video revenues at the legacy business, partially offset by declines in music revenue, as further described below. Digital and Data operating profit decreased $7 million to an operating loss of $3 million in the three months ended March 31, 2016, primarily related to the increase in operating expenses as described below.
Operating Revenues—Digital and Data operating revenues, by classification, for the three months ended March 31, 2016 and March 29, 2015 were as follows:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Video and other
$
36,764

 
$
26,222

 
+40
 %
Music
16,489

 
23,980

 
-31
 %
Total operating revenues
$
53,253

 
$
50,202

 
+6
 %
Video and Other RevenuesVideo and other revenues increased 40%, or $11 million, due largely to the 2015 Acquisitions as well as higher video revenue attributed to growth in the digital customer base and new markets at existing businesses.
Music RevenuesMusic revenues decreased 31%, or $7 million, in the three months ended March 31, 2016 primarily due to lower revenues recognized from auto contracts.



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Operating Expenses—Digital and Data operating expenses for the three months ended March 31, 2016 and March 29, 2015 were as follows:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Compensation
$
29,689

 
$
25,460

 
+17
%
Outside services
5,650

 
4,323

 
+31
%
Depreciation
2,897

 
2,105

 
+38
%
Amortization
7,903

 
6,261

 
+26
%
Other
10,026

 
8,319

 
+21
%
Total operating expenses
$
56,165

 
$
46,468

 
+21
%
Digital and Data operating expenses increased 21%, or $10 million, in the three months ended March 31, 2016. The increase was due primarily to the 2015 Acquisitions.
Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, increased 17%, or $4 million, due primarily to direct pay and benefits related to the 2015 Acquisitions and higher direct pay and benefits due to an increase in headcount at the legacy businesses, partially offset by an increase in the amount of labor capitalized for software and content development.
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 31%, or $1 million, due largely to the increased temporary help costs for the implementation of new technology applications and the additional expenses from the 2015 Acquisitions.
Depreciation and Amortization Expense—Depreciation expense increased 38%, or $1 million, in the three months ended March 31, 2016 due to an increase in capitalized projects being placed in service. Amortization expense increased 26%, or $2 million, in the three months ended March 31, 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 21%, or $2 million, due primarily to the 2015 Acquisitions as well as a $1 million increase in occupancy expenses, mainly due to data center rental costs.
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.



62



Corporate and Other operating results for the three months ended March 31, 2016 and March 29, 2015 were as follows:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Real estate revenues
$
12,565

 
$
12,235

 
+3
 %
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
Real estate (1)
$
13,168

 
$
9,061

 
+45
 %
Corporate (2)
34,007

 
32,624

 
+4
 %
Pension credit
(5,993
)
 
(7,303
)
 
-18
 %
Total operating expenses
$
41,182

 
$
34,382

 
+20
 %
 
(1) Real estate operating expenses included $1 million and $2 million of depreciation expense in the three months ended March 31, 2016 and March 29, 2015, respectively.
(2)
Corporate operating expenses included $3 million and $1 million of depreciation expense in the three months ended March 31, 2016 and March 29, 2015, respectively.
Real Estate RevenuesReal estate revenues increased 3%, or less than $1 million, in the three months ended March 31, 2016.
Real Estate ExpensesReal estate expenses increased 45%, or $4 million, in the three months ended March 31, 2016 primarily resulting from a $7 million impairment charge associated with certain real estate properties, partially offset by a $2 million decrease in depreciation expense resulting from the real estate properties classified as assets held for sale and no longer depreciable.
Corporate ExpensesCorporate expenses increased 4%, or $1 million, in the three months ended March 31, 2016. The increase in the three months ended March 31, 2016 was due mainly to a $3 million increase in software license fees and depreciation expense associated with the implementation of new technology applications, partially offset by a $2 million decrease in compensation expense primarily related to lower severance costs and incentive compensation.
Pension Credit—The pension credit decreased 18%, or $1 million, in the three months ended March 31, 2016.
INCOME ON EQUITY INVESTMENTS, NET
Income on equity investments, net for the three months ended March 31, 2016 and March 29, 2015 was as follows:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Income from equity investments, net, before amortization of basis difference
$
51,923

 
$
50,496

 
+3
%
Amortization of basis difference
(13,671
)
 
(13,562
)
 
+1
%
Income on equity investments, net
$
38,252

 
$
36,934

 
+4
%

Income on equity investments, net was $38 million in the three months ended March 31, 2016 compared to $37 million in the three months ended March 29, 2015. See Note 5 for the discussion of the amortization of basis difference.



63



Cash distributions from our equity method investments were as follows:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Cash distributions from equity investments
$
89,346

 
$
94,906

 
-6
%
Cash distributions from equity investments decreased 6%, or $6 million, in the three months ended March 31, 2016. The decrease in the three months ended March 31, 2016 was due to a lower cash distribution from 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 months ended March 31, 2016 and March 29, 2015 were as follows:
 
Three Months Ended
 
 
(in thousands)
March 31, 2016
 
March 29, 2015
 
Change
Interest and dividend income
$
145

 
$
367

 
-60
 %
 
 
 
 
 
 
Interest expense
$
41,976

 
$
39,212

 
+7
 %
 
 
 
 
 
 
Income tax expense
$
12,606

 
$
22,302

 
-43
 %
Interest Expense— Interest expense for the three months ended March 31, 2016 and March 29, 2015 includes the amortization of debt issuance costs of $2 million and $3 million, respectively.
Income Tax Expense— In the three months ended March 31, 2016, we recorded income tax expense of $13 million. The effective tax rate on pretax income was 53.2% for the three months ended March 31, 2016. This rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), the domestic production activities deduction, certain transaction costs not fully deductible for tax purposes and other non-deductible expenses and a $4 million charge related to the write-off of unrealized deferred tax assets related to stock-based compensation. Excluding the $4 million charge, the effective tax rate on pretax income was 37.1%.
In the three months ended March 29, 2015, we recorded income tax expense of $22 million. The effective tax rate on pretax income was 38.0% in the three months ended March 29, 2015. This 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.
Although management believes its estimates and judgments are reasonable, the resolutions of our income tax issues 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 stock pursuant to our share repurchase program (see “—Repurchases of Equity Securities” below), interest and principal payments on our indebtedness, income tax payments, dividend payments on our common stock (see “—Cash Dividends” below) and related distributions to



64



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, 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 accelerate the monetization of our real estate portfolio. As of March 31, 2016, we have 17 real estate properties held for sale, as further described in Note 3. 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 divestiture can be completed in a timely manner, on favorable terms or at all.
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.
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 three months ended March 31, 2016 and March 29, 2015:
 
Three Months Ended
(in thousands)
March 31, 2016
 
March 29, 2015
Net cash provided by (used in) operating activities
$
122,299

 
$
(94,306
)
Net cash used in investing activities
(16,446
)
 
(11,202
)
Net cash used in financing activities
(43,861
)
 
(177,845
)
Net increase (decrease) in cash and cash equivalents
$
61,992

 
$
(283,353
)
Operating activities
Net cash provided by operating activities for the three months ended March 31, 2016 was $122 million compared to net cash used of $94 million for the three months ended March 29, 2015. The increase was primarily due to lower cash paid for income taxes, partially offset by higher cash payments for broadcast rights. Cash paid for income taxes, net of income tax refunds, decreased by $266 million. For the three months ended March 31, 2016, we had $4 million of net tax refunds compared to $262 million of net tax payments in the three months ended March 29, 2015 due primarily 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. Distributions from equity investments decreased by $6 million to $89 million for the three months ended March 31, 2016 from $95 million for the three months ended March 29, 2015.
Investing activities
Net cash used in investing activities totaled $16 million for the three months ended March 31, 2016. Our capital expenditures in the three months ended March 31, 2016 totaled $18 million. In the first quarter of 2016, we received net proceeds of $1 million related to the sale of other assets.
Net cash used in investing activities totaled $11 million in the three months ended March 29, 2015. Our capital expenditures in the three months ended March 29, 2015 totaled $16 million. In the first quarter of 2015, we received net proceeds of $6 million of which $5 million related to the sale of two real estate properties which were held for sale as of December 28, 2014.



65



Financing activities
Net cash used in financing activities was $44 million for the three months ended March 31, 2016. During the three months ended March 31, 2016, we paid a regular quarterly cash dividend of $23 million and cash paid for the Class A Common Stock repurchases pursuant to our $400 million stock repurchase program authorized on February 26, 2016 totaled $9 million (see “—Repurchases of Equity Securities” below for further information). We also repaid $7 million of borrowings under our Term Loan Facility and Dreamcatcher Credit Facility.
Net cash used in financing activities was $178 million for the three months ended March 29, 2015. During the first quarter of 2015, cash paid for the Class A Common Stock repurchases pursuant to our $400 million stock repurchase program authorized on October 13, 2014 totaled $173 million (see “—Repurchases of Equity Securities” below for further information).
Debt
Our debt and other obligations, consisting primarily of capital leases, consisted of the following (in thousands):
 
March 31, 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 $37,177 and $39,147
$
2,324,115

 
$
2,328,092

5.875% Senior Notes due 2022, net of debt issuance costs of $17,421 and $17,466
1,082,579

 
1,082,534

Dreamcatcher Credit Facility due 2018, effective interest rate of 4.08%, net of unamortized discount and debt issuance costs of $125 and $175
17,762

 
18,725

Total debt
$
3,424,456

 
$
3,429,351

 
 
(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 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 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. See Note 6 to our unaudited condensed consolidated financial statements for the three months ended March 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. At March 31, 2016, there were no borrowings outstanding under the Revolving Credit Facility; however, there were



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$23 million of standby letters of credit outstanding primarily in support of our workers compensation insurance programs.
5.875% Senior Notes due 2022—On June 24, 2015, we issued $1.100 billion aggregate principal amount of the Notes under 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.
Dreamcatcher Credit Facility—We and the Guarantors guarantee the obligations of Dreamcatcher under its $27 million Dreamcatcher Credit Facility. See Note 9 to our audited consolidated financial statements for the fiscal year ended December 31, 2015 for the description of the Dreamcatcher Credit Facility. Our obligations and the obligators of the Guarantors under the Dreamcatcher Credit Facility are secured on a pari passu basis with our obligations under the Secured Credit Facility.
Repurchases of Equity Securities
On October 13, 2014, our 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 quarter of 2015. During fiscal 2015, we 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, of which 2,806,244 shares were repurchased in the first fiscal quarter of 2015, at an average price of $58.86 per share. As of December 31, 2015, we repurchased the full $400 million 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. 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 first quarter of 2016, we repurchased 341,548 shares of Class A Common Stock in open market transactions for $13 million at an average price of $37.30 per share, inclusive of 100,089 shares, valued at $4 million, for which the Company placed trades prior to March 31, 2016 that were not settled until the second 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 March 31, 2016. As of March 31, 2016, the remaining authorized amount under the current authorization totaled approximately $387 million.
Cash Dividends
On February 24, 2016, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share that was paid on March 24, 2016 to holders of record of Common Stock and Warrants as of March 10, 2016. The total aggregate payment on March 24, 2016 totaled $23 million.
On May 5, 2016, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share to be paid on June 6, 2016 to holders of record of Common Stock and Warrants as of May 20, 2016.
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.



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Any determination to pay dividends on our common stock, and the establishment of the per share amount, record dates and payment dates, is subject to the discretion of our Board and will depend upon various factors then existing, including our earnings and cash flows, financial condition, results of operations, capital requirements, level of indebtedness, contractual restrictions (including the restricted payment covenant contained in the credit agreement governing the Secured Credit Facility and the Indenture governing the Notes, as further described in Note 6 to our unaudited condensed consolidated financial statements for the three months ended March 31, 2016), restrictions imposed by applicable law, general business conditions and other factors that our Board may deem relevant. In addition, pursuant to the terms of the Warrant Agreement, concurrently with any cash dividend made to holders of our common stock, holders of Warrants are entitled to receive a cash payment equal to the amount of the dividend paid per share of common stock for each Warrant held.
Off-Balance Sheet Arrangements
There have been no material changes from the Off-Balance Sheet Arrangements discussion previously disclosed in our audited consolidated financial statements for the fiscal year ended December 31, 2015 contained in our 2015 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 2015 Annual Report.
New Accounting Standards—See Note 1, “Basis of Presentation and Significant Accounting Policies,” for a discussion of new accounting guidance.
Broadcast Rights—The Company amortizes its 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. 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 Consolidated Statements of Operations.
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.
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



68



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 three months ended March 31, 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.
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 March 31, 2016. 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 March 31, 2016 due to the previously identified material weakness, which continued to exist as of March 31, 2016.
Notwithstanding such material weakness in internal control over financial reporting, our management concluded that our consolidated financial statements in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with generally accepted accounting principles (“GAAP”).
Remediation Plan
Our management has made progress in remediating the previously identified material weakness in our internal control over financial reporting. The remediation efforts currently being 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.
Implementing additional tools to better capture and monitor changes to relevant financial systems.



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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 March 31, 2016 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 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 and July 24, 2015, the Bankruptcy Court entered final decrees closing 96 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, 2015 for further information.



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In March 2013, the IRS issued its audit report on our federal income tax return for 2008 which concluded that the gain from the Newsday Transactions should have been included in our 2008 taxable income. Accordingly, the IRS has proposed a $190 million tax and a $38 million accuracy-related penalty. After-tax interest on the proposed tax through March 31, 2016 would be approximately $38 million. We disagree with the IRS’s position and have timely filed a protest in response to the IRS’s proposed tax adjustments. We are contesting the IRS’s position in the IRS administrative appeals division. If the IRS position prevails, we would also be subject to approximately $32 million, net of tax benefits, of state income taxes and related interest through March 31, 2016. If the IRS prevails, the tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2008. Through December 31, 2015, we have paid approximately $137 million of federal and state tax payments through our regular tax reporting process, and we do not expect to make additional tax payments. As further described in Note 5 to our unaudited condensed consolidated financial statements for the three months ended March 31, 2016, on September 2, 2015 we sold our remaining interest in the Newsday partnership. The remaining deferred tax liability of $101 million became payable upon the consummation of the sale. The tax payments were made in the fourth quarter of 2015. This transaction does not impact the ongoing IRS audit, nor does it change our view on the tax position(s) taken on the original transaction. If the IRS prevails, any tax and interest due will be adjusted to reflect any tax payments made subsequent to 2008.
The IRS is currently auditing the Company’s 2009 federal income tax return which includes the Chicago Cubs Transactions. On March 31, 2016, the IRS issued the Company a Notice of Proposed Adjustment (“NOPA”) which presents the IRS’s position that the gain should have been included in the Company’s 2009 taxable income. The NOPA also proposes that the Company be subject to penalties ranging from 20% to 40% of the tax due. The NOPA is only a notice of proposed adjustment and is not an actual tax assessment. We disagree with the IRS’s position that the transaction generated taxable gain in 2009, the penalty assertion and the IRS’s calculation of the gain. We continue to pursue resolution of this disputed tax matter with the IRS. If the gain on the Chicago Cubs Transactions is deemed by the IRS 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, any tax, interest and penalty due will offset by any tax payments made relating to this transaction subsequent to 2009. Through March 31, 2016, we have paid approximately $35 million through our regular tax reporting process.
Both potential liabilities are substantial. We do not maintain any tax reserves related to the Newsday Transactions or the Chicago Cubs Transactions. In accordance with ASC Topic 740, “Income Taxes,” our unaudited Condensed Consolidated Balance Sheet as of March 31, 2016 includes deferred tax liabilities of $161 million related to the future recognition of taxable income and gain from the Chicago Cubs Transactions.
We do not believe that any 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 2015 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 2015 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.”



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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
On December 31, 2012, 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 March 31, 2016, we have issued 16,455,241 shares of Class A Common Stock and 143,477 shares of our Class B Common Stock upon the exercise of 16,598,771 Warrants. Of these exercises, we issued 12,565,888 shares of Class A Common Stock and 25,244 shares of Class B Common Stock, respectively, for cash, receiving total proceeds of $12,591 from the exercise. In addition, we issued 3,889,353 shares of Class A Common Stock and 118,233 shares of Class B Common Stock, respectively, upon “cashless exercises.”
Between February 17, 2014 and December 9, 2014, the effective date of our Form S-8, we issued 26,007 shares of Class A Common Stock to employees upon the exercise of options granted under our 2013 Equity Incentive Plan at a weighted exercise price of $54.14 per share.
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. The issuances of shares of Common Stock upon exercise of options were exempt from the registration requirements of Section 5 of the Securities Act pursuant to Rule 701 or Section 4(a)(2) of the Securities Act, to the extent an exemption from such registration was required.
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 in the quarter ended March 31, 2016 pursuant to the $400 million stock repurchase program authorized by our Board on February 24, 2016:
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)
January 1, 2016 - January 31, 2016
 

 
$

 

 
$
400,000

February 1, 2016 - February 29, 2016
 

 
$

 

 
$
400,000

March 1, 2016 - March 31, 2016 (1)
 
341,548

 
$
37.30

 
341,548

 
$
387,261

Quarter Ended March 31, 2016
 
341,548

 
$
37.30

 
341,548

 
$
387,261

 
(1) Includes 100,089 shares of Class A Common Stock for which the Company placed trade orders valued at $4 million prior to March 31, 2016 but which were not settled until the second quarter of 2016.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.



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ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Incorporated by reference to the Exhibit Index attached hereto and made a part hereof.



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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized on May 10, 2016.
 
TRIBUNE MEDIA COMPANY
 
 
By:
/s/ Chandler Bigelow
Name:
Chandler Bigelow
Title:
Executive Vice President and Chief Financial Officer





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EXHIBIT INDEX
Exhibit No.
 
Description
 
 
 
10.26
 
Amendment No. 1 to the Credit Agreement, dated June 24, 2015, between Tribune Media Company, the Guarantors party thereto and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.26 to the Registration Statement on Form S-4 of Tribune Media Company, filed March 24, 2016).
 
 
 
10.27§
 
Amendment to the Employment Agreement, dated February 24, 2016, between Tribune Media Company and Peter Liguori (incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-4 of Tribune Media Company, filed March 24, 2016).
 
 
 
10.28§
 
Amendment to the Employment Agreement, dated February 24, 2016, between Tribune Media Company and Chandler Bigelow (incorporated by reference to Exhibit 10.28 to the Registration Statement on Form S-4 of Tribune Media Company, filed March 24, 2016).
 
 
 
10.29§
 
Amendment to the Employment Agreement, dated February 24, 2016, between Tribune Media Company and Edward Lazarus (incorporated by reference to Exhibit 10.29 to the Registration Statement on Form S-4 of Tribune Media Company, filed March 24, 2016).
 
 
 
10.30§
 
Form of Supplemental Performance Share Unit Agreement (incorporated by reference to Exhibit 10.30 to the Registration Statement on Form S-4 of Tribune Media Company, filed March 24, 2016).
 
 
 
31.1
 
Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
 
 
 
31.2
 
Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
 
 
 
32.1
 
Section 1350 Certification
 
 
 
32.2
 
Section 1350 Certification
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
 
§ Constitutes a compensatory plan or arrangement.





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