TRIBUNE MEDIA CO - FORM 10-Q - August 9, 2018

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EX-32.1 - EXHIBIT 32.1 - TRIBUNE MEDIA COq22018-ex_321.htm
EX-32.2 - EXHIBIT 32.2 - TRIBUNE MEDIA COq22018-ex_322.htm
EX-31.2 - EXHIBIT 31.2 - TRIBUNE MEDIA COq22018-ex_312.htm
EX-31.1 - EXHIBIT 31.1 - TRIBUNE MEDIA COq22018-ex_311.htm
EX-10.41 - EXHIBIT 10.41 - TRIBUNE MEDIA COq22018-ex_1041.htm
EX-10.40 - EXHIBIT 10.40 - TRIBUNE MEDIA COq22018-ex_1040.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 June 30, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8572
___________________________
TRIBUNE MEDIA COMPANY
(Exact name of registrant as specified in its charter)
___________________________
Delaware
 
36-1880355
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
515 North State Street, Chicago, Illinois
 
60654
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (312) 222-3394.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
ý
Accelerated Filer
o
Non-Accelerated Filer
o
Smaller Reporting Company
o
Emerging Growth Company
o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes o No ý
As of July 31, 2018, 87,625,933 shares of the registrant’s Class A Common Stock and 5,557 shares of the registrant’s Class B Common Stock were outstanding.
 


TRIBUNE MEDIA COMPANY
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2018
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item No.
Part I. Financial Information
Page
Item 1.
Financial Statements
 
 
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and June 30, 2017
 
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2018 and June 30, 2017
 
Unaudited Condensed Consolidated Balance Sheets at June 30, 2018 and December 31, 2017
 
Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended June 30, 2018
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and June 30, 2017
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
Note 1:
Basis of Presentation and Significant Accounting Policies
 
Note 2:
Discontinued Operations
 
Note 3:
Real Estate Sales and Assets Held for Sale
 
Note 4:
Goodwill and Other Intangible Assets
 
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 (Loss) Income
 
Note 15:
Business Segments
 
Note 16:
Condensed Consolidating Financial Statements
 
Note 17:
Subsequent Events
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
Part II. Other Information
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signature








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
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Operating Revenues   
 
 
 
 
 
 
 
Television and Entertainment
$
486,417


$
466,061

 
$
927,119

 
$
902,094

Other
2,941

 
3,456

 
5,874

 
7,333

Total operating revenues
489,358

 
469,517

 
932,993

 
909,427

Operating Expenses
 
 
 
 
 
 
 
Programming
111,635

 
157,084

 
212,376

 
298,330

Direct operating expenses
98,817

 
96,940

 
200,205

 
195,747

Selling, general and administrative
125,878

 
147,249

 
257,834

 
312,843

Depreciation
13,281

 
13,927

 
27,056

 
27,498

Amortization
41,681

 
41,664

 
83,368

 
83,323

Gain on sales of spectrum (Note 8)
—

 
—

 
(133,197
)
 
—

Total operating expenses
391,292

 
456,864

 
647,642

 
917,741

Operating Profit (Loss)
98,066

 
12,653

 
285,351

 
(8,314
)
Income on equity investments, net
52,568

 
40,761

 
91,705

 
77,798

Interest and dividend income
2,336

 
548

 
4,234

 
1,053

Interest expense
(41,990
)
 
(40,185
)
 
(82,621
)
 
(78,943
)
Pension and other postretirement periodic benefit credit, net
6,985

 
5,673

 
14,069

 
11,408

Loss on extinguishment and modification of debt
—

 
—

 
—

 
(19,052
)
Gain on investment transactions
—

 
—

 
3,888

 
4,950

Write-downs of investment
—

 
(58,800
)
 
—

 
(180,800
)
Other non-operating (loss) gain, net
(26
)
 
71

 
91

 
45

Reorganization items, net
(685
)
 
(449
)
 
(1,578
)
 
(699
)
Income (Loss) from Continuing Operations Before Income Taxes
117,254

 
(39,728
)
 
315,139

 
(192,554
)
Income tax expense (benefit)
32,816

 
(9,905
)
 
89,518

 
(61,519
)
Income (Loss) from Continuing Operations
84,438

 
(29,823
)
 
225,621

 
(131,035
)
(Loss) Income from Discontinued Operations, net of taxes (Note 2)
—

 
(579
)
 
—

 
15,039

Net Income (Loss)
$
84,438

 
$
(30,402
)
 
$
225,621

 
$
(115,996
)
Net loss from continuing operations attributable to noncontrolling interests
4

 
—

 
10

 
—

Net Income (Loss) attributable to Tribune Media Company
$
84,442

 
$
(30,402
)
 
$
225,631

 
$
(115,996
)
Basic Earnings (Loss) Per Common Share Attributable to Tribune Media Company from:
 
 
 
 
 
 
 
Continuing Operations
$
0.96

 
$
(0.34
)
 
$
2.58

 
$
(1.51
)
Discontinued Operations
—

 
(0.01
)
 
—

 
0.17

Net Earnings (Loss) Per Common Share
$
0.96

 
$
(0.35
)
 
$
2.58

 
$
(1.34
)
Diluted Earnings (Loss) Per Common Share Attributable to Tribune Media Company from:
 
 
 
 
 
 
 
Continuing Operations
$
0.96

 
$
(0.34
)
 
$
2.55

 
$
(1.51
)
Discontinued Operations
—

 
(0.01
)
 
—

 
0.17

Net Earnings (Loss) Per Common Share
$
0.96

 
$
(0.35
)
 
$
2.55

 
$
(1.34
)
Regular dividends declared per common share
$
0.25

 
$
0.25

 
$
0.50

 
$
0.50

Special dividends declared per common share
$
—

 
$
—

 
$
—

 
$
5.77


See Notes to Unaudited Condensed Consolidated Financial Statements
2


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

 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Net Income (Loss)
$
84,438

 
$
(30,402
)
 
$
225,621

 
$
(115,996
)
Less: (Loss) Income from Discontinued Operations, net of taxes
—

 
(579
)
 
—

 
15,039

Net Income (Loss) from Continuing Operations
84,438

 
(29,823
)
 
225,621

 
(131,035
)
 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss) from Continuing Operations, net of taxes
 
 
 
 
 
 
 
Pension and other post-retirement benefit items:
 
 
 
 
 
 
 
Change in unrecognized benefit plan gains and losses arising during the period, net of taxes of $(1,327) and $(285) for the three and six months ended June 30, 2018 and June 30, 2017, respectively
(3,827
)
 
(442
)
 
(3,827
)
 
(442
)
Adjustment for previously unrecognized benefit plan gains and losses included in net income, net of taxes of $(13) and $(23) for the three months ended June 30, 2018 and June 30, 2017, respectively, and $(29) and $(51) for the six months ended June 30, 2018 and June 30, 2017, respectively
(37
)
 
(36
)
 
(83
)
 
(80
)
Change in unrecognized benefit plan gains and losses, net of taxes
(3,864
)
 
(478
)
 
(3,910
)
 
(522
)
Marketable securities:
 
 
 
 
 
 
 
Change in unrealized holding gains and losses arising during the period, net of taxes of $(0) and $(60) for the three and six months ended June 30, 2017, respectively
—

 
(1
)
 
—

 
(95
)
Adjustment for gain on investment sale included in net income, net of taxes of $(1,961) for the six months ended June 30, 2017
—

 
—

 
—

 
(3,042
)
Change in marketable securities, net of taxes
—

 
(1
)
 
—

 
(3,137
)
Cash flow hedging instruments:
 
 
 
 
 
 
 
Unrealized gains and losses, net of taxes of $975 and $(2,107) for the three months ended June 30, 2018 and June 30, 2017, respectively, and $3,571 and $(3,454) for the six months ended June 30, 2018 and June 30, 2017, respectively
2,810

 
(3,269
)
 
10,297

 
(5,357
)
Gains and losses reclassified to net income, net of taxes of $112 and $621 for the three months ended June 30, 2018 and June 30, 2017, respectively, $326 and $1,129 for the six months ended June 30, 2018 and June 30, 2017, respectively
325

 
963

 
941

 
1,751

Change in unrecognized gains and losses on cash flow hedging instruments, net of taxes
3,135

 
(2,306
)
 
11,238

 
(3,606
)
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Change in foreign currency translation adjustments, net of taxes of $67 and $2,609 for the three months ended June 30, 2018 and June 30, 2017, respectively, and $58 and $2,710 for the six months ended June 30, 2018 and June 30, 2017, respectively
(702
)
 
5,052

 
(267
)
 
5,404

Other Comprehensive Income (Loss) from Continuing Operations, net of taxes
(1,431
)
 
2,267

 
7,061

 
(1,861
)
Comprehensive Income (Loss) from Continuing Operations, net of taxes
83,007

 
(27,556
)
 
232,682

 
(132,896
)
Comprehensive (Loss) Income from Discontinued Operations, net of taxes
—

 
(579
)
 
—

 
26,810

Comprehensive Income (Loss)
$
83,007

 
$
(28,135
)
 
$
232,682

 
$
(106,086
)
Comprehensive loss attributable to noncontrolling interests
4

 
—

 
10

 
—

Comprehensive Income (Loss) Attributable to Tribune Media Company
$
83,011

 
$
(28,135
)
 
$
232,692

 
$
(106,086
)

See Notes to Unaudited Condensed Consolidated Financial Statements
3


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

 
June 30, 2018
 
December 31, 2017
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
828,850

 
$
673,685

Restricted cash and cash equivalents
16,607

 
17,566

Accounts receivable (net of allowances of $4,287 and $4,814)
405,952

 
420,095

Broadcast rights
81,907

 
129,174

Income taxes receivable
17,916

 
18,274

Prepaid expenses
29,268

 
20,158

Other
21,754

 
14,039

Total current assets
1,402,254

 
1,292,991

Properties
 
 
 
Property, plant and equipment
653,426

 
673,682

Accumulated depreciation
(249,787
)
 
(233,387
)
Net properties
403,639

 
440,295

Other Assets
 
 
 
Broadcast rights
98,133

 
133,683

Goodwill
3,228,774

 
3,228,988

Other intangible assets, net
1,529,698

 
1,613,665

Assets held for sale
28,955

 
38,900

Investments
1,213,240

 
1,281,791

Other
154,625

 
139,015

Total other assets
6,253,425

 
6,436,042

Total Assets (1)
$
8,059,318

 
$
8,169,328


See Notes to Unaudited Condensed Consolidated Financial Statements
4


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

 
June 30, 2018
 
December 31, 2017
Liabilities and Shareholders’ Equity
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
46,526

 
$
48,319

Income taxes payable
43,155

 
36,252

Employee compensation and benefits
58,075

 
71,759

Contracts payable for broadcast rights
210,140

 
253,244

Deferred revenue
14,739

 
11,942

Interest payable
30,339

 
30,525

Deferred spectrum auction proceeds (Note 8)
—

 
172,102

Other
29,679

 
30,124

Total current liabilities
432,653

 
654,267

Non-Current Liabilities
 
 
 
Long-term debt (net of unamortized discounts and debt issuance costs of $32,917 and $36,332)
2,922,600

 
2,919,185

Deferred income taxes
528,150

 
508,174

Contracts payable for broadcast rights
232,093

 
300,420

Pension obligations, net
363,577

 
396,875

Postretirement, medical, life and other benefits
9,372

 
9,328

Other obligations
159,491

 
163,899

Total non-current liabilities
4,215,283

 
4,297,881

Total Liabilities (1)
4,647,936

 
4,952,148

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 June 30, 2018 and at December 31, 2017
—

 
—

Class A Common Stock ($0.001 par value per share)
 
 
 
Authorized: 1,000,000,000 shares; 101,727,977 shares issued and 87,625,792 shares outstanding at June 30, 2018 and 101,429,999 shares issued and 87,327,814 shares outstanding at December 31, 2017
102

 
101

Class B Common Stock ($0.001 par value per share)
 
 
 
Authorized: 1,000,000,000 shares; Issued and outstanding: 5,557 shares at June 30, 2018 and December 31, 2017
—

 
—

Treasury stock, at cost: 14,102,185 shares at June 30, 2018 and December 31, 2017
(632,194
)
 
(632,194
)
Additional paid-in-capital
4,017,522

 
4,011,530

Retained earnings (deficit)
66,920

 
(114,240
)
Accumulated other comprehensive loss
(41,000
)
 
(48,061
)
Total Tribune Media Company shareholders’ equity
3,411,350

 
3,217,136

Noncontrolling interests
32

 
44

Total shareholders’ equity
3,411,382

 
3,217,180

Total Liabilities and Shareholders’ Equity  
$
8,059,318

 
$
8,169,328

 
(1)
The Company’s consolidated total assets as of June 30, 2018 and December 31, 2017 include total assets of variable interest entities (“VIEs”) of $74 million and $81 million, respectively, which can only be used to settle the obligations of the VIEs. The Company’s consolidated total liabilities as of June 30, 2018 and December 31, 2017 include total liabilities of the VIEs of $26 million and $29 million, respectively, for which the creditors of the VIEs have no recourse to the Company (see Note 1).

See Notes to Unaudited Condensed Consolidated Financial Statements
5


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

 
 
Retained (Deficit)
Earnings
Accumulated Other Comprehensive (Loss) Income
Additional Paid-In Capital
 
 
Common Stock
 
Total
 
 
Class A
 
Class B
Treasury Stock
Non-
controlling Interests
Amount (at Cost)
Shares
 
Amount (at Cost)
Shares
Balance at December 31, 2017
$
3,217,180

$
(114,240
)
$
(48,061
)
$
4,011,530

$
(632,194
)
$
44

$
101

101,429,999

 
$
—

5,557

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
225,621

225,631

—

—

—

(10
)
—

—

 
—

—

Other comprehensive income, net of taxes
7,061

—

7,061

—

—

—

—

—

 
—

—

Comprehensive income
232,682

 
 
 
 
 
 
 
 
 
 
Regular dividends declared to shareholders and warrant holders, $0.50 per share (1)
(43,847
)
(44,471
)
—

624

—

—

—

—

 
—

—

Stock-based compensation
10,511

—

—

10,511

—

—

—

—

 
—

—

Net share settlements of stock-based awards
(5,142
)
—

—

(5,143
)
—

—

1

297,978

 
—

—

Distributions to noncontrolling interest
(2
)
—

—

—

—

(2
)
—

—

 
—

—

Balance at June 30, 2018
$
3,411,382

$
66,920

$
(41,000
)
$
4,017,522

$
(632,194
)
$
32

$
102

101,727,977

 
$
—

5,557

 
(1) Includes $0.6 million of granted dividend equivalent units.


See Notes to Unaudited Condensed Consolidated Financial Statements
6


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

 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
Operating Activities
 
 
 
Net income (loss)
$
225,621

 
$
(115,996
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Stock-based compensation
10,511

 
22,093

Pension credit and contributions
(38,027
)
 
(11,024
)
Depreciation
27,056

 
27,498

Amortization of contract intangible assets and liabilities
440

 
429

Amortization of other intangible assets
83,368

 
83,323

Income on equity investments, net
(91,705
)
 
(77,798
)
Distributions from equity investments
158,926

 
149,650

Non-cash loss on extinguishment and modification of debt
—

 
6,823

Original issue discount payments
—

 
(6,873
)
Write-downs of investment
—

 
180,800

Amortization of debt issuance costs and original issue discount
3,718

 
4,127

Gain on sales of spectrum (Note 8)
(133,197
)
 
—

Gain on sale of business
—

 
(34,510
)
Gain on investment transactions
(3,888
)
 
(4,950
)
Gain on sales of real estate, net
—

 
(300
)
Other non-operating gain, net
(91
)
 
(45
)
Changes in working capital items:
 
 
 
Accounts receivable, net
12,917

 
32,074

Prepaid expenses and other current assets
(16,825
)
 
14,659

Accounts payable
(1,857
)
 
(8,896
)
Employee compensation and benefits, accrued expenses and other current liabilities
(13,993
)
 
(17,014
)
Deferred revenue
2,801

 
(2,726
)
Income taxes
7,271

 
24,756

Change in broadcast rights, net of liabilities
(28,612
)
 
(11,893
)
Deferred income taxes
17,405

 
(141,944
)
Other, net
(898
)
 
10,434

Net cash provided by operating activities
220,941

 
122,697

 
 
 
 
Investing Activities
 
 
 
Capital expenditures
(24,947
)
 
(28,099
)
Net proceeds from the sale of business
—

 
554,487

Sale of partial interest in equity investment
833

 
—

Proceeds from sales of real estate and other assets
58

 
59,751

Proceeds from the sale of investments
3,057

 
4,950

Other, net
3,255

 
805

Net cash (used in) provided by investing activities
(17,744
)
 
591,894


See Notes to Unaudited Condensed Consolidated Financial Statements
7


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

 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
Financing Activities
 
 
 
Long-term borrowings
—

 
202,694

Repayments of long-term debt
—

 
(589,661
)
Long-term debt issuance costs
—

 
(1,689
)
Payments of dividends
(43,847
)
 
(542,665
)
Tax withholdings related to net share settlements of share-based awards
(5,723
)
 
(7,351
)
Proceeds from stock option exercises
581

 
10,013

(Distributions to)/contributions from noncontrolling interests
(2
)
 
1,003

Net cash used in financing activities
(48,991
)
 
(927,656
)
 
 
 
 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
154,206

 
(213,065
)
Cash, cash equivalents and restricted cash, beginning of period (1)
691,251

 
611,198

Cash, cash equivalents and restricted cash, end of period
$
845,457

 
$
398,133

 
 
 
 
Cash, Cash Equivalents and Restricted Cash are Comprised of:
 
 
 
Cash and cash equivalents
$
828,850

 
$
380,567

Restricted cash
16,607

 
17,566

Total cash, cash equivalents and restricted cash
$
845,457

 
$
398,133

 
 
 
 
Supplemental Schedule of Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
   Interest
$
79,027

 
$
76,264

   Income taxes, net
$
64,294

 
$
68,685

 
(1)
Cash, cash equivalents and restricted cash at the beginning of the six months ended June 30, 2017 of $611 million are comprised of $595 million of cash, cash equivalents and restricted cash from continuing operations as reflected in the Company’s unaudited Condensed Consolidated Balance Sheets and $16 million of cash, cash equivalents and restricted cash reflected in current assets of discontinued operations.

See Notes to Unaudited Condensed Consolidated Financial Statements
8

    

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

        

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Presentation—All references to Tribune Media Company or Tribune Company in the accompanying unaudited condensed consolidated financial statements encompass the historical operations of Tribune Media Company and its subsidiaries (collectively, the “Company”).
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017 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 June 30, 2018 and the results of operations and cash flows for the three and six months ended June 30, 2018 and June 30, 2017. All adjustments reflected in the accompanying unaudited condensed consolidated financial statements, which management believes necessary to state fairly the financial position, results of operations and cash flows, have been reflected and are of a normal recurring nature. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
On January 31, 2017, the Company completed the Gracenote Sale (as defined below). The historical results of operations for the businesses included in the Gracenote Sale are presented in discontinued operations for all periods presented (see Note 2). Unless indicated otherwise, the information in the notes to the accompanying unaudited condensed consolidated financial statements relates to the Company’s continuing operations.
Sinclair Merger Agreement—On May 8, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sinclair Broadcast Group, Inc. (“Sinclair”), providing for the acquisition by Sinclair of all of the outstanding shares of the Company’s Class A common stock (“Class A Common Stock”) and Class B common stock (“Class B Common Stock” and, together with the Class A Common Stock, the “Common Stock”) by means of a merger of Samson Merger Sub Inc., a wholly owned subsidiary of Sinclair, with and into Tribune Media Company (the “Merger”), with Tribune Media Company surviving the Merger as a wholly owned subsidiary of Sinclair.
In the Merger, each share of the Company’s Common Stock would have been converted into the right to receive (i) $35.00 in cash, without interest and less any required withholding taxes (such amount, the “Cash Consideration”), and (ii) 0.2300 (the “Exchange Ratio”) of a validly issued, fully paid and nonassessable share of Class A common stock, $0.01 par value per share (the “Sinclair Common Stock”), of Sinclair (the “Stock Consideration,” and together with the Cash Consideration, the “Merger Consideration”).
The consummation of the Merger was subject to the satisfaction or waiver of certain important conditions, including, among others: (i) the approval of the Merger by the Company’s stockholders, (ii) the receipt of approval from the Federal Communications Commission (the “FCC”) and the expiration or termination of the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and (iii) the effectiveness of a registration statement on Form S-4 registering the Sinclair Common Stock to be issued in connection with the Merger and no stop order or proceedings seeking the same having been initiated by the Securities and Exchange Commission (the “SEC”).
Pursuant to Section 7.1(e) of the Merger Agreement, Sinclair was “entitled to direct, in consultation with the Company, the timing for making, and approve (such approval not to be unreasonably withheld) the content of, any filings with or presentations or submissions to any Governmental Authority relating to this Agreement or the transactions contemplated hereby and to take the lead in the scheduling of, and strategic planning for, any meetings with, and the conducting of negotiations with, Governmental Authorities relating to this Agreement or the transactions contemplated hereby.” Applications to regulatory authorities made jointly by Sinclair and Tribune in



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



connection with the Merger were made at the direction of Sinclair pursuant to its authority under this provision of the Merger Agreement.
On September 6, 2017, Sinclair’s registration statement on Form S-4 registering the Sinclair Common Stock to be issued in the Merger was declared effective by the SEC.
On October 19, 2017, holders of a majority of the outstanding shares of the Company’s Class A Common Stock and Class B Common Stock, voting as a single class, voted on and approved the Merger Agreement and the transactions contemplated by the Merger Agreement at a duly called special meeting of Tribune Media Company shareholders.
The applications seeking FCC approval of the transactions contemplated by the Merger Agreement (the “Applications”) were filed on June 26, 2017, and the FCC issued a public notice of the filing of the Applications and established a comment cycle on July 6, 2017. Several petitions to deny the Applications, and numerous other comments, both opposing and supporting the transaction, were filed in response to the public notice. Sinclair and Tribune jointly filed an opposition to the petitions to deny on August 22, 2017 (the “Joint Opposition”). Petitioners and others filed replies to the Joint Opposition on August 29, 2017. On September 14, 2017, the FCC’s Media Bureau issued a Request for Information (“RFI”) seeking additional information regarding certain matters discussed in the Applications. Sinclair submitted a response to the RFI on October 5, 2017. On October 18, 2017, the FCC’s Media Bureau issued a public notice pausing the FCC’s 180-day transaction review “shot-clock” for 15 days to afford interested parties an opportunity to comment on the response to the RFI. On January 11, 2018, the FCC’s Media Bureau issued a public notice pausing the FCC’s shot-clock as of January 4, 2018 until Sinclair has filed amendments to the Applications along with divestiture applications and the FCC staff has had an opportunity to review any such submissions. On February 20, 2018, the parties filed an amendment to the Applications (the “February 20 Amendment”) that, among other things, (1) requested authority under the Duopoly Rule for Sinclair to own two top four rated stations in each of three television markets (the “Top-4 Requests”) and (2) identified stations (the “Divestiture Stations”) in 11 television markets that Sinclair proposed to divest in order for the Merger to comply with the Duopoly Rule and the National Television Multiple Ownership Rule. Concurrently, Sinclair filed applications (the “Divestiture Trust Applications”) proposing to place certain of the Divestiture Stations in an FCC-approved divestiture trust, if and as necessary, in order to facilitate the orderly divestiture of those stations following the consummation of the Merger. On February 27, 2018, in furtherance of certain undertakings made in the Applications and the February 20 Amendment, the parties filed separate applications seeking FCC approval of the sale of Tribune’s stations WPIX-TV, New York, New York, and WGN-TV, Chicago, Illinois, to third-party purchasers. On March 6, 2018, the parties filed an amendment to the Applications that, among other things, eliminated one of the Top-4 Requests and modified the remaining two Top-4 Requests. Also, on March 6, 2018, the parties modified certain of the Divestiture Trust Applications. On April 24, 2018, the parties jointly filed (1) an amendment to the Applications (the “April 24 Amendment”) that superseded all prior amendments and, among other things, updated the pending Top-4 Requests and provided additional information regarding station divestitures proposed to be made by Sinclair in 15 television markets in order to comply with the Duopoly Rule or the National Television Multiple Ownership Rule, (2) a letter withdrawing the Divestiture Trust Applications and (3) a letter withdrawing the application for approval of the sale of WPIX-TV to a third-party purchaser. In order to facilitate certain of the compliance divestitures described in the April 24 Amendment, between April 24, 2018 and April 30, 2018, Sinclair filed applications seeking FCC consent to the assignment of license or transfer of control of certain stations in 11 television markets.
On May 8, 2018, the Company, Sinclair Television Group, Inc. (“Sinclair Television”) and Fox Television Stations, LLC (“Fox”) entered into an asset purchase agreement (the “Fox Purchase Agreement”) to sell the assets of seven network affiliates of the Company for $910 million in cash, subject to post-closing adjustments. The network affiliates subject to the Fox Purchase Agreement are: KCPQ (Tacoma, WA); KDVR (Denver, CO); KSTU (Salt Lake City, UT); KSWB-TV (San Diego, CA); KTXL (Sacramento, CA); WJW (Cleveland, OH); and WSFL-TV (Miami, FL). The closing of the sale pursuant to the Fox Purchase Agreement (the “Closing”) was subject to approval of the FCC and clearance under the HSR Act, as well as the satisfaction or waiver of all conditions of the consummation of the Merger, which was scheduled to occur immediately following the Closing. In connection with the termination of



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



the Merger Agreement on August 9, 2018 (as described below), the Company provided notification to Fox that it has terminated the Fox Purchase Agreement, effective immediately.
On May 14, 2018, Sinclair and Tribune filed applications for FCC approval of additional station divestitures to Fox pursuant to the Fox Purchase Agreement. On May 21, 2018, the FCC issued a consolidated public notice accepting the divestiture applications filed between April 24, 2018 and May 14, 2018, for filing and seeking comment on those applications and on the April 24 Amendment, and establishing a comment cycle ending on July 12, 2018.
On July 16, 2018, the Chairman of the FCC issued a statement that he had “serious concerns about the Sinclair/Tribune transaction” because of evidence suggesting “that certain station divestitures that have been proposed to the FCC would allow Sinclair to control [the divested] stations in practice, even if not in name, in violation of the law,” and that he had circulated to the other Commissioners “a draft order that would designate issues involving certain proposed divestitures for a hearing in front of an administrative law judge.”
On July 18, 2018, at the direction of Sinclair pursuant to its authority under the Merger Agreement, Sinclair and Tribune jointly filed an amendment to the Applications reflecting that the applications for divestiture of WGN-TV (Chicago), KDAF (Dallas), and KIAH (Houston) filed in connection with the April 24 Amendment were being withdrawn, that WGN-TV would not be divested, and that KDAF and KIAH would be placed in a divestiture trust pending sales to one or more new third parties. The applications for divestiture of WGN-TV, KDAF and KIAH were withdrawn by concurrent letter filings. On July 19, 2018, the FCC released a Hearing Designation Order (“HDO”) referring the Applications to an FCC Administrative Law Judge (“ALJ”) for an evidentiary hearing to resolve what the FCC concluded are “substantial and material questions of fact” regarding (1) whether Sinclair was the real party-in-interest to the divestiture applications for WGN-TV, KDAF, and KIAH, and, if so, whether Sinclair engaged in misrepresentation and/or lack of candor in its applications with the FCC; (2) whether consummation of the merger would violate the FCC’s broadcast ownership rules; (3) whether grant of the Applications would serve the public interest, convenience, and/or necessity; and (4) whether the Applications should be granted or denied. The HDO designated as parties to the proceeding the FCC’s Enforcement Bureau and persons who had filed formal petitions to deny the Applications, and directed the ALJ to establish a procedural schedule by Friday, August 24, 2018.
On August 2, 2017, the Company received a request for additional information and documentary material, often referred to as a “second request,” from the United States Department of Justice (the “DOJ”) in connection with the Merger Agreement. The second request was issued under the HSR Act. Sinclair received a substantively identical request for additional information and documentary material from the DOJ in connection with the transactions contemplated by the Merger Agreement. The parties entered into an agreement with the DOJ on September 15, 2017 by which they agreed not to consummate the Merger Agreement before certain dates related to their certification of substantial compliance with the second request (which occurred in November 2017) and to provide the DOJ with 10 calendar days’ notice prior to consummating the Merger Agreement. Although Sinclair and the DOJ reached agreement on a term sheet identifying the markets in which stations would have to be divested, they did not reach a definitive settlement and their discussions on significant provisions remained ongoing as of August 2018.
Pursuant to the Merger Agreement, the Company had the right to terminate the Merger Agreement if Sinclair failed to perform in all material respects its covenants, and such failure was not cured by the end date of August 8, 2018. Additionally, either party may terminate the Merger Agreement if the Merger is not consummated on or before August 8, 2018 (and the failure for the Merger to have been consummated by such date was not primarily due to a breach of the Merger Agreement by the party terminating the Merger Agreement). On August 9, 2018, the Company provided notification to Sinclair that it had terminated the Merger Agreement, effective immediately, on the basis of Sinclair’s willful and material breaches of its covenants and the expiration of the second end date thereunder. See Note 17 for additional information on the termination of the Merger Agreement.



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



Change in Accounting Principles—In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“Topic 606”). The amendments in ASU 2014-09 created Topic 606 and superseded the revenue recognition requirements in Topic 605, “Revenue Recognition.” The Company adopted the new revenue guidance in the first quarter of 2018 using the modified retrospective transition method applied to those contracts which were not completed as of December 31, 2017. Results for reporting periods prior to adoption continue to be presented in accordance with the Company’s historic accounting under Topic 605.
The only identified impact to the Company’s financial statements relates to barter revenue and expense as well as barter-related broadcast rights and contracts payable for broadcast rights, which are no longer recognized. On January 1, 2018, the Company recorded an adjustment to remove the offsetting barter-related broadcast rights and contracts payable for broadcast rights. If accounted for under Topic 605, barter revenue and expense would have been $7 million and $14 million for the three and six months ended June 30, 2018, respectively, and barter-related broadcast rights and contracts payable for broadcast rights would have been $35 million as of June 30, 2018. For the three and six months ended June 30, 2017, barter revenue was $7 million and $14 million, respectively. Barter-related broadcast rights and contracts payable for broadcast rights were each $45 million as of December 31, 2017. Other than the impact to the accounting for barter arrangements described above, the adoption of Topic 606 did not impact the timing and amount of revenue recognized. See the Revenue Recognition accounting policy below for additional information.
In March 2018, the FASB issued ASU No. 2018-05, “Income Taxes (Topic 740)” which was effective in the first quarter of 2018. The standard provides guidance for situations where the accounting under Accounting Standards Codification (“ASC”) Topic 740 is incomplete for certain income tax effects of the Tax Cuts and Jobs Act (“Tax Reform”) upon issuance of an entity’s financial statements for the reporting period in which Tax Reform was enacted. Any provisional amounts or adjustments to provisional amounts as a result of obtaining, preparing or analyzing additional information about facts and circumstances related to the provisional amounts should be included in income (loss) from continuing operations as an adjustment to income tax expense in the reporting period the amounts are determined. As discussed in Note 9, the Company notes that adjustments may be made to the provision upon issuances of clarifications to existing law or additional technical guidance from the Department of Treasury and the completion of the Company’s tax return filings. If any adjustments are made to the provisional amount, the Company will record the adjustment to income tax expense in the period the adjustment is determined.
In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715).” Under the new guidance, employers are required to present the service cost component of net periodic benefit cost in the same statement of operations caption as other employee compensation costs arising from services rendered during the period. Employers are required to present the other components of the net periodic benefit cost separately from the caption that includes the service costs and outside of any subtotal of operating profit and are required to disclose the caption used to present the other components of net periodic benefit cost, if not presented separately on the statement of operations. The Company retrospectively adopted ASU 2017-07 effective in the first quarter of 2018. The adoption of this standard did not have an effect on the Company’s historically reported net income (loss) but resulted in a presentation reclassification which reduced the Company’s historically reported operating profit by $6 million and $11 million for the three and six months ended June 30, 2017, respectively, and $23 million for the full year 2017.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).” As a result of the new guidance, the guidance specific to real estate sales in ASC 360-20 is eliminated. Instead, sales and partial sales of real estate are subject to the same recognition model as all other nonfinancial assets. The Company adopted ASU 2017-05 in the first quarter of 2018 using a modified retrospective transition method. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230).” The standard requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard also requires additional disclosures related to a reconciliation of the balance sheet line items related to cash, cash equivalents, restricted cash and restricted cash equivalents to the statement of cash flows. The Company retrospectively adopted ASU 2016-18 in the first quarter of 2018. The Company’s restricted cash and cash equivalents totaled $18 million at both December 31, 2017 and December 31, 2016. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230).” The cash flow issues addressed include debt prepayment or extinguishment costs, settlement of debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, distributions received from equity method investees and cash receipts and payments that may have aspects of more than one class of cash flows. The Company retrospectively adopted ASU 2016-15 in the first quarter of 2018. The adoption of this standard did not have a material impact on the Company’s 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. Certain entities are able to elect to record equity investments without readily determinable fair values at cost, less impairment, and plus or minus subsequent adjustments for observable price changes. Entities that elect this measurement alternative must report changes in the carrying value of these investments in current earnings. On February 28, 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which made targeted improvements to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including clarifying certain aspects of the guidance issued in ASU 2016-01. The Company adopted ASU 2016-01 in the first quarter of 2018 using a modified retrospective transition method. Pursuant to ASU 2018-03, the Company utilized the prospective transition approach for all equity securities without a readily determinable fair value for instances in which the Company elected to apply the measurement alternative, as further discussed in Note 5. The adoption of these standards did not have a material impact on the Company’s consolidated financial statements as the Company’s equity investments under the scope of this ASU do not have readily determinable fair values because they are not publicly traded companies and do not have an active market for their securities or membership interests.
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, 2017.
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.
Revenue Recognition—The Company recognizes revenues when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



The following table represents the Company’s revenues disaggregated by revenue source for the Television and Entertainment segment (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017 (1)
 
June 30, 2018
 
June 30, 2017 (1)
Advertising
$
311,431

 
$
312,864

 
$
581,870

 
$
604,571

Retransmission revenues
117,185

 
104,999

 
235,327

 
199,213

Carriage fees
40,815

 
31,867

 
82,477

 
65,477

Barter/trade (2)
2,388

 
9,481

 
4,482

 
18,493

Other
14,598

 
6,850

 
22,963

 
14,340

Total operating revenues
$
486,417

 
$
466,061

 
$
927,119

 
$
902,094

 
(1)
Prior period amounts have not been adjusted under the modified retrospective method.
(2)
For the three and six months ended June 30, 2017, barter/trade revenue includes $7 million and $14 million of barter revenue, respectively.
In addition to the operating revenues included in the Television and Entertainment segment, the Company’s consolidated operating revenues include other revenue of $3 million for each of the three months ended June 30, 2018 and June 30, 2017 and $6 million and $7 million for the six months ended June 30, 2018 and June 30, 2017, respectively, in Corporate and Other which consists of real estate revenues.
Advertising Revenues—The Company generates revenue by delivering advertising on the Company’s broadcast television, cable, radio and digital platforms. The contracts are typically short term in nature and revenue is recognized over time as the advertisements are aired or the impressions are delivered. Certain of the Company’s advertising contracts have guarantees whereby the customer is guaranteed a certain number of audience member views referred to as impressions. Certain of the Company’s customers are advertising agencies. Advertising revenue from advertising agencies is recognized net of agency commissions. Under the advertising contracts, the Company is entitled to payment as advertisements are aired, and the time between invoice and payment is not significant. The Company also trades advertising for products or services. Revenue recognized under trade arrangements is valued at the estimated fair value of the products or services received and recognized as the related advertisements are aired. The Company utilizes the practical expedients provided in the guidance and does not disclose the value of unsatisfied performance obligations for advertising contracts with an original expected duration of one year or less and for contracts for which the Company recognizes revenue at the amounts to which the Company has the right to invoice for services performed.
Retransmission Revenues and Carriage Fees—The Company enters into agreements with multichannel video programming distributors (“MVPDs”) which allow the MVPDs to retransmit the Company’s television stations’ broadcast programming and/or carry the Company’s cable channel. Typically, the agreements are multi-year and generally consist of a fixed price per subscriber as well as contractually agreed annual increases. The agreements are considered functional licenses of intellectual property resulting in the Company recognizing revenue at the point-in-time the broadcast signal is delivered to the MVPDs. The typical time between the Company’s performance and customer payment is not significant. As the agreements with MVPDs are considered licenses of intellectual property, the Company applies the sales/usage based royalty exception in ASC 606 and does not disclose the value of unsatisfied performance obligations for the agreements.
Deferred Revenues—The Company records deferred revenue when cash payments are received or due in advance of the Company’s performance. For advertising, the performance primarily involves the delivery of advertisements and/or audience impressions to the Company’s customers. For the spectrum sharing arrangements where the Company is acting as the host, the upfront payments received from the Company’s channel-sharing customers have been deferred and are being recognized over a 30-year term.
Contract Costs—In accordance with Topic 606, incremental costs to obtain a contract are capitalized and amortized over the contract term if the cost are expected to be recoverable. The Company does not capitalize incremental costs



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



to obtain a contract where the contract duration is expected to be one year or less. As of June 30, 2018, the Company does not have any costs capitalized.
Arrangements with Multiple Performance Obligations—The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price, which is generally determined based on the price charged to customers.
Dreamcatcher—Dreamcatcher Broadcasting LLC (“Dreamcatcher”) was formed in 2013 specifically to comply with the cross-ownership rules of the FCC related to the Company’s acquisition of Local TV, LLC on December 27, 2013 (the “Local TV Acquisition”). See Note 1 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017 for additional information. The Company’s unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2018 and June 30, 2017 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 the three months ended June 30, 2018 and June 30, 2017 were $19 million and $18 million, respectively, and for the six months ended June 30, 2018 and June 30, 2017, were $37 million and $35 million, respectively. Operating profits of the Dreamcatcher stations included in the Company’s unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2018 and June 30, 2017 were $5 million and $4 million, respectively, and for the six months ended June 30, 2018 and June 30, 2017 were $8 million and $6 million, respectively. In 2017, Dreamcatcher received pretax proceeds from the counterparty in a spectrum sharing arrangement of approximately $26 million as one of the Dreamcatcher stations will act as a host station. The payments have been recorded as deferred revenue and began amortizing to the unaudited Condensed Consolidated Statement of Operations upon commencement of the sharing arrangement in December 2017. See Note 8 for additional information regarding the Company’s participation in the FCC spectrum auction.
The Company’s unaudited Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 include the following assets and liabilities of the Dreamcatcher stations (in thousands):
 
June 30, 2018
 
December 31, 2017
Broadcast rights
580

 
2,622

Other intangible assets, net
66,650

 
71,914

Other assets
6,825

 
6,852

Total Assets
$
74,055

 
$
81,388

 
 
 
 
Contracts payable for broadcast rights
787

 
2,691

Long-term deferred revenue
24,597

 
25,030

Other liabilities
899

 
1,017

Total Liabilities
$
26,283

 
$
28,738

New Accounting Standards—In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220).” The standard allows entities, at their option, to reclassify from accumulated other comprehensive income (loss) (“AOCI”) to retained earnings stranded tax effects resulting from Tax Reform. See Note 9 for further details regarding Tax Reform. The standard is effective for fiscal years beginning after December 15, 2018, and the interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the new federal corporate income tax rate is recognized. The Company is currently evaluating the impact of adopting ASU 2018-02 on its consolidated financial statements.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815).” The standard simplifies the application of the hedge accounting guidance and enables entities to better portray the economic results of their risk management activities in the financial statements. The new guidance eliminates the requirement and the ability to separately record ineffectiveness on cash flow and net investment hedges and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The standard requires certain additional disclosures that focus on the effect of hedge accounting whereas the disclosure of hedge ineffectiveness is eliminated. The amendments expand the types of permissible hedging strategies. Additionally, the amendment makes the hedge documentation and effectiveness assessment less complex. The standard is effective for fiscal years beginning after December 15, 2018, and the interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2017-12 related to cash flow hedge relationships that exist on the date of adoption should be applied using a modified retrospective approach with the cumulative effect of initially applying ASU 2017-12 at the date of initial application. The presentation and disclosure requirements apply prospectively. The Company is currently evaluating the impact of adopting ASU 2017-12 on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The standard requires entities to estimate loss of financial assets measured at amortized cost, including trade receivables, debt securities and loans, using an expected credit loss model. The expected credit loss differs from the previous incurred losses model primarily in that the loss recognition threshold of “probable” has been eliminated and that expected loss should consider reasonable and supportable forecasts in addition to the previously considered past events and current conditions. Additionally, the guidance requires additional disclosures related to the further disaggregation of information related to the credit quality of financial assets by year of the asset’s origination for as many as five years. Entities must apply the standard provision as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-13 on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Subtopic 842).” The new guidance requires lessees to recognize assets and liabilities arising from leases as well as 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. In January 2018, the FASB issued ASU No. 2018-01, “Leases (Topic 842) - Land Easement Practical Expedient for Transition to Topic 842,” which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. The effective date and transition requirements for ASU 2018-01 are the same as ASU 2016-02. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU No. 2018-11, “Leases (Topic 842), Targeted Improvements,” which affect certain aspects of the previously issued guidance including an additional transition method as well as a new practical expedient for lessors. The effective date and transition requirements for ASU 2018-10 and ASU 2018-11 are the same as ASU 2016-02. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2016-02, ASU 2018-01, ASU 2018-10 and ASU 2018-11 on its consolidated financial statements.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



NOTE 2: DISCONTINUED OPERATIONS
Sale of Digital and Data Businesses—On December 19, 2016, the Company entered into a definitive share purchase agreement (the “Gracenote SPA”) with Nielsen Holding and Finance B.V. (“Nielsen”) to sell equity interests in substantially all of the Digital and Data business operations, which included Gracenote Inc., Gracenote Canada, Inc., Gracenote Netherlands Holdings B.V., Tribune Digital Ventures LLC and Tribune International Holdco, LLC (the “Gracenote Companies”), for $560 million in cash, subject to certain purchase price adjustments (the “Gracenote Sale”). The Company retained its ownership of Covers Media Group (“Covers”), which was previously included in the Digital and Data reportable segment, and reclassified Covers’ previously reported amounts into the Television and Entertainment reportable segment to conform to the current segment presentation; the impact of this reclassification was immaterial. The Gracenote Sale was completed on January 31, 2017 and the Company received gross proceeds of $581 million. In the second quarter of 2017, the Company received additional proceeds of $3 million as a result of purchase price adjustments. In the year ended December 31, 2017, the Company recognized a total net pretax gain of $33 million, of which $35 million was recognized in the six months ended June 30, 2017, as a result of the Gracenote Sale. On February 1, 2017, the Company used $400 million of proceeds from the Gracenote Sale to prepay a portion of its Term Loan Facility (as defined and described in Note 6).
The operating results of the businesses included in the Gracenote Sale are presented as discontinued operations in the Company’s unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for all periods presented.
The Company entered into a transition services agreement (the “Nielsen TSA”) and certain other agreements with Nielsen that governed the relationships between Nielsen and the Company following the Gracenote Sale. The transition services agreement expired on March 31, 2018. Pursuant to the Nielsen TSA, the Company provided Nielsen with certain specified services on a transitional basis, including support in areas such as human resources, treasury, technology, legal and finance. In addition, the Nielsen TSA outlined the services that Nielsen provided to the Company on a transitional basis, including in areas such as human resources, technology, and finance. The charges for the transition services generally allowed the providing company to fully recover all out-of-pocket costs and expenses it actually incurred in connection with providing the services, plus, in some cases, the allocated direct costs of providing the services, generally without profit. Based on the Company’s assessment of the specific factors identified in ASC Topic 205, “Presentation of Financial Statements,” the Company concluded that it did not have significant continuing involvement in the Gracenote Companies.



17



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



The following table shows the components of the results from discontinued operations associated with the Gracenote Sale as reflected in the unaudited Condensed Consolidated Statements of Operations (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2017 (1)(2)
 
June 30, 2017 (1)(2)
Operating revenues
$
—

 
$
18,168

Direct operating expenses
—

 
7,292

Selling, general and administrative
—

 
15,349

Operating loss
—

 
(4,473
)
Interest income
—

 
16

Interest expense (3)
—

 
(1,261
)
Loss before income taxes
—

 
(5,718
)
Pretax (loss) gain on the disposal of discontinued operations
(952
)
 
34,510

Total pretax (loss) income on discontinued operations
(952
)
 
28,792

Income tax (benefit) expense (4)
(373
)
 
13,753

(Loss) income from discontinued operations, net of taxes
$
(579
)
 
$
15,039

 
(1)
Results of operations for the Gracenote Companies are reflected through January 31, 2017, the date of the Gracenote Sale.
(2)
No depreciation expense or amortization expense was recorded by the Company in 2017 as the Gracenote Companies’ assets were held for sale as of December 31, 2016.
(3)
The Company used $400 million of proceeds from the Gracenote Sale to prepay a portion of its outstanding borrowings under the Company’s Term Loan Facility (as defined and described in Note 6). Interest expense associated with the Company’s outstanding Term Loan Facility was allocated to discontinued operations based on the ratio of the $400 million prepayment to the total outstanding indebtedness under the Term Loan Facility in effect in each respective period.
(4)
The effective tax rates on pretax (loss) income from discontinued operations were 39.2% for the three months ended June 30, 2017 and 47.8% for the six months ended June 30, 2017. The 2017 rate differs from the U.S. federal statutory rate of 35% primarily due to state income taxes (net of federal benefit), foreign tax rate differences, and an adjustment relating to the sale of the Gracenote Companies.
The results of discontinued operations include selling costs and transactions costs, including legal and professional fees incurred by the Company to complete the Gracenote Sale, of $10 million for the six months ended June 30, 2017.
The Gracenote SPA provides for indemnification against specified losses and damages which became effective upon completion of the transaction. The Company does not expect to incur material costs in connection with these indemnifications. The Company has no material contingent liabilities relating to the Gracenote Sale as of June 30, 2018.



18



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



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

Significant investing items (2):
 
Capital expenditures
1,578

Net proceeds from the sale of business (3)
554,487

 
(1)
Results of operations for the Gracenote Companies are reflected through January 31, 2017, the date of the Gracenote Sale.
(2)
Non-cash investing and financing activities of Digital and Data businesses included in the Gracenote Sale were immaterial.
(3)
Net proceeds from the sale of business reflects the gross proceeds from the Gracenote sale of $584 million, net of $20 million of the Gracenote Companies’ cash, cash equivalents and restricted cash included in the sale and $9 million of selling costs.
NOTE 3: REAL ESTATE SALES AND ASSETS HELD FOR SALE
Assets Held for Sale—Assets held for sale in the Company’s unaudited Condensed Consolidated Balance Sheets consisted of the following (in thousands):
 
June 30, 2018
 
December 31, 2017
Real estate
$
28,955

 
$
—

FCC licenses
—

 
38,900

Total assets held for sale
$
28,955

 
$
38,900

Real Estate Assets Held for Sale—As of June 30, 2018, the Company had one real estate property held for sale.
Sales of Real Estate—In the six months ended June 30, 2017, the Company sold six properties for net pretax proceeds totaling $60 million, as further described below. The Company defines net proceeds as pretax cash proceeds on the sale of properties, net of associated selling costs.
On January 26, 2017, the Company sold its Denver, CO property for net proceeds of $23 million, which approximated the carrying value, and entered into a lease for the property. On January 31, 2017, the Company sold one of its Chicago, IL properties for net proceeds of $22 million and entered into a lease with a term of 10 years, subject to renewal, retaining the use of more than a minor portion of the property. The Company recorded a deferred pretax gain of $13 million on the sale, which will be amortized over the life of the lease in accordance with sale-leaseback accounting guidance.
On April 21, 2017, the Company sold two of its Chicago, IL properties for net proceeds of less than $1 million. On May 22, 2017, the Company sold two of its Baltimore, MD properties for net proceeds of $15 million. The net proceeds on the sales of these properties approximated their respective carrying values.
FCC Licenses—As of December 31, 2017, certain FCC licenses that were part of the FCC spectrum auction were included in assets held for sale. The gross proceeds received for these licenses in 2017 totaled $172 million and were reflected in current liabilities in the Company’s unaudited Condensed Consolidated Balance Sheet at December 31, 2017. The Company recognized a net gain of $133 million in the first quarter of 2018 related to the surrender of the spectrum associated with these licenses in January 2018. See Note 8 for additional information regarding the Company’s participation in the FCC spectrum auction.



19



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



NOTE 4: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the following (in thousands):
 
June 30, 2018
 
December 31, 2017
 
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

 
$
(72,875
)
 
$
139,125

 
$
212,000

 
$
(66,250
)
 
$
145,750

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

 
(115,500
)
 
52,500

 
168,000

 
(105,000
)
 
63,000

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

 
(196,143
)
 
165,857

 
362,000

 
(175,337
)
 
186,663

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

 
(422,053
)
 
408,047

 
830,100

 
(377,033
)
 
453,067

Other (useful life of 5 to 15 years)
16,423

 
(7,354
)
 
9,069

 
16,650

 
(6,565
)
 
10,085

Total
$
1,588,523

 
$
(813,925
)
 
774,598

 
$
1,588,750

 
$
(730,185
)
 
858,565

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

 
 
 
 
 
740,300

Trade name
 
 
 
 
14,800

 
 
 
 
 
14,800

Total other intangible assets, net
 
 
 
 
1,529,698

 
 
 
 
 
1,613,665

Goodwill
 
 
 
 
3,228,774

 
 
 
 
 
3,228,988

Total goodwill and other intangible assets
 
 
 
 
$
4,758,472

 
 
 
 
 
$
4,842,653


The changes in the carrying amounts of intangible assets, which are in the Company’s Television and Entertainment segment, during the six months ended June 30, 2018 were as follows (in thousands):
Other intangible assets subject to amortization
 
Balance as of December 31, 2017
$
858,565

Amortization
(83,808
)
Foreign currency translation adjustment
(159
)
Balance as of June 30, 2018
$
774,598

 
 
Other intangible assets not subject to amortization
 
Balance as of June 30, 2018 and December 31, 2017
$
755,100

 
 
Goodwill
 
Gross balance as of December 31, 2017
$
3,609,988

Accumulated impairment losses at December 31, 2017
(381,000
)
Balance at December 31, 2017
3,228,988

Foreign currency translation adjustment
(214
)
Balance as of June 30, 2018
$
3,228,774

Total goodwill and other intangible assets as of June 30, 2018
$
4,758,472

Amortization expense relating to amortizable intangible assets is expected to be approximately $83 million for the remainder of 2018, $140 million in 2019, $134 million in 2020, $103 million in 2021, $84 million in 2022 and $57 million in 2023.



20



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



NOTE 5: INVESTMENTS
Investments consisted of the following (in thousands):
 
June 30, 2018
 
December 31, 2017
Equity method investments
$
1,187,260

 
$
1,254,198

Other equity investments
25,980

 
27,593

Total investments
$
1,213,240

 
$
1,281,791

Equity Method Investments—Income on equity investments, net reported in the Company’s unaudited Condensed Consolidated Statements of Operations consisted of the following (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Income on equity investments, net, before amortization of basis difference
$
65,037

 
$
53,311

 
$
116,643

 
$
106,199

Amortization of basis difference
(12,469
)
 
(12,550
)
 
(24,938
)
 
(28,401
)
Income on equity investments, net
$
52,568

 
$
40,761

 
$
91,705

 
$
77,798

As discussed in Note 8 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017, the carrying value of the Company’s investments was increased by $1.615 billion to a fair value aggregating $2.224 billion as a result of fresh start reporting adopted on the Effective Date (as defined in Note 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 “Business Combinations.” The remaining $507 million of the increase was attributable to goodwill and other identifiable intangibles not subject to amortization, including trade names. The Company amortizes the differences between the fair values and the investees’ carrying values of the identifiable intangible assets subject to amortization and records the amortization (the “amortization of basis difference”) as a reduction of income on equity investments, net in its unaudited Condensed Consolidated Statements of Operations. The remaining identifiable net intangible assets subject to amortization of basis difference as of June 30, 2018 totaled $661 million and have a weighted average remaining useful life of approximately 15 years.
Cash distributions from the Company’s equity method investments were as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Cash distributions from equity investments
$
43,789

 
$
38,141

 
$
158,926

 
$
149,650

TV Food Network—The Company’s 31% investment in Television Food Network, G.P. (“TV Food Network”) totaled $1.163 billion and $1.234 billion at June 30, 2018 and December 31, 2017, respectively. The Company recognized equity income from TV Food Network of $43 million and $39 million for the three months ended June 30, 2018 and June 30, 2017, respectively, and $82 million and $77 million for the six months ended June 30, 2018 and June 30, 2017, respectively. The Company received cash distributions from TV Food Network of $38 million for each of the three months ended June 30, 2018 and June 30, 2017, and $153 million and $150 million in the six months ended June 30, 2018 and June 30, 2017, respectively.



21



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



CareerBuilder—The Company’s 6% investment (on a fully diluted basis, including CareerBuilder, LLC (“CareerBuilder”) employees’ equity awards) in CareerBuilder (through its investment in Camaro Parent, LLC) totaled $13 million and $10 million at June 30, 2018 and December 31, 2017, respectively. Pursuant to ASC Topic 323 “Investments - Equity Method and Joint Ventures,” the Company continues to account for CareerBuilder as an equity method investment. The Company recognized equity income, excluding impairment charges, from CareerBuilder of $10 million and $2 million for the three months ended June 30, 2018 and June 30, 2017, respectively, and equity income, excluding impairment charges, of $10 million and $2 million for the six months ended June 30, 2018 and June 30, 2017, respectively. The Company received cash distributions from CareerBuilder of $6 million for the three and six months ended June 30, 2018, of which $5 million related to a distribution of proceeds from CareerBuilder’s sale of one of its business operations on May 14, 2018. The Company’s share of the gain on sale was approximately $11 million, which is included in income on equity investments, net for the three and six months ended June 30, 2018.
On September 7, 2016, TEGNA Inc. (“TEGNA”) announced that it began evaluating strategic alternatives for CareerBuilder, including a possible sale. In 2017, the Company recorded total non-cash pretax impairment charges of $181 million, of which $59 million was recorded in the second quarter of 2017, to write-down the Company’s investment in CareerBuilder prior to the sale. The impairment charges resulted from a decline in the fair value of the investment that the Company determined to be other than temporary.
On June 19, 2017, TEGNA announced that it entered into an agreement (the “CareerBuilder Sale Agreement”), together with the other owners of CareerBuilder, including Tribune Media Company, to sell a majority interest in CareerBuilder to an investor group led by investment funds managed by affiliates of Apollo Global Management, LLC and the Ontario Teachers’ Pension Plan Board. The transaction closed on July 31, 2017 and the Company received cash of $158 million, which included an excess cash distribution of $16 million. The Company recognized a gain on sale of $4 million in 2017.
The CareerBuilder investment constitutes a nonfinancial asset measured at fair value on a nonrecurring basis in the Company’s unaudited Condensed Consolidated Balance Sheets and is classified as a Level 3 asset in the fair value hierarchy. See Note 7 for a description of the fair value hierarchy’s three levels.
Dose Media—The Company’s 25% investment in Dose Media, LLC (“Dose Media”) has a carrying value of zero as it was fully impaired as of December 31, 2017.
Summarized Financial Information—Summarized financial information for TV Food Network is as follows (in thousands):

Three Months Ended

Six Months Ended

June 30, 2018

June 30, 2017

June 30, 2018

June 30, 2017
Revenues, net
$
322,154

 
$
308,758

 
$
630,099

 
$
606,114

Operating income
$
171,788

 
$
197,474

 
$
334,544

 
$
390,156

Net income
$
176,289

 
$
164,878

 
$
341,878

 
$
324,339

Summarized financial information for CareerBuilder and Dose Media is as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Revenues, net
$
152,358

 
$
169,403

 
$
312,828

 
$
339,422

Operating income
$
9,731

 
$
3,180

 
$
16,061

 
$
10,034

Net income
$
100,833

 
$
5,508

 
$
98,657

 
$
13,248




22



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



Other Equity Investments—Other equity investments are investments without readily determinable fair values. All of the Company’s other equity investments are in private companies and have historically been recorded at cost, net of write-downs resulting from periodic evaluations of the carrying value of the investments. Upon adoption of ASU 2016-01 and ASU 2018-03, as further described in Note 1, the Company elected to use a measurement alternative for all investments without readily determinable fair values which allows the Company to measure the value of such equity investments at cost less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. Fair values associated with these investments will be remeasured either upon occurrence of an observable price change or upon identification of an impairment. Changes in the carrying value of these equity investments will be reflected in current earnings.
During the first quarter of 2018, the Company sold one of its other equity investments for $4 million and recognized a pretax gain of $4 million.
Chicago Cubs Transactions—As defined and further described in Note 8 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017, 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”). As of December 31, 2017, the guarantees were capped at $699 million plus unpaid interest. In the first quarter of 2018, New Cubs LLC refinanced a portion of the debt which was guaranteed by the Company and the Company ceased being a guarantor of the refinanced debt. As of June 30, 2018, the remaining guarantees were capped at $249 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.
Marketable Equity Securities—On August 4, 2014, the Company completed a spin-off of its publishing operations and retained 381,354 shares of tronc, Inc. (“tronc”) common stock, representing at that time 1.5% of the outstanding common stock of tronc. On January 31, 2017, the Company sold its tronc shares for net proceeds of $5 million and recognized a pretax gain of $5 million.
Variable Interests—At June 30, 2018 and December 31, 2017, 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, 2017 for additional information relating to these entities.
The Company has determined that it is not the primary beneficiary of Topix and therefore has not consolidated it as of and for the periods presented in the unaudited condensed consolidated financial statements. The Company’s maximum loss exposure related to Topix is limited to its equity investment, which was $6 million at both June 30, 2018 and December 31, 2017.
Las Olas LLC was determined to be a VIE where the Company is the primary beneficiary. The Company consolidates the financial position and results of operations of this VIE. The financial position and results of operations of the VIE as of and for the six months ended June 30, 2018 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.



23



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



NOTE 6: DEBT
Debt consisted of the following (in thousands):

June 30, 2018

December 31, 2017
Term Loan Facility
 
 
 
Term B Loans due 2020, effective interest rate of 3.84%, net of unamortized discount and debt issuance costs of $1,587 and $1,900
$
188,038

 
$
187,725

Term C Loans due 2024, effective interest rate of 3.85%, net of unamortized discount and debt issuance costs of $20,064 and $21,783
1,645,828

 
1,644,109

5.875% Senior Notes due 2022, net of debt issuance costs of $11,266 and $12,649
1,088,734

 
1,087,351

Total debt
$
2,922,600

 
$
2,919,185

Secured Credit Facility—At both June 30, 2018 and December 31, 2017, the Company’s secured credit facility (the “Secured Credit Facility”) consisted of a term loan facility (the “Term Loan Facility”), under which $1.666 billion of term C loans (the “Term C Loans”) and $190 million of term B loans (the “Term B Loans”) were outstanding. At both June 30, 2018 and December 31, 2017, there were no borrowings outstanding under the Company’s $420 million revolving credit facility (the “Revolving Credit Facility”); however, there were standby letters of credit outstanding of $20 million and $21 million, respectively, primarily in support of the Company’s workers’ compensation insurance programs. See Note 9 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017 for further information and significant terms and conditions associated with the Term Loan Facility and the Revolving Credit Facility, including but not limited to interest rates, repayment terms, fees, restrictions and affirmative and negative covenants. The Company’s unamortized transaction costs and unamortized discount related to the Term Loan Facility were $22 million and $24 million at June 30, 2018 and December 31, 2017, respectively. These deferred costs are recorded as a direct deduction from the carrying amount of an associated debt liability in the Company’s unaudited Condensed Consolidated Balance Sheets and amortized to interest expense over the contractual term of either the Term B Loans or the Term C Loans, as appropriate.
2017 Amendment
On January 27, 2017, the Company entered into an amendment (the “2017 Amendment”) to the Secured Credit Facility to, among other things, increase the amount of outstanding term loans under the Term Loan Facility and to increase the amount of commitments under the Revolving Credit Facility. See Note 9 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017 for additional information.
In connection with the 2017 Amendment, the Company paid fees to certain lenders of $4 million, which are considered a debt discount, all of which were deferred, and incurred transaction costs of $13 million, of which $1 million was deferred with the remainder expensed as part of loss on extinguishment and modification of debt. On February 1, 2017, the Company used $400 million from the proceeds from the Gracenote Sale to prepay a portion of its outstanding term loans. Subsequent to this prepayment, the Company’s quarterly installments related to the remaining principal amount of Term B Loans are no longer due. As a result of the 2017 Amendment and the $400 million prepayment, the Company recorded charges of $19 million on the extinguishment and modification of debt in the Company’s unaudited Condensed Consolidated Statements of Operations in the first quarter of 2017. The loss consisted of a write-off of unamortized debt issuance costs of $6 million and an unamortized discount of $1 million associated with the Term B Loans as a portion of the Term Loan Facility was considered extinguished for accounting purposes as well as an expense of $12 million of third parties fees as a portion of the Term Loan Facility was considered a modification transaction under ASC 470, “Debt.”



24



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



During the third quarter of 2017, the Company used $102 million of after-tax proceeds received from its participation in the FCC spectrum auction to prepay outstanding loans under the Term Loan Facility. Subsequent to these payments, the Company’s quarterly installments related to the remaining principal amount of the Term C Loans are not due until the third quarter of 2022. The Company recorded charges of $1 million associated with debt extinguishment in the three months ended September 30, 2017. See Note 8 for additional information regarding the Company’s participation in the FCC’s incentive auction.
5.875% Senior Notes due 2022—The Company’s 5.875% Senior Notes due 2022 (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. As of June 30, 2018, $1.100 billion of Notes remained outstanding.
See Note 9 to the audited consolidated financial statements for the fiscal year ended December 31, 2017 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. The Company’s unamortized transaction costs related to the Notes were $11 million and $13 million at June 30, 2018 and December 31, 2017, respectively.
Consent Solicitation
On June 22, 2017, the Company announced that it received consents from 93.23% of holders of the Notes outstanding as of the record date of June 12, 2017, to effect certain proposed amendments to the Indenture (as defined below). The Company undertook the consent solicitation (the “Consent Solicitation”) at the request and expense of Sinclair in accordance with the terms of the Merger Agreement. In conjunction with receiving the requisite consents, on June 22, 2017, the Company, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee for the Notes, entered into the fourth supplemental indenture (the “Fourth Supplemental Indenture”) to the indenture governing the Notes, dated as of June 24, 2015 (as supplemented and amended, the “Indenture”), to effect certain amendments to the Indenture to facilitate the integration of the Company and the Notes with and into Sinclair’s debt capital structure in connection with the Merger. The Fourth Supplemental Indenture became effective immediately upon execution, but the Amendments will not become operative unless and until the effective time of the Merger. See Note 1 for additional information on the Merger Agreement and the Company’s termination thereof.
Dreamcatcher—The Company and the guarantors guaranteed the obligations of Dreamcatcher under its senior secured credit facility (the “Dreamcatcher Credit Facility”). The Company participated in the FCC spectrum auction and a Dreamcatcher station received $26 million of pretax proceeds in 2017, as further described in Note 8. Any proceeds received by Dreamcatcher as a result of the incentive auction were required to be first used to repay the Dreamcatcher Credit Facility. The Company used $12.6 million of after-tax proceeds from the FCC spectrum auction to prepay the Dreamcatcher Credit Facility in August 2017. The Company made the final payment to pay off the Dreamcatcher Credit Facility in September 2017.
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.



25



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



•
Level 3 – Assets and liabilities whose values are based on valuation models or pricing techniques that utilize unobservable inputs that are significant to the overall fair value measurement.
On January 27, 2017, concurrent with the 2017 Amendment, the Company entered into interest rate swaps with certain financial institutions for a total notional value of $500 million with a duration that matches the maturity of the Company’s Term C Loans. The interest rate swaps are designated as cash flow hedges and are considered highly effective. As a result, no ineffectiveness has been recognized in the unaudited Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2018 and June 30, 2017. Additionally, for the interest rate swaps, no amounts are excluded from the assessment of hedge effectiveness. The monthly net interest settlements under the interest rate swaps are reclassified out of AOCI and recognized in interest expense consistent with the recognition of interest expense on the Company’s Term C Loans. Realized losses of $0.4 million and $2 million were recognized in interest expense for the three months ended June 30, 2018 and June 30, 2017, respectively, and $1 million and $3 million for the six months ended June 30, 2018 and June 30, 2017, respectively. As of June 30, 2018, the fair value of the interest rate swaps was $14 million, which is recorded in non-current assets with the unrealized gain recognized in other comprehensive income (loss). As of June 30, 2018, the Company expects $1 million to be reclassified out of AOCI as a reduction of interest expense over the next twelve months. The interest rate swap fair value is considered Level 2 within the fair value hierarchy as it includes quoted prices for similar instruments as well as interest rates and yield curves that are observable in the market.
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
The carrying values of cash and cash equivalents, restricted cash and cash equivalents, trade accounts receivable and trade accounts payable approximate fair value due to their short term to maturity. Certain of the Company’s cash equivalents are held in money market funds which are valued using net asset value (“NAV”) per share, which would be considered Level 1 in the fair value hierarchy.
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):
 
June 30, 2018
 
December 31, 2017
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
Term Loan Facility
 
 
 
 
 
 
 
Term B Loans due 2020
$
189,150

 
$
188,038

 
$
189,704

 
$
187,725

Term C Loans due 2024
$
1,661,728

 
$
1,645,828

 
$
1,666,942

 
$
1,644,109

5.875% Senior Notes due 2022
$
1,109,229

 
$
1,088,734

 
$
1,132,417

 
$
1,087,351

The following methods and assumptions were used to estimate the fair value of each category of financial instruments:
Term Loan Facility—The fair value of the outstanding principal balance of the term loans under the Company’s Term Loan Facility at both June 30, 2018 and December 31, 2017 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 June 30, 2018 and December 31, 2017 would be classified in Level 2 of the fair value hierarchy.
Investments Without Readily Determinable Fair Values—Non-equity method investments in private companies are recorded at cost, less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment, as further described in Note 5. During the



26



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



six months ended June 30, 2018 there were no events or changes in circumstance that suggested an impairment or an observable price change to any of these investments. The non-equity method investments would be classified in Level 3 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” or “Predecessor”) filed voluntary petitions for relief (collectively, the “Chapter 11 Petitions”) under chapter 11 (“Chapter 11”) of title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Fourth Amended Joint Plan of Reorganization for Tribune Company and its Subsidiaries (as subsequently modified, the “Plan”) became effective and the Debtors emerged from Chapter 11 on December 31, 2012 (the “Effective Date”). The Bankruptcy Court has to date entered final decrees collectively closing 106 of the Debtors’ Chapter 11 cases. The remaining Debtors’ Chapter 11 proceedings continue to be jointly administered under the caption In re Tribune Media Company, et al., Case No. 08-13141. See Note 3 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017 for additional information regarding the Debtors’ Chapter 11 cases and for a description of the terms and conditions of the Plan.
Confirmation Order Appeals—Notices of appeal of the Bankruptcy Court’s order confirming the Plan (the “Confirmation Order”) were filed by (i) Aurelius Capital Management, LP, on behalf of its managed entities that were holders of the Predecessor’s senior notes and Exchangeable Subordinated Debentures due 2029 (“PHONES”); (ii) Law Debenture Trust Company of New York (“Law Debenture”) and Deutsche Bank Trust Company Americas (“Deutsche Bank”), each successor trustees under the respective indentures for the Predecessor’s senior notes; (iii) Wilmington Trust Company, as successor indenture trustee for the PHONES, and (iv) EGI-TRB, L.L.C., a Delaware limited liability company wholly-owned by Sam Investment Trust (a trust established for the benefit of Samuel Zell and his family) (the “Zell Entity”). The appellants sought, among other relief, to overturn the Confirmation Order and certain prior orders of the Bankruptcy Court embodied in the Plan, including the settlement of certain claims and causes of action related to the series of transactions (collectively, the “Leveraged ESOP Transactions”) consummated by the Predecessor, the Tribune Company employee stock ownership plan, the Zell Entity and Samuel Zell in 2007. As of June 30, 2018, each of the Confirmation Order appeals have been dismissed or otherwise resolved by a final order, with the exception of the appeals of Law Debenture and Deutsche Bank, which remain pending before the U.S. District Court for the District of Delaware. See Note 3 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017 for a further description of the Leveraged ESOP Transactions and the Confirmation Order appeals. If the remaining appellants succeed on their appeals, the Company’s financial condition may be adversely affected.
Resolution of Outstanding Prepetition Claims—As of the Effective Date, approximately 7,400 proofs of claim had been filed against the Debtors. Amounts and payment terms for these claims, if applicable, were established in the Plan. The Plan requires the Company to reserve cash in amounts sufficient to make certain additional payments that may become due and owing pursuant to the Plan subsequent to the Effective Date. As of June 30, 2018, restricted cash held by the Company to satisfy the remaining claim obligations was $17 million and is estimated to be sufficient to satisfy such obligations.
As of June 30, 2018, all but 403 proofs of claim against the Debtors had been withdrawn, expunged, settled or otherwise satisfied. The majority of the remaining proofs of claim were filed by certain of the Company’s former directors and officers, asserting indemnity and other related claims against the Company for claims brought against them in lawsuits arising from the Leveraged ESOP Transactions. Those lawsuits are pending in multidistrict litigation (“MDL”) before the U.S. District Court for the Southern District of New York (the “NY District Court”) in proceedings captioned In re Tribune Co. Fraudulent Conveyance Litigation. See “Certain Causes of Action Arising from the Leveraged ESOP Transactions” in Note 3 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017 for a description of the MDL proceedings. Under the Plan, the indemnity claims of the Company’s former directors and officers must be set off against any recovery by the litigation trust



27



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



formed pursuant to the Plan (the “Litigation Trust”) against any of those directors and officers, and the Litigation Trust is authorized to object to the allowance of any such indemnity-type claims.
The ultimate amounts to be paid in resolutions of the remaining proofs of claim, including indemnity claims, will continue to be subject to uncertainty for a period of time after the Effective Date. If the aggregate allowed amount of the remaining claims exceeds the restricted cash held for satisfying such claims, the Company would be required to satisfy the allowed claims from its cash on hand from operations.
Reorganization Items, Net—ASC Topic 852, “Reorganizations,” requires that the financial statements for periods subsequent to the filing of the Chapter 11 Petitions distinguish transactions and events that are directly associated with the reorganization from the operations of the business. Reorganization items, net included in the Company’s unaudited Condensed Consolidated Statements of Operations primarily include professional advisory fees and other costs related to the resolution of unresolved claims and totaled less than $1 million for each of the three months ended June 30, 2018 and June 30, 2017, and $2 million and $1 million for the six months ended June 30, 2018 and June 30, 2017, respectively. The Company expects to continue to incur certain expenses pertaining to the Chapter 11 proceedings throughout 2018 and potentially in future periods.
FCC Regulation—Various aspects of the Company’s operations are subject to regulation by governmental authorities in the United States. The Company’s television and radio broadcasting operations are subject to FCC jurisdiction under the Communications Act of 1934, as amended. FCC rules, among other things, govern the term, renewal and transfer of radio and television broadcasting licenses, and limit the number of media interests in a local market that a single entity can own. Federal law also regulates the rates charged for political advertising and the quantity of advertising within children’s programs. As of August 9, 2018, the Company had FCC authorization to operate 39 television stations and one AM radio station.
The Company is subject to the FCC’s “Local Television Multiple Ownership Rule,” the “Newspaper Broadcast Cross Ownership Rule” and the “National Television Multiple Ownership Rule,” among others, as further described in Note 12 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017.
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”). In a Report and Order issued on September 7, 2016, the FCC repealed the UHF Discount but grandfathered existing station combinations that exceeded the 39% national reach cap as a result of the elimination of the UHF Discount, subject to compliance in the event of a future change of control or assignment of license. The September 7, 2016 order is subject to a pending petition for judicial review by the U.S. Court of Appeals for the District of Columbia Circuit. The FCC reinstated the UHF Discount in an Order on Reconsideration adopted on April 20, 2017 (the “UHF Discount Reconsideration Order”). A petition for judicial review by the U.S. Court of Appeals for the District of Columbia Circuit was dismissed on procedural grounds on July 25, 2018. On December 18, 2017, the FCC released a Notice of Proposed Rulemaking seeking comment generally, on the continuing propriety of a national cap and the Commission’s jurisdiction with respect to the cap. The Company cannot predict the outcome of these proceedings, or their effect on its business.
Federal legislation enacted in February 2012 authorized the FCC to conduct a voluntary “incentive auction” in order to reallocate certain spectrum currently occupied by television broadcast stations to mobile wireless broadband services, to “repack” television stations into a smaller portion of the existing television spectrum band and to require television stations that do not participate in the auction to modify their transmission facilities, subject to reimbursement for reasonable relocation costs up to an industry-wide total of $1.750 billion, which amount was increased by $1 billion pursuant to the adoption of an amended version of the Repack Airwaves Yielding Better Access for Users of Modern Services (RAY BAUM’S) Act of 2018 by the U.S. Congress on March 23, 2018. On April 13, 2017, the FCC announced the conclusion of the incentive auction, the results of the reverse and forward auction and the repacking of the broadcast television spectrum. The Company participated in the auction and has received approximately $191 million in pretax proceeds (including $26 million of proceeds received by a



28



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



Dreamcatcher station) as of December 31, 2017. The Company used $102 million of after-tax proceeds to prepay a portion of the Term Loan Facility. After-tax proceeds of $12.6 million received by a Dreamcatcher station were used to prepay a substantial portion of the Dreamcatcher Credit Facility. The Company received gross pretax proceeds of $172 million from licenses sold by the Company in the FCC spectrum auction in 2017 and recognized a net pretax gain of $133 million in the first quarter of 2018 related to the surrender of the spectrum of these television stations in January 2018. In 2017, the Company also received $84 million of pretax proceeds for sharing arrangements whereby the Company will provide hosting services to the counterparties. Additionally, the Company paid $66 million of proceeds in 2017 to counterparties who will host certain of the Company’s television stations under sharing arrangements. The proceeds received by the Company for hosting the counterparties have been recorded in deferred revenue and other long-term obligations and is being amortized to other revenue over a period of 30 years starting with the commencement of each arrangement. The proceeds paid to the counterparties have been recorded in prepaid and other-long term assets and will be amortized to direct operating expense over a period of 30 years starting with the commencement of each arrangement.
Twenty-two of the Company’s television stations (including WTTK, which operates as a satellite station of WTTV) will be required to change frequencies or otherwise modify their operations as a result of the repacking. In doing so, the stations could incur substantial conversion costs, reduction or loss of over-the-air signal coverage or an inability to provide high definition programming and additional program streams. The Company expects that the reimbursements from the FCC’s special fund will cover the majority of the Company’s costs and expenses related to the repacking. However, the Company cannot currently predict the effect of the repacking, whether the special fund will be sufficient to reimburse all of the Company’s costs and expenses related to the repacking, the timing of reimbursements or any spectrum-related FCC regulatory action.
As described in Note 1 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017, the Company completed the Local TV Acquisition on December 27, 2013 pursuant to FCC staff approval granted on December 20, 2013 in the Local TV Transfer Order. On January 22, 2014, Free Press filed an Application for Review seeking review by the full Commission of the Local TV Transfer Order. The Company filed an Opposition to the Application for Review on February 21, 2014. Free Press filed a reply on March 6, 2014. The matter is pending.
From time to time, the FCC revises existing regulations and policies in ways that could affect the Company’s broadcasting operations. In addition, Congress from time to time considers and adopts substantive amendments to the governing communications legislation. The Company cannot predict such actions or their resulting effect upon the Company’s business and financial position.
Other Contingencies—The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. See Note 9 for a discussion of potential income tax liabilities.
In July 2017, following the initial filing of the proxy statement/prospectus (the “Proxy Statement/Prospectus”) by each of Sinclair and the Company with the SEC relating to the Merger, four purported Tribune Media Company shareholders (the “Plaintiffs”) filed putative class action lawsuits against the Company, members of the Company’s Board of Directors, and, in certain instances, Sinclair and Samson Merger Sub, Inc. (collectively, the “Parties”) in the United States District Courts for the Districts of Delaware and Illinois. The actions are captioned McEntire v. Tribune Media Company, et al., 1:17-cv-05179 (N.D. Ill.), Duffy v. Tribune Media Company, et al., 1:17-cv-00919 (D. Del.), Berg v. Tribune Media Company, et al., 1:17-cv-00938 (D. Del.), and Pill v. Tribune Media Company, et al., 1:17-cv-00961 (D. Del.) (collectively, the “Actions”). These lawsuits allege that the Proxy Statement/Prospectus omitted material information and was materially misleading in violation of the Securities Exchange Act of 1934, as amended, and SEC Rule 14a-9 and generally seek, as relief, class certification, preliminary and permanent injunctive relief, rescission or rescissory damages, and unspecified damages. On September 15, 2017, the Parties entered into a memorandum of understanding (the “MOU”) to resolve the individual claims asserted by the Plaintiffs. The MOU acknowledges that the Company, in part in response to the claims asserted in the Actions, filed certain supplemental



29



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



disclosures with the SEC on August 16, 2017 and that the Company, solely in response to the Actions, communicated to four third parties that participated in the sale process and twenty-three third parties that have signed confidentiality agreements in connection with potential divestitures that the “standstill” obligations of such third parties were waived. The Parties further agreed that the Company would make the additional supplemental disclosures, which are set forth in the Company’s Current Report on Form 8-K, filed with the SEC on September 15, 2017. The Merger Agreement was terminated as of August 9, 2018, see Note 1 for additional information on the Merger Agreement and the Company’s termination thereof.
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 and six months ended June 30, 2018, the Company recorded income tax expense from continuing operations of $33 million and $90 million, respectively. The effective tax rate on pretax income from continuing operations was 28.0% for the three months ended June 30, 2018. The rate differs from the U.S. federal statutory rate of 21% due to state income taxes (net of federal benefit), non-deductible executive compensation, certain transaction costs and other expenses not fully deductible for tax purposes, and a less than $1 million charge related primarily to the write-off of unrealized deferred tax assets related to stock-based compensation. The effective tax rate on pretax income from continuing operations was 28.4% for the six months ended June 30, 2018. The rate for the six months ended June 30, 2018 differs from the U.S. federal statutory rate of 21% due to state income taxes (net of federal benefit), non-deductible executive compensation, certain transaction costs and other expenses not fully deductible for tax purposes, and a net $3 million charge related primarily to the write-off of unrealized deferred tax assets related to stock-based compensation.
In the three and six months ended June 30, 2017, the Company recorded an income tax benefit from continuing operations of $10 million and $62 million, respectively. The effective tax rate on pretax loss from continuing operations was 24.9% for the three months ended June 30, 2017. The rate differs from the U.S. federal statutory rate of 35% at the time due to state income tax (net of federal benefits), the domestic production activities deduction, certain transaction costs not fully deductible for tax purposes, a $3 million benefit related to expected refunds of interest paid on prior tax assessments and other non-deductible expenses. The effective tax rate on pretax loss from continuing operations was 31.9% for the six months ended June 30, 2017. The rate for the six months ended June 30, 2017 was also impacted by a $2 million charge related to the write-off of unrealized deferred tax assets related to stock-based compensation.
Tax Cuts and Jobs Act—On December 22, 2017, Tax Reform was signed into law. Under ASC Topic 740, the effects of Tax Reform are recognized in the period of enactment and as such were recorded in the Company’s fourth quarter of 2017. The Company is in the process of analyzing certain provisions of Tax Reform including but not limited to the repeal of the domestic production activities deduction and changes to the deductibility of executive compensation. Consistent with the guidance under ASC Topic 740, and subject to Staff Accounting Bulletin (“SAB”) 118, which provides for a measurement period to complete the accounting for certain elements of Tax Reform, the Company recorded a provisional discrete net tax benefit of $256 million in the fourth quarter of 2017 primarily due to a remeasurement of the net deferred tax liabilities resulting from the decrease in the U.S. federal corporate income tax rate from 35% to 21%. In the three and six months ended June 30, 2018, the Company has not made any material adjustments to the provisional discrete net tax benefit recorded in the fourth quarter of 2017. Further impacts of Tax Reform may be reflected in future quarters upon issuance of clarifications to existing law or additional technical guidance from the Department of Treasury and the completion of the Company’s tax return filings. Therefore, the Company has not completed the accounting for the provisional discrete net tax benefit recorded in the fourth quarter of 2017. Tax Reform also provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Company does not have any net accumulated E&P in its foreign subsidiaries and therefore was not subject to



30



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



tax for the year ended December 31, 2017. Further, the Company has analyzed the effects of new taxes due on certain foreign income, such as global intangible low-taxed income (“GILTI”), base-erosion anti-abuse tax (“BEAT”), foreign-derived intangible income (“FDII”) and limitations on interest expense deductions (if certain conditions apply) that are effective starting in fiscal 2018. The Company has determined that these new provisions are not applicable to the Company.
Chicago Cubs Transactions—As further described in Note 8 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017, the Company consummated the closing of the Chicago Cubs Transactions on October 27, 2009. As a result of these transactions, Ricketts Acquisition LLC owns 95% and the Company owns 5% of the membership interests in New Cubs LLC. The fair market value of the contributed assets exceeded the tax basis and did not result in an immediate taxable gain because the transaction was structured to comply with the partnership provisions of the Internal Revenue Code (“IRC”) and related regulations. On June 28, 2016, the IRS issued the Company a Notice of Deficiency (“Notice”) which presents the IRS’s position that the gain should have been included in the Company’s 2009 taxable income. Accordingly, the IRS has proposed a $182 million tax and a $73 million gross valuation misstatement penalty. In addition, after-tax interest on the aforementioned proposed tax and penalty through June 30, 2018 would be approximately $71 million. The Company continues to disagree with the IRS’s position that the transaction generated a taxable gain in 2009, the proposed penalty and the IRS’s calculation of the gain. During the third quarter of 2016, the Company filed a petition in U.S. Tax Court to contest the IRS’s determination. The Company continues to pursue resolution of this disputed tax matter with the IRS. If the IRS prevails in their position, the gain on the Chicago Cubs Transactions would be deemed to be taxable in 2009. The Company estimates that the federal and state income taxes would be approximately $225 million before interest and penalties. Any tax, interest and penalty due will be offset by tax payments made relating to this transaction subsequent to 2009. As of June 30, 2018, the Company has paid or accrued approximately $83 million of federal and state tax payments through its regular tax reporting process. The Company does not maintain any tax reserves relating to the Chicago Cubs Transactions. In accordance with ASC Topic 740, the Company’s unaudited Condensed Consolidated Balance Sheet at June 30, 2018 and December 31, 2017 includes a deferred tax liability of $66 million and $96 million, respectively, 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 $23 million at June 30, 2018 and December 31, 2017. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $3 million within the next twelve months due to the resolution of tax examination issues and statute of limitations expirations.



31



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 plans for the three and six months ended June 30, 2018 and June 30, 2017 were as follows (in thousands):
 
Pension Benefits
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Service cost
$
174

 
$
198

 
$
467

 
$
384

Interest cost
17,829

 
19,528

 
35,569

 
39,097

Expected return on plans’ assets
(24,823
)
 
(25,236
)
 
(49,641
)
 
(50,563
)
Recognized actuarial loss
8

 
—

 
8

 
—

Amortization of prior service costs
35

 
35

 
70

 
58

Net periodic benefit credit
$
(6,777
)
 
$
(5,475
)
 
$
(13,527
)
 
$
(11,024
)
Net periodic benefit cost related to other post retirement benefit plans was not material for all periods presented. The service cost component of pension net periodic benefit credit is included in SG&A in the Company’s unaudited Condensed Consolidated Statements of Operations. All other components of net periodic benefit credit are included in Pension and other postretirement periodic benefit credit, net in the Company’s unaudited Condensed Consolidated Statements of Operations.
For 2018, the Company expects to contribute $36 million to its qualified pension plans and $1 million to its other postretirement plans. In the six months ended June 30, 2018, the Company contributed $24.5 million to its qualified pension plans. On July 12, 2018, the Company contributed $5.5 million to its qualified pension plans. The Company expects to contribute an additional $6 million in 2018. In the three and six months ended June 30, 2017, the Company’s contributions were not material.
NOTE 11: CAPITAL STOCK
The Company is authorized to issue up to one billion shares of Class A Common Stock, up to one billion shares of Class B Common Stock and up to 40 million shares of preferred stock, each par value $0.001 per share, in one or more series. The Class A Common Stock and Class B Common Stock generally provide identical economic rights, but holders of Class B Common Stock have limited voting rights, including that such holders have no right to vote in the election of directors. Subject to certain ownership limitations, as further described in Note 15 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017, each share of Class A Common Stock is convertible into one share of Class B Common Stock and each share of Class B Common Stock is convertible into one share of Class A Common Stock, in each case, at the option of the holder at any time. The Company’s Class A Common Stock is traded on the New York Stock Exchange under the symbol “TRCO.” The Company’s Class B Common Stock and Warrants are traded on the OTC Pink market under the symbols “TRBAB” and “TRBNW,” respectively. On the Effective Date, the Company entered into the Warrant Agreement, pursuant to which the Company issued 16,789,972 Warrants to purchase Common Stock (the “Warrants”). Each Warrant entitles the holder to purchase from the Company, at the option of the holder and subject to certain restrictions set forth in the Warrant Agreement and as described in Note 15 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017, one share of Class A Common Stock or one share of Class B Common Stock at an exercise price of $0.001 per share, subject to adjustment and a cashless exercise feature. The Warrants may be exercised at any time on or prior to December 31, 2032.
Pursuant to the Company’s amended and restated certificate of incorporation and the Warrant Agreement, in the event the Company determines that the ownership or proposed ownership of Common Stock or Warrants, as



32



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



applicable, would be inconsistent with or violate any federal communications laws, materially limit or impair any business activities or proposed business activities of the Company under any federal communications laws, or subject the Company to any regulation under any federal communications laws to which the Company would not be subject, but for such ownership or proposed ownership, the Company may impose certain limitations on the rights of holders of Common Stock and Warrants, as further described in Note 15 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017.
There were no conversions of the Company’s Common Stock between Class A Common Stock and Class B Common Stock during the six months ended June 30, 2018 and June 30, 2017. No Warrants were exercised for Class A Common Stock or Class B Common Stock during the six months ended June 30, 2018. During the three and six months ended June 30, 2017, 16,373 and 44,848 Warrants, respectively, were exercised for 16,373 and 44,848 shares, respectively, of Class A Common Stock. No Warrants were exercised for Class B Common Stock during the six months ended June 30, 2017.
At June 30, 2018, the following amounts were issued: 30,551 Warrants, 101,727,977 shares of Class A Common Stock, of which 14,102,185 were held in treasury, and 5,557 shares of Class B Common Stock. The Company has not issued any shares of preferred stock.
On the Effective Date, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with certain entities related to Angelo, Gordon & Co., L.P. (the “AG Group”), Oaktree Tribune, L.P., an affiliate of Oaktree Capital Management, L.P. (the “Oaktree Group”) and Isolieren Holding Corp., an affiliate of JPMorgan (the “JPM Group,” and each of the JPM Group, AG Group and Oaktree Group, a “Stockholder Group”) and certain other holders of Registrable Securities who become a party thereto. See Note 15 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017 for additional information relating to the Registration Rights Agreement.
Common Stock Repurchases—On February 24, 2016, the Board authorized a new stock repurchase program, under which the Company may repurchase up to $400 million of its outstanding Class A Common Stock. Under the stock repurchase program, the Company may repurchase shares in open-market purchases in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The Company did not repurchase any shares of Common Stock during 2017 or during the six months ended June 30, 2018 due to limitations imposed by the Merger Agreement. As of June 30, 2018, the remaining authorized amount under the current authorization totaled $168 million.
Special Cash Dividend—On January 2, 2017, the Board authorized and declared a special cash dividend of $5.77 per share of Common Stock (the “2017 Special Cash Dividend”), which was paid on February 3, 2017 to holders of record of Common Stock at the close of business on January 13, 2017. In addition, pursuant to the terms of the Warrant Agreement, the Company made a cash payment of $5.77 per Warrant on February 3, 2017 to holders of record of Warrants at the close of business on January 13, 2017. The total aggregate payment on February 3, 2017 totaled $499 million, including the payment to holders of Warrants.
Quarterly Cash Dividends—The Board declared quarterly cash dividends per share on Common Stock to holders of record of Common Stock and Warrants as follows (in thousands, except per share data):
 
2018
 
2017
 
Per Share
 
Total
Amount
 
Per Share
 
Total
Amount
First quarter
$
0.25

 
$
21,922

 
$
0.25

 
$
21,742

Second quarter
0.25

 
21,925

 
0.25

 
21,816

Total quarterly cash dividends declared and paid
$
0.50

 
$
43,847

 
$
0.50

 
$
43,558




33



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



On August 8, 2018, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share to be paid on September 4, 2018 to holders of record of Common Stock and Warrants as of August 20, 2018. Future dividends will be subject to the discretion of the Board.
The payment of quarterly cash dividends also results in the issuance of Dividend Equivalent Units (“DEUs”) to holders of restricted stock units (“RSUs”) and performance share units (“PSUs”), as described in Note 15 and Note 16 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017.
NOTE 12: STOCK-BASED COMPENSATION
On May 5, 2016, the 2016 Incentive Compensation Plan (the “Incentive Compensation Plan”) and the Stock Compensation Plan for Non-Employee Directors (the “Directors Plan” and, together with the Incentive Compensation Plan, the “2016 Equity Plans”) were approved by the Company’s shareholders for the purpose of granting stock awards to officers, employees and Board members of the Company and its subsidiaries, as further described in Note 16 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017. There are 5,100,000 shares of Class A Common Stock authorized for issuance under the Incentive Compensation Plan and 200,000 shares of Class A Common Stock authorized for issuance under the Directors Plan, of which 2,538,710 shares and 168,215 shares, respectively, were available for grant as of June 30, 2018.
Stock-based compensation for the three months ended June 30, 2018 and June 30, 2017 totaled $5 million and $7 million, respectively. Stock-based compensation for the six months ended June 30, 2018 and June 30, 2017 totaled $11 million and $22 million, respectively. There was no stock-based compensation expense recorded for the six months ended June 30, 2018 attributable to discontinued operations. Stock-based compensation expense attributable to discontinued operations for the six months ended June 30, 2017 totaled $2 million.
A summary of activity and weighted average exercise prices related to the NSOs is reflected in the table below.
 
Six Months Ended
 June 30, 2018
 
Shares
 
Weighted Avg.
Exercise Price
Outstanding, beginning of period
2,846,926

 
$
39.00

Granted
201,580

 
42.85

Exercised
(20,643
)
 
28.14

Forfeited
(7,224
)
 
30.66

Cancelled
(494,069
)
 
54.57

Outstanding, end of period
2,526,570

 
$
36.37

Vested and exercisable, end of period
1,200,643

 
$
40.48





34



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 RSUs is reflected in the table below.
 
Six Months Ended
 June 30, 2018
 
Shares
 
Weighted Avg.
Fair Value
Outstanding, beginning of period
1,104,792

 
$
32.62

Granted
447,539

 
41.78

Dividend equivalent units granted
15,229

 
38.31

Vested
(356,092
)
 
35.09

Dividend equivalent units vested
(17,481
)
 
36.04

Forfeited
(26,515
)
 
33.26

Dividend equivalent units forfeited
(969
)
 
37.25

Outstanding and nonvested, end of period
1,166,503

 
$
35.37


A summary of activity and weighted average fair values related to the restricted stock awards is as follows:
 
Six Months Ended
 June 30, 2018
 
Shares
 
Weighted Avg.
Fair Value
Outstanding, beginning of period
41,718

 
$
36.84

Outstanding and nonvested, end of period
41,718

 
$
36.84

A summary of activity and weighted average fair values related to the PSUs and Supplemental PSUs is reflected in the table below.
 
Six Months Ended
 June 30, 2018
 
Shares
 
Weighted Avg.
Fair Value
Outstanding, beginning of period
252,815

 
$
22.53

Granted (1)
54,059

 
42.40

Dividend equivalent units granted
2,189

 
38.28

Vested
(36,920
)
 
38.67

Dividend equivalent units vested
(2,680
)
 
35.20

Forfeited
(139,628
)
 
13.25

Dividend equivalent units forfeited
(231
)
 
35.24

Outstanding and nonvested, end of period
129,604

 
$
36.20

 
(1)
Represents shares of PSUs for which performance targets have been established and which are deemed granted under U.S. GAAP.




35



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



As of June 30, 2018, 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
$
45,475

 
2.5

NOTE 13: EARNINGS PER SHARE
The Company computes earnings (loss) per common share (“EPS”) from continuing operations, discontinued operations and net earnings (loss) per common share under the two-class method which requires the allocation of all distributed and undistributed earnings attributable to Tribune Media Company to common stock and other participating securities based on their respective rights to receive distributions of earnings or losses. The Company’s Class A Common Stock and Class B Common Stock equally share in distributed and undistributed earnings. In a period when the Company’s distributed earnings exceed undistributed earnings, no allocation to participating securities or dilutive securities is performed. The Company accounts for the Warrants as participating securities, as holders of the Warrants, in accordance with and subject to the terms and conditions of the Warrant Agreement, are entitled to receive ratable distributions of the Company’s earnings concurrently with such distributions made to the holders of Common Stock, subject to certain restrictions relating to FCC rules and requirements. Under the terms of the Company’s RSU and PSU agreements, unvested RSUs and PSUs contain forfeitable rights to dividends and DEUs. Because the DEUs are forfeitable, they are defined as non-participating securities. As of June 30, 2018, there were 49,727 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) from continuing operations, income (loss) from discontinued operations, and net income (loss) attributable to Tribune Media Company, respectively, applicable to common shares by the weighted average number of common shares outstanding during the period. In accordance with the two-class method, undistributed earnings applicable to the Warrants are excluded from the computation of basic EPS. Diluted EPS is computed by dividing net income (loss) from continuing operations, income (loss) from discontinued operations, and net income (loss) attributable to Tribune Media Company, respectively, by the weighted average number of common shares outstanding during the period as adjusted for the assumed exercise of all outstanding stock awards. The calculation of diluted EPS assumes that stock awards outstanding were exercised at the beginning of the period. The stock awards are included in the calculation of diluted EPS only when their inclusion in the calculation is dilutive.
ASC Topic 260, “Earnings per Share,” states that the presentation of basic and diluted EPS is required only for common stock and not for participating securities. For each of the three and six months ended June 30, 2018, 30,551 of the weighted-average Warrants outstanding have been excluded from the below table. For the three and six months ended June 30, 2017, 83,924 and 93,020, respectively, of the weighted-average Warrants outstanding have been excluded from the below table.



36



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



The calculation of basic and diluted EPS is presented below (in thousands, except for per share data):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
EPS numerator:
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
84,438

 
$
(29,823
)
 
$
225,621

 
$
(131,035
)
Net loss from continuing operations attributable to noncontrolling interests
4

 
—

 
10

 
—

Net income (loss) from continuing operations attributable to Tribune Media Company
84,442

 
(29,823
)
 
225,631

 
(131,035
)
Less: Dividends distributed to Warrants
8

 
21

 
15

 
46

Less: Undistributed earnings allocated to Warrants
22

 
—

 
63

 
—

Income (loss) from continuing operations attributable to Tribune Media Company’s common shareholders for basic EPS
$
84,412

 
$
(29,844
)
 
$
225,553

 
$
(131,081
)
Add: Undistributed earnings allocated to dilutive securities
—

 
—

 
1

 
—

Income (loss) from continuing operations attributable to Tribune Media Company’s common shareholders for diluted EPS
$
84,412

 
$
(29,844
)
 
$
225,554

 
$
(131,081
)
(Loss) income from discontinued operations, as reported
$
—

 
$
(579
)
 
$
—

 
$
15,039

Net income (loss) attributable to Tribune Media Company’s common shareholders for basic EPS
$
84,412

 
$
(30,423
)
 
$
225,553

 
$
(116,042
)
Net income (loss) attributable to Tribune Media Company’s common shareholders for diluted EPS
$
84,412

 
$
(30,423
)
 
$
225,554

 
$
(116,042
)
 
 
 
 
 
 
 
 
EPS denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
87,628

 
87,058

 
87,556

 
86,846

Impact of dilutive securities
545

 
—

 
787

 
—

Weighted average shares outstanding - diluted
88,173

 
87,058

 
88,343

 
86,846

 
 
 
 
 
 
 
 
Basic Earnings (Loss) Per Common Share Attributable to Tribune Media Company from:
 
 
 
 
 
 
 
Continuing Operations
$
0.96

 
$
(0.34
)
 
$
2.58

 
$
(1.51
)
Discontinued Operations
—

 
(0.01
)
 
—

 
0.17

Net Earnings (Loss) Per Common Share
$
0.96

 
$
(0.35
)
 
$
2.58

 
$
(1.34
)
 
 
 
 
 
 
 
 
Diluted Earnings (Loss) Per Common Share Attributable to Tribune Media Company from:
 
 
 
 
 
 
 
Continuing Operations
$
0.96

 
$
(0.34
)
 
$
2.55

 
$
(1.51
)
Discontinued Operations
—

 
(0.01
)
 
—

 
0.17

Net Earnings (Loss) Per Common Share
$
0.96

 
$
(0.35
)
 
$
2.55

 
$
(1.34
)
Because of their anti-dilutive effect, 1,596,116 and 1,219,922 common share equivalents, comprised of NSOs, PSUs, and RSUs, have been excluded from the diluted EPS calculation for the three and six months ended June 30, 2018, respectively. Since the Company was in a net loss position for the three and six months ended June 30, 2017, there was no difference between the number of shares used to calculate basic and diluted loss per share. Because of their anti-dilutive effect, 3,062,567 and 3,018,567 common share equivalents, comprised of NSOs, PSUs, Supplemental PSUs and RSUs, have been excluded from the diluted EPS calculation for the three and six months ended June 30, 2017, respectively.



37



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



NOTE 14: ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
AOCI is a separate component of shareholders’ equity in the Company’s unaudited Condensed Consolidated Balance Sheets. The following table summarizes the changes in AOCI, net of taxes by component (in thousands):
 
Pension and Other Post-Retirement Benefit Items
 
Cash Flow Hedging Instruments
 
Foreign Currency Translation Adjustments
 
Total
Balance at December 31, 2017
$
(45,812
)
 
$
(293
)
 
$
(1,956
)
 
$
(48,061
)
Other comprehensive income before reclassifications
(3,827
)
 
10,297

 
(267
)
 
6,203

Amounts reclassified from AOCI
(83
)
 
941

 
—

 
858

Balance at June 30, 2018
$
(49,722
)
 
$
10,945

 
$
(2,223
)
 
$
(41,000
)
NOTE 15: BUSINESS SEGMENTS
The following table summarizes business segment financial data for the three and six months ended June 30, 2018 and June 30, 2017 (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Operating Revenues from Continuing Operations (1)
 
 
 
 
 
 
 
Television and Entertainment
$
486,417

 
$
466,061

 
$
927,119

 
$
902,094

Corporate and Other
2,941

 
3,456

 
5,874

 
7,333

Total operating revenues
$
489,358

 
$
469,517

 
$
932,993

 
$
909,427

Operating Profit (Loss) from Continuing Operations (1)(2)
 
 
 
 
 
 
 
Television and Entertainment
$
119,767

 
$
50,219

 
$
331,619

 
$
70,232

Corporate and Other
(21,701
)
 
(37,566
)
 
(46,268
)
 
(78,546
)
Total operating profit (loss)
$
98,066

 
$
12,653

 
$
285,351

 
$
(8,314
)
Depreciation from Continuing Operations
 
 
 
 
 
 
 
Television and Entertainment
$
10,941

 
$
10,530

 
$
21,811

 
$
20,569

Corporate and Other
2,340

 
3,397

 
5,245

 
6,929

Total depreciation
$
13,281

 
$
13,927

 
$
27,056

 
$
27,498

Amortization from Continuing Operations
 
 
 
 
 
 
 
Television and Entertainment
$
41,681

 
$
41,664

 
$
83,368

 
$
83,323

Capital Expenditures
 
 
 
 
 
 
 
Television and Entertainment
$
7,433

 
$
11,727

 
$
17,559

 
$
22,534

Corporate and Other
3,841

 
1,738

 
7,388

 
3,987

Discontinued Operations
—

 
—

 
—

 
1,578

Total capital expenditures
$
11,274

 
$
13,465

 
$
24,947

 
$
28,099




38



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






June 30, 2018
 
December 31, 2017
Assets
 
 
 
Television and Entertainment
$
6,970,720

 
$
7,197,859

Corporate and Other
1,059,643

 
932,569

Assets held for sale (3)
28,955

 
38,900

Total assets
$
8,059,318

 
$
8,169,328

 
(1)
See Note 2 for the disclosures of operating revenues and operating loss included in discontinued operations for the historical periods.
(2)
Operating profit (loss) for each segment excludes income and loss on equity investments, interest and dividend income, interest expense, non-operating items, reorganization costs and income taxes.
(3)
See Note 3 for information regarding assets held for sale.

NOTE 16: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Company is the issuer of the Notes (see Note 6) and such debt is guaranteed by the Company’s subsidiary guarantors (the “Subsidiary Guarantors”). The Subsidiary Guarantors are direct or indirect 100% owned domestic subsidiaries of the Company. The Company’s payment obligations under the Notes are jointly and severally guaranteed by the Subsidiary Guarantors, and all guarantees are full and unconditional. The subsidiaries of the Company that do not guarantee the Notes (the “Non-Guarantor Subsidiaries”) include certain direct or indirect subsidiaries of the Company.
The guarantees are subject to release under certain circumstances, including: (a) upon the sale, exchange, disposition or other transfer (including through merger, consolidation or dissolution) of the interests in such Subsidiary Guarantor, after which such Subsidiary Guarantor is no longer a restricted subsidiary of the Company, or all or substantially all the assets of such Subsidiary Guarantor, in any case, if such sale, exchange, disposition or other transfer is not prohibited by the Indenture, (b) upon the Company designating such Subsidiary Guarantor to be an unrestricted subsidiary in accordance with the Indenture, (c) in the case of any restricted subsidiary of the Company that after the issue date is required to guarantee the Notes, upon the release or discharge of the guarantee by such restricted subsidiary of any indebtedness of the Company or another Subsidiary Guarantor or the repayment of any indebtedness of the Company or another Subsidiary Guarantor, in each case, which resulted in the obligation to guarantee the Notes, (d) upon the Company’s exercise of its legal defeasance option or covenant defeasance option in accordance with the Indenture or if the Company’s obligations under the Indenture are discharged in accordance with the terms of the Indenture, (e) upon the release or discharge of direct obligations of such Subsidiary Guarantor, or the guarantee by such guarantor of the obligations, under the Senior Credit Agreement, or (f) during the period when the rating of the Notes is changed to investment grade.
On January 31, 2017, the Company completed the Gracenote Sale, as further described in Note 2. The Gracenote Sale included certain Subsidiary Guarantors as well as Non-Guarantor Subsidiaries. The results of operations of these entities are included in their respective categories through the date of sale.
In lieu of providing separate audited financial statements for the Subsidiary Guarantors, the Company has included the accompanying unaudited condensed consolidating financial statements in accordance with the requirements of Rule 3-10(f) of SEC Regulation S-X. The following unaudited Condensed Consolidating Financial Statements present the Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income (Loss) and Consolidated Statements of Cash Flows of Tribune Media Company, the Subsidiary Guarantors, the Non-Guarantor Subsidiaries and the eliminations necessary to arrive at the Company’s information on a consolidated basis.
These statements are presented in accordance with the disclosure requirements under SEC Regulation S-X, Rule 3-10.



39



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 JUNE 30, 2018
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Operating Revenues
$
—

 
$
486,549

 
$
2,809

 
$
—

 
$
489,358

 
 
 
 
 
 
 
 
 
 
Programming and direct operating expenses
—

 
209,872

 
580

 
—

 
210,452

Selling, general and administrative
19,570

 
105,564

 
744

 
—

 
125,878

Depreciation and amortization
2,069

 
49,949

 
2,944

 
—

 
54,962

Total Operating Expenses
21,639

 
365,385

 
4,268

 
—

 
391,292

 
 
 
 
 
 
 
 
 
 
Operating (Loss) Profit
(21,639
)
 
121,164

 
(1,459
)
 
—

 
98,066

 
 
 
 
 
 
 
 
 
 
Income on equity investments, net
—

 
52,568

 
—

 
—

 
52,568

Interest income
2,336

 
—

 
—

 
—

 
2,336

Interest expense
(41,990
)
 
—

 
—

 
—

 
(41,990
)
Pension and other post retirement periodic benefit credit, net
6,985

 
—

 
—

 
—

 
6,985

Other non-operating items
(711
)
 
—

 
—

 
—

 
(711
)
Intercompany income (charges)
12,412

 
(12,377
)
 
(35
)
 
—

 
—

(Loss) Income from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries
(42,607
)
 
161,355

 
(1,494
)
 
—

 
117,254

Income tax (benefit) expense
(9,620
)
 
42,816

 
(380
)
 
—

 
32,816

Equity (deficit) in earnings of consolidated subsidiaries, net of taxes
117,429

 
(198
)
 
—

 
(117,231
)
 
—

Income (Loss) from Continuing Operations
$
84,442

 
$
118,341

 
$
(1,114
)
 
$
(117,231
)
 
$
84,438

Income from Discontinued Operations, net of taxes
—

 
—

 
—

 
—

 
—

Net Income (Loss)
$
84,442

 
$
118,341

 
$
(1,114
)
 
$
(117,231
)
 
$
84,438

Net loss from continuing operations attributable to noncontrolling interests
—

 
—

 
4

 
—

 
4

Net Income (Loss) attributable to Tribune Media Company
$
84,442

 
$
118,341

 
$
(1,110
)
 
$
(117,231
)
 
$
84,442

 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
$
83,011

 
$
118,534

 
$
(2,005
)
 
$
(116,529
)
 
$
83,011




40



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



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

 
$
467,198

 
$
2,319

 
$
—

 
$
469,517

 
 
 
 
 
 
 
 
 
 
Programming and direct operating expenses
—

 
249,597

 
4,427

 
—

 
254,024

Selling, general and administrative
35,531

 
110,804

 
914

 
—

 
147,249

Depreciation and amortization
2,938

 
49,527

 
3,126

 
—

 
55,591

Total Operating Expenses
38,469

 
409,928


8,467


—

 
456,864

 
 
 
 
 
 
 
 
 
 
Operating (Loss) Profit
(38,469
)
 
57,270

 
(6,148
)
 
—

 
12,653

 
 
 
 
 
 
 
 
 
 
(Loss) income on equity investments, net
(570
)
 
41,331

 
—

 
—

 
40,761

Interest and dividend income
534

 
14

 
—

 
—

 
548

Interest expense
(40,024
)
 
—

 
(161
)
 
—

 
(40,185
)
Pension and other post retirement periodic benefit credit, net
5,673

 
—

 
—

 
—

 
5,673

Write-down of investment
—

 
(58,800
)
 
—

 
—

 
(58,800
)
Other non-operating items
(378
)
 
—

 
—

 
—

 
(378
)
Intercompany income (charges)
19,468

 
(19,426
)
 
(42
)
 
—

 
—

(Loss) Income from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries
(53,766
)
 
20,389

 
(6,351
)
 
—

 
(39,728
)
Income tax (benefit) expense
(16,877
)
 
9,468

 
(2,496
)
 
—

 
(9,905
)
Equity (deficit) in earnings of consolidated subsidiaries, net of taxes
7,066

 
(2,448
)
 
—

 
(4,618
)
 
—

(Loss) Income from Continuing Operations
$
(29,823
)
 
$
8,473

 
$
(3,855
)
 
$
(4,618
)
 
$
(29,823
)
Loss from Discontinued Operations, net of taxes
(579
)
 
—

 
—

 
—

 
(579
)
Net (Loss) Income
$
(30,402
)
 
$
8,473

 
$
(3,855
)
 
$
(4,618
)
 
$
(30,402
)
 
 
 
 
 
 
 
 
 
 
Comprehensive (Loss) Income
$
(28,135
)
 
$
12,521

 
$
(2,851
)
 
$
(9,670
)
 
$
(28,135
)




41



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)
SIX MONTHS ENDED JUNE 30, 2018
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Operating Revenues
$
—

 
$
927,440

 
$
5,553

 
$
—

 
$
932,993

 
 
 
 
 
 
 
 
 
 
Programming and direct operating expenses
—

 
411,215

 
1,366

 
—

 
412,581

Selling, general and administrative
42,434

 
213,936

 
1,464

 
—

 
257,834

Depreciation and amortization
4,473

 
99,881

 
6,070

 
—

 
110,424

Gain on sales of spectrum
—

 
(133,197
)
 
—

 
—

 
(133,197
)
Total Operating Expenses
46,907

 
591,835

 
8,900

 
—

 
647,642

 
 
 
 
 
 
 
 
 
 
Operating (Loss) Profit
(46,907
)
 
335,605

 
(3,347
)
 
—

 
285,351

 
 
 
 
 
 
 
 
 
 
Income on equity investments, net
—

 
91,705

 
—

 
—

 
91,705

Interest income
4,234

 
—

 
—

 
—

 
4,234

Interest expense
(82,621
)
 
—

 
—

 
—

 
(82,621
)
Pension and other postretirement periodic benefit credit, net
14,069

 
—

 
—

 
—

 
14,069

Gain on investment transactions
—

 
3,888

 
—

 
—

 
3,888

Other non-operating items
(1,487
)
 
—

 
—

 
—

 
(1,487
)
Intercompany income (charges)
24,825

 
(24,755
)
 
(70
)
 
—

 
—

(Loss) Income from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries
(87,887
)
 
406,443

 
(3,417
)
 
—

 
315,139

Income tax (benefit) expense
(17,175
)
 
107,608

 
(915
)
 
—

 
89,518

Equity (deficit) in earnings of consolidated subsidiaries, net of taxes
296,343

 
(536
)
 
—

 
(295,807
)
 
—

Income (Loss) from Continuing Operations
$
225,631

 
$
298,299

 
$
(2,502
)
 
$
(295,807
)
 
$
225,621

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

 
—

 
—

 
—

 
—

Net Income (Loss)
$
225,631

 
$
298,299

 
$
(2,502
)
 
$
(295,807
)
 
$
225,621

Net loss from continuing operations attributable to noncontrolling interests
—

 
—

 
10

 
—

 
10

Net Income (Loss) attributable to Tribune Media Company
$
225,631

 
$
298,299

 
$
(2,492
)
 
$
(295,807
)
 
$
225,631

 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
$
232,692

 
$
298,467

 
$
(2,927
)
 
$
(295,540
)
 
$
232,692




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)
SIX MONTHS ENDED JUNE 30, 2017
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Operating Revenues
$
—

 
$
904,685

 
$
4,742

 
$
—

 
$
909,427

 
 
 
 
 
 
 
 
 
 
Programming and direct operating expenses
—

 
488,829

 
5,248

 
—

 
494,077

Selling, general and administrative
74,233

 
236,893

 
1,717

 
—

 
312,843

Depreciation and amortization
5,886

 
98,689

 
6,246

 
—

 
110,821

Total Operating Expenses
80,119

 
824,411

 
13,211

 
—

 
917,741

 
 
 
 
 
 
 
 
 
 
Operating (Loss) Profit
(80,119
)
 
80,274

 
(8,469
)
 
—

 
(8,314
)
 
 
 
 
 
 
 
 
 
 
(Loss) income on equity investments, net
(1,039
)
 
78,837

 
—

 
—

 
77,798

Interest and dividend income
1,016

 
37

 
—

 
—

 
1,053

Interest expense
(78,616
)
 
—

 
(327
)
 
—

 
(78,943
)
Pension and other postretirement periodic benefit credit, net
11,408

 
—

 
—

 
—

 
11,408

Loss on extinguishment and modification of debt
(19,052
)
 
—

 
—

 
—

 
(19,052
)
Gain on investment transaction
4,950

 
—

 
—

 
—

 
4,950

Write-downs of investment
—

 
(180,800
)
 
—

 
—

 
(180,800
)
Other non-operating items
(654
)
 
—

 
—

 
—

 
(654
)
Intercompany income (charges)
47,686

 
(47,577
)
 
(109
)
 
—

 
—

Loss from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries
(114,420
)
 
(69,229
)
 
(8,905
)
 
—

 
(192,554
)
Income tax benefit
(40,592
)
 
(17,473
)
 
(3,454
)
 
—

 
(61,519
)
(Deficit) equity in earnings of consolidated subsidiaries, net of taxes
(57,207
)
 
(2,674
)
 
—

 
59,881

 
—

(Loss) Income from Continuing Operations
$
(131,035
)
 
$
(54,430
)
 
$
(5,451
)
 
$
59,881

 
$
(131,035
)
Income (Loss) from Discontinued Operations, net of taxes
15,039

 
(1,904
)
 
807

 
1,097

 
15,039

Net (Loss) Income
$
(115,996
)
 
$
(56,334
)
 
$
(4,644
)
 
$
60,978

 
$
(115,996
)
 
 
 
 
 
 
 
 
 
 
Comprehensive (Loss) Income
$
(106,086
)
 
$
(50,410
)
 
$
7,727

 
$
42,683

 
$
(106,086
)




43



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



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2018
(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
$
824,532

 
$
1,430

 
$
2,888

 
$
—

 
$
828,850

Restricted cash and cash equivalents
16,607

 
—

 
—

 
—

 
16,607

Accounts receivable, net
263

 
404,915

 
774

 
—

 
405,952

Broadcast rights
—

 
81,354

 
553

 
—

 
81,907

Income taxes receivable
—

 
17,916

 
—

 
—

 
17,916

Prepaid expenses
11,563

 
17,415

 
290

 
—

 
29,268

Other
5,306

 
16,448

 
—

 
—

 
21,754

Total current assets
858,271

 
539,478

 
4,505

 
—

 
1,402,254

Properties
 
 
 
 
 
 
 
 
 
Property, plant and equipment
49,205

 
546,485

 
57,736

 
—

 
653,426

Accumulated depreciation
(30,092
)
 
(212,070
)
 
(7,625
)
 
—

 
(249,787
)
Net properties
19,113

 
334,415

 
50,111

 
—

 
403,639

 
 
 
 
 
 
 
 
 
 
Investments in subsidiaries
10,675,024

 
74,074

 
—

 
(10,749,098
)
 
—

 
 
 
 
 
 
 
 
 
 
Other Assets
 
 
 
 
 
 
 
 
 
Broadcast rights
—

 
98,106

 
27

 
—

 
98,133

Goodwill
—

 
3,220,300

 
8,474

 
—

 
3,228,774

Other intangible assets, net
—

 
1,456,633

 
73,065

 
—

 
1,529,698

Assets held for sale
—

 
28,955

 
—

 
—

 
28,955

Investments
850

 
1,191,913

 
20,477

 
—

 
1,213,240

Intercompany receivables
2,780,430

 
7,101,181

 
396,429

 
(10,278,040
)
 
—

Other
68,906

 
137,869

 
32

 
(52,182
)
 
154,625

Total other assets
2,850,186

 
13,234,957

 
498,504

 
(10,330,222
)
 
6,253,425

Total Assets
$
14,402,594

 
$
14,182,924

 
$
553,120

 
$
(21,079,320
)
 
$
8,059,318






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 JUNE 30, 2018
(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
$
24,412

 
$
20,985

 
$
1,129

 
$
—

 
$
46,526

Income taxes payable
—

 
43,155

 
—

 
—

 
43,155

Contracts payable for broadcast rights
—

 
209,353

 
787

 
—

 
210,140

Deferred revenue
—

 
13,846

 
893

 
—

 
14,739

Interest payable
30,339

 
—

 
—

 
—

 
30,339

Other
34,926

 
52,587

 
241

 
—

 
87,754

Total current liabilities
89,677

 
339,926

 
3,050

 
—

 
432,653

 
 
 
 
 
 
 
 
 
 
Non-Current Liabilities
 
 
 
 
 
 
 
 
 
Long-term debt
2,922,600

 
—

 
—

 
—

 
2,922,600

Deferred income taxes
—

 
525,345

 
54,987

 
(52,182
)
 
528,150

Contracts payable for broadcast rights
—

 
232,060

 
33

 
—

 
232,093

Intercompany payables
7,596,221

 
2,405,617

 
276,202

 
(10,278,040
)
 
—

Other
382,746

 
125,097

 
24,597

 
—

 
532,440

Total non-current liabilities
10,901,567

 
3,288,119

 
355,819

 
(10,330,222
)
 
4,215,283

Total liabilities
10,991,244

 
3,628,045

 
358,869

 
(10,330,222
)
 
4,647,936

 
 
 
 
 
 
 
 
 
 
Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Common stock
102

 
—

 
—

 
—

 
102

Treasury stock
(632,194
)
 
—

 
—

 
—

 
(632,194
)
Additional paid-in-capital
4,017,522

 
9,040,065

 
202,942

 
(9,243,007
)
 
4,017,522

Retained earnings (deficit)
66,920

 
1,517,323

 
(9,008
)
 
(1,508,315
)
 
66,920

Accumulated other comprehensive (loss) income
(41,000
)
 
(2,509
)
 
285

 
2,224

 
(41,000
)
Total Tribune Media Company shareholders’ equity (deficit)
3,411,350

 
10,554,879

 
194,219

 
(10,749,098
)
 
3,411,350

Noncontrolling interests
—

 
—

 
32

 
—

 
32

Total shareholders’ equity (deficit)
3,411,350

 
10,554,879

 
194,251

 
(10,749,098
)
 
3,411,382

Total Liabilities and Shareholders’ Equity (Deficit)
$
14,402,594

 
$
14,182,924

 
$
553,120

 
$
(21,079,320
)
 
$
8,059,318




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 DECEMBER 31, 2017
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
670,302

 
$
1,501

 
$
1,882

 
$
—

 
$
673,685

Restricted cash and cash equivalents
17,566

 
—

 
—

 
—

 
17,566

Accounts receivable, net
143

 
418,950

 
1,002

 
—

 
420,095

Broadcast rights
—

 
126,668

 
2,506

 
—

 
129,174

Income taxes receivable
—

 
18,274

 
—

 
—

 
18,274

Prepaid expenses
8,647

 
11,245

 
266

 
—

 
20,158

Other
12,487

 
1,552

 
—

 
—

 
14,039

Total current assets
709,145

 
578,190

 
5,656

 
—

 
1,292,991

Properties
 
 
 
 
 
 
 
 
 
Property, plant and equipment
58,622

 
557,394

 
57,666

 
—

 
673,682

Accumulated depreciation
(29,505
)
 
(196,644
)
 
(7,238
)
 
—

 
(233,387
)
Net properties
29,117

 
360,750

 
50,428

 
—

 
440,295

 
 
 
 
 
 
 
 
 
 
Investments in subsidiaries
10,378,948

 
74,610

 
—

 
(10,453,558
)
 
—

 
 
 
 
 
 
 
 
 
 
Other Assets
 
 
 
 
 
 
 
 
 
Broadcast rights
—

 
133,567

 
116

 
—

 
133,683

Goodwill
—

 
3,220,300

 
8,688

 
—

 
3,228,988

Other intangible assets, net
—

 
1,534,761

 
78,904

 
—

 
1,613,665

Assets held for sale
—

 
38,900

 
—

 
—

 
38,900

Investments
850

 
1,258,851

 
22,090

 
—

 
1,281,791

Intercompany receivables
2,520,570

 
6,527,083

 
411,059

 
(9,458,712
)
 
—

Other
65,743

 
135,373

 
376

 
(62,477
)
 
139,015

Total other assets
2,587,163

 
12,848,835

 
521,233

 
(9,521,189
)
 
6,436,042

Total Assets
$
13,704,373

 
$
13,862,385

 
$
577,317

 
$
(19,974,747
)
 
$
8,169,328








46



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



TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2017
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Liabilities and Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$
24,529

 
$
22,487

 
$
1,303

 
$
—

 
$
48,319

Income taxes payable
—

 
36,252

 
—

 
—

 
36,252

Contracts payable for broadcast rights
—

 
250,553

 
2,691

 
—

 
253,244

Deferred revenue
—

 
11,074

 
868

 
—

 
11,942

Interest payable
30,525

 
—

 
—

 
—

 
30,525

Deferred spectrum auction proceeds
—

 
172,102

 
—

 
—

 
172,102

Other
44,817

 
57,063

 
3

 
—

 
101,883

Total current liabilities
99,871

 
549,531

 
4,865

 
—

 
654,267

 
 
 
 
 
 
 
 
 
 
Non-Current Liabilities
 
 
 
 
 
 
 
 
 
Long-term debt
2,919,185

 
—

 
—

 
—

 
2,919,185

Deferred income taxes
—

 
485,608

 
85,043

 
(62,477
)
 
508,174

Contracts payable for broadcast rights
—

 
300,269

 
151

 
—

 
300,420

Intercompany payables
7,044,972

 
2,148,695

 
265,045

 
(9,458,712
)
 
—

Other
423,209

 
121,870

 
25,023

 
—

 
570,102

Total non-current liabilities
10,387,366

 
3,056,442

 
375,262

 
(9,521,189
)
 
4,297,881

Total Liabilities
10,487,237

 
3,605,973

 
380,127

 
(9,521,189
)
 
4,952,148

 
 
 
 
 
 
 
 
 
 
Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
Common stock
101

 
—

 
—

 
—

 
101

Treasury stock
(632,194
)
 
—

 
—

 
—

 
(632,194
)
Additional paid-in-capital
4,011,530

 
9,040,065

 
202,942

 
(9,243,007
)
 
4,011,530

Retained (deficit) earnings
(114,240
)
 
1,219,023

 
(6,516
)
 
(1,212,507
)
 
(114,240
)
Accumulated other comprehensive (loss) income
(48,061
)
 
(2,676
)
 
720

 
1,956

 
(48,061
)
Total Tribune Media Company shareholders’ equity (deficit)
3,217,136

 
10,256,412

 
197,146

 
(10,453,558
)
 
3,217,136

Noncontrolling interests
—

 
—

 
44

 
—

 
44

Total shareholders’ equity (deficit)
3,217,136

 
10,256,412

 
197,190

 
(10,453,558
)
 
3,217,180

Total Liabilities and Shareholders’ Equity (Deficit)
$
13,704,373

 
$
13,862,385

 
$
577,317

 
$
(19,974,747
)
 
$
8,169,328






47



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 SIX MONTHS ENDED JUNE 30, 2018
(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
$
(83,042
)
 
$
330,300

 
$
(26,317
)
 
$
—

 
$
220,941

 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(6,087
)
 
(18,785
)
 
(75
)
 
—

 
(24,947
)
Sale of partial interest of equity method investment
—

 
833

 
—

 
—

 
833

Proceeds from sales of real estate and other assets
—

 
58

 
—

 
—

 
58

Proceeds from the sale of investments
—

 
3,057

 
—

 
—

 
3,057

Other, net
—

 
1,642

 
1,613

 
—

 
3,255

Net cash (used in) provided by investing activities
(6,087
)
 
(13,195
)
 
1,538

 
—

 
(17,744
)
 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
Payments of dividends
(43,847
)
 
—

 
—

 
—

 
(43,847
)
Tax withholdings related to net share settlements of share-based awards
(5,723
)
 
—

 
—

 
—

 
(5,723
)
Proceeds from stock option exercises
581

 
—

 
—

 
—

 
581

Distributions to noncontrolling interest
—

 
—

 
(2
)
 
—

 
(2
)
Change in intercompany receivables and payables and intercompany contributions
291,389

 
(317,176
)
 
25,787

 
—

 
—

Net cash provided by (used in) financing activities
242,400

 
(317,176
)
 
25,785

 
—

 
(48,991
)
 
 
 
 
 
 
 
 
 
 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
153,271

 
(71
)
 
1,006

 
—

 
154,206

Cash, cash equivalents and restricted cash, beginning of period
687,868

 
1,501

 
1,882

 
—

 
691,251

Cash, cash equivalents and restricted cash, end of period
$
841,139

 
$
1,430

 
$
2,888

 
$
—

 
$
845,457

 
 
 
 
 
 
 
 
 
 
Cash, Cash Equivalents and Restricted Cash are Comprised of:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
824,532

 
$
1,430

 
$
2,888

 
$
—

 
$
828,850

Restricted cash
16,607

 
—

 
—

 
—

 
16,607

Total cash, cash equivalents and restricted cash
$
841,139

 
$
1,430

 
$
2,888

 
$
—

 
$
845,457





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 SIX MONTHS ENDED JUNE 30, 2017
(In thousands of dollars)
 
Parent (Tribune Media Company)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Tribune Media Company Consolidated
Net cash (used in) provided by operating activities
$
(142,822
)
 
$
266,895

 
$
(1,376
)
 
$
—

 
$
122,697

 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(1,069
)
 
(24,841
)
 
(2,189
)
 
—

 
(28,099
)
Net proceeds from the sale of business
574,817

 
(8,168
)
 
(12,162
)
 
—

 
554,487

Proceeds from sales of real estate and other assets
—

 
59,751

 
—

 
—

 
59,751

Proceeds from sale of investment
4,950

 
—

 
—

 
—

 
4,950

Other
—

 
—

 
805

 
—

 
805

Net cash provided by (used in) investing activities
578,698

 
26,742

 
(13,546
)
 
—

 
591,894

 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
Long-term borrowings
202,694

 
—

 
—

 
—

 
202,694

Repayments of long-term debt
(587,636
)
 
—

 
(2,025
)
 
—

 
(589,661
)
Long-term debt issuance costs
(1,689
)
 
—

 
—

 
—

 
(1,689
)
Payments of dividends
(542,665
)
 
—

 
—

 
—

 
(542,665
)
Tax withholdings related to net share settlements of share-based awards
(7,351
)
 
—

 
—

 
—

 
(7,351
)
Proceeds from stock option exercises
10,013

 
—

 
—

 
—

 
10,013

Contributions from noncontrolling interests
—

 
—

 
1,003

 
—

 
1,003

Change in intercompany receivables and payables (1)
293,696

 
(300,109
)
 
6,413

 
—

 
—

Net cash (used in) provided by financing activities
(632,938
)
 
(300,109
)
 
5,391

 
—

 
(927,656
)
 
 
 
 
 
 
 
 
 
 
Net Decrease in Cash, Cash Equivalents and Restricted Cash
(197,062
)
 
(6,472
)
 
(9,531
)
 
—

 
(213,065
)
Cash, cash equivalents and restricted cash, beginning of period
592,204

 
7,378

 
11,616

 
—

 
611,198

Cash, cash equivalents and restricted cash, end of period
$
395,142

 
$
906

 
$
2,085

 
$
—

 
$
398,133

 
 
 
 
 
 
 
 
 
 
Cash, Cash Equivalents and Restricted Cash are Comprised of:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
377,576

 
$
906

 
$
2,085

 
$
—

 
$
380,567

Restricted cash
17,566

 
—

 
—

 
—

 
17,566

Total cash, cash equivalents and restricted cash
$
395,142

 
$
906

 
$
2,085

 
$
—

 
$
398,133

 
(1)
Excludes the impact of a $54 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)



NOTE 17: SUBSEQUENT EVENTS
Sinclair Merger—On August 9, 2018, the Company announced that it has provided notification to Sinclair that it had terminated the Merger Agreement, effective immediately, following the expiration of the second end date thereunder. In connection with the termination of the Merger Agreement, on August 9, 2018, the Company provided notification to Fox that it had terminated the Fox Purchase Agreement, effective immediately. Under the terms of each of the Merger Agreement and the Fox Purchase Agreement, no termination fees are payable by any party.
Sinclair Litigation—On August 9, 2018, the Company filed a complaint in the Chancery Court of the State of Delaware against Sinclair, alleging breach of contract under the Merger Agreement. The complaint alleges that Sinclair willfully and materially breached its obligations under the Merger Agreement to use its reasonable best efforts to promptly obtain regulatory approval of the Merger so as to enable the Merger to close as soon as reasonably practicable. The lawsuit seeks damages for all losses incurred as a result of Sinclair’s breach of contract under the Merger Agreement.
Real Estate—On August 6, 2018, the Company contributed land, building and improvements with an agreed-upon value between the parties of $53 million and a carrying value of $22 million, to TREH 700 W. Chicago Venture, LLC (“700 W. Chicago LLC”). 700 W. Chicago LLC is a real estate joint venture between the Company and a third party developer formed for the purpose of redeveloping one of the Company’s Chicago, Illinois properties. Subsequent to the contribution, the Company holds an interest in the 700 W. Chicago LLC of 90%. In the future, the Company’s interest in the 700 W. Chicago LLC may decline, subject to the other party’s additional investments. The Company will consolidate the financial position and results of operations of the 700 W. Chicago LLC.



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, 2017. As a result of the Gracenote Sale (as further described below), the historical results of operations for the businesses included in the Gracenote Sale are reported as discontinued operations for all periods presented. Accordingly, all references made to financial data in this Quarterly Report are to Tribune Media Company’s continuing operations, unless specifically noted.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the three and six months ended June 30, 2018 (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, including, in particular, statements related to the termination of the Merger Agreement (as defined below) and related litigation. 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:
•
our continued ability to successfully execute our business strategy, including our continued exploration of strategic and financial alternatives to enhance shareholder value following our termination of the Agreement and Plan of Merger (the “Merger Agreement”), dated May 8, 2017, with Sinclair Broadcast Group, Inc. (“Sinclair”) (the “Merger”) (see “—Significant Events—Sinclair Merger Agreement” for further information);
•
uncertainty associated with the litigation relating to the termination of the Merger Agreement, including the amount and timing of damages, if any, we may be awarded and the costs of pursuing or defending such litigation;
•
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, or resolve disputes, with multichannel video programming distributors (“MVPDs”);
•
the incurrence of additional tax-related liabilities related to historical income tax returns;



51


•
our ability to realize the full value, or successfully complete the planned divestitures, of our real estate assets;
•
the potential impact of the modifications to the spectrum on the operation of our television stations, and the costs, terms and restrictions associated with such actions;
•
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;
•
the financial performance and valuation of our equity method investments;
•
the impairment of our existing goodwill and other intangible assets;
•
compliance with, and the effect of changes or developments in, government regulations applicable to the television and radio broadcasting industry;
•
changes in accounting standards;
•
the payment of cash dividends on our common stock;
•
impact of increases in interest rates on our variable rate indebtedness or refinancings thereof;
•
our indebtedness and ability to comply with covenants applicable to our debt financing and other contractual commitments;
•
our ability to satisfy future capital and liquidity requirements;
•
our ability to access the credit and capital markets at the times and in the amounts needed and on acceptable terms;
•
the factors discussed under “Risk Factors” of the Company’s filings with the Securities and Exchange Commission (the “SEC”); and
•
other events beyond our control that may result in unexpected adverse operating results.
We caution you that the foregoing list of important factors is not exhaustive. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Should one or more of the risks or uncertainties described in this Quarterly Report or our other filings with the SEC occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
OVERVIEW
We are a diversified media and entertainment company comprised of 42 local television stations, which we refer to as “our television stations,” that are either owned by us or owned by others, but to which we provide certain services, along with a national general entertainment cable network, a radio station, a portfolio of real estate assets and investments in a variety of media, websites and other related assets. We believe our diverse portfolio of assets, including our equity investments that provide cash distributions, distinguishes us from traditional pure-play broadcasters.
As further described in Note 2 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018, on December 19, 2016, we entered into a definitive share purchase agreement (the “Gracenote SPA”) with Nielsen Holding and Finance B.V. (“Nielsen”) to sell equity interests in substantially all of the Digital and Data business operations, which included Gracenote Inc., Gracenote Canada, Inc., Gracenote Netherlands Holdings B.V., Tribune Digital Ventures LLC and Tribune International Holdco, LLC (the “Gracenote Companies”), for $560 million in cash, subject to certain purchase price adjustments (the “Gracenote Sale”), which was completed on January 31, 2017. Prior to the Gracenote Sale, we reported our operations through the Television and Entertainment and Digital and Data reportable segments. Our Digital and Data segment consisted of several



52


businesses driven by our expertise in collection, creation and distribution of data and innovation in unique services and recognition technology that used data, including Gracenote Video, Gracenote Music and Gracenote Sports. In accordance with Accounting Standards Update No. 2014-08, “Reporting Discontinued Operations and Disclosure of Disposal of Components of an Entity,” the results of operations are reported as discontinued operations in our unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for all periods presented.
Our business consists of our Television and Entertainment operations and the management of certain of our real
estate assets. We also hold a variety of investments in cable and digital assets, including equity investments in Television Food Network, G.P. (“TV Food Network”) and CareerBuilder, LLC (through our investment in Camaro Parent, LLC) (“CareerBuilder”) and an investment in New Cubs LLC. Television and Entertainment is a reportable segment, which provides audiences across the country with news, entertainment and sports programming on Tribune Broadcasting local television stations and distinctive, high quality television series and movies on WGN America as well as news, entertainment and sports information via our websites and other digital assets. Television and Entertainment includes 42 local television stations and related websites, including 39 owned stations and 3 stations to which we provide certain services with Dreamcatcher Broadcasting LLC (“Dreamcatcher”); WGN America, a national general entertainment cable network; Antenna TV and THIS TV, national multicast networks; and WGN-AM, a radio station in Chicago.
In addition, we report and include under Corporate and Other the management of certain of our real estate assets, including revenues from leasing our owned office and production facilities and any gains or losses from the sales of our owned real estate, as well as certain administrative activities associated with operating corporate office functions and managing our predominantly frozen company-sponsored defined benefit pension plans.
Our results of operations, when examined on a quarterly basis, reflect the historical seasonality of our advertising revenues. Typically, second and fourth quarter advertising revenues are higher than first and third quarter advertising revenues. Results for the second quarter usually reflect spring seasonal advertising, while the fourth quarter includes advertising related to the holiday season. In addition, our operating results are subject to fluctuations from political advertising as political spending is usually significantly higher in even numbered years due to advertising expenditures preceding local and national elections. For additional information on the businesses we operate, see “Item 1. Business” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017 Annual Report”) and our other filings with the SEC.

SIGNIFICANT EVENTS
Sinclair Merger Agreement
On May 8, 2017, we entered into the Merger Agreement with Sinclair, providing for the acquisition by Sinclair of all of the outstanding shares of our Class A common stock (“Class A Common Stock”) and Class B common stock (“Class B Common Stock” and, together with the Class A Common Stock, the “Common Stock”) by means of a merger of Samson Merger Sub Inc., a wholly owned subsidiary of Sinclair, with and into Tribune Media Company, with Tribune Media Company surviving the Merger as a wholly owned subsidiary of Sinclair.
In the Merger, each share of our Common Stock would have been converted into the right to receive (i) $35.00 in cash, without interest and less any required withholding taxes (such amount, the “Cash Consideration”), and (ii) 0.2300 (the “Exchange Ratio”) of a validly issued, fully paid and nonassessable share of Class A common stock, $0.01 par value per share (the “Sinclair Common Stock”), of Sinclair (the “Stock Consideration,” and together with the Cash Consideration, the “Merger Consideration”).



53


The consummation of the Merger was subject to the satisfaction or waiver of certain important conditions, including, among others: (i) the approval of the Merger by our stockholders, (ii) the receipt of approval from the Federal Communications Commission (the “FCC”) and the expiration or termination of the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and (iii) the effectiveness of a registration statement on Form S-4 registering the Sinclair Common Stock to be issued in connection with the Merger and no stop order or proceedings seeking the same having been initiated by the SEC.
Pursuant to Section 7.1(e) of the Merger Agreement, Sinclair was “entitled to direct, in consultation with the Company, the timing for making, and approve (such approval not to be unreasonably withheld) the content of, any filings with or presentations or submissions to any Governmental Authority relating to this Agreement or the transactions contemplated hereby and to take the lead in the scheduling of, and strategic planning for, any meetings with, and the conducting of negotiations with, Governmental Authorities relating to this Agreement or the transactions contemplated hereby.” Applications to regulatory authorities made jointly by Sinclair and us in connection with the Merger were made at the direction of Sinclair pursuant to its authority under this provision of the Merger Agreement.
On May 8, 2018, we, Sinclair Television Group, Inc. (“Sinclair Television”) and Fox Television Stations, LLC (“Fox”) entered into an asset purchase agreement (the “Fox Purchase Agreement”) to sell the assets of seven network affiliates for $910 million in cash, subject to post-closing adjustments. The network affiliates subject to the Fox Purchase Agreement are: KCPQ (Tacoma, WA); KDVR (Denver, CO); KSTU (Salt Lake City, UT); KSWB-TV (San Diego, CA); KTXL (Sacramento, CA); WJW (Cleveland, OH); and WSFL-TV (Miami, FL). The closing of the sale pursuant to the Fox Purchase Agreement (the “Closing”) was subject to approval of the FCC and clearance under the HSR Act, as well as the satisfaction or waiver of all conditions of the consummation of the Merger, which was scheduled to occur immediately following the Closing.
On May 14, 2018, Sinclair and Tribune filed applications for FCC approval of additional station divestitures to Fox pursuant to the Fox Purchase Agreement. On May 21, 2018, the FCC issued a consolidated public notice accepting the divestiture applications filed between April 24, 2018 and May 14, 2018, for filing and seeking comment on those applications and on the April 24, 2018 amendment (the “April 24 Amendment”), and establishing a comment cycle ending on July 12, 2018.
On July 16, 2018, the Chairman of the FCC issued a statement that he had “serious concerns about the Sinclair/Tribune transaction” because of evidence suggesting “that certain station divestitures that have been proposed to the FCC would allow Sinclair to control [the divested] stations in practice, even if not in name, in violation of the law,” and that he had circulated to the other Commissioners “a draft order that would designate issues involving certain proposed divestitures for a hearing in front of an administrative law judge.”
On July 18, 2018, at the direction of Sinclair pursuant to its authority under the Merger Agreement, Sinclair and us jointly filed an amendment to the Applications reflecting that the applications for divestiture of WGN-TV (Chicago), KDAF (Dallas), and KIAH (Houston) filed in connection with the April 24 Amendment were being withdrawn, that WGN-TV would not be divested, and that KDAF and KIAH would be placed in a divestiture trust pending sales to one or more new third parties. The applications for divestiture of WGN-TV, KDAF and KIAH were withdrawn by concurrent letter filings. On July 19, 2018, the FCC released a Hearing Designation Order (“HDO”) referring the Applications to an FCC Administrative Law Judge (“ALJ”) for an evidentiary hearing to resolve what the FCC concluded are “substantial and material questions of fact” regarding (1) whether Sinclair was the real party-in-interest to the divestiture applications for WGN-TV, KDAF, and KIAH, and, if so, whether Sinclair engaged in misrepresentation and/or lack of candor in its applications with the FCC; (2) whether consummation of the merger would violate the FCC’s broadcast ownership rules; (3) whether grant of the Applications would serve the public interest, convenience, and/or necessity; and (4) whether the Applications should be granted or denied. The HDO designated as parties to the proceeding the FCC’s Enforcement Bureau and persons who had filed formal petitions to deny the Applications, and directed the ALJ to establish a procedural schedule by Friday, August 24, 2018.
On August 2, 2017, we received a request for additional information and documentary material, often referred to as a “second request,” from the United States Department of Justice (the “DOJ”) in connection with the Merger



54


Agreement. The second request was issued under the HSR Act. Sinclair received a substantively identical request for additional information and documentary material from the DOJ in connection with the transactions contemplated by the Merger Agreement. The parties entered into an agreement with the DOJ on September 15, 2017 by which they agreed not to consummate the Merger Agreement before certain dates related to their certification of substantial compliance with the second request (which occurred in November 2017) and to provide the DOJ with 10 calendar days’ notice prior to consummating the Merger Agreement. Although Sinclair and the DOJ reached agreement on a term sheet identifying the markets in which stations would have to be divested, they did not reach a definitive settlement and their discussions on significant provisions remained ongoing as of August 2018.
Pursuant to the Merger Agreement, we had the right to terminate the Merger Agreement if Sinclair failed to perform in all material respects its covenants, and such failure was not cured by the end date of August 8, 2018. Additionally, either party may terminate the Merger Agreement if the Merger is not consummated on or before August 8, 2018 (and the failure for the Merger to have been consummated by such date was not primarily due to a breach of the Merger Agreement by the party terminating the Merger Agreement). On August 9, 2018, we provided notification to Sinclair that we had terminated the Merger Agreement, effective immediately, on the basis of Sinclair’s willful and material breaches of its covenants and the expiration of the second end date thereunder. In connection with the termination of the Merger Agreement, on August 9, 2018, we provided notification to Fox that we had terminated the Fox Purchase Agreement, effective immediately. Under the terms of each of the Merger Agreement and the Fox Purchase Agreement, no termination fees are payable by any party.
On August 9, 2018, we filed a complaint in the Chancery Court of the State of Delaware against Sinclair, alleging breach of contract under the Merger Agreement. See “Part II. Item 1. Legal Proceedings” for additional information.
Chapter 11 Reorganization
On December 8, 2008 (the “Petition Date”), Tribune Company and 110 of its direct and indirect wholly-owned subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief (collectively, the “Chapter 11 Petitions”) under chapter 11 (“Chapter 11”) of title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Fourth Amended Joint Plan of Reorganization for Tribune Company and its Subsidiaries (as subsequently modified, the “Plan”) became effective and the Debtors emerged from Chapter 11 on December 31, 2012 (the “Effective Date”). The Bankruptcy Court has to date entered final decrees collectively closing 106 of the Debtors’ Chapter 11 cases. The remaining Debtors’ Chapter 11 proceedings continue to be jointly administered under the caption In re Tribune Media Company, et al., Case No. 08-13141.
See Note 3 to our audited consolidated financial statements for the fiscal year ended December 31, 2017 for additional information regarding the Debtors’ Chapter 11 cases and for a description of the terms and conditions of the Plan.
At June 30, 2018, restricted cash held by us to satisfy the remaining claim obligations was $17 million and is estimated to be sufficient to satisfy such obligations. If the aggregate allowed amount of the remaining claims exceeds the restricted cash held for satisfying such claims, we would be required to satisfy the allowed claims from our cash from operations.
Chicago Cubs Transactions
As further described in Note 13 to our audited consolidated financial statements for the fiscal year ended December 31, 2017, on June 28, 2016, the IRS issued to us a Notice of Deficiency (“Notice”) which presents the IRS’s position that the gain on the Chicago Cubs Transactions (as defined and described in Note 8 to our audited consolidated financial statements for the year ended December 31, 2017) should have been included in our 2009 taxable income. Accordingly, the IRS has proposed a $182 million tax and a $73 million gross valuation misstatement penalty. After-tax interest on the proposed tax and penalty through June 30, 2018 would be approximately $71 million. We continue to disagree with the IRS’s position that the transaction generated a taxable



55


gain in 2009, the proposed penalty and the IRS’s calculation of the gain. During the third quarter of 2016, we filed a petition in U.S. Tax Court to contest the IRS’s determination. We continue to pursue resolution of this disputed tax matter with the IRS. If the gain on the Chicago Cubs Transactions is deemed to be taxable in 2009, we estimate that the federal and state income taxes would be approximately $225 million before interest and penalties. Any tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2009. As of June 30, 2018, we have paid or accrued approximately $83 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 Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes,” our unaudited Condensed Consolidated Balance Sheets at June 30, 2018 and December 31, 2017 include a deferred tax liability of $66 million and $96 million, respectively, related to the future recognition of taxable income related to the Chicago Cubs Transactions.
FCC Spectrum Auction
On April 13, 2017, the FCC announced the conclusion of the incentive auction, the results of the reverse and forward auction and the repacking of broadcast television spectrum. We participated in the auction and have received approximately $191 million in pretax proceeds (including $26 million of proceeds received by a Dreamcatcher station) as of December 31, 2017. The proceeds reflect the FCC’s acceptance of one or more bids placed by us or channel share partners of television stations owned or operated by us during the auction to modify and/or surrender spectrum used by certain of such bidder’s television stations. In 2017, we used $102 million of after-tax proceeds to prepay a portion of our Term Loan Facility. After-tax proceeds of $12.6 million received by a Dreamcatcher station were used to prepay a substantial portion of the Dreamcatcher Credit Facility. FCC licenses with a carrying value of $39 million were included in assets held for sale as of December 31, 2017. In 2017, we received $172 million in gross pretax proceeds for these licenses as part of the FCC spectrum auction and in the first quarter of 2018 recognized a net pretax gain of $133 million related to the surrender of the spectrum of these television stations in January 2018. In 2017, we also received $84 million of pretax proceeds for sharing arrangements whereby we will provide hosting services to the counterparties. Additionally, we paid $66 million of proceeds in 2017 to counterparties who will host certain of our television stations under sharing arrangements.
Twenty-two of our television stations (including WTTK, which operates as a satellite station of WTTV) will be required to change frequencies or otherwise modify their operations as a result of the repacking, as further described in Note 8 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018. In doing so, the stations could incur substantial conversion costs, reduction or loss of over-the-air signal coverage or an inability to provide high definition programming and additional program streams. The legislation authorizing the incentive auction provides the FCC with a $1.750 billion special fund to reimburse reasonable capital costs and expenses incurred by stations that are reassigned to new channels in the repacking, which amount was increased by $1 billion pursuant to the adoption of an amended version of the Repack Airwaves Yielding Better Access for Users of Modern Services (RAY BAUM’S) Act of 2018 by the U.S. Congress on March 23, 2018. We expect that the reimbursements from the FCC’s special fund will cover the majority of our capital costs and expenses related to the repacking. However, we cannot currently predict the effect of the repacking, whether the special fund will be sufficient to reimburse all of our expenses related to the repacking, the timing of reimbursements or any spectrum-related FCC regulatory action.



56


Non-Operating Items
Non-operating items for the three and six months ended June 30, 2018 and June 30, 2017 are summarized as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Loss on extinguishment and modification of debt
$
—

 
$
—

 
$
—

 
$
(19,052
)
Gain on investment transactions
—

 
—

 
3,888

 
4,950

Write-downs of investment
—

 
(58,800
)
 
—

 
(180,800
)
Other non-operating (loss) gain, net
(26
)
 
71

 
91

 
45

Total non-operating (loss) gain, net
$
(26
)
 
$
(58,729
)
 
$
3,979

 
$
(194,857
)
Non-operating items for the six months ended June 30, 2018 included a pretax gain of $4 million from the sale of one of our other equity investments.
Non-operating items for the three months ended June 30, 2017 included a non-cash pretax impairment charge of $59 million to write-down our investment in CareerBuilder, as further described in Note 5 of our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018.
Non-operating items for the six months ended June 30, 2017 included a $19 million pretax loss on the extinguishment and modification of debt. The loss consisted of a write-off of unamortized debt issuance costs of $6 million and an unamortized discount of $1 million of the Term B Loans as a portion of the Term Loan Facility was considered extinguished for accounting purposes as well as an expense of $12 million of third party fees as a portion of the Term Loan Facility was considered a modification transaction under ASC 470, “Debt.” Gain on investment transactions for the six months ended June 30, 2017 included a pretax gain of $5 million from the sale of our tronc, Inc. (“tronc”) shares. Write-downs of investment for the six months ended June 30, 2017 included non-cash pretax impairment charges of $181 million to write down our investment in CareerBuilder, as further described in Note 5 of our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018.

RESULTS OF OPERATIONS
On December 19, 2016, we entered into the Gracenote SPA with Nielsen to sell equity interests in substantially all of the Digital and Data business operations. The Gracenote Sale was completed on January 31, 2017. As a result, the historical results of operations for businesses included in the Gracenote Sale are reported in discontinued operations for all periods presented.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“Topic 606”). The amendments in ASU 2014-09 created Topic 606 and superseded the revenue recognition requirements in Topic 605, “Revenue Recognition.” We adopted the new revenue guidance in the first quarter of 2018 using the modified retrospective transition method applied to those contracts which were not completed as of December 31, 2017. Results for reporting periods prior to adoption continue to be presented in accordance with our historical accounting under Topic 605.
The only identified impact to our financial statements relates to barter revenue and expense as well as barter-related broadcast rights and contracts payable for broadcast rights, which are no longer recognized. The following discussion and analysis presents a review of our continuing operations as of and for the three and six months ended June 30, 2018 and June 30, 2017, unless otherwise noted.



57


CONSOLIDATED
Consolidated operating results for the three and six months ended June 30, 2018 and June 30, 2017 are shown in the table below:
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(in thousands)
June 30, 2018
 
June 30, 2017
 
Change
 
June 30, 2018
 
June 30, 2017
 
Change
Operating revenues
$
489,358

 
$
469,517

 
+4
%
 
$
932,993

 
$
909,427

 
+3
%
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit (loss)
$
98,066

 
$
12,653

 
*

 
$
285,351

 
$
(8,314
)
 
*

 
 
 
 
 
 
 
 
 
 
 
 
Income on equity investments, net
$
52,568

 
$
40,761

 
+29
%
 
$
91,705

 
$
77,798

 
+18
%
 
 
 
 
 


 
 
 
 
 
 
Income (loss) from continuing operations
$
84,438

 
$
(29,823
)
 
*

 
$
225,621

 
$
(131,035
)
 
*

 
 
 
 
 


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

 
$
(579
)
 
*

 
$
—

 
$
15,039

 
*

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Tribune Media Company
$
84,438

 
$
(30,402
)
 
*

 
$
225,631

 
$
(115,996
)
 
*

 
*
Represents positive or negative change equal to, or in excess of 100%
Operating Revenues and Operating Profit (Loss)—Consolidated operating revenues and operating profit (loss) by business segment for the three and six months ended June 30, 2018 and June 30, 2017 were as follows:
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(in thousands)
June 30, 2018
 
June 30, 2017
 
Change
 
June 30, 2018
 
June 30, 2017
 
Change
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
Television and Entertainment
$
486,417

 
$
466,061

 
+4
 %
 
$
927,119

 
$
902,094

 
+3
 %
Corporate and Other
2,941

 
3,456

 
-15
 %
 
5,874

 
7,333

 
-20
 %
Total operating revenues
$
489,358

 
$
469,517

 
+4
 %
 
$
932,993

 
$
909,427

 
+3
 %
Operating profit (loss)
 
 
 
 
 
 
 
 
 
 
 
Television and Entertainment
$
119,767

 
$
50,219

 
*

 
$
331,619

 
$
70,232

 
*

Corporate and Other
(21,701
)
 
(37,566
)
 
-42
 %
 
(46,268
)
 
(78,546
)
 
-41
 %
Total operating profit (loss)
$
98,066

 
$
12,653

 
*

 
$
285,351

 
$
(8,314
)
 
*

 
*
Represents positive or negative change equal to, or in excess of 100%
Three Months Ended June 30, 2018 compared to the Three Months Ended June 30, 2017
Consolidated operating revenues increased 4%, or $20 million, in the three months ended June 30, 2018 primarily due to an increase in Television and Entertainment revenues, driven by higher retransmission revenues, carriage fees and other revenue, partially offset by the absence of barter revenue due to the new revenue guidance adopted in 2018. Consolidated operating profit increased $85 million in the three months ended June 30, 2018 primarily due to $70 million increase in Television and Entertainment operating profit driven by an increase in revenues and a decrease in programming expenses and a lower Corporate and Other operating loss due to a decrease in compensation and outside services expenses.



58


Six Months Ended June 30, 2018 compared to the Six Months Ended June 30, 2017
Consolidated operating revenues increased 3%, or $24 million, in the six months ended June 30, 2018 primarily due to an increase at Television and Entertainment driven by higher retransmission revenues, carriage fees and other revenue, partially offset by lower advertising revenue and the absence of barter revenue in 2018. Consolidated operating profit increased $294 million to operating profit of $285 million in the six months ended June 30, 2018, from an operating loss of $8 million in the six months ended June 30, 2017. The increase was primarily driven by higher Television and Entertainment operating profit largely due to a $133 million gain on the sales of spectrum and an increase in revenue and lower programming expenses, and a lower Corporate and Other operating loss primarily due to a decrease in compensation and outside services expenses.
Operating Expenses—Consolidated operating expenses for the three and six months ended June 30, 2018 and June 30, 2017 were as follows:
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(in thousands)
June 30, 2018
 
June 30, 2017
 
Change
 
June 30, 2018
 
June 30, 2017
 
Change
Programming
$
111,635

 
$
157,084

 
-29
 %
 
$
212,376

 
$
298,330

 
-29
 %
Direct operating expenses
98,817

 
96,940

 
+2
 %
 
200,205

 
195,747

 
+2
 %
Selling, general and administrative
125,878

 
147,249

 
-15
 %
 
257,834

 
312,843

 
-18
 %
Depreciation
13,281

 
13,927

 
-5
 %
 
27,056

 
27,498

 
-2
 %
Amortization
41,681

 
41,664

 
—
 %
 
83,368

 
83,323

 
—
 %
Gain on sales of spectrum
—

 
—

 
—
 %
 
(133,197
)
 
—

 
*

Total operating expenses
$
391,292

 
$
456,864

 
-14
 %
 
$
647,642

 
$
917,741

 
-29
 %
 
*
Represents positive or negative change equal to, or in excess of 100%
Three Months Ended June 30, 2018 compared to the Three Months Ended June 30, 2017
Programming expense, which represented 23% of revenues for the three months ended June 30, 2018 compared to 33% for the three months ended June 30, 2017, decreased 29%, or $45 million, due to lower amortization of license fees and absence of barter expense due to the new revenue guidance adopted in 2018, $20 million of additional expenses in the second quarter of 2017 related to the shift in programming strategy at WGN America, partially offset by higher network affiliate fees. The decrease in amortization of license fees of $23 million was primarily attributable to two originals airing in the second quarter of 2017 (Outsiders and Underground) versus airing lower cost programming in the second quarter of 2018. Barter expense decreased by $7 million as we no longer recognize barter revenue and expense as a result of new revenue guidance adopted in 2018. Network affiliate fees increased by $4 million mainly due to contractual increases.
Direct operating expenses, which represented 20% of revenues for the three months ended June 30, 2018 compared to 21% for the three months ended June 30, 2017, increased 2%, or $2 million. Compensation expense increased 1%, or $1 million, primarily due to higher direct pay and benefits. All other direct operating expenses, such as outside services, occupancy expense and royalty expense, increased 4%, or $1 million.
SG&A expenses, which represented 26% of revenues for the three months ended June 30, 2018 compared to 31% for the three months ended June 30, 2017, were down 15%, or $21 million, due mainly to lower compensation and outside services expenses. Compensation expense decreased 16%, or $12 million, due to a $4 million decrease in severance, a $3 million decrease in direct pay and benefits, a $3 million decrease in incentive compensation and a $2 million decrease in stock-based compensation. Outside services decreased 39%, or $11 million, primarily due to lower professional and legal fees.
Depreciation expense fell 5%, or less than $1 million, in the three months ended June 30, 2018. Amortization expense was flat in the three months ended June 30, 2018.



59


Six Months Ended June 30, 2018 compared to the Six Months Ended June 30, 2017
Programming expense, which represented 23% of revenues for the six months ended June 30, 2018 compared to 33% for the six months ended June 30, 2017, decreased 29%, or $86 million, due to lower amortization of license fees, the absence of barter expense in 2018, and the $20 million of additional expenses in the second quarter of 2017 related to the shift in programming strategy at WGN America, partially offset by higher network affiliate fees. The decrease in amortization of license fees of $62 million was primarily attributable to three originals airing in the first half of 2017 (Outsiders, Underground and Salem) versus airing lower cost programming in the first half of 2018. Barter expense decreased by $14 million as we no longer recognize barter revenue and expense as a result of adopting new revenue guidance in 2018. Network affiliate fees increased by $9 million mainly due to contractual increases.
Direct operating expenses, which represented 21% of revenues for the six months ended June 30, 2018 and 22% for the six months ended June 30, 2017, increased 2%, or $4 million, primarily due to increases of $2 million in both compensation expense and outside services expense.
SG&A expenses, which represented 28% of revenues for the six months ended June 30, 2018 and 34% for the six months ended June 30, 2017, decreased 18%, or $55 million, primarily due to lower compensation expense, outside services expense and promotion expense. Compensation expense decreased 22%, or $34 million, due to a $20 million decrease at Corporate and Other as the prior year included $13 million of expense related to the resignation of the CEO in the first quarter of 2017, as well as decreases of $2 million in direct pay and benefits, $3 million in incentive compensation and $1 million in stock-based compensation. Compensation expense decreased $14 million at Television and Entertainment due to a $5 million decrease in severance, a $6 million decrease in direct pay and benefits, a $2 million decrease in stock-based compensation and a $2 million decrease in incentive compensation. Outside services expense decreased 22%, or $10 million, primarily driven by lower professional and legal fees associated with the Merger. Promotion expense decreased 13%, or $9 million, primarily due to a $9 million decrease at WGN America.
Depreciation expense decreased 2%, or less than $1 million, for the six months ended June 30, 2018. Amortization expense was flat for the six months ended June 30, 2018.
Gain on sales of spectrum of $133 million for the six months ended June 30, 2018 relates to licenses sold in the FCC spectrum auction for which the spectrum of these television stations was surrendered in January 2018, as further described in Note 8 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018.
Income From Discontinued Operations, Net of Taxes—The results of discontinued operations for the three and six months ended June 30, 2017 include the operating results of the Digital and Data businesses included in the Gracenote Sale. Loss from discontinued operations, net of taxes totaled less than $1 million for the three months ended June 30, 2017 and income from discontinued operations, net of taxes totaled $15 million for the six months ended June 30, 2017, including a pretax gain on the sale of $35 million. Interest expense allocated to discontinued operations totaled $1 million for the six months ended June 30, 2017. The results of discontinued operations also include selling and transaction costs, including legal and professional fees, incurred by us to complete the Gracenote Sale, of $10 million for the six months ended June 30, 2017. See Note 2 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018 for further information.



60


TELEVISION AND ENTERTAINMENT
Operating Revenues and Operating Profit—The table below presents Television and Entertainment operating revenues, operating expenses and operating profit for the three and six months ended June 30, 2018 and June 30, 2017.
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(in thousands)
June 30, 2018
 
June 30, 2017
 
Change
 
June 30, 2018
 
June 30, 2017
 
Change
Operating revenues
$
486,417

 
$
466,061

 
+4
 %
 
$
927,119

 
$
902,094

 
+3
 %
Operating expenses
366,650

 
415,842

 
-12
 %
 
595,500

 
831,862

 
-28
 %
Operating profit
$
119,767

 
$
50,219

 
*

 
$
331,619

 
$
70,232

 
*

 
*
Represents positive or negative change equal to, or in excess of 100%
Three Months Ended June 30, 2018 compared to the Three Months Ended June 30, 2017
Television and Entertainment operating revenues increased 4%, or $20 million, in the three months ended June 30, 2018 largely due to increases in retransmission revenues, carriage fees and other revenue, partially offset by a decrease in barter/trade revenue, as further described below.
Television and Entertainment operating profit increased $70 million, in the three months ended June 30, 2018 mainly due to a $20 million increase in revenue, a $45 million decrease in programming expenses and lower compensation expense, as further described below.
Six Months Ended June 30, 2018 compared to the Six Months Ended June 30, 2017
Television and Entertainment operating revenues increased 3%, or $25 million, in the six months ended June 30, 2018 largely due to increases in retransmission revenues, carriage fees and other revenue, partially offset by decreases in advertising revenue and barter/trade revenue, as further described below.
Television and Entertainment operating profit increased $261 million, in the six months ended June 30, 2018 mainly due to a net pretax gain of $133 million in the first quarter of 2018 related to licenses sold in the FCC spectrum auction, as described above, an $86 million decrease in programming expenses as well as declines in compensation expense and other expense, as further described below.
Operating Revenues—Television and Entertainment operating revenues, by classification, for the three and six months ended June 30, 2018 and June 30, 2017 were as follows:
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(in thousands)
June 30, 2018
 
June 30, 2017
 
Change
 
June 30, 2018
 
June 30, 2017
 
Change
Advertising
$
311,431

 
$
312,864

 
—
 %
 
$
581,870

 
$
604,571

 
-4
 %
Retransmission revenues
117,185

 
104,999

 
+12
 %
 
235,327

 
199,213

 
+18
 %
Carriage fees
40,815

 
31,867

 
+28
 %
 
82,477

 
65,477

 
+26
 %
Barter/trade
2,388

 
9,481

 
-75
 %
 
4,482

 
18,493

 
-76
 %
Other
14,598

 
6,850

 
*

 
22,963

 
14,340

 
+60
 %
Total operating revenues
$
486,417

 
$
466,061

 
+4
 %
 
$
927,119

 
$
902,094

 
+3
 %
 
*
Represents positive or negative change equal to, or in excess of 100%




61


Three Months Ended June 30, 2018 compared to the Three Months Ended June 30, 2017

Advertising Revenues—Advertising revenues, net of agency commissions, remained flat in the three months ended June 30, 2018 as a $16 million increase in net political advertising revenue was offset by a $17 million decline in net core advertising revenues (comprised of local and national advertising, excluding political and digital). The decline in net core advertising revenue was primarily due to a decline in advertising in our markets. Net political advertising revenues, which are a component of total advertising revenues, were $21 million for the three months ended June 30, 2018 compared to $4 million for the three months ended June 30, 2017, as 2018 is an election year.
Retransmission Revenues—Retransmission revenues increased 12%, or $12 million, in the three months ended June 30, 2018 primarily due to a $16 million increase from higher rates included in retransmission consent renewals of our MVPD agreements, partially offset by a decrease in the number of subscribers.
Carriage Fees—Carriage fees increased 28%, or $9 million, in the three months ended June 30, 2018 mainly due to an $8 million increase from higher rates for the distribution of WGN America.
Barter/Trade Revenues—Barter/trade revenues declined 75%, or $7 million, in the three months ended June 30, 2018 as barter revenues are no longer recognized under new revenue guidance adopted in 2018. We recognized $7 million of barter revenue for the three months ended June 30, 2017.
Other Revenues—Other revenues are primarily derived from profit sharing, revenue on syndicated content and copyright royalties. Other revenues increased $8 million in the three months ended June 30, 2018 mainly due to a $5 million increase in copyright royalties and $1 million of profit sharing from an original program.
Six Months Ended June 30, 2018 compared to the Six Months Ended June 30, 2017
Advertising Revenues—Advertising revenues, net of agency commissions, fell 4%, or $23 million, in the six months ended June 30, 2018 primarily due to a $46 million decrease in net core advertising revenues (comprised of local and national advertising, excluding political and digital) partially offset by a $24 million increase in net political advertising revenues. The decrease in net core advertising revenue was primarily due to a decline in advertising in our markets, a decrease in revenues associated with airing the Super Bowl on 2 NBC-affiliated stations in 2018 compared to 14 FOX-affiliated stations in 2017 and the 2018 Winter Olympics, which negatively impacted non-NBC affiliated stations’ advertising revenues. Net political advertising revenues, which are a component of total advertising revenues, were approximately $30 million for the six months ended June 30, 2018 compared to $6 million for the six months ended June 30, 2017, as 2018 is an election year.
Retransmission Revenues—Retransmission revenues increased 18%, or $36 million, in the six months ended June 30, 2018 primarily due to a $45 million increase from higher rates included in retransmission consent renewals of our MVPD agreements, partially offset by a decrease in the number of subscribers.
Carriage Fees—Carriage fees were up 26%, or $17 million, in the six months ended June 30, 2018 due mainly to a $16 million increase from higher rates for the distribution of WGN America.
Barter/Trade Revenues—Barter/trade revenues decreased 76%, or $14 million, in the six months ended June 30, 2018 as barter revenues are no longer recognized under new revenue guidance adopted in 2018. We recognized $14 million of barter revenue for the six months ended June 30, 2017.
Other Revenues—Other revenues are primarily derived from profit sharing, revenue on syndicated content and copyright royalties. Other revenues increased 60%, or $9 million, in the six months ended June 30, 2018 mainly due to a $5 million increase in copyright royalties and $1 million of deferred revenue recognized related to spectrum sharing arrangements.



62


Operating Expenses—Television and Entertainment operating expenses for the three and six months ended June 30, 2018 and June 30, 2017 were as follows:
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(in thousands)
June 30, 2018
 
June 30, 2017
 
Change
 
June 30, 2018
 
June 30, 2017
 
Change
Compensation
$
133,224

 
$
140,922

 
-5
 %
 
$
266,956

 
$
279,084

 
-4
 %
Programming
111,635

 
157,084

 
-29
 %
 
212,376

 
298,330

 
-29
 %
Depreciation
10,941

 
10,530

 
+4
 %
 
21,811

 
20,569

 
+6
 %
Amortization
41,681

 
41,664

 
—
 %
 
83,368

 
83,323

 
—
 %
Other
69,169

 
65,642

 
+5
 %
 
144,186

 
150,556

 
-4
 %
Gain on sales of spectrum
—

 
—

 
—
 %
 
(133,197
)
 
—

 
*

Total operating expenses
$
366,650

 
$
415,842

 
-12
 %
 
$
595,500

 
$
831,862

 
-28
 %
 
*
Represents positive or negative change equal to, or in excess of 100%

Three Months Ended June 30, 2018 compared to the Three Months Ended June 30, 2017
Television and Entertainment operating expenses decreased 12%, or $49 million, in the three months ended June 30, 2018 compared to the prior year period largely due to a $45 million decline in programming expense and lower compensation expense, partially offset by an increase in other expenses, as further described below.
Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, fell 5%, or $8 million, in the three months ended June 30, 2018. The decrease was primarily due to a $4 million decrease in severance expense, a $2 million decrease in direct pay and benefits along with a $1 million decrease in stock-based compensation and a $1 million decrease in incentive compensation.
Programming Expense—Programming expense decreased 29%, or $45 million, in the three months ended June 30, 2018. The decrease was partially the result of lower amortization of license fees and the lack of barter expense as a result of new revenue guidance adopted in 2018 and $20 million of additional expenses in the second quarter of 2017 related to the shift in programming strategy at WGN America, partially offset by higher network affiliate fees. The decrease in amortization of license fees of $23 million was primarily attributable to two originals airing in the second quarter of 2017 (Outsiders and Underground) versus airing lower cost programming in the second quarter of 2018 after the shift in programming strategy at WGN America. Barter expense decreased by $7 million as we no longer recognize barter revenue and expense as a result of new revenue guidance adopted in 2018. Network affiliate fees increased by $4 million mainly due to contractual increases.
Depreciation and Amortization Expense—Depreciation expense and amortization expense remained flat for the three months ended June 30, 2018.
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 5%, or $4 million, for the three months ended June 30, 2018 primarily related to a $4 million increase in promotion expense mostly at WGN America for original programming.
Six Months Ended June 30, 2018 compared to the Six Months Ended June 30, 2017
Television and Entertainment operating expenses decreased 28%, or $236 million, in the six months ended June 30, 2018 compared to the prior year period largely due to a net pretax gain of $133 million in the first quarter of 2018 related to licenses sold in the FCC spectrum auction for which the spectrum of these television stations was surrendered in January 2018, an $86 million decrease in programming expenses and declines in compensation expense and other expenses, as further described below.



63


Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, decreased 4%, or $12 million, in the six months ended June 30, 2018 primarily due to a $4 million decrease in severance, a $4 million decrease in direct pay and benefits, a $2 million decrease in stock-based compensation and a $2 million decrease in incentive compensation.
Programming Expense—Programming expense decreased 29%, or $86 million, in the six months ended June 30, 2018. The decrease was primarily the result of lower amortization of license fees and the lack of barter expense as a result of the new revenue guidance, and $20 million of additional expenses in the second quarter of 2017 related to the shift in programming strategy at WGN America, partially offset by higher network affiliate fees. The decrease in amortization of license fees of $62 million was primarily attributable to three originals airing in the first half of 2017 (Outsiders, Underground and Salem) versus airing lower cost programming in the first half of 2018. Barter expense decreased by $14 million as we no longer recognize barter revenue and expense as a result of new revenue guidance adopted in 2018. Network affiliate fees increased by $9 million mainly due to contractual increases.
Depreciation and Amortization Expense—Depreciation expense increased 6%, or $1 million, in the six months ended June 30, 2018. Amortization expense remained flat in the six months ended June 30, 2018.
Other Expenses—Other expenses include sales and marketing, occupancy, outside services and other miscellaneous expenses, which are included in direct operating expenses or SG&A expense, as applicable. Other expenses decreased 4%, or $6 million, in the six months ended June 30, 2018 primarily due to a $9 million decrease in promotion expense mostly at WGN America, partially offset by a $2 million increase in outside services expense.
Gain on Sales of Spectrum—In the six months ended June 30, 2018, we recorded a net pretax gain of $133 million related to licenses sold in the FCC spectrum auction for which the spectrum of these television stations was surrendered in January 2018, as further described in Note 8 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018.
CORPORATE AND OTHER
Operating Revenues and Expenses—Corporate and Other operating results for the three and six months ended June 30, 2018 and June 30, 2017 were as follows:
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(in thousands)
June 30, 2018
 
June 30, 2017
 
Change
 
June 30, 2018
 
June 30, 2017
 
Change
Real estate revenues
$
2,941

 
$
3,456

 
-15
 %
 
$
5,874

 
$
7,333

 
-20
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Real estate (1)
$
3,003

 
$
2,551

 
+18
 %
 
$
5,234

 
$
5,758

 
-9
 %
Corporate (2)
21,639

 
38,471

 
-44
 %
 
46,908

 
80,121

 
-41
 %
Total operating expenses
$
24,642

 
$
41,022

 
-40
 %
 
$
52,142

 
$
85,879

 
-39
 %
 
(1)
Real estate operating expenses included less than $1 million of depreciation expense for the three months ended June 30, 2018 and June 30, 2017, respectively, and $1 million of depreciation expense for each of the six months ended June 30, 2018 and June 30, 2017.
(2)
Corporate operating expenses included $2 million and $3 million of depreciation expense for the three months ended June 30, 2018 and June 30, 2017, respectively, and $4 million and $6 million of depreciation expense for the six months ended June 30, 2018 and June 30, 2017, respectively.
Three Months Ended June 30, 2018 compared to the Three Months Ended June 30, 2017
Real Estate Revenues—Real estate revenues decreased 15%, or $1 million, in the three months ended June 30, 2018 primarily due to the loss of revenue from real estate properties sold in 2017.



64


Real Estate Expenses—Real estate expenses increased 18%, or less than $1 million, in the three months ended June 30, 2018.
Corporate Expenses—Corporate expenses decreased 44%, or $17 million, in the three months ended June 30, 2018 primarily due to a $12 million decline in outside services expense driven by lower professional and legal fees associated with the Merger of $9 million and lower compensation expense of $3 million primarily driven by lower incentive compensation.
Six Months Ended June 30, 2018 compared to the Six Months Ended June 30, 2017
Real Estate Revenues—Real estate revenues decreased 20%, or $1 million, in the six months ended June 30, 2018 primarily due to the loss of revenue from real estate properties sold in 2017.
Real Estate Expenses—Real estate expenses decreased 9%, or $1 million, in the six months ended June 30, 2018 primarily resulting from a $1 million reduction in impairment charges associated with certain real estate properties.
Corporate Expenses—Corporate expenses decreased 41%, or $33 million, in the six months ended June 30, 2018 primarily due to lower compensation expense and outside services. Compensation expense decreased $20 million as the prior year included $13 million of expense ($6 million of severance and $7 million of stock-based compensation) related to the resignation of the CEO in the first quarter of 2017. In addition, incentive compensation decreased $3 million, direct pay and benefits decreased $2 million and stock-based compensation decreased $1 million. Outside services expense decreased by $10 million primarily due to a reduction in professional and legal fees associated with the Merger.
INCOME ON EQUITY INVESTMENTS, NET
Income on equity investments, net for the three and six months ended June 30, 2018 and June 30, 2017 was as follows:
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(in thousands)
June 30, 2018
 
June 30, 2017
 
Change
 
June 30, 2018
 
June 30, 2017
 
Change
Income on equity investments, net, before amortization of basis difference
$
65,037

 
$
53,311

 
+22
 %
 
$
116,643

 
$
106,199

 
+10
 %
Amortization of basis difference (1)
(12,469
)
 
(12,550
)
 
-1
 %
 
(24,938
)
 
(28,401
)
 
-12
 %
Income on equity investments, net
$
52,568

 
$
40,761

 
+29
 %
 
$
91,705

 
$
77,798

 
+18
 %
 
(1)
See Note 5 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018 for the discussion of the amortization of basis difference.
Income on equity investments, net increased 29%, or $12 million, in the three months ended June 30, 2018 primarily due to higher equity income from CareerBuilder as a result of recognizing our share of the gain on the sale of one of its business operations. Income on equity investments, net increased 18%, or $14 million, in the six months ended June 30, 2018 largely due to higher equity income from CareerBuilder, as discussed above, and a $3 million decline in amortization of basis difference as a result of the write-down of our investment in CareerBuilder in 2017, which eliminated the remaining basis difference for that investment.
As described in Note 5 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018, in the three and six months ended June 30, 2017, we recorded a non-cash pretax impairment charge of $59 million and $181 million, respectively, to write down our investment in CareerBuilder, which is included in write-downs of investment in our unaudited Condensed Consolidated Statements of Operations.



65


Cash distributions from our equity method investments were as follows:
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(in thousands)
June 30, 2018
 
June 30, 2017
 
Change
 
June 30, 2018
 
June 30, 2017
 
Change
Cash distributions from equity investments
$
43,789

 
$
38,141

 
+15
%
 
$
158,926

 
$
149,650

 
+6
%
Cash distributions from equity investments increased 15%, or $6 million, in the three months ended June 30, 2018 and increased 6%, or $9 million, in the six months ended June 30, 2018, largely due to $6 million of distributions from CareerBuilder, of which $5 million related to a distribution of proceeds from the sale of one of its business operations.
INTEREST AND DIVIDEND INCOME, INTEREST EXPENSE AND INCOME TAX EXPENSE
Interest and dividend income, interest expense and income tax expense for the three and six months ended June 30, 2018 and June 30, 2017 were as follows:
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(in thousands)
June 30, 2018
 
June 30, 2017
 
Change
 
June 30, 2018
 
June 30, 2017
 
Change
Interest and dividend income
$
2,336

 
$
548

 
*

 
$
4,234

 
$
1,053

 
*

 
 
 
 
 
 
 
 
 
 
 
 
Interest expense (1)
$
41,990

 
$
40,185

 
+4
%
 
$
82,621

 
$
78,943

 
+5
%
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense (benefit) (2)
$
32,816

 
$
(9,905
)
 
*

 
$
89,518

 
$
(61,519
)
 
*

 
*
Represents positive or negative change equal to, or in excess of 100%
(1)
Interest expense excludes $1 million for the six months ended June 30, 2017 related to discontinued operations. We used $400 million of the proceeds from the Gracenote Sale to prepay a portion of our Term Loan Facility and the interest expense associated with our outstanding debt was allocated to discontinued operations based on the ratio of the $400 million prepayment to the total outstanding borrowings under the Term Loan Facility.
(2)
Income tax expense (benefit) excludes a benefit of $0.4 million for the three months ended June 30, 2017 and an expense of $14 million for the six months ended June 30, 2017 related to discontinued operations.
Interest Expense—Interest expense from continuing operations for each of the three months ended June 30, 2018 and June 30, 2017 includes amortization of debt issuance costs of $2 million. Interest expense from continuing operations for the six months ended June 30, 2018 and June 30, 2017 includes amortization of debt issuance costs of $3 million and $4 million, respectively.
Income Tax Expense (Benefit)—In the three and six months ended June 30, 2018, we recorded income tax expense from continuing operations of $33 million and $90 million, respectively. The effective tax rate on pretax income from continuing operations was 28.0% for the three months ended June 30, 2018. The rate differs from the U.S. federal statutory rate of 21% due to state income taxes (net of federal benefit), non-deductible executive compensation, certain transaction costs and other expenses not fully deductible for tax purposes, and a less than $1 million charge related primarily to the write-off of unrealized deferred tax assets related to stock-based compensation. The effective tax rate on pretax income from continuing operations was 28.4% for the six months ended June 30, 2018. The rate for the six months ended June 30, 2018 differs from the U.S. federal statutory rate of 21% due to state income taxes (net of federal benefit), non-deductible executive compensation, certain transaction costs and other expenses not fully deductible for tax purposes, and a net $3 million charge related primarily to the write-off of unrealized deferred tax assets related to stock-based compensation.
In the three and six months ended June 30, 2017, we recorded an income tax benefit from continuing operations of $10 million and $62 million, respectively. The effective tax rate on pretax loss from continuing operations was 24.9% for the three months ended June 30, 2017. The rate differs from the U.S. federal statutory rate of 35% at the time due to state income taxes (net of federal benefit), the domestic production activities deduction, certain transaction costs not fully deductible for tax purposes, a $3 million benefit related to expected refunds of interest



66


paid on prior tax assessments and other non-deductible expenses. The effective tax rate on pretax loss from continuing operations was 31.9% for the six months ended June 30, 2017. The rate for the six months ended June 30, 2017 was also impacted by a $2 million charge related to the write-off of unrealized deferred tax assets related to stock-based compensation.
Although we believe our estimates and judgments are reasonable, the resolutions of our income tax matters are unpredictable and could result in income tax liabilities that are significantly higher or lower than that which has been provided by us.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from operating activities is our primary source of liquidity. We expect to fund capital expenditures, acquisitions, interest and principal payments on our indebtedness, income tax payments, potential payments related to our uncertain tax positions, dividend payments on our Common Stock (see “—Cash Dividends” below) and related distributions to holders of Warrants and other operating requirements in the next twelve months through a combination of cash flows from operations, cash on our balance sheet, distributions from or sales of our investments, sales of real estate assets, available borrowings under our Revolving Credit Facility, and any refinancings thereof, additional debt financing, if any, and disposals of assets or operations, if any. We intend to continue the monetization of our real estate portfolio 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 six months ended June 30, 2018 and June 30, 2017:
 
Six Months Ended
(in thousands)
June 30, 2018
 
June 30, 2017
Net cash provided by operating activities
$
220,941

 
$
122,697

Net cash (used in) provided by investing activities
(17,744
)
 
591,894

Net cash used in financing activities
(48,991
)
 
(927,656
)
Net increase (decrease) in cash, cash equivalents and restricted cash
$
154,206

 
$
(213,065
)
Operating activities
Net cash provided by operating activities for the six months ended June 30, 2018 was $221 million compared to $123 million for the six months ended June 30, 2017. The increase was primarily due to higher operating cash flows from operating results, an increase in distributions from our equity investments and lower tax payments, partially offset by unfavorable working capital changes. Distributions from our equity investment were $159 million for the six months ended June 30, 2018 compared to $150 million for the six months ended June 30, 2017.



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Investing activities
Net cash used in investing activities totaled $18 million for the six months ended June 30, 2018. Our capital expenditures in the six months ended June 30, 2018 totaled $25 million and included $5 million related to the FCC spectrum repacking project. In the six months ended June 30, 2018, we received net proceeds of $4 million from the sales of investments and $2 million of repack reimbursements from the FCC.
Net cash provided by investing activities totaled $592 million for the six months ended June 30, 2017. Our capital expenditures in the six months ended June 30, 2017 totaled $28 million. In the six months ended June 30, 2017, we received net proceeds of $554 million from the Gracenote Sale, $60 million related to the sales of real estate and $5 million related to the sale of tronc shares.
Financing activities
Net cash used in financing activities was $49 million for the six months ended June 30, 2018. During the six months ended June 30, 2018, we paid quarterly cash dividends of $44 million and paid $6 million of tax withholdings related to net share settlements of share-based awards.
Net cash used in financing activities was $928 million for the six months ended June 30, 2017. During the six months ended June 30, 2017, we repaid $590 million of borrowings under our Term Loan Facility and the Dreamcatcher Credit Facility, which included using $400 million of proceeds from the Gracenote Sale to prepay a portion of our Term B Loans. Additionally, we used $203 million of long-term borrowings of Term C Loans to repay $184 million of Term B Loans, with the remainder used to pay fees associated with the 2017 Amendment. We paid dividends of $543 million consisting of quarterly cash dividends of $44 million and the special cash dividend of $499 million.
Debt
Our debt consisted of the following (in thousands):
 
June 30, 2018
 
December 31, 2017
Term Loan Facility
 
 
 
Term B Loans due 2020, effective interest rate of 3.84%, net of unamortized discount and debt issuance costs of $1,587 and $1,900
$
188,038

 
$
187,725

Term C Loans due 2024, effective interest rate of 3.85%, net of unamortized discount and debt issuance costs of $20,064 and $21,783
1,645,828

 
1,644,109

5.875% Senior Notes due 2022, net of debt issuance costs of $11,266 and $12,649
1,088,734

 
1,087,351

Total debt
$
2,922,600

 
$
2,919,185

 
Secured Credit Facility—At both June 30, 2018 and December 31, 2017, our secured credit facility (the “Secured Credit Facility”) consisted of a term loan facility (the “Term Loan Facility”), under which $1.666 billion of term C loans (the “Term C Loans”) and $190 million of term B loans (the “Term B Loans”) were outstanding, and a $420 million revolving credit facility (“Revolving Credit Facility”). At both June 30, 2018 and December 31, 2017, there were no borrowings outstanding under the Revolving Credit Facility; however, there were standby letters of credit outstanding of $20 million and $21 million, respectively, primarily in support of our workers’ compensation insurance programs. See Note 9 to our audited consolidated financial statements for the fiscal year ended December 31, 2017 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.



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On February 1, 2017, we used $400 million of proceeds from the Gracenote Sale to prepay a portion of our outstanding term loans. In the first quarter of 2017, as a result of the 2017 Amendment and the $400 million prepayment, we recorded a loss of $19 million on the extinguishment and modification of debt, as further described in Note 6 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018.
During the third quarter of 2017, we used $102 million of after-tax proceeds received from our participation in the FCC spectrum auction to prepay outstanding loans under the Term Loan Facility. Subsequent to these payments, our quarterly installments related to the remaining principal amount of the Term C Loans are not due until the third quarter of 2022. As a result of earlier prepayments, quarterly installments related to the remaining principal amount of the Term B Loans are not required until the payoff of the Term B Loans in December 2020. We recorded charges of $1 million associated with debt extinguishment in the three months ended September 30, 2017. See Note 8 for additional information regarding our participation in the FCC spectrum auction.
5.875% Senior Notes due 2022—On June 24, 2015, we issued $1.100 billion aggregate principal amount of our 5.875% Senior Notes due 2022, which we exchanged for substantially identical securities registered under the Securities Act of 1933, as amended, on May 4, 2016 (the “Notes”). The Notes bear interest at a rate of 5.875% per annum and interest is payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2016. The Notes mature on July 15, 2022.
Dreamcatcher Credit Facility—We and the guarantors guaranteed the obligations of Dreamcatcher under its senior secured credit facility (the “Dreamcatcher Credit Facility”). See Note 9 to our audited consolidated financial statements for the fiscal year ended December 31, 2017 for the description of the Dreamcatcher Credit Facility. We used $12.6 million of after-tax proceeds from the FCC spectrum auction to prepay the Dreamcatcher Credit Facility in August 2017 as any proceeds received by Dreamcatcher as a result of the FCC spectrum auction were required to be first used to repay the Dreamcatcher Credit Facility. We made the final payment to pay off the Dreamcatcher Credit Facility in September 2017.
Repurchases of Equity Securities
On February 24, 2016, the Board of Directors (the “Board”) authorized a stock repurchase program, under which we may repurchase up to $400 million of our outstanding Class A Common Stock (the “2016 Stock Repurchase Program”). Under the stock repurchase program, we may repurchase shares in open-market purchases in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act. The repurchase program may be suspended or discontinued at any time. We did not repurchase any shares of Common Stock during 2017 and did not make any share repurchases during the six months ended June 30, 2018 due to limitations imposed by the Merger Agreement. As of June 30, 2018, the remaining authorized amount under the current authorization totaled $168 million.
Cash Dividends
The Board declared quarterly cash dividends on Common Stock to holders of record of Common Stock and Warrants as follows (in thousands, except per share data):
 
2018
 
2017
 
Per Share
 
Total
Amount
 
Per Share
 
Total
Amount
First quarter
$
0.25

 
$
21,922

 
$
0.25

 
$
21,742

Second quarter
0.25

 
21,925

 
0.25

 
21,816

Total quarterly cash dividends declared and paid
$
0.50

 
$
43,847

 
$
0.50

 
$
43,558




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On August 8, 2018, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share to be paid on September 4, 2018 to holders of record of Common Stock and Warrants as of August 20, 2018.
On February 3, 2017, we paid a special cash dividend of $5.77 per share to holders of record of our Common Stock at the close of business on January 13, 2017. The total aggregate payment on February 3, 2017 totaled $499 million, including the payment to holders of Warrants.
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 and six months ended June 30, 2018), 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
As further described in Note 5 of our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018, in the first quarter of 2018, New Cubs LLC refinanced a portion of its debt which was guaranteed by us and we ceased being a guarantor of the refinanced debt. As of June 30, 2018, the remaining guarantees were capped at $249 million plus unpaid interest.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
New Accounting Standards—See Note 1 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018 for a discussion of new accounting guidance and the Company’s adoption of certain accounting standards in 2018.
We have updated our revenue recognition policies in conjunction with our adoption of Topic 606 as further described in Note 1 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018. See Note 1 for additional information on the key judgments and estimates related to revenue recognition under the new policy. Except for the adoption of Topic 606, there were no other 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 2017 Annual Report.
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, 2017.
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



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Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act, as of June 30, 2018. Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the date of their evaluation, the Company’s disclosure controls and procedures were effective as of June 30, 2018.
Our management concluded that our consolidated financial statements in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with generally accepted accounting principles (“GAAP”).
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting that occurred during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to various legal proceedings and claims that have arisen in the ordinary course of business. The legal entities comprising our operations are defendants from time to time in actions for matters arising out of their business operations. In addition, the legal entities comprising our operations are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies.
On December 31, 2012, the Debtors that had filed voluntary petitions for relief under Chapter 11 in the Bankruptcy Court on December 8, 2008 (or on October 12, 2009, in the case of Tribune CNLBC, LLC) emerged from Chapter 11. The Company and certain of the other legal entities included in our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018 were Debtors or, as a result of the restructuring transactions undertaken at the time of the Debtors’ emergence, are successor legal entities to legal entities that were Debtors. The Bankruptcy Court has to date entered final decrees collectively closing 106 of the Debtors’ Chapter 11 cases. The remaining Debtors’ Chapter 11 cases have not yet been closed by the Bankruptcy Court, and certain claims asserted against the Debtors in the Chapter 11 cases remain unresolved. As a result, we expect to continue to incur certain expenses pertaining to the Chapter 11 proceedings in future periods, which may be material. See Note 3 to our audited consolidated financial statements for the fiscal year ended December 31, 2017 for further information.
As further described in Note 13 to our audited consolidated financial statements for the fiscal year ended December 31, 2017, on June 28, 2016, the IRS issued to us a Notice of Deficiency (“Notice”) which presents the IRS’s position that the gain on the Chicago Cubs Transactions (as defined and described in Note 8 to our audited consolidated financial statements for the year ended December 31, 2017) should have been included in our 2009 taxable income. Accordingly, the IRS has proposed a $182 million tax and a $73 million gross valuation misstatement penalty. After-tax interest on the proposed tax and penalty through June 30, 2018 would be approximately $71 million. We continue to disagree with the IRS’s position that the transaction generated a taxable gain in 2009, the proposed penalty and the IRS’s calculation of the gain. During the third quarter of 2016, we filed a petition in U.S. Tax Court to contest the IRS’s determination. We continue to pursue resolution of this disputed tax matter with the IRS. If the gain on the Chicago Cubs Transactions is deemed to be taxable in 2009, we estimate that the federal and state income taxes would be approximately $225 million before interest and penalties. Any tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2009. Through June 30, 2018, we have paid or accrued approximately $83 million through our regular tax reporting process.



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We do not maintain any tax reserves related to the Chicago Cubs Transactions. In accordance with ASC Topic 740, “Income Taxes,” our unaudited Condensed Consolidated Balance Sheet as of June 30, 2018 includes deferred tax liabilities of $66 million related to the future recognition of taxable income and gain from the Chicago Cubs Transactions. Our liability for unrecognized tax benefits totaled $23 million at June 30, 2018 and December 31, 2017.
In July 2017, following the initial filing of the proxy statement/prospectus (the “Proxy Statement/Prospectus”) by each of Sinclair and us with the SEC relating to the Merger, four purported Tribune shareholders (the “Plaintiffs”) filed putative class action lawsuits against us, members of our Board, and, in certain instances, Sinclair and Samson Merger Sub, Inc. (collectively, the “Parties”) in the United States District Courts for the Districts of Delaware and Illinois. The actions are captioned McEntire v. Tribune Media Company, et al., 1:17-cv-05179 (N.D. Ill.), Duffy v. Tribune Media Company, et al., 1:17-cv-00919 (D. Del.), Berg v. Tribune Media Company, et al., 1:17-cv-00938 (D. Del.), and Pill v. Tribune Media Company, et al., 1:17-cv-00961 (D. Del.) (collectively, the “Actions”). These lawsuits allege that the Proxy Statement/Prospectus omitted material information and was materially misleading in violation of the Securities Exchange Act of 1934, as amended, and SEC Rule 14a-9 and generally seek preliminary and permanent injunctive relief, rescission or rescissory damages, and unspecified damages. On September 15, 2017, the Parties entered into a memorandum of understanding (the “MOU”) to resolve the individual claims asserted by the Plaintiffs. The MOU acknowledges that we, in part in response to the claims asserted in the Actions, filed certain supplemental disclosures with the SEC on August 16, 2017 and that we, solely in response to the Actions, communicated to four third parties that participated in the sale process and twenty-three third parties that have signed confidentiality agreements in connection with potential divestitures that the “standstill” obligations of such third parties were waived. The Parties further agreed that we would make the additional supplemental disclosures, which are set forth in our Current Report on Form 8-K, filed with the SEC on September 15, 2017. As disclosed above, the Merger Agreement was terminated as of August 9, 2018.
On each of July 27, 2018, July 30, 2018 and August 2, 2018, a separate single plaintiff filed a putative class action lawsuit against us and Sinclair, and in two instances, Tribune Broadcasting Company and other as-yet-unnamed third parties, and in one instance, other named third parties in the industry (collectively, the “Defendants”) in the United States District Court for the Districts of Maryland and Illinois. These lawsuits allege that the Defendants coordinated their pricing of television advertising, thereby harming the plaintiff in each lawsuit and other class members as direct purchasers of television advertising. The plaintiff in each lawsuit seeks injunctive relief and money damages caused by the alleged antitrust violations. We believe the above lawsuits are without merit and intend to defend them vigorously.
On August 9, 2018, we filed a complaint in the Chancery Court of the State of Delaware against Sinclair, alleging breach of contract under the Merger Agreement. The complaint alleges that Sinclair willfully and materially breached its obligations under the Merger Agreement to use its reasonable best efforts to promptly obtain regulatory approval of the Merger so as to enable the Merger to close as soon as reasonably practicable. The lawsuit seeks damages for all losses incurred as a result of Sinclair’s breach of contract under the Merger Agreement.
We do not believe that any other matters or proceedings presently pending will have a material adverse effect, individually or in the aggregate, on our consolidated financial position, results of operations or liquidity. However, legal matters and proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. As such, there can be no assurance that the final outcome of these matters and proceedings will not materially and adversely affect our consolidated financial position, results of operations or liquidity.
ITEM 1A. RISK FACTORS
We discuss in our filings with the SEC various risks that may materially affect our business. The materialization of any risks and uncertainties identified in forward-looking statements contained in this report together with those previously disclosed in our 2017 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.” Other than as described below, there have been no material changes to the risk factors disclosed in our 2017 Annual Report.



72


There can be no assurance that our ongoing exploration of strategic alternatives will be successful.
As part of our previously announced ongoing exploration of strategic alternatives, on May 8, 2017, we entered into the Merger Agreement with Sinclair, pursuant to which we were to merge into Sinclair, subject to the satisfaction of certain conditions. Following the second end date under the Merger Agreement, on August 9, 2018, we provided notification to Sinclair that we had terminated the Merger Agreement and also filed a lawsuit against Sinclair alleging breach of contract under the Merger Agreement. As a result of the termination of the Merger Agreement, we expect to continue to explore a range of strategic and financial alternatives to enhance shareholder value, which will involve the dedication of significant resources and the incurrence of significant costs and expenses and may disrupt our business or adversely impact our revenue, operating results and financial condition. In addition, there can be no certainty that we will ultimately be successful in our lawsuit against Sinclair, and ongoing litigation related to the Merger Agreement may impose substantial costs.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
No Warrants were exercised for Class A Common Stock or for Class B Common Stock during the six months ended June 30, 2018. As further described in Note 11 to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018, 30,551 Warrants remain outstanding as of June 30, 2018. 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.
The issuance of shares of Class A Common Stock and Class B Common Stock upon exercise of the Warrants is 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 issuance of the Warrants does not involve underwriters, underwriting discounts or commissions.
Repurchases of Equity Securities
During the six months ended June 30, 2018, we did not make any share repurchases pursuant to the 2016 Stock Repurchase Program, as further described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Repurchases of Equity Securities.” As of June 30, 2018, the remaining authorized amount under the current authorization totaled $168 million.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.



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ITEM 5. OTHER INFORMATION
On August 9, 2018, we provided notification to Sinclair that we had terminated the Merger Agreement, effective immediately, following the expiration of the second end date thereunder. As a result of the termination of the Merger Agreement, on August 9, 2018, we provided notification to Fox that we had terminated the Fox Purchase Agreement. Under the terms of each of the Merger Agreement and the Fox Purchase Agreement, no termination fees are payable by any party.
On each of July 27, 2018, July 30, 2018 and August 2, 2018, a separate single plaintiff filed a putative class action lawsuit against us and Sinclair, and in two instances, Tribune Broadcasting Company and other as-yet-unnamed third parties, and in one instance, other named third parties in the industry (collectively, the “Defendants”) in the United States District Court for the Districts of Maryland and Illinois. These lawsuits allege that the Defendants coordinated their pricing of television advertising, thereby harming the plaintiff in each lawsuit and other class members as direct purchasers of television advertising. The plaintiff in each lawsuit seeks injunctive relief and money damages caused by the alleged antitrust violations. We believe the above lawsuits are without merit and intend to defend them vigorously.
ITEM 6. EXHIBITS
Exhibit No.
 
Description
 
 
 
10.40
 
 
 
 
10.41§
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
32.2
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
 
§ Constitutes a compensatory plan or arrangement.




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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 August 9, 2018.
 
TRIBUNE MEDIA COMPANY
 
 
By:
/s/ Chandler Bigelow
Name:
Chandler Bigelow
Title:
Executive Vice President and Chief Financial Officer





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TRIBUNE MEDIA CO Reports