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 SeptemberJune 30, 20182019
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.(312)222-3394.
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | |
| Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered |
| Class A Common Stock, par value $0.001 per share | | TRCO | | The New York Stock Exchange |
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 every Interactive Data File required to be submitted 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 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 OctoberJuly 31, 2018, 87,651,3272019, 88,405,196 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 AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
TRIBUNE MEDIA COMPANY
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20182019
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
| | | |
| Item No. | Part I. Financial Information | Page |
| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Part II. Other Information |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Item 5. | | |
| Item 6. | | |
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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, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
Operating Revenues | | | | | | | |
| Television and Entertainment | $ | 482,557 |
|
| $ | 486,417 |
| | $ | 935,984 |
| | $ | 927,119 |
|
| Other | 1,479 |
| | 2,941 |
| | 3,040 |
| | 5,874 |
|
| Total operating revenues | 484,036 |
| | 489,358 |
| | 939,024 |
| | 932,993 |
|
| Operating Expenses | | | | | | | |
| Programming | 134,083 |
| | 111,635 |
| | 253,970 |
| | 212,376 |
|
| Direct operating expenses | 98,087 |
| | 98,817 |
| | 197,250 |
| | 200,205 |
|
| Selling, general and administrative | 129,700 |
| | 125,878 |
| | 262,962 |
| | 257,834 |
|
| Depreciation | 13,867 |
| | 13,281 |
| | 26,819 |
| | 27,056 |
|
| Amortization | 35,018 |
| | 41,681 |
| | 70,039 |
| | 83,368 |
|
| Gain on sales of spectrum (Note 8) | — |
| | — |
| | — |
| | (133,197 | ) |
| Total operating expenses | 410,755 |
| | 391,292 |
| | 811,040 |
| | 647,642 |
|
| Operating Profit | 73,281 |
| | 98,066 |
| | 127,984 |
| | 285,351 |
|
| Income on equity investments, net | 46,527 |
| | 52,568 |
| | 92,212 |
| | 91,705 |
|
| Interest income | 7,726 |
| | 2,336 |
| | 13,973 |
| | 4,234 |
|
| Interest expense | (43,777 | ) | | (41,990 | ) | | (87,392 | ) | | (82,621 | ) |
| Pension and other postretirement periodic benefit credit, net | 4,524 |
| | 6,985 |
| | 9,154 |
| | 14,069 |
|
| Gain on investment transactions | — |
| | — |
| | 86,272 |
| | 3,888 |
|
| Other non-operating gain (loss), net | 80 |
| | (26 | ) | | (1,543 | ) | | 91 |
|
| Reorganization items, net | (876 | ) | | (685 | ) | | (2,194 | ) | | (1,578 | ) |
| Income Before Income Taxes | 87,485 |
| | 117,254 |
| | 238,466 |
| | 315,139 |
|
| Income tax expense | 23,835 |
| | 32,816 |
| | 61,612 |
| | 89,518 |
|
| Net Income | $ | 63,650 |
| | $ | 84,438 |
| | $ | 176,854 |
| | $ | 225,621 |
|
| Net loss attributable to noncontrolling interests | 7 |
| | 4 |
| | 11 |
| | 10 |
|
| Net Income attributable to Tribune Media Company | $ | 63,657 |
| | $ | 84,442 |
| | $ | 176,865 |
| | $ | 225,631 |
|
| | | | | | | | |
| Net Earnings Per Common Share Attributable to Tribune Media Company: | | | | | | | |
| Basic | $ | 0.72 |
| | $ | 0.96 |
| | $ | 2.01 |
| | $ | 2.58 |
|
| Diluted | $ | 0.71 |
| | $ | 0.96 |
| | $ | 1.98 |
| | $ | 2.55 |
|
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 | | September 30, 2018 | | September 30, 2017 |
Operating Revenues | | | | | | | |
| Television and Entertainment | $ | 494,619 |
|
| $ | 447,307 |
| | $ | 1,421,738 |
| | $ | 1,349,401 |
|
| Other | 3,389 |
| | 3,226 |
| | 9,263 |
| | 10,559 |
|
| Total operating revenues | 498,008 |
| | 450,533 |
| | 1,431,001 |
| | 1,359,960 |
|
| Operating Expenses | | | | | | | |
| Programming | 161,114 |
| | 199,118 |
| | 373,490 |
| | 497,448 |
|
| Direct operating expenses | 101,847 |
| | 98,419 |
| | 302,052 |
| | 294,166 |
|
| Selling, general and administrative | 142,747 |
| | 126,507 |
| | 400,581 |
| | 439,350 |
|
| Depreciation | 13,501 |
| | 14,263 |
| | 40,557 |
| | 41,761 |
|
| Amortization | 41,675 |
| | 41,678 |
| | 125,043 |
| | 125,001 |
|
| Gain on sales of spectrum (Note 8) | — |
| | — |
| | (133,197 | ) | | — |
|
| Total operating expenses | 460,884 |
| | 479,985 |
| | 1,108,526 |
| | 1,397,726 |
|
| Operating Profit (Loss) | 37,124 |
| | (29,452 | ) | | 322,475 |
| | (37,766 | ) |
| Income on equity investments, net | 32,381 |
| | 21,058 |
| | 124,086 |
| | 98,856 |
|
| Interest and dividend income | 3,239 |
| | 827 |
| | 7,473 |
| | 1,880 |
|
| Interest expense | (42,842 | ) | | (40,389 | ) | | (125,463 | ) | | (119,332 | ) |
| Pension and other postretirement periodic benefit credit, net | 7,035 |
| | 5,703 |
| | 21,104 |
| | 17,111 |
|
| Loss on extinguishments and modification of debt | — |
| | (1,435 | ) | | — |
| | (20,487 | ) |
| (Loss) gain on investment transactions, net | (5,001 | ) | | 5,667 |
| | (1,113 | ) | | 10,617 |
|
| Write-downs of investment | — |
| | — |
| | — |
| | (180,800 | ) |
| Other non-operating (loss) gain, net | (38 | ) | | — |
| | 53 |
| | 45 |
|
| Reorganization items, net | (244 | ) | | (753 | ) | | (1,822 | ) | | (1,452 | ) |
| Income (Loss) from Continuing Operations Before Income Taxes | 31,654 |
| | (38,774 | ) | | 346,793 |
| | (231,328 | ) |
| Income tax (benefit) expense | (22,422 | ) | | (20,087 | ) | | 67,096 |
| | (81,606 | ) |
| Income (Loss) from Continuing Operations | 54,076 |
| | (18,687 | ) | | 279,697 |
| | (149,722 | ) |
| Income from Discontinued Operations, net of taxes (Note 2) | — |
| | — |
| | — |
| | 15,039 |
|
| Net Income (Loss) | $ | 54,076 |
| | $ | (18,687 | ) | | $ | 279,697 |
| | $ | (134,683 | ) |
| Net loss from continuing operations attributable to noncontrolling interests | 23 |
| | — |
| | 33 |
| | — |
|
| Net Income (Loss) attributable to Tribune Media Company | $ | 54,099 |
| | $ | (18,687 | ) | | $ | 279,730 |
| | $ | (134,683 | ) |
| | | | | | | | |
| Basic Earnings (Loss) Per Common Share Attributable to Tribune Media Company from: | | | | | | | |
| Continuing Operations | $ | 0.62 |
| | $ | (0.21 | ) | | $ | 3.19 |
| | $ | (1.72 | ) |
| Discontinued Operations | — |
| | — |
| | — |
| | 0.17 |
|
| Net Earnings (Loss) Per Common Share | $ | 0.62 |
| | $ | (0.21 | ) | | $ | 3.19 |
| | $ | (1.55 | ) |
| | | | | | | | |
| Diluted Earnings (Loss) Per Common Share Attributable to Tribune Media Company from: | | | | | | | |
| Continuing Operations | $ | 0.61 |
| | $ | (0.21 | ) | | $ | 3.17 |
| | $ | (1.72 | ) |
| Discontinued Operations | — |
| | — |
| | — |
| | 0.17 |
|
| Net Earnings (Loss) Per Common Share | $ | 0.61 |
| | $ | (0.21 | ) | | $ | 3.17 |
| | $ | (1.55 | ) |
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 | | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 | | September 30, 2018 | | September 30, 2017 |
| Net Income (Loss) | $ | 54,076 |
| | $ | (18,687 | ) | | $ | 279,697 |
| | $ | (134,683 | ) |
| Less: Income from Discontinued Operations, net of taxes | — |
| | — |
| | — |
| | 15,039 |
|
| Income (Loss) from Continuing Operations | 54,076 |
| | (18,687 | ) | | 279,697 |
| | (149,722 | ) |
| | | | | | | | |
| 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 nine months ended September 30, 2018 and September 30, 2017, respectively | — |
| | — |
| | (3,827 | ) | | (442 | ) |
| Adjustment for previously unrecognized benefit plan gains and losses included in net income, net of taxes of $(15) and $(26) for the three months ended September 30, 2018 and September 30, 2017, respectively, and $(44) and $(77) for the nine months ended September 30, 2018 and September 30, 2017, respectively | (41 | ) | | (40 | ) | | (124 | ) | | (120 | ) |
| Change in unrecognized benefit plan gains and losses, net of taxes | (41 | ) | | (40 | ) | | (3,951 | ) | | (562 | ) |
| Marketable securities: | | | | | | | |
| Change in unrealized holding gains and losses arising during the period, net of taxes of $(60) for the nine months ended September 30, 2017 | — |
| | — |
| | — |
| | (95 | ) |
| Adjustment for loss (gain) on investment sale included in net income, net of taxes of $40 and $(1,921) for the three and nine months ended September 30, 2017 | — |
| | 62 |
| | — |
| | (2,980 | ) |
| Change in marketable securities, net of taxes | — |
| | 62 |
| | — |
| | (3,075 | ) |
| Cash flow hedging instruments: | | | | | | | |
| Unrealized gains and losses, net of taxes of $812 and $(497) for the three months ended September 30, 2018 and September 30, 2017, respectively, and $4,383 and $(3,950) for the nine months ended September 30, 2018 and September 30, 2017, respectively | 2,342 |
| | (769 | ) | | 12,639 |
| | (6,126 | ) |
| Gains and losses reclassified to net income, net of taxes of $58 and $509 for the three months ended September 30, 2018 and September 30, 2017, respectively, and $384 and $1,638 for the nine months ended September 30, 2018 and September 30, 2017, respectively | 167 |
| | 789 |
| | 1,108 |
| | 2,540 |
|
| Change in unrecognized gains and losses on cash flow hedging instruments, net of taxes | 2,509 |
| | 20 |
| | 13,747 |
| | (3,586 | ) |
| Foreign currency translation adjustments: | | | | | | | |
| Change in foreign currency translation adjustments, net of taxes of $1,044 and $42 for the three months ended September 30, 2018 and September 30, 2017, respectively, and $1,102 and $2,752 for the nine months ended September 30, 2018 and September 30, 2017, respectively | 1,421 |
| | 583 |
| | 1,154 |
| | 5,987 |
|
| Other Comprehensive Income (Loss) from Continuing Operations, net of taxes | 3,889 |
| | 625 |
| | 10,950 |
| | (1,236 | ) |
| Comprehensive Income (Loss) from Continuing Operations, net of taxes | 57,965 |
| | (18,062 | ) | | 290,647 |
| | (150,958 | ) |
| Comprehensive Income from Discontinued Operations, net of taxes | — |
| | — |
| | — |
| | 26,810 |
|
| Comprehensive Income (Loss) | $ | 57,965 |
| | $ | (18,062 | ) | | $ | 290,647 |
| | $ | (124,148 | ) |
| Comprehensive loss attributable to noncontrolling interests | 23 |
| | — |
| | 33 |
| | — |
|
| Comprehensive Income (Loss) Attributable to Tribune Media Company | $ | 57,988 |
| | $ | (18,062 | ) | | $ | 290,680 |
| | $ | (124,148 | ) |
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, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
| Net Income | $ | 63,650 |
| | $ | 84,438 |
| | $ | 176,854 |
| | $ | 225,621 |
|
| | | | | | | | |
| Other Comprehensive Income (Loss), 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 $(1,001) and $(1,327) for the three months and six months ended June 30, 2019 and June 30, 2018, respectively | (2,885 | ) | | (3,827 | ) | | (2,885 | ) | | (3,827 | ) |
| Adjustment for previously unrecognized benefit plan gains and losses included in net income, net of taxes of $(14) and $(13) for the three months ended June 30, 2019 and June 30, 2018, respectively, and $(33) and $(29) for the six months ended June 30, 2019 and June 30, 2018, respectively | (38 | ) | | (37 | ) | | (92 | ) | | (83 | ) |
| Change in unrecognized benefit plan gains and losses, net of taxes | (2,923 | ) | | (3,864 | ) | | (2,977 | ) | | (3,910 | ) |
| Cash flow hedging instruments: | | | | | | | |
| Unrealized gains and losses, net of taxes of $(2,585) and $975 for the three months ended June 30, 2019 and June 30, 2018, respectively, and $(4,325) and $3,571 for the six months ended June 30, 2019 and June 30, 2018, respectively | (7,454 | ) | | 2,810 |
| | (12,472 | ) | | 10,297 |
|
| Gains and losses reclassified to net income, net of taxes of $(73) and $112 for the three months ended June 30, 2019 and June 30, 2018, respectively, and $(147) and $326 for the six months ended June 30, 2019 and June 30, 2018, respectively | (212 | ) | | 325 |
| | (424 | ) | | 941 |
|
| Change in unrecognized gains and losses on cash flow hedging instruments, net of taxes | (7,666 | ) | | 3,135 |
| | (12,896 | ) | | 11,238 |
|
| Foreign currency translation adjustments: | | | | | | | |
| Change in foreign currency translation adjustments, net of taxes of $(3) and $67 for the three months ended June 30, 2019 and June 30, 2018, respectively, and $(8) and $58 for the six months ended June 30, 2019 and June 30, 2018 | 203 |
| | (702 | ) | | (125 | ) | | (267 | ) |
| Other Comprehensive Income (Loss), net of taxes | (10,386 | ) | | (1,431 | ) | | (15,998 | ) | | 7,061 |
|
| Comprehensive Income | $ | 53,264 |
| | $ | 83,007 |
| | $ | 160,856 |
| | $ | 232,682 |
|
| Comprehensive loss attributable to noncontrolling interests | 7 |
| | 4 |
| | 11 |
| | 10 |
|
| Comprehensive Income Attributable to Tribune Media Company | $ | 53,271 |
| | $ | 83,011 |
| | $ | 160,867 |
| | $ | 232,692 |
|
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)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except for share and per share data) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except for share and per share data) (Unaudited)
|
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| Assets | | | | | | |
| Current Assets | | | | | | |
| Cash and cash equivalents | $ | 887,751 |
| | $ | 673,685 |
| $ | 1,314,108 |
| | $ | 1,063,041 |
|
| Restricted cash and cash equivalents | 16,607 |
| | 17,566 |
| 16,607 |
| | 16,607 |
|
| Accounts receivable (net of allowances of $6,350 and $4,814) | 393,174 |
| | 420,095 |
| |
| Accounts receivable (net of allowances of $3,662 and $4,461) | | 421,309 |
| | 416,938 |
|
| Broadcast rights | 105,447 |
| | 129,174 |
| 72,598 |
| | 98,269 |
|
| Income taxes receivable | 57,197 |
| | 18,274 |
| 17,607 |
| | 23,922 |
|
| Prepaid expenses | 27,936 |
| | 20,158 |
| 27,009 |
| | 19,444 |
|
| Other | 11,957 |
| | 14,039 |
| 8,865 |
| | 7,509 |
|
| Total current assets | 1,500,069 |
| | 1,292,991 |
| 1,878,103 |
| | 1,645,730 |
|
| Properties | | | | | | |
| Property, plant and equipment | 667,920 |
| | 673,682 |
| 646,743 |
| | 687,377 |
|
| Accumulated depreciation | (260,301 | ) | | (233,387 | ) | (285,262 | ) | | (266,078 | ) |
| Net properties | 407,619 |
| | 440,295 |
| 361,481 |
| | 421,299 |
|
| Other Assets | | | | | | |
| Broadcast rights | 113,162 |
| | 133,683 |
| 70,027 |
| | 95,876 |
|
| Operating lease right-of-use assets (Note 3) | | 196,408 |
| | — |
|
| Goodwill | 3,228,716 |
| | 3,228,988 |
| 3,228,547 |
| | 3,228,601 |
|
| Other intangible assets, net | 1,487,534 |
| | 1,613,665 |
| 1,370,614 |
| | 1,442,456 |
|
| Assets held for sale | 28,955 |
| | 38,900 |
| 62,789 |
| | — |
|
| Investments | 1,231,873 |
| | 1,281,791 |
| 1,154,700 |
| | 1,264,437 |
|
| Other | 163,565 |
| | 139,015 |
| 140,111 |
| | 152,992 |
|
| Total other assets | 6,253,805 |
| | 6,436,042 |
| 6,223,196 |
| | 6,184,362 |
|
| Total Assets (1) | $ | 8,161,493 |
| | $ | 8,169,328 |
| $ | 8,462,780 |
| | $ | 8,251,391 |
|
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)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except for share and per share data) (Unaudited)
| TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except for share and per share data) (Unaudited)
|
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| Liabilities and Shareholders’ Equity | | | | | | |
| Current Liabilities | | | | | | |
| Accounts payable | $ | 41,955 |
| | $ | 48,319 |
| $ | 42,502 |
| | $ | 44,897 |
|
| Income taxes payable | 8,452 |
| | 36,252 |
| 55,509 |
| | 9,973 |
|
| Employee compensation and benefits | 65,602 |
| | 71,759 |
| 57,360 |
| | 79,482 |
|
| Contracts payable for broadcast rights | 264,609 |
| | 253,244 |
| 212,046 |
| | 232,687 |
|
| Deferred revenue | 13,993 |
| | 11,942 |
| 13,867 |
| | 12,508 |
|
| Interest payable | 14,473 |
| | 30,525 |
| 30,652 |
| | 30,086 |
|
| Deferred spectrum auction proceeds (Note 8) | — |
| | 172,102 |
| |
| Operating lease liabilities (Note 3) | | 19,904 |
| | — |
|
| Other | 38,292 |
| | 30,124 |
| 53,876 |
| | 42,160 |
|
| Total current liabilities | 447,376 |
| | 654,267 |
| 485,716 |
| | 451,793 |
|
| Non-Current Liabilities | | | | | | |
| Long-term debt (net of unamortized discounts and debt issuance costs of $31,177 and $36,332) | 2,924,340 |
| | 2,919,185 |
| |
| Long-term debt (net of unamortized discounts and debt issuance costs of $25,995 and $29,434) | | 2,929,522 |
| | 2,926,083 |
|
| Deferred income taxes | 581,079 |
| | 508,174 |
| 516,216 |
| | 573,924 |
|
| Contracts payable for broadcast rights | 259,671 |
| | 300,420 |
| 171,143 |
| | 233,275 |
|
| Pension obligations, net | 325,774 |
| | 396,875 |
| 374,964 |
| | 380,322 |
|
| Postretirement, medical, life and other benefits | 9,000 |
| | 9,328 |
| 8,452 |
| | 8,298 |
|
| Operating lease liabilities (Note 3) | | 192,378 |
| | — |
|
| Other obligations | 155,695 |
| | 163,899 |
| 117,872 |
| | 154,599 |
|
| Total non-current liabilities | 4,255,559 |
| | 4,297,881 |
| 4,310,547 |
| | 4,276,501 |
|
| Total Liabilities (1) | 4,702,935 |
| | 4,952,148 |
| 4,796,263 |
| | 4,728,294 |
|
Commitments and Contingent Liabilities (Note 8) |
|
| |
|
|
|
| |
|
|
| Shareholders’ Equity | | | | | | |
| Preferred stock ($0.001 par value per share) | | | | | | |
| Authorized: 40,000,000 shares; No shares issued and outstanding at September 30, 2018 and at December 31, 2017 | — |
| | — |
| |
| Authorized: 40,000,000 shares; No shares issued and outstanding at June 30, 2019 and at December 31, 2018 | | — |
| | — |
|
| Class A Common Stock ($0.001 par value per share) | | | | | | |
| Authorized: 1,000,000,000 shares; 101,745,449 shares issued and 87,643,264 shares outstanding at September 30, 2018 and 101,429,999 shares issued and 87,327,814 shares outstanding at December 31, 2017 | 102 |
| | 101 |
| |
| Authorized: 1,000,000,000 shares; 102,498,285 shares issued and 88,396,100 shares outstanding at June 30, 2019 and 101,790,837 shares issued and 87,688,652 shares outstanding at December 31, 2018 | | 102 |
| | 102 |
|
| Class B Common Stock ($0.001 par value per share) | | | | | | |
| Authorized: 1,000,000,000 shares; Issued and outstanding: 5,557 shares at September 30, 2018 and December 31, 2017 | — |
| | — |
| |
| Treasury stock, at cost: 14,102,185 shares at September 30, 2018 and December 31, 2017 | (632,194 | ) | | (632,194 | ) | |
| Authorized: 1,000,000,000 shares; Issued and outstanding: 5,557 shares at June 30, 2019 and December 31, 2018 | | — |
| | — |
|
| Treasury stock, at cost: 14,102,185 shares at June 30, 2019 and December 31, 2018 | | (632,194 | ) | | (632,194 | ) |
| Additional paid-in-capital | 4,023,769 |
| | 4,011,530 |
| 4,045,530 |
| | 4,031,233 |
|
| Retained earnings (deficit) | 98,795 |
| | (114,240 | ) | |
| Retained earnings | | 368,621 |
| | 223,734 |
|
| Accumulated other comprehensive loss | (37,111 | ) | | (48,061 | ) | (120,965 | ) | | (104,967 | ) |
| Total Tribune Media Company shareholders’ equity | 3,453,361 |
| | 3,217,136 |
| 3,661,094 |
| | 3,517,908 |
|
| Noncontrolling interests | 5,197 |
| | 44 |
| 5,423 |
| | 5,189 |
|
| Total shareholders’ equity | 3,458,558 |
| | 3,217,180 |
| 3,666,517 |
| | 3,523,097 |
|
Total Liabilities and Shareholders’ Equity | $ | 8,161,493 |
| | $ | 8,169,328 |
| $ | 8,462,780 |
| | $ | 8,251,391 |
|
| |
| (1) | The Company’s consolidated total assets as of SeptemberJune 30, 20182019 and December 31, 20172018 include total assets of variable interest entities (“VIEs”) of $75$66 million and $81$73 million, respectively, which can only be used to settle the obligations of the VIEs. The Company’s consolidated total liabilities as of both SeptemberJune 30, 20182019 and December 31, 20172018 include total liabilities of the VIEs of $29$26 million and $28 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 THREE AND SIX MONTHS ENDED JUNE 30, 2019 (In thousands, except for share data) (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Retained Earnings | Accumulated Other Comprehensive Loss | 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, 2018 | $ | 3,523,097 |
| $ | 223,734 |
| $ | (104,967 | ) | $ | 4,031,233 |
| $ | (632,194 | ) | $ | 5,189 |
| $ | 102 |
| 101,790,837 |
| | $ | — |
| 5,557 |
|
| Comprehensive income: | | | | | | | | | | | |
| Net income (loss) | 113,204 |
| 113,208 |
| — |
| — |
| — |
| (4 | ) | — |
| — |
| | — |
| — |
|
| Other comprehensive loss, net of taxes | (5,612 | ) | — |
| (5,612 | ) | — |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Comprehensive income | 107,592 |
| | | | | | | | | | |
| Regular dividends declared to shareholders and warrant holders, $0.25 per share | (22,061 | ) | (22,349 | ) | — |
| 288 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Stock-based compensation | 5,418 |
| — |
| — |
| 5,418 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Net share settlements of stock-based awards | (1,279 | ) | — |
| — |
| (1,279 | ) | — |
| — |
| — |
| 558,474 |
| | — |
| — |
|
| Cumulative effect of a change in accounting principle | 12,808 |
| 12,808 |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Contributions from noncontrolling interest | 190 |
| — |
| — |
| — |
| — |
| 190 |
| — |
| — |
| | — |
| — |
|
| Balance at March 31, 2019 | $ | 3,625,765 |
| $ | 327,401 |
| $ | (110,579 | ) | $ | 4,035,660 |
| $ | (632,194 | ) | $ | 5,375 |
| $ | 102 |
| 102,349,311 |
| | $ | — |
| 5,557 |
|
| Comprehensive income: | | | | | | | | | | | |
| Net income (loss) | 63,650 |
| 63,657 |
| — |
| — |
| — |
| (7 | ) | — |
| — |
| | — |
| — |
|
| Other comprehensive loss, net of taxes | (10,386 | ) | — |
| (10,386 | ) | — |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Comprehensive income | 53,264 |
| | | | | | | | | | |
| Regular dividends declared to shareholders and warrant holders, $0.25 per share | (22,114 | ) | (22,437 | ) | — |
| 323 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Stock-based compensation | 5,502 |
| — |
| — |
| 5,502 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Net share settlements of stock-based awards | 4,045 |
| — |
| — |
| 4,045 |
| — |
| — |
| — |
| 148,974 |
| | — |
| — |
|
| Contributions from noncontrolling interest | 55 |
| — |
| — |
| — |
| — |
| 55 |
| — |
| — |
| | — |
| — |
|
| Balance at June 30, 2019 | $ | 3,666,517 |
| $ | 368,621 |
| $ | (120,965 | ) | $ | 4,045,530 |
| $ | (632,194 | ) | $ | 5,423 |
| $ | 102 |
| 102,498,285 |
| | $ | — |
| 5,557 |
|
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) | 279,697 |
| 279,730 |
| — |
| — |
| — |
| (33 | ) | — |
| — |
| | — |
| — |
|
| Other comprehensive income, net of taxes | 10,950 |
| — |
| 10,950 |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Comprehensive income | 290,647 |
| | | | | | | | | | |
| Regular dividends declared to shareholders and warrant holders, $0.75 per share (1) | (65,776 | ) | (66,695 | ) | — |
| 919 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Stock-based compensation | 16,104 |
| — |
| — |
| 16,104 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Net share settlements of stock-based awards | (4,783 | ) | — |
| — |
| (4,784 | ) | — |
| — |
| 1 |
| 315,450 |
| | — |
| — |
|
| Contributions from noncontrolling interests, net | 5,186 |
| — |
| — |
| — |
| — |
| 5,186 |
| — |
| — |
| | — |
| — |
|
| Balance at September 30, 2018 | $ | 3,458,558 |
| $ | 98,795 |
| $ | (37,111 | ) | $ | 4,023,769 |
| $ | (632,194 | ) | $ | 5,197 |
| $ | 102 |
| 101,745,449 |
| | $ | — |
| 5,557 |
|
(1) Includes $0.9 million of granted dividend equivalent units.
See Notes to Unaudited Condensed Consolidated Financial Statements
6
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY THREE AND SIX MONTHS ENDED JUNE 30, 2018 (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) | 141,183 |
| 141,189 |
| — |
| — |
| — |
| (6 | ) | — |
| — |
| | — |
| — |
|
| Other comprehensive income, net of taxes | 8,492 |
| — |
| 8,492 |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Comprehensive income | 149,675 |
| | | | | | | | | | |
| Regular dividends declared to shareholders and warrant holders, $0.25 per share | (21,922 | ) | (22,243 | ) | — |
| 321 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Stock-based compensation | 5,114 |
| — |
| — |
| 5,114 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Net share settlements of stock-based awards | (4,912 | ) | — |
| — |
| (4,913 | ) | — |
| — |
| 1 |
| 283,545 |
| | — |
| — |
|
| Balance at March 31, 2018 | $ | 3,345,135 |
| $ | 4,706 |
| $ | (39,569 | ) | $ | 4,012,052 |
| $ | (632,194 | ) | $ | 38 |
| $ | 102 |
| 101,713,544 |
| | $ | — |
| 5,557 |
|
| Comprehensive income: | | | | | | | | | | | |
| Net income (loss) | 84,438 |
| 84,442 |
| — |
| — |
| — |
| (4 | ) | — |
| — |
| | — |
| — |
|
| Other comprehensive loss, net of taxes | (1,431 | ) | — |
| (1,431 | ) | — |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Comprehensive income | 83,007 |
| | | | | | | | | | |
| Regular dividends declared to shareholders and warrant holders, $0.25 per share | (21,925 | ) | (22,228 | ) | — |
| 303 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Stock-based compensation | 5,397 |
| — |
| — |
| 5,397 |
| — |
| — |
| — |
| — |
| | — |
| — |
|
| Net share settlements of stock-based awards | (230 | ) | — |
| — |
| (230 | ) | — |
| — |
| — |
| 14,433 |
| | — |
| — |
|
| Distribution to noncontrolling interests, net | (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 |
|
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited)
|
| | | | | | | |
| | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 |
| Operating Activities | | | |
| Net income (loss) | $ | 279,697 |
| | $ | (134,683 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| Stock-based compensation | 16,104 |
| | 27,432 |
|
| Pension credit and contributions | (75,790 | ) | | (16,535 | ) |
| Depreciation | 40,557 |
| | 41,761 |
|
| Amortization of contract intangible assets and liabilities | 661 |
| | 649 |
|
| Amortization of other intangible assets | 125,043 |
| | 125,001 |
|
| Income on equity investments, net | (124,086 | ) | | (98,856 | ) |
| Distributions from equity investments | 158,926 |
| | 177,953 |
|
| Non-cash loss on extinguishments and modification of debt | — |
| | 8,258 |
|
| Original issue discount payments | — |
| | (7,360 | ) |
| Write-downs of investment | — |
| | 180,800 |
|
| Amortization of debt issuance costs and original issue discount | 5,612 |
| | 5,990 |
|
| Gain on sales of spectrum (Note 8) | (133,197 | ) | | — |
|
| Gain on sale of business | — |
| | (34,510 | ) |
| Loss (gain) on investment transactions, net | 1,113 |
| | (10,617 | ) |
| Gain on sales of real estate, net | — |
| | (365 | ) |
| Other non-operating gain, net | (53 | ) | | (45 | ) |
| Changes in working capital items: | | | |
| Accounts receivable, net | 25,264 |
| | 39,192 |
|
| Prepaid expenses and other current assets | (246 | ) | | 13,219 |
|
| Accounts payable | (2,960 | ) | | (12,001 | ) |
| Employee compensation and benefits, accrued expenses and other current liabilities | (19,481 | ) | | (43,415 | ) |
| Deferred revenue | 2,055 |
| | (1,801 | ) |
| Income taxes | (66,713 | ) | | 44,710 |
|
| Change in broadcast rights, net of liabilities | 15,090 |
| | 61,642 |
|
| Deferred income taxes | 68,441 |
| | (219,236 | ) |
| Other, net | (9,188 | ) | | 24,311 |
|
| Net cash provided by operating activities | 306,849 |
| | 171,494 |
|
| | | | |
| Investing Activities | | | |
| Capital expenditures | (47,452 | ) | | (41,423 | ) |
| Spectrum repack reimbursements | 6,967 |
| | — |
|
| Net proceeds from the sale of business | — |
| | 554,487 |
|
| Proceeds from FCC spectrum auction | — |
| | 172,102 |
|
| Proceeds from sales of real estate and other assets | 66 |
| | 61,240 |
|
| Proceeds from the sales of investments | 15,232 |
| | 148,321 |
|
| Distribution from equity investment | — |
| | 4,608 |
|
| Other, net | 1,529 |
| | 780 |
|
| Net cash (used in) provided by investing activities | (23,658 | ) | | 900,115 |
|
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, 2019 | | June 30, 2018 |
| Operating Activities | | | |
| Net income | $ | 176,854 |
| | $ | 225,621 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Stock-based compensation | 10,920 |
| | 10,511 |
|
| Pension credit and contributions | (8,661 | ) | | (38,027 | ) |
| Depreciation | 26,819 |
| | 27,056 |
|
| Amortization of other intangible assets | 70,039 |
| | 83,368 |
|
| Income on equity investments, net | (92,212 | ) | | (91,705 | ) |
| Distributions from equity investments | 181,461 |
| | 158,926 |
|
| Amortization of debt issuance costs and original issue discount | 3,688 |
| | 3,718 |
|
| Gain on sales of spectrum (Note 8) | — |
| | (133,197 | ) |
| Gain on investment transactions | (86,272 | ) | | (3,888 | ) |
| Spectrum repack reimbursements | (5,947 | ) | | (1,698 | ) |
| Other non-operating loss (gain), net | 846 |
| | (91 | ) |
| Changes in working capital items: | | | |
| Accounts receivable, net | (4,910 | ) | | 12,917 |
|
| Prepaid expenses and other current assets | (8,327 | ) | | (16,825 | ) |
| Accounts payable | 1,267 |
| | (1,857 | ) |
| Employee compensation and benefits, accrued expenses and other current liabilities | (21,461 | ) | | (13,993 | ) |
| Deferred revenue | 1,359 |
| | 2,801 |
|
| Income taxes | 51,853 |
| | 7,271 |
|
| Change in broadcast rights, net of liabilities | (31,253 | ) | | (28,612 | ) |
| Deferred income taxes | (56,631 | ) | | 17,405 |
|
| Other, net | 831 |
| | 1,240 |
|
| Net cash provided by operating activities | 210,263 |
| | 220,941 |
|
| | | | |
| Investing Activities | | | |
| Capital expenditures | (30,607 | ) | | (24,947 | ) |
| Spectrum repack reimbursements | 5,947 |
| | 1,698 |
|
| Proceeds from the sales of investments | 107,547 |
| | 3,890 |
|
| Other, net | (919 | ) | | 1,615 |
|
| Net cash provided by (used in) investing activities | 81,968 |
| | (17,744 | ) |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited)
|
| | | | | | | |
| | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 |
| Financing Activities | | | |
| Long-term borrowings | — |
| | 202,694 |
|
| Repayments of long-term debt | — |
| | (703,527 | ) |
| Long-term debt issuance costs | — |
| | (1,689 | ) |
| Payments of dividends | (65,776 | ) | | (564,499 | ) |
| Tax withholdings related to net share settlements of share-based awards | (5,765 | ) | | (8,030 | ) |
| Proceeds from stock option exercises | 982 |
| | 11,231 |
|
| Contributions from noncontrolling interests, net | 475 |
| | 1,318 |
|
| Net cash used in financing activities | (70,084 | ) | | (1,062,502 | ) |
| | | | |
| Net Increase in Cash, Cash Equivalents and Restricted Cash | 213,107 |
| | 9,107 |
|
| Cash, cash equivalents and restricted cash, beginning of period (1) | 691,251 |
| | 611,198 |
|
| Cash, cash equivalents and restricted cash, end of period | $ | 904,358 |
| | $ | 620,305 |
|
| | | | |
| Cash, Cash Equivalents and Restricted Cash are Comprised of: | | | |
| Cash and cash equivalents | $ | 887,751 |
| | $ | 602,739 |
|
| Restricted cash | 16,607 |
| | 17,566 |
|
| Total cash, cash equivalents and restricted cash | $ | 904,358 |
| | $ | 620,305 |
|
| | | | |
| Supplemental Schedule of Cash Flow Information | | | |
| Cash paid during the period for: | | | |
| Interest | $ | 135,810 |
| | $ | 130,694 |
|
| Income taxes, net | $ | 66,642 |
| | $ | 105,678 |
|
| |
(1) | Cash, cash equivalents and restricted cash at the beginning of the nine months ended September 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 total assets of discontinued operations. |
See Notes to Unaudited Condensed Consolidated Financial Statements
8
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited)
|
| | | | | | | |
| | Six Months Ended |
| | June 30, 2019 | | June 30, 2018 |
| Financing Activities | | | |
| Payments of dividends | (44,175 | ) | | (43,847 | ) |
| Tax withholdings related to net share settlements of share-based awards | (8,630 | ) | | (5,723 | ) |
| Proceeds from stock option exercises | 11,396 |
| | 581 |
|
| Contribution from/(distributions to) noncontrolling interests | 245 |
| | (2 | ) |
| Net cash used in financing activities | (41,164 | ) | | (48,991 | ) |
| | | | |
| Net Increase in Cash, Cash Equivalents and Restricted Cash | 251,067 |
| | 154,206 |
|
| Cash, cash equivalents and restricted cash, beginning of period | 1,079,648 |
| | 691,251 |
|
| Cash, cash equivalents and restricted cash, end of period | $ | 1,330,715 |
| | $ | 845,457 |
|
| | | | |
| Cash, Cash Equivalents and Restricted Cash are Comprised of: | | | |
| Cash and cash equivalents | $ | 1,314,108 |
| | $ | 828,850 |
|
| Restricted cash and cash equivalents | 16,607 |
| | 16,607 |
|
| Total cash, cash equivalents and restricted cash | $ | 1,330,715 |
| | $ | 845,457 |
|
| | | | |
| Supplemental Schedule of Cash Flow Information | | | |
| Cash paid during the period for: | | | |
| Interest | $ | 83,075 |
| | $ | 79,027 |
|
| Income taxes, net | $ | 65,347 |
| | $ | 64,294 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
9
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, 20172018 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 SeptemberJune 30, 20182019 and the results of operations and cash flows for the three and ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 2017.2018. 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.
Termination of SinclairNexstar Merger Agreement—On May 8, 2017,November 30, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger“Nexstar Merger Agreement”) with Sinclair BroadcastNexstar Media Group, Inc. (“Sinclair”Nexstar”), and Titan Merger Sub, Inc. (the “Nexstar Merger Sub”) providing for the acquisition by SinclairNexstar 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 a wholly owned subsidiary of Sinclair,Nexstar Merger Sub with and into the Company (the “Merger”), with Tribune Media Company, with the Company surviving the Mergermerger as a wholly ownedwholly-owned subsidiary of Sinclair. Nexstar (the “Nexstar Merger”).
In the Nexstar Merger, each share of Common Stock issued and outstanding immediately prior to the effective time of the Nexstar Merger (the “Effective Time”) (other than shares held by (i) any Tribune subsidiary, Nexstar or any Nexstar subsidiary or (ii) Tribune shareholders who have not voted in favor of adopting the Nexstar Merger Agreement and who have demanded and perfected (and not validly withdrawn or waived) their appraisal rights in compliance with Section 262 of the DGCL) will be converted into the right to receive a cash payment of $46.50 (the “base merger consideration”), plus, if the Nexstar Merger closes after August 31, 2019 (the “Adjustment Date”), an additional amount in cash equal to (a) (i) $0.009863 multiplied by (ii) the number of calendar days elapsed after Adjustment Date to and including the date on which the Nexstar Merger closes, minus (b) the amount of any dividends declared by the Company after the Adjustment Date with a record date prior to the date on which the Nexstar Merger closes, in each case, without interest and less any required withholding taxes (the “additional per share consideration,” and together with the base merger consideration, the “Nexstar Merger Consideration”). The additional per share consideration will not be less than zero.
Each option to purchase shares of Common Stock outstanding as of immediately prior to the Effective Time, whether or not vested or exercisable, will be cancelled and converted into the right to receive, for each share of Common Stock subject to such stock option, a cash payment equal to the excess, if any, of the value of the Nexstar Merger Consideration over the exercise price per share of such stock option, without any interest and subject to all applicable withholding. Any stock option that has an exercise price per share that is greater than or equal to the Nexstar Merger Consideration will be cancelled for no consideration or payment. Each award of restricted stock units outstanding as of immediately prior to the Effective Time, whether or not vested, will immediately vest and be cancelled and converted into the right to receive a cash payment equal to the product of the total number of shares of Common Stock underlying such restricted stock unit multiplied by the Nexstar Merger Consideration, without any interest and subject to all applicable withholding (the “RSU Consideration”), except that each award of restricted stock units granted to an employee on or after December 1, 2018 (other than restricted stock units required to be granted pursuant to employment agreements or offer letters) (“Annual Tribune RSUs”) that has vested as of the
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Effective Time of the Nexstar Merger will be cancelled and converted into the right to receive the RSU Consideration and any Annual Tribune RSUs that remain unvested as of the Effective Time of the Nexstar Merger will be cancelled for no consideration or payment. Each award of performance stock units outstanding as of immediately prior to the Effective Time, whether or not vested, will immediately vest (with performance conditions for each open performance period as of the closing date deemed achieved at the applicable “target” level performance for such performance stock units) and be cancelled and converted into the right to receive a cash payment equal to the product of the total number of shares of Common Stock underlying such performance stock units multiplied by the Nexstar Merger Consideration, without any interest and subject to all applicable withholding. Each outstanding award of deferred stock units outstanding as of immediately prior to the Effective Time will be cancelled and converted into the right to receive a cash payment equal to the product of the total number of shares of Common Stock underlying such deferred stock units multiplied by the Nexstar Merger Consideration, without interest and subject to all applicable withholding. Each unexercised warrant to purchase shares of Common Stock outstanding as of immediately prior to the Effective Time will be assumed by Nexstar and converted into a warrant exercisable for the Nexstar Merger Consideration which the shares of Common Stock underlying such warrant would have been entitled to receive upon consummation of the Nexstar Merger and otherwise upon the same terms and conditions of such warrant immediately prior to the Effective Time.
The consummation of the Nexstar Merger wasis subject to the satisfaction or waiver of certain importantcustomary conditions, including, among othersothers: (i) the adoption of the Nexstar Merger by holders of a majority of the Company’s outstanding Common Stock, (ii) the receipt of approval from the Federal Communications Commission (the “FCC”) (the “FCC Approval”) and the expiration or termination of the waiting period applicable to the Nexstar Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). Pursuant (the “HSR Approval”) and (iii) the absence of any order or law of any governmental authority that prohibits or makes illegal the consummation of the Nexstar Merger. The Company’s and Nexstar’s respective obligations to consummate the Nexstar Merger are also subject to certain additional customary conditions, including (i) the accuracy of the representations and warranties of the other party (generally subject to a “material adverse effect” standard), (ii) performance by the other party of its covenants in the Nexstar 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(iii) with respect to Nexstar’s obligation to consummate the endNexstar Merger, since the date of August 8, 2018. Additionally, either party could terminate the Nexstar Merger Agreement, ifno material adverse effect with respect to the Merger was not consummatedCompany having occurred.
The applications for FCC approval (the “Merger Applications”) were filed on or before August 8, 2018 (andJanuary 7, 2019. On February 14, 2019, the failure for the Merger to have been consummated by such date was not primarily due toFCC issued a breachpublic notice of filing of the Merger AgreementApplications which set deadlines for petitions to deny the applications, oppositions to petitions to deny and replies to oppositions to petitions to deny.
On February 7, 2019, 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 Nexstar Merger Agreement. The second request was issued under the HSR Act. Nexstar received a substantively identical request for additional information and documentary material from the DOJ in connection with the transactions contemplated by the party terminatingNexstar Merger Agreement. Consummation of the Merger Agreement). On August 9, 2018,transactions contemplated by the Company provided notification to Sinclair that it had terminated theNexstar Merger Agreement effective immediately,is conditioned on the basis of Sinclair’s willful and material breaches of its covenants and the expiration of the end date thereunder. Additionally, on August 9, 2018,waiting period applicable under the HSR Act, among other conditions. Issuance of the second request extends the waiting period under the HSR Act until 30 days after Nexstar and the Company have substantially complied with the second request, unless the waiting period is terminated earlier by the DOJ or the parties voluntarily extend the time for closing.
On July 31, 2019, the DOJ and the States and Commonwealths of Illinois, Pennsylvania and Virginia filed a complaint and proposed settlement in the DelawareU.S. District Court for the District of Chancery against Sinclair (the “Complaint”), alleging that Sinclair willfullyColumbia by requiring Nexstar and materially breached its obligations under the Company to divest broadcast television stations in 13 Designated Market Areas as a condition of closing the Nexstar Merger. This proposed settlement allows the Nexstar Merger to proceed once the court has signed the Hold Separate Stipulation and Order, subject to the closing conditions contained in the Nexstar Merger Agreement, to use its reasonable best efforts to promptly obtain regulatoryincluding approval ofby 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. On August 29, 2018, Sinclair filed an answer to the Company’s Complaint and a counterclaim (the “Counterclaim”). The Counterclaim alleges that the Company materially and willfully breached the Merger Agreement by failing to use reasonable best efforts to obtain regulatory approval of the Merger. On September 18, 2018, the Company filed an answer to the Counterclaim. The Company believes the Counterclaim is without merit and intends to defend it vigorously.FCC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
See Note 1 toOn March 12, 2019, holders of a majority of the outstanding shares of the Company’s unaudited condensed consolidated financial statements forClass A Common Stock and Class B Common Stock, voting as a single class, voted on and approved the three and six months ended June 30, 2018 included in the Company’s Form 10-Q filed on August 9, 2018 for additional information regarding theNexstar Merger and the Merger Agreement.Agreement at a duly called special meeting of Tribune Media Company shareholders.
On May 8, 2018,March 20, 2019, in connection with its divestiture obligations under the Company, Sinclair Television Group,Nexstar Merger Agreement, Nexstar entered into definitive asset purchase agreements with TEGNA Inc. (“Sinclair Television”TEGNA”) and Fox Television Stations, LLCThe E.W. Scripps Company (“Fox”) entered into an asset purchase agreement (the “Fox Purchase Agreement”Scripps”) to sell a total of 19 stations (including 10 Tribune Media Company-owned stations, as well as 3 stations to which the assets of seven network affiliatesCompany provides certain services (WTKR-TV, Norfolk, VA, WGNT-TV, Portsmouth, VA and WNEP-TV, Scranton, PA, collectively, the “Dreamcatcher Stations”)) in 15 markets to TEGNA and Scripps following the completion of the Company for $910 million in cash,Nexstar Merger (the “Nexstar Transactions”). Additionally, on April 8, 2019, Nexstar entered into a definitive agreement with Circle City Broadcasting I, Inc. (“CCB”) to sell 2 Nexstar stations to CCB following the completion of the Nexstar Merger. The consummation of each transaction is subject to post-closing adjustments. The network affiliates subject to the Fox Purchase Agreement were: 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 allcertain customary conditions, including, among others, (i) the closing of the transactions contemplated by the Nexstar Merger Agreement, (ii) the receipt of approval from the FCC and the DOJ and the expiration or termination of any waiting period applicable to such transaction under the HSR Act and (iii) the absence of certain legal impediments to the consummation of such transaction. On April 15, 2019, the Federal Trade Commission issued an early termination notice with respect to the waiting period applicable under the HSR Act in connection with the transaction with Scripps.
On April 2, 2019, the Company exercised an option with Dreamcatcher Broadcasting LLC (“Dreamcatcher”) to repurchase the Dreamcatcher Stations, to be consummated substantially concurrent with the closing of the Nexstar Merger (the “Dreamcatcher Repurchase”). Following the consummation of the Merger, which was scheduledDreamcatcher Repurchase, the Dreamcatcher Stations are expected to occur immediately following the Closing. Inbe sold to TEGNA and Scripps in connection with the terminationNexstar Merger. In the event the Company is unable to consummate the Nexstar Merger, the Company may rescind its option to repurchase the Dreamcatcher stations.
Applications seeking FCC consent to station divestitures necessary to obtain the FCC Approval (the “Divestiture Applications”) were filed on April 3, 2019, April 8, 2019, April 10, 2019 and April 16, 2019. On April 26, 2019, the FCC issued a public notice of the filing of the Divestiture Applications which set deadlines for petitions to deny the applications, oppositions to petitions to deny and replies to oppositions to petitions to deny.
The Nexstar Merger Agreement on August 9, 2018,may be terminated at any time prior to the Effective Time: (i) by mutual written consent of Nexstar and the Company; (ii) by either Nexstar or the Company (a) if the Effective Time has not occurred on or before November 30, 2019, provided notification to Fox that it has terminated(x) if, on the Fox Purchase Agreement, effective immediately. Under the terms of eachinitial end date, any of the Merger Agreement and the Fox Purchase Agreement, no termination fees were payable by any party.
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 impactconditions 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 $21 million for the three and nine months ended September 30, 2018, respectively, and barter-related broadcast rights and contracts payable for broadcast rights would have been $51 million as of September 30, 2018. For the three and nine months ended September 30, 2017, barter revenue was $7 million and $21 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 effectsconsummation 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 circumstancesNexstar Merger related to the provisional amounts shouldHSR Approval or the FCC Approval have not been satisfied, but all other conditions the consummation of the Nexstar Merger have been satisfied or waived or capable of being satisfied, then the end date will be included in income (loss) from continuing operations as an adjustmentautomatically extended to income tax expenseFebruary 29, 2020 and (y) in the reportingevent the marketing period for the amounts are determined. As discusseddebt financing for the transaction has commenced but has not completed by the end date, the end date may be extended (or further extended) by Nexstar on one occasion in Note 9,its sole discretion by providing written notice thereof to the Company notes that adjustments may be madeat least one business day prior to the provision upon issuances of clarifications to existing law or additional technical guidance fromend date until the Department of Treasury anddate that is four business days after the completionlast scheduled expiration date of the Company’s tax return filings. As adjustments are mademarketing period (unless the failure of the Effective Time to occur before the provisional amount,end date was primarily due to such party’s breach of any of its obligations under the Nexstar Merger Agreement), (b) if any governmental authority of competent jurisdiction has issued an order permanently prohibiting the consummation of the Nexstar Merger and such order has become final and non-appealable (unless such order was primarily attributable to such party’s breach of the Nexstar Merger Agreement); and (iii) by either Nexstar or the Company will record the adjustment to income tax expensein certain circumstances, as described in the period the adjustment is determined.Nexstar Merger Agreement.
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
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 $17 million for the three and nine months ended September 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 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 in orderly transactions for the identical or a similar investment of the same issuer. 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 detaileddescribed in Note 1 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017.2018, the Company must pay Nexstar a termination fee of $135 million if the Company or Nexstar terminate the Nexstar Merger Agreement in certain circumstances, except that such termination fee may be reduced by any previously paid amounts relating to the documented, out-of-pocket expenses of Nexstar in an amount not to exceed $15 million.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Use of EstimatesChange in Accounting Principles—In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Subtopic 842).” The preparation of financial statements in conformity with U.S. GAAPnew guidance requires managementlessees to make estimatesrecognize assets and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differliabilities arising 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.
The following table represents the Company’s revenues disaggregated by revenue source for the Television and Entertainment segment (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 (1) | | September 30, 2018 | | September 30, 2017 (1) |
| Advertising | $ | 327,248 |
| | $ | 295,130 |
| | $ | 909,118 |
| | $ | 899,701 |
|
| Retransmission revenues | 116,625 |
| | 104,587 |
| | 351,952 |
| | 303,800 |
|
| Carriage fees | 40,069 |
| | 30,930 |
| | 122,546 |
| | 96,407 |
|
| Barter/trade (2) | 2,660 |
| | 9,559 |
| | 7,142 |
| | 28,052 |
|
| Other | 8,017 |
| | 7,101 |
| | 30,980 |
| | 21,441 |
|
| Total operating revenues | $ | 494,619 |
| | $ | 447,307 |
| | $ | 1,421,738 |
| | $ | 1,349,401 |
|
| |
(1) | Prior period amounts have not been adjusted under the modified retrospective method. |
| |
(2) | For the three and nine months ended September 30, 2017, barter revenue totaled $7 million and $21 million, 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 September 30, 2018 and September 30, 2017 and $9 million and $11 million for the nine months ended September 30, 2018 and September 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. Certain of the Company’s advertising contracts have guarantees whereby the customer is guaranteed a certain level of audience viewership referred to as impressions. Contracts are typically fixed price, short term in nature and revenue is recognized over time as the advertisements are aired or the impressions are delivered. If the guaranteed impressions are not achieved through the airing of the initially agreed upon advertisements, the Company will continue to air advertisements for the customer until the guaranteed impressions are achieved. For these advertising contracts with guaranteed impressions, the Company recognizes revenue based on the proportion of the cumulative impressions achieved for the advertisements delivered in relation to the total guaranteed impressions. 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 subscriberleases as well as contractually agreed annual increases.extensive quantitative and qualitative disclosures. A lessee needs to recognize on its balance sheet a right-of-use asset and a lease liability for the majority of its leases (other than leases with a term of less than 12 months). The agreements are considered functional licenseslease liabilities should be equal to the present value of intellectual property resultinglease payments not yet paid. The right-of-use asset is measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. 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. 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. In December 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” and ASU No. 2018-20, “Leases (Topic 842), Narrow-Scope Improvements for Lessors,” which provide additional guidance for lessor accounting as well as a new practical expedient for lessors. In March 2019, the FASB issued ASU No. 2019-01, “Leases (Topic 842), Codification Improvements,” which provides additional guidance on disclosure requirements. The Company adopted Topic 842 in the Company recognizing revenue at the point-in-time the broadcast signal is delivered to the MVPDs.first quarter of 2019. The typical time between the Company’s performance and
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
customer payment is not significant. As the agreements with MVPDs are considered licensesadoption 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 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 in 2017 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 to obtain a contract where the contract duration is expected to be one year or less. As of September 30, 2018, the Company does842 did 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 baseda material impact 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 nine months ended September 30, 2018 and September 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 September 30, 2018 and September 30, 2017 were $20 million and $17 million, respectively, and for the nine months ended September 30, 2018 and September 30, 2017, were $57 million and $52 million, respectively. Operating profits of the Dreamcatcher stations included in the Company’s unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 2018Comprehensive Income (Loss) and September 30, 2017 were $4 million and $3 million, respectively, and for the nine months ended September 30, 2018 and September 30, 2017 were $12 million and $8 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 StatementStatements of Operations upon commencement of the sharing arrangement in December 2017. SeeCash Flows. Refer to Note 83 for additional information regarding the Company’s participation in the FCC spectrum auction.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company’s unaudited Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 include the following assets and liabilitiesimpacts of the Dreamcatcher stations (in thousands):
|
| | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| Broadcast rights | 3,056 |
| | 2,622 |
|
| Other intangible assets, net | 64,018 |
| | 71,914 |
|
| Other assets | 7,793 |
| | 6,852 |
|
| Total Assets | $ | 74,867 |
| | $ | 81,388 |
|
| | | | |
| Contracts payable for broadcast rights | 2,848 |
| | 2,691 |
|
| Long-term deferred revenue | 24,380 |
| | 25,030 |
|
| Other liabilities | 1,333 |
| | 1,017 |
|
| Total Liabilities | $ | 28,561 |
| | $ | 28,738 |
|
New Accounting Standards—In August 2018,adoption. See the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40).” The standard requires a customer in a hosting arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract. The standard also requires a customer to expense the capitalized implementation costs over the term of the hosting arrangement and specifies presentation requirementsLeases accounting policy below for both the capitalized costs and the amortized expenses. The standard is effective for fiscal years beginning after December 15, 2019, and the interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of adopting ASU 2018-15 on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20).” The standard modifies certain disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans by removing disclosures that are no longer considered cost beneficial, clarifying specific requirements of disclosures, and adding disclosure requirements identified as relevant. The standard is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The amendments in ASU 2018-14 should be applied retrospectively to each period presented. The Company is currently evaluating the impact of adopting ASU 2018-14 on its consolidated financial statements.
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.additional information.
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
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 adopted ASU 2017-12 in the first quarter of 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
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 year ended December 31, 2018.
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.
Leases—The Company determines whether an arrangement contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities and non-current operating lease liabilities in the unaudited Condensed Consolidated Balance Sheets. The Company does not currently have any finance lease arrangements.
ROU assets represent the Company’s right to use an underlying asset for the lease term. The operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of the fixed lease payments over the lease term. Unless the rate of interest implicit in the lease arrangement is known, the Company’s
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
collateralized incremental borrowing rate for a period commensurate with the lease term at lease commencement is used to calculate the present value of the lease payments not yet paid. When the Company knows the implicit rate of interest in the arrangement, that rate is used. The operating lease ROU asset includes any prepaid lease payments, initial direct costs, if applicable, less lease incentives. The Company has lease agreements with lease and non-lease components. To the extent the non-lease components require fixed payments, the Company accounts for both the lease and non-lease component as a single lease component in accordance with Topic 842.
Leases generally include options to extend or terminate a lease. These options are included in the lease term when it is reasonably certain that the Company will exercise the renewal or termination option. The Company does not record an operating lease ROU asset or liability for leases with a term of twelve months or less with the related lease expense recognized over the term of the lease. Operating lease expense is recognized on a straight-line basis over the lease term.
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.
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, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
| Advertising | $ | 298,899 |
| | $ | 311,431 |
| | $ | 568,788 |
| | $ | 581,870 |
|
| Retransmission revenues | 132,342 |
| | 117,185 |
| | 265,202 |
| | 235,327 |
|
| Carriage fees | 40,771 |
| | 40,815 |
| | 81,910 |
| | 82,477 |
|
| Other | 10,545 |
| | 16,986 |
| | 20,084 |
| | 27,445 |
|
| Total operating revenues | $ | 482,557 |
| | $ | 486,417 |
| | $ | 935,984 |
| | $ | 927,119 |
|
In addition to the operating revenues included in the Television and Entertainment segment, the Company’s consolidated operating revenues include other revenue of $1 million and $3 million for the three months ended June 30, 2019 and June 30, 2018, respectively, and $3 million and $6 million for the six months ended June 30, 2019 and June 30, 2018, respectively, in Corporate and Other, which consists of real estate revenues.
Variable Interests—The Company evaluates its investments and other transactions to determine whether any entities associated with the investments or transactions should be consolidated under the provisions of FASB Accounting Standards Codification (“ASC”) Topic 810, “Consolidation.” The Company consolidates variable interest entities (“VIEs”) when it is the primary beneficiary.
Topix—At June 30, 2019 and December 31, 2018, the Company indirectly held a variable interest in Topix, LLC (through its investment in TKG Holdings II, LLC) (“Topix”). The Company has determined that it is not the primary beneficiary of Topix and therefore has not consolidated it as of and for the periods presented in the unaudited condensed consolidated financial statements. The Company’s maximum loss exposure related to Topix is limited to its equity investment, which was $4 million and $5 million at June 30, 2019 and December 31, 2018, respectively.
Dreamcatcher—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 year ended December 31, 2018 for additional information. The Company’s unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2019 and June 30, 2018 include the results of operations and the financial position of Dreamcatcher, a fully-consolidated VIE. Net revenues of the Dreamcatcher Stations included in the Company’s unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2019
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
and June 30, 2018, were $20 million and $19 million, respectively, and for the six months ended June 30, 2019 and June 30, 2018, were $38 million and $37 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, 2019 and June 30, 2018, were $4 million and $5 million, respectively, and for both the six months ended June 30, 2019 and June 30, 2018 were $8 million.
The Company’s unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 include the following assets and liabilities of the Dreamcatcher stations (in thousands):
|
| | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| Broadcast rights | 979 |
| | 2,355 |
|
| Other intangible assets, net | 56,122 |
| | 61,386 |
|
| Other assets | 8,418 |
| | 8,770 |
|
| Total Assets | $ | 65,519 |
| | $ | 72,511 |
|
| | | | |
| Contracts payable for broadcast rights | 870 |
| | 2,186 |
|
| Long-term deferred revenue | 23,731 |
| | 24,164 |
|
| Other liabilities | 1,206 |
| | 1,291 |
|
| Total Liabilities | $ | 25,807 |
| | $ | 27,641 |
|
New Accounting Standards—In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which provided certain improvements to ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” As the Company has adopted ASU 2016-01 and ASU 2017-12, the improvements in ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, and the interim periods within those fiscal years. Early adoption is permitted. The Company expects to adopt ASU 2016-13 in the first quarter of 2020, as described below, and the improvements in ASU 2019-04 will be adopted concurrently. The Company is currently evaluating the impact of adopting ASU 2017-122019-04 on its consolidated financial statements.
In March 2019, the FASB issued ASU 2019-02, “Entertainment-Films-Other Assets-Film Costs (Subtopic 926-20) and Entertainment-Broadcasters-Intangibles-Goodwill and Other (Subtopic 920-350).” The standard requires production costs of episodic television series to be capitalized as incurred, which aligns the guidance with the accounting for production costs of films. In addition, once ASU 2019-02 is effective, capitalized costs associated with films and license agreements will be tested for impairment based on the lower of unamortized cost or fair value, as opposed to the existing guidance where the impairment test is based on estimated net realizable value. The guidance also includes additional disclosure requirements. The standard is effective for fiscal years beginning after December 15, 2019, and the interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2019-02 should be applied prospectively. The Company is currently evaluating the impact of adopting ASU 2019-02 on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40).” The standard requires a customer in a hosting arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract. The standard also requires a customer to expense the capitalized implementation costs over the term of the hosting arrangement and specifies presentation requirements for both the capitalized costs and the amortized expenses. The standard is effective for fiscal years beginning after December 15, 2019, and the interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2018-15 should be applied
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of adopting ASU 2018-15 on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20).” The standard modifies certain disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans by removing disclosures that are no longer considered cost beneficial, clarifying specific requirements of disclosures, and adding disclosure requirements identified as relevant. The standard is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The amendments in ASU 2018-14 should be applied retrospectively to each period presented. The Company is currently evaluating the impact of adopting ASU 2018-14 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 oflosses on 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. In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments - Credit Losses (Topic 326) - Targeted Transition Relief,” which provides transition relief that is intended to increase comparability of financial statement information for entities that otherwise would have measured similar financial instruments using different measurement methodologies. 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.
NOTE 2: ASSETS HELD FOR SALE
Assets Held for Sale—Assets held for sale in 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 with a term of less than twelve months). 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. 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. 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 aspectsCompany’s unaudited Condensed Consolidated Balance Sheets consisted of the previously issued guidance including an additional transition method as well as a new practical expedient for lessors. These related standards are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt Topic 842 infollowing (in thousands):
|
| | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| Real estate (1) | $ | 62,789 |
| | $ | — |
|
| |
| (1) | As of June 30, 2019, the Company had two real estate properties held for sale. |
NOTE 3: LEASES
In the first quarter of 2019, the Company adopted Topic 842 utilizing the optional transition method provided in ASU No. 2018-11, which allows for a prospective adoption with a cumulative-effect adjustment to the opening balance sheet as of the adoption date.date without restatement of prior years. The Company continues to evaluateelected the impactpackage of practical expedients as permitted by the adoption of the new standard on its consolidated balance sheet; however,transition guidance allowing the Company does not expectto carry forward the historical assessment of whether contracts contain or are leases, classification of leases and the remaining lease terms.
Upon adoption, the Company recognized a right-of-use asset of $158 million and a right-of-use liability of $174 million. The Company’s deferred rent balance of $18 million as of December 31, 2018 was reclassified to havethe right-of-use asset upon adoption. The Company also recognized a material impactcumulative-effect adjustment to retained earnings of approximately $13 million, net of tax, which represents deferred gains previously recorded on the consolidated statements of operations, consolidated statements of comprehensive income (loss), consolidated statement of shareholders’ equity or consolidated statements of cash flows. The Company continuesbalance sheet related to review the lease portfolio and is in the process of implementing new lease accounting software to assist in the accounting and disclosure requirements associated with the new standard.historical sale lease-back transactions.
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;
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company has operating leases primarily for office buildings, studios, and transmission sites/equipment. Depending on the impacttype of this reclassificationlease, the original lease terms generally range from less than 12 months to 40 years. The remaining terms of the Company’s leases range from 2 months to 17 years. Certain leases, however, are subject to automatic and continuous renewals. The weighted-average remaining lease term of the Company’s operating leases is 10.8 years. The weighted average discount rate is 6.81%. Total operating lease costs for the three and six months ended June 30, 2019 were $9 million and $18 million, respectively.
Supplemental unaudited Condensed Consolidated Statements of Cash Flows information related to leases was immaterial. The Gracenote Sale was completed on Januaryas follows (in thousands):
|
| | | |
| | Six Months Ended |
| | June 30, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities | |
| Operating cash flows from operating leases | $ | 17,637 |
|
| | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 53,759 |
|
As of June 30, 2019, maturities of operating lease liabilities were as follows (in thousands):
|
| | | |
| 2019 (excluding the six months ended June 30, 2019) | $ | 17,057 |
|
| 2020 | 32,641 |
|
| 2021 | 26,697 |
|
| 2022 | 30,665 |
|
| 2023 | 23,856 |
|
| Thereafter | 184,070 |
|
| Total lease payments | 314,986 |
|
| Less: imputed interest | 102,704 |
|
| Total operating lease liabilities | $ | 212,282 |
|
As of December 31, 2017 and2018, the Company received gross proceeds of $581 million. InCompany’s future minimum lease payments under non-cancelable operating leases, as disclosed in Note 10 to the second quarter of 2017, the Company received additional proceeds of $3 million as a result of purchase price adjustments. InCompany’s audited consolidated financial statements for the year ended December 31, 2017,2018, were as follows (in thousands):
|
| | | |
| 2019 | $ | 33,042 |
|
| 2020 | 31,035 |
|
| 2021 | 22,496 |
|
| 2022 | 22,004 |
|
| 2023 | 20,798 |
|
| Thereafter | 91,961 |
|
| Total lease payments | $ | 221,336 |
|
As of June 30, 2019, the Company recognizedhas executed non-cancelable operating leases primarily related to a total net pretax gain of $33 million, of which $35 million was recognizedstudio and transmission sites/equipment that have not yet commenced. The estimated future minimum lease commitments for these leases are $5 million. These leases are expected to commence in the nine months ended September 30, 2017, as a result of the Gracenote Sale. On February 1, 2017, the Company used $400 million of proceeds2019 and have terms ranging from the Gracenote Sale5 to prepay a portion of its Term Loan Facility (as defined and described in Note 6).
The operating results of the businesses15 years. These leases have not been 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.tables above.
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.
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):
|
| | | | |
| | | Nine Months Ended |
| | | September 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 gain on the disposal of discontinued operations | | 34,510 |
|
| Total pretax income on discontinued operations | | 28,792 |
|
| Income tax expense (4) | | 13,753 |
|
| Income from discontinued operations, net of taxes | | $ | 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 rate on pretax income from discontinued operations was 47.8% for the nine months ended September 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. |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 nine months ended September 30, 2017.
The Gracenote SPA provides for indemnification against specified losses and damages which became effective upon completion of the transaction. The Company does not expect to incur material costs in connection with these indemnifications. The Company has no material contingent liabilities relating to the Gracenote Sale as of September 30, 2018.
The following table represents the components of the results from discontinued operations associated with the Gracenote Sale as reflected in the Company’s unaudited Condensed Consolidated Statements of Cash Flows (in thousands):
|
| | | |
| | Nine Months Ended |
| | September 30, 2017 (1) |
| 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):
|
| | | | | | | |
| | September 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 September 30, 2018, the Company had one real estate property held for sale.
Sales of Real Estate—As of September 30, 2018, the Company had agreements for the sales of certain properties located in Melville, NY and Hartford, CT. On October 9, 2018, the Company sold its Melville, NY property for net proceeds of $53 million. The Company expects to recognize a net pretax gain of approximately $24 million in the fourth quarter of 2018 relating to the sale. On October 23, 2018, the Company sold its Hartford, CT property for net proceeds of $6 million. The Company expects to recognize a net pretax gain of less than $1 million in the fourth quarter of 2018 relating to the sale. The Company defines net proceeds as pretax cash proceeds on the sale of properties, net of associated selling costs.
In the nine months ended September 30, 2017, the Company sold several properties for net proceeds totaling $61 million and recognized a net pretax gain of less than $1 million for the three and nine months ended September 30, 2017, as further described below.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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. On August 4, 2017, the Company sold its Williamsburg, VA property for net proceeds of $1 million, which approximated its carrying value.
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.
NOTE 4: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the following (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | 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 |
| | $ | (86,125 | ) | | $ | 125,875 |
| | $ | 212,000 |
| | $ | (79,500 | ) | | $ | 132,500 |
|
| Advertiser relationships (useful life of 8 years) | 168,000 |
| | (136,500 | ) | | 31,500 |
| | 168,000 |
| | (126,000 | ) | | 42,000 |
|
| Network affiliation agreements (useful life of 11 to 16 years) | 228,700 |
| | (91,154 | ) | | 137,546 |
| | 228,700 |
| | (83,649 | ) | | 145,051 |
|
| Retransmission consent agreements (useful life of 7 to 12 years) | 830,100 |
| | (512,092 | ) | | 318,008 |
| | 830,100 |
| | (467,073 | ) | | 363,027 |
|
| Other (useful life of 5 to 15 years) | 8,909 |
| | (3,224 | ) | | 5,685 |
| | 16,015 |
| | (8,137 | ) | | 7,878 |
|
| Total | $ | 1,447,709 |
| | $ | (829,095 | ) | | 618,614 |
| | $ | 1,454,815 |
| | $ | (764,359 | ) | | 690,456 |
|
| Other intangible assets not subject to amortization | | | | | | | | | | | |
| FCC licenses | | | | | 737,200 |
| | | | | | 737,200 |
|
| Trade name | | | | | 14,800 |
| | | | | | 14,800 |
|
| Total other intangible assets, net | | | | | 1,370,614 |
| | | | | | 1,442,456 |
|
| Goodwill | | | | | 3,228,547 |
| | | | | | 3,228,601 |
|
| Total goodwill and other intangible assets | | | | | $ | 4,599,161 |
| | | | | | $ | 4,671,057 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 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 |
| | $ | (76,188 | ) | | $ | 135,812 |
| | $ | 212,000 |
| | $ | (66,250 | ) | | $ | 145,750 |
|
| Advertiser relationships (useful life of 8 years) | 168,000 |
| | (120,750 | ) | | 47,250 |
| | 168,000 |
| | (105,000 | ) | | 63,000 |
|
| Network affiliation agreements (useful life of 5 to 16 years) | 362,000 |
| | (206,546 | ) | | 155,454 |
| | 362,000 |
| | (175,337 | ) | | 186,663 |
|
| Retransmission consent agreements (useful life of 7 to 12 years) | 830,100 |
| | (444,563 | ) | | 385,537 |
| | 830,100 |
| | (377,033 | ) | | 453,067 |
|
| Other (useful life of 5 to 15 years) | 16,138 |
| | (7,757 | ) | | 8,381 |
| | 16,650 |
| | (6,565 | ) | | 10,085 |
|
| Total | $ | 1,588,238 |
| | $ | (855,804 | ) | | 732,434 |
| | $ | 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 | | | | | 1,487,534 |
| | | | | | 1,613,665 |
|
| Goodwill | | | | | 3,228,716 |
| | | | | | 3,228,988 |
|
| Total goodwill and other intangible assets | | | | | $ | 4,716,250 |
| | | | | | $ | 4,842,653 |
|
| | | | | | | | | | | | |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The changes in the carrying amounts of intangible assets, which are in the Company’s Television and Entertainment segment, during the ninesix months ended SeptemberJune 30, 20182019 were as follows (in thousands):
|
| | | |
| Other intangible assets subject to amortization | |
| Balance as of December 31, 2018 | $ | 690,456 |
|
| Amortization | (70,039 | ) |
| Balance sheet reclassifications (1) | (1,762 | ) |
| Foreign currency translation adjustment | (41 | ) |
| Balance as of June 30, 2019 | $ | 618,614 |
|
| Other intangible assets not subject to amortization | |
| Balance as of June 30, 2019 and December 31, 2018 | $ | 752,000 |
|
| Goodwill | |
| Gross balance as of December 31, 2018 | $ | 3,609,601 |
|
| Accumulated impairment losses at December 31, 2018 | (381,000 | ) |
| Balance as of December 31, 2018 | 3,228,601 |
|
| Foreign currency translation adjustment | (54 | ) |
| Balance as of June 30, 2019 | $ | 3,228,547 |
|
| Total goodwill and other intangible assets as of June 30, 2019 | $ | 4,599,161 |
|
|
| | | |
| Other intangible assets subject to amortization | |
| Balance as of December 31, 2017 | $ | 858,565 |
|
| Amortization | (125,704 | ) |
| Balance sheet reclassifications | (226 | ) |
| Foreign currency translation adjustment | (201 | ) |
| Balance as of September 30, 2018 | $ | 732,434 |
|
| | |
| Other intangible assets not subject to amortization | |
| Balance as of September 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 | (272 | ) |
| Balance as of September 30, 2018 | $ | 3,228,716 |
|
| Total goodwill and other intangible assets as of September 30, 2018 | $ | 4,716,250 |
|
| |
| (1) | Balance sheet reclassifications include $2 million of lease contract intangible assets that were reclassified to operating lease right-of-use assets in the Company’s unaudited Condensed Consolidated Balance Sheets on January 1, 2019 upon implementation of ASU No. 2016-02. See Note 3 for additional information. |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Amortization expense relating to amortizable intangible assets is expected to be approximately $42$70 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 2023.2023 and $51 million in 2024.
NOTE 5: INVESTMENTS
Investments consisted of the following (in thousands):
|
| | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| Equity method investments | $ | 1,149,197 |
| | $ | 1,238,457 |
|
| Other equity investments | 5,503 |
| | 25,980 |
|
| Total investments | $ | 1,154,700 |
| | $ | 1,264,437 |
|
|
| | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| Equity method investments | $ | 1,205,893 |
| | $ | 1,254,198 |
|
| Other equity investments | 25,980 |
| | 27,593 |
|
| Total investments | $ | 1,231,873 |
| | $ | 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, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
| Income on equity investments, net, before amortization of basis difference | $ | 58,996 |
| | $ | 65,037 |
| | $ | 117,150 |
| | $ | 116,643 |
|
| Amortization of basis difference | (12,469 | ) | | (12,469 | ) | | (24,938 | ) | | (24,938 | ) |
| Income on equity investments, net | $ | 46,527 |
| | $ | 52,568 |
| | $ | 92,212 |
| | $ | 91,705 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 | | September 30, 2018 | | September 30, 2017 |
| Income on equity investments, net, before amortization of basis difference | $ | 44,850 |
| | $ | 33,609 |
| | $ | 161,493 |
| | $ | 139,808 |
|
| Amortization of basis difference | (12,469 | ) | | (12,551 | ) | | (37,407 | ) | | (40,952 | ) |
| Income on equity investments, net | $ | 32,381 |
| | $ | 21,058 |
| | $ | 124,086 |
| | $ | 98,856 |
|
As discussed in Note 86 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017,2018, the carrying value of the Company’s investments was increased by $1.615 billion to aan aggregate fair value
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
aggregating of $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 SeptemberJune 30, 20182019 totaled $648$611 million and have a weighted average remaining useful life of approximately 1514 years.
Cash distributions from the Company’s equity method investments were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
| Cash distributions from equity investments | $ | 28,379 |
| | $ | 43,789 |
| | $ | 181,461 |
| | $ | 158,926 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 | | September 30, 2018 | | September 30, 2017 |
| Cash distributions from equity investments | $ | — |
| | $ | 32,911 |
| | $ | 158,926 |
| | $ | 182,561 |
|
TV Food Network—The Company’s 31% investment in Television Food Network, G.P. (“TV Food Network”) totaled $1.195$1.140 billion and $1.234$1.228 billion at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. The Company recognized equity income from TV Food Network of $32$47 million and $26$43 million for the three months ended SeptemberJune 30, 2019 and June 30, 2018, and September 30, 2017, respectively, and $114$94 million and $103$82 million for the ninesix months ended SeptemberJune 30, 2018 2019
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
and SeptemberJune 30, 2017,2018, respectively. The Company received cash distributions from TV Food Network of $17$28 million forand $38 million in the three months ended SeptemberJune 30, 20172019 and June 30, 2018, respectively, and $181 million and $153 million and $167 million in the ninesix months ended SeptemberJune 30, 2019 and June 30, 2018, and September 30, 2017, respectively. The Company did not receive any cash distributions from
Summarized financial information for TV Food Network in the third quarter of 2018is as TV Food Network adjusted its required year-to-date cash distributions to cover the Company’s taxes on its share of partnership income based on the reduction in tax rates from Tax Reform, which resulted in no distribution required for the third quarter of 2018.follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
| Revenues, net | $ | 336,200 |
| | $ | 322,154 |
| | $ | 655,915 |
| | $ | 630,099 |
|
| Operating income | $ | 190,888 |
| | $ | 171,788 |
| | $ | 368,920 |
| | $ | 334,544 |
|
| Net income | $ | 190,604 |
| | $ | 176,289 |
| | $ | 378,054 |
| | $ | 341,878 |
|
CareerBuilder—On September 13, 2018, the Company sold its remaining 6% investment (on a fully diluted basis, including CareerBuilder, LLC (“CareerBuilder”) employees’ equity awards) (through its investment in Camaro Parent, LLC) in CareerBuilder and received pretax proceeds of $11 million. The Company recognized a pretax loss of $5 million on the sale of its ownership interest in CareerBuilder in the third quarter of 2018.
As of December 31, 2017, the Company’s investment in CareerBuilder totaled $10 million. Through the date of the sale, pursuant Pursuant to ASC Topic 323 “Investments - Equity Method and Joint Ventures,” the Company accounted for CareerBuilder as an equity method investment. The Company recognized equity income from CareerBuilder of $0.4$10 million for each of the three and six months ended SeptemberJune 30, 2018. In 2018, and an equity lossthrough the date of $5 million for the three months ended September 30, 2017. For the nine months ended September 30, 2018,sale, the Company recognized equity income from CareerBuilder of $10 million and an equity loss, excluding impairment charges, of $3 million for the nine months ended September 30, 2017. The Company received cash distributions from CareerBuilder of $6 million, for nine months ended September 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 nine months ended September 30, 2018.
On September 7, 2016, TEGNA Inc. (“TEGNA”) announced that it began evaluating strategic alternatives for CareerBuilder, including a possible sale. In the nine months ended September 30, 2017, the Company recorded total non-cash pretax impairment charges of $181 million to write-down the Company’s investment in CareerBuilder
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 net gain on sale of $4 million in 2017, of which $6 million was recognized in the third quarter of 2017.
The CareerBuilder investment constituted a nonfinancial asset measured at fair value on a nonrecurring basis in the Company’s unaudited Condensed Consolidated Balance Sheets and was 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—As of September 30, 2018, 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 |
| Nine Months Ended |
| September 30, 2018 |
| September 30, 2017 |
| September 30, 2018 |
| September 30, 2017 |
| Revenues, net | $ | 294,308 |
| | $ | 274,754 |
| | $ | 924,407 |
| | $ | 880,868 |
|
| Operating income | $ | 139,679 |
| | $ | 157,207 |
| | $ | 474,223 |
| | $ | 547,363 |
|
| Net income | $ | 142,903 |
| | $ | 123,009 |
| | $ | 484,781 |
| | $ | 447,348 |
|
Summarized financial information for CareerBuilder and Dose Media is as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2018 (1) | | September 30, 2017 | | September 30, 2018 (1) | | September 30, 2017 |
| Revenues, net | $ | 119,502 |
| | $ | 165,961 |
| | $ | 432,330 |
| | $ | 505,383 |
|
| Operating income (loss) | $ | 10,698 |
| | $ | (9,661 | ) | | $ | 26,759 |
| | $ | 373 |
|
| Net income (loss) | $ | 3,884 |
| | $ | (14,090 | ) | | $ | 102,541 |
| | $ | (842 | ) |
| |
(1) | Revenues, operating income (loss) and net income (loss) that relate to CareerBuilder include results through September 13, 2018. |
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.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Chicago Cubs Transactions—As defined and further described in Note 86 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017,2018, 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) (“CEV 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 September 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.
On August 21, 2018, Northside Entertainment Holdings LLC (f/k/a Ricketts Acquisition LLC) (“NEH”) provided a written notice (the “Call Notice”) to the Company that NEH was exercising its right pursuant to the Amended and Restated Limited Liability Company Agreement (the “CEV LLC Agreement”) of CEV LLC to purchase the Company’s 5% membership interest in CEV LLC. The parties are engagedCompany sold its 5% ownership interest in CEV LLC on January 22, 2019 for pretax proceeds of $107.5 million and recognized a gain of $86 million before taxes ($66 million after taxes) in the valuation process provided forfirst quarter of 2019. As a result of the sale, the previously recorded deferred tax liability of $69 million became currently payable in 2019. Concurrently with the CEV LLC Agreement and there can be no assurance that the purchase will be completed in a timely manner or at all, or at a favorable valuation to the Company.
Marketable Equity Securities—On August 4, 2014,sale, the Company completedceased being a spin-offguarantor of its publishing operations and retained 381,354 shares of Tribune Publishing Company (“Tribune Publishing”) (formerly tronc, Inc.) common stock, representing at that time 1.5%all debt facilities held by New Cubs LLC.
Other—All of the outstanding common stockCompany’s other equity investments are in private companies. During the first quarter of Tribune Publishing. On January 31, 2017,2018, the Company sold one of its Tribune Publishing sharesother equity investments for net proceeds of $5$4 million and recognized a pretax gain of $5$4 million.
Variable Interests—At September 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 September 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 nine months ended September 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.
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, 2019 |
| December 31, 2018 |
| Term Loan Facility | | | |
| Term B Loans due 2020, effective interest rate of 3.84%, net of unamortized discount and debt issuance costs of $952 and $1,268 | $ | 188,673 |
| | $ | 188,357 |
|
| Term C Loans due 2024, effective interest rate of 3.85%, net of unamortized discount and debt issuance costs of $16,565 and $18,305 | 1,649,327 |
| | 1,647,587 |
|
| 5.875% Senior Notes due 2022, net of debt issuance costs of $8,478 and $9,861 | 1,091,522 |
| | 1,090,139 |
|
| Total debt | $ | 2,929,522 |
| | $ | 2,926,083 |
|
|
| | | | | | | |
| September 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 $1,428 and $1,900 | $ | 188,197 |
| | $ | 187,725 |
|
| Term C Loans due 2024, effective interest rate of 3.85%, net of unamortized discount and debt issuance costs of $19,186 and $21,783 | 1,646,706 |
| | 1,644,109 |
|
| 5.875% Senior Notes due 2022, net of debt issuance costs of $10,563 and $12,649 | 1,089,437 |
| | 1,087,351 |
|
| Total debt | $ | 2,924,340 |
| | $ | 2,919,185 |
|
Secured Credit Facility—At both SeptemberJune 30, 20182019 and December 31, 2017,2018, 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 SeptemberJune 30, 20182019 and December 31, 2017,2018, there were no borrowings outstanding under the Company’s $420$338 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 97 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 20172018 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 $21$18 million and $24$20 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, 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.”
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
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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, 2016.15. The Notes mature on July 15, 2022. As of SeptemberJune 30, 2018,2019, $1.100 billion of Notes remained outstanding.
See Note 97 to the audited consolidated financial statements for the fiscal year ended December 31, 20172018 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$8 million and $13$10 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
Consent Solicitation
On June 22, 2017,August 2, 2019, the Company announced that it received consents from 93.23% ofcaused to be delivered to the holders of the Notes a conditional notice of redemption (the “Initial Notice”) relating to the full redemption of all issued and outstanding Notes (the “Redemption”) on August 12, 2019 (as delayed in the Company’s discretion, the “Redemption Date”), pursuant to Section 5.2 of the Indenture, dated as of June 24, 2015 (as amended, supplemented or otherwise modified to date, 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”“Indenture”) 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,, among the Company, each of the subsidiary guarantors party thereto, and The Bank of New York Mellon Trust Company, N.A., as trusteetrustee. On August 8, 2019, the Company caused to be delivered to the holders of the Notes a supplemental conditional notice of redemption (the “Supplemental Notice”, and the Initial Notice as supplemented by the Supplemental Notice, the “Notice”) in order to delay the Redemption of the Notes to August 15, 2019. The redemption price for the Notes entered into the fourth supplemental indenture (the “Fourth Supplemental Indenture”)is equal to the indenture governingsum of 101.469% of the principle amount of the Notes, dated as of June 24, 2015 (as supplementedplus accrued and amended,unpaid interest, if any, on the “Indenture”),Notes to effect certain amendments(but not including) the Redemption Date (the “Redemption Price”).
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company’s obligation to pay the Indenture to facilitateRedemption Price on the integrationRedemption Date is conditioned upon the consummation of the Nexstar Merger (the “Condition”). In the Company’s discretion, the Redemption Date may be delayed until such time as the Condition is satisfied (or waived by the Company in its sole discretion). In the Company’s discretion, the Redemption may not occur and the Notes with and into Sinclair’s debt capital structureNotice may be rescinded in connection with the Merger.event that the Condition is not satisfied (or waived by the Company in its sole discretion) by the Redemption Date or by the Redemption Date so delayed. The closing of the Nexstar Merger is subject to a number of conditions. As further described ina result, there can be no assurance that the Redemption will occur on the Redemption Date or at all. See Note 1 for information regarding the Company terminated theNexstar Merger Agreement on August 9, 2018. Therefore, the amendments contemplated in the Fourth Supplemental Indenture will never become effective.
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, of which $21 million was received in the third quarter of 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.Nexstar Merger Agreement.
NOTE 7: FAIR VALUE MEASUREMENTS
The Company measures and records in its consolidated financial statements certain assets and liabilities at fair value. ASC Topic 820 “Fair Value Measurement and Disclosures,” establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). This hierarchy consists of the following three levels:
Level 1 – Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market.
Level 2 – Assets and liabilities whose values are based on inputs other than those included in Level 1, including quoted market prices in markets that are not active; quoted prices of assets or liabilities with similar attributes in active markets; or valuation models whose inputs are observable or unobservable but corroborated by market data.
Level 3 – Assets and liabilities whose values are based on valuation models or pricing techniques that utilize unobservable inputs that are significant to the overall fair value measurement.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates. The Company’s risk management policy allows for the use of derivative financial instruments to manage interest rate exposures and does not permit derivatives to be used for speculative purposes. On January 27, 2017, concurrent with the 2017 Amendment, the Company entered into interest rate swaps with certain financial institutions for a total notional value of $500 million with a duration that matches the maturity of the Company’s Term C Loans. The interest rate swaps are designated as cash flow hedges and are considered highly effective. As a result, no ineffectiveness has been recognized in the unaudited Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2018 and September 30, 2017. Additionally, for the interest rate swaps, no amounts are excluded from the assessment of hedge effectiveness. The monthly net interest settlements under the interest rate swaps are reclassified out of AOCI and recognized in interest expense consistent with the recognition of interest expense on the Company’s Term C Loans. Realized gains of $0.3 million and realized losses of $0.2 million and $1$0.4 million were recognized in interest expense for the three months ended SeptemberJune 30, 2019 and June 30, 2018, and September 30, 2017, respectively, and realized gains of $1 million and $4realized losses of $1 million were recognized for the six months ended June 30, 2019 and June 30, 2018, respectively. Interest expense was $44 million and $42 million for the ninethree months ended SeptemberJune 30, 2019 and June 30, 2018, respectively, and September$87 million and $83 million for the six months ended June 30, 2017,2019 and June 30, 2018, respectively. As of SeptemberJune 30, 2018,2019, the fair value of the interest rate swaps was $17$11 million, which is recorded in non-current assetscurrent liabilities with the unrealized gainloss recognized in other comprehensive income (loss). As of SeptemberJune 30, 2018,2019, the Company expects $2 million to be reclassified out of AOCI as a reduction ofand into interest expense over the next twelve months. The interest rate swap fair value is considered Level 2 within the fair value hierarchy as it includes quoted prices for similar instruments as well as interest rates and yield curves that are observable in the market.
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
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
the Company’s financial instruments that are not measured at fair value on a recurring basis were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount |
| Term Loan Facility | | | | | | | |
| Term B Loans due 2020 | $ | 189,329 |
| | $ | 188,673 |
| | $ | 187,965 |
| | $ | 188,357 |
|
| Term C Loans due 2024 | $ | 1,662,078 |
| | $ | 1,649,327 |
| | $ | 1,631,742 |
| | $ | 1,647,587 |
|
| 5.875% Senior Notes due 2022 | $ | 1,120,779 |
| | $ | 1,091,522 |
| | $ | 1,111,000 |
| | $ | 1,090,139 |
|
|
| | | | | | | | | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| | Fair
Value | | Carrying
Amount | | Fair
Value | | Carrying
Amount |
| Term Loan Facility | | | | | | | |
| Term B Loans due 2020 | $ | 190,455 |
| | $ | 188,197 |
| | $ | 189,704 |
| | $ | 187,725 |
|
| Term C Loans due 2024 | $ | 1,670,057 |
| | $ | 1,646,706 |
| | $ | 1,666,942 |
| | $ | 1,644,109 |
|
| 5.875% Senior Notes due 2022 | $ | 1,124,310 |
| | $ | 1,089,437 |
| | $ | 1,132,417 |
| | $ | 1,087,351 |
|
TheEach category of financial instruments are classified in the following methods and assumptions were used to estimatelevel of the fair value of each category of financial instruments:hierarchy:
Term Loan Facility—The fair value of the outstanding principal balance of the term loans under the Company’s Term Loan Facility at both SeptemberJune 30, 20182019 and December 31, 2017 would be2018 are 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 SeptemberJune 30, 20182019 and December 31, 2017 would be2018 are 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 ninesix months ended SeptemberJune 30, 20182019, there were no events or changes in circumstance that suggested an impairment or an observable price change to any of these investments resulting from an orderly transaction for the
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
identical or a similar investment. The non-equity method investments would beare 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 that have collectively closingclosed 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 (n/k/a Delaware Trust Company) (“Delaware Trust Company”) 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,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 SeptemberJune 30, 2018,2019, each of the Confirmation Order appeals have been dismissed or otherwise resolved by a final order, with the exception of the appeals of Delaware Trust Company and Deutsche Bank. On July 30, 2018, the United States District Court for the District of Delaware (the
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(the “District Court”) entered an order affirming (i) the Bankruptcy Court’s judgment overruling Delaware Trust Company’s and Deutsche Bank’s objections to confirmation of the Plan and (ii) the Bankruptcy Court’s order confirming the Plan. Delaware Trust Company and Deutsche Bank appealed the District Court’s order to the United States Court of Appeals for the Third Circuit (the “Third Circuit”) on August 27, 2018. That appeal remains pending before the Third Circuit. 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 SeptemberJune 30, 2018,2019, 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 SeptemberJune 30, 2018,2019, 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
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 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.
During the second quarter of 2019, the Litigation Trust reached settlements in principle with various parties to the MDL litigation, including certain of the directors and officers that have filed proofs of claim against the Debtors. The Litigation Trust is in the process of seeking approvals of those settlements from the applicable courts. If those approvals are granted and the settlements become effective, not fewer than 54 of the outstanding proofs of claim against the Debtors will be resolved. The Debtors are continuing to evaluate the remaining proofs of claim.
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 SeptemberJune 30, 2019 and June 30, 2018, and September 30, 2017, and $2 million and $1 million for each of the ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 2017, respectively.2018. The Company expects to continue to incur certain expenses pertaining to the Chapter 11 proceedings throughout 20182019 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 NovemberAugust 9, 2018,2019, the Company had FCC authorization to operate 39 television stations and one AM radio station.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company is subject to the FCC’s “Local Television Multiple Ownership Rule” and the “National Television Multiple Ownership Rule,” among others, as further described in Note 1210 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017.2018.
In general and subject to certain conditions, under the “Local Television Multiple Ownership Rule” (the “Duopoly Rule”) a company may hold attributable interests in up to two television stations in a single Nielsen Media Research Designated Market Area (“DMA”). In applying the Duopoly rule, the FCC applies a presumption against allowing combinations of two top-four ranked stations in a market, subject to a case-by-case waiver review process. This approach, adopted in the 2014 Quadrennial Review Reconsideration Order, is subject to a pending petition for judicial review by the Third Circuit. On December 13, 2018, the FCC issued a Notice of Proposed Rulemaking initiating the 2018 Quadrennial Review (the “2018 Quadrennial Review”), which, among other things, seeks comment on all aspects of the Duopoly Rule’s application and implementation, including whether the rule itself remains necessary to serve the public interest in the current television marketplace, and, if retained, whether the top-four prohibition should be retained, and if so, whether the FCC should adopt a waiver process or bright-line test to determine where waivers of the top-4 prohibition may be warranted. The Company cannot predict the outcome of these proceedings, or their effect on its business.
The “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 “UHF Discount Repeal Order”), the FCC repealed the UHF Discount but grandfathered existing station combinations (including the Company’s) 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 petition for judicial review by the U.S. Court of Appeals for the District of Columbia Circuit that is pending in abeyance. 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 of the UHF Discount Reconsideration Order by the U.S. Court of Appeals for the District of Columbia Circuit was dismissed on jurisdictional grounds on July 25, 2018. A petition for review of the UHF Discount Repeal Order by the U.S. Court of Appeals for the District of Columbia Circuit was dismissed as moot on December 19, 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
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 as of December 31, 2017 (including $26 million of proceeds received by a Dreamcatcher station,station) as of which $21 million was received in the third quarter of 2017). The Company used $102 million of after-tax proceeds to prepay a portion of the Term Loan Facility. After-tax proceeds of $12.6 million received by a Dreamcatcher station were used to prepay a substantial portion of the Dreamcatcher Credit Facility.December 31, 2017. 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, of which $79 million was received in the third quarter of 2017. 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 beare 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.
Through SeptemberJune 30, 2018,2019, the Company incurred $16$39 million in capital expenditures for the spectrum repack.repack, of which $12 million and $24 million was incurred in 2019 and 2018, respectively. The Company expects that the
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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.
TheThrough June 30, 2019, the Company has received FCC reimbursements of $5$17 million, of which $2 million and $7$6 million were received during the three and ninesix months ended SeptemberJune 30, 2019, respectively. In 2018, respectively.the Company received $11 million of FCC reimbursements, of which $2 million was received for both the three and six months ended June 30, 2018. The reimbursements are included as a reduction to selling, general and administrative expense (“SG&A”) and are presented as an investing inflow in the Company’s unaudited Condensed Consolidated Statements of Cash Flows.
As described in Note 1 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017,2018, 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.
Termination of Sinclair Merger Agreement—On August 9, 2018, the Company provided notification to Sinclair Broadcast Group, Inc. (“Sinclair”) that the Company terminated, effective immediately, the Agreement and Plan of Merger, dated May 8, 2017, with Sinclair (the “Sinclair Merger Agreement”), which provided for the acquisition by Sinclair of all of the outstanding shares of the Company’s common stock (the “Sinclair Merger”). Additionally, on August 9, 2018, the Company filed a complaint in the Delaware Court of Chancery against Sinclair (the “Sinclair Complaint”), alleging that Sinclair willfully and materially breached its obligations under the Sinclair Merger Agreement. The lawsuit seeks damages for all losses incurred as a result of Sinclair’s breach of contract under the Sinclair Merger Agreement. On August 29, 2018, Sinclair filed an answer to the Company’s Sinclair Complaint and a counterclaim (the “Sinclair Counterclaim”). On September 18, 2018, the Company filed an answer to the Sinclair Counterclaim. The Company believes the Sinclair Counterclaim is without merit and intends to defend it vigorously. In connection with the termination of the Sinclair Merger Agreement, on August 9, 2018, the Company provided notification to Fox Television Stations, LLC (“Fox”) that it terminated the asset purchase agreement, by and between Sinclair, Fox and the Company, dated May 8, 2018 (the “Fox Purchase Agreement”) to sell the assets of certain network affiliates of the Company, effective immediately. Under the terms of the Fox Purchase Agreement, no termination fees were payable by any party.
Other Contingencies—The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. See Note 9 for a discussion of potential income tax liabilities.
The Company does not believe that any 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.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 9: INCOME TAXES
In the three and six months ended SeptemberJune 30, 2018,2019, the Company recorded an income tax benefit from continuing operationsexpense of $22 million.$24 million and $62 million, respectively. The effective tax rate on pretax income from continuing operations was (70.8)%.27.2% for the three months ended June 30, 2019. 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, the deduction of certain transaction costs and other expenses previously capitalized,not fully deductible for tax purposes and a $3benefit of less than $1 million benefit related to the resolution of federal and state income tax filings for the prior year. In the three months ended September 30, 2018, the Company recorded an additional income tax benefit of $24 million to revise the provisional discrete net tax benefit recorded due to Tax Reform, as further described below. In the nine months ended September 30, 2018, the Company recorded income tax expense from continuing operations of $67 million.matters and other adjustments. The effective tax rate on pretax income from continuing operations was 19.3%.25.8% for the six months ended June 30, 2019. 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, the deduction of certain transaction costs and other expenses previously capitalized,not fully deductible for tax purposes, a $2 million benefit related to stock-based compensation, a $3 million benefit resulting from a change in the Company’s state tax rates, and a $1 million charge related to the resolution of federal and state income tax matters and other adjustments.
In the three and six months ended June 30, 2018, the Company recorded an income tax expense of $33 million and $90 million, respectively. The effective tax rate on pretax income 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 was 28.4% for the six 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 net $3 million charge related primarily to the write-off of unrealized deferred tax assets related to stock-based compensation, a $3 million benefit related to federal and state income tax filings for the prior year, and a $24 million benefit to revise the provisional discrete net tax benefit recorded due to Tax Reform, as further described below.
In the three and nine months ended September 30, 2017, the Company recorded an income tax benefit from continuing operations of $20 million and $82 million, respectively. The effective tax rate on pretax loss from continuing operations was 51.8% for the three months ended September 30, 2017. The rate differs from the U.S. federal statutory rate of 35% at the time due to state income tax (net of federal benefit), the domestic production activities deduction, certain transaction costs not fully deductible for tax purposes, a $1 million charge related to the resolution of federal and state income tax matters and other adjustments. The effective tax rate on pretax loss from continuing operations was 35.3% for the nine months ended September 30, 2017. For the nine months ended September 30, 2017, the rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), the domestic production activities deduction, certain transaction costs and other expenses not fully deductible for tax purposes, a $1 million charge related to the resolution of federal and state income tax matters and other adjustments, a $3 million benefit related to expected refunds of interest paid on prior tax assessments and a $1 million charge related to the write-off of unrealized deferred tax assets related to stock-based compensation.
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 months ended September 30, 2018, the Company recorded an additional income tax benefit of $24 million to its net deferred tax liabilities, adjusting the provisional discrete net tax benefit recorded in the fourth quarter of 2017. The tax benefit was recorded as the result of new information, including higher than expected pension contributions and new filing positions reported in the Company’s income tax returns as they became due. Further impacts of Tax Reform may be reflected in the fourth quarter 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. The Company has not completed the accounting for the provisional discrete net tax benefit recorded in the fourth quarter of 2017 and the third quarter of 2018. 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 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
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
interest expense deductions (if certain conditions apply) that are effective starting in fiscal 2018. The Company has determined that these new provisions are not material or applicable to the Company.
Chicago Cubs Transactions—As further described in Note 86 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017,2018, the Company consummated the closing of the Chicago Cubs Transactions on October 27, 2009. As a result of these transactions, NEH ownsowned 95% and the Company ownsowned 5% of the membership interests in CEV 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 SeptemberJune 30, 20182019 would be approximately $76$92 million. The Company continues to disagree with the IRS’s position that the transaction generated a taxable gain in 2009, the proposed penalty and the IRS’s calculation of the gain. During the third quarter of 2016, the Company filed a petition in U.S. Tax Court to contest the IRS’s determination. The Company continues to pursue resolution of this disputed tax matter with the IRS. If the IRS prevails in their position, the gain on the Chicago Cubs Transactions would be deemed to be taxable in 2009. The Company estimates that the federal and state income taxes would be approximately $225 million before interest and penalties. Any tax, interest and penalty due will be offset by tax payments made relating to this transaction subsequent to 2009. As of September 30, 2018, the Company has paid or accrued approximately $85 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 September 30, 2018 and December 31, 2017 includes a deferred tax liability of $64 million and $96 million, respectively, related to the future recognition of taxable income related to the Chicago Cubs Transactions. As further described in Note 5, on August 21, 2018, NEH provided the Call Notice to the Company that NEH was exercising its right to purchase the Company’s 5% membership interest in CEV LLC. The Call NoticeCompany sold its 5% ownership interest in CEV LLC on January 22, 2019 (the “2019 Cubs Sale”) for pretax proceeds of $107.5 million and recognized a gain of $86 million before taxes ($66 million after taxes) in the first quarter of 2019. As a result of the sale, the previously recorded deferred tax liability of $69 million related to the future recognition of taxable income related to the Chicago Cubs Transactions became currently payable. Subsequent to the sale, the Company no longer owns any potential future transaction with NEH haveportion of CEV LLC and maintains no deferred taxes or tax reserves related to the Chicago Cubs Transactions. As of June 30, 2019, the Company has paid or accrued approximately $167 million of federal and state taxes on the deferred gain and the 2019 Cubs Sale through its
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
regular tax reporting process. The sale of the Company’s ownership interest in CEV LLC has no impact on the Company’s dispute with the IRS.
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 $22 million and $21 million and $23 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $2$3 million within the next twelve months due to the resolution of tax examination issues and statute of limitations expirations.
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 10: PENSION AND OTHER RETIREMENT PLANS
The components of net periodic benefit credit for Company-sponsored pension plans for the three and nine months ended September 30, 2018 and September 30, 2017 were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Pension Benefits |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
| Service cost | $ | 203 |
| | $ | 174 |
| | $ | 416 |
| | $ | 467 |
|
| Interest cost | 19,229 |
| | 17,829 |
| | 38,398 |
| | 35,569 |
|
| Expected return on plans’ assets | (23,769 | ) | | (24,823 | ) | | (47,554 | ) | | (49,641 | ) |
| Recognized actuarial loss | — |
| | 8 |
| | — |
| | 8 |
|
| Amortization of prior service costs | 39 |
| | 35 |
| | 79 |
| | 70 |
|
| Net periodic benefit credit | $ | (4,298 | ) | | $ | (6,777 | ) | | $ | (8,661 | ) | | $ | (13,527 | ) |
|
| | | | | | | | | | | | | | | |
| | Pension Benefits |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 | | September 30, 2018 | | September 30, 2017 |
| Service cost | $ | 234 |
| | $ | 192 |
| | $ | 701 |
| | $ | 576 |
|
| Interest cost | 17,784 |
| | 19,549 |
| | 53,353 |
| | 58,646 |
|
| Expected return on plans’ assets | (24,821 | ) | | (25,281 | ) | | (74,462 | ) | | (75,844 | ) |
| Recognized actuarial loss | 5 |
| | — |
| | 13 |
| | — |
|
| Amortization of prior service costs | 35 |
| | 29 |
| | 105 |
| | 87 |
|
| Net periodic benefit credit | $ | (6,763 | ) | | $ | (5,511 | ) | | $ | (20,290 | ) | | $ | (16,535 | ) |
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.
In the nine months ended September 30, 2018,For 2019, the Company contributed $56expects to contribute $3 million to its qualified pension plans. For 2018, the Company expects to contributeplans and $1 million to its other postretirement plans. In the three and ninesix months ended SeptemberJune 30, 2018 and September 30, 2017,2019, the Company’s contributions to its other postretirement plans were not material. In the six months ended June 30, 2018, the Company contributed $24.5 million to its qualified pension plans.
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 1513 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017,2018, 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
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 1513 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017,2018, 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
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 1513 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017.2018.
There were no conversions of the Company’s Common Stock between Class A Common Stock and Class B Common Stock during the ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 2017.2018. No Warrants were exercised for Class A Common Stock or Class B Common Stock during the nine months ended September 30, 2018. During the three and nine months ended September 30, 2017, 46,802 and 91,650 Warrants, respectively, were exercised for 46,802 and 91,650 shares, respectively, of Class A Common Stock. No Warrants were exercised for Class B Common Stock during the ninesix months ended SeptemberJune 30, 2017.2019 and June 30, 2018.
At SeptemberJune 30, 2018,2019, the following amounts were issued: 30,551 Warrants, 101,745,449102,498,285 shares of Class A Common Stock, of which 14,102,185 were held in treasury, and 5,557 shares of Class B Common Stock.Stock and 30,551 Warrants. 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 1513 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 20172018 for additional information relating to the Registration Rights Agreement.
Common Stock Repurchases—On February 24, 2016, the Board authorized a 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 20172018 or during the ninesix months ended SeptemberJune 30, 20182019 due to restrictions contained in the now terminated Sinclair Merger Agreement and the Nexstar Merger Agreement. As of SeptemberJune 30, 2018,2019, the remaining authorized amount under the current authorization totaled approximately $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):
|
| | | | | | | | | | | | | | | |
| | 2019 | | 2018 |
| | Per Share | | Total Amount | | Per Share | | Total Amount |
| First quarter | $ | 0.25 |
| | $ | 22,061 |
| | $ | 0.25 |
| | $ | 21,922 |
|
| Second quarter | 0.25 |
| | 22,114 |
| | 0.25 |
| | 21,925 |
|
| Total quarterly cash dividends declared and paid | $ | 0.50 |
| | $ | 44,175 |
| | $ | 0.50 |
| | $ | 43,847 |
|
|
| | | | | | | | | | | | | | | |
| | 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 |
|
| Third quarter | 0.25 |
| | 21,929 |
| | 0.25 |
| | 21,834 |
|
| Total quarterly cash dividends declared and paid | $ | 0.75 |
| | $ | 65,776 |
| | $ | 0.75 |
| | $ | 65,392 |
|
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On November 8, 2018,August 1, 2019, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share to be paid on December 4, 2018September 3, 2019 to holders of record of Common Stock and Warrants as of Novemberthe close of business on August 19, 2018.2019. However, in the event the Nexstar Merger closes prior to the close of business on August 19, 2019, holders of the Company’s Common Stock and Warrants will not be entitled to this dividend. Future dividends will be subject to the discretion of the Board.Board and the terms of the Nexstar Merger Agreement, which limits the Company’s ability to pay dividends, except for the payment of quarterly cash dividends not to exceed $0.25 per share consistent with record and payment dates in 2018.
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 1513 and Note 1614 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017.2018.
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 1614 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017.2018. 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 2,564,3592,284,930 shares and 168,049157,400 shares, respectively, were available for grant as of SeptemberJune 30, 2018.2019.
Stock-based compensation for the three months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 20172018 totaled $6 million and $5 million, respectively. Stock-based compensation for each of the ninesix months ended SeptemberJune 30, 2019 and June 30, 2018 and September 30, 2017 totaled $16 million and $27 million, respectively. There was no stock-based compensation expense recorded for the nine months ended September 30, 2018 attributable to discontinued operations. Stock-based compensation expense attributable to discontinued operations for the nine months ended September 30, 2017 totaled $2$11 million.
A summary of activity and weighted average exercise prices related to the NSOs is reflected in the table below.as follows:
|
| | | | | | |
| | Six Months Ended
June 30, 2019 |
| | Shares | | Weighted Avg.
Exercise Price |
| Outstanding, beginning of period | 2,431,397 |
| | $ | 36.54 |
|
| Exercised | (357,852 | ) | | 31.84 |
|
| Forfeited | (44,740 | ) | | 33.10 |
|
| Cancelled | (9,720 | ) | | 57.24 |
|
| Outstanding, end of period | 2,019,085 |
| | $ | 37.35 |
|
| Vested and exercisable, end of period | 1,373,655 |
| | $ | 39.65 |
|
|
| | | | | | |
| | Nine Months Ended
September 30, 2018 |
| | Shares | | Weighted Avg.
Exercise Price |
| Outstanding, beginning of period | 2,846,926 |
| | $ | 39.00 |
|
| Granted | 201,580 |
| | 42.85 |
|
| Exercised | (35,502 | ) | | 27.65 |
|
| Forfeited | (39,527 | ) | | 30.03 |
|
| Cancelled | (495,209 | ) | | 54.57 |
|
| Outstanding, end of period | 2,478,268 |
| | $ | 36.51 |
|
| Vested and exercisable, end of period | 1,187,590 |
| | $ | 40.63 |
|
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.as follows:
|
| | | | | | |
| | Six Months Ended
June 30, 2019 |
| | Shares | | Weighted Avg.
Fair Value |
| Outstanding, beginning of period | 1,123,554 |
| | $ | 35.46 |
|
| Granted | 468,469 |
| | 46.03 |
|
| Dividend equivalent units granted | 12,621 |
| | 46.11 |
|
| Vested | (387,343 | ) | | 34.68 |
|
| Dividend equivalent units vested | (23,342 | ) | | 37.58 |
|
| Forfeited | (39,285 | ) | | 37.29 |
|
| Dividend equivalent units forfeited | (1,570 | ) | | 38.77 |
|
| Outstanding and nonvested, end of period | 1,153,104 |
| | $ | 40.03 |
|
|
| | | | | | |
| | Nine Months Ended
September 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 | 23,104 |
| | 37.74 |
|
| Vested | (359,657 | ) | | 35.08 |
|
| Dividend equivalent units vested | (17,720 | ) | | 36.04 |
|
| Forfeited | (49,449 | ) | | 34.14 |
|
| Dividend equivalent units forfeited | (1,920 | ) | | 37.22 |
|
| Outstanding and nonvested, end of period | 1,146,689 |
| | $ | 35.38 |
|
A summary of activity and weighted average fair values related to the restricted stock awards is as follows:
|
| | | | | | |
| | Six Months Ended
June 30, 2019 |
| | Shares | | Weighted Avg. Fair Value |
| Outstanding, beginning of period | 27,812 |
| | $ | 36.84 |
|
| Outstanding and nonvested, end of period | 27,812 |
| | $ | 36.84 |
|
|
| | | | | | |
| | Nine Months Ended
September 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.as follows:
| | | | Nine Months Ended
September 30, 2018 | Six Months Ended
June 30, 2019 |
| | Shares | | Weighted Avg. Fair Value | Shares | | Weighted Avg. Fair Value |
| Outstanding, beginning of period | 252,815 |
| | $ | 22.53 |
| 161,515 |
| | $ | 37.30 |
|
| Granted (1) | 54,059 |
| | 42.40 |
| 49,342 |
| | 46.43 |
|
| Dividend equivalent units granted | 3,344 |
| | 37.71 |
| 2,121 |
| | 42.51 |
|
| Vested | (36,920 | ) | | 38.67 |
| (119,282 | ) | | 36.60 |
|
| Dividend equivalent units vested | (2,680 | ) | | 35.20 |
| (6,548 | ) | | 37.19 |
|
| Forfeited | (139,628 | ) | | 13.25 |
| |
| Dividend equivalent units forfeited | (231 | ) | | 35.24 |
| |
| Outstanding and nonvested, end of period | 130,759 |
| | $ | 36.57 |
| 87,148 |
| | $ | 42.09 |
|
| |
| (1) | Represents shares of PSUs for which performance targets have been established and which are deemed granted under U.S. GAAP. |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
As of SeptemberJune 30, 2018,2019, the Company had not yet recognized compensation cost on nonvested awards as follows (dollars in thousands):
|
| | | | | |
| | Unrecognized Compensation Cost | | Weighted Avg. Remaining Recognition Period |
| Nonvested awards | $ | 44,383 |
| | 2.4 |
|
| | | | | |
| | Unrecognized Compensation Cost | | Weighted Average Remaining Recognition Period |
| Nonvested awards | $ | 39,077 |
| | 2.3 |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 Mediathe 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 SeptemberJune 30, 2018,2019, there were 57,56746,438 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. ForIn each of the three and ninesix months ended SeptemberJune 30, 2019 and June 30, 2018, 30,551 of the weighted-average Warrants outstanding have been excluded from the below table. For the three and nine months ended September 30, 2017, 64,751 and 83,493, respectively, of the weighted-average Warrants outstanding have been excluded from the below table.
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, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
| EPS numerator: | | | | | | | |
| Net income, as reported | $ | 63,650 |
| | $ | 84,438 |
| | $ | 176,854 |
| | $ | 225,621 |
|
| Net loss attributable to noncontrolling interests | 7 |
| | 4 |
| | 11 |
| | 10 |
|
| Net income attributable to Tribune Media Company | 63,657 |
| | 84,442 |
| | 176,865 |
| | 225,631 |
|
| Less: Dividends distributed to Warrants | 8 |
| | 8 |
| | 15 |
| | 15 |
|
| Less: Undistributed earnings allocated to Warrants | 14 |
| | 22 |
| | 46 |
| | 63 |
|
| Net income attributable to Tribune Media Company’s common shareholders for basic EPS | $ | 63,635 |
| | $ | 84,412 |
| | $ | 176,804 |
| | $ | 225,553 |
|
| Add: Undistributed earnings allocated to dilutive securities | — |
| | — |
| | — |
| | 1 |
|
| Net income attributable to Tribune Media Company’s common shareholders for diluted EPS | $ | 63,635 |
| | $ | 84,412 |
| | $ | 176,804 |
| | $ | 225,554 |
|
| EPS denominator: | | | | | | | |
| Weighted average shares outstanding - basic | 88,342 |
| | 87,628 |
| | 88,133 |
| | 87,556 |
|
| Impact of dilutive securities | 772 |
| | 545 |
| | 969 |
| | 787 |
|
| Weighted average shares outstanding - diluted | 89,114 |
| | 88,173 |
| | 89,102 |
| | 88,343 |
|
| Net Income Per Common Share Attributable to Tribune Media Company: | | | | | | | |
| Basic | $ | 0.72 |
| | $ | 0.96 |
| | $ | 2.01 |
| | $ | 2.58 |
|
| Diluted | $ | 0.71 |
| | $ | 0.96 |
| | $ | 1.98 |
| | $ | 2.55 |
|
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 | | September 30, 2018 | | September 30, 2017 |
| EPS numerator: | | | | | | | |
| Income (loss) from continuing operations | $ | 54,076 |
| | $ | (18,687 | ) | | $ | 279,697 |
| | $ | (149,722 | ) |
| Net loss from continuing operations attributable to noncontrolling interests | 23 |
| | — |
| | 33 |
| | — |
|
| Net income (loss) from continuing operations attributable to Tribune Media Company | 54,099 |
| | (18,687 | ) | | 279,730 |
| | (149,722 | ) |
| Less: Dividends distributed to Warrants | 8 |
| | 14 |
| | 23 |
| | 60 |
|
| Less: Undistributed earnings allocated to Warrants | 11 |
| | — |
| | 75 |
| | — |
|
| Income (loss) from continuing operations attributable to Tribune Media Company’s common shareholders for basic EPS | $ | 54,080 |
| | $ | (18,701 | ) | | $ | 279,632 |
| | $ | (149,782 | ) |
| Add: Undistributed earnings allocated to dilutive securities | — |
| | — |
| | 1 |
| | — |
|
| Income (loss) from continuing operations attributable to Tribune Media Company’s common shareholders for diluted EPS | $ | 54,080 |
| | $ | (18,701 | ) | | $ | 279,633 |
| | $ | (149,782 | ) |
| | | | | | | | |
| Income from discontinued operations, as reported | $ | — |
| | $ | — |
| | $ | — |
| | $ | 15,039 |
|
| | | | | | | | |
| Net income (loss) attributable to Tribune Media Company’s common shareholders for basic EPS | $ | 54,080 |
| | $ | (18,701 | ) | | $ | 279,632 |
| | $ | (134,743 | ) |
| Net income (loss) attributable to Tribune Media Company’s common shareholders for diluted EPS | $ | 54,080 |
| | $ | (18,701 | ) | | $ | 279,633 |
| | $ | (134,743 | ) |
| | | | | | | | |
| EPS denominator: | | | | | | | |
| Weighted average shares outstanding - basic | 87,640 |
| | 87,257 |
| | 87,584 |
| | 86,984 |
|
| Impact of dilutive securities | 568 |
| | — |
| | 741 |
| | — |
|
| Weighted average shares outstanding - diluted | 88,208 |
| | 87,257 |
| | 88,325 |
| | 86,984 |
|
| | | | | | | | |
| Basic Earnings (Loss) Per Common Share Attributable to Tribune Media Company from: | | | | | | | |
| Continuing Operations | $ | 0.62 |
| | $ | (0.21 | ) | | $ | 3.19 |
| | $ | (1.72 | ) |
| Discontinued Operations | — |
| | — |
| | — |
| | 0.17 |
|
| Net Earnings (Loss) Per Common Share | $ | 0.62 |
| | $ | (0.21 | ) | | $ | 3.19 |
| | $ | (1.55 | ) |
| | | | | | | | |
| Diluted Earnings (Loss) Per Common Share Attributable to Tribune Media Company from: | | | | | | | |
| Continuing Operations | $ | 0.61 |
| | $ | (0.21 | ) | | $ | 3.17 |
| | $ | (1.72 | ) |
| Discontinued Operations | — |
| | — |
| | — |
| | 0.17 |
|
| Net Earnings (Loss) Per Common Share | $ | 0.61 |
| | $ | (0.21 | ) | | $ | 3.17 |
| | $ | (1.55 | ) |
Because of their anti-dilutive effect, 2,219,623553,359 and 1,290,175563,257 common share equivalents, comprised of NSOs, PSUs, and RSUs, have been excluded from the diluted EPS calculation for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. Since the Company was in a net loss position for the three and nine months ended September 30, 2017, there was no difference between the number of shares used to calculate basic and diluted loss per share. Because of their anti-dilutiveanti-diluted effect, 2,102,8271,596,116 and 3,036,8851,219,922 common share equivalents, comprised of
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NSOs, PSUs, Supplemental PSUs, and RSUs, have been excluded from the diluted EPS calculation for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively.
NOTE 14: ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOMELOSS
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, 2018 | $ | (108,238 | ) | | $ | 4,564 |
| | $ | (1,293 | ) | | $ | (104,967 | ) |
| Other comprehensive income before reclassifications | (2,885 | ) | | (12,472 | ) | | (125 | ) | | (15,482 | ) |
| Amounts reclassified from AOCI | (92 | ) | | (424 | ) | | — |
| | (516 | ) |
| Balance at June 30, 2019 | $ | (111,215 | ) | | $ | (8,332 | ) | | $ | (1,418 | ) | | $ | (120,965 | ) |
|
| | | | | | | | | | | | | | | |
| | Pension and Other Post-Retirement Benefit Items | | Cash Flow Hedging Instruments | | Foreign Currency Translation Adjustments (1) | | Total |
| Balance at December 31, 2017 | $ | (45,812 | ) | | $ | (293 | ) | | $ | (1,956 | ) | | $ | (48,061 | ) |
| Other comprehensive income before reclassifications | (3,827 | ) | | 12,639 |
| | (350 | ) | | 8,462 |
|
| Amounts reclassified from AOCI | (124 | ) | | 1,108 |
| | 1,504 |
| | 2,488 |
|
| Balance at September 30, 2018 | $ | (49,763 | ) | | $ | 13,454 |
| | $ | (802 | ) | | $ | (37,111 | ) |
| |
(1) | Amounts reclassified from AOCI included $2 million of cumulative translation adjustments as a result of the Company's sale of its remaining ownership interest in CareerBuilder, as further described in Note 5. |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 15: BUSINESS SEGMENTS
The following table summarizes business segment financial data for the three and nine months ended September 30, 2018 and September 30, 2017 (in thousands):
| | | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| | September 30, 2018 | | September 30, 2017 | | September 30, 2018 | | September 30, 2017 | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
| Operating Revenues from Continuing Operations (1) | | | | | | | | |
| Operating Revenues | | | | | | | | |
| Television and Entertainment | $ | 494,619 |
| | $ | 447,307 |
| | $ | 1,421,738 |
| | $ | 1,349,401 |
| $ | 482,557 |
| | $ | 486,417 |
| | $ | 935,984 |
| | $ | 927,119 |
|
| Corporate and Other | 3,389 |
| | 3,226 |
| | 9,263 |
| | 10,559 |
| 1,479 |
| | 2,941 |
| | 3,040 |
| | 5,874 |
|
| Total operating revenues | $ | 498,008 |
| | $ | 450,533 |
| | $ | 1,431,001 |
| | $ | 1,359,960 |
| $ | 484,036 |
| | $ | 489,358 |
| | $ | 939,024 |
| | $ | 932,993 |
|
| Operating Profit (Loss) from Continuing Operations (1)(2) | | | | | | | | |
| Operating Profit (Loss) (1) | | | | | | | | |
| Television and Entertainment | $ | 67,295 |
| | $ | (1,357 | ) | | $ | 398,914 |
| | $ | 68,875 |
| $ | 99,603 |
| | $ | 119,767 |
| | $ | 179,528 |
| | $ | 331,619 |
|
| Corporate and Other | (30,171 | ) | | (28,095 | ) | | (76,439 | ) | | (106,641 | ) | (26,322 | ) | | (21,701 | ) | | (51,544 | ) | | (46,268 | ) |
| Total operating profit (loss) | $ | 37,124 |
| | $ | (29,452 | ) | | $ | 322,475 |
| | $ | (37,766 | ) | $ | 73,281 |
| | $ | 98,066 |
| | $ | 127,984 |
| | $ | 285,351 |
|
| Depreciation from Continuing Operations | | | | | | | | |
| Depreciation | | | | | | | | |
| Television and Entertainment | $ | 11,313 |
| | $ | 10,844 |
| | $ | 33,124 |
| | $ | 31,413 |
| $ | 12,064 |
| | $ | 10,941 |
| | $ | 23,126 |
| | $ | 21,811 |
|
| Corporate and Other | 2,188 |
| | 3,419 |
| | 7,433 |
| | 10,348 |
| 1,803 |
| | 2,340 |
| | 3,693 |
| | 5,245 |
|
| Total depreciation | $ | 13,501 |
| | $ | 14,263 |
| | $ | 40,557 |
| | $ | 41,761 |
| $ | 13,867 |
| | $ | 13,281 |
| | $ | 26,819 |
| | $ | 27,056 |
|
| Amortization from Continuing Operations | | | | | | | | |
| Amortization | | | | | | | | |
| Television and Entertainment | $ | 41,675 |
| | $ | 41,678 |
| | $ | 125,043 |
| | $ | 125,001 |
| $ | 35,018 |
| | $ | 41,681 |
| | $ | 70,039 |
| | $ | 83,368 |
|
| Capital Expenditures | | | | | | | | | | | | | | |
| Television and Entertainment | $ | 17,665 |
| | $ | 8,140 |
| | $ | 35,224 |
| | $ | 30,674 |
| $ | 15,851 |
| | $ | 7,433 |
| | $ | 27,784 |
| | $ | 17,559 |
|
| Corporate and Other | 4,840 |
| | 5,184 |
| | 12,228 |
| | 9,171 |
| 1,378 |
| | 3,841 |
| | 2,823 |
| | 7,388 |
|
| Discontinued Operations | — |
| | — |
| | — |
| | 1,578 |
| |
| Total capital expenditures | $ | 22,505 |
| | $ | 13,324 |
| | $ | 47,452 |
| | $ | 41,423 |
| $ | 17,229 |
| | $ | 11,274 |
| | $ | 30,607 |
| | $ | 24,947 |
|
|
| | | | | | | |
| September 30, 2018 | | December 31, 2017 |
| Assets | | | |
| Television and Entertainment | $ | 6,975,851 |
| | $ | 7,197,859 |
|
| Corporate and Other | 1,156,687 |
| | 932,569 |
|
| Assets held for sale (3) | 28,955 |
| | 38,900 |
|
| Total assets | $ | 8,161,493 |
| | $ | 8,169,328 |
|
33
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Assets | | | |
| Television and Entertainment | $ | 6,941,931 |
| | $ | 6,976,808 |
|
| Corporate and Other | 1,458,060 |
| | 1,274,583 |
|
| Assets held for sale (2) | 62,789 |
| | — |
|
| Total assets | $ | 8,462,780 |
| | $ | 8,251,391 |
|
| |
| (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, pension and other postretirement period benefit cost (credit), non-operating items, reorganization costs and income taxes. |
| |
(3)(2) | See Note 32 for information regarding assets held for sale. |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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,In the fourth quarter of 2018, the Company completed the Gracenote Sale, as further described in Note 2. The Gracenote Sale includedreleased certain Subsidiary Guarantors as well asfrom their guarantees of the Notes upon designating such Subsidiary Guarantors to be unrestricted subsidiaries in accordance with the Indenture. As a result, these subsidiaries became Non-Guarantor Subsidiaries. The results ofSubsidiaries and the operations of these entities were retrospectively reclassified and are includednow reflected in their respective categories through the dateNon-Guarantor Subsidiaries column for all periods presented. These reclassifications had no impact on the Company’s historical consolidated results of sale.operations.
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.
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 SEPTEMBERJUNE 30, 2018
2019
(In thousands of dollars)
| | | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
| Operating Revenues | $ | — |
| | $ | 495,180 |
| | $ | 2,828 |
| | $ | — |
| | $ | 498,008 |
| $ | — |
| | $ | 482,885 |
| | $ | 1,151 |
| | $ | — |
| | $ | 484,036 |
|
| | | | | | | | | | | | | | | | | | | |
| Programming and direct operating expenses | — |
| | 262,352 |
| | 609 |
| | — |
| | 262,961 |
| — |
| | 231,508 |
| | 662 |
| | — |
| | 232,170 |
|
| Selling, general and administrative | 29,577 |
| | 112,388 |
| | 782 |
| | — |
| | 142,747 |
| 24,615 |
| | 104,221 |
| | 864 |
| | — |
| | 129,700 |
|
| Depreciation and amortization | 1,924 |
| | 50,410 |
| | 2,842 |
| | — |
| | 55,176 |
| 1,558 |
| | 44,468 |
| | 2,859 |
| | — |
| | 48,885 |
|
| Total Operating Expenses | 31,501 |
| | 425,150 |
| | 4,233 |
| | — |
| | 460,884 |
| 26,173 |
| | 380,197 |
| | 4,385 |
| | — |
| | 410,755 |
|
| | | | | | | | | | | | | | | | | | | |
| Operating (Loss) Profit | (31,501 | ) | | 70,030 |
| | (1,405 | ) | | — |
| | 37,124 |
| (26,173 | ) | | 102,688 |
| | (3,234 | ) | | — |
| | 73,281 |
|
| | | | | | | | | | | | | | | | | | | |
| Income on equity investments, net | — |
| | 32,381 |
| | — |
| | — |
| | 32,381 |
| |
| Income (loss) on equity investments, net | | — |
| | 47,177 |
| | (650 | ) | | — |
| | 46,527 |
|
| Interest income | 3,239 |
| | — |
| | — |
| | — |
| | 3,239 |
| 7,720 |
| | — |
| | 6 |
| | — |
| | 7,726 |
|
| Interest expense | (42,842 | ) | | — |
| | — |
| | — |
| | (42,842 | ) | (43,777 | ) | | — |
| | — |
| | — |
| | (43,777 | ) |
| Pension and other postretirement periodic benefit credit, net | 7,035 |
| | — |
| | — |
| | — |
| | 7,035 |
| 4,524 |
| | — |
| | — |
| | — |
| | 4,524 |
|
| Loss on investment transaction | — |
| | (5,001 | ) | | — |
| | — |
| | (5,001 | ) | |
| Other non-operating items, net | (282 | ) | | — |
| | — |
| | — |
| | (282 | ) | (842 | ) | | — |
| | 46 |
| | — |
| | (796 | ) |
| Intercompany income (charges) | 12,413 |
| | (12,378 | ) | | (35 | ) | | — |
| | — |
| 23,578 |
| | (23,578 | ) | | — |
| | — |
| | — |
|
| (Loss) Income from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | (51,938 | ) | | 85,032 |
| | (1,440 | ) | | — |
| | 31,654 |
| |
| (Loss) Income Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | | (34,970 | ) | | 126,287 |
| | (3,832 | ) | | — |
| | 87,485 |
|
| Income tax (benefit) expense | (20,046 | ) | | 1,357 |
| | (3,733 | ) | | — |
| | (22,422 | ) | (8,336 | ) | | 33,094 |
| | (923 | ) | | — |
| | 23,835 |
|
| Equity (deficit) in earnings of consolidated subsidiaries, net of taxes | 85,991 |
| | (179 | ) | | — |
| | (85,812 | ) | | — |
| 90,291 |
| | (188 | ) | | — |
| | (90,103 | ) | | — |
|
| Income (Loss) from Continuing Operations | $ | 54,099 |
| | $ | 83,496 |
| | $ | 2,293 |
| | $ | (85,812 | ) | | $ | 54,076 |
| |
| Income from Discontinued Operations, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
| |
| Net Income (Loss) | $ | 54,099 |
| | $ | 83,496 |
| | $ | 2,293 |
| | $ | (85,812 | ) | | $ | 54,076 |
| $ | 63,657 |
| | $ | 93,005 |
| | $ | (2,909 | ) | | $ | (90,103 | ) | | $ | 63,650 |
|
| Net loss from continuing operations attributable to noncontrolling interests | — |
| | — |
| | 23 |
| | — |
| | 23 |
| |
| Net loss attributable to noncontrolling interests | | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
| Net Income (Loss) attributable to Tribune Media Company | $ | 54,099 |
| | $ | 83,496 |
| | $ | 2,316 |
| | $ | (85,812 | ) | | $ | 54,099 |
| $ | 63,657 |
| | $ | 93,005 |
| | $ | (2,902 | ) | | $ | (90,103 | ) | | $ | 63,657 |
|
| | | | | | | | | | | | | | | | | | | |
| Comprehensive Income (Loss) | $ | 57,988 |
| | $ | 85,019 |
| | $ | 2,214 |
| | $ | (87,233 | ) | | $ | 57,988 |
| $ | 53,271 |
| | $ | 92,998 |
| | $ | (2,692 | ) | | $ | (90,306 | ) | | $ | 53,271 |
|
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 SEPTEMBERJUNE 30, 2017
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 | — |
| | 42,684 |
| | 9,884 |
| | — |
| | 52,568 |
|
| Interest and dividend 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 |
| | (12,369 | ) | | (43 | ) | | — |
| | — |
|
| (Loss) Income Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | (42,607 | ) | | 151,479 |
| | 8,382 |
| | — |
| | 117,254 |
|
| Income tax (benefit) expense | (9,620 | ) | | 40,272 |
| | 2,164 |
| | — |
| | 32,816 |
|
| Equity (deficit) in earnings of consolidated subsidiaries, net of taxes | 117,429 |
| | (198 | ) | | — |
| | (117,231 | ) | | — |
|
| Net Income (Loss) | $ | 84,442 |
| | $ | 111,009 |
| | $ | 6,218 |
| | $ | (117,231 | ) | | $ | 84,438 |
|
| Net loss attributable to noncontrolling interests | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Net Income (Loss) attributable to Tribune Media Company | $ | 84,442 |
| | $ | 111,009 |
| | $ | 6,222 |
| | $ | (117,231 | ) | | $ | 84,442 |
|
| | | | | | | | | | |
| Comprehensive Income (Loss) | $ | 83,011 |
| | $ | 110,968 |
| | $ | 5,561 |
| | $ | (116,529 | ) | | $ | 83,011 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
| Operating Revenues | $ | — |
| | $ | 448,248 |
| | $ | 2,285 |
| | $ | — |
| | $ | 450,533 |
|
| | | | | | | | | | |
| Programming and direct operating expenses | — |
| | 296,987 |
| | 550 |
| | — |
| | 297,537 |
|
| Selling, general and administrative | 25,955 |
| | 99,673 |
| | 879 |
| | — |
| | 126,507 |
|
| Depreciation and amortization | 2,902 |
| | 49,902 |
| | 3,137 |
| | — |
| | 55,941 |
|
| Total Operating Expenses | 28,857 |
| | 446,562 |
|
| 4,566 |
|
| — |
| | 479,985 |
|
| | | | | | | | | | |
| Operating (Loss) Profit | (28,857 | ) | | 1,686 |
| | (2,281 | ) | | — |
| | (29,452 | ) |
| | | | | | | | | | |
| (Loss) income on equity investments, net | (482 | ) | | 21,540 |
| | — |
| | — |
| | 21,058 |
|
| Interest and dividend income | 813 |
| | 14 |
| | — |
| | — |
| | 827 |
|
| Interest expense | (40,313 | ) | | — |
| | (76 | ) | | — |
| | (40,389 | ) |
| Pension and other post retirement periodic benefit credit, net | 5,703 |
| | — |
| | — |
| | — |
| | 5,703 |
|
| Loss on extinguishments and modification of debt | (1,384 | ) | | — |
| | (51 | ) | | — |
| | (1,435 | ) |
| (Loss) gain on investment transactions, net | (143 | ) | | 5,810 |
| | — |
| | — |
| | 5,667 |
|
| Other non-operating items | (753 | ) | | — |
| | — |
| | — |
| | (753 | ) |
| Intercompany income (charges) | 19,221 |
| | (19,179 | ) | | (42 | ) | | — |
| | — |
|
| (Loss) Income from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | (46,195 | ) | | 9,871 |
| | (2,450 | ) | | — |
| | (38,774 | ) |
| Income tax benefit | (15,668 | ) | | (3,562 | ) | | (857 | ) | | — |
| | (20,087 | ) |
| Equity (deficit) in earnings of consolidated subsidiaries, net of taxes | 11,840 |
| | (123 | ) | | — |
| | (11,717 | ) | | — |
|
| (Loss) Income from Continuing Operations | $ | (18,687 | ) | | $ | 13,310 |
| | $ | (1,593 | ) | | $ | (11,717 | ) | | $ | (18,687 | ) |
| Income from Discontinued Operations, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
|
| Net (Loss) Income | $ | (18,687 | ) | | $ | 13,310 |
| | $ | (1,593 | ) | | $ | (11,717 | ) | | $ | (18,687 | ) |
| | | | | | | | | | |
| Comprehensive (Loss) Income | $ | (18,062 | ) | | $ | 13,374 |
| | $ | (1,074 | ) | | $ | (12,300 | ) | | $ | (18,062 | ) |
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)
NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 2018
2019
(In thousands of dollars)
| | | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
| Operating Revenues | $ | — |
| | $ | 1,422,620 |
| | $ | 8,381 |
| | $ | — |
| | $ | 1,431,001 |
| $ | — |
| | $ | 936,522 |
| | $ | 2,502 |
| | $ | — |
| | $ | 939,024 |
|
| | | | | | | | | | | | | | | | | | | |
| Programming and direct operating expenses | — |
| | 673,567 |
| | 1,975 |
| | — |
| | 675,542 |
| — |
| | 449,860 |
| | 1,360 |
| | — |
| | 451,220 |
|
| Selling, general and administrative | 72,011 |
| | 326,324 |
| | 2,246 |
| | — |
| | 400,581 |
| 48,188 |
| | 213,025 |
| | 1,749 |
| | — |
| | 262,962 |
|
| Depreciation and amortization | 6,397 |
| | 150,291 |
| | 8,912 |
| | — |
| | 165,600 |
| 3,301 |
| | 87,838 |
| | 5,719 |
| | — |
| | 96,858 |
|
| Gain on sales of spectrum | — |
| | (133,197 | ) | | — |
| | — |
| | (133,197 | ) | |
| Total Operating Expenses | 78,408 |
| | 1,016,985 |
| | 13,133 |
| | — |
| | 1,108,526 |
| 51,489 |
| | 750,723 |
| | 8,828 |
| | — |
| | 811,040 |
|
| | | | | | | | | | | | | | | | | | | |
| Operating (Loss) Profit | (78,408 | ) | | 405,635 |
| | (4,752 | ) | | — |
| | 322,475 |
| (51,489 | ) | | 185,799 |
| | (6,326 | ) | | — |
| | 127,984 |
|
| | | | | | | | | | | | | | | | | | | |
| Income on equity investments, net | — |
| | 124,086 |
| | — |
| | — |
| | 124,086 |
| |
| Income (loss) on equity investments, net | | — |
| | 93,634 |
| | (1,422 | ) | | — |
| | 92,212 |
|
| Interest income | 7,473 |
| | — |
| | — |
| | — |
| | 7,473 |
| 13,966 |
| | — |
| | 7 |
| | — |
| | 13,973 |
|
| Interest expense | (125,463 | ) | | — |
| | — |
| | — |
| | (125,463 | ) | (87,392 | ) | | — |
| | — |
| | — |
| | (87,392 | ) |
| Pension and other postretirement periodic benefit credit, net | 21,104 |
| | — |
| | — |
| | — |
| | 21,104 |
| 9,154 |
| | — |
| | — |
| | — |
| | 9,154 |
|
| Loss on investment transactions, net | — |
| | (1,113 | ) | | — |
| | — |
| | (1,113 | ) | |
| Gain on investment transaction | | — |
| | — |
| | 86,272 |
| | — |
| | 86,272 |
|
| Other non-operating items, net | (1,769 | ) | | — |
| | — |
| | — |
| | (1,769 | ) | (2,044 | ) | | (1,000 | ) | | (693 | ) | | — |
| | (3,737 | ) |
| Intercompany income (charges) | 37,238 |
| | (37,133 | ) | | (105 | ) | | — |
| | — |
| 47,156 |
| | (47,156 | ) | | — |
| | — |
| | — |
|
| (Loss) Income from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | (139,825 | ) | | 491,475 |
| | (4,857 | ) | | — |
| | 346,793 |
| |
| (Loss) Income Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | | (70,649 | ) | | 231,277 |
| | 77,838 |
| | — |
| | 238,466 |
|
| Income tax (benefit) expense | (37,221 | ) | | 108,965 |
| | (4,648 | ) | | — |
| | 67,096 |
| (17,124 | ) | | 61,741 |
| | 16,995 |
| | — |
| | 61,612 |
|
| Equity (deficit) in earnings of consolidated subsidiaries, net of taxes | 382,334 |
| | (715 | ) | | — |
| | (381,619 | ) | | — |
| 230,390 |
| | (348 | ) | | — |
| | (230,042 | ) | | — |
|
| Income (Loss) from Continuing Operations | $ | 279,730 |
| | $ | 381,795 |
| | $ | (209 | ) | | $ | (381,619 | ) | | $ | 279,697 |
| |
| Income (Loss) from Discontinued Operations, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
| |
| Net Income (Loss) | $ | 279,730 |
| | $ | 381,795 |
| | $ | (209 | ) | | $ | (381,619 | ) | | $ | 279,697 |
| $ | 176,865 |
| | $ | 169,188 |
| | $ | 60,843 |
| | $ | (230,042 | ) | | $ | 176,854 |
|
| Net loss from continuing operations attributable to noncontrolling interests | — |
| | — |
| | 33 |
| | — |
| | 33 |
| |
| Net loss attributable to noncontrolling interests | | — |
| | — |
| | 11 |
| | — |
| | 11 |
|
| Net Income (Loss) attributable to Tribune Media Company | $ | 279,730 |
| | $ | 381,795 |
| | $ | (176 | ) | | $ | (381,619 | ) | | $ | 279,730 |
| $ | 176,865 |
| | $ | 169,188 |
| | $ | 60,854 |
| | $ | (230,042 | ) | | $ | 176,865 |
|
| | | | | | | | | | | | | | | | | | | |
| Comprehensive Income (Loss) | $ | 290,680 |
| | $ | 383,486 |
| | $ | (713 | ) | | $ | (382,773 | ) | | $ | 290,680 |
| $ | 160,867 |
| | $ | 169,166 |
| | $ | 60,751 |
| | $ | (229,917 | ) | | $ | 160,867 |
|
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)
NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 2017
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 | — |
| | 82,042 |
| | 9,663 |
| | — |
| | 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 transaction | — |
| | — |
| | 3,888 |
| | — |
| | 3,888 |
|
| Other non-operating items, net | (1,487 | ) | | — |
| | — |
| | — |
| | (1,487 | ) |
| Intercompany income (charges) | 24,825 |
| | (24,740 | ) | | (85 | ) | | — |
| | — |
|
| (Loss) Income Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | (87,887 | ) | | 392,907 |
| | 10,119 |
| | — |
| | 315,139 |
|
| Income tax (benefit) expense | (17,175 | ) | | 104,122 |
| | 2,571 |
| | — |
| | 89,518 |
|
| Equity (deficit) in earnings of consolidated subsidiaries, net of taxes | 296,343 |
| | (536 | ) | | — |
| | (295,807 | ) | | — |
|
| Net Income (Loss) | $ | 225,631 |
| | $ | 288,249 |
| | $ | 7,548 |
| | $ | (295,807 | ) | | $ | 225,621 |
|
| Net loss attributable to noncontrolling interests | — |
| | — |
| | 10 |
| | — |
| | 10 |
|
| Net Income (Loss) attributable to Tribune Media Company | $ | 225,631 |
| | $ | 288,249 |
| | $ | 7,558 |
| | $ | (295,807 | ) | | $ | 225,631 |
|
| | | | | | | | | | |
| Comprehensive Income (Loss) | $ | 232,692 |
| | $ | 288,183 |
| | $ | 7,357 |
| | $ | (295,540 | ) | | $ | 232,692 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
| Operating Revenues | $ | — |
| | $ | 1,352,933 |
| | $ | 7,027 |
| | $ | — |
| | $ | 1,359,960 |
|
| | | | | | | | | | |
| Programming and direct operating expenses | — |
| | 785,816 |
| | 5,798 |
| | — |
| | 791,614 |
|
| Selling, general and administrative | 100,188 |
| | 336,566 |
| | 2,596 |
| | — |
| | 439,350 |
|
| Depreciation and amortization | 8,788 |
| | 148,591 |
| | 9,383 |
| | — |
| | 166,762 |
|
| Total Operating Expenses | 108,976 |
| | 1,270,973 |
| | 17,777 |
| | — |
| | 1,397,726 |
|
| | | | | | | | | | |
| Operating (Loss) Profit | (108,976 | ) | | 81,960 |
| | (10,750 | ) | | — |
| | (37,766 | ) |
| | | | | | | | | | |
| (Loss) income on equity investments, net | (1,521 | ) | | 100,377 |
| | — |
| | — |
| | 98,856 |
|
| Interest and dividend income | 1,829 |
| | 51 |
| | — |
| | — |
| | 1,880 |
|
| Interest expense | (118,929 | ) | | — |
| | (403 | ) | | — |
| | (119,332 | ) |
| Pension and other postretirement periodic benefit credit, net | 17,111 |
| | — |
| | — |
| | — |
| | 17,111 |
|
| Loss on extinguishments and modification of debt | (20,436 | ) | | — |
| | (51 | ) | | — |
| | (20,487 | ) |
| Gain on investment transactions, net | 4,807 |
| | 5,810 |
| | — |
| | — |
| | 10,617 |
|
| Write-downs of investment | — |
| | (180,800 | ) | | — |
| | — |
| | (180,800 | ) |
| Other non-operating items, net | (1,407 | ) | | — |
| | — |
| | — |
| | (1,407 | ) |
| Intercompany income (charges) | 66,907 |
| | (66,756 | ) | | (151 | ) | | — |
| | — |
|
| Loss from Continuing Operations Before Income Taxes and Earnings (Losses) from Consolidated Subsidiaries | (160,615 | ) | | (59,358 | ) | | (11,355 | ) | | — |
| | (231,328 | ) |
| Income tax benefit | (56,260 | ) | | (21,035 | ) | | (4,311 | ) | | — |
| | (81,606 | ) |
| (Deficit) equity in earnings of consolidated subsidiaries, net of taxes | (45,367 | ) | | (2,797 | ) | | — |
| | 48,164 |
| | — |
|
| (Loss) Income from Continuing Operations | $ | (149,722 | ) | | $ | (41,120 | ) | | $ | (7,044 | ) | | $ | 48,164 |
| | $ | (149,722 | ) |
| Income (Loss) from Discontinued Operations, net of taxes | 15,039 |
| | (1,904 | ) | | 807 |
| | 1,097 |
| | 15,039 |
|
| Net (Loss) Income | $ | (134,683 | ) | | $ | (43,024 | ) | | $ | (6,237 | ) | | $ | 49,261 |
| | $ | (134,683 | ) |
| | | | | | | | | | |
| Comprehensive (Loss) Income | $ | (124,148 | ) | | $ | (37,036 | ) | | $ | 6,653 |
| | $ | 30,383 |
| | $ | (124,148 | ) |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBERJUNE 30, 2018
2019
(In thousands of dollars)
| | | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
| Assets | | | | | | | | | | | | | | | | | | |
| Current Assets | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 881,201 |
| | $ | 3,394 |
| | $ | 3,156 |
| | $ | — |
| | $ | 887,751 |
| $ | 1,309,266 |
| | $ | 1,730 |
| | $ | 3,112 |
| | $ | — |
| | $ | 1,314,108 |
|
| Restricted cash and cash equivalents | 16,607 |
| | — |
| | — |
| | — |
| | 16,607 |
| 16,607 |
| | — |
| | — |
| | — |
| | 16,607 |
|
| Accounts receivable, net | 180 |
| | 391,929 |
| | 1,065 |
| | — |
| | 393,174 |
| 60 |
| | 420,860 |
| | 389 |
| | — |
| | 421,309 |
|
| Broadcast rights | — |
| | 102,832 |
| | 2,615 |
| | — |
| | 105,447 |
| — |
| | 71,923 |
| | 675 |
| | — |
| | 72,598 |
|
| Income taxes receivable | — |
| | 57,197 |
| | — |
| | — |
| | 57,197 |
| — |
| | 17,607 |
| | — |
| | — |
| | 17,607 |
|
| Prepaid expenses | 13,132 |
| | 14,426 |
| | 378 |
| | — |
| | 27,936 |
| 10,608 |
| | 16,121 |
| | 280 |
| | — |
| | 27,009 |
|
| Other | 5,310 |
| | 1,196 |
| | 5,451 |
| | — |
| | 11,957 |
| 7,035 |
| | 1,233 |
| | 597 |
| | — |
| | 8,865 |
|
| Total current assets | 916,430 |
| | 570,974 |
| | 12,665 |
| | — |
| | 1,500,069 |
| 1,343,576 |
| | 529,474 |
| | 5,053 |
| | — |
| | 1,878,103 |
|
| Properties | | | | | | | | | | | | | | | | | | |
| Property, plant and equipment | 45,289 |
| | 593,503 |
| | 29,128 |
| | — |
| | 667,920 |
| 45,237 |
| | 571,828 |
| | 29,678 |
| | — |
| | 646,743 |
|
| Accumulated depreciation | (30,085 | ) | | (228,543 | ) | | (1,673 | ) | | — |
| | (260,301 | ) | (34,768 | ) | | (248,736 | ) | | (1,758 | ) | | — |
| | (285,262 | ) |
| Net properties | 15,204 |
| | 364,960 |
| | 27,455 |
| | — |
| | 407,619 |
| 10,469 |
| | 323,092 |
| | 27,920 |
| | — |
| | 361,481 |
|
| | | | | | | | | | | | | | | | | | | |
| Investments in subsidiaries | 10,763,794 |
| | 75,252 |
| | — |
| | (10,839,046 | ) | | — |
| 11,147,221 |
| | 59,140 |
| | — |
| | (11,206,361 | ) | | — |
|
| | | | | | | | | | | | | | | | | | | |
| Other Assets | | | | | | | | | | | | | | | | | | |
| Broadcast rights | — |
| | 112,720 |
| | 442 |
| | — |
| | 113,162 |
| — |
| | 69,723 |
| | 304 |
| | — |
| | 70,027 |
|
| Operating lease right-of-use assets | | 7,796 |
| | 188,474 |
| | 138 |
| | — |
| | 196,408 |
|
| Goodwill | — |
| | 3,220,300 |
| | 8,416 |
| | — |
| | 3,228,716 |
| — |
| | 3,220,300 |
| | 8,247 |
| | — |
| | 3,228,547 |
|
| Other intangible assets, net | — |
| | 1,417,344 |
| | 70,190 |
| | — |
| | 1,487,534 |
| — |
| | 1,309,032 |
| | 61,582 |
| | — |
| | 1,370,614 |
|
| Assets held for sale | — |
| | — |
| | 28,955 |
| | — |
| | 28,955 |
| — |
| | 62,789 |
| | — |
| | — |
| | 62,789 |
|
| Investments | 850 |
| | 1,210,546 |
| | 20,477 |
| | — |
| | 1,231,873 |
| 850 |
| | 1,145,684 |
| | 8,166 |
| | — |
| | 1,154,700 |
|
| Intercompany receivables | 2,850,022 |
| | 7,308,247 |
| | 409,569 |
| | (10,567,838 | ) | | — |
| 3,203,083 |
| | 7,113,348 |
| | 1,480,848 |
| | (11,797,279 | ) | | — |
|
| Other | 63,239 |
| | 142,616 |
| | 999 |
| | (43,289 | ) | | 163,565 |
| 65,491 |
| | 135,641 |
| | 7,849 |
| | (68,870 | ) | | 140,111 |
|
| Total other assets | 2,914,111 |
| | 13,411,773 |
| | 539,048 |
| | (10,611,127 | ) | | 6,253,805 |
| 3,277,220 |
| | 13,244,991 |
| | 1,567,134 |
| | (11,866,149 | ) | | 6,223,196 |
|
| Total Assets | $ | 14,609,539 |
| | $ | 14,422,959 |
| | $ | 579,168 |
| | $ | (21,450,173 | ) | | $ | 8,161,493 |
| $ | 15,778,486 |
| | $ | 14,156,697 |
| | $ | 1,600,107 |
| | $ | (23,072,510 | ) | | $ | 8,462,780 |
|
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBERJUNE 30, 2018
2019
(In thousands of dollars)
| | | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
| Liabilities and Shareholders’ Equity (Deficit) | | | | | | | | | | | | | | | | | | |
| Current Liabilities | | | | | | | | | | | | | | | | | | |
| Accounts payable | $ | 20,679 |
| | $ | 19,842 |
| | $ | 1,434 |
| | $ | — |
| | $ | 41,955 |
| $ | 21,464 |
| | $ | 19,609 |
| | $ | 1,429 |
| | $ | — |
| | $ | 42,502 |
|
| Income taxes payable | — |
| | 8,452 |
| | — |
| | — |
| | 8,452 |
| — |
| | 55,509 |
| | — |
| | — |
| | 55,509 |
|
| Contracts payable for broadcast rights | — |
| | 261,761 |
| | 2,848 |
| | — |
| | 264,609 |
| — |
| | 211,176 |
| | 870 |
| | — |
| | 212,046 |
|
| Deferred revenue | — |
| | 13,127 |
| | 866 |
| | — |
| | 13,993 |
| — |
| | 12,973 |
| | 894 |
| | — |
| | 13,867 |
|
| Interest payable | 14,473 |
| | — |
| | — |
| | — |
| | 14,473 |
| 30,652 |
| | — |
| | — |
| | — |
| | 30,652 |
|
| Operating lease liabilities | | 1,664 |
| | 18,204 |
| | 36 |
| | — |
| | 19,904 |
|
| Other | 41,546 |
| | 56,690 |
| | 5,658 |
| | — |
| | 103,894 |
| 54,004 |
| | 56,229 |
| | 1,003 |
| | — |
| | 111,236 |
|
| Total current liabilities | 76,698 |
| | 359,872 |
| | 10,806 |
| | — |
| | 447,376 |
| 107,784 |
| | 373,700 |
| | 4,232 |
| | — |
| | 485,716 |
|
| | | | | | | | | | | | | | | | | | | |
| Non-Current Liabilities | | | | | | | | | | | | | | | | | | |
| Long-term debt | 2,924,340 |
| | — |
| | — |
| | — |
| | 2,924,340 |
| 2,929,522 |
| | — |
| | — |
| | — |
| | 2,929,522 |
|
| Deferred income taxes | — |
| | 564,730 |
| | 59,638 |
| | (43,289 | ) | | 581,079 |
| — |
| | 585,086 |
| | — |
| | (68,870 | ) | | 516,216 |
|
| Contracts payable for broadcast rights | — |
| | 259,204 |
| | 467 |
| | — |
| | 259,671 |
| — |
| | 170,803 |
| | 340 |
| | — |
| | 171,143 |
|
| Operating lease liabilities | | 8,227 |
| | 184,049 |
| | 102 |
| | — |
| | 192,378 |
|
| Intercompany payables | 7,810,885 |
| | 2,476,063 |
| | 280,890 |
| | (10,567,838 | ) | | — |
| 8,681,608 |
| | 2,393,930 |
| | 721,741 |
| | (11,797,279 | ) | | — |
|
| Other | 344,255 |
| | 121,834 |
| | 24,380 |
| | — |
| | 490,469 |
| |
| Other obligations | | 390,251 |
| | 87,306 |
| | 23,731 |
| | — |
| | 501,288 |
|
| Total non-current liabilities | 11,079,480 |
| | 3,421,831 |
| | 365,375 |
| | (10,611,127 | ) | | 4,255,559 |
| 12,009,608 |
| | 3,421,174 |
| | 745,914 |
| | (11,866,149 | ) | | 4,310,547 |
|
| Total liabilities | 11,156,178 |
| | 3,781,703 |
| | 376,181 |
| | (10,611,127 | ) | | 4,702,935 |
| 12,117,392 |
| | 3,794,874 |
| | 750,146 |
| | (11,866,149 | ) | | 4,796,263 |
|
| | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity (Deficit) | | | | | | | | | | | | | | | | | | |
| Common stock | 102 |
| | — |
| | — |
| | — |
| | 102 |
| 102 |
| | — |
| | — |
| | — |
| | 102 |
|
| Treasury stock | (632,194 | ) | | — |
| | — |
| | — |
| | (632,194 | ) | (632,194 | ) | | — |
| | — |
| | — |
| | (632,194 | ) |
| Additional paid-in-capital | 4,023,769 |
| | 9,041,422 |
| | 204,299 |
| | (9,245,721 | ) | | 4,023,769 |
| 4,045,530 |
| | 8,307,898 |
| | 913,902 |
| | (9,221,800 | ) | | 4,045,530 |
|
| Retained earnings (deficit) | 98,795 |
| | 1,600,819 |
| | (6,692 | ) | | (1,594,127 | ) | | 98,795 |
| 368,621 |
| | 2,055,177 |
| | (69,198 | ) | | (1,985,979 | ) | | 368,621 |
|
| Accumulated other comprehensive (loss) income | (37,111 | ) | | (985 | ) | | 183 |
| | 802 |
| | (37,111 | ) | (120,965 | ) | | (1,252 | ) | | (166 | ) | | 1,418 |
| | (120,965 | ) |
| Total Tribune Media Company shareholders’ equity (deficit) | 3,453,361 |
| | 10,641,256 |
| | 197,790 |
| | (10,839,046 | ) | | 3,453,361 |
| 3,661,094 |
| | 10,361,823 |
| | 844,538 |
| | (11,206,361 | ) | | 3,661,094 |
|
| Noncontrolling interests | — |
| | — |
| | 5,197 |
| | — |
| | 5,197 |
| — |
| | — |
| | 5,423 |
| | — |
| | 5,423 |
|
| Total shareholders’ equity (deficit) | 3,453,361 |
| | 10,641,256 |
| | 202,987 |
| | (10,839,046 | ) | | 3,458,558 |
| 3,661,094 |
| | 10,361,823 |
| | 849,961 |
| | (11,206,361 | ) | | 3,666,517 |
|
| Total Liabilities and Shareholders’ Equity (Deficit) | $ | 14,609,539 |
| | $ | 14,422,959 |
| | $ | 579,168 |
| | $ | (21,450,173 | ) | | $ | 8,161,493 |
| $ | 15,778,486 |
| | $ | 14,156,697 |
| | $ | 1,600,107 |
| | $ | (23,072,510 | ) | | $ | 8,462,780 |
|
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
2018
(In thousands of dollars)
| | | | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
| Assets | | | | | | | | | | | | | | | | | | |
| Current Assets | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 670,302 |
| | $ | 1,501 |
| | $ | 1,882 |
| | $ | — |
| | $ | 673,685 |
| $ | 1,058,961 |
| | $ | 904 |
| | $ | 3,176 |
| | $ | — |
| | $ | 1,063,041 |
|
| Restricted cash and cash equivalents | 17,566 |
| | — |
| | — |
| | — |
| | 17,566 |
| 16,607 |
| | — |
| | — |
| | — |
| | 16,607 |
|
| Accounts receivable, net | 143 |
| | 418,950 |
| | 1,002 |
| | — |
| | 420,095 |
| 323 |
| | 415,836 |
| | 779 |
| | — |
| | 416,938 |
|
| Broadcast rights | — |
| | 126,668 |
| | 2,506 |
| | — |
| | 129,174 |
| — |
| | 96,308 |
| | 1,961 |
| | — |
| | 98,269 |
|
| Income taxes receivable | — |
| | 18,274 |
| | — |
| | — |
| | 18,274 |
| — |
| | 23,922 |
| | — |
| | — |
| | 23,922 |
|
| Prepaid expenses | 8,647 |
| | 11,245 |
| | 266 |
| | — |
| | 20,158 |
| 6,992 |
| | 12,139 |
| | 313 |
| | — |
| | 19,444 |
|
| Other | 12,487 |
| | 1,552 |
| | — |
| | — |
| | 14,039 |
| 6,201 |
| | 1,305 |
| | 3 |
| | — |
| | 7,509 |
|
| Total current assets | 709,145 |
| | 578,190 |
| | 5,656 |
| | — |
| | 1,292,991 |
| 1,089,084 |
| | 550,414 |
| | 6,232 |
| | — |
| | 1,645,730 |
|
| Properties | | | | | | | | | | | | | | | | | | |
| Property, plant and equipment | 58,622 |
| | 557,394 |
| | 57,666 |
| | — |
| | 673,682 |
| 45,684 |
| | 612,282 |
| | 29,411 |
| | — |
| | 687,377 |
|
| Accumulated depreciation | (29,505 | ) | | (196,644 | ) | | (7,238 | ) | | — |
| | (233,387 | ) | (31,920 | ) | | (232,469 | ) | | (1,689 | ) | | — |
| | (266,078 | ) |
| Net properties | 29,117 |
| | 360,750 |
| | 50,428 |
| | — |
| | 440,295 |
| 13,764 |
| | 379,813 |
| | 27,722 |
| | — |
| | 421,299 |
|
| | | | | | | | | | | | | | | | | | | |
| Investments in subsidiaries | 10,378,948 |
| | 74,610 |
| | — |
| | (10,453,558 | ) | | — |
| 10,899,707 |
| | 59,488 |
| | — |
| | (10,959,195 | ) | | — |
|
| | | | | | | | | | | | | | | | | | | |
| Other Assets | | | | | | | | | | | | | | | | | | |
| Broadcast rights | — |
| | 133,567 |
| | 116 |
| | — |
| | 133,683 |
| — |
| | 95,482 |
| | 394 |
| | — |
| | 95,876 |
|
| Goodwill | — |
| | 3,220,300 |
| | 8,688 |
| | — |
| | 3,228,988 |
| — |
| | 3,220,300 |
| | 8,301 |
| | — |
| | 3,228,601 |
|
| Other intangible assets, net | — |
| | 1,534,761 |
| | 78,904 |
| | — |
| | 1,613,665 |
| — |
| | 1,375,180 |
| | 67,276 |
| | — |
| | 1,442,456 |
|
| Assets held for sale | — |
| | 38,900 |
| | — |
| | — |
| | 38,900 |
| |
| Investments | 850 |
| | 1,258,851 |
| | 22,090 |
| | — |
| | 1,281,791 |
| 850 |
| | 1,233,522 |
| | 30,065 |
| | — |
| | 1,264,437 |
|
| Intercompany receivables | 2,520,570 |
| | 6,527,083 |
| | 411,059 |
| | (9,458,712 | ) | | — |
| 2,987,672 |
| | 6,571,444 |
| | 1,447,586 |
| | (11,006,702 | ) | | — |
|
| Other | 65,743 |
| | 135,373 |
| | 376 |
| | (62,477 | ) | | 139,015 |
| 69,856 |
| | 141,117 |
| | 3,229 |
| | (61,210 | ) | | 152,992 |
|
| Total other assets | 2,587,163 |
| | 12,848,835 |
| | 521,233 |
| | (9,521,189 | ) | | 6,436,042 |
| 3,058,378 |
| | 12,637,045 |
| | 1,556,851 |
| | (11,067,912 | ) | | 6,184,362 |
|
| Total Assets | $ | 13,704,373 |
| | $ | 13,862,385 |
| | $ | 577,317 |
| | $ | (19,974,747 | ) | | $ | 8,169,328 |
| $ | 15,060,933 |
| | $ | 13,626,760 |
| | $ | 1,590,805 |
| | $ | (22,027,107 | ) | | $ | 8,251,391 |
|
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
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 | $ | 23,051 |
| | $ | 20,357 |
| | $ | 1,489 |
| | $ | — |
| | $ | 44,897 |
|
| Income taxes payable | — |
| | 9,973 |
| | — |
| | — |
| | 9,973 |
|
| Contracts payable for broadcast rights | — |
| | 230,501 |
| | 2,186 |
| | — |
| | 232,687 |
|
| Deferred revenue | — |
| | 11,639 |
| | 869 |
| | — |
| | 12,508 |
|
| Interest payable | 30,086 |
| | — |
| | — |
| | — |
| | 30,086 |
|
| Other | 44,702 |
| | 76,694 |
| | 246 |
| | — |
| | 121,642 |
|
| Total current liabilities | 97,839 |
| | 349,164 |
| | 4,790 |
| | — |
| | 451,793 |
|
| | | | | | | | | | |
| Non-Current Liabilities | | | | | | | | | |
| Long-term debt | 2,926,083 |
| | — |
| | — |
| | — |
| | 2,926,083 |
|
| Deferred income taxes | — |
| | 570,933 |
| | 64,201 |
| | (61,210 | ) | | 573,924 |
|
| Contracts payable for broadcast rights | — |
| | 232,850 |
| | 425 |
| | — |
| | 233,275 |
|
| Intercompany payables | 8,121,544 |
| | 2,176,908 |
| | 708,250 |
| | (11,006,702 | ) | | — |
|
| Other | 397,559 |
| | 121,497 |
| | 24,163 |
| | — |
| | 543,219 |
|
| Total non-current liabilities | 11,445,186 |
| | 3,102,188 |
| | 797,039 |
| | (11,067,912 | ) | | 4,276,501 |
|
| Total Liabilities | 11,543,025 |
| | 3,451,352 |
| | 801,829 |
| | (11,067,912 | ) | | 4,728,294 |
|
| | | | | | | | | | |
| Shareholders’ Equity (Deficit) | | | | | | | | | |
| Common stock | 102 |
| | — |
| | — |
| | — |
| | 102 |
|
| Treasury stock | (632,194 | ) | | — |
| | — |
| | — |
| | (632,194 | ) |
| Additional paid-in-capital | 4,031,233 |
| | 8,307,898 |
| | 913,902 |
| | (9,221,800 | ) | | 4,031,233 |
|
| Retained (deficit) earnings | 223,734 |
| | 1,868,740 |
| | (130,052 | ) | | (1,738,688 | ) | | 223,734 |
|
| Accumulated other comprehensive (loss) income | (104,967 | ) | | (1,230 | ) | | (63 | ) | | 1,293 |
| | (104,967 | ) |
| Total Tribune Media Company shareholders’ equity (deficit) | 3,517,908 |
| | 10,175,408 |
| | 783,787 |
| | (10,959,195 | ) | | 3,517,908 |
|
| Noncontrolling interests | — |
| | — |
| | 5,189 |
| | — |
| | 5,189 |
|
| Total shareholders’ equity (deficit) | 3,517,908 |
| | 10,175,408 |
| | 788,976 |
| | (10,959,195 | ) | | 3,523,097 |
|
| Total Liabilities and Shareholders’ Equity (Deficit) | $ | 15,060,933 |
| | $ | 13,626,760 |
| | $ | 1,590,805 |
| | $ | (22,027,107 | ) | | $ | 8,251,391 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | 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 |
|
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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 2018
2019
(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 | $ | (51,751 | ) | | $ | 350,238 |
| | $ | (88,224 | ) | | $ | — |
| | $ | 210,263 |
|
| | | | | | | | | | |
| Investing Activities | | | | | | | | | |
| Capital expenditures | (1,188 | ) | | (29,558 | ) | | 139 |
| | — |
| | (30,607 | ) |
| Spectrum repack reimbursements | — |
| | 5,947 |
| | — |
| | — |
| | 5,947 |
|
| Proceeds from the sales of investments | — |
| | — |
| | 107,547 |
| | — |
| | 107,547 |
|
| Other, net | — |
| | (919 | ) | | — |
| | — |
| | (919 | ) |
| Net cash (used in) provided by investing activities | (1,188 | ) | | (24,530 | ) | | 107,686 |
| | — |
| | 81,968 |
|
| | | | | | | | | | |
| Financing Activities | | | | | | | | | |
| Payments of dividends | (44,175 | ) | | — |
| | — |
| | — |
| | (44,175 | ) |
| Tax withholdings related to net share settlements of share-based awards | (8,630 | ) | | — |
| | — |
| | — |
| | (8,630 | ) |
| Proceeds from stock option exercises | 11,396 |
| | — |
| | — |
| | — |
| | 11,396 |
|
| Contribution from noncontrolling interest | — |
| | — |
| | 245 |
| | — |
| | 245 |
|
| Change in intercompany receivables and payables and intercompany contributions | 344,653 |
| | (324,882 | ) | | (19,771 | ) | | — |
| | — |
|
| Net cash provided by (used in) financing activities | 303,244 |
| | (324,882 | ) | | (19,526 | ) | | — |
| | (41,164 | ) |
| | | | | | | | | | |
| Net Increase (decrease) in Cash, Cash Equivalents and Restricted Cash | 250,305 |
| | 826 |
| | (64 | ) | | — |
| | 251,067 |
|
| Cash, cash equivalents and restricted cash, beginning of period | 1,075,568 |
| | 904 |
| | 3,176 |
| | — |
| | 1,079,648 |
|
| Cash, cash equivalents and restricted cash, end of period | $ | 1,325,873 |
| | $ | 1,730 |
| | $ | 3,112 |
| | $ | — |
| | $ | 1,330,715 |
|
| | | | | | | | | | |
| Cash, Cash Equivalents and Restricted Cash are Comprised of: | | | | | | | | | |
| Cash and cash equivalents | $ | 1,309,266 |
| | $ | 1,730 |
| | $ | 3,112 |
| | $ | — |
| | $ | 1,314,108 |
|
| Restricted cash and cash equivalents | 16,607 |
| | — |
| | — |
| | — |
| | 16,607 |
|
| Total cash, cash equivalents and restricted cash | $ | 1,325,873 |
| | $ | 1,730 |
| | $ | 3,112 |
| | $ | — |
| | $ | 1,330,715 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
| Net cash (used in) provided by operating activities | $ | (145,783 | ) | | $ | 469,683 |
| | $ | (17,051 | ) | | $ | — |
| | $ | 306,849 |
|
| | | | | | | | | | |
| Investing Activities | | | | | | | | | |
| Capital expenditures | (8,822 | ) | | (36,175 | ) | | (2,455 | ) | | — |
| | (47,452 | ) |
| Spectrum repack reimbursements | — |
| | 6,967 |
| | — |
| | — |
| | 6,967 |
|
| Proceeds from sales of real estate and other assets | — |
| | 66 |
| | — |
| | — |
| | 66 |
|
| Proceeds from the sales of investments | — |
| | 15,232 |
| | — |
| | — |
| | 15,232 |
|
| Other, net | — |
| | (84 | ) | | 1,613 |
| | — |
| | 1,529 |
|
| Net cash used in investing activities | (8,822 | ) | | (13,994 | ) | | (842 | ) | | — |
| | (23,658 | ) |
| | | | | | | | | | |
| Financing Activities | | | | | | | | | |
| Payments of dividends | (65,776 | ) | | — |
| | — |
| | — |
| | (65,776 | ) |
| Tax withholdings related to net share settlements of share-based awards | (5,765 | ) | | — |
| | — |
| | — |
| | (5,765 | ) |
| Proceeds from stock option exercises | 982 |
| | — |
| | — |
| | — |
| | 982 |
|
| Contributions from noncontrolling interests, net | — |
| | — |
| | 475 |
| | — |
| | 475 |
|
| Change in intercompany receivables and payables and intercompany contributions | 435,104 |
| | (453,796 | ) | | 18,692 |
| | — |
| | — |
|
| Net cash provided by (used in) financing activities | 364,545 |
| | (453,796 | ) | | 19,167 |
| | — |
| | (70,084 | ) |
| | | | | | | | | | |
| Net Increase in Cash, Cash Equivalents and Restricted Cash | 209,940 |
| | 1,893 |
| | 1,274 |
| | — |
| | 213,107 |
|
| 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 | $ | 897,808 |
| | $ | 3,394 |
| | $ | 3,156 |
| | $ | — |
| | $ | 904,358 |
|
| | | | | | | | | | |
| Cash, Cash Equivalents and Restricted Cash are Comprised of: | | | | | | | | | |
| Cash and cash equivalents | $ | 881,201 |
| | $ | 3,394 |
| | $ | 3,156 |
| | $ | — |
| | $ | 887,751 |
|
| Restricted cash | 16,607 |
| | — |
| | — |
| | — |
| | 16,607 |
|
| Total cash, cash equivalents and restricted cash | $ | 897,808 |
| | $ | 3,394 |
| | $ | 3,156 |
| | $ | — |
| | $ | 904,358 |
|
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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172018
(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 | ) | | $ | 327,636 |
| | $ | (23,653 | ) | | $ | — |
| | $ | 220,941 |
|
| | | | | | | | | | |
| Investing Activities | | | | | | | | | |
| Capital expenditures | (6,087 | ) | | (18,785 | ) | | (75 | ) | | — |
| | (24,947 | ) |
| Spectrum repack reimbursement | — |
| | 1,698 |
| | — |
| | — |
| | 1,698 |
|
| Proceeds from sales of investments | — |
| | — |
| | 3,890 |
| | — |
| | 3,890 |
|
| Other | — |
| | 2 |
| | 1,613 |
| | — |
| | 1,615 |
|
| Net cash (used in) provided by investing activities | (6,087 | ) | | (17,085 | ) | | 5,428 |
| | — |
| | (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 |
|
| Distribution to noncontrolling interests | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Change in intercompany receivables and payables and intercompany contributions | 291,389 |
| | (310,622 | ) | | 19,233 |
| | — |
| | — |
|
| Net cash provided by (used in) financing activities | 242,400 |
| | (310,622 | ) | | 19,231 |
| | — |
| | (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 and cash equivalents | 16,607 |
| | — |
| | — |
| | — |
| | 16,607 |
|
| Total cash, cash equivalents and restricted cash | $ | 841,139 |
| | $ | 1,430 |
| | $ | 2,888 |
| | $ | — |
| | $ | 845,457 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Parent (Tribune Media Company) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Tribune Media Company Consolidated |
| Net cash (used in) provided by operating activities | $ | (184,784 | ) | | $ | 346,753 |
| | $ | 9,525 |
| | $ | — |
| | $ | 171,494 |
|
| | | | | | | | | | |
| Investing Activities | | | | | | | | | |
| Capital expenditures | (3,812 | ) | | (33,645 | ) | | (3,966 | ) | | — |
| | (41,423 | ) |
| Net proceeds from the sale of business | 574,817 |
| | (8,168 | ) | | (12,162 | ) | | — |
| | 554,487 |
|
| Proceeds from FCC spectrum auction | — |
| | 172,102 |
| | — |
| | — |
| | 172,102 |
|
| Proceeds from sales of real estate and other assets | — |
| | 61,240 |
| | — |
| | — |
| | 61,240 |
|
| Proceeds from sales of investments | 5,769 |
| | 142,552 |
| | — |
| | — |
| | 148,321 |
|
| Distributions from equity investments | — |
| | 4,608 |
| | — |
| | — |
| | 4,608 |
|
| Other, net | — |
| | (25 | ) | | 805 |
| | — |
| | 780 |
|
| Net cash provided by (used in) investing activities | 576,774 |
| | 338,664 |
| | (15,323 | ) | | — |
| | 900,115 |
|
| | | | | | | | | | |
| Financing Activities | | | | | | | | | |
| Long-term borrowings | 202,694 |
| | — |
| | — |
| | — |
| | 202,694 |
|
| Repayments of long-term debt | (688,708 | ) | | — |
| | (14,819 | ) | | — |
| | (703,527 | ) |
| Long-term debt issuance costs | (1,689 | ) | | — |
| | — |
| | — |
| | (1,689 | ) |
| Payments of dividends | (564,499 | ) | | — |
| | — |
| | — |
| | (564,499 | ) |
| Tax withholdings related to net share settlements of share-based awards | (8,030 | ) | | — |
| | — |
| | — |
| | (8,030 | ) |
| Proceeds from stock option exercises | 11,231 |
| | — |
| | — |
| | — |
| | 11,231 |
|
| Contributions from noncontrolling interests | — |
| | — |
| | 1,318 |
| | — |
| | 1,318 |
|
| Change in intercompany receivables and payables and intercompany contributions (1) | 680,631 |
| | (690,989 | ) | | 10,358 |
| | — |
| | — |
|
| Net cash used in financing activities | (368,370 | ) | | (690,989 | ) | | (3,143 | ) | | — |
| | (1,062,502 | ) |
| | | | | | | | | | |
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 23,620 |
| | (5,572 | ) | | (8,941 | ) | | — |
| | 9,107 |
|
| 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 | $ | 615,824 |
| | $ | 1,806 |
| | $ | 2,675 |
| | $ | — |
| | $ | 620,305 |
|
| | | | | | | | | | |
| Cash, Cash Equivalents and Restricted Cash are Comprised of: | | | | | | | | | |
| Cash and cash equivalents | $ | 598,258 |
| | $ | 1,806 |
| | $ | 2,675 |
| | $ | — |
| | $ | 602,739 |
|
| Restricted cash | 17,566 |
| | — |
| | — |
| | — |
| | 17,566 |
|
| Total cash, cash equivalents and restricted cash | $ | 615,824 |
| | $ | 1,806 |
| | $ | 2,675 |
| | $ | — |
| | $ | 620,305 |
|
| |
(1) | Excludes the impact of a $54 million non-cash settlement of intercompany balances upon dissolution of certain Guarantor and Non-Guarantor subsidiaries included in the Gracenote Sale. |
TRIBUNE MEDIA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 17: SUBSEQUENT EVENTS
As further discloseddescribed in Note 3,6, on August 2, 2019, the Company sold its Melville, NY and Hartford, CT properties on October 9, 2018 and October 23, 2018, respectively, for net proceedscaused to be delivered to the holders of $59 million. The Company expects to recognize a net pretax gain of $25 million in the fourth quarter of 2018Notes the Initial Notice relating to these sales.the full redemption of all issued and outstanding Notes on the Redemption Date. On August 8, 2019, the Company caused to be delivered to the holders of the Notes the Supplemental Notice relating to the full redemption of all issued and outstanding Notes on the Redemption Date. The Company’s obligation to pay the Redemption Price on the Redemption Date is conditioned upon the consummation of the Nexstar Merger.
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.2018.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the three and ninesix months ended SeptemberJune 30, 20182019 (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 theproposed Nexstar 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 continuedrisks associated with the ability to successfully execute our business strategy, including our continued explorationconsummate the merger (the “Nexstar Merger”) between us and Nexstar Media Group, Inc. (“Nexstar”) and the timing of strategic and financial alternativesthe closing of the Nexstar Merger;
the occurrence of any event, change or other circumstances that could give rise to enhance shareholder value following ourthe termination of the Agreement and Plan of Merger dated November 30, 2018 (the “Merger“Nexstar Merger Agreement”) with Nexstar and Titan Merger Sub, Inc., a wholly owned subsidiary of Nexstar (“Nexstar Merger Sub”), dated May 8, 2017,providing for the acquisition by Nexstar 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 Sinclair Broadcast Group, Inc. (“Sinclair”the Class A Common Stock, the “Common Stock”) (the “Merger”) (see “—Significant Events—Sinclair, including a termination under circumstances that could require us to pay a termination fee to Nexstar;
the risk that the regulatory approvals for the proposed Nexstar Merger Agreement” for further information);with Nexstar may be delayed, not be obtained or may be obtained subject to conditions that are not anticipated;
risks related to the disruption of management time from ongoing business operations due to the pending Nexstar Merger and the restrictions imposed on the Company’s operations under the terms of the Nexstar Merger Agreement;
uncertainty associated with the litigation relating to the terminationeffect of the announcement of the Nexstar Merger Agreement, including the amounton our ability to retain and timing of damages, if any, we may be awarded or incurhire key personnel, on our ability to maintain relationships with advertisers and the costs of pursuingcustomers and defending such litigation;on our operating results and businesses generally;
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, volatility and cost of quality network, syndicated and sports programming affecting our television ratings;
conduct and changing circumstances related to third-party relationships on which we rely for our business;
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 valuation process and potential sale of our interest in Chicago Entertainment Ventures, LLC;
the incurrence of additional tax-related liabilities related to historical income tax returns;
our ability to realize the full value, or successfully complete the planned divestitures, of our real estate assets;
the potential impact of the modifications to 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;audits, including proceedings that may relate to our entry into the Nexstar Merger Agreement;
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;
consolidation in the 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 nine months ended September 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 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 Codification (“ASC”) Topic 360, “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 an equity investment in Television Food Network, G.P. (“TV Food Network”) andthat provides substantial annual cash distributions. Prior to the sale of our membership interest on January 22, 2019, we held an investment in Chicago Entertainment Ventures, LLC (formerly Chicago Baseball Holdings, LLC) (“CEV LLC”). Prior to the sale of our ownership interest on September 13, 2018, we held an equity investment in CareerBuilder, LLC (through our investment in Camaro Parent, LLC) (“CareerBuilder”).
Television and Entertainment is a reportable segment, which provides audiences across the country with news, entertainment and sports programming on Tribune Broadcasting local television stations and distinctive, high quality television series and movies on WGN America 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; Covers Media Group, a sports betting information website; 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.functions.
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, 20172018 (the “2017“2018 Annual Report”) and our other filings with the SEC.
SIGNIFICANT EVENTS
SIGNIFICANT EVENTS
Termination of SinclairNexstar Merger Agreement
On May 8, 2017,November 30, 2018, we entered into the Nexstar Merger Agreement, with Sinclair, providing for the acquisition by SinclairNexstar 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 a wholly owned subsidiary of Sinclair,Nexstar Merger Sub with and into theTribune Media Company, with the Company surviving the Nexstar Merger as a wholly ownedwholly-owned subsidiary of Sinclair.Nexstar.
In the Nexstar Merger, each share of Common Stock issued and outstanding immediately prior to the effective time of the Nexstar Merger (the “Effective Time”) (other than shares held by (i) any Tribune subsidiary, Nexstar or
any Nexstar subsidiary or (ii) Tribune shareholders who have not voted in favor of adopting the Nexstar Merger Agreement and who have demanded and perfected (and not validly withdrawn or waived) their appraisal rights in compliance with Section 262 of the DGCL) will be converted into the right to receive a cash payment of $46.50 (the “base merger consideration”), plus, if the Nexstar Merger closes after August 31, 2019 (the “Adjustment Date”), an additional amount in cash equal to (a) (i) $0.009863 multiplied by (ii) the number of calendar days elapsed after Adjustment Date to and including the date on which the Nexstar Merger closes, minus (b) the amount of any dividends declared by us after the Adjustment Date with a record date prior to the date on which the Nexstar Merger closes, in each case, without interest and less any required withholding taxes (the “additional per share consideration”, and together with the base merger consideration, the “Nexstar Merger Consideration”). The additional per share consideration will not be less than zero.
Each option to purchase shares of Common Stock outstanding as of immediately prior to the Effective Time, whether or not vested or exercisable, will be cancelled and converted into the right to receive, for each share of Common Stock subject to such stock option, a cash payment equal to the excess, if any, of the value of the Nexstar Merger Consideration over the exercise price per share of such stock option, without any interest and subject to all applicable withholding. Any stock option that has an exercise price per share that is greater than or equal to the Nexstar Merger Consideration will be cancelled for no consideration or payment. Each award of restricted stock units outstanding as of immediately prior to the Effective Time, whether or not vested, will immediately vest and be cancelled and converted into the right to receive a cash payment equal to the product of the total number of shares of Common Stock underlying such restricted stock unit multiplied by the Nexstar Merger Consideration, without any interest and subject to all applicable withholding (the “RSU Consideration”), except that each award of restricted stock units granted to an employee on or after December 1, 2018 (other than restricted stock units required to be granted pursuant to employment agreements or offer letters) (“Annual Tribune RSUs”) that has vested as of the Effective Time of the Nexstar Merger will be cancelled and converted into the right to receive the RSU Consideration and any Annual Tribune RSUs that remain unvested as of the Effective Time of the Nexstar Merger will be cancelled for no consideration or payment. Each award of performance stock units outstanding as of immediately prior to the Effective Time, whether or not vested, will immediately vest (with performance conditions for each open performance period as of the closing date deemed achieved at the applicable “target” level performance for such performance stock units) and be cancelled and converted into the right to receive a cash payment equal to the product of the total number of shares of Common Stock underlying such performance stock units multiplied by the Nexstar Merger Consideration, without any interest and subject to all applicable withholding. Each outstanding award of deferred stock units outstanding as of immediately prior to the Effective Time will be cancelled and converted into the right to receive a cash payment equal to the product of the total number of shares of Common Stock underlying such deferred stock units multiplied by the Nexstar Merger Consideration, without interest and subject to all applicable withholding. Each unexercised warrant to purchase shares of Common Stock outstanding as of immediately prior to the Effective Time will be assumed by Nexstar and converted into a warrant exercisable for the Nexstar Merger Consideration which the shares of Common Stock underlying such warrant would have been entitled to receive upon consummation of the Nexstar Merger and otherwise upon the same terms and conditions of such warrant immediately prior to the Effective Time.
The consummation of the Nexstar Merger wasis subject to the satisfaction or waiver of certain importantcustomary conditions, including, among others: (i) the adoption of the Nexstar Merger by holders of a majority of our outstanding Common Stock, (ii) the receipt of approval from the Federal Communications Commission (the “FCC”) (the “FCC Approval”) and the expiration or termination of the waiting period applicable to the Nexstar Merger under the Hart-Scott-Rodino Antitrust ImprovementsHSR Act and (iii) the absence of 1976, as amended (the “HSR Act”). Pursuantany order or law of any governmental authority that prohibits or makes illegal the consummation of the Nexstar Merger. Our and Nexstar’s respective obligations to consummate the Nexstar Merger are also subject to certain additional customary conditions, including (i) the accuracy of the representations and warranties of the other party (generally subject to a “material adverse effect” standard), (ii) performance by the other party of its covenants in the Nexstar Merger Agreement we had the right to terminate the Merger Agreement if Sinclair failed to perform in all material respects and (iii) with respect to Nexstar’s obligation to consummate the Nexstar Merger, since the date of the Nexstar Merger Agreement, no material adverse effect with respect to Tribune having occurred.
The applications for FCC approval (the “Merger Applications”) were filed on January 7, 2019. On February 14, 2019, the FCC issued a public notice of filing of the Merger Applications which set deadlines for petitions to deny the applications, oppositions to petitions to deny and replies to oppositions to petitions to deny.
On February 7, 2019, we received a request for additional information and documentary material, often referred to as a “second request,” from the DOJ in connection with the Nexstar Merger Agreement. The second request was issued under the HSR Act. Nexstar received a substantively identical request for additional information and documentary material from the DOJ in connection with the transactions contemplated by the Nexstar Merger Agreement. Consummation of the transactions contemplated by the Nexstar Merger Agreement is conditioned on expiration of the waiting period applicable under the HSR Act, among other conditions. Issuance of the second request extends the waiting period under the HSR Act until 30 days after Nexstar and the Company have substantially complied with the second request, unless the waiting period is terminated earlier by the DOJ or the parties voluntarily extend the time for closing.
On July 31, 2019, the DOJ and the States and Commonwealths of Illinois, Pennsylvania and Virginia filed a complaint and proposed settlement in the U.S. District Court for the District of Columbia by requiring Nexstar and us to divest broadcast television stations in 13 Designated Market Areas as a condition of closing the Nexstar Merger. This proposed settlement allows the Nexstar Merger to proceed once the court has signed the Hold Separate Stipulation and Order, subject to the closing conditions contained in the Nexstar Merger Agreement, including approval by the FCC.
On March 12, 2019, holders of a majority of the outstanding shares of our Class A Common Stock and Class B Common Stock, voting as a single class, voted on and approved the Nexstar Merger Agreement at a duly called special meeting of Tribune Media Company shareholders.
On March 20, 2019, in connection with its covenants,divestiture obligations under the Nexstar Merger Agreement, Nexstar entered into definitive asset purchase agreements with TEGNA Inc. (“TEGNA”) and The E.W. Scripps Company (“Scripps”) to sell a total of 19 stations (including 10 Tribune Media Company-owned stations, as well as 3 stations to which we provide certain services (WTKR-TV, Norfolk, VA, WGNT-TV, Portsmouth, VA and WNEP-TV, Scranton, PA, collectively, the “Dreamcatcher Stations”)) in 15 markets to TEGNA and Scripps following the completion of the Nexstar Merger (the “Nexstar Transactions”). Additionally, on April 8, 2019, Nexstar entered into a definitive agreement with Circle City Broadcasting I, Inc. (“CCB”) to sell 2 Nexstar stations to CCB following the completion of the Nexstar Merger. The consummation of each transaction is subject to the satisfaction or waiver of certain customary conditions, including, among others, (i) the closing of the transactions contemplated by the Nexstar Merger Agreement, (ii) the receipt of approval from the FCC and the DOJ and the expiration or termination of any waiting period applicable to such failure wastransaction under the HSR Act and (iii) the absence of certain legal impediments to the consummation of such transaction. On April 15, 2019, the Federal Trade Commission issued an early termination notice with respect to the waiting period applicable under the HSR Act in connection with the transaction with Scripps.
On April 2, 2019, we exercised an option with Dreamcatcher to repurchase the Dreamcatcher Stations, to be consummated substantially concurrent with the closing of the Nexstar Merger (the “Dreamcatcher Repurchase”). Following the consummation of the Dreamcatcher Repurchase, the Dreamcatcher Stations are expected to be sold to TEGNA and Scripps in connection with the Nexstar Merger. In the event we are unable to consummate the Nexstar Merger, we may rescind our option to repurchase the Dreamcatcher stations.
Applications seeking FCC consent to station divestitures necessary to obtain the FCC Approval (the “Divestiture Applications”) were filed on April 3, 2019, April 8, 2019, April 10, 2019 and April 16, 2019. On April 26, 2019, the FCC issued a public notice of the filing of the Divestiture Applications which set deadlines for petitions to deny the applications, oppositions to petitions to deny and replies to oppositions to petitions to deny.
The Nexstar Merger Agreement may be terminated at any time prior to the Effective Time: (i) by mutual written consent of Nexstar and us; (ii) by either Nexstar or us (a) if the Effective Time has not curedoccurred on or before November 30, 2019, provided that (x) if, on the initial end date, any of the conditions to the consummation of the
Nexstar Merger related to the HSR Approval or the FCC Approval have not been satisfied, but all other conditions the consummation of the Nexstar Merger have been satisfied or waived or capable of being satisfied, then the end date will be automatically extended to February 29, 2020 and (y) in the event the marketing period for the debt financing for the transaction has commenced but has not completed by the end date, the end date may be extended (or further extended) by Nexstar on one occasion in its sole discretion by providing written notice thereof to us at least one business day prior to the end date until the date that is four business days after the last scheduled expiration date of August 8, 2018. Additionally, either party could terminate the Merger Agreement if the Merger was not consummated on or before August 8, 2018 (andmarketing period (unless the failure forof the MergerEffective Time to have been consummated by suchoccur before the end date was not primarily due to asuch party’s 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 basisany of Sinclair’s willful and material breaches of its covenants and the expiration of the end date thereunder. Additionally, on August 9, 2018, we filed a complaint in the Delaware Court of Chancery against Sinclair (the “Complaint”), alleging that Sinclair willfully and materially breached its obligations under the Nexstar Merger Agreement to use its reasonable best efforts to promptly obtain regulatory approvalAgreement), (b) if any governmental authority of competent jurisdiction has issued an order permanently prohibiting the consummation of the Nexstar Merger so asand such order has become final and non-appealable (unless such order was primarily attributable to enable the Merger to close as soon as reasonably practicable. The lawsuit seeks damages for all losses incurred as a result of Sinclair’ssuch party’s breach of contract under the Nexstar Merger Agreement); and (iii) either Nexstar or us in certain circumstances, as described in the Nexstar Merger Agreement. On August 29, 2018, Sinclair filed an answer to our Complaint and a counterclaim (the “Counterclaim”). The Counterclaim alleges that we materially and willfully breached the Merger Agreement by failing to use reasonable best efforts to obtain regulatory approval of the Merger. On September 18, 2018, we filed an answer to the Counterclaim. We believe the Counterclaim is without merit and intend to defend it vigorously. See
As further described in Note 1 to our unaudited condensedaudited consolidated financial statements for the three and six monthsyear ended June 30, 2018 included in our Form 10-Q filed on August 9, 2018 for additional information regarding the Merger and the Merger Agreement.
On May 8,December 31, 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 sellmust pay Nexstar a termination fee of $135 million if we or Nexstar terminate the assets of seven network affiliates for $910 millionNexstar Merger Agreement in cash, subject to post-closing adjustments. The network affiliates subjectcertain circumstances, except that such termination fee may be reduced by any previously paid amounts relating to the Fox Purchase Agreement were: 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 closingdocumented, out-of-pocket expenses of the sale pursuantNexstar in an amount not 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 the Merger Agreement on August 9, 2018, we provided notification to Fox that we have terminated the Fox Purchase Agreement, effective immediately. Under the terms of each of the Merger Agreement and the Fox Purchase Agreement, no termination fees were payable by any party.exceed $15 million.
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 that have collectively closingclosed 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 310 to our audited consolidated financial statements for the fiscal year ended December 31, 20172018 for additional information regarding the Debtors’ Chapter 11 cases and for a description of the terms and conditions of the Plan.proceedings.
At SeptemberJune 30, 2018,2019, 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 1311 to our audited consolidated financial statements for the fiscal year ended December 31, 2017,2018, 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 86 to our audited consolidated financial statements for the year ended December 31, 2017)2018) 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 SeptemberJune 30, 20182019 would be approximately $76$92 million. We continue to disagree with the IRS’s position that the transaction generated a taxable gain in 2009, the proposed penalty and the IRS’s calculation of the gain. During the third quarter of 2016, we filed a petition in U.S. Tax Court to contest the IRS’s determination. We continue to pursue resolution of this disputed tax matter with the IRS. If the gain on the Chicago Cubs Transactions is deemed to be taxable in 2009, we estimate that the federal and state income taxes would be approximately $225 million before interest and penalties. Any tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2009. As of September 30, 2018, we have paid or accrued approximately $85 million of federal and state tax payments through our regular tax reporting process. We do not maintain any tax reserves relating to the Chicago Cubs Transactions. In accordance with ASC Topic 740, “Income Taxes,” our unaudited Condensed Consolidated Balance Sheets at September 30, 2018 and December 31, 2017 include a deferred tax liability of $64 million and $96 million, respectively, related to the future recognition of taxable income related to the Chicago Cubs Transactions.
As further described in Note 5 to our unaudited condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 2018,2019, on August 21, 2018, Northside Entertainment Holdings LLC (f/k/a Ricketts Acquisition LLC) (“NEH”) provided a written notice (the “Call Notice”) to us that NEH was exercising its right pursuant to the Amended and Restated Limited Liability Company Agreement of CEV LLC to purchase our 5% membership interest in CEV LLC. We sold our 5% ownership interest in CEV LLC on January 22, 2019 (the “2019 Cubs Sale”) for pretax proceeds of $107.5 million and recognized a gain of $86 million before taxes ($66 million after taxes) in the first quarter of 2019. As a result of the sale, the previously recorded deferred tax liability of $69 million related to the future recognition of taxable income related to the Chicago Cubs Transactions became currently payable. Subsequent to the sale, we no longer own any portion of CEV LLC and maintain no deferred taxes or tax reserves related to the Chicago Cubs Transactions. As of June 30, 2019, we have paid or accrued approximately $167 million of federal and state taxes on the deferred gain and the 2019 Cubs Sale through our regular tax reporting process. Concurrently with the sale, we ceased being a guarantor of all debt facilities held by New Cubs LLC. The Call Notice and any potential future transaction with NEH havesale of our ownership interest in CEV LLC has no impact on our dispute with the IRS.
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 nine months ended September 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. A majority of our capital expenditures for the FCC spectrum repacking are expected to occur in 2018 and 2019. Through September 30, 2018, we incurred $16 million in capital expenditures for the spectrum repack. We expect that the reimbursements from the FCC’s special fund will cover the majority of our costs and expenses related to the repacking. We received FCC reimbursements of $5 million and $7 million during the three and nine months ended September 30, 2018, respectively. The reimbursements are included as a reduction to selling, general and administrative (“SG&A”) expense and are presented as an investing inflow in our unaudited Condensed Consolidated Statements of Cash Flows.
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.
Non-Operating Items
Non-operating items for the three and nine months ended September 30, 2018 and September 30, 2017 are summarizedwere as follows (in thousands): |
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 | | September 30, 2018 | | September 30, 2017 |
| Loss on extinguishments and modification of debt | $ | — |
| | $ | (1,435 | ) | | $ | — |
| | $ | (20,487 | ) |
| (Loss) gain on investment transactions, net | (5,001 | ) | | 5,667 |
| | (1,113 | ) | | 10,617 |
|
| Write-downs of investment | — |
| | — |
| | — |
| | (180,800 | ) |
| Other non-operating (loss) gain, net | (38 | ) | | — |
| | 53 |
| | 45 |
|
| Total non-operating (loss) gain, net | $ | (5,039 | ) | | $ | 4,232 |
| | $ | (1,060 | ) | | $ | (190,625 | ) |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
| Gain on investment transactions | — |
| | — |
| | 86,272 |
| | 3,888 |
|
| Other non-operating gain (loss), net | 80 |
| | (26 | ) | | (1,543 | ) | | 91 |
|
| Total non-operating gain, net | $ | 80 |
| | $ | (26 | ) | | $ | 84,729 |
| | $ | 3,979 |
|
Non-operating items for the threesix months ended SeptemberJune 30, 20182019 included a pretax lossgain of $5$86 million from the sale of our remaining ownership interest in CareerBuilder.CEV LLC on January 22, 2019.
Non-operating items for the ninesix months ended SeptemberJune 30, 2018 included a pretax loss $5 million from the sale of CareerBuilder and a pretax gain of $4 million from the sale of one of our other equity investments.
Non-operating items for the three months ended September 30, 2017 included a $1 million pretax loss on the extinguishment of debt associated with the prepayment of a portion of the Term Loan Facility and the prepayment of the Dreamcatcher Credit Facility during the third quarter of 2017. (Loss) gain on investment transactions, net included a pretax gain of $6 million from the partial sale of CareerBuilder.
Non-operating items for the nine months ended September 30, 2017 included a $20 million pretax loss on the extinguishments and modification of debt. The loss included a write-off of unamortized debt issuance costs of $7 million and an unamortized discount of $2 million as a portion of the Term Loan Facility was considered extinguished for accounting purposes as well as an expense of $12 million of third party fees as a portion of the Term Loan Facility was considered a modification transaction under ASC 470, “Debt.” (Loss) gain on investment transactions, net for the nine months ended September 30, 2017 included a pretax gain of $5 million from the sale of our Tribune Publishing Company (“Tribune Publishing”) (formerly tronc, Inc.) shares and a pretax gain of $6 million from the partial sale of CareerBuilder. Write-downs of investment for the nine months ended September 30, 2017 included non-cash pretax impairment charges of $181 million to write down our investment in CareerBuilder, as further described in Note 5 of our unaudited condensed consolidated financial statements for the three and nine months ended September 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 nine months ended September 30, 2018 and September 30, 2017, unless otherwise noted.
CONSOLIDATED
Consolidated operating results for the three and ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 20172018 are shown in the table below (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| | September 30, 2018 | | September 30, 2017 | | Change | | September 30, 2018 | | September 30, 2017 | | Change |
| Operating revenues | $ | 498,008 |
| | $ | 450,533 |
| | +11 | % | | $ | 1,431,001 |
| | $ | 1,359,960 |
| | +5 | % |
| | | | | | | | | | | | |
| Operating profit (loss) | $ | 37,124 |
| | $ | (29,452 | ) | | * |
| | $ | 322,475 |
| | $ | (37,766 | ) | | * |
|
| | | | | | | | | | | | |
| Income on equity investments, net | $ | 32,381 |
| | $ | 21,058 |
| | +54 | % | | $ | 124,086 |
| | $ | 98,856 |
| | +26 | % |
| | | | | |
|
| | | | | | |
| Income (loss) from continuing operations | $ | 54,076 |
| | $ | (18,687 | ) | | * |
| | $ | 279,697 |
| | $ | (149,722 | ) | | * |
|
| | | | | |
|
| | | | | | |
| Income from discontinued operations, net of taxes | $ | — |
| | $ | — |
| | — | % | | $ | — |
| | $ | 15,039 |
| | * |
|
| | | | | | | | | | | | |
| Net income (loss) attributable to Tribune Media Company | $ | 54,099 |
| | $ | (18,687 | ) | | * |
| | $ | 279,730 |
| | $ | (134,683 | ) | | * |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | |
| | June 30, 2019 | | June 30, 2018 | | Change | | June 30, 2019 | | June 30, 2018 | | Change |
| Operating revenues | $ | 484,036 |
| | $ | 489,358 |
| | -1 | % | | $ | 939,024 |
| | $ | 932,993 |
| | +1 | % |
| | | | | | | | | | | | |
| Operating profit | $ | 73,281 |
| | $ | 98,066 |
| | -25 | % | | $ | 127,984 |
| | $ | 285,351 |
| | -55 | % |
| | | | | | | | | | | | |
| Income on equity investments, net | $ | 46,527 |
| | $ | 52,568 |
| | -11 | % | | $ | 92,212 |
| | $ | 91,705 |
| | +1 | % |
| | | | | |
|
| | | | | | |
| Net income attributable to Tribune Media Company | $ | 63,657 |
| | $ | 84,442 |
| | -25 | % | | $ | 176,865 |
| | $ | 225,631 |
| | -22 | % |
| |
* | 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 nine months ended September 30, 2018 and September 30, 2017 were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| | September 30, 2018 | | September 30, 2017 | | Change | | September 30, 2018 | | September 30, 2017 | | Change |
| Operating revenues | | | | | | | | | | | |
| Television and Entertainment | $ | 494,619 |
| | $ | 447,307 |
| | +11 | % | | $ | 1,421,738 |
| | $ | 1,349,401 |
| | +5 | % |
| Corporate and Other | 3,389 |
| | 3,226 |
| | +5 | % | | 9,263 |
| | 10,559 |
| | -12 | % |
| Total operating revenues | $ | 498,008 |
| | $ | 450,533 |
| | +11 | % | | $ | 1,431,001 |
| | $ | 1,359,960 |
| | +5 | % |
| Operating profit (loss) | | | | | | | | | | | |
| Television and Entertainment | $ | 67,295 |
| | $ | (1,357 | ) | | * |
| | $ | 398,914 |
| | $ | 68,875 |
| | * |
|
| Corporate and Other | (30,171 | ) | | (28,095 | ) | | +7 | % | | (76,439 | ) | | (106,641 | ) | | -28 | % |
| Total operating profit (loss) | $ | 37,124 |
| | $ | (29,452 | ) | | * |
| | $ | 322,475 |
| | $ | (37,766 | ) | | * |
|
| |
* | Represents positive or negative change equal to, or in excess of 100% |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | |
| | June 30, 2019 | | June 30, 2018 | | Change | | June 30, 2019 | | June 30, 2018 | | Change |
| Operating revenues | | | | | | | | | | | |
| Television and Entertainment | $ | 482,557 |
| | $ | 486,417 |
| | -1 | % | | $ | 935,984 |
| | $ | 927,119 |
| | +1 | % |
| Corporate and Other | 1,479 |
| | 2,941 |
| | -50 | % | | 3,040 |
| | 5,874 |
| | -48 | % |
| Total operating revenues | $ | 484,036 |
| | $ | 489,358 |
| | -1 | % | | $ | 939,024 |
| | $ | 932,993 |
| | +1 | % |
| Operating profit (loss) | | | | | | | | | | | |
| Television and Entertainment | $ | 99,603 |
| | $ | 119,767 |
| | -17 | % | | $ | 179,528 |
| | $ | 331,619 |
| | -46 | % |
| Corporate and Other | (26,322 | ) | | (21,701 | ) | | +21 | % | | (51,544 | ) | | (46,268 | ) | | +11 | % |
| Total operating profit (loss) | $ | 73,281 |
| | $ | 98,066 |
| | -25 | % | | $ | 127,984 |
| | $ | 285,351 |
| | -55 | % |
Three Months Ended SeptemberJune 30, 20182019 compared to the Three Months Ended SeptemberJune 30, 20172018
Consolidated operating revenues increased 11%decreased 1%, or $47$5 million, in the three months ended SeptemberJune 30, 20182019 primarily due to an increasea decrease in Television and Entertainment revenues, driven by highera decrease in advertising revenue retransmission revenues and carriage fees,other revenue, partially offset by the absence of barter revenue due to the new revenue guidance adoptedan increase in 2018.retransmission revenues. Consolidated operating profit increased $67decreased $25 million to operating profit of $37$73 million in the three months ended SeptemberJune 30, 2018,2019, from an operating loss of $29$98 million in the three months ended SeptemberJune 30, 2017.2018. The increasedecrease was primarily due to a $69$20 million increasedecrease in Television and Entertainment operating profit driven by an increase in revenuesprogramming expenses and a decrease in programming expenses,operating revenue, partially offset by lower amortization expense. In addition, Corporate and Other operating profit declined by $5 million primarily due to higher compensation expense.transaction related costs.
NineSix Months Ended SeptemberJune 30, 20182019 compared to the NineSix Months Ended SeptemberJune 30, 20172018
Consolidated operating revenues increased 5%1%, or $71$6 million, in the ninesix months ended SeptemberJune 30, 20182019 primarily due to an increase at Television and Entertainment driven by higher advertising revenue, retransmission revenues, carriage feespartially offset by decreases in advertising revenue and other revenue, partially offset by the absence of barteralong with a decline in revenue in 2018.at Corporate and Other. Consolidated operating profit increased $360decreased $157 million to operating profit of $322$128 million in the ninesix months ended SeptemberJune 30, 2018,2019, from an operating loss of $38$285 million in the ninesix months ended SeptemberJune 30, 2017.2018. The increasedecrease was primarily driven by highera decline at Television and Entertainment as operating profit largely due toin 2018 included a net pretax gain of $133 million gain on the sales of spectrum, anspectrum. Additionally, programming expense increased in the six months ended June 30, 2019, partially offset the increase in revenues and lower programming expensesrevenue noted above as well as a lower Corporate and Other operating loss primarily due to a decrease in compensation and outside services expenses.amortization expense.
Operating Expenses—Consolidated operating expenses for the three and ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 20172018 were as follows (in thousands):
| | | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | | | Six Months Ended | | |
| | September 30, 2018 | | September 30, 2017 | | Change | | September 30, 2018 | | September 30, 2017 | | Change | June 30, 2019 | | June 30, 2018 | | Change | | June 30, 2019 | | June 30, 2018 | | Change |
| Programming | $ | 161,114 |
| | $ | 199,118 |
| | -19 | % | | $ | 373,490 |
| | $ | 497,448 |
| | -25 | % | $ | 134,083 |
| | $ | 111,635 |
| | +20 | % | | $ | 253,970 |
| | $ | 212,376 |
| | +20 | % |
| Direct operating expenses | 101,847 |
| | 98,419 |
| | +3 | % | | 302,052 |
| | 294,166 |
| | +3 | % | 98,087 |
| | 98,817 |
| | -1 | % | | 197,250 |
| | 200,205 |
| | -1 | % |
| Selling, general and administrative | 142,747 |
| | 126,507 |
| | +13 | % | | 400,581 |
| | 439,350 |
| | -9 | % | 129,700 |
| | 125,878 |
| | +3 | % | | 262,962 |
| | 257,834 |
| | +2 | % |
| Depreciation | 13,501 |
| | 14,263 |
| | -5 | % | | 40,557 |
| | 41,761 |
| | -3 | % | 13,867 |
| | 13,281 |
| | +4 | % | | 26,819 |
| | 27,056 |
| | -1 | % |
| Amortization | 41,675 |
| | 41,678 |
| | — | % | | 125,043 |
| | 125,001 |
| | — | % | 35,018 |
| | 41,681 |
| | -16 | % | | 70,039 |
| | 83,368 |
| | -16 | % |
| Gain on sales of spectrum | — |
| | — |
| | — | % | | (133,197 | ) | | — |
| | * |
| — |
| | — |
| | — | % | | — |
| | (133,197 | ) | | -100 | % |
| Total operating expenses | $ | 460,884 |
| | $ | 479,985 |
| | -4 | % | | $ | 1,108,526 |
| | $ | 1,397,726 |
| | -21 | % | $ | 410,755 |
| | $ | 391,292 |
| | +5 | % | | $ | 811,040 |
| | $ | 647,642 |
| | +25 | % |
| |
* | Represents positive or negative change equal to, or in excess of 100% |
Three Months Ended SeptemberJune 30, 20182019 compared to the Three Months Ended SeptemberJune 30, 20172018
Programming expense, which represented 32%28% of revenues for the three months ended SeptemberJune 30, 20182019 compared to 44%23% for the three months ended SeptemberJune 30, 2017, decreased 19%2018, increased 20%, or $38$22 million, primarily due to a decrease of $51 million in program impairment charges as well asincreased network affiliate fees, partially offset by lower amortization of license fees and the absence of barter expense due to the new revenue guidance adopted in 2018, partially offset by higher network affiliate fees. The Company recorded a $28 million program impairment charge for the syndicated program Elementary at WGN America in the third quarter of 2018, compared to an $80 million program impairment charge in the third quarter of 2017 for the syndicated programs Elementary and Person of Interest. The decrease in amortization of license fees of $5 million was primarily attributable to lower syndicated and features programming costs in the third 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 $24 million mainly due to the renewal of
network affiliation agreements in eight markets with FOX Broadcasting Company (“FOX”) during the third quarter of 2018.
Direct operating expenses, which represented 20% of revenues for the three months ended September 30, 2018 compared to 22% for the three months ended September 30, 2017, increased 3%, or $3 million. Compensation expense increased 2%, or $2 million, primarily due to higher direct pay and benefits. All other direct operating expenses, such as outside services, occupancy expense and royalty expense, increased 8%, or $1 million.
SG&A expenses, which represented 29% of revenues for the three months ended September 30, 2018 compared to 28% for the three months ended September 30, 2017, increased 13%, or $16 million, due mainly to higher compensation and promotion expenses, partially offset by lower other expenses. Compensation expense increased 23%, or $15 million, due to $9 million of retention bonuses compared to $2 million in the third quarter of 2017, a $6 million increase in incentive compensation and a $2 million increase in severance expense. Promotion expense increased 20%, or $4 million, primarily at WGN America for original programming. Other expenses decreased 21%, or $4 million, largely due to the receipt of $5 million of spectrum repack reimbursements.
Depreciation expense fell 5%, or less than $1 million, in the three months ended September 30, 2018. Amortization expense was flat in the three months ended September 30, 2018.
Nine Months Ended September 30, 2018 compared to the Nine Months Ended September 30, 2017
Programming expense, which represented 26% of revenues for the nine months ended September 30, 2018 compared to 37% for the nine months ended September 30, 2017, decreased 25%, or $124 million, due to the decrease of $51 million in program impairment charges described above as well as lower amortization of license fees, the absence of barter expense in 2018 and $20 million of additional expenses recorded 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 $67 million was primarily attributable to three originals airing in the first half of 2017 (Outsiders, Underground and Salem)versus airing lower cost programming in 2018. Barter expense decreased by $21 million as we no longer recognize barter revenue and expense as a result of adopting new revenue guidance in 2018. The shift in programming strategy at WGN America in 2017 included cancellation costs for Outsiders and Underground and the associated accelerated amortization of remaining programming assets for both shows as well as the write-off of certain other capitalized program development projects. Network affiliate fees increased by $32$27 million mainly due to the renewal of network affiliation agreements in eight markets with FOX during the third quarter of 2018. The decline in amortization of license fees of $3 million was primarily driven by lower syndicated programming costs, partially offset by increased amortization for two new shows that premiered on WGN America in 2019.
Direct operating expenses, which represented 20% of revenues for both the three months ended June 30, 2019 and the three months ended June 30, 2018, alongdecreased 1%, or $1 million, primarily due to lower compensation expense.
Selling, general and administrative (“SG&A”) expenses, which represented 27% of revenues for the three months ended June 30, 2019 compared to 26% for the three months ended June 30, 2018, increased 3%, or $4 million, due mainly to higher compensation and outside services expenses, partially offset by lower other expenses. Compensation expense increased 3%, or $2 million, mainly due to an increase in direct pay and benefits. Outside services expense increased 25%, or $4 million, primarily due to transaction related costs. Other expenses decreased 5%, or $2 million, largely due to declines in promotion expense and real estate taxes.
Depreciation expense increased 4%, or less than $1 million, in the three months ended June 30, 2019. Amortization expense decreased 16%, or $7 million, in the three months ended June 30, 2019 due to the absence of amortization expense for certain network affiliation agreement intangible assets that were fully amortized at December 31, 2018.
Six Months Ended June 30, 2019 compared to the Six Months Ended June 30, 2018
Programming expense, which represented 27% of revenues for the six months ended June 30, 2019 compared to 23% for the six months ended June 30, 2018, increased 20%, or $42 million, primarily due to increased network affiliate fees, partially offset by lower amortization of license fees. Network affiliate fees increased by $53 million mainly due to the renewal of network affiliation agreements in eight markets with other contractual increases.FOX during the third quarter of 2018. The decline in amortization of license fees of $10 million was primarily driven by overall lower syndicated programming costs, partially offset by increased amortization for two new shows that premiered on WGN America in 2019.
Direct operating expenses, which represented 21% of revenues for both the ninesix months ended SeptemberJune 30, 2019 and the six months ended June 30, 2018, and 22% for the nine months ended September 30, 2017, increased 3%decreased 1%, or $8$3 million, primarily due to increases of $4a $1 million decrease in compensation expense mainly due to highera decline in direct pay and benefits and $3a $1 million decrease in outside services expense.
SG&A expenses, which represented 28% of revenues for both the ninesix months ended SeptemberJune 30, 2019 and the six months ended June 30, 2018, and 32% for the nine months ended September 30, 2017, decreased 9%increased 2%, or $39$5 million, primarily due to lowerhigher compensation expense,and outside services expense, promotion expense andexpenses, partially offset by lower other expense. Compensation expense decreased 9%increased 4%, or $19$5 million, primarily due to a $16 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 millionincreases in direct pay and benefits $1 million ofas well as severance expense and $1 million in stock-based compensation, partially offset by $5 million of retention bonuses in 2018 compared to $3 million in 2017. Compensation expense decreased $3 million at Television and Entertainment due to a $5 million decrease in direct pay and benefits, a $3 million decrease in severance expense and a $1 million decrease in stock-based compensation, partially offset by $4 million of retention bonuses in 2018 compared to $1 million in 2017, and a $3 million increase in incentive compensation.expense. Outside services expense decreasedwas up 14%, or $9$5 million, primarily driven by lower professional fees, legal fees and other costs associated with the Merger Agreement that was terminated on August 9, 2018. Promotion expensedue to transaction related costs. Other expenses decreased 5%, or $4 million, primarily at WGN America. Other expenses decreased 10%, or $6$5 million, largely due to the receipt of $7$6 million of spectrum repack reimbursements.
reimbursements in the first half of 2019 compared to $2 million of spectrum repack reimbursements in the first half of 2018.
Depreciation expense decreased 3%1%, or less than $1 million, for the ninesix months ended SeptemberJune 30, 2018.2019. Amortization expense was flatdecreased 16%, or $13 million, for the ninesix months ended SeptemberJune 30, 2019 due to the absence of amortization expense for certain network affiliation agreement intangible assets that were fully amortized at December 31, 2018.
Gain on sales of spectrum of $133 million for the ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 2018.
Income From Discontinued Operations, Net of Taxes—The results of discontinued operations for the nine months ended September 30, 2017 include the operating results of the Digital and Data businesses included in the Gracenote Sale. Income from discontinued operations, net of taxes totaled $15 million for the nine months ended September 30, 2017, including a pretax gain on the sale of $35 million. Interest expense allocated to discontinued operations totaled $1 million for the nine months ended September 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 nine months ended September 30, 2017. See Note 2 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2018 for further information.2019.
TELEVISION AND ENTERTAINMENT
Operating Revenues and Operating Profit—The table below presents Television and Entertainment operating revenues, operating expenses and operating profit (loss) for the three and ninesix months ended SeptemberJune 30, 2019 and June 30, 2018 and September 30, 2017 (in thousands).
| | | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | | | Six Months Ended | | |
| | September 30, 2018 | | September 30, 2017 | | Change | | September 30, 2018 | | September 30, 2017 | | Change | June 30, 2019 | | June 30, 2018 | | Change | | June 30, 2019 | | June 30, 2018 | | Change |
| Operating revenues | $ | 494,619 |
| | $ | 447,307 |
| | +11 | % | | $ | 1,421,738 |
| | $ | 1,349,401 |
| | +5 | % | $ | 482,557 |
| | $ | 486,417 |
| | -1 | % | | $ | 935,984 |
| | $ | 927,119 |
| | +1 | % |
| Operating expenses | 427,324 |
| | 448,664 |
| | -5 | % | | 1,022,824 |
| | 1,280,526 |
| | -20 | % | 382,954 |
| | 366,650 |
| | +4 | % | | 756,456 |
| | 595,500 |
| | +27 | % |
| Operating profit (loss) | $ | 67,295 |
| | $ | (1,357 | ) | | * |
| | $ | 398,914 |
| | $ | 68,875 |
| | * |
| |
| Operating profit | | $ | 99,603 |
| | $ | 119,767 |
| | -17 | % | | $ | 179,528 |
| | $ | 331,619 |
| | -46 | % |
| |
* | Represents positive or negative change equal to, or in excess of 100% |
Three Months Ended SeptemberJune 30, 20182019 compared to the Three Months Ended SeptemberJune 30, 20172018
Television and Entertainment operating revenues fell 1%, or $4 million, in the three months ended June 30, 2019 largely due to a decrease in advertising revenue and other revenue, partially offset by an increase in retransmission revenues.
Television and Entertainment operating profit decreased 17%, or $20 million, in the three months ended June 30, 2019 mainly due to a $22 million increase in programming expenses and a decrease in operating revenue of $4 million, partially offset by a $7 million decline in amortization expense, as further described below.
Six Months Ended June 30, 2019 compared to the Six Months Ended June 30, 2018
Television and Entertainment operating revenues increased 11%1%, or $47$9 million, in the threesix months ended SeptemberJune 30, 20182019 largely due to increasesan increase in advertising revenues, retransmission revenues, and carriage fees, partially offset by the absence of barterdecreases in advertising revenue and other revenue, as further described below.
Television and Entertainment operating profit increased $69decreased 46%, or $152 million, in the threesix months ended SeptemberJune 30, 20182019 mainly due to a $47 million increase in revenue and a $38 million decrease in programming expense, partially offset by higher compensation expense and other expense, as further described below.
Nine Months Ended September 30, 2018 compared to the Nine Months Ended September 30, 2017
Television and Entertainment operating revenues increased 5%, or $72 million, in the nine months ended September 30, 2018 largely due to increases in retransmission revenues, carriage fees, advertising revenues and other revenue, partially offset by the absence of barter revenue, as further described below.
Television and Entertainment operating profit increased $330 million, in the nine months ended September 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 recorded in the first quarter of 2018, as described above, and a $124$42 million decreaseincrease in programming expense, andpartially offset by a $72$9 million increase in revenue as well as a $13 million decrease in amortization expense, as further described below.
Operating Revenues—Television and Entertainment operating revenues, by classification, for the three and ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 20172018 were as follows (in thousands):
| | | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | | | Six Months Ended | | |
| | September 30, 2018 | | September 30, 2017 | | Change | | September 30, 2018 | | September 30, 2017 | | Change | June 30, 2019 | | June 30, 2018 | | Change | | June 30, 2019 | | June 30, 2018 | | Change |
| Advertising | $ | 327,248 |
| | $ | 295,130 |
| | +11 | % | | $ | 909,118 |
| | $ | 899,701 |
| | +1 | % | $ | 298,899 |
| | $ | 311,431 |
| | -4 | % | | $ | 568,788 |
| | $ | 581,870 |
| | -2 | % |
| Retransmission revenues | 116,625 |
| | 104,587 |
| | +12 | % | | 351,952 |
| | 303,800 |
| | +16 | % | 132,342 |
| | 117,185 |
| | +13 | % | | 265,202 |
| | 235,327 |
| | +13 | % |
| Carriage fees | 40,069 |
| | 30,930 |
| | +30 | % | | 122,546 |
| | 96,407 |
| | +27 | % | 40,771 |
| | 40,815 |
| | — | % | | 81,910 |
| | 82,477 |
| | -1 | % |
| Barter/trade | 2,660 |
| | 9,559 |
| | -72 | % | | 7,142 |
| | 28,052 |
| | -75 | % | |
| Other | 8,017 |
| | 7,101 |
| | +13 | % | | 30,980 |
| | 21,441 |
| | +44 | % | 10,545 |
| | 16,986 |
| | -38 | % | | 20,084 |
| | 27,445 |
| | -27 | % |
| Total operating revenues | $ | 494,619 |
| | $ | 447,307 |
| | +11 | % | | $ | 1,421,738 |
| | $ | 1,349,401 |
| | +5 | % | $ | 482,557 |
| | $ | 486,417 |
| | -1 | % | | $ | 935,984 |
| | $ | 927,119 |
| | +1 | % |
Three Months Ended SeptemberJune 30, 20182019 compared to the Three Months Ended SeptemberJune 30, 20172018
Advertising Revenues—Advertising revenues, net of agency commissions, increased 11%decreased 4%, or $32$13 million, in the three months ended SeptemberJune 30, 2018 due to a $372019 as an $18 million increasedecrease in political advertising revenue thatrevenues was partially offset by a $5$2 million declineincrease in core advertising revenues (comprised of local and national advertising, excluding political and digital). and a $3 million increase in digital revenues. The declineincrease in core advertising revenuerevenues was primarily due to a reductionan increase in inventory available for local and national spots due to political advertising as well as declines in advertisingspend in certain of our markets. Political advertising revenues, which are a component of total advertising revenues, were $42$3 million for the three months ended SeptemberJune 30, 20182019 compared to $5$21 million for the three months ended SeptemberJune 30, 2017,2018, as 2018 iswas an election year.
Retransmission Revenues—Retransmission revenues increased 12%13%, or $12$15 million, in the three months ended SeptemberJune 30, 20182019 primarily due to a $15$21 million increase from higher rates included in retransmission consent renewals of our MVPD agreements, partially offset by a decrease in the number of subscribers.
Carriage Fees—Carriage fees increased 30%, or $9 million, in the three months ended September 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 72%, or $7 million, in the three months ended September 30, 2018 as barter revenues are no longer recognized under new revenue guidance adopted in 2018. We recognized $7 million of barter revenueremained flat for the three months ended SeptemberJune 30, 2017.2019 as rate increases were offset by a decrease in the number of subscribers.
Other Revenues—Otherrevenues are primarily derived from trade revenue, profit sharing, revenue on syndicated content and copyright royalties. Other revenues increased 13%decreased 38%, or less than $1$6 million, in the three months ended SeptemberJune 30, 2018.2019 mainly due to a $5 million decrease in copyright royalties.
NineSix Months Ended SeptemberJune 30, 20182019 compared to the NineSix Months Ended SeptemberJune 30, 20172018
Advertising Revenues—Advertising revenues, net of agency commissions, increased 1%fell 2%, or $9$13 million, infor the ninesix months ended SeptemberJune 30, 2018 primarily due to2019 as a $61$23 million increasedecrease in political advertising revenue thatrevenues was partially offset by a $51$5 million declineincrease in core advertising revenues (comprised of local and national advertising, excluding political and digital).a $5 million increase in digital revenues. The decreaseincrease in core advertising revenuerevenues was primarily due to fewer local and national spots due to politicalan increase in advertising a decline in television advertisingspend in certain of our markets, a decreasean increase in revenues associated with airing the Super Bowl on 2six CBS-affiliated stations in 2019 compared to two NBC-affiliated stations in 2018, compared to 14 FOX-affiliatedand advertising revenues in 2018 for non-NBC affiliated stations in 2017 andwere negatively impacted by the 2018 Winter Olympics, which negatively impacted non-NBC affiliated stations’ advertising revenues.Olympics. Political advertising revenues, which are a component of total advertising revenues, were approximately
$72 $7 million for the ninesix months ended SeptemberJune 30, 20182019 compared to $11$30 million for the ninesix months ended SeptemberJune 30, 2017,2018, as 2018 iswas an election year.
Retransmission Revenues—Retransmission revenues increased 16%13%, or $48$30 million, in the ninesix months ended SeptemberJune 30, 20182019 primarily due to a $59$42 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 27%, or $26 million,flat for the six months ended June 30, 2019 as rate increases were offset by a decrease in the nine months ended September 30, 2018 due mainly to a $23 million increase from higher rates for the distributionnumber of WGN America.subscribers.
Barter/Trade Revenues—Barter/trade revenues decreased 75%, or $21 million, in the nine months ended September 30, 2018 as barter revenues are no longer recognized under new revenue guidance adopted in 2018. We recognized $21 million of barter revenue for the nine months ended September 30, 2017.
Other Revenues—Otherrevenues are primarily derived from trade revenue, profit sharing, revenue on syndicated content and copyright royalties. Other revenues increased 44%decreased 27%, or $10$7 million, in the ninesix months ended SeptemberJune 30, 20182019 mainly due to a $5 million increasedecrease in copyright royalties $3and a $1 million of revenue for the broadcast of third party digital network programming and $2 million of deferred revenue recognized related to spectrumdecrease in profit sharing arrangements.from original programming.
Operating Expenses—Television and Entertainment operating expenses for the three and ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 20172018 were as follows (in thousands):
| | | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | | | Six Months Ended | | |
| | September 30, 2018 | | September 30, 2017 | | Change | | September 30, 2018 | | September 30, 2017 | | Change | June 30, 2019 | | June 30, 2018 | | Change | | June 30, 2019 | | June 30, 2018 | | Change |
| Compensation | $ | 145,649 |
| | $ | 132,935 |
| | +10 | % | | $ | 412,605 |
| | $ | 412,019 |
| | — | % | $ | 133,776 |
| | $ | 133,224 |
| | — | % | | $ | 270,204 |
| | $ | 266,956 |
| | +1 | % |
| Programming | 161,114 |
| | 199,118 |
| | -19 | % | | 373,490 |
| | 497,448 |
| | -25 | % | 134,083 |
| | 111,635 |
| | +20 | % | | 253,970 |
| | 212,376 |
| | +20 | % |
| Depreciation | 11,313 |
| | 10,844 |
| | +4 | % | | 33,124 |
| | 31,413 |
| | +5 | % | 12,064 |
| | 10,941 |
| | +10 | % | | 23,126 |
| | 21,811 |
| | +6 | % |
| Amortization | 41,675 |
| | 41,678 |
| | — | % | | 125,043 |
| | 125,001 |
| | — | % | 35,018 |
| | 41,681 |
| | -16 | % | | 70,039 |
| | 83,368 |
| | -16 | % |
| Other | 67,573 |
| | 64,089 |
| | +5 | % | | 211,759 |
| | 214,645 |
| | -1 | % | 68,013 |
| | 69,169 |
| | -2 | % | | 139,117 |
| | 144,186 |
| | -4 | % |
| Gain on sales of spectrum | — |
| | — |
| | — | % | | (133,197 | ) | | — |
| | * |
| — |
| | — |
| | — | % | | — |
| | (133,197 | ) | | -100 | % |
| Total operating expenses | $ | 427,324 |
| | $ | 448,664 |
| | -5 | % | | $ | 1,022,824 |
| | $ | 1,280,526 |
| | -20 | % | $ | 382,954 |
| | $ | 366,650 |
| | +4 | % | | $ | 756,456 |
| | $ | 595,500 |
| | +27 | % |
| |
* | Represents positive or negative change equal to, or in excess of 100% |
Three Months Ended SeptemberJune 30, 20182019 compared to the Three Months Ended SeptemberJune 30, 20172018
Television and Entertainment operating expenses decreased 5%were up 4%, or $21$16 million, in the three months ended SeptemberJune 30, 20182019 compared to the prior year period largely due to a $38$22 million declineincrease in programming expense, partially offset by increasesa $7 million decrease in compensation expense and otheramortization expense, as further described below.
Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, remained flat for the three months ended June 30, 2019.
Programming Expense—Programming expense increased 10%20%, or $13$22 million, in the three months ended SeptemberJune 30, 2018.2019. The increase was primarily due to a $5 million increase in incentive compensation, a $3 million increase in retention bonuses ($4 million in the third quarter of 2018 compared to $1 million in the third quarter of 2017), a $3 million increase in direct pay and benefits along with a $2 million increase in severance expense.
Programming Expense—Programming expense decreased 19%, or $38 million, in the three months ended September 30, 2018. The decline was due to a decrease of $51 million in program impairment charges as well as
higher network affiliate fees, partially offset by lower amortization of license fees and the absence of barter expense due to the new revenue guidance adopted in 2018, partially offset by increased network affiliate fees. The Company recorded a $28 million program impairment charge for Elementary at WGN America in the third quarter of 2018, compared to $80 million in program impairment charges in the third quarter of 2017 for Elementary and Person of Interest. The decrease in amortization of license fees of $5 million was primarily attributable to lower syndicated and features programming costs in the third 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 $24$27 million mainly due to the renewal of network affiliation agreements in eight markets with FOX during the third quarter of 2018.
Depreciation and Amortization Expense—Depreciation expense and amortization expense remained flat for the three months ended September 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 $3 million, for the three months ended September 30, 2018 due to a $5 million increase in promotion expense mostly at WGN America for original programming, a $2 million increase in outside services expense primarily related to costs associated with spectrum sharing arrangements and costs for operating websites of our television stations and a $2 million increase in bad debt expense, partially offset by $5 million of spectrum repack reimbursements.
Nine Months Ended September 30, 2018 compared to the Nine Months Ended September 30, 2017
Television and Entertainment operating expenses decreased 20%, or $258 million, in the nine months ended September 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, a $124 million decrease in programming expenses and a decline in other expense, as further described below.
Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, increased less than $1 million in the nine months ended September 30, 2018 due to a $3 million increase in retention bonuses ($4 million in 2018 compared to $1 million in 2017), and a $3 million increase in incentive compensation, largely offset by decreases in direct pay and benefits, severance and stock-based compensation expense.
Programming Expense—Programming expense decreased 25%, or $124 million, in the nine months ended September 30, 2018. The decline was due to the decrease of $51 million in program impairment charges described above as well as lower amortization of license fees, the absence of barter expense in 2018 and the $20 million of additional expenses recorded 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 $67$3 million was primarily attributable to three originals airingdriven by lower syndicated programming costs, partially offset by increased amortization for two new shows that premiered on WGN America in 2019.
Depreciation and Amortization Expense—Depreciation expense increased 10%, or $1 million, in the first half of 2017 (Outsiders, Underground and Salem)versus airing lower cost programming in 2018. Barterthree months ended June 30, 2019. Amortization expense decreased by $2116%, or $7 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 $32 million mainlythe three months ended June 30, 2019 due to the renewalabsence of amortization expense for certain network affiliation agreements in eight markets with FOX during the third quarter of 2018, along with other contractual increases.agreement intangible assets that were fully amortized at December 31, 2018.
Depreciation and Amortization Expense—Depreciation expense increased 5%, or $2 million, in the nine months ended September 30, 2018. Amortization expense remained flat in the nine months ended September 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 2%, or $1 million, for the three months ended June 30, 2019 primarily due to higher spectrum repack reimbursements.
Six Months Ended June 30, 2019 compared to the Six Months Ended June 30, 2018
Television and Entertainment operating expenses were up 27%, or $161 million, in the six months ended June 30, 2019 compared to the prior year period largely due to the net pretax gain of $133 million in the first quarter of 2018 related to licenses sold in the FCC spectrum auction, a $42 million increase in programming expenses and a $3 million increase in compensation expense, partially offset by a $13 million decline in amortization expense and a $5 million decline in other expense, as further described below.
Compensation Expense—Compensation expense, which is included in both direct operating expenses and SG&A expense, increased 1%, or $3 million, in the ninesix months ended SeptemberJune 30, 20182019 primarily due to a $4increases in direct pay and benefits as well as severance expense.
Programming Expense—Programming expense increased 20%, or $42 million, decrease in promotion expense mostly atthe six months ended June 30, 2019. The increase was primarily due to increased network affiliate fees, partially offset by lower amortization of license fees. Network affiliate fees increased by $53 million mainly due to the renewal of network affiliation agreements in eight markets with FOX during the third quarter of 2018, along with other contractual increases. The decline in amortization of license fees of $10 million is primarily driven by lower syndicated programming costs, partially offset by increased amortization for two new shows that premiered on WGN America in 2019.
Depreciation and $7Amortization Expense—Depreciation expense increased 6%, or $1 million, in the six months ended June 30, 2019. Amortization expense decreased 16%, or $13 million, in the six months ended June 30, 2019 due to the absence of amortization expense for certain network affiliation agreement intangible assets that were fully amortized at December 31, 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 $5 million, in the six months ended June 30, 2019 primarily due to $6 million of spectrum repack reimbursements partially offset by a $4 million increase in outside services expense primarily related2019 compared to costs associated with spectrum sharing arrangements and costs for operating websites of our television station, a $2 million increaseof spectrum repack reimbursements in bad debt expense and a $1 million increase in music license fees.2018.
Gain on Sales of Spectrum—In the ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 2018.2019.
CORPORATE AND OTHER
Operating Revenues and Expenses—Corporate and Other operating resultsrevenues and expenses for the three and ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 20172018 were as follows (in thousands):
| | | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | | | Six Months Ended | | |
| | September 30, 2018 | | September 30, 2017 | | Change | | September 30, 2018 | | September 30, 2017 | | Change | June 30, 2019 | | June 30, 2018 | | Change | | June 30, 2019 | | June 30, 2018 | | Change |
| Real estate revenues | $ | 3,389 |
| | $ | 3,226 |
| | +5 | % | | $ | 9,263 |
| | $ | 10,559 |
| | -12 | % | $ | 1,479 |
| | $ | 2,941 |
| | -50 | % | | $ | 3,040 |
| | $ | 5,874 |
| | -48 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | | | |
Real estate (1) | $ | 2,059 |
| | $ | 2,464 |
| | -16 | % | | $ | 7,293 |
| | $ | 8,222 |
| | -11 | % | $ | 1,627 |
| | $ | 3,003 |
| | -46 | % | | $ | 3,093 |
| | $ | 5,234 |
| | -41 | % |
Corporate (2)(1) | 31,501 |
| | 28,857 |
| | +9 | % | | 78,409 |
| | 108,978 |
| | -28 | % | 26,174 |
| | 21,639 |
| | +21 | % | | 51,491 |
| | 46,908 |
| | +10 | % |
| Total operating expenses | $ | 33,560 |
| | $ | 31,321 |
| | +7 | % | | $ | 85,702 |
| | $ | 117,200 |
| | -27 | % | $ | 27,801 |
| | $ | 24,642 |
| | +13 | % | | $ | 54,584 |
| | $ | 52,142 |
| | +5 | % |
| |
| (1) | Real estateCorporate operating expenses included less than $1$2 million of depreciation expense for each of the three months ended SeptemberJune 30, 2019 and June 30, 2018, and September 30, 2017, respectively, and $1$3 million and $2$4 million of depreciation expense for the ninesix months ended SeptemberJune 30, 2019 and June 30, 2018, and September 30, 2017. |
| |
(2) | Corporate operating expenses included $2 million and $3 million of depreciation expense for the three months ended September 30, 2018 and September 30, 2017, respectively, and $6 million and $9 million of depreciation expense for the nine months ended September 30, 2018 and September 30, 2017, respectively. |
Three Months Ended SeptemberJune 30, 20182019 compared to the Three Months Ended SeptemberJune 30, 20172018
Real Estate Revenues—Real estate revenueswere flat in the three months ended September 30, 2018.
Real Estate Expenses—Real estate expenses decreased 16%50%, or less than $1 million, in the three months ended SeptemberJune 30, 2018.
Corporate Expenses—Corporate expenses increased 9%, or $3 million, in the three months ended September 30, 2018 primarily due to $4 million of retention bonuses compared to $1 million for the third quarter of 2017 and a $2 million increase in incentive compensation, partially offset by a $2 million reduction in professional fees, legal fees and other costs associated with the Merger Agreement that was terminated on August 9, 2018.
Nine Months Ended September 30, 2018 compared to the Nine Months Ended September 30, 2017
Real Estate Revenues—Real estate revenues decreased 12%, or $1 million, in the nine months ended September 30, 20182019 primarily due to the loss of revenue from real estate properties sold in 2017.2018.
Real Estate Expenses—Real estate expenses decreased 11%46%, or less than $1 million, in the ninethree months ended SeptemberJune 30, 20182019 primarily resultingdue to a decrease in real estate taxes.
Corporate Expenses—Corporate expenses increased 21%, or $5 million, in the three months ended June 30, 2019 primarily due to higher transaction related costs.
Six Months Ended June 30, 2019 compared to the Six Months Ended June 30, 2018
Real Estate Revenues—Real estate revenues decreased 48%, or $3 million, in the six months ended June 30, 2019 primarily due to the loss of revenue from real estate properties sold in 2018.
Real Estate Expenses—Real estate expenses decreased 41%, or $2 million, in the six months ended June 30, 2019 primarily due to a reduction in compensation expense and real estate taxes.
Corporate Expenses—Corporate expenses increased 10%, or $5 million, in the six months ended June 30, 2019 as a $4 million increase in outside services expense and a $1 million reductionincrease in impairment charges associated with certain real estate properties.
Corporate Expenses—Corporate expenses decreased 28%, or $31 million, in the nine months ended September 30, 2018 primarily due to lower compensation expense outside services, other expenses and depreciation. Compensation expense decreased $16 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, direct pay and benefits decreased $2 million, severance expense decreased $1 million and stock-based compensation decreased $1 million,was partially offset by a $1 million decrease in depreciation expense. The increase in retention bonuses ($4 million in 2018 compared to $3 million in 2017). Outsideoutside services expense decreased by $10 millionwas primarily due to an $8 million reduction in professional fees, legal fees and other costs associated with the Merger Agreement that was terminated on August 9, 2018. Additionally, other expenses decreased by $3 million while depreciation declined by $2 million.transaction related costs.
INCOME ON EQUITY INVESTMENTS, NET
Income on equity investments, net for the three and nine months ended September 30, 2018 and September 30, 2017 was as follows (in thousands):
| | | | Three Months Ended | | | | Nine Months Ended | | | Three Months Ended | | | | Six Months Ended | | |
| | September 30, 2018 | | September 30, 2017 | | Change | | September 30, 2018 | | September 30, 2017 | | Change | June 30, 2019 | | June 30, 2018 | | Change | | June 30, 2019 | | June 30, 2018 | | Change |
| Income on equity investments, net, before amortization of basis difference | $ | 44,850 |
| | $ | 33,609 |
| | +33 | % | | $ | 161,493 |
| | $ | 139,808 |
| | +16 | % | $ | 58,996 |
| | $ | 65,037 |
| | -9 | % | | $ | 117,150 |
| | $ | 116,643 |
| | — | % |
| Amortization of basis difference (1) | (12,469 | ) | | (12,551 | ) | | -1 | % | | (37,407 | ) | | (40,952 | ) | | -9 | % | (12,469 | ) | | (12,469 | ) | | — | % | | (24,938 | ) | | (24,938 | ) | | — | % |
| Income on equity investments, net | $ | 32,381 |
| | $ | 21,058 |
| | +54 | % | | $ | 124,086 |
| | $ | 98,856 |
| | +26 | % | $ | 46,527 |
| | $ | 52,568 |
| | -11 | % | | $ | 92,212 |
| | $ | 91,705 |
| | +1 | % |
| |
| (1) | See Note 5 to our unaudited condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 20182019 for the discussion of the amortization of basis difference. |
Income on equity investments, net increased 54%decreased 11%, or $11$6 million, in the three months ended SeptemberJune 30, 2018 primarily due to higher equity income from TV Food Network and CareerBuilder. The increase in the equity income of TV Food Network was due to higher reported net income. The increase in the equity income of CareerBuilder was largely2019 due to the absence of non-recurring transaction expenses incurred by CareerBuilder in 2017 related to the CareerBuilder sale on July 31, 2017, as further described in Note 5. Income on equity investments, net increased 26%, or $25$10 million in the nine months ended September 30, 2018 largely due to higherof equity income from TV Food Network and CareerBuilder as discussed above, along witha result of recognizing our share of the gain on the sale of one of CareerBuilder’sits business operations in the second quarter of 2018, partially offset by higher equity income from TV Food Network. Income on May 14, 2018, and a $3equity investments, net increased 1%, or $1 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. We sold our remaining ownership interest in CareerBuilder, LLC on September 13, 2018 and received pretax proceeds of $11 million, as further described in Note 5 to our unaudited condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 2018. We recognized a pretax loss2019 due to higher equity income from TV Food Network, partially offset by the absence of $5$10 million on the sale of our ownership interest inequity income from CareerBuilder, which is included in the (loss) gain on investment transactions, net in our unaudited Condensed Consolidated Statements of Operations.
Asas described in Note 5 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2018, in the three and nine months ended September 30, 2017, we recorded non-cash pretax impairment charges of $181 million to write down our investment in CareerBuilder, which is included in write-downs of investment in our unaudited Condensed Consolidated Statements of Operations.above.
Cash distributions from our equity method investments were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| | September 30, 2018 | | September 30, 2017 | | Change | | September 30, 2018 | | September 30, 2017 | | Change |
| Cash distributions from equity investments | $ | — |
| | $ | 32,911 |
| | * | | $ | 158,926 |
| | $ | 182,561 |
| | -13 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | |
| | June 30, 2019 | | June 30, 2018 | | Change | | June 30, 2019 | | June 30, 2018 | | Change |
| Cash distributions from equity investments | $ | 28,379 |
| | $ | 43,789 |
| | -35 | % | | $ | 181,461 |
| | $ | 158,926 |
| | +14 | % |
Cash distributions from equity investments decreased 35%, or $15 million, in the three months ended June 30, 2019 and increased 14%, or $23 million, in the six months ended June 30, 2019. Cash distributions from TV Food Network decreased 25%, or $9 million, in the three months ended June 30, 2019. Cash distributions from TV Food Network increased 19%, or $29 million, in the six months ended June 30, 2019 due to stronger operating performance as well as timing as cash distributions in 2018 to cover our taxes on our share of partnership income were lower based on the reduction in rates from the Tax Cuts and Jobs Act enacted in late 2017. The three and six months ended June 30, 2018 included $6 million of distributions from CareerBuilder, of which $5 million related to the distribution of proceeds from the sale of one of its business operations.
INTEREST INCOME, INTEREST EXPENSE AND INCOME TAX EXPENSE
Interest income, interest expense and income tax expense were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | |
| | June 30, 2019 | | June 30, 2018 | | Change | | June 30, 2019 | | June 30, 2018 | | Change |
| Interest income | $ | 7,726 |
| | $ | 2,336 |
| | * |
| | $ | 13,973 |
| | $ | 4,234 |
| | * |
|
| | | | | | | | | | | | |
| Interest expense | $ | 43,777 |
| | $ | 41,990 |
| | +4 | % | | $ | 87,392 |
| | $ | 82,621 |
| | +6 | % |
| | | | | | | | | | | | |
| Income tax expense | $ | 23,835 |
| | $ | 32,816 |
| | -27 | % | | $ | 61,612 |
| | $ | 89,518 |
| | -31 | % |
| |
| * | Represents positive or negative change equal to, or in excess of 100% |
We did not receive any cash distributions from our equity investments in the third quarter of 2018 as TV Food Network adjusted its required year-to-date cash distributions to cover our taxes on our share of partnership income based on the reduction in tax rates from Tax Reform, which resulted in no distribution required for the third quarter of 2018. This only impacts the timing of distributions in 2018 and does not impact total expected excess cash distributions from TV Food Network related to 2018. In the nine months ended September 30, 2018, cash distributions from our equity investments included $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 in the second quarter of 2018. Cash distributions from equity investments for the three and nine months ended September 30, 2017, included a $16 million distribution of excess cash from CareerBuilder prior to the closing of the CareerBuilder sale, as described in Note 5 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2018.
INTEREST AND DIVIDEND INCOME, INTEREST EXPENSE AND INCOME TAX (BENEFIT) EXPENSE
Interest and dividend income, interest expense and income tax (benefit) expense for the three and nine months ended September 30, 2018 and September 30, 2017 were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| | September 30, 2018 | | September 30, 2017 | | Change | | September 30, 2018 | | September 30, 2017 | | Change |
| Interest and dividend income | $ | 3,239 |
| | $ | 827 |
| | * |
| | $ | 7,473 |
| | $ | 1,880 |
| | * |
|
| | | | | | | | | | | | |
| Interest expense (1) | $ | 42,842 |
| | $ | 40,389 |
| | +6 | % | | $ | 125,463 |
| | $ | 119,332 |
| | +5 | % |
| | | | | | | | | | | | |
| Income tax (benefit) expense (2) | $ | (22,422 | ) | | $ | (20,087 | ) | | +12 | % | | $ | 67,096 |
| | $ | (81,606 | ) | | * |
|
| |
* | Represents positive or negative change equal to, or in excess of 100% |
| |
(1) | Interest expense excludes $1 million for the nine months ended September 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 (benefit) expense excludes an expense of $14 million for the nine months ended September 30, 2017 related to discontinued operations. |
Interest and Dividend Income—Increase in interest and dividend income of $2 million and $6$5 million in the three and nine months ended SeptemberJune 30, 2018, respectively,2019 and $10 million in the six months ended June 30, 2019 was primarily due to higher interest income earned on ourrates and a higher average outstanding balance of cash and cash equivalents during the respective periods.three and six months ended June 30, 2019 as compared to the prior year period.
Interest Expense—Interest expense from continuing operations for each of the three months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 20172018 includes amortization of debt issuance costs of $2 million. Interest expense from continuing operations for each of the ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 20172018 includes amortization of debt issuance costs of $5$3 million.
Income Tax (Benefit) Expense—In the three and six months ended SeptemberJune 30, 2018,2019, we recorded an income tax benefit from continuing operationsexpense of $22 million.$24 million and $62 million, respectively. The effective tax rate on pretax income from continuing operations was (70.8)%.27.2% for the three months ended June 30, 2019. 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, the deduction of certain transaction costs and other expenses previously capitalized,not fully deductible for tax purposes and a $3benefit of less than $1 million benefit related to the resolution of federal and state income tax filings for the prior year. In the three months ended September 30, 2018, the Company recorded an additional income tax benefit of $24 million to revise the provisional discrete net tax benefit recorded due to Tax Reform, as further described in Note 9 to our unaudited condensed consolidated financial statements for the threematters and nine months ended September 30, 2018. In the nine months ended September 30, 2018, we recorded income tax expense from continuing operations of $67 million.other adjustments. The effective tax rate on pretax income from continuing operations was 19.3%25.8% for the ninesix months ended SeptemberJune 30, 2019. 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, a $2 million benefit related to stock-based compensation, a $3 million benefit resulting from a change in our state tax rates, and a $1 million charge related to the resolution of federal and state income tax matters and other adjustments.
In the three and six months ended June 30, 2018, we recorded income tax expense of $33 million and $90 million, respectively. The effective tax rate on pretax income 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, the deduction of certain transaction costs and other expenses previously capitalized,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 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, a $3 million benefit related to federal and state income tax filings for the prior year, and a $24 million benefit to revise the provisional discrete net tax benefit recorded due to Tax Reform, as further described in Note 9 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2018.
In the three and nine months ended September 30, 2017, we recorded an income tax benefit from continuing operations of $20 million and $82 million, respectively. The effective tax rate on pretax loss from continuing operations was 51.8% for the three months ended September 30, 2017. The rate differs from the U.S. federal statutory rate of 35% 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, and a $1 million charge related to the resolution of federal and state income tax matters and other adjustments. The effective tax rate on pretax loss from continuing operations was 35.3% for the nine months ended September 30, 2017. For the nine months ended September 30, 2017, the rate differs from the U.S. federal statutory rate of 35% due to state income taxes (net of federal benefit), the domestic production activities deduction, certain transaction costs and other expenses not fully deductible for tax purposes, a $1 million charge related to the resolution of federal and state income tax matters and other adjustments, a $3 million benefit related to expected refunds of interest paid on prior tax assessments and a $1 million charge related to the write-off of unrealized deferred tax assets related to stock-based compensation.
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 to maximize 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. The Nexstar Merger Agreement for the proposed Nexstar Merger places certain limitations on our use of cash, including our application of cash to repurchase shares of our Common Stock, our ability to declare any dividends other than quarterly cash dividends of $0.25 or less per share, our ability to make certain capital expenditures (except pursuant to our capital expenditures budget), and our ability to pursue significant business acquisitions.
For our long-term liquidity needs, in addition to these sources, we may rely upon the issuance of long-term debt, the issuance of equity or other instruments convertible into or exchangeable for equity, or the sale of non-core assets.
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 ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 20172018 (in thousands):
| | | | Nine Months Ended | Six Months Ended |
| | September 30, 2018 | | September 30, 2017 | June 30, 2019 | | June 30, 2018 |
| Net cash provided by operating activities | $ | 306,849 |
| | $ | 171,494 |
| $ | 210,263 |
| | $ | 220,941 |
|
| Net cash (used in) provided by investing activities | (23,658 | ) | | 900,115 |
| |
| Net cash provided by (used in) investing activities | | 81,968 |
| | (17,744 | ) |
| Net cash used in financing activities | (70,084 | ) | | (1,062,502 | ) | (41,164 | ) | | (48,991 | ) |
| Net increase in cash, cash equivalents and restricted cash | $ | 213,107 |
| | $ | 9,107 |
| $ | 251,067 |
| | $ | 154,206 |
|
Operating activities
Net cash provided by operating activities for the ninesix months ended SeptemberJune 30, 20182019 was $307$210 million compared to $171$221 million for the ninesix months ended SeptemberJune 30, 2017.2018. The increasedecrease was primarily due to higher operatinglower cash flows from operating results favorableand unfavorable working capital changes, and lower tax payments, partiallylargely offset by 2018 pension contributions and lowerhigher distributions from our equity investments. Cash paid for income taxes, net of income tax refunds, decreased by $39 million.investments and lower pension contributions. Distributions from our equity investments were $181 million for the six months ended June 30, 2019 compared to $159 million for the ninesix months ended SeptemberJune 30, 2018 compared to $1782018.
Investing activities
Net cash provided by investing activities totaled $82 million for the ninesix months ended SeptemberJune 30, 2017.
Investing activities
Net cash used in investing activities totaled $24 million for the nine months ended September 30, 2018.2019. Our capital expenditures in the ninesix months ended SeptemberJune 30, 20182019 totaled $47$31 million and included $10$12 million related to
the FCC spectrum repacking project. In the ninesix months ended SeptemberJune 30, 2018,2019, we received net proceeds of $15$107.5 million from the sales of investments2019 Cubs Sale and $7$6 million of repack reimbursements from the FCC.
A majority of our remaining capital expenditures for the FCC spectrum repacking are expected to occur in 2018 and 2019. Through June 30, 2019, we have incurred $39 million in capital expenditures for the spectrum repack, of which $17 million has been reimbursed by the FCC. 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.
Net cash provided byused in investing activities totaled $900$18 million for the ninesix months ended SeptemberJune 30, 2017.2018. Our capital expenditures in the ninesix months ended SeptemberJune 30, 20172018 totaled $41 million.$25 million and included $5 million related to the FCC spectrum repacking project. In the ninesix months ended SeptemberJune 30, 2017,2018, we received net proceeds of $554 million from the Gracenote Sale, $172 million related to gross proceeds from the sale of certain FCC licenses in the FCC spectrum auction, $148$4 million related to the sales of investments and $61$2 million related toof repack reimbursements from the sales of real estate.FCC.
Financing activities
Net cash used in financing activities was $70$41 million for the ninesix months ended SeptemberJune 30, 2018.2019. During the ninesix months ended SeptemberJune 30, 2018,2019, we paid quarterly cash dividends of $66$44 million and paid $9 million of tax withholdings related to net share settlements of share-based awards while receiving proceeds of $11 million from stock option exercises.
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 dividends of $44 million and paid $6 million of tax withholdings related to net share settlementssettlement of share-based awards.
Net cash used in financing activities was $1.063 billion for the nine months ended September 30, 2017. During the nine months ended September 30, 2017, we repaid $704 million of borrowings under our Term Loan Facility and the Dreamcatcher Credit Facility, which included using $400 million of proceeds from the Gracenote Sale to prepay a portion of our Term B Loans in the first quarter of 2017 and using $102 million of after-tax proceeds received from
our participation in the FCC spectrum auction to prepay $10 million of the Term B Loans and $91 million of the Term C Loans in the third quarter of 2017. Additionally, we used $203 million of long-term borrowings of Term C Loans to repay $184 million of Term B Loans, with the remainder used to pay fees associated with the 2017 Amendment. We paid dividends of $564 million consisting of quarterly cash dividends of $65 million and the special cash dividend of $499 million.
Debt
Our debt consisted of the following (in thousands):
|
| | | | | | | |
| | September 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 $1,428 and $1,900 | $ | 188,197 |
| | $ | 187,725 |
|
| Term C Loans due 2024, effective interest rate of 3.85%, net of unamortized discount and debt issuance costs of $19,186 and $21,783 | 1,646,706 |
| | 1,644,109 |
|
| 5.875% Senior Notes due 2022, net of debt issuance costs of $10,563 and $12,649 | 1,089,437 |
| | 1,087,351 |
|
| Total debt | $ | 2,924,340 |
| | $ | 2,919,185 |
|
|
| | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| Term Loan Facility | | | |
| Term B Loans due 2020, effective interest rate of 3.84%, net of unamortized discount and debt issuance costs of $952 and $1,268 | $ | 188,673 |
| | $ | 188,357 |
|
| Term C Loans due 2024, effective interest rate of 3.85%, net of unamortized discount and debt issuance costs of $16,565 and $18,305 | 1,649,327 |
| | 1,647,587 |
|
| 5.875% Senior Notes due 2022, net of debt issuance costs of $8,478 and $9,861 | 1,091,522 |
| | 1,090,139 |
|
| Total debt | $ | 2,929,522 |
| | $ | 2,926,083 |
|
Secured Credit Facility—At both SeptemberJune 30, 20182019 and December 31, 2017,2018, 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”).outstanding. At both SeptemberJune 30, 20182019 and December 31, 2017,2018, there were no borrowings outstanding under the Revolvingour $338 million revolving credit facility (the “Revolving Credit Facility;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 97 to our audited consolidated financial statements for the fiscal year ended December 31, 20172018 for further information and significant terms and conditions associated with the SecuredTerm Loan Facility and the Revolving 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.
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 nine months ended September 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, 2016.15. The Notes mature on July 15, 2022.
Dreamcatcher Credit Facility—WeOn August 2, 2019, we caused to be delivered to the holders of the Notes a conditional notice of redemption (the “Initial Notice”) relating to the full redemption of all issued and outstanding Notes (the “Redemption”) on August 12, 2019 (as delayed in our discretion, the “Redemption Date”), pursuant to Section 5.2 of the Indenture, dated as of June 24, 2015 (as amended, supplemented or otherwise modified to date, the “Indenture”), among us, each of the subsidiary guarantors party thereto, and The Bank of New York Mellon Trust Company, N.A., as trustee. On August 8, 2019, we caused to be delivered to the holders of the Notes a supplemental conditional notice of redemption (the “Supplemental Notice”, and the guarantors guaranteedInitial Notice as supplemented by the obligationsSupplemental Notice, the “Notice”) in order to delay the Redemption of Dreamcatcher under its senior secured credit facilitythe Notes to August 15, 2019. The redemption price for the Notes is equal to the sum of 101.469% of the principle amount of the Notes, plus accrued and unpaid interest, if any, on the Notes to (but not including) the Redemption Date (the “Dreamcatcher Credit Facility”“Redemption Price”).
Our obligation to pay the Redemption Price on the Redemption Date is conditioned upon the consummation of the Nexstar Merger (the “Condition”). In our discretion, the Redemption Date may be delayed until such time as the Condition is satisfied (or waived in our sole discretion). In our discretion, the Redemption may not occur and the Notice may be rescinded in the event that the Condition is not satisfied (or waived in our sole discretion) by the Redemption Date or by the Redemption Date so delayed. The closing of the Nexstar Merger is subject to a number of conditions. As a result, there can be no assurance that the Redemption will occur on the Redemption Date or at all. See Note 91 to our auditedunaudited condensed consolidated financial statements for the fiscal yearthree and six months ended December 31, 2017June 30, 2019 for information regarding the description ofNexstar Merger and 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.Nexstar Merger Agreement.
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”).Stock. Under the stock repurchase program, we may repurchase shares in open-market purchases in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act.Act of 1934, as amended. The repurchase program may be suspended or discontinued at any time. We did not repurchase any shares of Common Stock during 20172018 and did not make any share repurchases during the ninesix months ended SeptemberJune 30, 20182019 due to restrictions contained in the now terminated Sinclair Merger Agreement and the Nexstar Merger Agreement. As of SeptemberJune 30, 2018,2019, the remaining authorized amount under the current authorization totaled approximately $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 | 2019 | | 2018 |
| | Per Share | | Total Amount | | Per Share | | Total Amount | Per Share | | Total Amount | | Per Share | | Total Amount |
| First quarter | $ | 0.25 |
| | $ | 21,922 |
| | $ | 0.25 |
| | $ | 21,742 |
| $ | 0.25 |
| | $ | 22,061 |
| | $ | 0.25 |
| | $ | 21,922 |
|
| Second quarter | 0.25 |
| | 21,925 |
| | 0.25 |
| | 21,816 |
| 0.25 |
| | 22,114 |
| | 0.25 |
| | 21,925 |
|
| Third quarter | 0.25 |
| | 21,929 |
| | 0.25 |
| | 21,834 |
| |
| Total quarterly cash dividends declared and paid | $ | 0.75 |
| | $ | 65,776 |
| | $ | 0.75 |
| | $ | 65,392 |
| $ | 0.50 |
| | $ | 44,175 |
| | $ | 0.50 |
| | $ | 43,847 |
|
On November 8, 2018,August 1, 2019, the Board declared a quarterly cash dividend on Common Stock of $0.25 per share to be paid on December 4, 2018September 3, 2019 to holders of record of Common Stock and Warrants as of Novemberthe close of business on
August 19, 2018.
On February 3, 2017, we paid a special cash dividend of $5.77 per share2019. However, in the event the Nexstar Merger closes prior 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 toAugust 19, 2019, holders of Warrants.
Any determination to pay dividends on ourthe Company’s Common Stock and Warrants will not be entitled to this dividend.
The declaration of any future dividends and the establishment of the per share amount, record dates and payment dates is subject tofor any such future dividends are at the discretion of ourthe 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 with respect to payment of dividends (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 ninesix months ended SeptemberJune 30,
2018) 2019), restrictions imposed by applicable law, general business conditions and other factors that our Board may deem relevant. Under the Nexstar Merger Agreement, we may not pay dividends other than quarterly cash dividends of $0.25 or less per share. In addition, pursuant to the terms of the Warrant Agreement, concurrently with any cash dividend made to holders of our Common Stock, holders of Warrants are entitled to receive a cash payment equal to the amount of the dividend paid per share of Common Stock for each Warrant held.
Off-Balance Sheet Arrangements
As further described in Note 5 of our unaudited condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 2018,2019, we sold our 5% ownership interest in CEV LLC on January 22, 2019. Concurrently with the first quarter of 2018, New Cubs LLC refinanced a portion of its debt which was guaranteed by us andsale, we ceased being a guarantor of the refinanced debt. As of September 30, 2018, the remaining guarantees were capped at $249 million plus unpaid interest.all debt facilities held by New Cubs LLC.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
New Accounting Standards—See Note 1 to our unaudited condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 20182019 for a discussion of new accounting guidance and the Company’s adoption of certain accounting standards in 2018.2019.
We have updated our revenue recognitionlease accounting policies in conjunction with our adoption of Topic 606842 as further described in Note 1 to our unaudited condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 2018.2019. See Note 1 for additional information on the key judgments and estimates related to revenue recognitionlease accounting under the new policy. Except for the adoption of Topic 606,842, 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 20172018 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, 2017.2018.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms such that information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act, as of SeptemberJune 30, 2018.2019. 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 SeptemberJune 30, 2018.2019.
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 SeptemberJune 30, 20182019 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 ninesix months ended SeptemberJune 30, 20182019 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 that have collectively closingclosed 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 310 to our audited consolidated financial statements for the fiscal year ended December 31, 20172018 for further information.
As further described in Note 1311 to our audited consolidated financial statements for the fiscal year ended December 31, 2017,2018, 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 86 to our audited consolidated financial statements for the year ended December 31, 2017)2018) 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 SeptemberJune 30, 20182019 would be approximately $76$92 million. We continue to disagree with the IRS’s position that the transaction generated a taxable gain in 2009, the proposed penalty and the IRS’s calculation of the gain. During the third quarter of 2016, we filed a petition in U.S. Tax Court to contest the IRS’s determination. We continue to pursue resolution of this disputed tax matter with the IRS. If the gain on the Chicago Cubs Transactions is deemed to be taxable in 2009, we estimate that the federal and state income taxes would be approximately $225 million before interest and penalties. Any tax, interest and penalty due will be offset by any tax payments made relating to this transaction subsequent to 2009. Through September 30, 2018, we have paid or accrued approximately $85 million through our regular tax reporting process.
We do not maintain any tax reserves related to the Chicago Cubs Transactions. In accordance with ASC Topic 740, “Income Taxes,” our unaudited Condensed Consolidated Balance Sheet as of September 30, 2018 includes deferred tax liabilities of $64 million related to the future recognition of taxable income and gain from the Chicago Cubs Transactions. As further described in Note 5 to our unaudited condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 2018,2019, on August 21, 2018, NEH provided the Call Notice to us that NEH was exercising its right pursuant to the Amended and Restated Limited Liability Company Agreement of CEV LLC to purchase our 5% membership interest in CEV LLC. We sold our 5% ownership interest in CEV LLC on January 22, 2019 for pretax proceeds of $107.5 million and recognized a gain of $86 million before taxes ($66 million after taxes) in the first quarter of 2019. As a result of the sale, the previously recorded deferred tax liability of $69 million related to the future recognition of taxable income related to the Chicago Cubs Transactions became currently payable.
Subsequent to the sale, we no longer own any portion of CEV LLC, and we maintain no deferred taxes or tax reserves related to the Chicago Cubs Transactions. As of June 30, 2019, we have paid or accrued approximately $167 million of federal and state taxes on the deferred gain and the 2019 Cubs Sale through our regular tax reporting process. The Call Notice and any potential future transaction with NEH havesale of our ownership interest in CEV LLC has no impact on our dispute with the IRS.
Our liability for unrecognized tax benefits totaled $22 million and $21 million and $23 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
Starting in July 2018, a series of plaintiffs have filed putative class action lawsuits against us, Tribune Broadcasting Company, Sinclair, and other named and unnamed defendants including Hearst Television, Inc., Nexstar Media Group Inc., TEGNA Inc., Gray Television, Inc. (collectively, the “Defendants”) alleging that the Defendants coordinated their pricing of television advertising, thereby harming a proposed class of all buyers of television advertising time from one or more of the Defendants since at least January 1, 2014. The plaintiff in each lawsuit seeks injunctive relief and money damages caused by the alleged antitrust violations. Currently, at least twenty-two lawsuits have been filed, and are beingwere consolidated in the Northern District of Illinois. Plaintiffs are expected to fileLead counsel for the plaintiffs was appointed on January 23, 2019. The plaintiffs then filed an amended, consolidated complaint once the lawsuits are consolidated.on April 3, 2019. We believe the above lawsuits are without merit and intend to defend them vigorously.
On August 9, 2018, we filed the Complaint in the Chancery Court of the State of Delaware against Sinclair, alleging that Sinclair willfully and materially breached its obligations under the Sinclair Merger Agreement to use its reasonable best efforts to promptly obtain regulatory approval of the Sinclair Merger so as to enable the Sinclair 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 Sinclair Merger Agreement. On August 29, 2018, Sinclair filed an answer to our Complaint and the Counterclaim. The Counterclaim alleges that we materially and willfully breached the Sinclair Merger Agreement by failing to use reasonable best efforts to obtain regulatory approval of the Sinclair Merger. On September 18, 2018, we filed an answer to the Counterclaim. We believe the Counterclaim is without merit and intend to defend it vigorously.
On September 10, 2018, theThe Arbitrage Event-Driven Fund filed a putative securities class action complaint (the “Securities Complaint”) against us and members of our senior management in the United States District Court for the Northern District of Illinois. The Securities Complaint alleges that Tribune Media Company and its senior management violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by misrepresenting and omitting material facts concerning Sinclair’s conduct during the Sinclair Merger approval process. On December 18, 2018, the Court appointed The lawsuit seeks compensatory damages in favor of the Arbitrage Event-Driven Fund and related entities as Lead Plaintiffs. On January 31, 2019, Lead Plaintiffs and two other putative classnamed plaintiffs filed an amended complaint (the “Amended Complaint”). The Amended Complaint eliminates the claim under Section 20(a) of the Exchange Act and adds a claim under Section 11 of the Securities Act related to a November 29, 2017 public offering of our Class A Common Stock by Oaktree Tribune, L.P. (“Oaktree”). The Amended Complaint also names certain members definedof the Board of Directors of Tribune Media Company as defendants. The Amended Complaint also includes claims against Oaktree, Oaktree Capital Management, L.P. and Morgan Stanley & Co. LLC. The lawsuit is purportedly brought on behalf of purchasers of our stockClass A Common Stock between November 29, 2017 and July 16, 2018, contemporaneously with Oaktree’s sales in the November 29, 2017 public offering or pursuant or traceable to that offering. Plaintiffs seek damages in an amount to be provendetermined at trial. On March 29, 2019, the Company and the individual Tribune Media Company defendants filed a motion to dismiss the Amended Complaint, and that motion is now fully briefed before the Court. We believe this lawsuit is without merit and intend to defend it vigorously.
On March 16, 2018, we received a Civil Investigative Demand ("CID") from the Antitrust Division of the United States Department of Justice ("DOJ") regarding an investigation into the exchange of certain information related to the pacing of sales related to the same period in the prior year among broadcast stations in some Designated Market Areas (“DMAs”) in alleged violation of Federal antitrust law. On November 6, 2018, without conceding any wrongdoing, we agreed to settle the matter. The consent decree, which settles any claims by the government of alleged violations of federal antitrust laws in connection with the alleged information-sharing, does not include any financial penalty. Pursuant to the consent decree, we have agreed that our stations will not exchange certain nonpublic information with other stations operating in the same DMA except in certain cases and to monitor and report on compliance with the decree.
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 20172018 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 and subsequent filings with the SEC.
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 or the related lawsuit filed by Sinclair, and ongoing litigation related to the Merger Agreement may impose substantial costs.
We are subject to risks related to litigation and other legal proceedings, including related to the Merger.
We are currently subject to various legal proceedings, including lawsuits related to the Merger, as further described in “Item 1. Legal Proceedings” of this Quarterly Report on Form 10-Q. We are subject to multiple suits, some of which may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years. In addition, after we filed the Complaint against Sinclair alleging breach of contract under the Merger Agreement, Sinclair filed an answer to our Complaint and the Counterclaim, alleging that we materially and willfully breached the Merger Agreement by failing to use reasonable best efforts to obtain regulatory approval of the Merger. We do not believe that any matters or proceedings presently pending will have a material adverse effect, individually or in the aggregate, on our consolidated financial position, results of operations or liquidity. However, legal matters and proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. Substantial unanticipated verdicts, fines and rulings do sometimes occur. As a result, we could from time to time incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations in the period in which the amounts are accrued and/or our cash flows in the period in which the amounts are paid. The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions which could negatively affect our operations or harm our reputation. Additionally, defending against these lawsuits and proceedings may involve significant costs and diversion of management’s attention and resources.
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 ninesix months ended SeptemberJune 30, 2018.2019. As further described in Note 11 to our unaudited condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 2018,2019, 30,551 Warrants remain outstanding as of SeptemberJune 30, 2018.2019. 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 ninesix months ended SeptemberJune 30, 2018,2019, 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 SeptemberJune 30, 2018,2019, the remaining authorized amount under the current authorization totaled $168 million. The Nexstar Merger Agreement prohibits us from engaging in additional share repurchases.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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| 32.1 | | |
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| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| 101.SCH | | XBRL Taxonomy Extension Schema |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
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| 101.LAB | | XBRL Taxonomy Extension Label Linkbase |
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| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
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| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
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 NovemberAugust 9, 2018.2019.
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| TRIBUNE MEDIA COMPANY |
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| By: | /s/ Chandler Bigelow |
| Name: | Chandler Bigelow |
| Title: | Executive Vice President and Chief Financial Officer |