Tribune Company today reported a third quarter 2008 loss from continuing operations of $124 million compared with income from continuing operations of $84 million in the third quarter of 2007.
Tribune also reported income from discontinued operations of $3 million in the third quarter of 2008 compared with income from discontinued operations of $69 million in the third quarter of 2007.
“We are operating in an exceptionally difficult financial and economic environment,” commented Sam Zell, Tribune chairman and CEO. “The newspaper industry continues to see extraordinary declines in ad revenues, and Tribune is no exception. But, we continue to aggressively pursue our operating strategy, and to tightly manage the factors that are within our control. Internally, we have established momentum on developing new initiatives and our culture now reflects that focus and mindset.”
THIRD QUARTER 2008 RESULTS FROM CONTINUING OPERATIONS1
(Compared to Third Quarter 2007)
Tribune’s 2008 third quarter operating revenues decreased 10 percent, or $122 million, to $1 billion. Consolidated cash operating expenses were up 6 percent, or $57 million. Operating cash flow decreased 67 percent to $90 million in the 2008 quarter from $268 million in the 2007 quarter, while operating profit declined 83 percent to $37 million from $217 million.
Third quarter cash operating expenses and operating cash flow included the following items:
• A charge of $45 million for severance and special termination benefits in the 2008 quarter, compared with a charge for severance of $4 million in the 2007 quarter.
• A charge of $25 million in the 2008 quarter for the write-off of certain capitalized software application costs.
• A charge of $3 million for stock-based compensation related to the Company’s new management equity incentive plan in the 2008 quarter, compared with a charge of $7 million for stock-based compensation expense in the 2007 quarter.
• A charge of $11 million in the 2008 quarter for compensation expense related to the Tribune Employee Stock Ownership Plan.
Publishing’s third quarter operating revenues were $654 million, down 13 percent, or $99 million, from 2007. Publishing cash operating expenses were $640 million, up 6 percent, or $36 million, from 2007. Cash operating expenses in 2008 included a $41 million charge for severance and special termination benefits, the $25 million capitalized software application costs write-off, and stock-based compensation of $1 million, while cash operating expenses in 2007 included severance and related costs of $4 million and stock-based compensation of $4 million. Publishing operating cash flow was $13 million, a 91 percent decline from $148 million in 2007.
• Advertising revenues decreased 19 percent, or $111 million, for the quarter.
• Retail advertising revenues were down 10 percent, or $24 million, for the quarter, primarily due to declines in the furniture/home furnishings, hardware/home improvement stores, department stores, specialty merchandise, personal services and other retail categories. Preprint revenues, which are primarily included in retail advertising, decreased 15 percent, or $20 million.
• National advertising revenues were down 21 percent, or $30 million, for the quarter, primarily due to decreases in the movies, telecom/wireless, auto, media, and transportation categories.
• Classified advertising revenues declined 30 percent, or $58 million, for the quarter. Real estate revenues fell by 44 percent, help wanted revenues declined 37 percent, and auto revenues were down 11 percent.
• Interactive revenues, which are included in the above categories, were down 7 percent, or $4 million, due to a decline in classified advertising, partially offset by increases in retail and national advertising.
• Circulation revenues were down 2 percent, or $2 million, due to a decline in total net paid circulation copies for both daily (Mon-Fri) and Sunday, partially offset by selective price increases. The largest revenue declines were at Chicago, Hartford, and Los Angeles. Circulation revenues increased at South Florida and Orlando. Total net paid circulation averaged 2.2 million copies daily, off 7 percent from the prior year’s third quarter, and 3.3 million copies Sunday, representing a decline of 5 percent from the prior year.
• Cash operating expenses increased 6 percent, or $36 million, largely because 2008 included the $25 million write-off of certain capitalized software application costs. Compensation expense increased 8 percent, or $21 million, due to a $37 million increase in severance and special termination benefits, partially offset by the impact of 1,300 fewer full-time equivalent positions in the third quarter of 2008 and lower stock-based compensation expense. All other cash expenses were down $10 million, or 3 percent, primarily due to lower promotion expense and outside services, partially offset by higher circulation distribution expense due to the delivery of additional third-party publications.
BROADCASTING AND ENTERTAINMENT
Broadcasting and entertainment’s third quarter operating revenues decreased 6 percent to $383 million, down from $406 million in 2007. Cash operating expenses increased 8 percent, or $21 million, to $296 million. Operating cash flow was $87 million, down 33 percent from $130 million in 2007.
Television’s third quarter operating revenues decreased 8 percent to $264 million in 2008. Television cash operating expenses were up 5 percent, or $10 million, from last year. Television operating cash flow was $64 million, down 34 percent from $98 million in 2007.
• The decrease in television revenues in the third quarter of 2008 was due to lower cable copyright royalties and soft advertising demand, partially offset by station revenue share gains in most markets. The third quarter of 2007 included an additional $18 million of cable copyright royalties at Chicago and WGN Cable.
• Television cash operating expenses were up $10 million primarily due to severance costs of $3 million as well as increases in broadcast rights expense and news expansion.
• Radio/entertainment revenues were up $1 million and operating cash flow decreased $10 million primarily due to higher player compensation at the Chicago Cubs and two fewer home games in 2008.
Net equity income was $23 million in the third quarter of 2008, compared with $27 million in the third quarter of 2007. The decrease was primarily due to a $4 million write-down at one of the Company’s interactive investments.
In the third quarter of 2008, Tribune recorded a pretax non-operating gain of $71 million, which resulted from a $79 million gain on the sale of a 10 percent interest in CareerBuilder, LLC, partially offset by an $8 million loss from marking-to-market the Company’s PHONES debt and the related Time Warner investment. In the aggregate, non-operating items in the 2008 third quarter resulted in an after-tax gain of $47 million.
In the 2007 third quarter, Tribune recorded a pretax non-operating loss of $78 million, which included an $85 million loss from marking-to-market the Company’s PHONES and the related Time Warner investment, partially offset by an $8 million pretax gain related to the redemption of the Company’s remaining interests in TMCT, LLC and TMCT II, LLC. The Company also recorded a favorable $91 million income tax expense adjustment as a result of settling its appeal of the United States Tax Court decision that disallowed the tax-free reorganization of Matthew Bender and Mosby, former subsidiaries of Times Mirror, with the United States Court of Appeals for the Seventh Circuit. In the aggregate, non-operating items in the 2007 third quarter resulted in an after-tax gain of $42 million.
ADDITIONAL FINANCIAL DETAILS
Corporate cash operating expenses for the 2008 third quarter were down 3 percent at $11 million.
Interest expense related to continuing operations increased to $232 million in the 2008 third quarter from $175 million in the third quarter of 2007 primarily due to higher debt levels, partially offset by lower interest rates. The Company allocated interest expense of $3 million and $12 million in the third quarters of 2008 and 2007, respectively, to discontinued operations. Debt was $11.8 billion at the end of the 2008 third quarter and $9.4 billion at the end of the 2007 third quarter. The increase was primarily due to financing the going-private transaction completed in the fourth quarter of 2007. Cash and cash equivalents was $260 million at the end of the 2008 third quarter and $446 million at the end of the 2007 third quarter. Capital expenditures were $21 million in the third quarter of 2008.
On Sept. 2, 2008, the Company sold a 10 percent interest in CareerBuilder, LLC to Gannett Co., Inc. for $135 million.
On July 1, 2008, the Company and Tribune Receivables LLC, a wholly-owned subsidiary of the Company, entered into a $300 million trade receivables securitization facility. The Company borrowed $225 million under this facility and incurred transaction costs totaling $7 million.
During the third quarter of 2008, the Company repaid an aggregate of $888 million of the borrowings under the Tranche X Facility, utilizing the net cash proceeds of $218 million from the trade receivables securitization facility, $589 million of the net cash proceeds from the Newsday transaction, and $81 million of the net cash proceeds from the CareerBuilder transaction.
In May 2008, the Company announced an agreement with a subsidiary of Cablevision Systems Corporation to form a new limited liability company (“Newsday LLC”) to own and operate the Company’s Newsday Media Group business (“NMG”). The Company consummated the closing of this transaction on July 29, 2008, and recorded a pretax loss of $692 million ($693 million after taxes) in the second quarter of 2008 to write down the net assets of NMG to estimated fair value. In the third quarter of 2008, the Company recorded a favorable $1 million after-tax adjustment to the loss on this transaction. At the closing, the Company received a special distribution from Newsday LLC of $612 million in cash as well as $18 million of prepaid rent under leases for certain NMG facilities retained by the Company. Tribune owns approximately 3 percent of the equity in the parent company of Newsday LLC. The results of operations for NMG are reported as discontinued operations.
In February 2007, the Company announced an agreement to sell the New York edition of Hoy, the Company’s Spanish-language daily newspaper (“Hoy, New York”). The sale of Hoy, New York closed in May 2007. In March 2007, the Company announced an agreement to sell its Southern Connecticut Newspapers—The Advocate (Stamford) and Greenwich Time (collectively “SCNI”). The sale of SCNI closed in November 2007, and excluded the SCNI real estate in Stamford and Greenwich, Connecticut, which was sold in a separate transaction on April 22, 2008. During the third quarter of 2007, the Company entered into negotiations to sell the stock of one of its subsidiaries, EZ Buy and EZ Sell Recycler Corporation (“Recycler”). The sale of Recycler closed in October 2007. The results of operations for all of these business units are reported as discontinued operations.
Tribune plans to hold a conference call to discuss third quarter 2008 financial results before year end. Specific information about the call will be made available in a separate press release to be issued prior to the call.
This press release contains certain comments and forward-looking statements that are based largely on the Company’s current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. You can identify these and other forward-looking statements by the use of such words as “believe,” “expect,” “anticipate,” “estimate,” “could,” “should,” “intend,” “continue,” “will,” “plan,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Actual results could differ materially from the expectations expressed in these statements. Factors that could cause actual results to differ include risks and other factors described in Tribune’s publicly available reports filed with the Securities and Exchange Commission (“SEC”), which contain a discussion of various factors that may affect Tribune’s business or financial results. Such risks, trends and uncertainties, which in some instances are beyond the Company’s control, include: our ability to generate sufficient cash to service the significant debt levels and other financial obligations that resulted from the Company’s going-private transaction; our ability to comply with or obtain modifications or waivers of the financial covenants contained in our senior credit facilities, and the potential impact to our operations and liquidity as a result of restrictive covenants in such senior credit facilities; continuing instability or disruptions in the credit and financial markets; the impact of continuing adverse economic conditions; our dependency on dividends and distributions from our subsidiaries to make payments on our indebtedness; increased interest rate risk due to our higher level of variable rate indebtedness; the ability to maintain our subchapter S corporation status; changes in advertising demand, circulation levels and audience shares; consumer, advertiser and general market acceptance of various new marketing and product initiatives that the Company has introduced or may pursue in the future and the Company’s ability to implement such initiatives without disruption or other adverse impact on the Company’s business and operations; regulatory and judicial rulings, including changes in tax laws or policies; availability and cost of broadcast rights; competition and other economic conditions; changes in newsprint prices; changes in the Company’s credit ratings and interest rates; changes in the market value of the Company’s pension plan assets; changes in accounting standards; adverse results from litigation, governmental investigations or tax related proceedings or audits; the effect of labor strikes, lock-outs and negotiations; the effect of acquisitions, joint ventures, investments and divestitures; the effect of derivative transactions; the Company’s reliance on third party vendors for various services; and other events beyond the Company’s control that may result in unexpected adverse operating results. These factors could cause actual future performance to differ materially from current expectations. Tribune is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet service providers. This press release is being furnished to the SEC through a Form 8-K. The Company’s next 10-Q report to be filed with the SEC may contain updates to the information included in this release.