Tribune Company today reported a second quarter 2008 loss from continuing operations of $3.8 billion compared with income from continuing operations of $35 million in the second quarter of 2007. The 2008 loss from continuing operations was due to after-tax non-cash charges of $3.8 billion to write down the Company’s publishing goodwill and newspaper masthead intangible assets, nearly all of which resulted from the Company’s Times Mirror acquisition in 2000.
Tribune also reported a loss from discontinued operations of $705 million in the second quarter of 2008 compared with income from discontinued operations of $1 million in the second quarter of 2007. The 2008 loss from discontinued operations was primarily related to the disposition of a controlling interest in the Company’s Newsday operations.
Operating cash flow from continuing operations decreased 2 percent to $221 million in the second quarter of 2008 from $226 million in the second quarter of 2007 and included the following items:
- A charge of $15 million for severance and special termination benefits in the 2008 quarter, compared with a charge for severance of $27 million in the 2007 quarter.
- A charge of $5 million for stock-based compensation related to the Company’s new management equity incentive plan in the 2008 quarter, compared to a charge of $8 million for stock-based compensation expense in the 2007 quarter.
- A gain of $23 million in the 2008 quarter related to the sale of real estate.
- A charge of $24 million in the 2007 quarter for the write-off of Los Angeles Times plant equipment related to the previously closed San Fernando Valley facility.
“Our publishing results are, for the most part, in line with industry trends, which remain consistent with what we reported in the first quarter,” commented Sam Zell, chairman and CEO of Tribune Company. “Most importantly we have repaid an additional $807 million of borrowings under the Tranche X Facility from the net proceeds of our asset-backed commercial paper program and from the Newsday transaction. These payments satisfy the December 2008 portion of the Tranche X Facility, and leave us with a remaining principal balance of $593 million due in June 2009.”
“Since the beginning of the year, we have launched dozens of programs and products that have the potential to make a meaningful impact on our future, and we have made significant progress in aligning our expenses with the realities of an industry in recession. We remain optimistic and are confident in the strength of our brands and the talent within our company.”
SECOND QUARTER 2008 RESULTS FROM CONTINUING OPERATIONS1
(Compared to Second Quarter 2007)
Tribune’s 2008 second quarter operating revenues decreased 6 percent, or $67 million, to $1.1 billion. Consolidated cash operating expenses were down 6 percent, or $61 million. In the second quarter of 2008, cash operating expenses included a gain of $23 million related to the sale of real estate, a charge of $15 million for severance and special termination benefits, a charge of $5 million for stock-based compensation related to the Company’s new management equity incentive plan and a charge of $11 million for expense related to the Tribune Employee Stock Ownership Plan. Cash operating expenses in the second quarter of 2007 included a charge of $24 million for the write-off of Los Angeles Times plant equipment, a charge for severance of $27 million and a charge of $8 million for stock-based compensation expense. Operating cash flow in the second quarter of 2008 decreased 2 percent to $221 million, down from $226 million in the same quarter a year ago. Operating profit before the 2008 write-downs of intangible assets was $168 million in 2008, down 4 percent from $175 million in 2007.
Publishing’s second quarter operating revenues were $701 million, down 11 percent, or $83 million, from 2007. Publishing cash operating expenses were $586 million, down 12 percent, or $78 million, from 2007. Cash operating expenses in 2008 included the $23 million real estate gain and the $15 million charge for severance and special termination benefits, while cash operating expenses in 2007 included the $24 million plant equipment write-off and severance charges of $25 million. Publishing operating cash flow was $114 million, a 4 percent decline from $119 million in 2007.
- Advertising revenues decreased 15 percent, or $91 million, for the quarter.
- Retail advertising revenues were down 8 percent, or $20 million, for the quarter, primarily due to declines in the furniture/home furnishings, department stores, hardware/home improvement stores, specialty merchandise, and electronics categories. Preprint revenues, which are primarily included in retail advertising, decreased 9 percent, or $13 million.
- National advertising revenues were down 12 percent, or $16 million for the quarter, primarily due to decreases in the telecom/wireless and movies categories.
- Classified advertising revenues declined 26 percent, or $55 million, for the quarter. Real estate revenues fell by 38 percent, help wanted revenues declined 33 percent and auto revenues were down 9 percent.
- Interactive revenues, which are included in the above categories, were down 4 percent, or $2 million, due to a decrease in classified advertising.
- Circulation revenues were down 2 percent, or $3 million, due to a decline in total net paid circulation copies for both daily and Sunday, partially offset by selective price increases. The largest revenue declines were at Chicago and Los Angeles. Circulation revenues increased at South Florida, Orlando, and Baltimore. Total net paid circulation averaged 2.2 million copies daily (Mon-Fri), off 5 percent from the prior year’s second quarter, and 3.3 million copies Sunday, representing a decline of 5 percent from the prior year.
- Cash operating expenses declined 12 percent, or $78 million, largely because 2008 included the $23 million real estate gain and 2007 included the $24 million plant equipment write-off. In addition, compensation expense declined 7 percent, or $20 million, due to 930 fewer full-time equivalent positions in the second quarter of 2008 and lower severance and special termination charges. All other cash expenses were down $11 million, or 3 percent, primarily due to lower newsprint and ink expense, outside services, and promotion expense, partially offset by higher circulation distribution expense due to the delivery of additional publications.
BROADCASTING AND ENTERTAINMENT
Broadcasting and entertainment’s second quarter operating revenues increased 4 percent to $409 million, up from $393 million in 2007. Cash operating expenses increased 8 percent, or $21 million, to $293 million. Operating cash flow was $116 million, down 4 percent from $120 million in 2007.
Television’s second quarter operating revenues increased 2 percent to $292 million in 2008. Television cash operating expenses were up 7 percent, or $13 million, from last year. Television operating cash flow was $92 million, down 8 percent from $100 million in 2007.
- The increase in television revenues in the second quarter of 2008 was driven by an increase in market share at most stations.
- Television cash operating expenses were up $13 million primarily due to increases in broadcast rights expense, promotion, news expansion, and other cash expenses.
- Radio/entertainment revenues were up $11 million and operating cash flow increased $4 million primarily as a result of gains at the Chicago Cubs. The improvement was partially due to two more home games compared to last year’s second quarter.
WRITE-DOWNS OF INTANGIBLE ASSETS
Due to the continuing decline in newspaper advertising revenues in 2008, the Company performed an impairment review of goodwill attributable to its newspaper reporting unit and newspaper masthead intangible assets in the second quarter of 2008. As a result of the impairment review, the Company recorded non-cash pretax impairment charges totaling $3,843 million ($3,832 million after taxes) to write down its newspaper reporting unit goodwill by $3,007 million ($3,006 million after taxes) and four newspaper mastheads by a total of $836 million ($826 million after taxes). These non-cash impairment charges do not affect the Company’s operating cash flow or its compliance with its financial debt covenants.
Net equity income was $18 million in the second quarter of 2008, compared with
$29 million in the second quarter of 2007. The decrease was primarily due to a $13 million impairment write-down at one of the Company’s interactive investments, partially offset by improvements at TV Food Network and Comcast SportsNet Chicago.
In the second quarter of 2008, Tribune recorded a pretax non-operating gain of $36 million from marking-to-market the Company’s PHONES debt and the related Time Warner investment. This gain was partially offset by a $10 million write-down of the Company’s investment in ShopLocal, LLC, which was sold on June 30, 2008. The write-down reduced the carrying value of the investment to the amount of net proceeds received from the sale. In the aggregate, non-operating items in the 2008 second quarter resulted in a pretax and after-tax gain of $26 million.
In the 2007 second quarter, Tribune recorded a pretax non-operating loss of $30 million, which included a $27 million loss from marking-to-market the Company’s PHONES and the related Time Warner investment. In the aggregate, non-operating items in the 2007 second quarter resulted in an after-tax loss of $21 million.
ADDITIONAL FINANCIAL DETAILS
Corporate cash operating expenses for the 2008 second quarter decreased to $10 million from $14 million in the second quarter of 2007 primarily due to a $3 million decrease in severance and equity compensation expense.
Interest expense related to continuing operations increased to $211 million in the 2008 second quarter from $112 million in the second quarter of 2007 primarily due to higher debt levels, partially offset by lower interest rates. The Company allocated interest expense of $8.4 million and $3.4 million in the second quarters of 2008 and 2007, respectively, to discontinued operations. Debt was $12.5 billion at the end of the 2008 second quarter and $9.3 billion at the end of the 2007 second quarter. The increase was primarily due to financing the going-private transaction completed in the fourth quarter of 2007. Cash and cash equivalents was $161 million at the end of the 2008 second quarter and $262 million at the end of the 2007 second quarter. Capital expenditures, excluding the TMCT real estate purchase discussed below, were $21 million in the second quarter of 2008.
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.
On July 3, 2008, the Company used the net proceeds of $218 million from the trade receivables securitization facility to repay borrowings under its Tranche X Facility and on August 1, 2008, the Company used net cash proceeds of $589 million from the Newsday transaction to repay borrowings under its Tranche X Facility.
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 closed on 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. At the closing, the Company received a special distribution from the limited liability company of $612 million in cash and $18 million in prepaid rent under leases for certain NMG facilities retained by the Company. Tribune owns approximately 3 percent of the equity in 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.
REAL ESTATE TRANSACTIONS
On January 30, 2008, the Company sold the real estate and related assets of its studio production lot located in Hollywood, California for $125 million. On April 22, 2008, the Company sold the SCNI real estate in Stamford and Greenwich, Connecticut, for $30 million. The net proceeds from these transactions, along with available cash, were used to purchase the real estate formerly leased from TMCT, LLC for $175 million on April 28, 2008. These transactions were structured as a like-kind exchange, which allowed the Company to defer income taxes on essentially all of the gains from these dispositions.
This press release contains certain comments or forward-looking statements that are based largely on the Company’s current expectations and are subject to certain risks, trends and uncertainties. You can identify these and other forward-looking statements by the use of such words as “will,” “expect,” “plans,” “believes,” “estimates,” “intend,” “continue,” 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 operations and liquidity as a result of restrictive covenants in such senior credit facilities; 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 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.