Tribune Company (NYSE: TRB) today reported third quarter 2007 diluted earnings per share from continuing operations of $.69 compared with $.65 in the third quarter of 2006.
Third quarter 2007 results from continuing operations included the following:
- A severance charge of $.02 per diluted share, primarily at publishing.
- A net non-operating gain of $.33 per diluted share, which included a favorable income tax expense adjustment of $.72 per diluted share related to the settlement of the Company’s Matthew Bender tax appeal, partially offset by a net loss of $.39 per diluted share primarily related to marking-to-market the derivative component of the Company’s PHONES and the related Time Warner investment.
Third quarter 2006 results from continuing operations included the following:
- A net non-operating gain of $.22 per diluted share, which included a gain of $.19 per diluted share related to the restructuring in September 2006 of TMCT, LLC and TMCT II, LLC, two limited liability companies that Tribune inherited in its acquisition of Times Mirror.
Tribune presents earnings per share amounts on a generally accepted accounting principles (“GAAP”) basis only. This differs from the pro forma earnings per share amounts supplied by broker analysts to databases such as First Call.
“Our third quarter results reflect a combination of better revenue trends, strong expense controls and an increase in equity income,” said Dennis FitzSimons, Tribune chairman, president and chief executive officer. “Publishing revenue trends improved slightly in the third quarter despite the impact of the housing slump on our Florida and California newspapers. We are also encouraged by positive national advertising trends, led by improved Tribune Media Net sales.”
“In television, ad revenue improved as the quarter progressed. New York finished the quarter strong on higher ratings from new syndicated programming and the CW network’s fall launch. Chicago also had a good September, thanks in part to Chicago Cubs telecasts.”
“The closing of our going-private transaction is still expected in the fourth quarter, following FCC approval of our waiver requests and receipt of a solvency opinion,” FitzSimons added.
THIRD QUARTER 2007 RESULTS FROM CONTINUING OPERATIONS 1
(Compared to Third Quarter 2006)
Tribune’s 2007 third quarter operating revenues decreased 4 percent, or $55 million, to $1.28 billion. Consolidated cash operating expenses were down 4 percent, or $46 million, in the third quarter of 2007 primarily due to a $25 million decrease in newsprint and ink expense and a $21 million decrease in compensation. Cash operating expenses in the third quarters of 2007 and 2006 included severance charges of $3.2 million and $2.2 million, respectively. Operating cash flow was down 3 percent to $285 million from $295 million, while operating profit declined 4 percent to $229 million from $238 million.
Publishing’s third quarter operating revenues were $871 million, down 7 percent, or $69 million. Publishing cash operating expenses decreased $48 million, or 6 percent, to $705 million. Publishing operating cash flow was $166 million, an 11 percent decline from $187 million in 2006. Publishing operating profit decreased 15 percent to $123 million, from $144 million in 2006.
- Advertising revenues decreased 9 percent, or $67 million, for the quarter.
- Retail advertising revenues were down 6 percent for the quarter, with the largest decreases at Newsday, Los Angeles and South Florida. Preprint revenues decreased 1 percent for the quarter.
- National advertising revenues increased 2 percent for the quarter, with increases in the movies and financial categories, partially offset by a decrease in the automotive category.
- Classified advertising revenues declined 18 percent for the quarter, with the largest declines at Los Angeles, Chicago, Orlando and South Florida: real estate revenues fell by 26 percent, help wanted revenues declined 19 percent and auto revenues were down 10 percent.
- Interactive revenues, which are included in the above categories, were up
9 percent to $65 million, mainly due to strength in classified auto, along with retail and national.
- Circulation revenues were down 5 percent for the quarter.
- Individually paid circulation (home delivery plus single copy) for Tribune’s 9 metro newspapers averaged 2.6 million copies daily (Mon-Fri), down 2.9 percent from the prior year’s third quarter, and 3.9 million copies Sunday, down 3.7 percent from the same reporting period in 2006.
- Total net paid circulation averaged 2.7 million copies daily (Mon-Fri), off
2.8 percent from the prior year’s third quarter, and 3.9 million copies Sunday, representing a decline of 3.8 percent from the prior year’s third quarter.
- Cash operating expenses decreased $48 million, or 6 percent, to $705 million, and included severance charges of $3.5 million and $2.2 million, in the third quarters of 2007 and 2006, respectively. Newsprint and ink expense decreased 20 percent, or $25 million, and compensation expense declined 6 percent, or $20 million. All other cash expenses were down 1 percent, or $3 million.
BROADCASTING AND ENTERTAINMENT
Broadcasting and entertainment’s third quarter operating revenues increased 3 percent, or $13 million, to $406 million. Group cash operating expenses increased 2 percent, or $4 million, to $276 million. Operating cash flow was $130 million, up 8 percent from $121 million, and operating profit increased 9 percent to $118 million from $108 million in 2006.
Television’s third quarter operating revenues increased 4 percent to $288 million in 2007, primarily due to higher cable copyright royalties. Television cash operating expenses were down 1 percent, or $1 million, to $190 million. Television operating cash flow was $98 million, up 14 percent from $86 million in 2006, while operating profit increased 18 percent to $87 million, up from $74 million.
- Station revenues at Chicago and WGN Cable were up primarily due to the higher cable copyright royalties. New York was also up for the quarter, while Los Angeles was down. On a group basis, advertising revenue declines in the movies and automotive categories, as well as the absence of political advertising, were partially offset by gains in the telecom, health care and food/packaged goods categories.
- Television’s cash operating expenses were down 1 percent, or $1 million, primarily due to lower broadcast rights.
- Radio/Entertainment operating cash flow decreased $3 million primarily due to higher player costs and three fewer home games at the Chicago Cubs compared to last year’s third quarter.
Net equity income was $27 million in the third quarter of 2007, compared with $19 million in the third quarter of 2006. The increase primarily reflects higher equity income for Comcast SportsNet Chicago and CareerBuilder.
In the 2007 third quarter, Tribune recorded a pretax non-operating loss of $78 million. The primary components included an $85 million pretax loss from marking-to-market the derivative component of 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 2005 Tax Court decision that disallowed the tax-free reorganizations of Matthew Bender and Mosby, former subsidiaries of Times Mirror. In the aggregate, non-operating items in the 2007 third quarter resulted in an after-tax gain of $42 million, or $.33 per diluted share.
As a result of the settlement of the Company’s appeal of the Matthew Bender/Mosby Tax Court decision, the Company received refunds of federal income taxes and interest of $4 million on Sept. 26, 2007, and $340 million on Oct. 1, 2007. After consideration of income taxes on the interest received, the net cash proceeds totaled approximately $286 million. These refunds, together with related state income tax benefits of $29 million, were accounted for as a $91 million reduction in third quarter income tax expense and a $224 million reduction in the goodwill recorded on the Company’s balance sheet.
In the 2006 third quarter, Tribune recorded a pretax non-operating gain of $64 million primarily as a result of the restructuring of TMCT, LLC and TMCT II, LLC. In addition, the Company recorded a favorable $4 million income tax expense adjustment as a result of resolving certain state income tax issues. In the aggregate, non-operating items in the third quarter of 2006 resulted in an after-tax gain of $56 million, or $.22 per diluted share.
ADDITIONAL FINANCIAL DETAILS
Corporate expenses for the 2007 third quarter were $11 million, down 17 percent from the third quarter of 2006 primarily due to lower compensation expense.
Diluted weighted average shares outstanding declined by 50 percent from the third quarter of 2006 due to stock repurchases in 2007 and 2006. The Company repurchased 126 million shares in June 2007 in connection with the Company’s tender offer.
Interest expense for the 2007 third quarter increased to $187 million, up 121 percent from $84 million in the third quarter of 2006. The increase was due to higher debt levels and interest rates. Debt, excluding the PHONES, was $8.7 billion at the end of the 2007 third quarter and $4.7 billion at the end of the 2006 third quarter. The increase was primarily due to financing the stock repurchases in the second quarter of 2007.
Capital expenditures were $33 million in the third quarter of 2007.
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”). Recycler publishes a collection of free classified newspapers in Southern California. The sale of Recycler closed on Oct. 17, 2007. The Company recorded a pretax loss on the sale of Recycler of $1 million in the third quarter. Due to the Company’s high tax basis in the Recycler stock, the sale will generate a significantly higher capital loss for income tax purposes. As a result, the Company recorded a $65 million income tax benefit in the third quarter of 2007, resulting in an after-tax gain of $64 million. On Feb. 12, 2007, the Company announced an agreement to sell the New York edition of Hoy, the Company’s Spanish-language daily newspaper. The Company completed the sale on May 15, 2007. In March 2007, the Company announced its intention to sell its Southern Connecticut Newspapers — The Advocate (Stamford) and Greenwich Time (collectively “SCNI”). The Company recorded a favorable $3 million after-tax adjustment to the expected loss on the sale of SCNI in the third quarter of 2007. The results of operations of Recycler, the New York edition of Hoy and SCNI are reported as discontinued operations.
In June 2006, the Company announced the sales of its Atlanta and Albany television stations. The sale of the Atlanta station closed in August 2006. In September 2006, the Company announced an agreement to sell its Boston television station. The sales of the Albany and Boston stations closed in December 2006. The results of operations for these stations in 2006 are reported as discontinued operations.
:: :: ::
1 “Operating profit” for each segment excludes interest and dividend income, interest expense, equity income and losses, non-operating items and income taxes. “Operating cash flow” is defined as operating profit before depreciation and amortization. “Cash operating expenses” are defined as operating expenses before depreciation and amortization. Tables accompanying this release include a reconciliation of operating profit to operating cash flow and operating expenses to cash operating expenses. References to individual daily newspapers include their related businesses.
:: :: ::
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 related to the proposed merger transactions being consummated; the risk that required regulatory approvals or financing might not be obtained in a timely manner, without conditions, or at all; the impact of the substantial indebtedness incurred to finance the consummation of the merger; the ability to satisfy all closing conditions in the definitive agreements; difficulties in retaining employees as a result of the merger agreement; risks of unforeseen material adverse changes to our business or operations; risks that the proposed transaction disrupts current plans, operations, and business growth initiatives; the risk associated with the outcome of any legal proceedings that may be instituted against Tribune and others in connection with the merger agreement; and other factors described in Tribune’s publicly available reports filed with the SEC, including the most current annual 10-K and quarterly 10-Q reports, which contain a discussion of various factors that may affect Tribune’s business or financial results. These factors, including also the ability to complete the merger, 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. Tribune’s next quarterly 10-Q report to be filed with the SEC may contain updates to the information included in this release.