UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE QUARTERLY PERIOD ENDED JUNE 29, 2008
Commission
file number 1-8572
TRIBUNE
COMPANY
(Exact
name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
36-1880355
(I.R.S.
Employer
Identification
No.)
|
435
North Michigan Avenue, Chicago, Illinois
(Address
of principal executive offices)
|
60611
(Zip
code)
|
Registrant’s
telephone number, including area code: (312) 222-9100
No
Changes
(Former
name, former address and former fiscal year, if changed since last
report)
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
/
ü
/ No
/ /
Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check One):
Large
accelerated
filer / / Accelerated
filer / / Non-accelerated
filer /
ü
/
Smaller Reporting Company / /
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes
/ / No /
ü
/
At August 13,
2008, there were 56,521,739 shares of the Company’s Common Stock ($.01 par value
per share) outstanding, all of which were held by the Tribune Employee Stock
Ownership Plan.
TRIBUNE
COMPANY
INDEX
TO 2008 SECOND QUARTER FORM 10-Q
Item
No.
|
Page
|
PART
I. FINANCIAL INFORMATION
|
|
|
1.
Financial
Statements (Unaudited)
|
|
Condensed Consolidated
Statements of Operations for the Second Quarters
and First Halves Ended June 29,
2008 and July 1, 2007
|
1
|
Condensed Consolidated Balance
Sheets at June 29, 2008 and Dec. 30, 2007
|
2
|
Condensed Consolidated
Statements of Cash Flows for the First Halves Ended
June 29, 2008 and July 1,
2007
|
4
|
Notes to Condensed Consolidated
Financial Statements
|
|
Note
1: Basis
of Preparation
|
5
|
Note
2:
Discontinued Operations and Assets and Liabilities Held for
Disposition
|
6
|
Note
3: Income
Taxes
|
9
|
Note
4: Stock-Based
Compensation
|
11
|
Note
5: Employee
Stock Ownership Plan
|
12
|
Note
6: Pension
and Other Postretirement Benefits
|
13
|
Note
7: Non-Operating
Items
|
14
|
Note
8: Inventories
|
15
|
Note
9: Goodwill
and Other Intangible Assets
|
15
|
Note
10:
Debt
|
17
|
Note
11: Fair Value
of Financial Instruments
|
24
|
Note
12: Comprehensive
Income (Loss)
|
25
|
Note
13: Other
Matters
|
25
|
Note
14: Segment
Information
|
28
|
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
29
|
3. Quantitative
and Qualitative Disclosures About Market Risk
|
51
|
4. Controls
and
Procedures
|
54
|
|
|
PART
II. OTHER INFORMATION
|
1. Legal
Proceedings
|
55
|
1A.
Risk
Factors
|
57
|
6. Exhibits
|
57
|
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS.
TRIBUNE
COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands of dollars)
(Unaudited)
|
Second
Quarter Ended
|
|
|
First
Half Ended
|
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenues
|
$
|
1,109,809
|
|
|
$
|
1,176,537
|
|
|
$
|
2,115,588
|
|
|
$
|
2,264,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales (exclusive of items shown below)
|
|
611,674
|
|
|
|
599,969
|
|
|
|
1,148,531
|
|
|
|
1,152,184
|
|
Selling,
general and administrative
|
|
277,459
|
|
|
|
350,289
|
|
|
|
549,432
|
|
|
|
666,427
|
|
Depreciation
|
|
47,560
|
|
|
|
46,454
|
|
|
|
94,917
|
|
|
|
93,839
|
|
Amortization
of intangible assets
|
|
4,647
|
|
|
|
4,727
|
|
|
|
9,320
|
|
|
|
9,355
|
|
Write-downs
of intangible assets (Note 9)
|
|
3,843,111
|
|
|
|
—
|
|
|
|
3,843,111
|
|
|
|
—
|
|
Total operating expenses
|
|
4,784,451
|
|
|
|
1,001,439
|
|
|
|
5,645,311
|
|
|
|
1,921,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit (Loss)
|
|
(3,674,642
|
)
|
|
|
175,098
|
|
|
|
(3,529,723
|
)
|
|
|
342,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income on equity investments
|
|
18,172
|
|
|
|
28,710
|
|
|
|
34,929
|
|
|
|
41,394
|
|
Interest
and dividend income
|
|
3,196
|
|
|
|
3,827
|
|
|
|
7,126
|
|
|
|
6,979
|
|
Interest
expense
|
|
(211,055
|
)
|
|
|
(112,408
|
)
|
|
|
(463,004
|
)
|
|
|
(195,658
|
)
|
Gain
(loss) on change in fair values of PHONES and
related
investment
|
|
36,440
|
|
|
|
(27,395
|
)
|
|
|
106,320
|
|
|
|
(97,175
|
)
|
Strategic
transaction expenses
|
|
—
|
|
|
|
(20,926
|
)
|
|
|
—
|
|
|
|
(35,398
|
)
|
Other
non-operating gain (loss), net
|
|
(10,286
|
)
|
|
|
17,978
|
|
|
|
(11,145
|
)
|
|
|
21,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Continuing Operations
Before
Income Taxes
|
|
(3,838,175
|
)
|
|
|
64,884
|
|
|
|
(3,855,497
|
)
|
|
|
84,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes (Note
3)
|
|
8,912
|
|
|
|
(29,614
|
)
|
|
|
1,862,752
|
|
|
|
(43,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Continuing Operations
|
|
(3,829,263
|
)
|
|
|
35,270
|
|
|
|
(1,992,745
|
)
|
|
|
40,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Discontinued Operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of tax
(Note 2)
|
|
(704,686
|
)
|
|
|
1,006
|
|
|
|
(717,742
|
)
|
|
|
(27,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
$
|
(4,533,949
|
)
|
|
$
|
36,276
|
|
|
$
|
(2,710,487
|
)
|
|
$
|
12,981
|
|
See Notes
to Condensed Consolidated Financial Statements.
TRIBUNE
COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands of dollars)
(Unaudited)
|
June
29, 2008
|
|
|
Dec.
30, 2007
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
160,895
|
|
|
$
|
233,284
|
|
Accounts receivable,
net
|
|
602,768
|
|
|
|
732,853
|
|
Inventories
|
|
33,077
|
|
|
|
40,675
|
|
Broadcast
rights
|
|
224,543
|
|
|
|
287,045
|
|
Prepaid expenses and
other
|
|
132,497
|
|
|
|
91,166
|
|
Assets held for
disposition
|
|
113,274
|
|
|
|
—
|
|
Total current
assets
|
|
1,267,054
|
|
|
|
1,385,023
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
3,424,534
|
|
|
|
3,564,436
|
|
Accumulated
depreciation
|
|
(1,887,077
|
)
|
|
|
(1,998,741
|
)
|
Net
properties
|
|
1,537,457
|
|
|
|
1,565,695
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
Broadcast
rights
|
|
219,689
|
|
|
|
301,263
|
|
Goodwill (Note
9)
|
|
1,741,826
|
|
|
|
5,579,926
|
|
Other intangible
assets, net (Note
9)
|
|
1,430,049
|
|
|
|
2,663,152
|
|
Time Warner stock
related to PHONES
debt
|
|
230,720
|
|
|
|
266,400
|
|
Other
investments
|
|
454,285
|
|
|
|
508,205
|
|
Prepaid pension
costs
|
|
428,423
|
|
|
|
514,429
|
|
Assets held for
disposition
|
|
682,973
|
|
|
|
33,780
|
|
Other
|
|
243,091
|
|
|
|
331,846
|
|
Total other
assets
|
|
5,431,056
|
|
|
|
10,199,001
|
|
Total
Assets
|
$
|
8,235,567
|
|
|
$
|
13,149,719
|
|
See Notes
to Condensed Consolidated Financial Statements.
TRIBUNE
COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands of dollars)
(Unaudited)
|
June
29, 2008
|
|
|
Dec.
30, 2007
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
PHONES
debt related to Time Warner stock (Note 10)
|
$
|
219,184
|
|
|
$
|
253,080
|
|
Other debt due within
one
year
|
|
1,479,703
|
|
|
|
750,239
|
|
Contracts payable for
broadcast
rights
|
|
287,915
|
|
|
|
339,909
|
|
Deferred
income
taxes
|
|
11,342
|
|
|
|
100,324
|
|
Deferred
income
|
|
79,155
|
|
|
|
121,239
|
|
Accounts payable,
accrued expenses and other current liabilities
|
|
529,154
|
|
|
|
625,175
|
|
Liabilities held for
disposition
|
|
157,301
|
|
|
|
—
|
|
Total current
liabilities
|
|
2,763,754
|
|
|
|
2,189,966
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt
|
|
|
|
|
|
|
|
PHONES debt related
to Time Warner stock (Note 10)
|
|
56,816
|
|
|
|
343,960
|
|
Other long-term debt
(less portions due within one year)
|
|
10,710,452
|
|
|
|
11,496,246
|
|
Total long-term
debt
|
|
10,767,268
|
|
|
|
11,840,206
|
|
|
|
|
|
|
|
|
|
Other
Non-Current Liabilities
|
|
|
|
|
|
|
|
Deferred income
taxes
|
|
66,378
|
|
|
|
1,771,845
|
|
Contracts payable for
broadcast
rights
|
|
341,268
|
|
|
|
432,393
|
|
Deferred compensation
and
benefits
|
|
249,026
|
|
|
|
264,480
|
|
Liabilities held for
disposition
|
|
7,962
|
|
|
|
—
|
|
Other
obligations
|
|
208,138
|
|
|
|
164,769
|
|
Total other
non-current
liabilities
|
|
872,772
|
|
|
|
2,633,487
|
|
|
|
|
|
|
|
|
|
Common
Shares Held by ESOP, net of Unearned
Compensation
(Note
5)
|
|
22,623
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
Stock
purchase
warrants
|
|
255,000
|
|
|
|
255,000
|
|
Retained earnings
(deficit)
|
|
(6,088,018
|
)
|
|
|
(3,474,311
|
)
|
Accumulated other
comprehensive income
(loss)
|
|
(357,832
|
)
|
|
|
(294,629
|
)
|
Total shareholders’
equity
(deficit)
|
|
(6,190,850
|
)
|
|
|
(3,513,940
|
)
|
Total
Liabilities and Shareholders’ Equity (Deficit)
|
$
|
8,235,567
|
|
|
$
|
13,149,719
|
|
See Notes
to Condensed Consolidated Financial Statements.
TRIBUNE
COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands of dollars)
(Unaudited)
|
First
Half Ended
|
|
|
June
29, 2008
|
|
|
July
1, 2007
|
|
Operating
Activities
|
|
|
|
|
|
|
|
Net
income
(loss)
|
$
|
(2,710,487
|
)
|
|
$
|
12,981
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Stock-based
compensation related to equity-classified awards
|
|
—
|
|
|
|
26,398
|
|
ESOP
compensation
|
|
22,623
|
|
|
|
—
|
|
Pension
costs, net of
contributions
|
|
40,199
|
|
|
|
(5,480
|
)
|
Gain
on sale of studio production
lot
|
|
(82,470
|
)
|
|
|
—
|
|
Gain
on sales of other real
estate
|
|
(24,328
|
)
|
|
|
—
|
|
Write-off
of
Los
Angeles Times
plant
equipment
|
|
—
|
|
|
|
23,982
|
|
Depreciation
|
|
103,559
|
|
|
|
105,855
|
|
Amortization
of intangible assets
|
|
9,944
|
|
|
|
10,247
|
|
Write-downs
of intangible assets (Note 9)
|
|
3,843,111
|
|
|
|
—
|
|
Net
income on equity
investments
|
|
(34,929
|
)
|
|
|
(41,394
|
)
|
Distributions
from equity
investments
|
|
62,518
|
|
|
|
57,233
|
|
Amortization
of debt issuance
costs
|
|
36,838
|
|
|
|
9,408
|
|
(Gain)
loss on change in fair values of PHONES and related
investment
|
|
(106,320
|
)
|
|
|
97,175
|
|
Write-down
of equity
investment
|
|
10,312
|
|
|
|
—
|
|
Subchapter
S corporation election deferred income taxes adjustment (Note
3)
|
|
(1,859,358
|
)
|
|
|
—
|
|
Loss
on dispositions of discontinued
operations
|
|
692,475
|
|
|
|
16,958
|
|
Changes
in working capital items, excluding effects from acquisitions and
dispositions:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
44,477
|
|
|
|
35,836
|
|
Inventories,
prepaid expenses and other current
assets
|
|
(19,220
|
)
|
|
|
(20,736
|
)
|
Deferred
income, accounts payable, accrued expenses and other current
liabilities
|
|
(53,417
|
)
|
|
|
21,477
|
|
Income
taxes
|
|
68,408
|
|
|
|
(41,650
|
)
|
Deferred
compensation
|
|
(10,796
|
)
|
|
|
(48,623
|
)
|
Deferred
income taxes, excluding subchapter S corporation election
adjustment
|
|
(23,116
|
)
|
|
|
(13,739
|
)
|
Tax
benefit on stock options
exercised
|
|
—
|
|
|
|
11,770
|
|
Other,
net
|
|
25,656
|
|
|
|
19,691
|
|
Net
cash provided by operating activities
|
|
35,679
|
|
|
|
277,389
|
|
Investing
Activities
|
|
|
|
|
|
|
|
Purchase
of TMCT, LLC real estate (Note 13)
|
|
(175,141
|
)
|
|
|
—
|
|
Other
capital
expenditures
|
|
(44,151
|
)
|
|
|
(52,224
|
)
|
Acquisitions
and
investments
|
|
(2,533
|
)
|
|
|
(7,575
|
)
|
Proceeds
from sales of subsidiaries, intangibles, investments and real
estate
|
|
160,738
|
|
|
|
18,796
|
|
Net
cash used for investing
activities
|
|
(61,087
|
)
|
|
|
(41,003
|
)
|
Financing
Activities
|
|
|
|
|
|
|
|
Long-term
borrowings
|
|
25,000
|
|
|
|
7,015,000
|
|
Issuance
of exchangeable promissory
note
|
|
—
|
|
|
|
200,000
|
|
Borrowings
under former bridge credit
facility
|
|
—
|
|
|
|
100,000
|
|
Repayments
under former bridge credit
facility
|
|
—
|
|
|
|
(1,410,000
|
)
|
Repayments
of long-term
debt
|
|
(71,981
|
)
|
|
|
(1,613,154
|
)
|
Repayments
of commercial paper,
net
|
|
—
|
|
|
|
(97,019
|
)
|
Long-term
debt issuance
costs
|
|
—
|
|
|
|
(134,085
|
)
|
Sales
of common stock to employees,
net
|
|
—
|
|
|
|
72,195
|
|
Sale
of common stock to Zell
Entity
|
|
—
|
|
|
|
50,000
|
|
Purchases
of Tribune common
stock
|
|
—
|
|
|
|
(4,289,192
|
)
|
Dividends
|
|
—
|
|
|
|
(43,247
|
)
|
Net
cash used for financing
activities
|
|
(46,981
|
)
|
|
|
(149,502
|
)
|
Net
Increase (Decrease) in Cash and Cash
Equivalents
|
|
(72,389
|
)
|
|
|
86,884
|
|
Cash
and cash equivalents, beginning of year
|
|
233,284
|
|
|
|
174,686
|
|
Cash
and cash equivalents, end of
quarter
|
$
|
160,895
|
|
|
$
|
261,570
|
|
See Notes
to Condensed Consolidated Financial Statements.
TRIBUNE
COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1: BASIS OF PREPARATION
In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary for a fair statement of
the financial position of Tribune Company and its subsidiaries (the “Company” or
“Tribune”) as of June 29, 2008 and the results of their operations for the
second quarters and first halves ended June 29, 2008 and July 1, 2007 and cash
flows for the first halves ended June 29, 2008 and July 1, 2007. All
adjustments reflected in the accompanying unaudited condensed consolidated
financial statements 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. Certain prior year amounts have been
reclassified to conform to the 2008 presentation.
On April
1, 2007, the Company’s board of directors (the “Board”), based on the
recommendation of a special committee of the Board comprised entirely of
independent directors, approved a series of transactions (collectively, the
“Leveraged ESOP Transactions”) with a newly formed Tribune Employee Stock
Ownership Plan (the “ESOP”), 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), and Samuel Zell.
On Dec. 20, 2007, the
Company completed the Leveraged ESOP Transactions which culminated in the
cancellation of all issued and outstanding shares of the Company’s common stock
as of that date, other than shares held by the Company or the ESOP, and the
Company becoming wholly-owned by the ESOP. The Company has significant
continuing public debt and has accounted for these transactions as a leveraged
recapitalization and, accordingly, has maintained a historical cost presentation
in its consolidated financial statements.
On May
11, 2008, the Company entered into an agreement (the “Formation Agreement”) with
CSC Holdings, Inc. (“CSC”) and NMG Holdings, Inc., each a wholly-owned
subsidiary of Cablevision Systems Corporation (“Cablevision”), to form a new
limited liability company (“Newsday LLC”). On July 29, 2008, the
Company consummated the closing of the Formation Agreement. Under the
terms of the Formation Agreement, the Company, through Newsday, Inc. and other
subsidiaries of the Company, contributed certain assets and related liabilities
of the Newsday Media Group business (“NMG”) to Newsday LLC, and CSC contributed
cash of $35 million and newly issued senior notes of Cablevision with a fair
market value of $650 million to Newsday LLC. Concurrent with the
closing of this transaction, Newsday LLC borrowed $650 million under a new
secured credit facility, and the Company received a special distribution from
Newsday LLC in the amount of $612 million in cash and $18 million of prepaid
rent under leases for certain facilities used by NMG and located in Melville,
New York with an initial term ending in 2018. As a result of these
transactions, CSC, through NMG Holdings, owns approximately 97% and the Company
owns approximately 3% of the equity of Newsday LLC. CSC has
operational control of Newsday LLC. These transactions are further
described in Note 2. NMG’s operations consist of
Newsday
, a daily newspaper
circulated primarily in Nassau and Suffolk counties on Long Island, New York,
and in the borough of Queens in New York City; four specialty magazines
circulated primarily on Long Island; several shopper guides;
amNY
, a free daily newspaper
in New York City; and several websites including newsday.com and
amny.com.
On Feb.
12, 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 Company completed the sale of
Hoy
, New York on May 15,
2007. In March 2007, the Company announced its intentions to sell its
Southern Connecticut Newspapers—
The Advocate
(Stamford) and
Greenwich Time
(collectively “SCNI”). The sale of SCNI closed on Nov. 1, 2007, and
excluded the SCNI real estate in Stamford and Greenwich, Connecticut, which was
sold in a separate transaction that closed on April 22, 2008. During
the third quarter of 2007, the Company began actively pursuing the sale of the
stock of one of its subsidiaries, EZ Buy & EZ Sell Recycler Corporation
(“Recycler”). The sale of Recycler closed on Oct. 17,
2007. The accompanying unaudited condensed consolidated financial
statements reflect these businesses, including the NMG business as described
above, as discontinued operations for all periods presented. The
prior year condensed consolidated statements of
operations
have been reclassified to conform to the presentation of these businesses as
discontinued operations. See Note 2 for further
discussion.
As
described in the Company’s Annual Report on Form 10-K for the fiscal year ended
Dec. 30, 2007, the Company reviews goodwill and certain intangible assets no
longer being amortized for impairment annually, or more frequently if events or
changes in circumstances indicate that an asset may be impaired, in accordance
with Financial Accounting Standards Board (“FASB”) No. 142 (“FAS No. 142”),
“Goodwill and Other Intangible Assets.” During 2008, each of the
Company’s major newspapers has experienced significant continuing declines in
advertising revenues due to a variety of factors, including weak national and
local economic conditions, which has reduced advertising demand, and increased
competition, particularly from on-line media. Due to the continuing
decline in newspaper advertising revenues, 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. The review
was conducted after $830 million of newspaper reporting unit goodwill and $380
million of newspaper masthead assets were allocated to the NMG transaction (see
Note 2). As a result of the impairment review, the Company recorded
non-cash pretax impairment charges in the second quarter of 2008 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 are reflected as
write-downs of intangible assets in the accompanying unaudited condensed
consolidated statements of operations. The impairment charges do not
affect the Company’s operating cash flows or its compliance with its financial
debt covenants. See Note 9 for a further discussion of the
methodology the Company utilized to perform this impairment review.
As of
June 29, 2008, the Company’s significant accounting policies and estimates,
which are detailed in the Company’s Annual Report on Form 10-K for the fiscal
year ended Dec. 30, 2007, have not changed from Dec. 30, 2007, except for the
adoption of FASB Statement No. 157, “Fair Value Measurements” (“FAS No.
157”) and FASB Statement No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities” (“FAS No. 159”), both of which were adopted effective
Dec. 31, 2007. The Company has elected to account for its PHONES debt
utilizing the fair value option under FAS No. 159. The effects of
this election were recorded as of Dec. 31, 2007, and included a $177 million
decrease in PHONES debt related to Time Warner stock, a $62 million increase in
deferred income tax liabilities, an $18 million decrease in other assets, and a
$97 million increase in retained earnings. In accordance with FAS No.
159, the $97 million retained earnings increase was not included in the
Company’s unaudited condensed consolidated statement of operations for the first
half ended June 29, 2008. See Note 10 for additional information
regarding the Company’s adoption of FAS No. 159. The adoption of FAS
No. 157 had no impact on the Company’s consolidated financial
statements. See Note 11 for additional disclosures related to the
fair value of financial instruments included in the Company’s unaudited
condensed consolidated balance sheet at June 29, 2008.
NOTE 2: DISCONTINUED OPERATIONS
AND ASSETS AND LIABILITIES HELD FOR DISPOSITION
Discontinued Operations
—As
discussed in Note 1, on May 11, 2008, the Company entered into the Formation
Agreement with CSC and NMG Holdings, Inc. to form Newsday LLC. On
July 29, 2008, the Company consummated the closing of the Formation
Agreement. Under the terms of the Formation Agreement, the Company,
through Newsday, Inc. and other subsidiaries of the Company, contributed certain
assets and related liabilities of NMG to Newsday LLC, and CSC contributed $35
million of cash and newly issued senior notes of Cablevision with a fair market
value of $650 million to Newsday LLC. Concurrent with the closing of
this transaction, Newsday LLC borrowed $650 million under a new secured credit
facility, and the Company received a special distribution from Newsday LLC in
the amount of $612 million in cash and $18 million in prepaid rent under leases
for certain facilities used by NMG and located in Melville, New York with an
initial term ending in 2018. The Company retained ownership of these
facilities following the transaction. Annual lease payments due under
the terms of the leases total $1.5 million in each of the first five years of
the lease terms and $6 million thereafter.
As a
result of these transactions, CSC, through NMG Holdings, Inc., owns
approximately 97% and the Company owns approximately 3% of the equity of Newsday
LLC. CSC has operational control over Newsday
LLC. Borrowings by Newsday LLC under its secured credit facility are
guaranteed by CSC and NMG Holdings, Inc. and secured by a lien on the assets of
Newsday LLC, including the senior notes of Cablevision contributed by
CSC. The Company agreed to indemnify CSC and NMG Holdings, Inc. with
respect to any payments that CSC or NMG Holdings, Inc. makes under their
guarantee of the $650 million of borrowings by Newsday LLC under its secured
credit facility. In the event the Company is required to perform
under this indemnity, the Company will be subrogated to and acquire all rights
of CSC and NMG Holdings, Inc. against Newsday LLC to the extent of the payments
made pursuant to the indemnity. Following the transaction, the
Company used $589 million of the net cash proceeds to pay down borrowings under
the Company’s Tranche X facility (see Note 10). The Company will
account for its remaining $20 million equity interest in Newsday LLC as a cost
method investment.
The fair
market value of the contributed NMG net assets exceeded their tax basis due to
the Company's low tax basis in the contributed intangible assets. However,
the transaction did not result in an immediate taxable gain because the
transaction was structured to comply with the partnership provisions of the
United States Internal Revenue Code and related regulations.
During
the second quarter of 2008, the Company recorded a pretax loss of $692 million
($693 million after taxes) to write down the net assets of NMG to estimated fair
value. NMG’s net assets included, before the write-down, allocated
newspaper reporting unit goodwill and a newspaper masthead intangible asset of
$830 million and $380 million, respectively. The net carrying value
of the NMG assets at June 29, 2008, which totaled $651 million, is included in
assets held for disposition and the net carrying value of the NMG liabilities at
June 29, 2008, which totaled $30 million, is included in liabilities held for
disposition.
The
Company announced an agreement to sell
Hoy
, New York on Feb. 12,
2007. The Company completed the sale of
Hoy
, New York on May 15, 2007
and recorded a pretax gain on the sale of $2.5 million ($.1 million after taxes)
in the second quarter of 2007. In March 2007, the Company announced
its intentions to sell SCNI. The sale of SCNI closed on Nov. 1, 2007,
and excluded the SCNI real estate in Stamford and Greenwich, Connecticut, which
was sold in a separate transaction that closed on April 22, 2008 (see “Assets
and Liabilities Held for Disposition” section below). In the first
quarter of 2007, the Company recorded a pretax loss of $19 million ($33 million
after taxes) to write down the net assets of SCNI to estimated fair value, less
costs to sell. In the first quarter of 2008, the Company recorded an
additional $.5 million after-tax loss on the sale of SCNI. During the third
quarter of 2007, the Company began actively pursuing the sale of the stock of
Recycler. The sale of Recycler closed on Oct. 17,
2007.
These
businesses were considered components of the Company’s publishing segment as
their operations and cash flows could be clearly distinguished, operationally
and for financial reporting purposes, from the rest of the
Company. The operations and cash flows of these businesses have been
eliminated from the ongoing operations of the Company as a result of these
transactions, and the Company will not have any significant continuing
involvement in their operations. Accordingly, the results of
operations for each of these businesses are reported as discontinued operations
in the accompanying unaudited condensed consolidated statements of
operations.
Selected
financial information related to discontinued operations is summarized as
follows (in thousands):
|
|
Second
Quarter
|
|
|
First
Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
117,229
|
|
|
$
|
147,399
|
|
|
$
|
226,102
|
|
|
$
|
284,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
(loss)
|
|
$
|
(3,220
|
)
|
|
$
|
21,741
|
|
|
$
|
(4,851
|
)
|
|
$
|
33,865
|
|
Interest
income
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
Interest
expense
|
|
|
(8,403
|
)
|
|
|
(3,456
|
)
|
|
|
(19,732
|
)
|
|
|
(3,454
|
)
|
Non-operating
loss,
net(1)
|
|
|
—
|
|
|
|
(12,000
|
)
|
|
|
—
|
|
|
|
(15,000
|
)
|
Gain
(loss) on dispositions of discontinued
operations
|
|
|
(691,960
|
)
|
|
|
2,484
|
|
|
|
(692,475
|
)
|
|
|
(16,958
|
)
|
Income
(loss) from discontinued operations
before
income taxes
|
|
|
(703,583
|
)
|
|
|
8,771
|
|
|
|
(717,056
|
)
|
|
|
(1,543
|
)
|
Income
taxes(2)
|
|
|
(1,103
|
)
|
|
|
(7,765
|
)
|
|
|
(686
|
)
|
|
|
(26,410
|
)
|
Income
(loss) from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
$
|
(704,686
|
)
|
|
$
|
1,006
|
|
|
$
|
(717,742
|
)
|
|
$
|
(27,953
|
)
|
(1)
|
Discontinued
operations for the second quarter and first half of 2007 included pretax
non-operating charges of $12 million and $15 million, respectively, for a
civil forfeiture payment related to the inquiry by the United States
Attorney’s Office for the Eastern District of New York into the
circulation practices of
Newsday
and
Hoy
, New
York. See Note 5 to the consolidated financial statements in
the Company’s Annual Report on Form 10-K for the fiscal year ended Dec.
30, 2007, for further information.
|
(2)
|
Income
taxes for the second quarter and first half of 2008 included tax expense
of $1 million related to the $692 million pretax loss on the NMG
transaction. The pretax loss included $830 million of allocated
newspaper reporting unit goodwill, most of which is not deductible for
income tax purposes. Income taxes for the first half of 2007
included tax expense of $16 million related to the $17 million pretax loss
on dispositions of discontinued operations. The pretax loss
included $58 million of allocated newspaper reporting unit goodwill, most
of which is not deductible for income tax
purposes.
|
The
Company allocated corporate interest expense of $8.4 million and $3.4 million in
the second quarters of 2008 and 2007, respectively, and $19.4 million and $3.4
million in the first halves of 2008 and 2007, respectively, to discontinued
operations. In accordance with Emerging Issues Task Force Issue No.
87-24, “Allocation of Interest to Discontinued Operations”, the amount of
corporate interest allocated to discontinued operations was based on the amount
of the net proceeds from the NMG transaction that were used to pay down the
Company’s Tranche X facility and applying the interest rate applicable to the
Tranche X facility for the periods in which borrowings under the Tranche X
facility were outstanding.
Assets and Liabilities Held for
Disposition
—Assets and liabilities held for disposition at June 29, 2008
and Dec. 30, 2007 are summarized as follows (in thousands):
|
|
June
29, 2008
|
|
|
Dec.
30, 2007
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NMG
|
|
$
|
651,398
|
|
|
$
|
29,722
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Chicago
Cubs and Wrigley Field
|
|
|
139,415
|
|
|
|
135,541
|
|
|
|
—
|
|
|
|
—
|
|
Studio
production lot, Hollywood, California
|
|
|
—
|
|
|
|
—
|
|
|
|
23,322
|
|
|
|
—
|
|
SCNI
real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
5,485
|
|
|
|
—
|
|
Other
real estate
|
|
|
5,434
|
|
|
|
—
|
|
|
|
4,973
|
|
|
|
—
|
|
Total
assets and liabilities held for disposition
|
|
$
|
796,247
|
|
|
$
|
165,263
|
|
|
$
|
33,780
|
|
|
$
|
—
|
|
As
discussed above, the Company contributed the NMG assets and related liabilities
to Newsday LLC on July 29, 2008. The Company is in the process of
disposing of an interest in its Chicago Cubs operations which include the
baseball team, Wrigley Field and the Company’s 25% investment in Comcast
SportsNet Chicago. The Company expects to complete the transaction
within the next year. Accordingly, the net book value of
the
baseball
team and Wrigley Field is included in assets and liabilities held for
disposition at June 29, 2008. The Company’s investment in Comcast
SportsNet Chicago continues to be included in other investments in the
accompanying unaudited condensed consolidated balance sheets. The
disposition of an interest in the Chicago Cubs baseball team is subject to the
approval of Major League Baseball.
During
the third quarter of 2007, the Company commenced a process to sell the real
estate and related assets of its studio production lot located in Hollywood,
California. Accordingly, the $23 million carrying value of the land, building
and equipment of the studio production lot was included in assets held for
disposition at Dec. 30, 2007. The sale of the studio production lot
closed on Jan. 30, 2008, and the Company received net proceeds of $122 million,
of which $119 million was placed into an escrow fund immediately following the
closing of the sale. Simultaneous with the closing of the sale, the Company
entered into a five-year operating lease for a portion of the studio production
lot utilized by the Company’s KTLA-TV station. The sale resulted in a total
pretax gain of $99 million. The pretax gain related to the portion of
the studio production lot currently utilized by the Company’s KTLA-TV station
was $16 million and represented more than a minor portion of the fair value of
the studio production lot. Accordingly, this gain was deferred and
will be amortized as reduced rent expense over the five-year life of the related
operating lease. The remaining pretax gain of $83 million was
recorded as a reduction of selling, general and administrative expenses in the
first quarter of 2008.
As noted
above, the Company sold the SCNI real estate in Stamford and Greenwich,
Connecticut on April 22, 2008. The $5 million carrying value of the
real estate was included in assets held for disposition at Dec. 30,
2007. The Company received net proceeds of $29 million on the sale of
the SCNI real estate, which proceeds were placed into an escrow fund immediately
following the closing of the sale. The Company recorded a pretax gain
of $23 million as a reduction of selling, general and administrative expenses in
the second quarter of 2008. On April 28, 2008, the $29 million of net proceeds
from the sale of the SCNI real estate, the $119 million of net proceeds from the
sale of the studio production lot and available cash were utilized to purchase
eight real properties that were previously leased from TMCT, LLC (see Note 13
for additional information pertaining to the Company’s acquisition of the TMCT
real properties). The purchase was structured as a like-kind
exchange, which allowed the Company to defer income taxes on nearly all of the
gains from these dispositions. In December 2006, the Company
commenced a process to sell the land and building of one of its other
facilities. The $5 million carrying value of the land and building
approximates fair value less costs to sell and is also included in assets held
for disposition at June 29, 2008 and Dec. 30, 2007.
NOTE
3: INCOME TAXES
S Corporation Election
—On
March 13, 2008, the Company filed an election to be treated as a subchapter S
corporation under the Internal Revenue Code, which election is effective as of
the beginning of the Company’s 2008 fiscal year. The Company also
elected to treat nearly all of its subsidiaries as qualified subchapter S
subsidiaries. Subject to certain limitations (such as the built-in
gain tax applicable for ten years to gains accrued prior to the election), the
Company is no longer subject to federal income tax. Instead, the
Company’s income will be required to be reported by its
shareholders. The Company’s ESOP, the Company’s sole shareholder (see
Note 5), will not be taxed on the share of income that is passed through to it
because the ESOP is a qualified employee benefit plan. Although most
states in which the Company operates recognize the S corporation status, some
impose income taxes at a reduced rate.
As a
result of the election and in accordance with FASB Statement No. 109,
“Accounting for Income Taxes”, the Company eliminated approximately $1,859
million of net deferred income tax liabilities as of Dec. 31, 2007, and recorded
such adjustment as a reduction in the Company’s provision for income tax expense
in the first quarter of 2008. The Company continues to report
deferred income taxes relating to states that assess taxes on S corporations,
subsidiaries which are not qualified subchapter S subsidiaries, and potential
asset dispositions that the Company expects will be subject to the built-in gain
tax.
PHONES Interest
—In connection
with the routine examination of the Company’s federal income tax returns for
2000 through 2003, the Internal Revenue Service (“IRS”) proposed that the
Company capitalize the
interest
on the PHONES as additional tax basis in the Company’s 16 million shares of
Time Warner common stock, rather than allowing the Company to currently deduct
such interest. The National Office of the IRS has issued a Technical Advice
Memorandum that supports the proposed treatment. The Company disagrees with the
IRS’s position and requested that the IRS administrative appeals office review
the issue. The effect of the treatment proposed by the IRS would be to increase
the Company’s tax liability by approximately $199 million for the period 2000
through 2003 and by approximately $259 million for the period 2004 through the
second quarter of 2008.
During
the fourth quarter of 2006, the Company reached an agreement with the IRS
appeals office regarding the deductibility of the PHONES interest expense. The
agreement will apply for the tax years 2000 through the 2029 maturity date of
the PHONES. In December of 2006, under the terms of the agreement reached with
the IRS appeals office, the Company paid approximately $81 million of tax plus
interest for tax years 2000 through 2005. The tax payments were recorded as a
reduction in the Company’s deferred tax liability, and the interest was recorded
as a reduction in the Company’s income tax reserves. The Company
filed its 2006 and 2007 tax returns reflecting the agreement reached with the
IRS appeals office. The agreement reached with the appeals office is
being reviewed by the Joint Committee on Taxation. A decision from
the Joint Committee on Taxation is expected by the end of 2008.
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.
In the
second quarter and first half of 2008, income taxes applicable to continuing
operations amounted to a net benefit of $9 million and $1,863 million,
respectively. The net benefit in the first half included the
favorable $1,859 million deferred income tax adjustment discussed
above. The $3,007 million write-down of the Company’s publishing
goodwill in the second quarter of 2008 resulted in an income tax benefit of only
$1 million for financial reporting purposes because almost all of the goodwill
is not deductible for income tax purposes (see Note 9). The effective
tax rate on income from continuing operations in the 2007 second quarter and
first half was 45.6% and 51.3%, respectively. The effective tax rate
for each of these periods was affected by certain non-operating items that were
not deductible for tax purposes. See Note 7 for a summary of
non-operating items. In the aggregate, non-operating items increased
the effective tax rate for the second quarter and first half of 2007 by 5.1 and
11.0 percentage points, respectively.
NOTE
4: STOCK-BASED COMPENSATION
Stock-based
compensation expense for the second quarters and first halves of 2008 and 2007
was as follows (in thousands):
|
|
Second
Quarter
|
|
|
First
Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
equity incentive plan
|
|
$
|
4,999
|
|
|
$
|
—
|
|
|
$
|
12,534
|
|
|
$
|
—
|
|
Options(1)
|
|
|
—
|
|
|
|
726
|
|
|
|
—
|
|
|
|
1,324
|
|
Restricted
stock units(1)
|
|
|
—
|
|
|
|
6,804
|
|
|
|
—
|
|
|
|
23,718
|
|
Employee
stock purchase plan(2)
|
|
|
—
|
|
|
|
192
|
|
|
|
—
|
|
|
|
723
|
|
Total
stock-based compensation expense
|
|
$
|
4,999
|
|
|
$
|
7,722
|
|
|
$
|
12,534
|
|
|
$
|
25,765
|
|
(1)
|
Pursuant
to an Agreement and Plan of Merger (the “Merger Agreement”) entered into
by the Company on April 1, 2007 with Great Banc Trust Company, not in its
individual or corporate capacity, but solely as trustee of the Tribune
Employee Stock Ownership Trust, a separate trust which forms a part of the
ESOP, Tesop Corporation, a Delaware corporation wholly-owned by the ESOP
(“Merger Sub”), and the Zell Entity (solely for the limited purposes
specified therein), which provided for Merger Sub to be merged with and
into the Company, and following such merger, the Company to continue as
the surviving corporation wholly-owned by the ESOP (the “Merger”), on Dec.
20, 2007, the Company redeemed for cash all outstanding stock awards, each
of which vested in full upon completion of the Merger, with positive
intrinsic value relative to $34.00 per share. All remaining
outstanding stock awards under the Tribune Company Incentive Plan (the
“Incentive Plan”) as of Dec. 20, 2007 that were not cash
settled
pursuant to the Merger Agreement were cancelled. The Company
does not intend to grant any new equity awards under the Incentive
Plan.
|
(2)
|
The
Company’s employee stock purchase plan was discontinued as of Dec. 20,
2007, following the consummation of the
Merger.
|
On Dec.
20, 2007, the Board approved the Company’s 2007 Management Equity Incentive Plan
(the “MEIP”). The MEIP provides for phantom units (the “Units”) that generally
track the fair value of a share of the Company’s common stock, as determined by
the trustee of the Company’s Employee Stock Ownership Plan (see Note
5). MEIP awards have been made to eligible members of the Company’s
management and other key employees at the discretion of the Board.
The
Company accounts for the Units issued under the MEIP as liability-classified
awards. As a result, the Company is required to adjust the MEIP
liability to reflect the most recent estimate of the fair value of a share of
the Company’s common stock. In the second quarter and first half of
2008, the Company recorded $5 million and $12.5 million of compensation
expense, respectively, in connection with the MEIP. The first half of
2008 included $2.2 million of accelerated expense recorded in the first quarter
of 2008 related to early termination payments made pursuant to the terms of the
plan. The remaining $5 million and $10.3 million in the second
quarter and first half of 2008, respectively, were based on the estimated fair
value of the Company’s common stock. The Company’s liability under
the MEIP is included in other non-current liabilities on the Company’s unaudited
condensed consolidated balance sheet and totaled $21 million and $16 million at
June 29, 2008 and Dec. 30, 2007, respectively. The estimated fair
value per share of the Company’s common stock did not change during the second
quarter of 2008.
For the
second quarter and first half of 2008, total stock-based compensation expense
excluded $.3 million and $.7 million, respectively, of costs related to
discontinued operations. For the second quarter of 2007, total
stock-based compensation expense excluded $254,000 of costs related to
discontinued operations and $25,000 of capitalized costs. For the first half of
2007, total stock-based compensation expense excluded $490,000 of costs related
to discontinued operations and $144,000 of capitalized costs.
NOTE
5: EMPLOYEE STOCK OWNERSHIP PLAN
On April
1, 2007, the Company established the ESOP as a long-term employee benefit
plan. On that date, the ESOP purchased 8,928,571 shares of the
Company’s common stock. The ESOP paid for this purchase with a promissory note
of the ESOP in favor of the Company in the principal amount of $250 million, to
be repaid by the ESOP over the 30-year life of the loan through its use of
contributions from the Company to the ESOP and/or distributions paid on the
shares of the Company’s common stock held by the ESOP. Upon
consummation of the Merger, the 8,928,571 shares of the Company’s common stock
held by the ESOP were converted into 56,521,739 shares of common
stock.
The ESOP
provides for the allocation of the Company’s common shares it holds on a
noncontributory basis to eligible employees of the Company. None of
the shares held by the ESOP had been committed for release or allocated to
employees at Dec. 30, 2007. Beginning in fiscal year 2008, as the
ESOP repays the loan through its use of contributions from the Company, shares
will be released and allocated to eligible employees in proportion to their
eligible compensation. The shares that are released for allocation on
an annual basis will be in the same proportion that the current year’s principal
and interest payments bear in relation to the total remaining principal and
interest payments to be paid over the life of the $250 million ESOP
loan. The Company will recognize compensation expense based on the
estimated fair value of the shares of the Company’s common stock that are
allocated in each annual period. In the second quarter and first half
of 2008, the Company recognized $12 million and $22.7 million, respectively, of
compensation expense related to the ESOP. Of these amounts, $.7
million and $1.7 million related to discontinued operations for the second
quarter and first half of 2008, respectively.
The
Company’s policy is to present unallocated shares held by the ESOP at book
value, net of unearned compensation, and allocated shares, which include shares
committed to be released, at fair value in the
Company’s
consolidated balance sheet. Pursuant to the terms of the ESOP, participants who
receive distributions of shares of the Company’s common stock can require the
Company to repurchase those shares within a specified time period following such
distribution. Accordingly, the shares of the Company’s common stock
held by the ESOP are classified outside of shareholders’ equity (deficit), net
of unearned compensation, in the Company’s consolidated balance sheets. The
amounts at June 29, 2008 and Dec. 30, 2007 were as follows (in
thousands):
|
|
June
29, 2008
|
|
Dec.
30, 2007
|
|
|
|
|
|
|
|
|
|
Allocated
ESOP shares (at fair value)(1)
|
|
$
|
22,623
|
|
$
|
—
|
|
Unallocated
ESOP shares (at book value)
|
|
|
240,477
|
|
|
250,000
|
|
Unearned
compensation related to ESOP
|
|
|
(240,477
|
)
|
|
(250,000
|
)
|
Common
shares held by ESOP, net of unearned compensation
|
|
$
|
22,623
|
|
$
|
—
|
|
(1)
|
Represents
2,154,650 shares committed to be released at June 29,
2008.
|
At June
29, 2008 and Dec. 30, 2007, the estimated fair value of the unallocated shares
held by the ESOP was approximately $571 million and $593 million,
respectively. In accordance with the terms of the ESOP, the fair
value per share of the Company’s common stock is determined as of each fiscal
year end by the trustee of the ESOP. The estimated fair value per
share of the Company’s common stock did not change during the second quarter and
first half of 2008.
NOTE
6: PENSION AND OTHER POSTRETIREMENT BENEFITS
The
components of net periodic benefit cost (credit) for Company-sponsored pension
and other postretirement benefits plans for the second quarters and first halves
of 2008 and 2007 were as follows (in thousands):
|
Pension
Benefits
|
|
|
Other
Postretirement Benefits
|
|
Second
Quarter
|
|
|
Second
Quarter
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
$
|
5,071
|
|
|
$
|
303
|
|
|
$
|
212
|
|
|
$
|
323
|
|
Interest
cost
|
|
22,660
|
|
|
|
20,093
|
|
|
|
1,799
|
|
|
|
1,872
|
|
Expected
return on plans’ assets
|
|
(36,362
|
)
|
|
|
(34,477
|
)
|
|
|
—
|
|
|
|
—
|
|
Recognized
actuarial loss (gain)
|
|
4,931
|
|
|
|
10,650
|
|
|
|
(523
|
)
|
|
|
4
|
|
Amortization
of prior service costs (credits)
|
|
376
|
|
|
|
14
|
|
|
|
(366
|
)
|
|
|
(361
|
)
|
Special
termination benefits(1)
|
|
7,135
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Curtailment
loss(2)
|
|
17,147
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
periodic benefit cost (credit)(3)
|
$
|
20,958
|
|
|
$
|
(3,417
|
)
|
|
$
|
1,122
|
|
|
$
|
1,838
|
|
|
Pension
Benefits
|
|
|
Other
Postretirement Benefits
|
|
First
Half
|
|
|
First
Half
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
$
|
11,118
|
|
|
$
|
873
|
|
|
$
|
519
|
|
|
$
|
646
|
|
Interest
cost
|
|
44,598
|
|
|
|
41,768
|
|
|
|
3,688
|
|
|
|
3,744
|
|
Expected
return on plans’ assets
|
|
(73,089
|
)
|
|
|
(69,326
|
)
|
|
|
—
|
|
|
|
—
|
|
Recognized
actuarial loss (gain)
|
|
11,316
|
|
|
|
23,482
|
|
|
|
(480
|
)
|
|
|
8
|
|
Amortization
of prior service costs (credits)
|
|
736
|
|
|
|
69
|
|
|
|
(728
|
)
|
|
|
(722
|
)
|
Special
termination benefits(1)
|
|
31,288
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Curtailment
loss(2)
|
|
17,147
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
periodic benefit cost (credit)(3)
|
$
|
43,114
|
|
|
$
|
(3,134
|
)
|
|
$
|
2,999
|
|
|
$
|
3,676
|
|
(1)
|
Represents
one-time pension benefits related to the elimination of approximately 300
positions in the second quarter of 2008 and 900 positions in the first
half of 2008. Includes $1.2 million and $7.4 million of
one-time pension benefits in the second quarter and first half of 2008,
respectively, related to discontinued
operations.
|
(2)
|
Relates
entirely to the NMG transaction and is included in discontinued
operations.
|
(3)
|
Includes
benefit costs related to discontinued operations, other than amounts
related to special termination benefits and the curtailment loss described
above, of $.8 million and $.4 million for the second quarters of 2008 and
2007, respectively, and $1.2 million and $.5 million for the first halves
of 2008 and 2007, respectively.
|
For the
year ending Dec. 28, 2008, the Company plans to contribute $6 million to certain
of its union and non-qualified pension plans and $13 million to its other
postretirement plans. In the first half of 2008, the Company made $3
million of contributions to its union and non-qualified pension plans and $7
million of contributions to its other postretirement plans.
NOTE
7: NON-OPERATING ITEMS
The
second quarter and first half of 2008 included several non-operating items,
summarized as follows (in thousands):
|
Second
Quarter 2008
|
|
|
First
Half 2008
|
|
|
Pretax
Gain
(Loss)
|
|
|
After-tax
Gain
(Loss)
|
|
|
Pretax
Gain
(Loss)
|
|
|
After-tax
Gain
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on change in fair values
of PHONES and related
investment
|
$
|
36,440
|
|
|
$
|
36,010
|
|
|
$
|
106,320
|
|
|
$
|
105,065
|
|
Write-down
of equity investment
|
|
(10,312
|
)
|
|
|
(10,190
|
)
|
|
|
(10,312
|
)
|
|
|
(10,190
|
)
|
Other,
net
|
|
26
|
|
|
|
25
|
|
|
|
(833
|
)
|
|
|
(1,047
|
)
|
Income
tax
adjustment
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,859,358
|
|
Total
non-operating
items
|
$
|
26,154
|
|
|
$
|
25,845
|
|
|
$
|
95,175
|
|
|
$
|
1,953,186
|
|
In the
second quarter of 2008, the $36 million non-cash pretax gain on change in fair
values of PHONES and related investment resulted primarily from a $29 million
decrease in the fair value of the Company’s PHONES and a $9 million increase in
the fair value of 16 million shares of Time Warner common stock. In
the first half of 2008, the $106 million non-cash pretax gain on change in fair
values of PHONES and related investment resulted primarily from a $144 million
decrease in the fair value of the Company’s PHONES, partially offset by a $36
million decrease in the fair value of 16 million shares of Time Warner common
stock. Effective Dec. 31, 2007, the Company has elected to account
for its PHONES utilizing the fair value option under FAS No. 159. As
a result of this election, the Company no longer measures just the changes in
fair value of the derivative component of the PHONES, but instead measures the
changes in fair value of the entire PHONES debt. See Note 10 for
further information pertaining to the Company’s adoption of FAS No. 159. On
June 30, 2008, the Company sold its 42.5% investment in ShopLocal, LLC
(“ShopLocal”) to Gannett Co., Inc. and received net proceeds of $22 million. The
Company recorded a $10 million non-operating pretax loss in the second quarter
of 2008 to write down its investment in ShopLocal to the amount of net proceeds
received. The favorable income tax adjustment of $1,859 million in the
first half of 2008 related to the Company’s election to be treated as a
subchapter S corporation, which resulted in the elimination of nearly all of the
Company’s net deferred tax liabilities. See Note 3 for further information
pertaining to the Company’s election to be treated as a subchapter S
corporation.
The
second quarter and first half of 2007 included several non-operating items,
summarized as follows (in thousands):
|
Second
Quarter 2007
|
|
|
First
Half 2007
|
|
|
Pretax
Gain
(Loss)
|
|
|
After-tax
Gain
(Loss)
|
|
|
Pretax
Gain
(Loss)
|
|
|
After-tax
Gain
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on change in fair values
of PHONES and related
investment
|
$
|
(27,395
|
)
|
|
$
|
(16,711
|
)
|
|
$
|
(97,175
|
)
|
|
$
|
(59,277
|
)
|
Strategic
transaction expenses
|
|
(20,926
|
)
|
|
|
(15,659
|
)
|
|
|
(35,398
|
)
|
|
|
(29,428
|
)
|
Other,
net
|
|
17,978
|
|
|
|
10,966
|
|
|
|
21,515
|
|
|
|
13,123
|
|
Total
non-operating items
|
$
|
(30,343
|
)
|
|
$
|
(21,404
|
)
|
|
$
|
(111,058
|
)
|
|
$
|
(75,582
|
)
|
In the
second quarter of 2007, the $27 million non-cash pretax loss on change in fair
values of PHONES and related investment resulted primarily from a $48 million
increase in the fair value of the derivative component of the Company’s PHONES,
offset by a $21 million increase in the fair value of 16 million shares of Time
Warner common stock. In the first half of 2007, the $97 million
non-cash pretax loss on change in fair values of PHONES and related investment
resulted primarily from an $84 million increase in the fair value of the
derivative component of the Company’s PHONES, and a $12 million decrease in the
fair value of 16 million shares of Time Warner common stock. Strategic
transaction expenses in the second quarter and first half of 2007 related to the
Company’s strategic review and the Leveraged ESOP Transactions and included a
$13.5 million pretax loss from refinancing certain credit
agreements. Other, net in the second quarter and first
half
of 2007
included an $18 million pretax gain from the settlement of the Company’s
Hurricane Katrina insurance claim.
NOTE
8
: INVENTORIES
Inventories
consisted of the following (in thousands):
|
June
29, 2008
|
|
Dec.
30, 2007
|
|
|
|
|
|
|
Newsprint
|
$
|
21,611
|
|
$
|
28,664
|
Supplies
and other
|
|
11,466
|
|
|
12,011
|
Total
inventories
|
$
|
33,077
|
|
$
|
40,675
|
Newsprint
inventories valued under the LIFO method were less than current cost by
approximately $15 million at June 29, 2008 and $10 million at Dec. 30,
2007.
NOTE
9: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
and other intangible assets consisted of the following (in
thousands):
|
June
29, 2008
|
|
|
Dec.
30, 2007
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets subject to
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribers
(useful life of 15 to
20 years)
|
$
|
174,980
|
|
$
|
(78,727
|
)
|
$
|
96,253
|
|
|
$
|
189,879
|
|
$
|
(81,698
|
)
|
|
$
|
108,181
|
Network affiliation
agreements
(useful life of 40 years)(1)
|
|
278,034
|
|
|
(33,034
|
)
|
|
245,000
|
|
|
|
278,034
|
|
|
(29,552
|
)
|
|
|
248,482
|
Other
(useful life of 3 to 40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
years)
|
|
24,635
|
|
|
(12,717
|
)
|
|
11,918
|
|
|
|
25,381
|
|
|
(11,707
|
)
|
|
|
13,674
|
Total
|
$
|
477,649
|
|
$
|
(124,478
|
)
|
|
353,171
|
|
|
$
|
493,294
|
|
$
|
(122,957
|
)
|
|
|
370,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
and other intangible
assets
not subject to
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
|
|
|
|
|
|
301,198
|
|
|
|
|
|
|
|
|
|
|
4,138,685
|
Broadcasting
and entertainment
|
|
|
|
|
|
|
|
1,440,628
|
|
|
|
|
|
|
|
|
|
|
1,441,241
|
Total
goodwill
|
|
|
|
|
|
|
|
1,741,826
|
|
|
|
|
|
|
|
|
|
|
5,579,926
|
Newspaper
mastheads
|
|
|
|
|
|
|
|
197,000
|
|
|
|
|
|
|
|
|
|
|
1,412,937
|
FCC
licenses
|
|
|
|
|
|
|
|
871,946
|
|
|
|
|
|
|
|
|
|
|
871,946
|
Tradename
|
|
|
|
|
|
|
|
7,932
|
|
|
|
|
|
|
|
|
|
|
7,932
|
Total
|
|
|
|
|
|
|
|
2,818,704
|
|
|
|
|
|
|
|
|
|
|
7,872,741
|
Total
goodwill and other intangible
assets
|
|
|
|
|
|
|
$
|
3,171,875
|
|
|
|
|
|
|
|
|
|
$
|
8,243,078
|
(1)
|
Network
affiliation agreements, net of accumulated amortization, included $172
million related to FOX affiliations, $71 million related to CW
affiliations and $3 million related to MyNetworkTV affiliations as of June
29, 2008.
|
The
changes in the carrying amounts of intangible assets during the first half ended
June 29, 2008 were as follows (in thousands):
|
Publishing
|
|
|
Broadcasting
and
Entertainment
|
|
|
Total
|
|
Intangible
assets subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of Dec. 30,
2007
|
$
|
70,905
|
|
|
$
|
299,432
|
|
|
$
|
370,337
|
|
Amortization
expense
|
|
(3,548
|
)
|
|
|
(5,772
|
)
|
|
|
(9,320
|
)
|
Reclassification
to assets held for disposition (see Note 2)
|
|
(7,823
|
)
|
|
|
—
|
|
|
|
(7,823
|
)
|
Foreign
currency translation
adjustment
|
|
(23
|
)
|
|
|
—
|
|
|
|
(23
|
)
|
Balance
as of June 29,
2008
|
$
|
59,511
|
|
|
$
|
293,660
|
|
|
$
|
353,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of Dec. 30,
2007
|
$
|
4,138,685
|
|
|
$
|
1,441,241
|
|
|
$
|
5,579,926
|
|
Reclassification
to assets held for disposition (see Note 2)
|
|
(830,481
|
)
|
|
|
(613
|
)
|
|
|
(831,094
|
)
|
Impairment
write-down of
goodwill
|
|
(3,007,000
|
)
|
|
|
—
|
|
|
|
(3,007,000
|
)
|
Foreign
currency translation
adjustment
|
|
(6
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
Balance
as of June 29,
2008
|
$
|
301,198
|
|
|
$
|
1,440,628
|
|
|
$
|
1,741,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
intangible assets not subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of Dec. 30,
2007
|
$
|
1,420,869
|
|
|
$
|
871,946
|
|
|
$
|
2,292,815
|
|
Reclassification
to assets held for disposition (see Note 2)
|
|
(379,826
|
)
|
|
|
—
|
|
|
|
(379,826
|
)
|
Impairment
write-down of newspaper masthead assets
|
|
(836,111
|
)
|
|
|
—
|
|
|
|
(836,111
|
)
|
Balance
as of June 29,
2008
|
$
|
204,932
|
|
|
$
|
871,946
|
|
|
$
|
1,076,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
goodwill and other intangibles as of June 29, 2008
|
$
|
565,641
|
|
|
$
|
2,606,234
|
|
|
$
|
3,171,875
|
|
On March
13, 2008, the Company filed an election to be treated as a subchapter S
corporation under the Internal Revenue Code, which election was effective as of
the beginning of the Company’s 2008 fiscal year. As a result,
approximately $1,859 million of the Company’s net deferred tax liabilities were
eliminated and such adjustment was recorded as a reduction in the Company’s
provision for income tax expense in the first quarter of 2008 (see Note
3). This adjustment resulted in an increase in the carrying values of
the Company’s reporting units.
As
disclosed in Note 1 and in the Company’s Annual Report on Form 10-K for the
fiscal year ended Dec. 30, 2007, the Company reviews goodwill and certain
intangible assets no longer being amortized for impairment annually in the
fourth quarter of each year, or more frequently if events or changes in
circumstances indicate that an asset may be impaired, in accordance with FAS No.
142.
During
2008, each of the Company’s major newspapers has experienced significant
continuing declines in advertising revenues due to a variety of factors,
including weak national and local economic conditions, which has reduced
advertising demand, and increased competition, particularly from on-line
media. The largest decreases in advertising revenue have been in the
real estate and recruitment classified advertising categories. The
advertising shortfalls have caused significant declines in the Company’s
publishing segment operating profit. Due to the declines in actual
and projected newspaper advertising revenues, the Company performed an
impairment review of goodwill attributable to its newspaper reporting unit and
newspaper mastheads in the second quarter of 2008. The review was
conducted after $830 million of newspaper reporting unit goodwill and $380
million of the newspaper masthead assets were allocated to the NMG transaction
(see Note 2). 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
are reflected as write-downs of intangible assets in the Company’s second
quarter and first half 2008 unaudited condensed consolidated statements of
operations. The impairment charges do not affect the Company’s
operating cash flows or its compliance with its financial debt
covenants.
In
accordance with FAS No. 142, the impairment review performed in the second
quarter of 2008 was based on estimated fair values. The total fair
value of the Company’s newspaper reporting unit was estimated based on projected
future discounted cash flow analyses and market valuations of comparable
companies. Under FAS No. 142, the estimated fair value of goodwill of
a reporting unit is determined by calculating the residual fair value that
remains after the total estimated fair value of the reporting unit is allocated
to its net assets other than goodwill. The Company’s impairment
review resulted in an estimated fair value for newspaper reporting unit goodwill
of $185 million, which compared to a book value of $3,192 million following the
reclassification of goodwill attributable to NMG (see Note 2) and therefore
resulted in the pretax impairment charge of $3,007 million for
goodwill. The estimated fair values of the Company’s newspaper
mastheads were based on discounted future cash flows calculated utilizing the
relief-from-royalty method. Newspaper mastheads had a total book
value of $1,413 million at Dec. 30, 2007, and pertained to five newspapers,
including
Newsday
,
which were acquired as part of the Company’s purchase of The Times Mirror
Company in 2000.
The
determination of estimated fair values of goodwill and other intangible assets
not being amortized requires many judgments, assumptions and estimates of
several critical factors, including revenue and market growth, operating cash
flows, market multiples, and discount rates, as well as specific economic
factors in the publishing and broadcasting industries. Adverse
changes in expected operating results and/or unfavorable changes in other
economic factors used to estimate fair values could result in additional
non-cash impairment charges related to the Company’s publishing and/or
broadcasting and entertainment segments.
NOTE
10: DEBT
Debt
consisted of the following (in thousands):
|
June
29, 2008
|
|
Dec. 30, 2007
|
|
|
|
|
|
|
Tranche
B Facility due 2014, interest rate of 5.48% and 7.91%,
respectively
|
$
|
7,573,938
|
|
$
|
7,587,163
|
Tranche
X Facility due 2008-2009, interest rate of 5.48% and
7.99%,
respectively
|
|
1,400,000
|
|
|
1,400,000
|
Bridge
Facility due 2008, interest rate of 7.98% and 9.43%,
respectively
|
|
1,600,000
|
|
|
1,600,000
|
Medium-term
notes due 2008, weighted average interest rate of 5.6% in
2008
and 2007
|
|
237,585
|
|
|
262,585
|
Property
financing obligation, effective interest rate of 7.7% (Note
13)
|
|
—
|
|
|
35,676
|
4.875%
notes due 2010, net of unamortized discount of $334 and $410,
respectively
|
|
449,666
|
|
|
449,589
|
7.25%
debentures due 2013, net of unamortized discount of $1,622
and
$1,794,
respectively
|
|
80,461
|
|
|
80,289
|
5.25%
notes due 2015, net of unamortized discount of $1,127 and $1,205,
respectively
|
|
328,874
|
|
|
328,795
|
7.5%
debentures due 2023, net of unamortized discount of $3,614 and $3,732,
respectively
|
|
95,134
|
|
|
95,016
|
6.61%
debentures due 2027, net of unamortized discount of $2,043 and $2,095,
respectively
|
|
82,917
|
|
|
82,864
|
7.25%
debentures due 2096, net of unamortized discount of $17,832
and
$17,926,
respectively
|
|
130,167
|
|
|
130,073
|
Subordinated
promissory notes due 2018, effective interest rate of
17%, net
of
unamortized discount of $165,040 and $165,000,
respectively
|
|
65,547
|
|
|
60,315
|
Interest
rate swaps
|
|
133,207
|
|
|
119,029
|
Other
notes and obligations
|
|
12,659
|
|
|
15,091
|
Total
debt excluding PHONES
|
|
12,190,155
|
|
|
12,246,485
|
2%
PHONES debt related to Time Warner stock, due 2029
|
|
276,000
|
|
|
597,040
|
Total
debt
|
$
|
12,466,155
|
|
$
|
12,843,525
|
Debt was
classified as follows in the unaudited condensed consolidated balance sheets (in
thousands):
|
June
29, 2008
|
|
Dec.
30, 2007
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
PHONES
debt related to Time Warner
stock
|
$
|
219,184
|
|
$
|
253,080
|
Other
debt due within one
year
|
|
1,479,703
|
|
|
750,239
|
Total
current
debt
|
|
1,698,887
|
|
|
1,003,319
|
Long-term
debt:
|
|
|
|
|
|
PHONES
debt related to Time Warner
stock
|
|
56,816
|
|
|
343,960
|
Other
long-term
debt
|
|
10,710,452
|
|
|
11,496,246
|
Total
long-term
debt
|
|
10,767,268
|
|
|
11,840,206
|
Total
debt
|
$
|
12,466,155
|
|
$
|
12,843,525
|
Credit Agreements
—On May 17,
2007, the Company entered into a $8.028 billion senior secured credit agreement,
as amended on June 4, 2007 (collectively, the “Credit Agreement”). The Credit
Agreement consists of the following facilities: (a) a $1.50 billion Senior
Tranche X Term Loan Facility (the “Tranche X Facility”), (b) a $5.515 billion
Senior Tranche B Term Loan Facility (the “Tranche B Facility”), (c) a $263
million Delayed Draw Senior Tranche B Term Loan Facility (the “Delayed Draw
Facility”) and (d) a $750 million Revolving Credit Facility (the “Revolving
Credit Facility”). The Credit Agreement also provided a commitment for an
additional $2.105 billion in new incremental term loans under the Tranche B
Facility (the “Incremental Facility”). Accordingly, the aggregate amount of the
facilities under the Credit Agreement equals $10.133 billion.
On June
4, 2007, proceeds from the Tranche X Facility and the Tranche B Facility were
used by the Company in connection with the consummation of the Company’s tender
offer to repurchase 126 million shares of the Company’s common stock that were
then outstanding at a price of $34.00 per share in cash and to refinance the
Company’s former five-year credit agreement and former bridge credit
agreement.
The
Revolving Credit Facility includes a letter of credit subfacility in an amount
up to $250 million and a swing line facility in an amount up to $100
million. As of June 29, 2008, the Company had $65 million of letters
of credit outstanding. Borrowings under the Revolving Credit Facility may be
used for working capital and general corporate purposes.
On Dec.
20, 2007, the Company entered into (i) a $1.6 billion senior unsecured interim
loan agreement (the “Interim Credit Agreement”) and (ii) a number of increase
joinders pursuant to which the Incremental Facility became a part of the Tranche
B Facility under the Credit Agreement (the Incremental Facility and Tranche B
Facility are hereinafter referred to collectively as the Tranche B Facility).
The Interim Credit Agreement contains a $1.6 billion twelve-month bridge
facility (the “Bridge Facility”). The total proceeds of $3.705 billion from the
Bridge Facility and the Incremental Facility were used by the Company, among
other ways, in connection with the consummation of the Merger and for general
corporate purposes.
Prior to
the consummation of the Merger, the Tranche X Facility bore interest per annum
at a variable rate equal to, at the Company’s election, the applicable base rate
plus a margin of 150 basis points or LIBOR plus a margin of 250 basis points.
Pursuant to the terms of the Credit Agreement, following the closing of the
Merger, the margins applicable to the Tranche X Facility increased to 175 basis
points and 275 basis points, respectively.
The
Tranche B Facility, Delayed Draw Facility and Revolving Credit Facility bear
interest per annum at a variable rate equal to, at the Company’s election, the
applicable base rate plus a margin of 200 basis points or LIBOR plus a margin of
300 basis points. All undrawn amounts under the Delayed Draw Facility
and the
Revolving Credit
Facility accrue commitment fees at a per annum rate of 75 basis points and 50
basis points, respectively. With respect to the Revolving Credit Facility only,
the margin applicable to base rate advances,
the
margin applicable to LIBOR advances and the commitment fee applicable to undrawn
amounts are subject to decreases based on a leverage-based grid.
On June
29, 2007, the Company repaid $100 million of the $1.5 billion of borrowings
under the Tranche X Facility. At June 29, 2008, a required principal
repayment of $650 million on the Tranche X Facility was due on Dec. 4, 2008.
Subsequent to June 29, 2008, the Company repaid an aggregate of $807 million of
the borrowings under the Tranche X Facility, utilizing the net cash proceeds of
$218 million from a $300 million trade receivables securitization facility
entered into on July 1, 2008 (see discussion below) and the net cash proceeds of
$589 million from the NMG transaction (see Note 2). The remaining
principal balance on the Tranche X facility of $593 million must be repaid on
June 4, 2009, which amount may be adjusted to reflect additional prepayments or
other mandatory prepayments (described below) applied thereto prior to that
date.
The
Tranche B Facility is a seven-year facility which matures on June 4, 2014 and
also amortizes at a rate of 1.0% per annum (payable quarterly). The Revolving
Facility is a six-year facility and matures on June 4, 2013. In
February 2008, the Company refinanced $25 million of its medium-term notes with
borrowings under the Delayed Draw Facility. The Delayed Draw Facility
automatically becomes part of the Tranche B Facility as amounts are borrowed and
amortizes based upon the Tranche B Facility amortization schedule. The Company
intends to use the Delayed Draw Facility to refinance approximately $238 million
of its remaining medium-term notes as they mature during
2008. Accordingly, the Company has classified its medium-term notes
as long-term at June 29, 2008 and Dec. 30, 2007.
Borrowings
under the Credit Agreement are prepayable at any time prior to maturity without
penalty, and the unutilized portion of the commitments under the Revolving
Credit Facility or the Delayed Draw Facility may be reduced at the option of the
Company without penalty.
Upon
execution of the Interim Credit Agreement, loans under the Bridge Facility bore
interest per annum at a variable rate equal to, at the Company’s election, the
applicable base rate plus a margin of 350 basis points or LIBOR plus a margin of
450 basis points. Pursuant to the terms of the Interim Credit Agreement, such
margins increased by 50 basis points per annum on March 20, 2008 and June 20,
2008 and will continue to increase by this amount in each succeeding quarter,
subject to specified caps, a portion of which interest may be payable through an
interest payable-in-kind feature. Subject to certain prepayment
restrictions contained in the Credit Agreement, the Bridge Facility is
prepayable at any time prior to maturity without penalty, including in
connection with the issuance of up to $1.6 billion of high-yield
notes.
If any
loans under the Bridge Facility remain outstanding on Dec. 20, 2008, the lenders
thereunder will have the option, subject to the terms of the Interim Credit
Agreement, at any time and from time to time to exchange such initial loans for
senior exchange notes that the Company will issue under a senior indenture,
and the maturity date of any initial loans that are not exchanged for
senior exchange notes will, unless a bankruptcy event of default has occurred
and is continuing on such date, automatically be extended to Dec. 20, 2015 (the
“Final Interim Credit Agreement Maturity Date”). Accordingly, the Company has
classified the borrowings under the Bridge Facility as long-term at June 29,
2008 and Dec. 30, 2007. The senior exchange notes will also mature on the Final
Interim Credit Agreement Maturity Date. Holders of the senior exchange notes
will have registration rights.
Loans
under the Tranche X Facility, Tranche B Facility and Revolving Loan Facility are
required to be repaid with the following proceeds, subject to certain exceptions
and exclusions set forth in the Credit Agreement: (a) 100% of the net cash
proceeds from the issuance or incurrence of debt for borrowed money by the
Company or any subsidiary (other than debt permitted to be incurred under the
negative covenants contained in the Credit Agreement (with certain exclusions)),
(b) certain specified percentages of excess cash flow proceeds based on a
leverage-based grid ranging from 50% to 0% and (c) 100% of the net cash proceeds
from all asset sales, certain dispositions, share issuances by the Company’s
subsidiaries and casualty events unless, in each case, the Company reinvests the
proceeds pursuant to the terms of the Credit Agreement. As noted above,
aggregate repayments of the Tranche X facility of $807 million were made
subsequent to June 29, 2008.
Loans
under the Bridge Facility are required to be repaid with the following proceeds,
in each case after the obligations under the Credit Agreement have been repaid,
either as required by the Credit Agreement or repaid at the election of the
Company, subject to certain exceptions and exclusions set forth in the Interim
Credit Agreement: (a) 100% of the net cash proceeds from the issuance or
incurrence of certain debt for borrowed money by the Company or any subsidiary,
(b) 100% of the net cash proceeds of any equity issuance consummated by the
Company and (c) 100% of the net cash proceeds from all asset sales, certain
dispositions, share issuances by the Company’s subsidiaries and casualty events
unless, in each case, the Company reinvests the proceeds pursuant to the terms
of the Interim Credit Agreement.
Borrowings
under the Credit Agreement are guaranteed on a senior basis by certain of the
Company’s direct and indirect U.S. subsidiaries and secured by a pledge of the
equity interests of Tribune Broadcasting Holdco, LLC and Tribune Finance, LLC,
two subsidiaries of the Company. The Company’s other senior notes and
senior debentures are secured on an equal and ratable basis with the borrowings
under the Credit Agreement as required by the terms of the indentures governing
such notes and debentures. Borrowings under the Interim Credit Agreement are
unsecured, but are guaranteed on a senior subordinated basis by certain of the
Company’s direct and indirect U.S. subsidiaries.
The
Credit Agreement and the Interim Credit Agreement contain representations and
warranties, affirmative and negative covenants, including restrictions on
capital expenditures, and events of default, in each case subject to customary
and negotiated exceptions and limitations, as applicable. If an event of default
occurs, the lenders under the Credit Agreement and the Interim Credit Agreement
will be entitled to take certain actions, including acceleration of all amounts
due under the facilities.
Further,
pursuant to the Credit Agreement, the Company is required to comply, on a
quarterly basis, with a maximum total guaranteed leverage ratio and a
minimum interest coverage ratio. For the twelve-month period ending June 29,
2008, the maximum permitted “Total Guaranteed Leverage Ratio” and the minimum
permitted “Interest Coverage Ratio” (each as defined in the Credit Agreement)
were 9.00 to 1.0 and 1.15 to 1.0, respectively. Both financial covenant
ratios are measured on a rolling four-quarter basis and become
more restrictive on an annual basis as set forth in the Credit Agreement.
At June 29, 2008, the Company was in compliance with these financial covenants.
The Company’s ability to remain in compliance with these financial covenants
will be impacted by a number of factors, including the Company’s ability to
continue to generate sufficient revenues and cash flows, changes in interest
rates, the impact of future purchase, sale, joint venture or similar
transactions involving the Company or its business units and the other risks and
uncertainties set forth in Part I, Item 1A, “Risk Factors” in the Company’s
Annual Report on Form 10-K for the fiscal year ended Dec. 30, 2007.
On March
13, 2008, the Company filed an election to be treated as a subchapter S
corporation under the Internal Revenue Code, which election is effective as of
the beginning of the Company’s 2008 fiscal year. The Credit Agreement and the
Interim Credit Agreement contain affirmative covenants which required the
Company to make such election and that the election be effective for fiscal year
2008. The Credit Agreement and Interim Credit Agreement further provide that if
the Company fails to maintain the S corporation election for any year beginning
with 2009, the Company will be required in each such year to obtain an
investment in the Company in the form of common stock or subordinated debt in an
amount of up to $100 million. There can be no assurance that the Company will be
able to obtain such an investment and the failure to obtain such an investment
in those circumstances could result in a default under the Credit Agreement and
Interim Credit Agreement.
Under the
terms of the Credit Agreement, the Company is required to enter into hedge
arrangements to offset a percentage of its interest rate exposure under the
Credit Agreement and other debt with respect to borrowed money. On
July 2, 2007, the Company entered into an International Swap and Derivatives
Association, Inc. (“ISDA”) Master Agreement, a schedule to the 1992 ISDA Master
Agreement and, on July 3, 2007, entered into three interest rate swap
confirmations (collectively, the “Swap Documents”) with Barclays Bank, which
Swap Documents provide for (i) a two-year hedge with respect to $750 million in
notional amount, (ii) a three-year hedge with respect to $1 billion in notional
amount and (iii) a five-year hedge with respect to $750
million
in notional amount. The Swap Documents effectively converted a portion of the
variable rate borrowings under the Tranche B Facility in the Credit Agreement to
a weighted average fixed rate of 5.31% plus a margin of 300 basis points. The
Company accounts for these interest rate swaps as cash flow hedges in accordance
with FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“FAS No. 133”). Under FAS No. 133, a cash flow hedge is
deemed to be highly effective if it is expected that changes in the cash flows
of the hedged item are almost fully offset by changes in the cash flows of the
hedging instrument. While there will be some ineffectiveness in the future, the
cash flow hedges covered by the Swap Documents are deemed to be highly
effective, and therefore gains and losses resulting from changes in the fair
value of these hedges, other than changes resulting from hedge ineffectiveness,
are recorded in other comprehensive income (loss), net of taxes.
As of
June 29, 2008, the Company had outstanding borrowings of $7.6 billion under
the Tranche B Facility, $1.4 billion under the Tranche X Facility, and $1.6
billion under the Bridge Facility. As of June 29, 2008, the
applicable interest rate was 5.48% on the Tranche B Facility, 5.48% on the
Tranche X Facility and 7.98% on the Bridge Facility.
Trade Receivables Securitization
Facility
—
On July 1,
2008, the Company and Tribune Receivables LLC, a wholly-owned subsidiary of the
Company (the “Receivables Subsidiary”), entered into a $300 million trade
receivables securitization facility. The Receivables Subsidiary
borrowed $225 million under this facility and incurred transaction costs
totaling $7 million. The net proceeds of $218 million were utilized
to pay down the borrowings under the Tranche X Facility.
Pursuant
to a receivables purchase agreement, dated as of July 1, 2008, among the
Company, the Receivables Subsidiary and certain other subsidiaries of the
Company (the “Operating Subsidiaries”), the Operating Subsidiaries sell certain
trade receivables and related assets (the “Receivables”) to the Company on a
daily basis. The Company, in turn, sells such Receivables to the
Receivables Subsidiary, also on a daily basis. Receivables
transferred to the Receivables Subsidiary are assets of the Receivables
Subsidiary and not of the Company or any of the Operating Subsidiaries (and
accordingly will not be available to the creditors of the Company or any of the
Operating Subsidiaries).
The
Receivables Subsidiary has also entered into a receivables loan agreement, dated
as of July 1, 2008 (the “Receivables Loan Agreement”), among the Company, as
servicer, the Receivables Subsidiary, as borrower, certain entities from time to
time parties thereto as conduit lenders and committed lenders (the “Lenders”),
certain financial institutions from time to time parties thereto as funding
agents, and Barclays Bank PLC, as administrative agent. Pursuant to
the Receivables Loan Agreement, the Lenders, from time to time, make advances to
the Receivables Subsidiary. The advances are secured by, and repaid
through collections on, the Receivables owned by the Receivables
Subsidiary. The aggregate outstanding principal amount of the
advances may not exceed $300 million. The Company (directly and
indirectly through the Operating Subsidiaries) services the Receivables, and the
Receivables Subsidiary pays a fee to the Company for such services. The
Receivables Subsidiary will pay a commitment fee on the undrawn portion of the
facility and administrative agent fees.
In accordance with FASB Statement No.
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities”, the Company will account for this arrangement
as a secured borrowing by the Receivables Subsidiary and will include the
pledged assets in receivables and the cash advances in debt in its consolidated
balance sheets prospectively. Advances under the Receivables Loan
Agreement that are funded through commercial paper issued by the Lenders will
accrue interest based on the applicable commercial paper interest rate or
discount rate, plus a margin. All other advances will accrue interest at (i)
LIBOR, (ii) the prime rate or (iii) the federal funds rate, in each case plus an
applicable margin. The Receivables Loan Agreement includes customary
early amortization events and events of default for facilities of this
nature. The Receivables Subsidiary is required to repay the advances
in full by no later than July 1, 2010.
Interest Rate Swaps
—As noted
above, the Company is party to three interest rate swaps covered under the Swap
Documents. At June 29, 2008, the fair value of these swaps had declined since
their inception date of July 3, 2007 by $104 million, which amount is included
in long-term debt. The $104 million change in fair value of these
swaps is included, net of taxes, in the accumulated other comprehensive income
(loss) component of shareholders’ equity (deficit) at June 29, 2008. The Company
is also party to an additional interest rate swap agreement related to the
$100 million 7.5% debentures due in 2023 which effectively converts the
fixed 7.5% rate to a variable rate based on LIBOR.
Debt Due Within One Year
—Debt
due within one year at June 29, 2008 included $1.4 billion of borrowings under
the Tranche X Facility, $78 million of borrowings under the Tranche B
Facility, and $219 million related to PHONES. As noted above, subsequent to June
29, 2008, the Company repaid an aggregate of $807 million of the borrowings
under the Tranche X facility. Debt due within one year at
Dec. 30, 2007 included $650 million of borrowings under the Tranche X
Facility, $76 million of borrowings under the Tranche B Facility, $253
million related to PHONES, and $24 million of property financing and other
obligations. The Company expects to fund interest and principal
payments due in the next twelve months through a combination of cash flows from
operations, available borrowings under the Revolving Credit Facility, and, if
necessary, dispositions of assets or operations. The Company’s
ability to make scheduled payments or prepayments on its debt and other
financial obligations will depend on its future financial and operating
performance and its ability to dispose of assets on favorable
terms. There can be no assurances that the Company’s businesses will
generate sufficient cash flows from operations or that future borrowings under
the Revolving Credit Facility will be available in an amount sufficient to
satisfy debt maturities or to fund other liquidity needs or that any such asset
dispositions can be completed. The Company’s financial and operating
performance is subject to prevailing economic and industry conditions and to
financial, business and other factors, some of which are beyond the control of
the Company.
If the
Company’s cash flows and capital resources are insufficient to fund debt service
obligations, the Company will likely face increased pressure to reduce or delay
capital expenditures, dispose of assets or operations, further reduce the size
of its workforce, seek additional capital or restructure or refinance its
indebtedness. These actions could have a material adverse effect on the
Company’s business, financial condition and results of operations. In addition,
the Company cannot assure the ability to take any of these actions, that these
actions would be successful and permit the Company to meet scheduled debt
service obligations or that these actions would be permitted under the terms of
the Company’s existing or future debt agreements, including the Credit Agreement
and the Interim Credit Agreement. For example, the Company may need
to refinance all or a portion of its indebtedness on or before maturity. There
can be no assurance that the Company will be able to refinance any of its
indebtedness on commercially reasonable terms or at all. In the
absence of improved operating results and access to capital resources, the
Company could face substantial liquidity problems and might be required to
dispose of material assets or operations to meet its debt service and other
obligations. The Credit Agreement and the Interim Credit Agreement restrict the
Company’s ability to dispose of assets and use the proceeds from the
disposition. The Company may not be able to consummate those
dispositions or to obtain the proceeds realized. Additionally, these
proceeds may not be adequate to meet the debt service obligations then
due.
If the
Company cannot make scheduled payments or prepayments on its debt, the Company
will be in default and, as a result, among other things, the Company’s debt
holders could declare all outstanding principal and interest to be due and
payable and the Company could be forced into bankruptcy or liquidation or be
required to substantially restructure or alter business operations or debt
obligations.
Exchangeable Subordinated Debentures
due 2029 (“PHONES”)
—In 1999, the Company issued 8 million PHONES for
an aggregate principal amount of approximately $1.3 billion. The principal
amount was equal to the value of 16 million shares of Time Warner common
stock at the closing price of $78.50 per share on April 7, 1999. Quarterly
interest payments are made to the PHONES holders at an annual rate of 2% of the
initial principal. Effective Dec. 31, 2007, the Company has elected to account
for the PHONES utilizing the fair value option under FAS No.
159. Prior to the adoption of FAS No. 159, the Company recorded both
cash and non-cash interest expense on the discounted debt component of the
PHONES. Following the adoption of FAS No. 159 for the PHONES, the
Company records as interest expense only the cash interest paid on the
PHONES. See below for further information pertaining to the Company’s
adoption of FAS No. 159.
The
PHONES debenture agreement requires principal payments equal to any dividends
declared on the 16 million shares of Time Warner common stock. A payment of
$.125 per PHONES was made in the second quarter of 2008 for a Time Warner
dividend declared in the first quarter of 2008, and a payment of $.125 per
PHONES will be due in the third quarter of 2008 for a Time Warner dividend
declared in the second quarter of 2008. The Company records the
dividends it receives on its Time Warner common stock as dividend income and
accounts for the related payments to the PHONES holders as reduction of
principal.
The
Company may redeem the PHONES at any time for the higher of the principal value
of the PHONES ($155.77 per PHONES at June 29, 2008) or the then market value of
two shares of Time Warner common stock, subject to certain adjustments. At any
time, holders of the PHONES may exchange a PHONES for an amount of cash equal to
95% (or 100% under certain circumstances) of the market value of two shares of
Time Warner common stock. At June 29, 2008, the market value per PHONES was
$34.50, and the market value of two shares of Time Warner common stock was
$28.84. The amount PHONES holders could have received if they had elected to
exchange their PHONES for cash on June 29, 2008 was $219 million, which is
included in current liabilities at June 29, 2008.
Prior to
the adoption of FAS No. 159, the Company accounted for the PHONES under the
provisions of FAS No. 133. Under FAS No. 133, the PHONES consisted of
a discounted debt component, which was presented at book value, and a derivative
component, which was presented at fair value. Changes in the fair value of the
derivative component of the PHONES were recorded in the statement of operations.
At Dec. 30, 2007, the Company performed a direct valuation of the derivative
component of the PHONES utilizing the Black-Scholes option-pricing
model. As noted above, effective Dec. 31, 2007, the Company has
elected to account for the PHONES utilizing the fair value option under FAS No.
159. As a result of this election, the PHONES no longer consists of a
discounted debt component, presented at book value, and a derivative component,
presented at fair value, but instead is presented based on the fair value of the
entire PHONES debt. The Company made this election as the fair value
of the PHONES is readily determinable based on quoted market
prices. Changes in the fair value of the PHONES are recorded in the
statement of operations.
The
following table summarizes the impact of the adoption of FAS No. 159 for the
PHONES on the Company’s unaudited condensed consolidated balance sheet (in
thousands):
|
Balances
Prior
To
Adoption
|
|
|
Net
Gain/(Loss)
Upon
Adoption
|
|
Balances
After Adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
PHONES
debt (current and long-term portions)
|
$
|
(597,040
|
)
|
|
$
|
177,040
|
|
|
$
|
(420,000
|
)
|
Unamortized
debt issuance costs related to PHONES
included in other non-current
assets
|
$
|
18,384
|
|
|
|
(18,384
|
)
|
|
$
|
—
|
|
Pretax
cumulative effect of
adoption
|
|
|
|
|
|
158,656
|
|
|
|
|
|
Increase
in deferred income tax liabilities
|
|
|
|
|
|
(61,876
|
)
|
|
|
|
|
Cumulative
effect of adoption (increase to
retained
earnings)
|
|
|
|
|
$
|
96,780
|
|
|
|
|
|
In
accordance with FAS No. 159, the $97 million after-tax cumulative effect of
adoption was recorded directly to retained earnings and was not included in the
Company’s unaudited condensed consolidated statement of operations for the first
half ended June 29, 2008.
The
market value of the PHONES, which are traded on the New York Stock Exchange, was
$276 million and $420 million at June 29, 2008 and Dec. 30, 2007,
respectively. The outstanding principal balance of the PHONES was
$1,246 million and $1,248 million at June 29, 2008 and Dec. 30, 2007,
respectively.
NOTE
11: FAIR VALUE OF FINANCIAL INSTRUMENTS
As
discussed in Note 1, the Company adopted FAS No. 157 effective Dec. 31,
2007. FAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements. In February 2008, the FASB issued Staff Position No.
157-2 (“FSP No. 157-2”) which defers the effective date of FAS No. 157 for all
nonfinancial assets and liabilities, except those items recognized or disclosed
at fair value on an annual or more frequently recurring basis, until one year
after the adoption of FAS No. 157. The Company is currently
evaluating the impact of FAS No. 157 on the Company’s assets and liabilities
within the scope of FSP 157-2, the provisions of which will become effective
beginning in the Company’s first quarter of 2009.
In
accordance with FAS No. 157, the Company has categorized its financial assets
and liabilities into a three-level hierarchy as outlined below.
·
|
Level 1
– Financial
assets and liabilities whose values are based on unadjusted quoted prices
for identical assets or liabilities in an active market. Level
One financial assets for the Company include its investment in Time Warner
stock related to its PHONES debt and other investments in the securities
of public companies that are classified as available for
sale. Level One financial liabilities for the Company include
its PHONES debt related to Time Warner stock (see Note 10 for additional
information pertaining to the fair value of the Company’s PHONES
debt).
|
·
|
Level 2
– Financial
assets and liabilities whose values are based on quoted prices in markets
where trading occurs infrequently or whose values are based on quoted
prices of instruments with similar attributes in active
markets. Level Two financial assets and liabilities also
include assets and liabilities whose values are derived from valuation
models whose inputs are observable. Level Two financial assets
and liabilities for the Company include its interest rate swaps (see Note
10 for additional information on the Company’s interest rate
swaps).
|
·
|
Level 3
– Financial
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. The Company does not
currently have any Level Three financial assets or
liabilities.
|
The
following table presents the financial assets and liabilities measured at fair
value on a recurring basis on the Company’s unaudited condensed consolidated
balance sheet at June 29, 2008 (in thousands):
|
June
29, 2008
|
|
|
Level
1
|
|
|
Level
2
|
|
Financial
assets:
|
|
|
|
|
|
|
|
Time
Warner stock related to
PHONES
|
$
|
230,720
|
|
|
$
|
—
|
|
Other
investments in securities of public
companies
|
|
3,184
|
|
|
|
—
|
|
Interest
rate
swaps
|
|
—
|
|
|
|
33,999
|
|
Total
|
$
|
233,904
|
|
|
$
|
33,999
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
PHONES
debt related to Time Warner
stock
|
$
|
276,000
|
|
|
$
|
—
|
|
Interest
rate
swaps
|
|
—
|
|
|
|
133,207
|
|
Total
|
$
|
276,000
|
|
|
$
|
133,207
|
|
NOTE
12: COMPREHENSIVE INCOME (LOSS)
Comprehensive
income (loss) reflects all changes in the net assets of the Company during the
period from transactions and other events and circumstances, except those
resulting from stock issuances, stock repurchases and dividends. The
Company’s comprehensive income (loss) includes net income (loss) and other gains
and losses.
The
Company’s comprehensive income (loss) was as follows (in
thousands):
|
Second
Quarter
|
|
|
First
Half
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
$
|
(4,533,949
|
)
|
|
$
|
36,276
|
|
|
$
|
(2,710,487
|
)
|
|
$
|
12,981
|
|
Change
in unrecognized benefit plan losses,
net
of taxes
|
|
(45,544
|
)
|
|
|
—
|
|
|
|
(57,109
|
)
|
|
|
—
|
|
Adjustment
for previously unrecognized benefit
plan losses included in net income,
net of taxes
|
|
4,365
|
|
|
|
6,357
|
|
|
|
10,716
|
|
|
|
13,999
|
|
Unrealized
loss on marketable securities, net of
taxes
|
|
(727
|
)
|
|
|
(1,720
|
)
|
|
|
(2,096
|
)
|
|
|
(2,331
|
)
|
Unrecognized
gains (losses) on cash flow hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
(losses) on cash flow hedging instruments
arising during the period,
net of taxes
|
|
55,423
|
|
|
|
—
|
|
|
|
(13,032
|
)
|
|
|
—
|
|
Adjustment
for gains on cash flow hedging
instruments included in net income, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
|
|
(1,645
|
)
|
|
|
—
|
|
|
|
(1,617
|
)
|
|
|
—
|
|
Unrecognized gains (losses) on cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
hedging instruments, net of taxes
|
|
53,778
|
|
|
|
—
|
|
|
|
(14,649
|
)
|
|
|
—
|
|
Change
in foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments, net of taxes
|
|
(59
|
)
|
|
|
187
|
|
|
|
(65
|
)
|
|
|
204
|
|
Other
comprehensive income (loss)
|
|
11,813
|
|
|
|
4,824
|
|
|
|
(63,203
|
)
|
|
|
11,872
|
|
Comprehensive
income (loss)
|
$
|
(4,522,136
|
)
|
|
$
|
41,100
|
|
|
$
|
(2,647,284
|
)
|
|
$
|
24,853
|
|
NOTE
13: OTHER MATTERS
Media Ownership Rules
—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 Federal Communications Commission
(“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.
On Nov.
30, 2007, the FCC issued an order (the “Order”) granting applications of the
Company to transfer control of the Company from the shareholders to the
ESOP. In the Order, the FCC granted the Company temporary waivers of
the newspaper/broadcast cross-ownership rule in Miami, Florida (WSFL-TV and the
South Florida
Sun-Sentinel
); Hartford, Connecticut (WTXX-TV/WTIC-TV and the
Hartford Courant
); and Los
Angeles, California (KTLA-TV and the
Los Angeles Times
) for a
six-month period beginning Jan. 1, 2008. The waiver also encompassed New
York, New York (allowing for the common ownership of WPIX-TV and
Newsday
); however, following the
consumation of the NMG transaction on July 29, 2008 (see Note 2),
the Company no longer has an attributable interest in both a television and
a newspaper in that market.
The six-month waiver could be
automatically extended under two conditions: (1) if the Company appeals the
Order, the waivers are extended for the longer of two years or six months after
the conclusion of the litigation over the Order; or (2) if the FCC adopts a
revised newspaper-broadcast cross-ownership rule prior to Jan. 1, 2008, the
waivers are extended for a two-year period to allow the Company to come into
compliance with any revised rule,
provided that in the event the revised rule is the subject of a judicial stay,
the waiver is extended until six months after the expiration of any such
stay.
The Order
also granted the Company a permanent waiver of the newspaper-broadcast
cross-ownership rule to permit continued common ownership of WGN-AM, WGN-TV and
the Chicago Tribune in Chicago, Illinois; a permanent “failing station” waiver
of the television duopoly rule to permit continued common ownership of WTIC-TV
and WTXX-TV in Hartford, Connecticut; and granted satellite station status to
WTTK-TV, Kokomo, Indiana to permit continued common ownership with WTTV-TV,
Bloomington, Indiana.
Various
parties have filed petitions for reconsideration of the Order with the FCC,
which the Company opposed. The Company also filed an appeal of the
Order in the United States Court of Appeals for the District of Columbia Circuit
on Dec. 3, 2007, thus automatically extending the waivers for two years or until
six months after the conclusion of that appeal, whichever is
longer. The appeal has been held in abeyance pending FCC action on
the petitions for
reconsideration. Intervenors
have filed a motion to dismiss the appeal, which the Company
opposed. A decision on the motion to dismiss has been deferred until
briefing on the merits.
On Dec.
18, 2007, the FCC announced in an FCC news release the adoption of revisions to
the newspaper/broadcast cross-ownership rule. The FCC, on Feb. 4, 2008, released
the full text of the rule. The revised rule establishes a presumption
that the common ownership of a daily newspaper of general circulation and either
a television or a radio broadcast station in the top 20 Nielsen Designated
Market Areas (“DMAs”) would serve the public interest, provided that, if the
transaction involves a television station, (i) at least eight independently
owned and operating major media voices (defined to include major newspapers and
full-power commercial television stations) would remain in the DMA following the
transaction and (ii) the cross-owned television station is not among the
top-four ranked television stations in the DMA. Other proposed
newspaper/broadcast transactions would be presumed not to be in the public
interest, except in the case of a “failing” station or newspaper, or in the
event that the proposed transaction results in a new source of news in the
market. The FCC did not further relax the television-radio cross-ownership
rules, the radio local ownership rules, or the television duopoly rules. Under
the rule adopted, the Company would be entitled to a presumption in favor of
common ownership in two of the three of the Company’s cross-ownership markets
(Los Angeles, California and Miami, Florida) not covered by the FCC’s grant of a
permanent waiver (Chicago, Illinois). Various parties, including the Company,
have sought judicial review of the FCC’s order adopting the new
rule.
Congress
removed national limits on the number of broadcast stations a licensee may own
in 1996. However, federal law continues to limit the number of radio and
television stations a single owner may own in a local market, and caps the
percentage of the national television audience that may be reached by a
licensee’s television stations in the aggregate at 39%.
Television
and radio broadcasting licenses are subject to renewal by the FCC, at which time
they may be subject to petitions to deny the license renewal applications. At
June 29, 2008, the Company had FCC authorization to operate 23 television
stations and one AM radio station. In order to expedite the renewal
grants, the Company entered into tolling agreements with the FCC for WPIX-TV,
New York, WDCW-TV, Washington, D.C., WGNO-TV, New Orleans, WXIN-TV,
Indianapolis, WXMI-TV, Grand Rapids, WGN-TV, Chicago, WPHL-TV, Philadelphia,
KWGN-TV, Denver, KHCW-TV, Houston, KTLA-TV, Los Angeles, KTXL-TV, Sacramento,
KSWB-TV, San Diego, KCPQ-TV, Seattle/Tacoma, WTIC-TV, and WPMT-TV Harrisburg,
Pennsylvania). The tolling agreements would allow the FCC to penalize
the Company for rule violations that occurred during the previous license term
notwithstanding the grant of renewal applications.
The
television industry is in the final stages of the transition to digital
television (“DTV”). By law, the transition to DTV is to occur by Feb. 17, 2009.
The FCC has issued an order with the final, post-transition DTV channel
assignments for every full power television station in the U.S. It also recently
completed a proceeding that established the operating rules for DTV stations
just before and after the transition in February
2009.
Conversion to digital transmission requires all television broadcasters,
including those owned by the Company, to invest in digital equipment and
facilities. At June 29, 2008, all of the Company’s television stations were
operating DTV stations in compliance with the FCC’s rules.
The FCC
still has not resolved a number of issues relating to the operation of DTV
stations, including the possible imposition of additional “public interest”
obligations attached to broadcasters’ use of digital spectrum.
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 what regulations or legislation may be
proposed or finally enacted or what effect, if any, such regulations or
legislation could have on the Company’s broadcasting operations.
Variable Interest Entities
—The
Company holds significant variable interests, as defined by FASB Interpretation
No. 46R, “Consolidation of Variable Interest Entities,” in Classified Ventures,
LLC, ShopLocal, LLC and Topix, LLC, but the Company has determined that it is
not the primary beneficiary of these entities. The Company’s maximum
loss exposure related to these entities is limited to its equity investments in
Classified Ventures, LLC, ShopLocal, LLC, and Topix, LLC, which were $36
million, $22 million and $22 million, respectively, at June 29,
2008. On June 30, 2008, the Company sold its investment in ShopLocal,
LLC and received net proceeds of $22 million.
Acquisition
of TMCT Real Properties
—On Sept. 22, 2006, the Company amended the terms
of its lease agreement with TMCT, LLC, an investment trust in which the Company
formerly held an interest following the Company’s acquisition of The Times
Mirror Company in 2000 and from which the Company leased eight real properties
(see Note 8 to the consolidated financial statements included in the Company’s
Annual Report on Form 10-K for the fiscal year ended Dec. 30, 2007 for further
information on the Company’s interest in TMCT, LLC). Under the terms
of the amended lease, the Company was granted an accelerated option to acquire
the eight properties during the month of January 2008 for
$175 million. The Company exercised this option on Jan. 29, 2008 and the
acquisition was completed on April 28, 2008. In connection with this
acquisition, the related property financing obligation of $28 million at April
28, 2008 was extinguished (see Note 10). No gain or loss was recorded
in the second quarter of 2008 as a result of the acquisition.
New
A
ccounting
Standards
—In December 2007, the FASB issued FASB Statement No. 160,
“Noncontrolling Interests in Consolidated Financial Statements, an Amendment of
ARB No. 51” (“FAS No. 160”), which provides accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that an ownership interest in a subsidiary should be
reported as a separate component of equity in the consolidated financial
statements, requires consolidated net income to include the amounts attributable
to both the parent and the noncontrolling interest and provides for expanded
disclosures in the consolidated financial statements. FAS No. 160 is effective
for financial statements issued for fiscal years beginning after Dec. 15, 2008
and interim periods beginning within these fiscal years. The Company is
currently evaluating the impact of adopting FAS No. 160 on its consolidated
financial statements.
In
December 2007, the FASB issued FASB Statement No. 141 (revised 2007), “Business
Combinations” (“FAS No. 141R”), which addresses, among other items, the
recognition and accounting for identifiable assets acquired and liabilities
assumed in business combinations. FAS No. 141R also establishes
expanded disclosure requirements for business combinations. FAS No.
141R is effective for financial statements issued for fiscal years beginning
after Dec. 15, 2008 and interim periods beginning within these fiscal
years. The Company is currently evaluating the impact of adopting FAS
No. 141R on its consolidated financial statements.
In March
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (FAS
No. 161), which requires enhanced
disclosures
for derivative and hedging activities. FAS No. 161 is effective for
financial statements issued for fiscal years beginning after Dec. 15, 2008 and
interim periods beginning within these fiscal years. Early adoption is
permitted. The Company is currently evaluating the impact of adopting
FAS No. 161 on its consolidated financial statements.
NOTE
14: SEGMENT INFORMATION
Financial
data for each of the Company’s business segments, from continuing operations,
was as follows (in thousands):
|
|
Second
Quarter
|
|
|
First
Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
700,555
|
|
|
$
|
783,578
|
|
|
$
|
1,414,652
|
|
|
$
|
1,588,267
|
|
Broadcasting and
entertainment
|
|
|
409,254
|
|
|
|
392,959
|
|
|
|
700,936
|
|
|
|
675,967
|
|
Total
operating revenues
|
|
$
|
1,109,809
|
|
|
$
|
1,176,537
|
|
|
$
|
2,115,588
|
|
|
$
|
2,264,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit (loss)
(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing(2)
|
|
$
|
(3,767,918
|
)
|
|
$
|
81,336
|
|
|
$
|
(3,729,697
|
)
|
|
$
|
206,926
|
|
Broadcasting and
entertainment
|
|
|
103,403
|
|
|
|
107,734
|
|
|
|
238,598
|
|
|
|
169,116
|
|
Corporate
expenses
|
|
|
(10,127
|
)
|
|
|
(13,972
|
)
|
|
|
(38,624
|
)
|
|
|
(33,613
|
)
|
Total
operating profit (loss)
|
|
$
|
(3,674,642
|
)
|
|
$
|
175,098
|
|
|
$
|
(3,529,723
|
)
|
|
$
|
342,429
|
|
|
|
June
29, 2008
|
|
|
Dec.
30, 2007
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
2,729,802
|
|
|
$
|
8,121,133
|
|
Broadcasting and
entertainment
|
|
|
3,713,853
|
|
|
|
3,993,933
|
|
Corporate
|
|
|
995,665
|
|
|
|
1,000,873
|
|
Assets
held for
disposition
|
|
|
796,247
|
|
|
|
33,780
|
|
Total
assets
|
|
$
|
8,235,567
|
|
|
$
|
13,149,719
|
|
(1)
|
Operating
profit (loss) for each segment excludes interest and dividend income,
interest expense, equity income and losses, non-operating items and income
taxes.
|
(2)
|
The
second quarter and first half 2008 operating loss for the publishing
segment included non-cash pretax impairment write-downs of intangible
assets totaling $3,843 million. See Note
9.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF
OPERATIONS.
|
The
following discussion compares the results of operations of Tribune Company and
its subsidiaries (the “Company”) for the second quarter and first half of 2008
to the second quarter and first half of 2007. This commentary should
be read in conjunction with the Company’s unaudited condensed consolidated
financial statements, which are also presented in this Form
10-Q. Certain prior year amounts have been reclassified to conform
with the 2008 presentation.
FORWARD-LOOKING
STATEMENTS
The
discussion contained in this Item 2 (including, in particular, the
discussion under “Liquidity and Capital Resources”), the information contained
in the preceding notes to the unaudited condensed consolidated financial
statements and the information contained in Part I, Item 3, “Quantitative and
Qualitative Disclosures about Market Risk,” contain 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
including, but not limited to, the items discussed in Part I, Item 1A,
“Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year
ended Dec. 30, 2007. 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 Leveraged ESOP Transactions (as
defined below in “Significant Events”); 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 the 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
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 events
beyond the Company’s control that may result in unexpected adverse operating
results.
The words “believe,” “expect,”
“anticipate,” “estimate,” “could,” “should,” “intend” and similar expressions
generally identify forward-looking statements. Readers are cautioned
not to place undue reliance on such forward-looking statements, which are being
made as of the date of this filing. The Company undertakes no
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.
SIGNIFICANT
EVENTS
Write-downs of Intangible
Assets
—As described in the Company’s Annual Report on Form 10-K for the
fiscal year ended Dec. 30, 2007, the Company reviews goodwill and certain
intangible assets no longer being amortized for impairment annually, or more
frequently if events or changes in circumstances indicate that an asset may be
impaired, in accordance with Financial Accounting Standards Board (“FASB”)
Statement No. 142 (“FAS No. 142”), “Goodwill and Other Intangible
Assets.” During 2008, each of the Company’s major newspapers has
experienced significant continuing declines in advertising revenues due to a
variety of factors, including weak national and local economic conditions, which
has reduced advertising demand, and increased competition, particularly from
on-line media. Due to the decline in actual and projected newspaper
advertising
revenues, the Company performed an impairment review of goodwill attributable to
its newspaper reporting unit and of newspaper masthead intangible assets in the
second quarter of 2008. The review was conducted after $830 million
of newspaper reporting unit goodwill and $380 million of newspaper masthead
intangible assets were allocated to the Newsday Media Group (“NMG”) transaction
(see the discussion under “Discontinued Operations” below). As a
result of the impairment review, the Company recorded non-cash pretax impairment
charges in the second quarter of 2008 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 are reflected as “Write-downs of intangible assets” in the Company’s
unaudited condensed consolidated statements of operations in Part I, Item 1,
hereof. These non-cash impairment charges do not affect the Company’s
operating cash flows or its compliance with its financial debt
covenants. See Note 9 to the Company’s unaudited condensed
consolidated financial statements in Part I, Item 1, hereof for a further
discussion of the methodology the Company utilized to perform this impairment
review.
Under FAS
No. 142, the impairment review of goodwill and other intangible assets not
subject to amortization must be based on estimated fair values. The
determination of estimated fair values of goodwill and other intangible assets
not being amortized requires many judgments, assumptions and estimates of
several critical factors, including revenue and market growth, operating cash
flows, market multiples, and discount rates, as well as specific economic
factors in the publishing and broadcasting industries. Adverse
changes in expected operating results and/or unfavorable changes in other
economic factors used to estimate fair values could result in additional
non-cash impairment charges related to the Company’s publishing and/or
broadcasting and entertainment segments.
S Corporation Election
—On
March 13, 2008, the Company filed an election to be treated as a subchapter S
corporation under the Internal Revenue Code, which election is effective as of
the beginning of the Company’s 2008 fiscal year. The Company also
elected to treat nearly all of its subsidiaries as qualified subchapter S
subsidiaries. Subject to certain limitations (such as the built-in
gain tax applicable for ten years to gains accrued prior to the election), the
Company is no longer subject to federal income tax. Instead, the
Company’s income will be required to be reported by its
shareholders. The Company’s Employee Stock Ownership Plan, the
Company’s sole shareholder (see Note 5 to the Company’s unaudited condensed
consolidated financial statements in Part I, Item 1, hereof), will not be taxed
on the share of income that is passed through to it because the Employee Stock
Ownership Plan is a qualified employee benefit plan. Although most
states in which the Company operates recognize the S corporation status, some
impose income taxes at a reduced rate.
As a
result of the election and in accordance with FASB Statement No. 109,
“Accounting for Income Taxes”, the Company eliminated approximately $1,859
million of net deferred income tax liabilities as of Dec. 31, 2007, and recorded
such adjustment as a reduction in the Company’s provision for income tax expense
in the first quarter of 2008. The Company continues to report
deferred income taxes relating to states that assess taxes on S corporations,
subsidiaries which are not qualified subchapter S subsidiaries, and potential
asset dispositions that the Company expects will be subject to the built-in gain
tax.
Leveraged ESOP Transactions
—On
April 1, 2007, the Company’s board of directors (the “Board”), based on the
recommendation of a special committee of the Board comprised entirely of
independent directors, approved a series of transactions (collectively, the
“Leveraged ESOP Transactions”) with a newly formed Tribune Employee Stock
Ownership Plan (the “ESOP”), EGI-TRB, L.L.C., a Delaware limited liability
company (the “Zell Entity”) wholly-owned by Sam Investment Trust (a trust
established for the benefit of Samuel Zell and his family), and Samuel
Zell.
On Dec. 20,
2007, the Company completed the Leveraged ESOP Transactions which culminated in
the cancellation of all issued and outstanding shares of the Company’s common
stock as of that date, other than shares held by the Company or the ESOP, and
the Company becoming wholly-owned by the ESOP. The Company has significant
continuing public debt and has accounted for these transactions as a leveraged
recapitalization and, accordingly, has maintained a historical cost presentation
in its consolidated financial statements.
The
Leveraged ESOP Transactions consisted of a series of transactions that included
the following:
·
|
On
April 1, 2007, the Company entered into an Agreement and Plan of Merger
(the “Merger Agreement”) with GreatBanc Trust Company, not in its
individual or corporate capacity, but solely as trustee of the Tribune
Employee Stock Ownership Trust, a separate trust which forms a part of the
ESOP, Tesop Corporation, a Delaware corporation wholly-owned by the ESOP
(“Merger Sub”), and the Zell Entity (solely for the limited purposes
specified therein) providing for Merger Sub to be merged with and into the
Company, and following such merger, the Company to continue as the
surviving corporation wholly-owned by the ESOP (the
“Merger”).
|
·
|
On
April 1, 2007, the ESOP purchased 8,928,571 shares of the Company’s common
stock from the Company at a price of $28.00 per share. The ESOP paid for
this purchase with a promissory note of the ESOP in favor of the Company
in the principal amount of $250 million, to be repaid by the ESOP over the
30-year life of the loan through its use of annual contributions from the
Company to the ESOP and/or distributions paid on the shares of the
Company’s common stock held by the ESOP. Upon consummation of the Merger,
the 8,928,571 shares of the Company’s common stock held by the ESOP were
converted into 56,521,739 shares of common stock and represent the only
outstanding shares of capital stock of the Company after the
Merger.
|
·
|
On
April 23, 2007, pursuant to a purchase agreement dated April 1, 2007 (the
“Zell Entity Purchase Agreement”), the Zell Entity made an initial
investment of $250 million in the Company in exchange for (1) 1,470,588
shares of the Company’s common stock at a price of $34.00 per share and
(2) an unsecured subordinated exchangeable promissory note of the Company
in the principal amount of $200 million. The shares were
converted at the effective time of the Merger into the right to receive
$34.00 per share in cash, and the unsecured subordinated exchangeable
promissory note, including approximately $6 million of interest accrued
thereon, was repaid by the Company immediately prior to the
Merger. Pursuant to the Zell Entity Purchase Agreement, on May
9, 2007, Mr. Zell was appointed as a member of the
Board.
|
·
|
On
April 25, 2007, the Company commenced a tender offer to repurchase up to
126 million shares of the Company’s common stock that were then
outstanding at a price of $34.00 per share in cash (the “Share
Repurchase”). The tender offer expired on May 24, 2007 and 126 million
shares of the Company’s common stock were repurchased and subsequently
retired on June 4, 2007 utilizing proceeds from the Credit Agreement (as
defined in the “Credit Agreements” section
below).
|
·
|
The
Company granted registration rights to Chandler Trust No. 1 and Chandler
Trust No. 2 (together, the “Chandler Trusts”), which were significant
shareholders of the Company prior to the Company’s entry into the
Leveraged ESOP Transactions. On April 25, 2007, the Company filed a shelf
registration statement in connection with the registration rights granted
to the Chandler Trusts.
|
·
|
On
June 4, 2007, the Chandler Trusts entered into an underwriting agreement
with Goldman, Sachs & Co. (“Goldman Sachs”) and the Company, pursuant
to which the Chandler Trusts sold an aggregate of 20,351,954 shares of the
Company’s common stock, which represented the remainder of the shares of
the Company’s common stock owned by them following the Share Repurchase,
through a block trade underwritten by Goldman Sachs. The shares were
offered pursuant to the shelf registration statement filed by the Company
on April 25, 2007.
|
·
|
On
Dec. 20, 2007, the Company completed its merger with Merger Sub, with the
Company surviving the Merger. Pursuant to the terms of the Merger
Agreement, each share of common stock of the Company, par value $0.01 per
share, issued and outstanding immediately prior to the Merger, other than
shares held by the Company, the ESOP or Merger Sub immediately prior to
the Merger (in each case, other than shares held on behalf of third
parties) and shares held by shareholders who validly exercised appraisal
rights, was cancelled and automatically converted into the right to
receive $34.00,
|
|
without
interest and less any applicable withholding taxes, and the Company became
wholly-owned by the ESOP.
|
·
|
Following
the consummation of the Merger, the Zell Entity purchased from the
Company, for an aggregate of $315 million, a $225 million subordinated
promissory note and a 15-year warrant. For accounting purposes,
the subordinated promissory note and 15-year warrant were recorded at fair
value based on the relative fair value method. The warrant entitles the
Zell Entity
to purchase
43,478,261 shares of the Company’s common stock (subject to adjustment),
which represents approximately 40% of the economic equity interest in the
Company following the Merger (on a fully-diluted basis, including after
giving effect to share equivalents granted under a new management equity
incentive plan which is described in Note 4 to the Company’s unaudited
condensed consolidated financial statements in Part I, Item 1, hereof).
The warrant has an initial aggregate exercise price of $500 million,
increasing by $10 million per year for the first 10 years of the warrant,
for a maximum aggregate exercise price of $600 million (subject to
adjustment). Thereafter, the Zell Entity assigned minority interests in
the subordinated promissory note and the warrant to certain permitted
assignees.
|
·
|
On
Dec. 20, 2007, the Company notified the New York Stock Exchange (the
“NYSE”) that the Merger was consummated and requested that the Company’s
common stock (and associated Series A junior participating preferred stock
purchase rights) be suspended from the NYSE, effective as of the close of
the market on Dec. 20, 2007. Subsequently, the NYSE filed with
the Securities and Exchange Commission an application on Form 25 reporting
that the shares of the Company’s common stock and associated Series A
junior participating preferred stock purchase rights are no longer listed
on the NYSE.
|
Credit Agreements
—On May 17,
2007, the Company entered into a $8.028 billion senior secured credit agreement,
as amended on June 4, 2007 (collectively, the “Credit Agreement”). The Credit
Agreement consists of the following facilities: (a) a $1.50 billion Senior
Tranche X Term Loan Facility (the “Tranche X Facility”), (b) a $5.515 billion
Senior Tranche B Term Loan Facility (the “Tranche B Facility”), (c) a $263
million Delayed Draw Senior Tranche B Term Loan Facility (the “Delayed Draw
Facility”) and (d) a $750 million Revolving Credit Facility (the “Revolving
Credit Facility”). The Credit Agreement also provided a commitment for an
additional $2.105 billion in new incremental term loans under the Tranche B
Facility (the “Incremental Facility”). Accordingly, the aggregate amount of the
facilities under the Credit Agreement equals $10.133 billion.
On June
4, 2007, proceeds from the Tranche X Facility and the Tranche B Facility were
used by the Company in connection with the consummation of the Share Repurchase
and to refinance the Company’s former five-year credit agreement and former
bridge credit agreement.
The
Revolving Credit Facility includes a letter of credit subfacility in an amount
up to $250 million and a swing line facility in an amount up to $100
million. As of June 29, 2008, the Company had $65 million of letters
of credit outstanding. Borrowings under the Revolving Credit Facility may be
used for working capital and general corporate purposes.
On Dec.
20, 2007, the Company entered into (i) a $1.6 billion senior unsecured interim
loan agreement (the “Interim Credit Agreement”) and (ii) a number of increase
joinders pursuant to which the Incremental Facility became a part of the Tranche
B Facility under the Credit Agreement (the Incremental Facility and Tranche B
Facility are hereinafter referred to collectively as the Tranche B Facility).
The Interim Credit Agreement contains a $1.6 billion twelve-month bridge
facility (the “Bridge Facility”). The total proceeds of $3.705 billion from the
Bridge Facility and the Incremental Facility were used by the Company, among
other ways, in connection with the consummation of the Merger and for general
corporate purposes.
Prior to
the consummation of the Merger, the Tranche X Facility bore interest per annum
at a variable rate equal to, at the Company’s election, the applicable base rate
plus a margin of 150 basis points or LIBOR plus a
margin of
250 basis points. Pursuant to the terms of the Credit Agreement, following the
closing of the Merger, the margins applicable to the Tranche X Facility
increased to 175 basis points and 275 basis points, respectively.
The
Tranche B Facility, Delayed Draw Facility and Revolving Credit Facility bear
interest per annum at a variable rate equal to, at the Company’s election, the
applicable base rate plus a margin of 200 basis points or LIBOR plus a margin of
300 basis points. All undrawn amounts under the Delayed Draw Facility
and the
Revolving Credit
Facility accrue commitment fees at a per annum rate of 75 basis points and 50
basis points, respectively. With respect to the Revolving Credit Facility only,
the margin applicable to base rate advances, the margin applicable to LIBOR
advances and the commitment fee applicable to undrawn amounts are subject to
decreases based on a leverage-based grid.
On June
29, 2007, the Company repaid $100 million of the $1.5 billion of borrowings
under the Tranche X Facility. At June 29, 2008, a required principal
repayment of $650 million on the Tranche X Facility was due on Dec. 4,
2008. Subsequent to June 29, 2008, the Company repaid an aggregate of
$807 million of the borrowings under the Tranche X Facility, utilizing the net
cash proceeds of $218 million from a $300 million trade receivables
securitization facility entered into on July 1, 2008 (see discussion below) and
$589 million of the net cash proceeds from the NMG transaction (see Note 2 to
the Company’s unaudited condensed consolidated financial statements in Part I,
Item 1, hereof). The remaining principal balance on the Tranche X
facility of $593 million must be repaid on June 4, 2009, which amount may be
adjusted to reflect additional prepayments or other mandatory prepayments
(described below) applied thereto prior to that date.
The
Tranche B Facility is a seven-year facility which matures on June 4, 2014 and
also amortizes at a rate of 1.0% per annum (payable quarterly). The Revolving
Facility is a six-year facility and matures on June 4, 2013. In
February 2008, the Company refinanced $25 million of its medium-term notes with
borrowings under the Delayed Draw Facility. The Delayed Draw Facility
automatically becomes part of the Tranche B Facility as amounts are borrowed and
amortizes based upon the Tranche B Facility amortization schedule. The Company
intends to use the Delayed Draw Facility to refinance approximately $238 million
of its remaining medium-term notes as they mature during
2008. Accordingly, the Company has classified its medium-term notes
as long-term at June 29, 2008 and Dec. 30, 2007.
Borrowings
under the Credit Agreement are prepayable at any time prior to maturity without
penalty, and the unutilized portion of the commitments under the Revolving
Credit Facility or the Delayed Draw Facility may be reduced at the option of the
Company without penalty.
Upon
execution of the Interim Credit Agreement, loans under the Bridge Facility bore
interest per annum at a variable rate equal to, at the Company’s election, the
applicable base rate plus a margin of 350 basis points or LIBOR plus a margin of
450 basis points. Pursuant to the terms of the Interim Credit Agreement, such
margins increased by 50 basis points per annum on March 20, 2008 and June 20,
2008 and will continue to increase by this amount in each succeeding quarter,
subject to specified caps, a portion of which interest may be payable through an
interest payable-in-kind feature. Subject to certain prepayment
restrictions contained in the Credit Agreement, the Bridge Facility is
prepayable at any time prior to maturity without penalty, including in
connection with the issuance of up to $1.6 billion of high-yield
notes.
If any
loans under the Bridge Facility remain outstanding on Dec. 20, 2008, the lenders
thereunder will have the option, subject to the terms of the Interim Credit
Agreement, at any time and from time to time to exchange such initial loans for
senior exchange notes that the Company will issue under a senior indenture,
and the maturity date of any initial loans that are not exchanged for
senior exchange notes will, unless a bankruptcy event of default has occurred
and is continuing on such date, automatically be extended to Dec. 20, 2015 (the
“Final Interim Credit Agreement Maturity Date”). Accordingly, the Company has
classified the borrowings under the Bridge Facility as long-term at June 29,
2008 and Dec. 30, 2007. The senior exchange notes will also mature on the Final
Interim Credit Agreement Maturity Date. Holders of the senior exchange notes
will have registration rights.
Loans
under the Tranche X Facility, Tranche B Facility and Revolving Loan Facility are
required to be repaid with the following proceeds, subject to certain exceptions
and exclusions set forth in the Credit Agreement: (a) 100% of the net cash
proceeds from the issuance or incurrence of debt for borrowed money by the
Company or any subsidiary (other than debt permitted to be incurred under the
negative covenants contained in the Credit Agreement (with certain exclusions)),
(b) certain specified percentages of excess cash flow proceeds based on a
leverage-based grid ranging from 50% to 0% and (c) 100% of the net cash proceeds
from all asset sales, certain dispositions, share issuances by the Company’s
subsidiaries and casualty events unless, in each case, the Company reinvests the
proceeds pursuant to the terms of the Credit Agreement. As noted
above, aggregate repayments of the Tranche X facility of $807 million were made
subsequent to June 29, 2008 pursuant to these provisions.
Loans
under the Bridge Facility are required to be repaid with the following proceeds,
in each case after the obligations under the Credit Agreement have been repaid,
either as required by the Credit Agreement or repaid at the election of the
Company, subject to certain exceptions and exclusions set forth in the Interim
Credit Agreement: (a) 100% of the net cash proceeds from the issuance or
incurrence of certain debt for borrowed money by the Company or any subsidiary,
(b) 100% of the net cash proceeds of any equity issuance consummated by the
Company and (c) 100% of the net cash proceeds from all asset sales, certain
dispositions, share issuances by the Company’s subsidiaries and casualty events
unless, in each case, the Company reinvests the proceeds pursuant to the terms
of the Interim Credit Agreement.
Borrowings
under the Credit Agreement are guaranteed on a senior basis by certain of the
Company’s direct and indirect U.S. subsidiaries and secured by a pledge of the
equity interests of Tribune Broadcasting Holdco, LLC and Tribune Finance, LLC,
two subsidiaries of the Company. The Company’s other senior notes and
senior debentures are secured on an equal and ratable basis with the borrowings
under the Credit Agreement as required by the terms of the indentures governing
such notes and debentures. Borrowings under the Interim Credit Agreement are
unsecured, but are guaranteed on a senior subordinated basis by certain of the
Company's direct and indirect U.S. subsidiaries.
The
Credit Agreement and the Interim Credit Agreement contain representations and
warranties, affirmative and negative covenants, including restrictions on
capital expenditures, and events of default, in each case subject to customary
and negotiated exceptions and limitations, as applicable. If an event of default
occurs, the lenders under the Credit Agreement and the Interim Credit Agreement
will be entitled to take certain actions, including acceleration of all amounts
due under the facilities.
Further,
pursuant to the Credit Agreement, the Company is required to comply, on a
quarterly basis, with a maximum total guaranteed leverage ratio and a
minimum interest coverage ratio. For the twelve-month period ending June 29,
2008, the maximum permitted “Total Guaranteed Leverage Ratio” and the minimum
permitted “Interest Coverage Ratio” (each as defined in the Credit Agreement)
were 9.00 to 1.0 and 1.15 to 1.0, respectively. Both financial covenant
ratios are measured on a rolling four-quarter basis and become
more restrictive on an annual basis as set forth in the Credit Agreement.
At June 29, 2008, the Company was in compliance with these financial covenants.
The Company’s ability to remain in compliance with these financial covenants
will be impacted by a number of factors, including the Company’s ability to
continue to generate sufficient revenues and cash flows, changes in interest
rates, the impact of future purchase, sale, joint venture or similar
transactions involving the Company or its business units and the other risks and
uncertainties set forth in Part I, Item 1A, “Risk Factors,” in the Company’s
Annual Report on Form 10-K for the fiscal year ended Dec. 30, 2007.
On March
13, 2008, the Company filed an election to be treated as a subchapter S
corporation under the Internal Revenue Code, which election is effective as of
the beginning of the Company’s 2008 fiscal year. The Credit Agreement and the
Interim Credit Agreement contain affirmative covenants which required the
Company to make such election and that the election be effective for fiscal year
2008. The Credit Agreement and Interim Credit Agreement further provide that if
the Company fails to maintain the S corporation election for any year beginning
with 2009, the Company will be required in each such year to obtain an
investment in the Company in the form of common stock or subordinated debt in an
amount of up to $100 million. There can
be no
assurance that the Company will be able to obtain such an investment and the
failure to obtain such an investment in those circumstances could result in a
default under the Credit Agreement and Interim Credit Agreement.
Under the
terms of the Credit Agreement, the Company is required to enter into hedge
arrangements to offset a percentage of its interest rate exposure under the
Credit Agreement and other debt with respect to borrowed money. On
July 2, 2007, the Company entered into an International Swap and Derivatives
Association, Inc. (“ISDA”) Master Agreement, a schedule to the 1992 ISDA Master
Agreement and, on July 3, 2007, entered into three interest rate swap
confirmations (collectively, the “Swap Documents”) with Barclays Bank, which
Swap Documents provide for (i) a two-year hedge with respect to $750 million in
notional amount, (ii) a three-year hedge with respect to $1 billion in notional
amount and (iii) a five-year hedge with respect to $750 million in notional
amount. The Swap Documents effectively converted a portion of the variable rate
borrowings under the Tranche B Facility in the Credit Agreement to a weighted
average fixed rate of 5.31% plus a margin of 300 basis points. The Company
accounts for these interest rate swaps as cash flow hedges in accordance with
FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“FAS No. 133”). Under FAS No. 133, a cash flow hedge is
deemed to be highly effective if it is expected that changes in the cash flows
of the hedged item are almost fully offset by changes in the cash flows of the
hedging instrument. While there will be some ineffectiveness in the future, the
cash flow hedges covered by the Swap Documents are deemed to be highly
effective, and therefore gains and losses resulting from changes in the fair
value of these hedges, other than changes resulting from hedge ineffectiveness,
are recorded in other comprehensive income (loss), net of taxes.
As of
June 29, 2008, the Company had outstanding borrowings of $7.6 billion under
the Tranche B Facility, $1.4 billion under the Tranche X Facility, and $1.6
billion under the Bridge Facility. As of June 29, 2008, the
applicable interest rate was 5.48% on the Tranche B Facility, 5.48% on the
Tranche X Facility and 7.98% on the Bridge Facility.
Trade Receivables Securitization
Facility
—
On July 1,
2008, the Company and Tribune Receivables LLC, a wholly-owned subsidiary of the
Company (the “Receivables Subsidiary”), entered into a $300 million trade
receivables securitization facility. The Receivables Subsidiary
borrowed $225 million under this facility and incurred transaction costs
totaling $7 million. The net proceeds of $218 million were utilized to pay down
the borrowings under the Tranche X facility.
Pursuant
to a receivables purchase agreement, dated as of July 1, 2008, among the
Company, the Receivables Subsidiary and certain other subsidiaries of the
Company (the “Operating Subsidiaries”), the Operating Subsidiaries sell certain
trade receivables and related assets (the “Receivables”) to the Company on a
daily basis. The Company, in turn, sells such Receivables to the
Receivables Subsidiary, also on a daily basis. Receivables
transferred to the Receivables Subsidiary are assets of the Receivables
Subsidiary and not of the Company or any of the Operating Subsidiaries (and
accordingly will not be available to the creditors of the Company or any of the
Operating Subsidiaries).
The
Receivables Subsidiary has also entered into a receivables loan agreement, dated
as of July 1, 2008 (the “Receivables Loan Agreement”), among the Company, as
servicer, the Receivables Subsidiary, as borrower, certain entities from time to
time parties thereto as conduit lenders and committed lenders (the “Lenders”),
certain financial institutions from time to time parties thereto as funding
agents, and Barclays Bank PLC, as administrative agent. Pursuant to
the Receivables Loan Agreement, the Lenders, from time to time, make advances to
the Receivables Subsidiary. The advances are secured by, and repaid
through collections on, the Receivables owned by the Receivables
Subsidiary. The aggregate outstanding principal amount of the
advances may not exceed $300 million. The Company (directly and
indirectly through the Operating Subsidiaries) services the Receivables, and the
Receivables Subsidiary pays a fee to the Company for such services. The
Receivables Subsidiary will pay a commitment fee on the undrawn portion of the
facility and administrative agent fees.
In
accordance with FASB Statement No. 140, “Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities”, the Company will
account for this arrangement as a secured borrowing by the Receivables
Subsidiary and will include the pledged assets in receivables and the cash
advances in debt in its consolidated balance sheets
prospectively. Advances under the Receivables Loan Agreement that are
funded through commercial paper issued by the Lenders will accrue interest based
on the applicable commercial paper interest rate or discount rate, plus a
margin. All other advances will accrue interest at (i) LIBOR, (ii) the prime
rate or (iii) the federal funds rate, in each case plus an applicable
margin. The Receivables Loan Agreement includes customary early
amortization events and events of default for facilities of this
nature. The Receivables Subsidiary is required to repay the advances
in full by no later than July 1, 2010.
Discontinued Operations
—On May
11, 2008, the Company entered into an agreement (the “Formation Agreement”) with
CSC Holdings, Inc. (“CSC”) and NMG Holdings, Inc., each a wholly-owned
subsidiary of Cablevision Systems Corporation (“Cablevision”), to form a new
limited liability company (“Newsday LLC”). On July 29, 2008, the
Company consummated the closing of the Formation Agreement. Under the
terms of the Formation Agreement, the Company, through Newsday, Inc. and other
subsidiaries of the Company, contributed certain assets and related liabilities
of NMG to Newsday LLC, and CSC contributed $35 million of cash and newly issued
senior notes of Cablevision with a fair market value of $650 million to Newsday
LLC. Concurrent with the closing of this transaction, Newsday LLC
borrowed $650 million under a new secured credit facility, and the Company
received a special distribution from Newsday LLC in the amount of $612 million
in cash and $18 million in prepaid rent under leases for certain facilities used
by NMG and located in Melville, New York with an initial term ending in
2018. The Company retained ownership of these facilities following
the transaction. Annual lease payments due under the terms of the
leases total $1.5 million in each of the first five years of the lease terms and
$6 million thereafter.
As a
result of these transactions, CSC, through NMG Holdings, Inc., owns
approximately 97% and the Company owns approximately 3% of the equity of Newsday
LLC. CSC retains operational control over Newsday
LLC. Borrowings by Newsday LLC under its secured credit facility are
guaranteed by CSC and NMG Holdings, Inc. and secured by a lien on the assets of
Newsday LLC, including the senior notes of Cablevision contributed by
CSC. The Company agreed to indemnify CSC and NMG Holdings, Inc. with
respect to any payments that CSC or NMG Holdings, Inc. makes under their
guarantee of the $650 million of borrowings by Newsday LLC under its secured
credit facility. In the event the Company is required to perform
under this indemnity, the Company will be subrogated to and acquire all rights
of CSC and NMG Holdings, Inc. against Newsday LLC to the extent of the payments
made pursuant to the indemnity. Following the transaction, the
Company used $589 million of the net cash proceeds from the NMG transaction to
pay down borrowings under the Company’s Tranche X facility. The
Company will account for its remaining $20 million equity interest in Newsday
LLC as a cost method investment.
The fair
market value of the contributed NMG net assets exceeded their tax basis due to
the Company's low tax basis in the contributed intangible assets. However,
the transaction did not result in an immediate taxable gain because the
transaction was structured to comply with the partnership provisions of the
United States Internal Revenue Code and related regulations.
NMG’s
operations consist of
Newsday
, a daily newspaper
circulated primarily in Nassau and Suffolk counties on Long Island, New York,
and in the borough of Queens in New York City; four specialty magazines
circulated primarily on Long Island; several shopper guides;
amNY
, a free daily newspaper
in New York City; and several websites including newsday.com and
amny.com. During the second quarter of 2008, the Company recorded a
pretax loss of $692 million ($693 million after taxes) to write down the net
assets of NMG to estimated fair value. NMG’s net assets included,
before the write-down, allocated newspaper reporting unit goodwill and a
newspaper masthead intangible asset of $830 million and $380 million,
respectively. The net carrying value of the NMG assets at June 29,
2008, which totaled $651 million, was included in assets held for disposition
and the net carrying value of the NMG liabilities at June 29, 2008, which
totaled $30 million, was included in liabilities held for
disposition.
The
Company announced an agreement to sell the New York edition of
Hoy
, the Company’s
Spanish-language daily newspaper (“
Hoy
, New York”) on Feb. 12,
2007, and completed the sale on May 15, 2007. In March 2007, the
Company announced its intentions to sell its Southern Connecticut
Newspapers—
The Advocate
(Stamford) and
Greenwich
Time
(collectively “SCNI”). The sale of SCNI closed on Nov. 1,
2007, and excluded the SCNI real estate in Stamford and Greenwich, Connecticut,
which was sold in a separate transaction that closed on April 22,
2008. In the first quarter of 2007, the Company recorded a pretax
loss of $19 million ($33 million after taxes) to write down the net assets of
SCNI to estimated fair value, less costs to sell. In the first
quarter of 2008, the Company recorded an additional $.5 million of after-tax
loss on the sale of SCNI. During the third quarter of 2007, the Company
began actively pursuing the sale of the stock of one of its subsidiaries, EZ Buy
& EZ Sell Recycler Corporation (“Recycler”). The sale of Recycler
closed on Oct. 17, 2007.
These
businesses were considered components of the Company’s publishing segment as
their operations and cash flows could be clearly distinguished, operationally
and for financial reporting purposes, from the rest of the
Company. The operations and cash flows of these businesses have been
eliminated from the ongoing operations of the Company as a result of these
transactions, and the Company will not have any significant continuing
involvement in their operations. Accordingly, the results of
operations for each of these businesses are reported as discontinued operations
in the accompanying unaudited condensed consolidated statements of
operations.
Critical Accounting
Policies
—As of June 29, 2008, the Company’s significant accounting
policies and estimates, which are detailed in the Company’s Annual Report on
Form 10-K for the fiscal year ended Dec. 30, 2007, have not changed from Dec.
30, 2007, except for the adoption of FASB Statement No. 157, “Fair Value
Measurements” (“FAS No. 157”) and FASB Statement No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“FAS No. 159”), both of which
were adopted effective Dec. 31, 2007. The Company has elected to
account for its PHONES debt utilizing the fair value option under FAS No.
159. The effects of this election were recorded as of Dec. 31, 2007,
and included a $177 million decrease in PHONES debt related to Time Warner
stock, a $62 million increase in deferred income tax liabilities, an $18 million
decrease in other assets, and a $97 million increase in retained
earnings. In accordance with FAS No. 159, the $97 million retained
earnings increase was not included in the Company’s unaudited condensed
consolidated statement of operations for the first half ended June 29,
2008. See Note 10 to the Company’s unaudited condensed consolidated
financial statements in Part I, Item 1, hereof for additional information
regarding the Company’s adoption of FAS No. 159. The adoption of FAS
No. 157 had no impact on the Company’s consolidated financial
statements. See Note 11 to the Company’s unaudited condensed
consolidated financial statements in Part I, Item 1, hereof for additional
disclosures related to the fair value of financial instruments included in the
Company’s unaudited condensed consolidated balance sheet at June 29,
2008.
NON-OPERATING
ITEMS
The
second quarter and first half of 2008 included several non-operating items,
summarized as follows:
|
Second
Quarter 2008
|
|
|
First
Half 2008
|
|
(in
millions)
|
Pretax
Gain
(Loss)
|
|
|
After-tax
Gain
(Loss)
|
|
|
Pretax
Gain
(Loss)
|
|
|
After-tax
Gain
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on change in fair values
of PHONES and related
investment
|
$
|
36.4
|
|
|
$
|
36.0
|
|
|
$
|
106.3
|
|
|
$
|
105.1
|
|
Write-down
of equity
investment
|
|
(10.3
|
)
|
|
|
(10.2
|
)
|
|
|
(10.3
|
)
|
|
|
(10.2
|
)
|
Other,
net
|
|
—
|
|
|
|
—
|
|
|
|
(.8
|
)
|
|
|
(1.0
|
)
|
Income
tax adjustment
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,859.4
|
|
Total
non-operating
items
|
$
|
26.2
|
|
|
$
|
25.8
|
|
|
$
|
95.2
|
|
|
$
|
1,953.2
|
|
In the
second quarter of 2008, the $36 million non-cash pretax gain on change in fair
values of PHONES and related investment resulted primarily from a $29 million
decrease in the fair value of the Company’s PHONES
and a $9
million increase in the fair value of 16 million shares of Time Warner common
stock. In the first half of 2008, the $106 million non-cash pretax
gain on change in fair values of PHONES related investment resulted primarily
from a $144 million decrease in the fair value of the Company’s PHONES,
partially offset by a $36 million decrease in the fair value of 16 million
shares of Time Warner common stock. Effective Dec. 31, 2007, the
Company has elected to account for its PHONES utilizing the fair value option
under FAS No. 159. As a result of this election, the Company no
longer measures just the changes in fair value of the derivative component of
the PHONES, but instead measures the changes in fair value of the entire PHONES
debt. See Note 10 to the Company’s unaudited condensed consolidated
financial statements in Part I, Item 1, hereof for further information
pertaining to the Company’s adoption of FAS No. 159. On June 30, 2008, the
Company sold its 42.5% investment in ShopLocal, LLC (“ShopLocal”) to Gannett
Co., Inc. and received net proceeds of $22 million. The Company
recorded a $10 million non-operating pretax loss in the second quarter of 2008
to write down its investment in ShopLocal to the amount of net proceeds
received. The favorable income tax adjustment of $1,859 million in the
first half of 2008 related to the Company’s election to be treated as a
subchapter S corporation, which resulted in the elimination of nearly all of the
Company’s net deferred tax liabilities. See Note 3 to the Company’s
unaudited condensed consolidated financial statements in Part I, Item 1, hereof
for further information pertaining to the Company’s election to be treated as a
subchapter S corporation.
The
second quarter and first half of 2007 included several non-operating items,
summarized as follows:
|
Second
Quarter 2007
|
|
|
First
Half 2007
|
|
(in
millions)
|
Pretax
Gain
(Loss)
|
|
|
After-tax
Gain
(Loss)
|
|
|
Pretax
Gain
(Loss)
|
|
|
After-tax
Gain
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on change in fair values
of PHONES and related
investment
|
$
|
(27.4
|
)
|
|
$
|
(16.7
|
)
|
|
$
|
(97.2
|
)
|
|
$
|
(59.3
|
)
|
Strategic
transaction
expenses
|
|
(20.9
|
)
|
|
|
(15.7
|
)
|
|
|
(35.4
|
)
|
|
|
(29.4
|
)
|
Other,
net
|
|
18.0
|
|
|
|
11.0
|
|
|
|
21.5
|
|
|
|
13.1
|
|
Total
non-operating
items
|
$
|
(30.3
|
)
|
|
$
|
(21.4
|
)
|
|
$
|
(111.1
|
)
|
|
$
|
(75.6
|
)
|
In the
second quarter of 2007, the $27 million non-cash pretax loss on change in fair
values of PHONES and related investment resulted primarily from a $48 million
increase in the fair value of the derivative component of the Company’s PHONES,
offset by a $21 million increase in the fair value of 16 million shares of Time
Warner common stock. In the first half of 2007, the $97 million
non-cash pretax loss on change in fair values of PHONES and related investment
resulted primarily from an $84 million increase in the fair value of the
derivative component of the Company’s PHONES, and a $12 million decrease in the
fair value of 16 million shares of Time Warner common stock. Strategic
transaction expenses in the second quarter and first half of 2007 related to the
Company’s strategic review and the Leveraged ESOP Transactions and included a
$13.5 million pretax loss from refinancing certain credit
agreements. Other, net in the second quarter and first half of 2007
included an $18 million pretax gain from the settlement of the Company’s
Hurricane Katrina insurance claim.
RESULTS
OF OPERATIONS
The
Company’s results of operations, when examined on a quarterly basis, reflect the
seasonality of the Company’s revenues. Second and fourth quarter
advertising revenues are typically higher than first and third quarter
revenues. Results for the second quarter reflect spring advertising,
while the fourth quarter includes advertising related to the holiday
season. Results for the 2008 and 2007 second quarters reflect these
seasonal patterns. The Company’s second quarter 2008 operating
results included non-cash pretax impairment charges totaling $3,843 million to
write down the Company’s newspaper reporting unit goodwill by $3,007 million and
four newspaper masthead intangible assets by $836 million. Unless otherwise
stated, the Company’s discussion of its results of operations relates to
continuing operations, and therefore excludes NMG,
Hoy
, New York, SCNI, and
Recycler. See the discussion under “Discontinued Operations”
contained in this Item 2 for further information on the results from
discontinued operations.
CONSOLIDATED
The
Company’s consolidated operating results for the second quarters and first
halves of 2008 and 2007 are shown in the table below:
|
Second
Quarter
|
|
First
Half
|
(in
millions)
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
$
|
1,110
|
|
$
|
1,177
|
|
-
|
6%
|
|
$
|
2,116
|
|
$
|
2,264
|
|
-
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit (loss)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
write-downs of intangible assets
|
$
|
168
|
|
$
|
175
|
|
-
|
4%
|
|
$
|
313
|
|
$
|
342
|
|
-
|
8%
|
Write-downs
of intangible assets(2)
|
|
(3,843
|
)
|
|
–
|
|
|
*
|
|
|
(3,843
|
)
|
|
-
|
|
|
*
|
After
write-downs of intangible assets
|
$
|
(3,675
|
)
|
$
|
175
|
|
|
*
|
|
$
|
(3,530
|
)
|
$
|
342
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations(3)
|
$
|
(3,829
|
)
|
$
|
35
|
|
|
*
|
|
$
|
(1,993
|
)
|
$
|
41
|
|
|
*
|
Income (loss) from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of
tax
|
|
(705
|
)
|
|
1
|
|
|
*
|
|
|
(718
|
)
|
|
(28
|
)
|
|
*
|
Net income
(loss)
|
$
|
(4,534
|
)
|
$
|
36
|
|
|
*
|
|
$
|
(2,710
|
)
|
$
|
13
|
|
|
*
|
(1)
|
Operating
profit (loss) excludes interest and dividend income, interest expense,
equity income and losses, non-operating items and income
taxes.
|
(2)
|
Write-downs
of intangible assets included a $3,007 million non-cash write-down of the
Company’s newspaper reporting unit goodwill and an $836 million non-cash
write-down of newspaper masthead intangible
assets.
|
(3)
|
Due
to the Company’s election to be treated as a subchapter S corporation
beginning in 2008, nearly all of its net deferred tax liabilities have
been eliminated as of Dec. 31, 2007. This resulted in a $1,859
million reduction in income tax expense in the first quarter of
2008.
|
* Not
meaningful
Operating Revenues and Profit
(Loss)
—Consolidated operating revenues and operating profit (loss) by
business segment for the second quarters and first halves of 2008 and 2007 were
as follows:
|
Second
Quarter
|
|
First
Half
|
(in
millions)
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
$
|
701
|
|
$
|
784
|
|
-
|
11%
|
|
$
|
1,415
|
|
$
|
1,588
|
|
-
|
11%
|
Broadcasting and
entertainment
|
|
409
|
|
|
393
|
|
+
|
4%
|
|
|
701
|
|
|
676
|
|
+
|
4%
|
Total
operating
revenues
|
$
|
1,110
|
|
$
|
1,177
|
|
-
|
6%
|
|
$
|
2,116
|
|
$
|
2,264
|
|
-
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit (loss)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before write-downs of
intangible assets
|
$
|
75
|
|
$
|
81
|
|
-
|
8%
|
|
$
|
113
|
|
$
|
207
|
|
-
|
45%
|
Write-downs
of intangible assets(2)
|
|
(3,843
|
)
|
|
—
|
|
|
*
|
|
|
(3,843
|
)
|
|
—
|
|
|
*
|
After
write-downs of intangible assets
|
|
(3,768
|
)
|
|
81
|
|
|
*
|
|
|
(3,730
|
)
|
|
207
|
|
|
*
|
Broadcasting and
entertainment
|
|
103
|
|
|
108
|
|
-
|
4%
|
|
|
239
|
|
|
169
|
|
+
|
41%
|
Corporate
expenses
|
|
(10
|
)
|
|
(14
|
)
|
+
|
28%
|
|
|
(39
|
)
|
|
(34
|
)
|
-
|
15%
|
Total
operating profit
(loss)
|
$
|
(3,675
|
)
|
$
|
175
|
|
|
*
|
|
$
|
(3,530
|
)
|
$
|
342
|
|
|
*
|
(1)
|
Operating
profit (loss) for each segment excludes interest and dividend income,
interest expense, equity income and losses, non-operating items and income
taxes.
|
(2)
|
Write-downs
of intangible assets included a $3,007 million non-cash write-down of the
Company’s newspaper reporting unit goodwill and an $836 million non-cash
write-down of newspaper masthead intangible
assets.
|
* Not
meaningful
Consolidated
operating revenues for the 2008 second quarter fell 6% to $1.11 billion from
$1.18 billion in 2007, and for the first half of 2008 decreased 7% to $2.12
billion from $2.26 billion. These declines were due to decreases in
publishing revenues, partially offset by an increase in broadcasting and
entertainment revenues.
Consolidated
operating profit before write-downs of intangible assets decreased 4%, or $7
million, in the 2008 second quarter and decreased 8%, or $29 million, in the
first half of 2008. Publishing operating profit before write-downs of
intangible assets decreased 8%, or $6 million, in the 2008 second quarter and
45%, or $94 million, in the first half of 2008. Publishing operating
profit before write-downs of intangible assets in the second quarter and first
half of 2008 included severance and related charges of $9 million and $21
million, respectively, special termination benefits of $6 million and $23
million, respectively, and a $23 million gain on the sale of the SCNI real
estate in Stamford and Greenwich, Connecticut in both the second quarter and
first half of 2008. Publishing operating profit included severance and related
charges of $25 million in both the second quarter and first half of 2007 and a
charge of $24 million in both the second quarter and first half of 2007 for the
write-off of
Los Angeles
Times
plant equipment related to the previously closed San Fernando
Valley facility. Broadcasting and entertainment operating profit was
down 4%, or $4 million, in the 2008 second quarter due to a decline in
television operating profit, partially offset by an increase in
radio/entertainment profit. Broadcasting and entertainment operating
profit for the first half of 2008 was up 41%, or $69 million, and included a
gain of $83 million from the sale of the Company’s studio production lot located
in Hollywood, California and severance and related charges of $9
million.
Operating
Expenses
—Consolidated operating expenses for the second quarters and
first halves of 2008 and 2007 were as follows:
|
Second
Quarter
|
|
First
Half
|
(in
millions)
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales (exclusive of items shown below)
|
$
|
612
|
|
$
|
600
|
|
+
|
2%
|
|
$
|
1,149
|
|
$
|
1,152
|
|
|
—
|
Selling,
general and
administrative
|
|
277
|
|
|
350
|
|
-
|
21%
|
|
|
549
|
|
|
666
|
|
-
|
18%
|
Depreciation
and
amortization
|
|
52
|
|
|
51
|
|
+
|
2%
|
|
|
104
|
|
|
103
|
|
+
|
1%
|
Total
operating expenses before write-downs of
intangible
assets
|
|
941
|
|
|
1,001
|
|
-
|
6%
|
|
|
1,802
|
|
|
1,922
|
|
-
|
6%
|
Write-downs
of intangible assets(1)
|
|
3,843
|
|
|
—
|
|
|
*
|
|
|
3,843
|
|
|
—
|
|
|
*
|
Total
operating
expenses
|
$
|
4,784
|
|
$
|
1,001
|
|
|
*
|
|
$
|
5,645
|
|
$
|
1,922
|
|
|
*
|
(1)
|
Write-downs
of intangible assets included a $3,007 million non-cash write-down of the
Company’s newspaper reporting unit goodwill and an $836 million non-cash
write-down of newspaper masthead intangible
assets.
|
* Not
meaningful
Cost of
sales increased 2%, or $12 million, in the 2008 second quarter and decreased $3
million in the first half of 2008. Compensation expense increased 5%, or
$14 million, in the 2008 second quarter and increased 1%, or $4 million, in the
first half of 2008 primarily due to higher player compensation at the
Chicago Cubs. Newsprint and ink expense decreased 5%, or $4 million,
in the 2008 second quarter as a result of a 13% drop in consumption, partially
offset by a 9% increase in average newsprint costs. Newsprint and ink
expense decreased 11%, or $22 million, in the first half of 2008 as a result of
a 14% drop in consumption, partially offset by a 4% increase in average
newsprint costs. Circulation distribution expense increased 11%, or
$8 million, in the second quarter of 2008 and 10%, or $15 million, in the first
half of 2008 due to delivery of additional third-party publications including
certain Sun-Times Media Group publications.
Selling,
general and administrative (“SG&A”) expenses decreased 21%, or $73 million,
in the 2008 second quarter and decreased 18%, or $117 million in the 2008
first half. SG&A expenses in the second quarter and first half of
2008 included severance and related charges of $9 million and $47 million,
respectively, special termination benefits of $6 million and $24 million,
respectively, and stock-based compensation of $5 million and $13 million,
respectively. These expenses were partially offset in both the second
quarter and first half of 2008 by compensation savings from staff reductions and
the Company’s efforts to reduce costs in 2008. The special
termination benefits will be provided through enhanced pension benefits payable
by the Company’s pension plan. The severance and related charges
included approximately $8 million and $40 million of costs related to the
Company’s transitional compensation plan in the 2008 second quarter and first
half of 2008, respectively. SG&A expenses in the 2008 second quarter
and first half of 2008 included a $23 million gain on the sale of the SCNI real
estate in Stamford and Greenwich, Connecticut and in the first half of 2008
included a gain of $83 million on the sale of the studio production
lot. SG&A expenses in the second quarter and first half of 2007
included severance and related charges of $27 million and $28 million,
respectively, stock-based compensation of $8 million and $26 million,
respectively, and a charge of $24 million in both periods for the write-off of
Los Angeles Times
plant
equipment related to the previously closed San Fernando Valley
facility.
PUBLISHING
Operating Revenues and Profit
(Loss)
—The following table presents publishing operating revenues,
operating expenses and operating profit (loss) for the second quarters and first
halves of 2008 and 2007. References in this discussion to individual
daily newspapers include their related businesses.
|
Second
Quarter
|
|
First
Half
|
(in
millions)
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
$
|
701
|
|
$
|
784
|
|
-
|
11%
|
|
$
|
1,415
|
|
$
|
1,588
|
|
-
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before write-downs of
intangible assets
|
$
|
625
|
|
$
|
702
|
|
-
|
11%
|
|
$
|
1,301
|
|
$
|
1,381
|
|
-
|
6%
|
Write-downs
of intangible assets(1)
|
|
3,843
|
|
|
—
|
|
|
*
|
|
|
3,843
|
|
|
—
|
|
|
*
|
After
write-downs of intangible assets
|
$
|
4,468
|
|
$
|
702
|
|
|
*
|
|
$
|
5,144
|
|
$
|
1,381
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before write-downs of
intangible assets
|
$
|
75
|
|
$
|
81
|
|
-
|
8%
|
|
$
|
113
|
|
$
|
207
|
|
-
|
45%
|
Write-downs
of intangible assets(1)
|
|
(3,843
|
)
|
|
—
|
|
|
*
|
|
|
(3,843
|
)
|
|
—
|
|
|
*
|
After
write-downs of intangible assets
|
$
|
(3,768
|
)
|
$
|
81
|
|
|
*
|
|
$
|
(3,730
|
)
|
$
|
207
|
|
|
*
|
(1)
|
Write-downs
of intangible assets included a $3,007 million non-cash write-down of the
Company’s newspaper reporting unit goodwill and an $836 million non-cash
write-down of newspaper mastheads.
|
* Not
meaningful
Publishing
operating revenues decreased 11%, or $83 million, in the 2008 second quarter and
11%, or $174 million, in the first half of 2008 primarily due to a decrease in
advertising revenue. The largest declines in advertising revenue were
at Los Angeles, Chicago, South Florida, Orlando and Baltimore.
Operating
profit before write-downs of intangible assets decreased 8%, or $6 million, in
the 2008 second quarter and 45%, or $94 million, in the first half of 2008
primarily due to the decline in revenues, partially offset by lower operating
expenses before write-downs of intangible assets.
Publishing
operating revenues, by classification, for the second quarters and first halves
of 2008 and 2007 were as follows:
|
Second
Quarter
|
|
First
Half
|
(in
millions)
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
$
|
243
|
|
$
|
263
|
|
-
|
8%
|
|
$
|
473
|
|
$
|
514
|
|
-
|
8%
|
National
|
|
120
|
|
|
136
|
|
-
|
12%
|
|
|
264
|
|
|
294
|
|
-
|
10%
|
Classified
|
|
152
|
|
|
207
|
|
-
|
26%
|
|
|
308
|
|
|
425
|
|
-
|
28%
|
Total
advertising
|
|
516
|
|
|
607
|
|
-
|
15%
|
|
|
1,044
|
|
|
1,233
|
|
-
|
15%
|
Circulation
|
|
109
|
|
|
112
|
|
-
|
2%
|
|
|
221
|
|
|
227
|
|
-
|
3%
|
Other
|
|
75
|
|
|
65
|
|
+
|
16%
|
|
|
150
|
|
|
128
|
|
+
|
17%
|
Total
revenues
|
$
|
701
|
|
$
|
784
|
|
-
|
11%
|
|
$
|
1,415
|
|
$
|
1,588
|
|
-
|
11%
|
Total
advertising revenue decreased 15%, or $91 million, in the 2008 second quarter
and 15%, or $189 million, in the first half of 2008. Retail
advertising revenues were down 8%, or $20 million, in the second quarter and 8%,
or $42 million, in the first half primarily due to declines in the
furniture/home furnishings, department stores, hardware/home improvement stores,
specialty merchandise, and electronics categories, partially offset by an
increase in the food and drug stores category. Preprint revenues,
which are primarily included in retail advertising, decreased 9%, or $13
million, in the 2008 second quarter and 9%, or $25
million,
in the first half of 2008 primarily due to decreases at Los Angeles, Chicago,
South Florida, Hartford and Baltimore. National advertising revenues
decreased 12%, or $16 million, in the second quarter primarily due to decreases
in the telecom/wireless and movies categories. National advertising
revenues decreased 10%, or $30 million, in the first half primarily due to
decreases in the telecom/wireless, movies and auto categories, partially offset
by increases in the healthcare and media categories. Classified
advertising revenues decreased 26%, or $55 million, in the 2008 second quarter
and 28%, or $117 million, in the first half of 2008. The decline in
the 2008 second quarter was primarily due to a 38% decrease in real estate, a
33% decline in help wanted and a 9% reduction in auto
advertising. The decline in the first half of 2008 was primarily due
to a 40% decrease in real estate, a 34% decline in help wanted and a 9%
reduction in auto advertising. Interactive revenues, which are included in
the above advertising categories, decreased 4%, or $2 million, in the 2008
second quarter and 2%, or $2 million, in the first half of 2008 due to a
decrease in classified advertising, partially offset by increases in retail and
national advertising.
Publishing
advertising volume for the second quarters and first halves of 2008 and 2007 was
as follows:
|
Second
Quarter
|
|
First
Half
|
Inches
(in thousands)
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
run
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
1,226
|
|
|
1,211
|
|
+
|
1%
|
|
|
2,288
|
|
|
2,321
|
|
-
|
1%
|
National
|
|
615
|
|
|
598
|
|
+
|
3%
|
|
|
1,262
|
|
|
1,252
|
|
+
|
1%
|
Classified
|
|
1,643
|
|
|
1,864
|
|
-
|
12%
|
|
|
3,215
|
|
|
3,756
|
|
-
|
14%
|
Total
full
run
|
|
3,484
|
|
|
3,673
|
|
-
|
5%
|
|
|
6,765
|
|
|
7,329
|
|
-
|
8%
|
Part
run
|
|
3,558
|
|
|
4,337
|
|
-
|
18%
|
|
|
6,999
|
|
|
8,696
|
|
-
|
20%
|
Total
inches
|
|
7,042
|
|
|
8,010
|
|
-
|
12%
|
|
|
13,764
|
|
|
16,025
|
|
-
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preprint
pieces (in
millions)
|
|
2,699
|
|
|
3,101
|
|
-
|
13%
|
|
|
5,360
|
|
|
6,059
|
|
-
|
12%
|
Full run
advertising inches decreased 5% in the 2008 second quarter and 8% in the first
half of 2008. Full run retail advertising inches increased 1% in the
2008 second quarter due to increases at South Florida and Allentown, partially
offset by declines at Los Angeles, Chicago and Baltimore. Full run
retail advertising inches decreased 1% in the first half of 2008 due to declines
at Los Angeles, Chicago and Baltimore. Full run national advertising inches
were up 3% in the 2008 second quarter and 1% in the first half of 2008, as
increases at Allentown and Newport News were partially offset by decreases at
Chicago, South Florida and Hartford. Full run classified advertising
inches were down 12% in the 2008 second quarter and 14% in the first half of
2008, primarily due to decreases at Orlando, South Florida, Chicago, Baltimore
and Los Angeles. Part run advertising inches decreased 18% in the
2008 second quarter and 20% in the first half of 2008 primarily due to declines
at Los Angeles, Chicago, South Florida and Orlando. Preprint
advertising pieces decreased 13% in the 2008 second quarter and 12% in the first
half of 2008 primarily due to decreases at Los Angeles, Chicago, South Florida
and Orlando.
Circulation
revenues were down 2%, or $3 million, in the 2008 second quarter, and 3%, or $6
million, in the first half of 2008 primarily 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 in the second quarter
and first half of 2008 were at Chicago, Los Angeles and
Hartford. Circulation revenues increased at South Florida, Orlando
and Baltimore. Total net paid circulation for the second quarter and
first half of 2008 averaged 2.2 million and 2.3 million copies daily
(Mon-Fri), respectively, both down 5% from the comparable prior year
periods. Total net paid circulation for the second quarter and first
half of 2008 averaged 3.3 million and 3.4 million copies Sunday, respectively,
representing a decline of 5% from the comparable prior year
periods. Individually paid circulation (home delivery plus single
copy) in the second quarter and first half of 2008 for both daily and Sunday was
down 5% and 6%, respectively.
Other
revenues are derived from advertising placement services; the syndication of
columns, features, information and comics to newspapers; commercial printing
operations; delivery of other publications; direct
mail
operations; cable television news programming; distribution of entertainment
listings; and other publishing-related activities. Other revenues increased
16%, or $11 million, in the second quarter and 17%, or $21 million, in the first
half of 2008 primarily due to increased delivery revenue for third-party
publications.
Operating Expenses
—Publishing
operating expenses for the second quarters and first halves of 2008 and 2007
were as follows:
|
Second
Quarter
|
|
First
Half
|
(in
millions)
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
$
|
265
|
|
$
|
285
|
|
-
|
7%
|
|
$
|
560
|
|
$
|
566
|
|
-
|
1%
|
Newsprint
and
ink
|
|
86
|
|
|
90
|
|
-
|
5%
|
|
|
169
|
|
|
191
|
|
-
|
11%
|
Circulation
distribution
|
|
108
|
|
|
103
|
|
+
|
5%
|
|
|
215
|
|
|
207
|
|
+
|
4%
|
Outside
services
|
|
61
|
|
|
65
|
|
-
|
6%
|
|
|
121
|
|
|
127
|
|
-
|
5%
|
Promotion
|
|
18
|
|
|
23
|
|
-
|
20%
|
|
|
37
|
|
|
42
|
|
-
|
13%
|
Depreciation
and
amortization
|
|
39
|
|
|
38
|
|
|
3%
|
|
|
78
|
|
|
77
|
|
+
|
1%
|
Other
|
|
48
|
|
|
98
|
|
-
|
51%
|
|
|
121
|
|
|
172
|
|
-
|
30%
|
Total
operating expenses before write-downs of
intangible
assets
|
|
625
|
|
|
702
|
|
-
|
11%
|
|
|
1,301
|
|
|
1,381
|
|
-
|
6%
|
Write-downs
of intangible assets(1)
|
|
3,843
|
|
|
—
|
|
|
*
|
|
|
3,843
|
|
|
—
|
|
|
*
|
Total
operating
expenses
|
$
|
4,468
|
|
$
|
702
|
|
|
*
|
|
$
|
5,144
|
|
$
|
1,381
|
|
|
*
|
(1)
|
Write-downs
of intangible assets included a $3,007 million non-cash write-down of the
Company’s newspaper reporting unit goodwill and an $836 million non-cash
write-down of newspaper masthead intangible
assets.
|
* Not
meaningful
Operating
expenses before write-downs of intangible assets decreased 11%, or $77 million,
in the 2008 second quarter and decreased 6%, or $80 million, in the first half
of 2008. Compensation expense declined 7%, or $20 million, in the
2008 second quarter primarily due to a decrease of $16 million in severance and
related charges, a decrease of $2 million in stock-based compensation, and a 7%
(930 full-time equivalent positions) reduction in staffing, partially offset by
$6 million of special termination benefits. Compensation expense decreased
1%, or $6 million, in the first half of 2008 primarily due to a decrease of $4
million in severance and related charges, a decrease of $5 million in
stock-based compensation, and the impact of a 5% reduction in staffing,
partially offset by $23 million of special termination
benefits. Newsprint and ink expense decreased 5%, or $4 million, in
the 2008 second quarter as a result of a 13% drop in consumption, partially
offset by a 9% increase in average newsprint costs. Newsprint and ink
expense decreased 11%, or $22 million, in the first half of 2008 as a result of
a 14% drop in consumption partially offset by a 4% increase in average
newsprint costs. Circulation distribution expense increased 5%, or $5
million, in the 2008 second quarter and 4%, or $9 million, in the first half of
2008 due to delivery of additional third-party publications including certain
Sun-Times Media Group publications. Outside services expense was down
6%, or $4 million, in the 2008 second quarter and down 5%, or $6 million, in the
first half of 2008 largely due to a decrease in outside
printing. Promotion expense decreased 20%, or $4 million, in the 2008
second quarter and declined 13%, or $5 million, in the first half of 2008 due to
the Company’s efforts to reduce costs in 2008. Other expenses
included a $23 million gain on the sale of the SCNI real estate in Stamford and
Greenwich, Connecticut in the 2008 second quarter and first half and a charge of
$24 million for the write-off of
Los Angeles Times
plant
equipment related to the previously closed San Fernando Valley facility in the
2007 second quarter and first half.
BROADCASTING
AND ENTERTAINMENT
Operating Revenues and
Profit
—The following table presents broadcasting and entertainment
operating revenues, operating expenses and operating profit for the second
quarters and first halves of 2008 and 2007. Entertainment includes
Tribune Entertainment and the Chicago Cubs.
|
Second
Quarter
|
|
First
Half
|
(in
millions)
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
$
|
292
|
|
$
|
287
|
|
+
|
2%
|
|
$
|
570
|
|
$
|
551
|
|
+
|
3%
|
Radio/entertainment
|
|
118
|
|
|
106
|
|
+
|
11%
|
|
|
131
|
|
|
125
|
|
+
|
5%
|
Total
operating
revenues
|
$
|
409
|
|
$
|
393
|
|
+
|
4%
|
|
$
|
701
|
|
$
|
676
|
|
+
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
$
|
211
|
|
$
|
198
|
|
+
|
7%
|
|
$
|
426
|
|
$
|
395
|
|
+
|
8%
|
Radio/entertainment(1)
|
|
95
|
|
|
87
|
|
+
|
8%
|
|
|
36
|
|
|
112
|
|
-
|
68%
|
Total
operating
expenses
|
$
|
306
|
|
$
|
285
|
|
+
|
7%
|
|
$
|
462
|
|
$
|
507
|
|
-
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
$
|
81
|
|
$
|
89
|
|
-
|
10%
|
|
$
|
144
|
|
$
|
156
|
|
-
|
8%
|
Radio/entertainment(1)
|
|
23
|
|
|
19
|
|
+
|
22%
|
|
|
95
|
|
|
13
|
|
|
*
|
Total
operating
profit
|
$
|
103
|
|
$
|
108
|
|
-
|
4%
|
|
$
|
239
|
|
$
|
169
|
|
+
|
41%
|
(1)
|
Radio/entertainment
operating expenses and operating profit for the first half of 2008
included the gain of $83 million on the sale of the studio production
lot.
|
* Not
meaningful
Broadcasting
and entertainment operating revenues increased 4% in both the second quarter and
first half of 2008. Television revenues were up 2%, or $5 million, in
the 2008 second quarter, and 3%, or $19 million, in the first half of 2008
primarily due to increased market share and higher movie, financial and
political advertising, partially offset by lower auto and retail
advertising. Radio/entertainment revenues were up 11%, or $11
million, in the 2008 second quarter and 5%, or $6 million, in the first half of
2008 as higher revenues for the Chicago Cubs and WGN Radio were only partially
offset by lower revenues at Tribune Entertainment.
Operating
profit for broadcasting and entertainment decreased 4%, or $4 million, in the
2008 second quarter and increased 41%, or $69 million, in the first half of
2008. Television operating profit decreased 10%, or $9 million, in
the 2008 second quarter and 8%, or $12 million, in the first half of 2008 due to
higher operating expenses. Radio/entertainment operating profit
increased 22%, or $4 million, in the 2008 second quarter due to higher revenues
and increased $82 million in the first half of 2008 primarily due to the gain of
$83 million on the sale of the Hollywood studio production lot.
Operating
Expenses
—Broadcasting and entertainment operating expenses for the second
quarters and first halves of 2008 and 2007 were as follows:
|
Second
Quarter
|
|
First
Half
|
(in
millions)
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
$
|
149
|
|
$
|
137
|
|
+
|
9%
|
|
$
|
233
|
|
$
|
211
|
|
+
|
10%
|
Programming
|
|
83
|
|
|
80
|
|
+
|
4%
|
|
|
172
|
|
|
163
|
|
+
|
5%
|
Depreciation
and
amortization
|
|
13
|
|
|
13
|
|
|
—
|
|
|
25
|
|
|
25
|
|
|
—
|
Other
|
|
61
|
|
|
55
|
|
+
|
10%
|
|
|
114
|
|
|
107
|
|
+
|
7%
|
Gain
on sale of studio production lot assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(83
|
)
|
|
—
|
|
|
*
|
Total
operating
expenses
|
$
|
306
|
|
$
|
285
|
|
+
|
7%
|
|
$
|
462
|
|
$
|
507
|
|
-
|
9%
|
* Not
meaningful
Broadcasting
and entertainment operating expenses increased 7%, or $21 million, in the 2008
second quarter and decreased 9%, or $45 million, in the first half of
2008. Compensation expense increased 9%, or $12 million, in the 2008
second quarter primarily due to higher player compensation at the Chicago Cubs
and increased 10%, or $22 million, in the first half of 2008 primarily due to
higher player compensation at the Chicago Cubs and a $9 million severance
charge. Programming expense increased 4%, or $3 million, in the 2008
second quarter and 5%, or $9 million, in the first half of 2008 due to higher
broadcast rights amortization. Other cash expenses were up 10%, or $5
million, in the 2008 second quarter and 7%, or $7 million, in the first half of
2008 due to an increase in advertising and promotion expense and news
expansions.
CORPORATE
EXPENSES
Corporate
expenses decreased 28%, or $4 million, in the 2008 second quarter and increased
15%, or $5 million, in the first half of 2008. The decline in the 2008
second quarter is primarily due to a $3 million decrease in severance and
stock-based compensation expense. Corporate expenses in the first half of
2008 were higher due to a $14 million increase in severance and related charges,
partially offset by a decrease of $6 million in stock-based compensation expense
and the impact of staff reductions and other cost savings.
EQUITY
RESULTS
Net
income on equity investments decreased $11 million to $18 million in the 2008
second quarter, and declined $6 million to $35 million in the first half of
2008. The decrease in both the second quarter and first half of 2008
is primarily due to a $13 million write-down at one of the Company’s interactive
investments, partially offset by improvements at TV Food Network and Comcast
SportsNet Chicago.
INTEREST
AND DIVIDEND INCOME, INTEREST EXPENSE, AND INCOME TAXES
Interest
and dividend income for the 2008 second quarter decreased $1 million to $3
million and was flat for the first half of 2008 due to lower average cash
balances, partially offset by an increase in Time Warner dividend
income. Interest expense applicable to continuing operations for the
2008 second quarter increased to $211 million from $112 million and for the
first half of 2008 increased to $463 million from $196 million due to higher
debt levels, partially offset by lower interest rates. Debt was $12.5
billion at the end of the 2008 second quarter, compared with $9.3 billion at the
end of the second quarter of 2007. The increase was primarily due to
higher debt levels in connection with the consummation of the Leveraged ESOP
Transactions.
As
discussed further in the Discontinued Operations section below, the Company
allocated to discontinued operations corporate interest expense of $8.4 million
and $3.4 million in the second quarters of 2008 and 2007, respectively, and
$19.4 million and $3.4 million in the first halves of 2008 and 2007,
respectively.
In the
second quarter and first half of 2008, income taxes applicable to continuing
operations amounted to a net benefit of $9 million and $1,863 million,
respectively. The net benefit in the first half included the
favorable $1,859 million deferred income tax adjustment discussed in the
“Significant Events – S Corporation Election” section of this Item
2. The $3,007 million write-down of the Company’s publishing goodwill
in the second quarter of 2008 resulted in an income tax benefit of only $1
million for financial reporting purposes because almost all of the goodwill is
not deductible for income tax purposes (see Note 9 to the Company’s unaudited
condensed consolidated financial statements included in Part I, Item 1,
hereof). The effective tax rate on income from continuing operations
in the 2007 second quarter and first half was 45.6% and 51.3%,
respectively. The effective tax rate for each of these periods was
affected by certain non-operating items that were not deductible for tax
purposes. See Note 7 to the Company’s unaudited condensed
consolidated financial statements included in Part I, Item 1, hereof for a
summary of non-operating items. In the aggregate, non-operating items
increased the effective tax rate for the second quarter and first half of 2007
by 5.1 and 11.0 percentage points, respectively.
DISCONTINUED
OPERATIONS
As
discussed in the “Significant Events – Discontinued Operations” section of this
Item 2, on May 11, 2008, the Company entered into the Formation Agreement with
CSC and NMG Holdings, Inc. to form Newsday LLC. On July 29, 2008, the
Company consummated the closing of the Formation Agreement. Under the
terms of the Formation Agreement, the Company, through Newsday, Inc. and other
subsidiaries of the Company, contributed certain assets and related liabilities
of NMG to Newsday LLC, and CSC contributed $35 million of cash and newly issued
senior notes of Cablevision with a fair market value of $650 million to Newsday
LLC. Concurrent with the closing of this transaction, Newsday LLC
borrowed $650 million under a new secured credit facility, and the Company
received a special distribution from Newsday LLC in the amount of $612 million
in cash and $18 million in prepaid rent under leases for certain facilities used
by NMG and located in Melville, New York with an initial term ending in
2018. The Company retained ownership of these facilities following
the transaction. Annual lease payments due under the terms of the
leases total $1.5 million in each of the first five years of the lease terms and
$6 million thereafter.
As a
result of these transactions, CSC, through NMG Holdings, Inc., owns
approximately 97% and the Company owns approximately 3% of the equity of Newsday
LLC. CSC retains operational control over Newsday
LLC. Borrowings by Newsday LLC under its secured credit facility are
guaranteed by CSC and NMG Holdings, Inc. and secured by a lien on the assets of
Newsday LLC, including the senior notes of Cablevision contributed by
CSC. The Company agreed to indemnify CSC and NMG Holdings, Inc. with
respect to any payments that CSC or NMG Holdings, Inc. makes under their
guarantee of the $650 million of borrowings by Newsday LLC under its secured
credit facility. In the event the Company is required to perform
under this indemnity, the Company will be subrogated to and acquire all rights
of CSC and NMG Holdings, Inc. against Newsday LLC to the extent of the payments
made pursuant to the indemnity. Following the transaction, the
Company used $589 million of the net cash proceeds to pay down borrowings under
the Company’s Tranche X facility. The Company will account for its
remaining $20 million equity interest in Newsday LLC as a cost method
investment.
The fair
market value of the contributed NMG net assets exceeded their tax basis due to
the Company's low tax basis in the contributed intangible assets. However,
the transaction did not result in an immediate taxable gain because the
transaction was structured to comply with the partnership provisions of the
United States Internal Revenue Code and related regulations.
During
the second quarter of 2008, the Company recorded a pretax loss of $692 million
($693 million after taxes) to write down the net assets of NMG to estimated fair
value. NMG’s net assets included, before the write-down, allocated
newspaper reporting unit goodwill and a newspaper masthead intangible asset of
$830 million and $380 million, respectively. The net carrying value
of the NMG assets at June 29, 2008, which totaled $651 million, was included in
assets held for disposition and the net carrying value of the NMG liabilities at
June 29, 2008, which totaled $30 million, was included in liabilities held for
disposition.
The
Company announced an agreement to sell
Hoy
, New York on Feb. 12,
2007. The Company completed the sale of
Hoy
, New York on May 15, 2007
and recorded a pretax gain on the sale of $2.5 million ($.1 million after taxes)
in the second quarter of 2007. In March 2007, the Company announced
its intentions to sell SCNI. The sale of SCNI closed on Nov. 1, 2007,
and excluded the SCNI real estate in Stamford and Greenwich, Connecticut, which
was sold in a separate transaction that closed on April 22, 2008. In the first
quarter of 2007, the Company recorded a pretax loss of $19 million ($33 million
after taxes) to write down the net assets of SCNI to estimated fair value, less
costs to sell. In the first quarter of 2008, the Company recorded an
additional $.5 million after-tax loss on the sale of SCNI. During the third
quarter of 2007, the Company began actively pursuing the sale of the stock of
Recycler. The sale of Recycler closed on Oct. 17,
2007.
These
businesses were considered components of the Company’s publishing segment as
their operations and cash flows could be clearly distinguished, operationally
and for financial reporting purposes, from the rest of the
Company. The operations and cash flows of these businesses have been
eliminated from the ongoing operations of the Company as a result of these
transactions, and the Company will not have any significant continuing
involvement in their operations. Accordingly, the results of
operations for each of these businesses are reported as discontinued operations
in the accompanying unaudited condensed consolidated statements of operations in
Part I, Item 1, hereof.
Selected
financial information related to discontinued operations is summarized as
follows (in thousands):
|
|
Second
Quarter
|
|
|
First
Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
117,229
|
|
|
$
|
147,399
|
|
|
$
|
226,102
|
|
|
$
|
284,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit (loss)
|
|
$
|
(3,220
|
)
|
|
$
|
21,741
|
|
|
$
|
(4,851
|
)
|
|
$
|
33,865
|
|
Interest
income
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
Interest
expense
|
|
|
(8,403
|
)
|
|
|
(3,456
|
)
|
|
|
(19,732
|
)
|
|
|
(3,454
|
)
|
Non-operating
loss, net(1)
|
|
|
—
|
|
|
|
(12,000
|
)
|
|
|
—
|
|
|
|
(15,000
|
)
|
Gain
(loss) on dispositions of discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
(691,960
|
)
|
|
|
2,484
|
|
|
|
(692,475
|
)
|
|
|
(16,958
|
)
|
Income
(loss) from discontinued operations before
income taxes
|
|
|
(703,583
|
)
|
|
|
8,771
|
|
|
|
(717,056
|
)
|
|
|
(1,543
|
)
|
Income
taxes(2)
|
|
|
(1,103
|
)
|
|
|
(7,765
|
)
|
|
|
(686
|
)
|
|
|
(26,410
|
)
|
Income
(loss) from discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
tax
|
|
$
|
(704,686
|
)
|
|
$
|
1,006
|
|
|
$
|
(717,742
|
)
|
|
$
|
(27,953
|
)
|
(1)
|
Discontinued
operations for the second quarter and first half of 2007 included pretax
non-operating charges of $12 million and $15 million, respectively, for a
civil forfeiture payment related to the inquiry by the United States
Attorney’s Office for the Eastern District of New York into the
circulation practices of
Newsday
and
Hoy
, New
York. See Note 5 to the consolidated financial statements in
the Company’s Annual Report on Form 10-K for the fiscal year ended Dec.
30, 2007, for further information.
|
(2)
|
Income
taxes for the second quarter and first half of 2008 included tax expense
of $1 million related to the $692 million pretax loss on the NMG
transaction. The pretax loss included $830 million of allocated
newspaper reporting unit goodwill, most of which is not deductible for
income tax purposes. Income taxes for the first half of 2007
included tax expense of $16 million related to the $17 million pretax loss
on dispositions of discontinued operations. The pretax loss
included $58 million of allocated newspaper reporting unit goodwill, most
of which is not deductible for income tax
purposes.
|
The
Company allocated corporate interest expense of $8.4 million and $3.4 million in
the second quarters of 2008 and 2007, respectively, and $19.4 million and $3.4
million in the first halves of 2008 and 2007, respectively, to discontinued
operations. In accordance with Emerging Issues Task Force Issue No.
87-24, “Allocation of Interest to Discontinued Operations”, the amount of
corporate interest allocated to discontinued operations was based on the amount
of the net proceeds from the NMG transaction that were used to pay down the
Tranche X facility (see Note 10 to the Company’s unaudited condensed
consolidated financial statements
in Part
I, Item 1, hereof) and applying the interest rate applicable to the Tranche X
facility for the periods in which borrowings under the Tranche X facility were
outstanding.
LIQUIDITY
AND CAPITAL RESOURCES
Cash flow
generated from operating activities is the Company’s primary source of
liquidity. Net cash provided by operating activities in the first
half of 2008 was $36 million, down 87% from $277 million in 2007, primarily due
to lower operating profit and higher interest expense.
Net cash
used for investing activities totaled $61 million in the first half of 2008
compared to $41 million in the first half of 2007. In the first half
of 2008, the Company purchased the TMCT real estate for $175
million. The Company’s other capital expenditures and investments
totaled $44 million and $3 million, respectively, in the first half of
2008. The Company received $161 million in net proceeds from the
sales of real estate and investments in the first half of 2008, including $122
million from the sale of the studio production lot located in Hollywood,
California and $29 million from the sale of the SCNI real estate in Stamford and
Greenwich, Connecticut.
On April
28, 2008, the Company acquired the real estate formerly leased from TMCT, LLC
for $175 million (see Note 13 to the Company’s unaudited condensed consolidated
financial statements in Part I, Item 1, hereof). The proceeds from
the sales of the studio production lot and the SCNI real estate, along with
available cash, were used to fund the purchase. The purchase was
structured as a like-kind exchange, which allowed the Company to defer income
taxes on nearly all of the gains from these dispositions.
Net cash
used for financing activities was $47 million in the first half of
2008. The Company refinanced $25 million of its medium term notes
with borrowings under its Delayed Draw Facility. In addition, the
Company made $38 million of scheduled Tranche B Facility amortization payments
and reduced its property financing obligation by $8 million prior to its
retirement in connection with the acquisition of the TMCT, LLC real estate
described above.
Subsequent
to June 29, 2008, the Company repaid an aggregate of $807 million of the
borrowings under the Tranche X Facility, utilizing the net cash proceeds of $218
million from a $300 million trade receivables securitization facility entered
into on July 1, 2008 (see Note 10 to the Company’s unaudited condensed
consolidated financial statements in Part I, Item 1, hereof) and $589 million of
the net cash proceeds from the NMG transaction (see Note 2 to the Company’s
unaudited condensed consolidated financial statements in Part I, Item 1,
hereof).
Since the
completion of the Leveraged ESOP Transactions in December 2007, the Company has
implemented management changes and has undertaken various new revenue
enhancement and cost reduction initiatives designed to strengthen the Company’s
market position and improve its financial performance. These
initiatives will require time before the intended benefits can be realized, and
given current adverse economic conditions and the rapidly changing media
landscape, it is impossible to predict what their possible financial
impact ultimately will be.
The
Company expects to fund capital expenditures, interest and principal payments
due in the next 12 months and other operating requirements through a combination
of cash flows from operations, available borrowings under the Revolving Credit
Facility, and, if necessary, disposals of assets or operations. The
Company’s ability to satisfy financial covenants in its credit agreements and to
make scheduled payments or prepayments on its debt and other financial
obligations will depend on its future financial and operating performance and
its ability to dispose of assets on favorable terms. There can be no
assurances that the Company’s businesses will generate sufficient cash flows
from operations or that any such asset dispositions can be
completed. In addition, there can be no assurances that future
borrowings under the Revolving Credit Facility will be available in an amount
sufficient to satisfy debt maturities or to fund other liquidity
needs. The Company’s financial and operating performance, and the
market environment for divestiture transactions, are subject to
prevailing
economic and industry conditions and to financial, business and other factors,
some of which are beyond the control of the Company.
If the
Company’s cash flows and capital resources are insufficient to fund debt service
obligations, the Company will likely face increased pressure to reduce or delay
capital expenditures, dispose of assets or operations, further reduce the size
of its workforce, seek additional capital or restructure or refinance its
indebtedness. These actions could have a material adverse effect on the
Company’s business, financial condition and results of operations. In addition,
the Company cannot assure the ability to take any of these actions, that these
actions would be successful and permit the Company to meet scheduled debt
service obligations or that these actions would be permitted under the terms of
the Company’s existing or future debt agreements, including the Credit Agreement
and the Interim Credit Agreement. For example, the Company may need
to refinance all or a portion of its indebtedness on or before maturity. There
can be no assurance that the Company will be able to refinance any of its
indebtedness on commercially reasonable terms or at all. In the
absence of improved operating results and access to capital resources, the
Company could face substantial liquidity problems and might be required to
dispose of material assets or operations to meet its debt service and other
obligations. As described in the “Credit Agreements” section
contained in this Item 2, the Credit Agreement and the Interim Credit Agreement
require that proceeds from the disposition of assets be used to repay borrowings
under such agreements, subject to certain exceptions. The Company may
not be able to consummate those dispositions or to obtain the proceeds
realized. Additionally, these proceeds may not be adequate to meet
the debt service obligations then due.
If the
Company cannot maintain compliance with the financial covenants in its credit
agreements or make scheduled payments or prepayments on its debt, the Company
will be in default and, as a result, among other things, the Company’s debt
holders could declare all outstanding principal and interest to be due and
payable and the Company could be forced into bankruptcy or liquidation or be
required to substantially restructure or alter business operations or debt
obligations. See Part I, Item 1A, “Risk Factors” in the Company’s Annual Report
on Form 10-K for the fiscal year ended Dec. 30, 2007 for further discussion of
the risks associated with the Company’s ability to service all of its existing
indebtedness. In addition, see the “Significant Events” section of
this Item 2 for additional information regarding the Leveraged ESOP Transactions
and a summary of the Company’s obligations under the Credit Agreement and for
definitions of capitalized terms used in this discussion.
As of
July 23, 2008, the Company’s corporate credit ratings were as follows: “B-” with
negative outlook by Standard & Poor’s Rating Services, “Caa2” with negative
outlook by Moody’s Investor Service and “B-” with negative outlook by Fitch
Ratings.
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.
Off-Balance Sheet
Arrangements
—Off-balance sheet arrangements, as defined by the Securities
and Exchange Commission, include the following four categories: obligations
under certain guarantees or contracts; retained or contingent interests in
assets transferred to an unconsolidated entity or similar arrangements;
obligations under certain derivative arrangements; and obligations under
material variable interests. The Company has not entered into any
material arrangements that would fall under any of these four categories, which
would be reasonably likely to have a current or future material effect on the
Company’s financial condition, revenues or expenses, results of operations,
liquidity or capital expenditures.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The
following represents an update of the Company’s market-sensitive financial
information. This information contains forward-looking statements and
should be read in conjunction with the Company’s Annual Report on Form 10-K for
the fiscal year ended Dec. 30, 2007.
INTEREST
RATE RISK
All of
the Company’s borrowings are denominated in U.S. dollars. The Company manages
interest rate risk by issuing a combination of both fixed and variable rate
debt. In addition, the Company enters into hedge arrangements as
required under the terms of the Credit Agreement as defined and described in the
“Significant Events” section contained in Part I, Item 2, hereof.
Information
pertaining to the Company’s debt at June 29, 2008 is shown in the table below
(in thousands):
Maturities
|
Fixed Rate
Debt
|
|
Weighted Avg
Interest Rate
|
|
Variable Rate
Debt
|
|
Weighted Avg
Interest Rate
|
|
Total
Debt
|
2008(1)
|
$
|
219,882
|
|
|
2.0
|
%
|
|
$
|
688,820
|
|
|
5.5
|
%
|
|
$
|
908,702
|
2009(2)
|
|
1,535
|
|
|
9.6
|
%
|
|
|
849,907
|
|
|
5.5
|
%
|
|
|
851,442
|
2010(3)
|
|
451,362
|
|
|
4.9
|
%
|
|
|
120,025
|
|
|
5.5
|
%
|
|
|
571,387
|
2011
|
|
1,845
|
|
|
9.6
|
%
|
|
|
78,830
|
|
|
5.5
|
%
|
|
|
80,675
|
2012(4)
|
|
2,026
|
|
|
9.6
|
%
|
|
|
120,617
|
|
|
5.5
|
%
|
|
|
122,643
|
Thereafter(5)
|
|
1,111,508
|
|
|
4.1
|
%
|
|
|
8,819,798
|
|
|
5.9
|
%
|
|
|
9,931,306
|
Total
at June 29, 2008
|
$
|
1,788,158
|
|
|
|
|
|
$
|
10,677,997
|
|
|
|
|
|
$
|
12,466,155
|
Fair
value at June 29, 2008(6)
|
$
|
1,226,245
|
|
|
|
|
|
$
|
8,669,539
|
|
|
|
|
|
$
|
9,895,784
|
(1)
|
Fixed
rate debt includes $219 million of the Company’s 2% PHONES which
represents the cash exchange value of the PHONES at June 29,
2008.
Variable rate debt
includes
a
$650
million
principal payment due
under
the
Tranche X facility
on
Dec. 4, 2008
and $39 million related to the Tranche B facility, which is payable in
quarterly increments of approximately $19 million until maturity in 2014
when the remaining principal balance is due in full (see Note 10 to the
Company’s unaudited condensed consolidated financial statements in
Part I, Item 1,
hereof
).
|
(2)
|
Variable
rate debt includes a $750 million principal payment due under the Tranche
X facility on June 4, 2009 and $21 million related to an interest rate
swap agreement through 2009 on $750 million of the variable rate
borrowings under the Tranche B facility effectively converting the
variable rate to a fixed rate of 5.25% plus a margin of 300 basis
points.
|
(3)
|
Variable
rate debt includes $41 million related to an interest rate swap agreement
through 2010 on $1 billion of the variable rate borrowings under the
Tranche B facility effectively converting the variable rate to a fixed
rate of 5.29% plus a margin of 300 basis
points.
|
(4)
|
Variable
rate debt includes $42 million related to an interest rate swap agreement
through 2012 on $750 million of the variable rate borrowings under the
Tranche B facility effectively converting the variable rate to a fixed
rate of 5.39% plus a margin of 300 basis
points.
|
(5)
|
Fixed
rate debt includes the remaining $57 million of book value related to
the Company’s 2% PHONES, due 2029. The Company may redeem the
PHONES at any time for the greater of the principal value of the PHONES
($155.77 per PHONES at June 29, 2008) or the then market value of two
shares of Time Warner common stock, subject to certain adjustments.
Quarterly interest payments are made to the PHONES holders at an annual
rate of 2% of the initial principal. Fixed rate debt also includes
$29 million related to the interest rate swap agreement on the
$100 million 7.5% debentures due in 2023 effectively converting the
fixed 7.5% rate to a variable rate based on LIBOR. Fixed rate
debt also includes $238 million related to the Company’s medium-term notes
that the Company intends to refinance using the Delayed Draw Facility as
they mature during 2008. Accordingly, the Company has
classified its medium-term notes as long-term at June 29,
2008. Variable rate debt includes the $1.6 billion Bridge
Facility, which has been classified as long-term because the borrowings
under the Bridge Facility will be exchanged for long-term senior exchange
notes or similar instruments prior to the Bridge Facility’s initial
maturity date of Dec. 20, 2008 (see Note 10 to the Company’s unaudited
consolidated financial statements in
Part I, Item 1,
hereof
). Variable rate debt also includes $7.2 billion
related to the amount due in 2014 on the Tranche B facility after all
|
|
quarterly
payments have been made (see Note 10 to the Company’s unaudited condensed
consolidated financial statements in
Part I, Item 1,
hereof
).
|
(6)
|
Fair
value of the Company’s variable rate borrowings, senior notes and
debentures was estimated based on quoted market prices for similar issues
or on current rates available to the Company for debt of the same
remaining maturities and similar terms. The carrying value of
all other components of the Company’s debt approximates fair
value.
|
Variable Interest Rate Debt
—As
described in the “Significant Events” section contained in Part I, Item 2,
hereof, on June 4, 2007 and Dec. 20, 2007, the Company entered into borrowings
under the Credit Agreement and the Interim Credit Agreement. In general,
borrowings under the Credit Agreement bear interest at a variable rate based on
LIBOR plus a spread ranging from 2.75% to 3.00%. Upon execution of
the Interim Credit Agreement, loans under the Bridge Facility bore interest
based on LIBOR plus 4.50%.
Pursuant to
the terms of the Interim Credit Agreement, such margins increased by 50 basis
points per annum on March 20, 2008 and June 20, 2008 and will continue to
increase by this amount each subsequent quarter, subject to specified
caps
. As of June 29, 2008, the Company had $10.574 billion of
variable rate borrowings outstanding under these credit
facilities. At this borrowing level, and before consideration of the
Company’s existing interest rate swap agreements, a hypothetical one percent
increase in the underlying interest rates for the Company’s variable rate
borrowings under these agreements would result in an additional $106 million of
annual pretax interest expense. The Company is currently a party to four
interest rate swap agreements. One of the swap agreements relates to
the $100 million fixed 7.5% rate debentures due in 2023 and effectively converts
the fixed 7.5% rate to a variable rate based on LIBOR. The other
three swap agreements were initiated on July 3, 2007, and effectively converted
$2.5 billion of the variable rate borrowings to a weighted-average fixed rate of
5.31% plus a margin of 300 basis points.
On July
1, 2008, the Company and Tribune Receivables, LLC, a wholly-owned subsidiary of
the Company (the “Receivables Subsidiary”), entered into a $300 million trade
receivables securitization facility. The Receivables Subsidiary
borrowed $225 million under this facility and incurred transaction costs
totaling $7 million. The net proceeds of $218 million were utilized
to pay down the borrowings under the Tranche X Facility. Advances
under the Receivables Loan Agreement that are funded through commercial paper
issued by the Lenders (Receivables Loan Agreement and Lenders each as defined in
the “Significant Events – Trade Receivables Securitization Facility” section
included in Part I, Item 2, hereof) will accrue interest based on the applicable
commercial paper interest rate or discount rate, plus a margin. All other
advances will accrue interest at (i) LIBOR, (ii) the prime rate or (iii) the
federal funds rate, in each case plus an applicable margin. See Note
10 to the Company’s unaudited condensed consolidated financial statements in
Part I, Item 1, hereof, for a further description of the terms of this
facility.
EQUITY
PRICE RISK
Available-For-Sale
Securities
—The Company has common stock investments in publicly traded
companies that are subject to market price volatility. Except for 16
million shares of Time Warner common stock (see discussion below), these
investments are classified as available-for-sale securities and are recorded on
the balance sheet at fair value with unrealized gains or losses, net of related
tax effects, reported in the accumulated other comprehensive income (loss)
component of shareholders’ equity (deficit).
The
following analysis presents the hypothetical change at June 29, 2008 in the fair
value of the Company’s common stock investments in publicly traded companies
that are classified as available-for-sale, assuming hypothetical stock price
fluctuations of plus or minus 10%, 20% and 30% in each stock’s
price. As of June 29, 2008, the Company’s common stock investments in
publicly traded companies consisted primarily of 203,790 shares of Time Warner
common stock unrelated to the PHONES (see discussion below in “Derivatives and
Related Trading Securities”) and 3.4 million shares of AdStar,
Inc.
|
Valuation
of Investments
Assuming
Indicated Decrease
in
Stock’s Price
|
|
June 29,
2008
|
|
Valuation
of Investments
Assuming
Indicated Increase
in
Stock’s Price
|
(in
thousands)
|
-30%
|
|
-20%
|
|
-10%
|
|
Fair
Value
|
|
+10%
|
|
+20%
|
|
+30%
|
Common
stock investments in
public
companies
|
$2,229
|
|
$2,548
|
|
$2,866
|
|
$3,184
(1)
|
|
$3,503
|
|
$3,821
|
|
$4,140
|
(1)
|
Excludes
16 million shares of Time Warner common stock. See discussion
below in “Derivatives and Related Trading
Securities.”
|
During
the last 12 quarters preceding June 29, 2008, market price movements have caused
the fair value of the Company’s common stock investments in publicly traded
companies to change by 10% or more in six of the quarters, by 20% or more in six
of the quarters and by 30% or more in two of the quarters.
Derivatives and Related Trading
Securities
—The Company issued 8 million PHONES in April 1999 indexed to
the value of its investment in 16 million shares of Time Warner common
stock. Since the second quarter of 1999, this investment in Time
Warner has been classified as a trading security, and changes in its fair value,
net of the changes in the fair value of the PHONES, have been recorded in the
statement of operations.
At
maturity, the PHONES will be redeemed at the greater of the then market value of
two shares of Time Warner common stock or the principal value of the PHONES
($155.77 per PHONES at June 29, 2008). At June 29, 2008, the PHONES
carrying value was $276 million. Since the issuance of the PHONES in
April 1999, changes in the fair value of the PHONES have partially offset
changes in the fair value of the related Time Warner shares. There
have been and may continue to be periods with significant non-cash increases or
decreases to the Company’s net income pertaining to the PHONES and the related
Time Warner shares.
The
following analysis presents the hypothetical change in the fair value of the
Company’s 16 million shares of Time Warner common stock related to the PHONES,
assuming hypothetical stock price fluctuations of plus or minus 10%, 20% and 30%
in the stock’s price.
|
Valuation
of Investments
Assuming
Indicated Decrease
in
Stock’s Price
|
|
June 29,
2008
|
|
Valuation
of Investments
Assuming
Indicated Increase
in
Stock’s Price
|
(in
thousands)
|
-30%
|
|
-20%
|
|
-10%
|
|
Fair
Value
|
|
+10%
|
|
+20%
|
|
+30%
|
Time
Warner common
|
|
|
|
|
|
|
$230,720
|
|
|
|
|
|
|
During
the last 12 quarters preceding June 29, 2008, market price movements have caused
the fair value of the Company’s 16 million shares of Time Warner common stock to
change by 10% or more in three of the quarters, by 20% or more in one of the
quarters and by 30% or more in none of the quarters.
ITEM
4. CONTROLS AND PROCEDURES.
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Under the
supervision and with the participation of the Company’s management, including
its principal executive officer and principal financial officer, the Company
conducted an evaluation of its disclosure controls and procedures, as such term
is defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of June 29,
2008. Based upon that evaluation, the principal executive officer and
principal financial officer have concluded that the Company’s disclosure
controls and procedures are effective.
Changes
in Internal Control Over Financial Reporting
There has
been no change in the Company’s internal control over financial reporting that
occurred during the Company’s fiscal quarter ended June 29, 2008 that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
Tribune
Company and its subsidiaries are defendants from time to time in actions for
matters arising out of their business operations. In addition,
Tribune 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.
Newsday
and
Hoy
, New York Circulation
Misstatements
—In February 2004, a purported class action lawsuit was
filed in New York federal court by certain advertisers of
Newsday
and an affiliate
publication,
Hoy
, New
York, alleging that they were overcharged for advertising as a result of
inflated circulation numbers at these two publications. The purported class
action also alleges that entities that paid a
Newsday
subsidiary to deliver
advertising flyers were overcharged. The Company is vigorously
defending this suit. In July 2004, another lawsuit was filed in New
York federal court by certain advertisers of
Newsday
alleging damages
resulting from inflated
Newsday
circulation numbers
as well as federal and state antitrust violations. On Feb. 11, 2008,
this suit was settled with all remaining plaintiffs.
In
addition to the advertiser lawsuits, several class action and shareholder
derivative suits were filed against the Company and certain of its current and
former directors and officers as a result of the circulation misstatements at
Newsday
and
Hoy
, New
York. These suits alleged breaches of fiduciary duties and other
managerial and director failings under Delaware law, the federal securities laws
and the Employee Retirement Income Security Act (“ERISA”). The
consolidated shareholder derivative suit filed in Illinois state court in
Chicago was dismissed with prejudice on March 10, 2006. The appeal of
this dismissal to the Illinois State Court of Appeals was voluntarily dismissed
by the plaintiff following the closing of the Company’s going private
transaction. The consolidated securities class action lawsuit and the
consolidated ERISA class action lawsuit filed in Federal District Court in
Chicago were both dismissed with prejudice on Sept. 29, 2006. The
dismissals were appealed to the United States Court of Appeals for the Seventh
Circuit. On April 2, 2008, the Seventh Circuit issued an opinion
affirming the dismissal of both the securities class action lawsuit and the
ERISA class action lawsuit. Plaintiffs in the securities class action
lawsuit have filed a petition for a rehearing en banc by the Seventh Circuit,
which is currently pending. The Company continues to believe these
suits are without merit and will continue to vigorously defend
them.
PHONES Indenture
—The Company
received a letter dated April 9, 2007, (1) stating that it was written on behalf
of two hedge funds purporting to hold approximately 37% of the Company’s
8,000,000 PHONES Exchangeable Subordinated Debentures due 2029 (the “PHONES”),
(2) purporting to give a “notice of default” that the Company has violated the
“maintenance of properties” covenant in the indenture under which the PHONES
were issued (the “PHONES Indenture”) and (3) informing the Company that failure
to remedy such purported violation within 60 days of notice will result in an
“event of default” under the PHONES Indenture (which could, if properly
declared, result in an acceleration of principal and interest payable with
respect to the PHONES). On April 27, 2007, the Company received a
letter from the law firm purporting to represent the two hedge funds stating
that the law firm also purported to represent a third hedge fund, which,
together with the first two hedge funds, purported to hold 55% of the Company’s
PHONES and reiterating the claims set forth in the April 9, 2007
letter.
The
particular covenant in question, Section 10.05 of the PHONES Indenture, requires
the Company to “cause all properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order (normal wear and tear excepted) and supplied
with all necessary equipment… all as in the judgment of the Company may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times….” Section 10.05 of the
PHONES Indenture expressly provides that the covenant does not “prevent the
Company from discontinuing the operation and maintenance of any such properties,
or disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Company or of the Subsidiary concerned, desirable in
the
conduct
of its business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders [of the PHONES].” The letters suggest
that the Company’s recent sales of three television stations, announced
intention to dispose of an interest in the Chicago Cubs baseball team and recent
and proposed issuances of debt and return of capital to stockholders violated or
will violate this maintenance of properties covenant.
On May 2,
2007, the Company sent a letter to the law firm purporting to represent the
hedge funds rejecting their purported “notice of default” as defective and
invalid because the Company was not in default of Section 10.05, the entities
the law firm purported to represent were not “Holders” as defined in the PHONES
Indenture, and because the law firm had provided no evidence that it was an
agent duly appointed in writing as contemplated by Section 1.04 of the PHONES
Indenture. The law firm sent a letter to the Company on May 8, 2007
responding to the Company’s May 2, 2007 letter, reiterating its claim that the
Company was in default of Section 10.05 and stating that it had properly noticed
a default pursuant to Section 5.01(4) of the Indenture. The Company further
responded by letter dated May 18, 2007 reaffirming its rejection of the
purported “notice of default” and reiterating its position that the Company was
not in default of Section 10.05 and that the entities the law firm purported to
represent were not entitled to provide a notice of default under Section 5.01(4)
of the PHONES Indenture.
On July
23, 2007, the Company received a letter from the law firm purporting to
represent the hedge funds, purported to hold 70% of the Company’s PHONES,
stating that the Company has breached Section 10.05 of the PHONES Indenture,
such breach was continuing on the date of such letter, which was more than 60
days after the purported “notice of default” had been given, and that pursuant
to Section 5.01(4) of the Indenture, an “event of default” under the PHONES
Indenture had occurred and was continuing. The July 23, 2007 letter
further stated that the hedge funds were declaring the outstanding principal of
$157 per share of all of the outstanding PHONES, together with all accrued but
unpaid interest thereon to be due and payable immediately, and were demanding
immediate payment of all such amounts. On July 27, 2007, the Company
sent a letter to the trustee under the PHONES Indenture and the law firm
purporting to represent the three hedge funds rejecting the allegations made in
such law firm’s July 23, 2007 letter and reiterating the Company’s position that
the Company is not in default of Section 10.05 and that such hedge funds are not
entitled under the PHONES Indenture to provide the purported notice of
default.
On Aug.
10, 2007, the law firm purporting to represent the three hedge fund holders sent
a letter to the trustee under the PHONES Indenture stating that the PHONES
holders intended to institute proceedings to confirm the alleged covenant
default and acceleration notice. On Sept. 17, 2007, the Company
received copies of default notices from Cede & Co., the record holder of the
PHONES, on behalf of the three hedge fund holders. These purported notices of
default indicate that they were issued at the request of each of the hedge funds
by Cede & Co., the holder of record for the notes beneficially owned by each
of the hedge funds. The letter stated that Tribune was required to
remedy the purported default within 60 days of the date of the letter and that
failure to do so would constitute an “Event of Default” under the PHONES
Indenture. On Dec. 26, 2007, the Company received copies of notices
of acceleration from Cede & Co., purportedly on behalf of the three hedge
fund holders. These purported notices of acceleration indicate that
they were issued at the request of each of the hedge funds by Cede & Co.,
the holder of record for the notes beneficially owned by each of the hedge
funds. To date, the trustee under the PHONES Indenture has not
initiated any action on behalf of the PHONES holders. On January 9,
2008, the Company sent a letter to the trustee under the PHONES Indenture and
the law firm purporting to represent the three hedge funds rejecting the
purported notices of acceleration for the reasons previously set forth in the
Company’s July 27, 2007 letter.
The
Company continues to believe that the hedge funds’ claims are without merit and
that the Company remains in full compliance with Section 10.05 of the PHONES
Indenture. The Company will enforce and defend vigorously its rights
under the PHONES Indenture.
In
addition, the information contained in Note 3 and Note 13 to the unaudited
condensed consolidated financial statements in Part I, Item 1, hereof is
incorporated herein by reference.
ITEM
1A. RISK FACTORS.
There
have been no material changes to the Company’s risk factors as disclosed in Item
1A, “Risk Factors”, in the Company’s Annual Report on Form 10-K for the fiscal
year ended Dec. 30. 2007.
ITEM
6. EXHIBITS.
|
Exhibits
marked with an asterisk (*) are incorporated by reference to the documents
previously filed by Tribune Company with the Securities and Exchange
Commission, as indicated. All other documents are filed with this
Report.
|
|
4.1
|
Tripartite
Agreement, dated Aug. 1, 2008, among Tribune Company, Citibank, N.A. and
Deutsche Bank Trust Company Americas, appointing Deutsche Bank Trust
Company Americas as Trustee under the Indenture dated as of March 1, 1992,
as amended and supplemented
|
|
4.2
|
Tripartite
Agreement, dated Aug. 1, 2008, among Tribune Company, Citibank, N.A. and
Deutsche Bank Trust Company Americas, appointing Deutsche Bank Trust
Company Americas as Trustee under the Indenture dated as of Jan. 1, 1997,
as amended and supplemented
|
|
4.3
|
Tripartite
Agreement, dated Aug. 1, 2008, among Tribune Company, Citibank, N.A. and
Deutsche Bank Trust Company Americas, appointing Deutsche Bank Trust
Company Americas as Trustee under the Indenture dated as of April 1, 1999,
as amended and supplemented
|
|
4.4
|
Tripartite
Agreement, dated Aug. 1, 2008, among Tribune Company, Citibank, N.A. and
Deutsche Bank Trust Company Americas, appointing Deutsche Bank Trust
Company Americas as Trustee under the Indenture dated as of Jan. 30, 1995,
as amended and supplemented
|
|
4.5
|
Tripartite
Agreement, dated Aug. 1, 2008, among Tribune Company, Citibank, N.A. and
Deutsche Bank Trust Company Americas, appointing Deutsche Bank Trust
Company Americas as Trustee under the Indenture dated as of March 19,
1996, as amended and supplemented
|
|
10.1*
|
Receivables
Purchase Agreement, dated as of July 1, 2008, among Tribune Company, as
Parent and as Servicer, Subsidiaries of Parent party thereto, as
Sub-Originators and Tribune Receivables, LLC, as Buyer, incorporated by
reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, as
filed with the Securities and Exchange Commission on July 8,
2008
|
|
10.2*
|
Receivables
Loan Agreement, dated July 1, 2008, among Tribune Receivables, LLC, as
Borrower, Tribune Company, as Servicer, the persons from time to time
party thereto as Conduit Lenders and Committed Lenders, Barclays Bank PLC,
and the persons from time to time parties thereto as Funding Agents and
Barclays Bank PLC, as Administrative Agent, incorporated by reference to
Exhibit 10.2 of the Company's Current Report on Form 8-K, as filed with
the Securities and Exchange Commission on July 8,
2008
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10.3*
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Tax
Matters Agreement, dated as of July 29, 2008, by and among CSC Holdings,
Inc., NMG Holdings, Inc., Newsday Holdings, LLC, Tribune Company and
Newsday, Inc., incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K, as filed with the Securities and Exchange
Commission on Aug. 4, 2008
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10.4*
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Indemnity
Agreement, dated as of July 29, 2008, by and among CSC Holdings, Inc., NMG
Holdings, Inc., Tribune Company, Newsday Holdings LLC and Newsday LLC,
incorporated by reference to Exhibit 10.2 of the Company’s Current Report
on Form 8-K as filed with the Securities and Exchange Commission on Aug.
4, 2008
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31.1
|
Rule
13a-14 Certification of Chief Executive Officer
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31.2
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Rule
13a-14 Certification of Chief Financial Officer
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32.1
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Section
1350 Certification of Chief Executive Officer
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|
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32.2
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Section
1350 Certification of Chief Financial
Officer
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Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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TRIBUNE
COMPANY
(Registrant)
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Date:
August 13, 2008
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By:
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/s/ Brian
Litman
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Name:
Brian Litman
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Title:
Vice President and Controller
(on
behalf of the registrant
and
as Chief Accounting Officer)
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Tribune Debs 29 (NYSE:TXA)
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Tribune Debs 29 (NYSE:TXA)
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から 10 2023 まで 10 2024