Business News

Tribune Reports 2007 Fourth Quarter and Full Year Results

Tuesday 25. March 2008 - Tribune Company today reported a loss from continuing operations of $78 million for the fourth quarter of 2007 compared with income from continuing operations of $233 million in the fourth quarter of 2006. For the full year 2007, Tribune reported income from continuing operations of $55 million compared with $661 million in 2006.

“Despite the continued difficult operating environment and weakness in print revenue, we see significant opportunity within Tribune Company,” said Sam Zell, Chairman and CEO. “In our first 75 days, we’ve made a series of key leadership changes, have launched a number of programs and projects to drive new revenue, and have initiated a fundamental shift in culture. In addition, we have begun a strategic review of certain Tribune assets to determine whether capital can be more effectively redeployed into our core operations or toward reducing our outstanding leverage.”

The declines in both the fourth quarter and full year 2007 operating results were largely due to lower revenues, higher interest expense and the net effect of the items described below.

Fourth quarter 2007 and 2006 results from continuing operations included the following:

— A pretax non-cash impairment charge of $130 million ($79 million after
taxes) in the 2007 quarter to write-down the Company’s masthead
intangible assets to fair value.
— A pretax charge of $64 million ($42 million after taxes) in the 2007
quarter for accelerated stock-based compensation expense and certain
one-time compensation payments resulting from the completion of the
Company’s going-private transaction.
— A pretax charge of $23 million ($16 million after taxes) for severance
and related charges in the 2007 quarter compared with a pretax charge
of $6 million ($4 million after taxes) in the 2006 quarter.
— A pretax charge of $16 million ($10 million after taxes) in the 2007
quarter related to the Company’s new management equity incentive plan.
— A pretax charge of $6 million ($4 million after taxes) in the 2007
quarter for the write-down of Tribune Entertainment program assets.
— A pretax charge of $3 million ($2 million after taxes) in the 2007
quarter to increase the accrual for anticipated advertiser claims at
Newsday.
— A pretax charge of $4 million ($2 million after taxes) in the 2006
quarter for the disposition of a press related to the shutdown of the
Los Angeles Times San Fernando Valley printing facility.
— A pretax gain of $7 million ($4 million after taxes) in the 2006
quarter related to the sale of the corporate airplane.
— An after-tax non-operating gain of $11 million in 2007 compared with an
after-tax non-operating gain of $69 million in 2006.




Full year 2007 and 2006 results from continuing operations included the following:

— A pretax non-cash impairment charge of $130 million ($79 million after
taxes) in 2007 to write-down the Company’s masthead intangible assets
to fair value.
— A pretax charge of $64 million ($42 million after taxes) in 2007 for
accelerated stock-based compensation expense and certain one-time
compensation payments resulting from the completion of the Company’s
going-private transaction.
— A pretax charge of $55 million ($36 million after taxes) for severance
and related charges in 2007 compared with a pretax charge of $8 million
($6 million after taxes) in 2006.
— A pretax charge of $24 million ($15 million after taxes) in 2007 to
write-off equipment at the previously closed Los Angeles Times San
Fernando Valley printing facility, compared to $4 million ($2 million
after taxes) in 2006 for the disposition of a press at the same
facility.
— A pretax charge of $16 million ($10 million after taxes) in 2007
related to the Company’s new management equity incentive plan.
— A pretax charge of $6 million ($4 million after taxes) in 2007 for the
write-down of Tribune Entertainment program assets.
— A pretax charge of $3 million ($2 million after taxes) in 2007 to
increase the accrual for anticipated advertiser claims at Newsday.
— A pretax charge of $20 million ($11 million after taxes) in 2006 for
severance and other payments associated with the new union contracts at
Newsday.
— A pretax gain of $7 million ($4 million after taxes) in 2006 related to
the sale of the corporate airplane.
— A pretax gain of $3 million ($2 million after taxes) in 2006 related to
a real property sale in publishing.
— A pretax gain of $6 million ($4 million after taxes) included in equity
income in 2006 related to the Company’s share of a one-time favorable
income tax adjustment recorded at CareerBuilder.
— An after-tax non-operating loss of $34 million in 2007 compared with an
after-tax non-operating gain of $110 million in 2006.


FOURTH QUARTER 2007 RESULTS FROM CONTINUING OPERATIONS(1)
(Compared to Fourth Quarter 2006)
(13 weeks in 2007 vs. 14 weeks in 2006)

CONSOLIDATED


Tribune’s 2007 fourth quarter operating revenues decreased 12 percent, or $180 million, to $1.27 billion. Consolidated cash operating expenses were down 1 percent, or $10 million. Operating cash flow decreased 44 percent to $214 million from $384 million, while operating profit decreased 92 percent to $27 million from $325 million. Operating profit included a non-cash impairment charge of $130 million to write-down the Company’s masthead intangible assets to fair value.

Tribune’s fourth quarter included 13 weeks in 2007 compared to 14 weeks in 2006. Without the additional week in 2006, fourth quarter 2007 operating revenues decreased 7 percent, cash operating expenses increased 5 percent, operating cash flow decreased 41 percent, and operating profit decreased 91 percent.

PUBLISHING

Publishing operating revenues for the fourth quarter of 2007 were $952 million, down 13 percent, or $140 million from 2006. Publishing cash operating expenses decreased 6 percent, or $46 million. Publishing operating cash flow was $177 million, a 35 percent decrease from $271 million in 2006. Publishing operating profit decreased 99 percent to $3 million, from $226 million in 2006.

Without the additional week in 2006, publishing fourth quarter 2007 operating revenues decreased 7 percent, cash operating expenses were flat, operating cash flow decreased 30 percent, and operating profit decreased 99 percent.

Publishing operating profit in the 2007 fourth quarter included a non-cash impairment charge of $130 million to write-down the Company’s masthead intangible assets to fair value, $33 million of accelerated stock-based compensation expense and certain one-time compensation payments resulting from the completion of the Company’s going-private transaction, a charge of $10 million for severance and related expenses for the elimination of approximately 700 positions, a charge of $7 million related to the Company’s new management equity incentive plan, and a $3 million charge to increase the accrual for anticipated advertiser claims at Newsday.

Publishing operating profit in the 2006 fourth quarter included $6 million of severance charges for the elimination of approximately 300 positions and a $4 million charge for the disposition of a press from the Los Angeles Times San Fernando Valley printing facility.

Management Discussion
— Advertising revenues decreased 15 percent, or $132 million, for the
quarter. Without the additional week in 2006, advertising revenues
were down approximately 9 percent.
— Retail advertising revenues decreased 10 percent for the quarter
primarily due to decreases in the department stores, electronics,
hardware/home improvement, amusement, and furniture/home improvement
categories. Preprint revenues also decreased 8 percent.
— National advertising revenues decreased 11 percent for the quarter
primarily due to decreases in the transportation, telecom/wireless,
technology and health care categories, partially offset by an increase
in the financial category.
— Classified advertising revenues decreased 25 percent in the quarter due
to decreases in real estate, help wanted and automotive of 34 percent,
28 percent and 13 percent, respectively.
— Interactive revenues, which are included in the above categories,
increased 6 percent to $63 million.
— Circulation revenues decreased 12 percent, or $17 million, for the
quarter. Excluding the additional week in 2006, circulation revenues
were down approximately 5 percent.
— Individually paid circulation (home delivery plus single copy) for
Tribune’s 9 metro newspapers averaged 2.6 million copies daily
(Mon-Fri) and 3.9 million copies Sunday, down approximately
2 percent and 5 percent, respectively, from the fourth quarter of
2006.
— Total net paid circulation averaged 2.7 million copies daily
(Mon-Fri) and 3.9 million copies Sunday, down approximately
2 percent and 5 percent, respectively, from the fourth quarter of
2006.
— Cash operating expenses decreased 6 percent, or $46 million. For the
fourth quarter of 2007, cash operating expenses included $33 million of
accelerated stock-based compensation expense and certain one-time
compensation payments resulting from the completion of the Company’s
going-private transaction, a charge of $10 million for severance and
related expenses, a charge of $7 million related to the Company’s new
management equity incentive plan, and a $3 million charge to increase
the accrual for anticipated advertiser claims at Newsday. For the
fourth quarter of 2006, cash operating expenses included $6 million of
severance charges and a $4 million charge for the disposition of a
press from the Los Angeles Times San Fernando Valley printing facility.
The 2007 charges were more than offset by a decrease in newsprint and
ink expense, lower compensation expense primarily due to the impact of
position eliminations in 2007 and 2006, and lower other cash expenses.


BROADCASTING AND ENTERTAINMENT


Broadcasting and entertainment operating revenues for the 2007 fourth quarter decreased 11 percent to $316 million, down from $356 million in 2006. Group cash operating expenses were down 1 percent, or $3 million, to $233 million. Operating cash flow was $83 million, down 30 percent from $119 million, and operating profit decreased 33 percent to $70 million from $106 million in 2006.

Without the additional week in 2006, broadcasting and entertainment fourth quarter 2007 operating revenues decreased 7 percent, cash operating expenses increased 4 percent, operating cash flow decreased 27 percent, and operating profit decreased 30 percent.

Broadcasting and entertainment operating profit in the 2007 fourth quarter included $12 million of accelerated stock-based compensation expense and certain one-time compensation payments resulting from the completion of the Company’s going-private transaction, a charge of $6 million for the write-down of Tribune Entertainment program assets, and a charge of $3 million related to the Company’s new management equity incentive plan.

For the fourth quarter of 2007, television revenues decreased 9 percent to $297 million, down from $325 million in 2006. Television cash operating expenses remained flat at $206 million. Television operating cash flow was $90 million, a 24 percent decrease from $119 million in 2006. Television operating profit decreased 26 percent to $79 million, down from $107 million in 2006.

Management Discussion
— Station revenues in New York increased but were offset by declines in
most other markets. On a group basis, advertising revenues decreased
due to a significant decline in political advertising, as well as
decreases in the movies and retail categories, partially offset by
increases in the telecom, food and financial categories.
— Television cash operating expenses remained flat at $206 million. For
the fourth quarter of 2007, cash operating expenses included
$11 million of accelerated stock-based compensation expense and certain
one-time compensation payments resulting from the completion of the
Company’s going-private transaction and a charge of $3 million related
to the Company’s new management equity incentive plan. These expenses
were offset by lower programming and other cash expenses.
— Radio/entertainment revenues primarily reflect lower revenues for the
Chicago Cubs due to fewer home games in the quarter.


EQUITY RESULTS


Net equity income was $32 million in the fourth quarter of 2007, compared with $29 million in the fourth quarter of 2006. The increase primarily reflects improvements at TV Food Network and Comcast SportsNet Chicago.

NON-OPERATING ITEMS

In the 2007 fourth quarter, Tribune recorded a pretax non-operating gain of $67 million, which included an $85 million gain from marking-to-market the derivative component of the Company’s PHONES and the related Time Warner investment, and $31 million of gains from investment transactions. These gains were partially offset by $47 million in expenses related to the Company’s strategic review and going-private transaction completed in December 2007. In the aggregate, non-operating items in the 2007 fourth quarter resulted in an after-tax gain of $11 million.

In the 2006 fourth quarter, Tribune recorded a pretax non-operating gain of $60 million, which included a $45 million gain from marking-to-market the derivative component of the Company’s PHONES and the related Time Warner investment and a $17 million gain from the sale of the Company’s investment in BrassRing. In addition, the Company recorded a favorable $33 million income tax expense adjustment, most of which related to the Company’s PHONES as a result of reaching an agreement with the Internal Revenue Service appeals office pertaining to the deduction of interest expense on the PHONES. In the aggregate, non-operating items in the 2006 fourth quarter resulted in an after-tax gain of $69 million.

FULL YEAR RESULTS FROM CONTINUING OPERATIONS
(Compared to 2006)
(52 weeks in 2007 vs. 53 weeks in 2006)

CONSOLIDATED


For 2007, operating revenues decreased 7 percent, or $381 million. Consolidated cash operating expenses decreased 2 percent, or $63 million. Operating cash flow was $992 million, down 24 percent from 2006, while operating profit declined 42 percent to $634 million.

Tribune’s fiscal year was comprised of 52 weeks in 2007 compared to 53 weeks in 2006. Without the additional week in 2006, operating revenues decreased 6 percent, cash operating expenses were flat, operating cash flow decreased 23 percent, and operating profit decreased 40 percent.

PUBLISHING

For 2007, operating revenues for publishing decreased 9 percent, or $354 million, to $3.66 billion. Cash operating expenses for the year decreased 3 percent in 2007, or $107 million. Operating cash flow decreased 27 percent to $674 million, from $921 million in 2006. Operating profit decreased 51 percent to $368 million, from $749 million in 2006.

Without the additional week in 2006, publishing operating revenues decreased 7 percent, cash operating expenses decreased 2 percent, operating cash flow decreased 25 percent, and operating profit decreased 50 percent.

Publishing operating profit in 2007 included a non-cash impairment charge of $130 million to write-down the Company’s masthead intangible assets to fair value, $33 million of accelerated stock-based compensation expense and certain one-time compensation payments resulting from the completion of the Company’s going-private transaction, a charge of $40 million for severance and related expenses for the elimination of approximately 700 positions, a charge of $24 million to write-off equipment related to the previously closed Los Angeles Times San Fernando Valley printing facility, a charge of $7 million related to the Company’s new management equity incentive plan, and a $3 million charge to increase the accrual for anticipated advertiser claims at Newsday. Publishing operating profit for the full year 2006 included $20 million of severance and other payments associated with the new union contracts at Newsday, $8 million of severance charges for the elimination of approximately 300 positions, a $4 million charge for the disposition of a press from the Los Angeles Times San Fernando Valley printing facility, and a $3 million gain from a sale of real property.

BROADCASTING AND ENTERTAINMENT

For 2007, full year operating revenues for broadcasting and entertainment decreased 2 percent to $1.40 billion, down from $1.43 billion in 2006. Cash operating expenses increased 1 percent, or $8 million, in 2007. Operating cash flow declined 8 percent to $408 million from $443 million in 2006. Operating profit decreased 9 percent to $357 million, down from $392 million.

Without the additional week in 2006, broadcasting and entertainment operating revenues decreased 1 percent, cash operating expenses increased 2 percent, operating cash flow decreased 7 percent, and operating profit decreased 7 percent.

Broadcasting and entertainment operating profit in 2007 included $12 million of accelerated stock-based compensation expense and certain one-time compensation payments resulting from the completion of the Company’s going-private transaction, a charge of $6 million for the write-down of Tribune Entertainment program assets, and a charge of $3 million related to the Company’s new management equity incentive plan.

For the full year 2007, operating revenues for television decreased 4 percent to $1.14 billion, down from $1.18 billion in 2006. Cash operating expenses decreased 1 percent in 2007. Operating cash flow declined 9 percent to $367 million from $403 million. Operating profit decreased 10 percent to $322 million, from $358 million in 2006.

EQUITY RESULTS

Equity income was $100 million for the full year 2007, compared with $81 million for the full year 2006. The increase primarily reflects improvements at TV Food Network and Comcast SportsNet Chicago. Equity income in 2006 included the Company’s $6 million share of a one-time favorable income tax adjustment at CareerBuilder.

NON-OPERATING ITEMS

For the full year 2007, Tribune recorded a pretax non-operating loss of $137 million, which included a $97 million loss from marking-to-market the derivative component of the Company’s PHONES and the related Time Warner investment and $85 million in expenses related to the Company’s strategic review and going-private transaction completed in December 2007. These items were partially offset by an $8 million gain related to the redemption of the Company’s remaining interest in TMCT, LLC and TMCT II, LLC in September 2007 and $32 million of gains from other investment transactions. Other non-operating gains for 2007 included an $18 million gain from the settlement of the Company’s Hurricane Katrina insurance claim that was largely offset by a $15 million charge for a civil forfeiture payment related to past circulation practices at Newsday and Hoy, New York. In addition, the Company recorded a favorable $91 million income tax expense adjustment related to the settlement of the Company’s Matthew Bender and Mosby income tax appeal. In the aggregate, non-operating items for the 2007 year resulted in an after-tax loss of $34 million.

For the full year 2006, Tribune recorded a pretax non-operating gain of $103 million, which included a $59 million gain from restructuring TMCT, LLC and TMCT II, LLC, a $19 million gain on the sale of 2.8 million shares of Time Warner stock unrelated to the PHONES, a $17 million gain from the sale of the Company’s investment in BrassRing, and an $11 million gain from marking-to-market the derivative component of the Company’s PHONES and the related Time Warner investment. In addition, the Company recorded a favorable $34 million income tax expense adjustment, most of which relates to the Company’s PHONES as a result of reaching an agreement with the Internal Revenue Service appeals office pertaining to the deduction of interest expense on the PHONES. In the aggregate, non-operating items for the 2006 year resulted in an after-tax gain of $110 million.

ADDITIONAL FINANCIAL DETAILS

Corporate expenses for the 2007 fourth quarter increased to $47 million from $8 million in the fourth quarter of 2006. For the full year of 2007, corporate expenses increased 64 percent to $92 million from $56 million. The fourth quarter of 2007 included a charge of $19 million for accelerated stock-based compensation expense and certain one-time compensation payments resulting from the completion of the Company’s going-private transaction and a $5 million charge related to the Company’s new management equity incentive plan. The fourth quarter and full year of 2007 included $13 million and $15 million, respectively, of severance and related charges. The fourth quarter 2006 included a $7 million gain related to the sale of the corporate airplane.

In June 2007, the Company repurchased 126 million shares for $4.3 billion in a tender offer as a part of the first step of its going-private transaction. In December 2007, the Company completed its going-private transaction which resulted in the repurchase of 119 million shares for $4 billion.

Interest expense for the 2007 fourth quarter increased to $196 million, up 109 percent from $94 million in the fourth quarter of 2006. For the full year 2007, interest expense increased 112 percent to $582 million, up from $274 million in 2006. The increases in both periods were primarily due to higher debt levels and interest rates. Debt was $12.8 billion at the end of 2007 and $5.0 billion at the end of 2006. The increase was largely due to financing the going-private transaction in 2007.

Capital expenditures were $61 million for the fourth quarter and $146 million for the full year 2007.

DISCONTINUED OPERATIONS

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”), to ImpreMedia, LLC. 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. On March 6, 2007, the Company announced an agreement to sell its Southern Connecticut Newspapers

— The Advocate (Stamford) and Greenwich Time (collectively “SCNI”) to Gannett Co., Inc. On May 25, 2007, the Company announced the termination of this agreement following an arbitrator’s ruling that the Company could not sell SCNI unless Gannett Co., Inc. assumed an existing collective bargaining contract as a condition of the sale, which Gannett Co., Inc. declined to do. The Company simultaneously announced that it would immediately begin the process of soliciting offers for SCNI with the intention of completing a sale as soon as possible. On Oct. 25, 2007, the Company announced an agreement to sell SCNI to Hearst Corporation for $62.4 million. The sale of SCNI closed on Nov. 1, 2007, and excluded the SCNI real estate in Stamford and Greenwich, Connecticut, which the Company plans to sell separately. 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 third quarter of 2007, the Company recorded a favorable $3 million after-tax adjustment to the 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”), to Target Media Partners. Recycler publishes a collection of free classified newspapers in Southern California. The sale of Recycler closed on Oct. 17, 2007. The Company recorded a pretax loss on the sale of the stock of Recycler of $1 million in the third quarter of 2007. Due to the Company’s high tax basis in the Recycler stock, the sale generated a significantly higher capital loss for income tax purposes. As a result, the Company recorded a $65 million income tax benefit in the third quarter of 2007, resulting in an after-tax gain of $64 million. The results of operations of Recycler, the New York edition of Hoy and SCNI are reported as discontinued operations.

In June 2006, the Company announced the sales of its Atlanta and Albany television stations. The sale of the Atlanta station closed in August 2006. In September 2006, the Company announced an agreement to sell its Boston television station. The sales of the Albany and Boston stations closed in December 2006. The results of operations for these stations in 2006 are reported as discontinued operations.