Item 1. Financial Statements
TRIBUNE PUBLISHING COMPANY
CONSOLIDATED STATEMENTS OF LOSS
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
April 1, 2018
|
|
|
|
|
|
Operating revenues
|
|
$
|
244,525
|
|
|
$
|
238,366
|
|
Operating expenses:
|
|
|
|
|
Compensation
|
|
97,709
|
|
|
110,765
|
|
Newsprint and ink
|
|
16,103
|
|
|
14,598
|
|
Outside services
|
|
83,813
|
|
|
98,982
|
|
Other operating expenses
|
|
42,218
|
|
|
32,653
|
|
Depreciation and amortization
|
|
12,084
|
|
|
12,446
|
|
Total operating expenses
|
|
251,927
|
|
|
269,444
|
|
Loss from operations
|
|
(7,402
|
)
|
|
(31,078
|
)
|
Interest income (expense), net
|
|
220
|
|
|
(6,564
|
)
|
Loss on equity investments, net
|
|
(487
|
)
|
|
(729
|
)
|
Other income, net
|
|
73
|
|
|
3,663
|
|
Loss from continuing operations before income taxes
|
|
(7,596
|
)
|
|
(34,708
|
)
|
Income tax benefit
|
|
(2,882
|
)
|
|
(6,637
|
)
|
Net loss from continuing operations
|
|
(4,714
|
)
|
|
(28,071
|
)
|
Plus: Earnings from discontinued operations, net of taxes
|
|
—
|
|
|
13,706
|
|
Net loss
|
|
(4,714
|
)
|
|
(14,365
|
)
|
Less: Income (loss) attributable to noncontrolling interest
|
|
(39
|
)
|
|
262
|
|
Net loss attributable to Tribune common stockholders
|
|
$
|
(4,675
|
)
|
|
$
|
(14,627
|
)
|
Net loss from continuing operations per common share:
|
|
|
|
|
Basic
|
|
$
|
(0.13
|
)
|
|
$
|
(0.81
|
)
|
Diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.81
|
)
|
Net loss attributable to Tribune per common share:
|
|
|
|
|
Basic
|
|
$
|
(0.13
|
)
|
|
$
|
(0.42
|
)
|
Diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.42
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
Basic
|
|
35,628
|
|
|
34,801
|
|
Diluted
|
|
35,628
|
|
|
34,801
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
TRIBUNE PUBLISHING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
March 31, 2019
|
|
April 1, 2018
|
Net loss from continuing operations, including non-controlling interest
|
$
|
(4,714
|
)
|
|
$
|
(14,365
|
)
|
Other comprehensive loss, net of taxes:
|
|
|
|
Amortization of items to periodic pension cost during the period, net of taxes of ($23) and ($915), respectively
|
(59
|
)
|
|
(2,377
|
)
|
Foreign currency translation
|
(2
|
)
|
|
—
|
|
Other comprehensive loss, net of taxes
|
(61
|
)
|
|
(2,377
|
)
|
Comprehensive loss recognized in continuing operations
|
(4,775
|
)
|
|
(16,742
|
)
|
Accumulated other comprehensive loss recognized in discontinued operations, net of taxes of $42
|
—
|
|
|
108
|
|
Comprehensive loss
|
(4,775
|
)
|
|
(16,634
|
)
|
Comprehensive income (loss) attributable to noncontrolling interest
|
(39
|
)
|
|
262
|
|
Comprehensive loss attributable to Tribune common stockholders
|
$
|
(4,736
|
)
|
|
$
|
(16,896
|
)
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
TRIBUNE PUBLISING COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 30, 2018
|
Assets
|
|
|
|
|
Current assets
|
|
|
|
|
Cash
|
|
$
|
98,206
|
|
|
$
|
97,560
|
|
Accounts receivable, (net of allowances of $13,983 and $11,458)
|
|
111,618
|
|
|
145,463
|
|
Inventories
|
|
9,267
|
|
|
9,587
|
|
Prepaid expenses and other
|
|
20,605
|
|
|
18,197
|
|
Total current assets
|
|
239,696
|
|
|
270,807
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
Machinery, equipment and furniture
|
|
123,105
|
|
|
124,243
|
|
Buildings and leasehold improvements
|
|
78,411
|
|
|
82,399
|
|
|
|
201,516
|
|
|
206,642
|
|
Accumulated depreciation
|
|
(78,537
|
)
|
|
(74,013
|
)
|
|
|
122,979
|
|
|
132,629
|
|
Advance payments on property, plant and equipment
|
|
11,107
|
|
|
12,334
|
|
Property, plant and equipment, net
|
|
134,086
|
|
|
144,963
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
Goodwill
|
|
132,172
|
|
|
132,146
|
|
Intangible assets, net
|
|
74,780
|
|
|
77,229
|
|
Software, net
|
|
26,168
|
|
|
27,117
|
|
Lease right-of-use asset
|
|
112,393
|
|
|
—
|
|
Restricted cash
|
|
43,947
|
|
|
43,947
|
|
Deferred income taxes
|
|
3,472
|
|
|
2,414
|
|
Other long-term assets
|
|
25,613
|
|
|
28,004
|
|
Total other assets
|
|
418,545
|
|
|
310,857
|
|
|
|
|
|
|
Total assets
|
|
$
|
792,327
|
|
|
$
|
726,627
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
TRIBUNE PUBLISHING COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 30, 2018
|
Liabilities and stockholders’ equity
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable
|
|
$
|
53,098
|
|
|
$
|
70,555
|
|
Employee compensation and benefits
|
|
41,895
|
|
|
61,001
|
|
Deferred revenue
|
|
49,814
|
|
|
51,114
|
|
Current portion of long-term lease liability
|
|
26,393
|
|
|
—
|
|
Current portion of long-term debt
|
|
405
|
|
|
405
|
|
Other current liabilities
|
|
20,542
|
|
|
21,203
|
|
Tax liabilities associated with discontinued operations
|
|
6,249
|
|
|
6,249
|
|
Total current liabilities
|
|
198,396
|
|
|
210,527
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
Long-term lease liability
|
|
112,610
|
|
|
—
|
|
Workers’ compensation, general liability and auto insurance payable
|
|
25,674
|
|
|
30,606
|
|
Pension and postretirement benefits payable
|
|
19,096
|
|
|
20,150
|
|
Deferred rent
|
|
—
|
|
|
25,424
|
|
Long-term debt
|
|
6,775
|
|
|
6,799
|
|
Other obligations
|
|
17,546
|
|
|
20,053
|
|
Total non-current liabilities
|
|
181,701
|
|
|
103,032
|
|
|
|
|
|
|
Noncontrolling interest
|
|
39,717
|
|
|
39,756
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
Preferred stock, $.01 par value. Authorized 30,000 shares; no shares issued or outstanding at March 31, 2019 and December 30, 2018
|
|
—
|
|
|
—
|
|
Common stock, $.01 par value. Authorized 300,000 shares, 37,618 shares issued and 35,664 shares outstanding at March 31, 2019; 37,551 shares issued and 35,597 shares outstanding at December 30, 2018
|
|
376
|
|
|
376
|
|
Additional paid-in capital
|
|
172,392
|
|
|
166,668
|
|
Retained earnings
|
|
225,939
|
|
|
232,401
|
|
Accumulated other comprehensive income (loss)
|
|
(34
|
)
|
|
27
|
|
Treasury stock, at cost - 1,954 shares at March 31, 2019 and 1,954 shares at December 30, 2018
|
|
(26,160
|
)
|
|
(26,160
|
)
|
Total stockholders’ equity
|
|
372,513
|
|
|
373,312
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
792,327
|
|
|
$
|
726,627
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
TRIBUNE PUBLISHING COMPANY
CONSOLIDATED STATEMENT OF EQUITY
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid in Capital
|
|
Retained earnings
|
|
AOCI
|
|
Treasury Stock
|
|
Total Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at December 30, 2018
|
|
37,551
|
|
|
$
|
376
|
|
|
$
|
166,668
|
|
|
$
|
232,401
|
|
|
$
|
27
|
|
|
$
|
(26,160
|
)
|
|
$
|
373,312
|
|
Cumulative effect of adoption of leasing standard
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,787
|
)
|
|
—
|
|
|
—
|
|
|
(1,787
|
)
|
Adjusted balance at December 30, 2018
|
|
37,551
|
|
|
376
|
|
|
166,668
|
|
|
230,614
|
|
|
27
|
|
|
(26,160
|
)
|
|
371,525
|
|
Comprehensive loss attributable to controlling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,675
|
)
|
|
(61
|
)
|
|
—
|
|
|
(4,736
|
)
|
Issuance of stock from restricted stock and restricted stock unit conversions
|
|
67
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
5,737
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,737
|
|
Withholding for taxes on restricted stock unit conversions
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
Balance at March 31, 2019
|
|
37,618
|
|
|
$
|
376
|
|
|
$
|
172,392
|
|
|
$
|
225,939
|
|
|
$
|
(34
|
)
|
|
$
|
(26,160
|
)
|
|
$
|
372,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid in Capital
|
|
Accumulated Deficit
|
|
AOCI
|
|
Treasury Stock
|
|
Total Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at December 31, 2017
|
|
37,551
|
|
|
$
|
376
|
|
|
$
|
150,229
|
|
|
$
|
(16,390
|
)
|
|
$
|
(13,527
|
)
|
|
$
|
(51,526
|
)
|
|
$
|
69,162
|
|
Comprehensive loss attributable to controlling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,627
|
)
|
|
(2,377
|
)
|
|
—
|
|
|
(17,004
|
)
|
AOCI recognized in discontinued operations
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
108
|
|
|
—
|
|
|
108
|
|
Issuance of stock from treasury for acquisition
|
|
—
|
|
|
—
|
|
|
9,229
|
|
|
—
|
|
|
—
|
|
|
25,366
|
|
|
34,595
|
|
Issuance of stock from restricted stock and restricted stock unit conversions
|
|
122
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options
|
|
7
|
|
|
—
|
|
|
133
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
133
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
2,447
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,447
|
|
Withholding for taxes on restricted stock unit conversions
|
|
—
|
|
|
—
|
|
|
(943
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(943
|
)
|
Forfeited restricted stock
|
|
(450
|
)
|
|
(5
|
)
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at April 1, 2018
|
|
37,230
|
|
|
$
|
372
|
|
|
$
|
161,099
|
|
|
$
|
(31,017
|
)
|
|
$
|
(15,796
|
)
|
|
$
|
(26,160
|
)
|
|
$
|
88,498
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
TRIBUNE PUBLISHING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2019
|
|
April 1, 2018
|
Operating Activities From Continuing Operations
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(4,714
|
)
|
|
$
|
(28,071
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
12,084
|
|
|
12,446
|
|
Stock compensation expense
|
|
5,737
|
|
|
1,587
|
|
Loss on equity investments, net
|
|
487
|
|
|
729
|
|
Deferred income taxes
|
|
(1,036
|
)
|
|
4,496
|
|
Pension contribution
|
|
(499
|
)
|
|
—
|
|
Postretirement medical, life and other benefits
|
|
(637
|
)
|
|
(6,497
|
)
|
Changes in working capital items, excluding acquisitions:
|
|
|
|
|
Accounts receivable, net
|
|
35,529
|
|
|
25,743
|
|
Prepaid expenses, inventories and other current assets
|
|
(11,226
|
)
|
|
(2,476
|
)
|
Accounts payable, employee compensation and benefits, deferred revenue and other current liabilities
|
|
(29,738
|
)
|
|
10,172
|
|
Other, net
|
|
(1,243
|
)
|
|
(1,634
|
)
|
Net cash provided by operating activities
|
|
4,744
|
|
|
16,495
|
|
|
|
|
|
|
Investing Activities From Continuing Operations
|
|
|
|
|
Capital expenditures
|
|
(3,911
|
)
|
|
(7,028
|
)
|
Acquisition of business, net of cash acquired
|
|
—
|
|
|
(33,949
|
)
|
Other, net
|
|
(150
|
)
|
|
(1,087
|
)
|
Net cash used for investing activities
|
|
(4,061
|
)
|
|
(42,064
|
)
|
|
|
|
|
|
Financing Activities From Continuing Operations
|
|
|
|
|
Repayment of long-term debt
|
|
—
|
|
|
(5,272
|
)
|
Withholding for taxes on RSU vesting
|
|
(13
|
)
|
|
(943
|
)
|
Other
|
|
(24
|
)
|
|
84
|
|
Net cash used for financing activities
|
|
(37
|
)
|
|
(6,131
|
)
|
|
|
|
|
|
Increase (decrease) in cash attributable to continuing operations
|
|
$
|
646
|
|
|
$
|
(31,700
|
)
|
|
|
|
|
|
Cash flows used for operating activities of discontinued operations, net
|
|
$
|
—
|
|
|
$
|
3,366
|
|
Cash flows used for investing activities of discontinued operations, net
|
|
—
|
|
|
(197
|
)
|
Cash flows used for financing activities of discontinued operations, net
|
|
—
|
|
|
(117
|
)
|
Decrease in cash attributable to discontinued operations
|
|
—
|
|
|
3,052
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
646
|
|
|
(28,648
|
)
|
Cash, cash equivalents and restricted cash beginning of period
|
|
141,507
|
|
|
185,351
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$
|
142,153
|
|
|
$
|
156,703
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1
: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
—Tribune Publishing Company, formerly tronc. Inc., was formed as a Delaware corporation on November 21, 2013. Tribune Publishing Company together with its subsidiaries (collectively, the “Company” or “Tribune”) is a media company rooted in award-winning journalism. Headquartered in Chicago, the Company operates local media businesses in
eight
markets with titles including the
Chicago Tribune, New York Daily News, The Baltimore Sun, Orlando Sentinel,
South Florida’s
Sun Sentinel
, Virginia’s
Daily Press
and
The Virginian-Pilot
,
The Morning Call
of Lehigh Valley, Pennsylvania and
the
Hartford Courant.
Tribune also operates Tribune Content Agency (“TCA”) and on February 6, 2018, the Company became a majority owner in BestReviews LLC (“BestReviews”). On May 28, 2018, the Company acquired Virginian-Pilot Media Companies LLC, owner of
The Virginian-Pilot,
a daily newspaper based in Norfolk, Virginia, and associated businesses (“Virginian-Pilot”). See Note
6
for further information on acquisitions.
On May 23, 2018, the Company completed the sale of substantially all of the assets of forsalebyowner.com and on June 18, 2018, the Company completed the sale of the
Los Angeles Times
,
The San Diego Union-Tribune
and various other titles of the Company’s California properties (“California Properties”)
.
See Note
7
for more information on the dispositions and related discontinued operations.
Tribune’s continuing legacy of brands, including the
The Virginian-Pilot,
have earned a combined
61
Pulitzer Prizes and are committed to informing, inspiring and engaging local communities. Tribune’s brands create and distribute content across its media portfolio, offering integrated marketing, media, and business services to consumers and advertisers, including digital solutions and advertising opportunities.
Fiscal Periods
—The Company’s fiscal year ends on the last Sunday in December. Fiscal year 2019 ends on December 29, 2019 and fiscal year 2018 ended on December 30, 2018. Fiscal year 2019 and 2018 are 52-week years with 13 weeks in each quarter.
Basis of Presentation
—T
he accompanying unaudited
Consolidated Financial Statements
and notes of the Company have been prepared in accordance with United States generally accepted accounting principles (
“U.S.
GAAP
”).
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited
Consolidated Financial Statements
and accompanying notes. Actual results could differ from these estimates. In the opinion of management, the financial statements contain all adjustments necessary to present fairly the financial position of Tribune as of
March 31, 2019
and
December 30, 2018
and the results of operations for the
three months ended
March 31, 2019
and
April 1, 2018
, respectively, and the cash flows for the
three months ended
March 31, 2019
and
April 1, 2018
, respectively. This includes all normal and recurring adjustments and elimination of intercompany transactions. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The year-end
Consolidated Balance Sheet
was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
Effective as of the sale dates, the operations of the California Properties and forsalebyowner.com qualify as discontinued operations. Accordingly, results of these operations for all periods presented have been reflected as discontinued operations in the accompanying Consolidated Financial Statements. Additionally, assets and liabilities related to the divested properties are classified as such in all periods in the Consolidated Condensed Balance Sheets. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate to continuing operations and exclude all discontinued operations consisting of the California Properties and forsalebyowner.com.
Accounting standards adopted in 2019
—In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Subtopic 350-40,
Intangibles-Goodwill and Other-Internal-Use Software; Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
(“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). ASU 2018-15 can be applied either retrospectively or prospectively. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. The Company adopted this
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
standard effective the beginning of fiscal year 2019 and will apply the provisions of the standard prospectively. The adoption had no material effect on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Topic 220,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
(“ASU 2018-02”)
.
ASU 2018-02 amends ASC 220, Income Statement — Reporting Comprehensive Income, to “allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.” In addition, under the ASU, an entity will be required to provide certain disclosures regarding stranded tax effects. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted this standard effective the beginning of fiscal year 2019 and adoption had no material effect on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Topic 842,
Leases
(“ASC 842”), which requires lessees to recognize lease assets and lease liabilities for operating leases. The Company adopted this standard effective December 31, 2018 using the modified retrospective transition method whereby the Company applied the new standard at the adoption date and recognized a cumulative-effect adjustment of
$1.8 million
, net of tax of
$0.7 million
, to reduce the opening balance of retained earnings in the first quarter of 2019, primarily due to lease impairments determined during the adoption. The Company has elected the practical expedients which allow the Company to forgo reassessing whether existing contracts are or contain leases, forgo reassessing the classification of existing leases, forgo reassessing initial direct costs of existing leases at the initial application date and to combine lease and nonlease components. Additionally, the Company did not consider any leases with original lease terms less than one year. See Note
2
for additional disclosures related to the Company’s leases.
Accounting standards not yet adopted
—In June 2016, the FASB issued ASU 2016-13, Topic 326,
Financial Instruments – Credit Losses
(“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured as amortized cost. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. The Company expects to adopt the standard effective December 30, 2019. The Company is currently reviewing the requirements of the standard.
NOTE
2
: LEASES
Tribune’s leased facilities are approximately
4.0
million square feet in the aggregate. The Company currently has leased newspaper production facilities in Connecticut, Florida, Illinois, Maryland, New Jersey, and Pennsylvania, however Tribune owns substantially all of the production equipment. For printing plants, the initial lease term is
10 years
with
two
options to renew for additional
10
year terms. For distribution facilities, the initial lease term is generally
five years
, with options to renew either
two
or
three
additional
five
year terms. Our corporate headquarters are located at 160 N. Stetson Avenue, Chicago, Illinois. The lease is for approximately
137,000
square feet with a 10 year and 11 month term for one floor and a 12 year term for four floors, expiring in 2028 and 2030, respectively. The Company has rent escalations, rent holidays and leasehold improvement incentives which are included in the determination of the right-of-use asset (“ROU”) and the lease liabilities.
Tribune subleases certain facilities that are approximately
0.1 million
square feet in aggregate. The terms of these subleases are from
five
to
seven
years and expire between 2019 and 2023.
Tribune determines if an arrangement is a lease at inception. Operating leases are included in lease ROU assets, current portion of long-term lease liabilities, and long-term lease liabilities on the consolidated balance sheets. Finance leases are included in property, plant and equipment, current portion of long-term debt and long-term debt on the consolidated balance sheets. Amortization of the operating leases ROU assets is included in other operating expenses. Amortization of finance leases is included in depreciation expense. Sublease income is included as an offset to lease expense in other operating expenses.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, Tribune uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The recorded operating lease ROU asset on the balance sheet reflects lease payments made to date and excludes lease incentives and initial direct costs incurred. The lease terms may include options to
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
Certain lease agreements have lease and non-lease components, which are generally accounted for together.
Below is a summary of information related to the Company’s leases (in thousands) for the
three months ended March 31, 2019
:
|
|
|
|
|
|
Lease cost:
|
|
|
Finance lease cost
|
|
$
|
78
|
|
Operating lease cost
|
|
7,496
|
|
Variable lease cost
|
|
1,625
|
|
Sublease income
|
|
(1,129
|
)
|
Total lease cost
|
|
$
|
8,070
|
|
|
|
|
Other information:
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
|
$
|
8,305
|
|
Financing cash flows from finance leases
|
|
$
|
50
|
|
Right of use assets obtained in exchange for new operating lease liabilities
|
|
$
|
121
|
|
Weighted average remaining lease term - finance leases
|
|
2.0
|
|
Weighted average remaining lease term - operating leases
|
|
6.4
|
|
Weighted average discount rate - finance leases
|
|
5.7
|
%
|
Weighted average discount rate - operating leases
|
|
4.72
|
%
|
Future minimum lease payments under noncancelable operating lease arrangements having initial terms of one year or more as of March 31, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
Finance leases
|
|
Subleases
|
4/1/2019 - 3/30/2020
|
$
|
31,589
|
|
|
$
|
413
|
|
|
$
|
3,966
|
|
3/31/2020 - 3/28/2021
|
28,977
|
|
|
100
|
|
|
3,300
|
|
3/29/2021 - 3/27/2022
|
26,333
|
|
|
6,892
|
|
|
2,491
|
|
3/28/2022 - 3/26/2023
|
24,036
|
|
|
—
|
|
|
2,280
|
|
3/27/2023 - 3/31/2024
|
12,701
|
|
|
—
|
|
|
1,582
|
|
Thereafter
|
39,461
|
|
|
—
|
|
|
—
|
|
Total future lease payments
|
$
|
163,097
|
|
|
$
|
7,405
|
|
|
$
|
13,619
|
|
Less imputed interest
|
$
|
24,094
|
|
|
$
|
225
|
|
|
$
|
—
|
|
Net future minimum lease payments
|
$
|
139,003
|
|
|
$
|
7,180
|
|
|
$
|
13,619
|
|
NOTE
3
: REVENUE RECOGNITION
Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services. Revenues are recognized as performance obligations that are satisfied at either a point in time, such as when an advertisement is published, or over time, such as content licensing.
The Company receives a significant portion of the payments from its subscribers in advance of the delivery of the content both either in print or digitally. These up-front payments and fees are recorded as deferred revenue upon receipt and
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
generally require deferral of revenue recognition to a future period until the Company performs its obligations under the subscription agreement. The deferred revenue is recognized as revenue as the content is delivered. The deferred revenue is considered a contract liability under ASC 606. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. Therefore, the Company has no contract assets as defined under ASC 606. As of
December 30, 2018
, the Company had a contract liabilities balance from continuing operations of
$54.0 million
, of which
$34.4 million
has been recognized as revenue in the
three months ended March 31, 2019
.
The Company’s revenues disaggregated by type of revenue and segment are presented in Note
17
.
The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within cost of sales. Additionally, the Company does not disclose the value of unsatisfied performance obligations because the vast majority of contracts have original expected lengths of one year or less and payment terms are generally short-term in nature unless a customer is in bankruptcy.
NOTE
4
: CHANGES IN OPERATIONS
Employee Reductions
The Company continually assesses its operations in an effort to identify opportunities to enhance operational efficiencies and reduce expenses. In the past these activities have included, and could include in the future, outsourcing of various functions or operations, abandonment of leased space and other activities which may result in changes to employee headcount. The discussion and amounts below represent activity in the Company’s continuing operations and exclude any amounts in the Company’s assets, liabilities or operations from discontinued operations.
During the
three months ended March 31, 2019
, the Company
implemented reductions in staffing levels in its operations of
89
positions for which the Company recorded pretax charges related to these reductions and executive separations totaling
$7.0 million
. These reductions include
23
positions related to the voluntary severance incentive plan initiated in the fourth quarter of 2018. The related salary continuation payments began during the first quarter and are expected to continue through the first quarter of 2020.
Included in the first quarter severance charge is approximately
$4.0 million
related to the separation of the Company’s CEO and two senior executives in the digital space. Each of these employees had employment contracts which provided for immediate payout of any contractual compensation under the employment agreement in the event of separation. These employment agreements were amended to permit payment of the severance as salary continuation over the remainder of 2019, during which time equity-based awards would continue to vest. The severance payments to these executives, including compensation and medical benefits, if any, were accrued in the first quarter of 2019. Additionally, as a result of the separation the Company recognized accelerated stock based compensation expense in the first quarter of 2019 of
$1.5 million
.
During the
three months ended April 1, 2018
, the Company identified reductions in staffing levels of
182
positions for which the Company recorded pretax charges related to these reductions totaling
$5.7 million
.
A summary of the activity with respect to the Company’s severance accrual for the
three months ended March 31, 2019
is as follows (in thousands):
|
|
|
|
|
|
Balance at December 30, 2018
|
|
$
|
28,845
|
|
Provision
|
|
7,042
|
|
Payments
|
|
(19,461
|
)
|
Balance at March 31, 2019
|
|
$
|
16,426
|
|
Charges for severance and related expenses are included in compensation expense in the accompanying
Consolidated Statements of Loss
.
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE
5
: RELATED PARTY TRANSACTIONS
Transition Services Agreement with NantMedia Holdings, LLC
In connection with the closing of the sale of the California Properties, the Company entered into a transition services agreement (“TSA”) with NantMedia Holdings, LLC (“NantMedia”), providing for up to
twelve months
of transition services between the parties at negotiated rates approximating cost. On January 17, 2019, this agreement was amended to extend the date of transition services to June 30, 2020. Either party may discontinue all or a portion of the services being provided to such party by providing
60 days
advance notice. See Note
7
for additional information on the sale of the California Properties.
As the operational transition continues, there are certain costs that the Company paid on behalf of NantMedia due to commingled contracts and processes. Such costs include newsprint, rent, benefits, and other operating activities. The TSA provides for reimbursement to the Company for such charges until the contracts and processes can be separated. Additionally, the Company receives some revenue payments related to commingled revenue contracts that include the California Properties. These payments are reimbursed to NantMedia.
A summary of the activity with respect to the TSA for the three and
three months ended March 31, 2019
is as follows (in thousands):
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
Accounts receivable from NantMedia beginning balance
|
|
$
|
17,909
|
|
Revenue for TSA services
|
|
7,005
|
|
Reimbursable costs
|
|
16,346
|
|
Amounts received for TSA services
|
|
(5,866
|
)
|
Amounts received for reimbursable costs
|
|
(25,237
|
)
|
Amounts paid to third parties under commingled revenue contracts
|
|
6,065
|
|
Amounts collected from third parties under commingled revenue contracts
|
|
(5,447
|
)
|
Accounts receivable from NantMedia balance as of March 31, 2019
(i)
|
|
$
|
10,775
|
|
(i)
The accounts receivable from NantMedia balance as of March 31, 2019 consists of
$8.6 million
of charges which had been billed and
$2.2 million
of charges which had not been billed as of that date.
Merrick Consulting Agreement
On December 20, 2017, the Company entered into a Consulting Agreement with Merrick Ventures LLC (“Merrick Ventures”) and solely for certain sections thereof, Michael W. Ferro, Jr. and Merrick Media, LLC (“Merrick Media”). At the time the agreement was signed, Mr. Ferro was also Chairman of Tribune’s Board of Directors and, together with Merrick Ventures and Merrick Media, a significant stockholder. The Consulting Agreement provided for the engagement of Merrick Ventures on a non-exclusive basis to provide certain management expertise and technical services for an annual fee of
$5 million
in cash, payable in advance on the first business day of each calendar year. The Consulting Agreement provided for a rolling
three
-year term, with the initial term continuing through December 31, 2020. The Company made the initial
$5.0 million
payment in early January 2018. On March 18, 2018, Mr. Ferro retired from the Company’s Board. As Mr. Ferro was no longer actively engaged in the business and the Company remained contractually committed for the future payments due under the Consulting Agreement, the Company recognized expense for the full
$15.0 million
due under the Consulting Agreement in outside services in the first quarter of 2018. In the second quarter of fiscal year 2018, the Company amended the Consulting Agreement. The amendment reduced the total fees due under the Consulting Agreement by
$2.5 million
(from
$15 million
to
$12.5 million
) and allows the Company to engage Merrick Ventures as its advisor, if it so chooses, but at no additional cost to the Company. If so engaged, the Company would indemnify Merrick Ventures if the Company requests it to meet with third parties. In June 2018, the Company paid the remaining
$7.5 million
in fees due under the amended Consulting Agreement in connection with the execution of the amendment. The Company recognized a credit of
$2.5 million
for the reduction in fees due under the Consulting Agreement in outside services in the second quarter of 2018. The non-
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
compete covenants and amended Securities Purchase Agreement terms contained in the Consulting Agreement were not altered by the amendment and remain in place through December 31, 2020.
NOTE
6
: ACQUISITIONS
Virginian-Pilot
On May 28, 2018, the Company acquired Virginian-Pilot Media Companies, LLC (“Virginian-Pilot”), the owner of
The Virginian-Pilot
daily newspaper based in Norfolk, Virginia, pursuant to a Securities Purchase Agreement, for a cash purchase price of
$34.0 million
less a post-close working capital adjustment of
$0.1 million
from the seller.
During the first quarter of 2019, the Company completed the determination of the fair value of the assets acquired, including intangible assets and noncontrolling interest, and liabilities assumed. There were no adjustment to the allocation of the purchase price which is as follows (in thousands):
|
|
|
|
|
|
Consideration
|
|
|
Cash consideration for acquisition
|
|
$
|
33,912
|
|
Total consideration
|
|
33,912
|
|
|
|
|
Allocated Fair Value of Acquired Assets and Assumed Liabilities
|
|
|
Accounts receivable and other current assets
|
|
8,257
|
|
Property, plant and equipment
|
|
29,843
|
|
Mastheads
|
|
4,700
|
|
Intangible assets subject to amortization
|
|
1,300
|
|
Accounts payable and other current liabilities
|
|
(10,749
|
)
|
Other long term obligations
|
|
(68
|
)
|
Total identifiable assets (liabilities), net
|
|
33,283
|
|
Goodwill
|
|
629
|
|
Total net assets acquired
|
|
$
|
33,912
|
|
NOTE
7
: DISPOSITIONS AND DISCONTINUED OPERATIONS
On February 7, 2018, the Company entered into a Membership Interest Purchase Agreement (“MIPA”) by and between the Company and Nant Capital, LLC (“Nant Capital”) pursuant to which the Company agreed to sell the California Properties to Nant Capital for an aggregate purchase price of
$500 million
in cash, plus the assumption of unfunded pension liabilities related to the San Diego Pension Plan, less a post-closing working capital adjustment to the buyer of
$9.7 million
(the "Nant Transaction"). The Nant Transaction closed on June 18, 2018 and resulted in a pre-tax gain of
$404.8 million
. The operations of the California Properties were included in both the M and X segments.
On May 23, 2018, the Company sold substantially all of the assets of forsalebyowner.com in an asset sale for
$2.5 million
, less a post-closing working capital payment to the buyer of
$0.1 million
, plus an advertising sales commitment of
$4.5 million
over a term of
two
years. The forsalebyowner.com balances are reflected as related to discontinued operations on the consolidated balance sheets for all periods presented and the results of operations are included in discontinued operations for all periods presented. In prior filings, forsalebyowner.com was part of segment X.
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Discontinued Operations
Earnings from discontinued operations for the three months ended April 1, 2018, included in the Consolidated Statements of Loss are comprised of the following (in thousands):
|
|
|
|
|
|
Operating revenues
|
|
$
|
117,077
|
|
Operating expenses:
|
|
|
Compensation
|
|
33,698
|
|
Newsprint and ink
|
|
7,436
|
|
Outside services
|
|
31,575
|
|
Other operating expenses
|
|
29,887
|
|
Depreciation and amortization
|
|
2,058
|
|
Total operating expenses
|
|
104,654
|
|
Income from operations
|
|
12,423
|
|
Interest expense, net
|
|
(30
|
)
|
Gain on equity investments, net
|
|
725
|
|
Income tax expense
|
|
(588
|
)
|
Income from discontinued operations, net of tax
|
|
$
|
13,706
|
|
Discontinued operations by segment for the three months ended April 1, 2018, are presented below (in thousands):
|
|
|
|
|
|
Operating revenues
|
|
|
M
|
|
$
|
104,206
|
|
X
|
|
12,859
|
|
Corporate and eliminations
|
|
12
|
|
|
|
$
|
117,077
|
|
Income from Operations
|
|
|
M
|
|
$
|
10,416
|
|
X
|
|
2,007
|
|
Corporate and eliminations
|
|
—
|
|
|
|
$
|
12,423
|
|
Depreciation and amortization
|
|
|
M
|
|
$
|
1,993
|
|
X
|
|
65
|
|
|
|
$
|
2,058
|
|
The following table presents the aggregate carrying amounts of assets and liabilities related to discontinued operations in the Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 30, 2018
|
|
|
|
|
|
Carrying amount of liabilities associated with discontinued operations:
|
|
|
|
|
Income Tax Payable
|
|
6,249
|
|
|
6,249
|
|
Total liabilities associated with discontinued operations
|
|
$
|
6,249
|
|
|
$
|
6,249
|
|
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE
8
: INVENTORIES
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31, 2019
|
|
December 30, 2018
|
Newsprint
|
|
$
|
8,968
|
|
|
$
|
9,273
|
|
Supplies and other
|
|
299
|
|
|
314
|
|
Total inventories
|
|
$
|
9,267
|
|
|
$
|
9,587
|
|
Inventories are stated at the lower of cost or net realizable value determined using the first-in, first-out basis for all inventories.
NOTE
9
: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets at
March 31, 2019
and
December 30, 2018
, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 30, 2018
|
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Net Amount
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Net Amount
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribers (useful life of 2 to 10 years)
|
|
$
|
7,312
|
|
|
$
|
(4,987
|
)
|
|
$
|
2,325
|
|
|
$
|
7,312
|
|
|
$
|
(4,730
|
)
|
|
$
|
2,582
|
|
Advertiser relationships (useful life of 2 to 13 years)
|
|
27,648
|
|
|
(13,151
|
)
|
|
14,497
|
|
|
27,648
|
|
|
(12,497
|
)
|
|
15,151
|
|
Tradenames (useful life of 20 years)
|
|
15,100
|
|
|
(3,538
|
)
|
|
11,562
|
|
|
15,100
|
|
|
(3,343
|
)
|
|
11,757
|
|
Other (useful life of 1 to 20 years)
|
|
16,181
|
|
|
(4,611
|
)
|
|
11,570
|
|
|
17,744
|
|
|
(4,831
|
)
|
|
12,913
|
|
Total intangible assets subject to amortization
|
|
$
|
66,241
|
|
|
$
|
(26,287
|
)
|
|
39,954
|
|
|
$
|
67,804
|
|
|
$
|
(25,401
|
)
|
|
42,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software (useful life of 2 to 10 years)
|
|
$
|
139,095
|
|
|
$
|
(112,927
|
)
|
|
26,168
|
|
|
$
|
136,005
|
|
|
$
|
(108,888
|
)
|
|
27,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
132,172
|
|
|
|
|
|
|
132,146
|
|
Newspaper mastheads
|
|
|
|
|
|
34,826
|
|
|
|
|
|
|
34,826
|
|
Total goodwill and other intangible assets
|
|
|
|
|
|
$
|
233,120
|
|
|
|
|
|
|
$
|
236,492
|
|
NOTE
10
: INCOME TAXES
For the
three months ended
March 31, 2019
, the Company recorded an income tax benefit related to continuing operations of
$2.9 million
. The effective tax rate on pretax income was
37.9%
in the
three months ended
March 31, 2019
. For the
three months ended March 31, 2019
, the
rate differs from the U.S. federal statutory rate of
21%
primarily due to state income taxes, net of federal benefit, and nondeductible expenses.
For the
three months ended
April 1, 2018
, the Company recorded an income tax benefit of
$6.6 million
. The effective tax rate on pretax income from continuing operations was
19.1%
in the
three months ended
April 1, 2018
. For the
three months ended
April 1, 2018
, the rate differs from the U.S. federal statutory rate of
21%
primarily due to state income taxes, net of federal benefit and nondeductible expenses. For fiscal year 2018, the Company forecasted a full year pretax loss.
In the case of a pretax loss, the unfavorable permanent differences, such as non-deductible meals and entertainment expense, have the effect of decreasing the tax benefit which, in turn, decreases the effective tax rate.
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE
11
: PENSION AND OTHER POSTRETIREMENT BENEFITS
Multiemployer Pension Plans
The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover its union-represented employees. In April 2019, the Company made a contribution of
$10.1 million
to the amended rehabilitation plan for the Chicago Newspaper Publishers Drivers’ Union Pension Plan which will be expensed in the second quarter of 2019. The Company expects to contribute
$1.6 million
in the remainder of 2019.
Defined Benefit Plans
The Company is the sponsor of a single-employer defined benefit plan, the Daily News Retirement Plan (the “NYDN Pension Plan”). The NYDN Pension Plan provides benefits to certain current and former employees of the
New York Daily News
. As of March 31, 2018, future benefits under the NYDN Pension Plan were frozen and no new participants are permitted after that time. The Company contributed
$0.5 million
to the NYDN Pension Plan in the
three months ended March 31, 2019
. The Company expects to contribute
$2.0 million
to the NYDN Pension Plan during the remainder of 2019. The components of net periodic benefit for the NYDN Pension Plan are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Affected Line Items in the Consolidated Statements of Loss
|
|
|
March 31, 2019
|
|
April 1, 2018
|
|
Service cost
|
|
$
|
80
|
|
|
$
|
80
|
|
|
Compensation
|
Interest cost
|
|
811
|
|
|
811
|
|
|
Other income, net
|
Expected return on assets
|
|
(1,168
|
)
|
|
(1,168
|
)
|
|
Other income, net
|
Net periodic benefit
|
|
$
|
(277
|
)
|
|
$
|
(277
|
)
|
|
|
Postretirement Benefits Other Than Pensions
The Company provides postretirement health care to retirees pursuant to a number of benefit plans. The plans are frozen for new non-union employees. There is some variation in the provisions of these plans, including different provisions for lifetime maximums, prescription drug coverage and certain other benefits. The components of net periodic benefit credit for the Company’s postretirement health care and life insurance plans are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Affected Line Items in the Consolidated Statements of Loss
|
|
March 31, 2019
|
|
April 1, 2018
|
|
Service cost
|
$
|
4
|
|
|
$
|
3
|
|
|
Compensation
|
Interest cost
|
10
|
|
|
9
|
|
|
Other income, net
|
Amortization of prior service credits
|
(82
|
)
|
|
(2,634
|
)
|
|
Other income, net
|
Amortization of actuarial gains
|
—
|
|
|
(658
|
)
|
|
Other income, net
|
Net periodic benefit
|
$
|
(68
|
)
|
|
$
|
(3,280
|
)
|
|
|
NOTE
12
: NONCONTROLLING INTEREST
The noncontrolling interest represents the
40%
membership interest in BestReviews not owned by the Company. In connection with acquisition of BestReviews, the Company and the seller entered into an amended and restated limited liability company agreement of BestReviews (the “LLC Agreement”). Subject to the terms of the LLC Agreement, the Company currently has the right, which began six months after the closing date of the acquisition, to purchase all (but not less than all) of the remaining
40%
of the membership interests of BestReviews (the “Call Option”). In addition, beginning six months after closing date of the acquisition, the Company is entitled to exercise a one-time right to purchase
25%
of the units of membership interest of BestReviews retained by the seller with terms identical to those applicable to the Call Option.
The seller also has the right, beginning three years after closing date of the acquisition, to cause the Company to purchase all (but not less than all) of the remaining
40%
of the membership interests of BestReviews (the “Put Option”) at a purchase price to be determined in the same manner as if the Call Option was exercised.
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The noncontrolling interest is presented between liabilities and stockholders’ equity within the Company’s consolidated balance sheet because the Put Option described above could, upon exercise, require the Company, under certain circumstances, to pay cash to purchase the noncontrolling interest. Each quarter, the carrying value of noncontrolling interest is adjusted to the amount the Company would be required to pay the noncontrolling interest holders as if the Put Option had been exercised as of the balance sheet date, with an offsetting adjustment to stockholders’ equity. Adjustments to increase (decrease) the carrying value of noncontrolling interest also reduce (increase) the amount of net income or loss attributable to Tribune common stockholders for purposes of determining both basic and diluted earnings per share.
A summary of the activity with respect to non-controlling interest for the
three months ended March 31, 2019
is as follows (in thousands):
|
|
|
|
|
|
Balance at December 30, 2018
|
|
$
|
39,756
|
|
Loss attributable to noncontrolling interest
|
|
(39
|
)
|
Balance at March 31, 2019
|
|
$
|
39,717
|
|
NOTE
13
: EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income (loss) attributable to Tribune common stockholders by the weighted average number of shares of common stock outstanding. Diluted earnings per common share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of common shares under equity-based compensation plans, except where the inclusion of such common shares would have an anti-dilutive impact. In accordance with ASC 260-10-55, net loss from continuing operations is the control number in determining whether potential common shares are dilutive. Since there is loss from continuing operations, all potential common shares are considered anti-dilutive.
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
For the
three months ended
March 31, 2019
and
April 1, 2018
, basic and diluted earnings per common share were as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2019
|
|
April 1, 2018
|
Income (Loss) - Numerator:
|
|
|
|
Net loss from continuing operations
|
$
|
(4,714
|
)
|
|
$
|
(28,071
|
)
|
Less: Net income (loss) from continuing operations attributable to noncontrolling interest
|
(39
|
)
|
|
262
|
|
Loss available to common shareholders, before discontinued operations
|
(4,675
|
)
|
|
(28,333
|
)
|
Income from discontinued operations
|
—
|
|
|
13,706
|
|
Net loss available to Tribune stockholders
|
$
|
(4,675
|
)
|
|
$
|
(14,627
|
)
|
|
|
|
|
Shares - Denominator:
|
|
|
|
Weighted average number of common shares outstanding (basic)
|
35,628
|
|
|
34,801
|
|
Dilutive effect of employee stock options and RSUs
|
—
|
|
|
—
|
|
Adjusted weighted average shares outstanding (diluted)
|
35,628
|
|
|
34,801
|
|
|
|
|
|
Net loss attributable to Tribune per common share:
|
|
|
|
Continuing operations
|
$
|
(0.13
|
)
|
|
$
|
(0.81
|
)
|
Discontinued operations
|
—
|
|
|
0.39
|
|
Net loss per common share
|
$
|
(0.13
|
)
|
|
$
|
(0.42
|
)
|
|
|
|
|
Diluted loss per common share:
|
|
|
|
Continuing operations
|
$
|
(0.13
|
)
|
|
$
|
(0.81
|
)
|
Discontinued operations
|
—
|
|
|
0.39
|
|
Net loss per common share-diluted
|
$
|
(0.13
|
)
|
|
$
|
(0.42
|
)
|
The number of stock options that were excluded from the computation of diluted earnings per share because their inclusion would result in an anti-dilutive effect on per share amounts was
924,887
and
1,022,387
for both the
three months ended
March 31, 2019
and
April 1, 2018
, respectively.
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The number of RSUs that were excluded from the computation of diluted earnings per share because their inclusion would result in an anti-dilutive effect on per share amounts was
1,224,481
and
1,912,370
for both the
three months ended
March 31, 2019
and
April 1, 2018
, respectively.
NOTE
14
: STOCKHOLDERS’ EQUITY
Stock Repurchases
On March 13, 2019, the Board of Directors authorized
$25.0 million
to be used for stock repurchases for 24 months from the date of authorization. No repurchases were made in the three months ended March 31, 2019.
Significant Shareholders
Merrick Media, LLC
On March 23, 2017, the Company entered into Amendment No. 1 (the “Amendment”) to the Securities Purchase Agreement dated February 3, 2016 among the Company, Merrick Media, LLC (“Merrick Media”) and Michael W. Ferro, Jr., the Company’s non-executive Chairman of the Board at the time the agreement was signed. The Amendment increased from
25%
to
30%
the maximum percentage of the Company’s outstanding shares of common stock that Merrick Media and its affiliates may acquire. This restriction expired on February 4, 2019 or 30 days after the consulting agreement with Merrick Ventures.
Mr. Ferro is the manager of Merrick Venture Management, LLC, which is the sole manager of Merrick Media. Because Merrick Venture Management, LLC serves as the sole manager of Merrick Media, Mr. Ferro may be deemed to indirectly control all of the shares of the Company’s common stock owned by Merrick Media. Mr. Ferro, together with his affiliated entities, beneficially owned
9,071,529
shares of Tribune common stock, which represented
25.4%
of Tribune common stock as of
March 31, 2019
.
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Nant Capital, LLC
Dr. Patrick Soon-Shiong, a former director of the Company, together with Nant Capital, LLC (“Nant Capital”), beneficially own
8,743,619
shares of Tribune common stock, which represented
24.5%
of the outstanding shares of Tribune common stock as of
March 31, 2019
. California Capital Equity, LLC (“CalCap”) directly owns all of the equity interests of Nant Capital, and CalCap may be deemed to have beneficial ownership of the shares held by Nant Capital. Dr. Soon-Shiong directly owns all of the equity interests of CalCap and may be deemed to beneficially own and share voting power and investment power with Nant Capital over all shares of Tribune common stock beneficially owned by Nant Capital. Under the Securities Purchase Agreement dated May 22, 2016, among the Company, Nant Capital and Dr. Patrick Soon-Shiong (“Nant Purchase Agreement”), Nant Capital and Dr. Soon-Shiong and their respective affiliates are prohibited, without the prior written approval of the Board of Directors, from acquiring additional equity of the Company if the acquisition could result in their beneficial ownership of more than
25%
of the Company’s then-outstanding shares of common stock. This prohibition expires on June 1, 2019. The Nant Purchase Agreement also includes covenants perpetually prohibiting the transfer of shares of the Company’s common stock if the transfer would result in a person beneficially owning more than
4.9%
of the Company’s then-outstanding shares of common stock following the transfer, as well as transfers to a material competitor of the Company in any of the Company’s then-existing primary geographical markets.
On January 17, 2019, Dr. Patrick Soon-Shiong, NantMedia Holdings, LLC and Nant Capital entered into a Standstill and Voting Agreement (“Standstill Agreement”) with the Company. The Standstill Agreement provides that until June 30, 2020, Dr. Patrick Soon-Shiong, Nant Media, and Nant Capital will not (a) make or participate in any solicitation of proxies to vote, or seek to advise or knowingly influence any person with respect to the voting of any voting securities of the Company, (b) join or participate in a “group” (as defined in the rules of the SEC) in connection with any securities of the Company or (c) seek to control or knowingly influence the management, board of directors or policies of the Company. Furthermore, under the Standstill Agreement, Dr. Patrick Soon-Shiong, Nant Media and Nant Capital will, until June 30, 2020, vote their shares of common stock (a) in favor of each nominee or director designated by the Nominating and Governance Committee of the Board of Directors at each election of directors and (b) in accordance with the Board’s recommendations on any change of control transaction involving the Company at or above a minimum purchase price. The Company has recorded a charge to non-operating expense for
$0.5 million
related to the Standstill Agreement.
NOTE
15
: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table sets forth the components of accumulated other comprehensive income (loss), net of tax, where applicable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
|
OPEB
|
|
Pension
|
|
Total
|
Balance at December 30, 2018
|
|
$
|
(39
|
)
|
|
$
|
303
|
|
|
$
|
(237
|
)
|
|
$
|
27
|
|
Amounts reclassified from AOCI
|
|
—
|
|
|
(59
|
)
|
|
—
|
|
|
(59
|
)
|
Foreign currency translation adjustments
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Balance at March 31, 2019
|
|
$
|
(41
|
)
|
|
$
|
244
|
|
|
$
|
(237
|
)
|
|
$
|
(34
|
)
|
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table presents the amounts and line items in the
Consolidated Statements of Loss
where adjustments reclassified from accumulated other comprehensive income (loss) were recorded during the
three months ended
March 31, 2019
and
April 1, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2019
|
|
April 1, 2018
|
|
Affected Line Items in the Consolidated Statements of Loss
|
Accumulated Other Comprehensive Income (Loss) Components
|
|
|
|
|
|
Pension and postretirement benefit adjustments:
|
|
|
|
|
|
Amortization of prior service credits
|
$
|
(82
|
)
|
|
$
|
(2,634
|
)
|
|
Other income, net
|
Amortization of actuarial gains
|
—
|
|
|
(658
|
)
|
|
Other income, net
|
Total before taxes
|
(82
|
)
|
|
(3,292
|
)
|
|
|
Tax effect
|
(23
|
)
|
|
(915
|
)
|
|
Income tax benefit
|
Total reclassifications for the period
|
$
|
(59
|
)
|
|
$
|
(2,377
|
)
|
|
|
NOTE
16
: CONTINGENCIES
Legal Proceedings
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business. The legal entities comprising our operations are defendants from time to time in actions for matters arising out of their business operations. In addition, the legal entities comprising our operations are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies.
NOTE
17
: SEGMENT INFORMATION
The Company’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance.
Segment M is comprised of the Company’s media groups excluding their digital revenues and related digital expenses, except digital subscription revenues when bundled with a print subscription. Segment X includes the Company’s digital revenues and related digital expenses from local Tribune websites, third party websites, mobile applications, digital only subscriptions, TCA, and BestReviews. The Company determined that the disposition of the California Properties and forsalebyowner.com did not result in changes to the Company’s segments. Assets are not presented to or used by management at a segment level for making operating and investment decisions and therefore are not reported.
The Company measures segment profit using income (loss) from operations, which is defined as income (loss) from operations before net interest expense, gain on investment transactions, reorganization items and income taxes.
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Disaggregated operating revenues and income (loss) from continuing operations by operating segment for the
three months ended
March 31, 2019
and
April 1, 2018
, respectively, were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
M
|
|
X
|
|
Corporate and Eliminations
|
|
Consolidated
|
|
(Print)
|
|
(Digital)
|
|
|
|
Mar 31, 2019
|
|
Apr 1, 2018
|
|
Mar 31, 2019
|
|
Apr 1, 2018
|
|
Mar 31, 2019
|
|
Apr 1, 2018
|
|
Mar 31, 2019
|
|
Apr 1, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
$
|
75,932
|
|
|
$
|
82,742
|
|
|
$
|
20,836
|
|
|
$
|
22,050
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96,768
|
|
|
$
|
104,792
|
|
Circulation
|
86,670
|
|
|
84,626
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
86,670
|
|
|
84,626
|
|
Commercial print and delivery
|
24,459
|
|
|
27,005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,459
|
|
|
27,005
|
|
Direct mail
|
8,638
|
|
|
7,603
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,638
|
|
|
7,603
|
|
Content syndication and other
|
2,326
|
|
|
2,235
|
|
|
18,747
|
|
|
13,094
|
|
|
6,917
|
|
|
(989
|
)
|
|
27,990
|
|
|
14,340
|
|
Other
|
35,423
|
|
|
36,843
|
|
|
18,747
|
|
|
13,094
|
|
|
6,917
|
|
|
(989
|
)
|
|
61,087
|
|
|
48,948
|
|
Operating revenues
|
198,025
|
|
|
204,211
|
|
|
39,583
|
|
|
35,144
|
|
|
6,917
|
|
|
(989
|
)
|
|
244,525
|
|
|
238,366
|
|
Operating expenses
|
184,227
|
|
|
204,411
|
|
|
44,783
|
|
|
35,755
|
|
|
22,917
|
|
|
29,278
|
|
|
251,927
|
|
|
269,444
|
|
Income (loss) from operations
|
$
|
13,798
|
|
|
$
|
(200
|
)
|
|
$
|
(5,200
|
)
|
|
$
|
(611
|
)
|
|
$
|
(16,000
|
)
|
|
$
|
(30,267
|
)
|
|
(7,402
|
)
|
|
(31,078
|
)
|
Interest income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
220
|
|
|
(6,564
|
)
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
Loss on investments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
(487
|
)
|
|
(729
|
)
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
3,663
|
|
Loss from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,596
|
)
|
|
$
|
(34,708
|
)
|
Depreciation and amortization
|
$
|
6,286
|
|
|
$
|
3,972
|
|
|
$
|
2,177
|
|
|
$
|
4,549
|
|
|
$
|
3,621
|
|
|
$
|
3,925
|
|
|
$
|
12,084
|
|
|
$
|
12,446
|
|
The operating revenues and operating results from continuing operations presented above are not necessarily indicative of the results that may be expected for the full fiscal year.
NOTE
18
: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for each of the periods presented is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
April 1, 2018
|
Cash paid during the period for:
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
5,272
|
|
Income taxes, net of refunds
|
|
(141
|
)
|
|
167
|
|
Non-cash items in investing activities:
|
|
|
|
|
Value of shares issued for acquisition
|
|
—
|
|
|
34,595
|
|
The Company established restricted cash to collateralize outstanding letters of credit related to workers compensation obligations. The following table provides a reconciliation of cash, cash equivalents, and restricted cash as
TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
reported within the Consolidated Condensed Balance Sheet that sum to the cash, cash equivalents and restricted cash as reported in the Consolidated Statement of Cash Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31, 2019
|
|
December 30, 2018
|
Cash and cash equivalents
|
|
$
|
98,206
|
|
|
$
|
97,560
|
|
Restricted cash included in other assets
|
|
43,947
|
|
|
43,947
|
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
|
|
$
|
142,153
|
|
|
$
|
141,507
|
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
T
he following discussion and analysis should be read in conjunction with the other sections of this Quarterly Report on Form 10-Q, including the Company’s Consolidated Financial Statements and related Notes filed as part of this Quarterly Report, and “Cautionary Statement Concerning Forward-Looking Statements.” Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and other factors described throughout this Quarterly Report as well as the factors described in our Annual Report on Form 10-K as filed with the SEC on March 18, 2019 (“the “2018 Annual Report”), particularly under Item 1A. “Risk Factors,” and in the Company’s other filings with the SEC.
We believe that the assumptions underlying the Consolidated Financial Statements included in this Quarterly Report are reasonable. However, the Consolidated Financial Statements may not necessarily reflect our results of operations, financial position and cash flows for future periods.
OVERVIEW
Tribune Publishing Company was formed as a Delaware corporation on November 21, 2013. Tribune Publishing Company together with its subsidiaries (collectively, the “Company” or “Tribune”) is a media company rooted in award-winning journalism. Headquartered in Chicago, Tribune operates local media businesses in
eight
markets with titles including the
Chicago Tribune, New York Daily News, The Baltimore Sun, Orlando Sentinel,
South Florida’s
Sun Sentinel
, Virginia’s
Daily Press
and
The Virginian-Pilot
,
The Morning Call
of Lehigh Valley, Pennsylvania and
the
Hartford Courant.
Tribune also operates Tribune Content Agency (“TCA”) and on February 6, 2018, the Company became a majority owner in BestReviews LLC (“BestReviews”). On May 28, 2018, the Company acquired Virginian-Pilot Media Companies, LLC, owner of
The Virginian-Pilot
a daily newspaper based in Norfolk, Virginia and associated businesses (“Virginian-Pilot”).
Tribune’s continuing legacy of brands have earned a combined
61
Pulitzer Prizes and are committed to informing, inspiring and engaging local communities. Tribune’s brands create and distribute content across its media portfolio, offering integrated marketing, media, and business services to consumers and advertisers, including digital solutions and advertising opportunities.
The Company continually assesses its operations in an effort to identify opportunities to enhance operational efficiencies and reduce expenses. In the past these activities have included, and could include in the future, outsourcing of various functions or operations, abandonment of leased space and other activities which may result in changes to employee headcount. See Note
4
to the Consolidated Financial Statements for more information on changes in operations in the first three months of 2019. The Company expects to continue to take actions deemed appropriate to enhance profitability but does not currently know whether or when any such actions will occur or the potential costs and expected savings. Depending on the actions taken and the timing of any such actions, the anticipated cost savings could be recognized in fiscal periods that do not correspond to the fiscal period(s) in which the charges are recognized. As a result, the Company’s net income trends could be impacted and more difficult to predict.
Segments
The Company manages its business as two distinct segments
, M and X. Segment M is comprised of the Company’s media groups excluding their digital revenues and related digital expenses, except digital subscription revenues when bundled with a print subscription. Segment X includes the Company’s digital revenues and related digital expenses, from local Tribune websites, third party websites, mobile applications, digital-only subscriptions, Tribune Content Agency, and BestReviews.
Segment M
Segment M’s media groups include the Chicago Tribune Media Group, the Sun Sentinel Media Group, the Orlando Sentinel Media Group, The Baltimore Sun Media Group, the Hartford Courant Media Group, the Morning Call Media Group, the New York Daily News Group and the Virginia Media Group (includes the
Daily Press
and
The
Virginian-Pilot
).
In the
three months ended March 31, 2019
,
38.3%
of segment M’s operating revenues were derived from advertising. These revenues were generated from the sale of advertising space in published issues of the newspapers and from the delivery of preprinted advertising supplements. Approximately
43.8%
of operating revenues for the
three months
ended March 31, 2019
were generated from the sale of newspapers and other publications to individual subscribers or to sales outlets that re-sell the newspapers. The remaining
17.9%
of operating revenues for the
three months ended March 31, 2019
were generated from the provision of commercial printing and delivery services to other newspapers, direct mail advertising and services, and other related activities.
Newspaper print advertising is typically in the form of display, preprint or classified advertising. Advertising and marketing services revenues are comprised of three basic categories: retail, national and classified. Retail is a category of customers who tend to do business directly with the public. National is a category of customers who tend to do business directly with other businesses. Classified is a type of advertising which is other than display or preprint.
Circulation revenue results from the sale of print editions of newspapers to individual subscribers and the sale of print editions of newspapers to sales outlets that re-sell the newspapers.
Other revenues are derived from commercial printing and delivery services provided to other newspapers, direct mail advertising and services and other related activities.
The Company contracts with a number of national and local newspapers to both print and distribute their respective publications in local markets where it is a newspaper publisher. In some instances where it prints publications, it also manages and procures newsprint, ink and plates on their behalf. These arrangements allow the Company to leverage its investment in infrastructure in those markets that support its own publications. As a result, these arrangements tend to contribute incremental profitability and revenues. The Company currently distributes national newspapers (including
The New York Times
,
USA Today
, and
The Wall Street
Journal
) in its local markets under multiple agreements. Additionally, in New York, Chicago, and South Florida, the Company provides some or all of these services to other local publications.
Products and Services
Our product mix consists of three publication types: (i) daily newspapers, (ii) weekly newspapers and (iii) niche publications and direct mail. The key characteristics of each of these types of publications are summarized in the table below.
|
|
|
|
|
|
Daily Newspapers
|
Weekly Newspapers
|
Niche Publications
|
Cost:
|
Paid
|
Paid and free
|
Paid and free
|
Distribution:
|
Distributed four to seven days per week
|
Distributed one to three days per week
|
Distributed weekly, monthly or on an annual basis
|
Income:
|
Revenue from advertisers, subscribers, rack/box sales
|
Paid:
Revenue from advertising, subscribers, rack/box sales
|
Paid:
Revenue from advertising, rack/box sales
|
|
|
Free:
Advertising revenue only
|
Free:
Advertising revenue only
|
As of
March 31, 2019
, the Company’s prominent print publications include:
|
|
|
|
|
|
|
|
|
|
Media Group
|
|
City
|
|
Masthead
|
|
Circulation Type
|
|
Paid or Free
|
Chicago Tribune Media Group
|
|
|
|
|
|
|
Chicago, IL
|
|
Chicago Tribune
|
|
Daily
|
|
Paid
|
|
|
Chicago, IL
|
|
Chicago Magazine
|
|
Monthly
|
|
Paid
|
|
|
Chicago, IL
|
|
Hoy
|
|
Weekly
|
|
Free
|
|
|
Chicago, IL
|
|
RedEye
|
|
Weekly
|
|
Free
|
The New York Daily News Group
|
|
|
|
|
|
|
New York, NY
|
|
New York Daily News
|
|
Daily
|
|
Paid
|
Sun Sentinel Media Group
|
|
|
|
|
|
|
Broward County, FL, Palm Beach County, FL
|
|
Sun Sentinel
|
|
Daily
|
|
Paid
|
|
|
Broward County, FL, Palm Beach County, FL
|
|
el Sentinel
|
|
Weekly
|
|
Free
|
Orlando Sentinel Media Group
|
|
|
|
|
|
|
Orlando, FL
|
|
Orlando Sentinel
|
|
Daily
|
|
Paid
|
|
|
Orlando, FL
|
|
el Sentinel
|
|
Weekly
|
|
Free
|
The Baltimore Sun Media Group
|
|
|
|
|
|
|
Baltimore, MD
|
|
The Baltimore Sun
|
|
Daily
|
|
Paid
|
|
|
Annapolis, MD
|
|
The Capital
|
|
Daily
|
|
Paid
|
|
|
Westminster, MD
|
|
Carroll County Times
|
|
Daily
|
|
Paid
|
Hartford Courant Media Group
|
|
|
|
|
|
|
Hartford County, CT, Middlesex County, CT, Tolland County, CT
|
|
The Hartford Courant
|
|
Daily
|
|
Paid
|
Virginia Media Group
|
|
|
|
|
|
|
Newport News, VA (Peninsula)
|
|
Daily Press
|
|
Daily
|
|
Paid
|
|
|
Norfolk, VA
|
|
The Virginian-Pilot
|
|
Daily
|
|
Paid
|
The Morning Call Media Group
|
|
|
|
|
|
|
Lehigh Valley, PA
|
|
The Morning Call
|
|
Daily
|
|
Paid
|
Segment X
Segment X comprises the Company’s digital operations and includes
the Company’s digital revenues and related digital expenses from local Tribune websites, third party websites, mobile applications, digital only subscriptions, TCA, and BestReviews.
TCA is a syndication and licensing business providing content solutions for publishers around the globe. Working with a vast collection of the world’s news and information sources, TCA delivers a daily news service and syndicated premium content to over
2,000
media and digital information publishers in more than
70
countries. Tribune News Service delivers material from
70
leading publications, including
Chicago Tribune
,
Bloomberg News
,
Miami Herald, The Dallas Morning News, Seattle Times,
The Philadelphia Inquirer,
and
Los Angeles Times.
Tribune Premium Content syndicates columnists such as Leonard Pitts, Cal Thomas, Clarence Page, Ask Amy, and Rick Steves. TCA manages the licensing of premium content from publications such as
Rolling Stone, The Atlantic, Fast Company, Mayo Clinic, Variety
and many more.
TCA traces its roots to 1918.
On February 6, 2018, the Company acquired a
60%
membership interest in BestReviews LLC (“BestReviews”), a company engaged in the business of testing, researching and reviewing consumer products. BestReviews generates referral fee revenue by directing online traffic from their published reviews to sites where the products can be purchased. BestReviews has affiliate agreements with online sellers, of which the two largest are Amazon.com and Walmart.com. BestReviews receives a referral fee once the product is purchased.
On May 23, 2018, the Company sold substantially all of the assets of forsalebyowner.com in an asset sale. The forsalebyowner.com results are included in discontinued operations in the statement of operations for all periods presented.
In the
three months ended March 31, 2019
,
52.6%
of segment X’s operating revenues were derived from advertising. These revenues were generated from the sale of advertising space on interactive websites and digital marketing services. The remaining
47.4%
of operating revenues for the
three months ended March 31, 2019
were generated from the sale of digital content and other related activities.
Digital advertising consists of website display, banner ads, advertising widgets, coupon ads, video, search advertising and linear ads placed by Tribune on websites. Digital marketing services include development of mobile websites, search engine marketing and optimization, social media account management and content marketing for its customers’ web presence for small to medium size businesses.
Products and Services
As of
March 31, 2019
, the Company’s prominent websites include:
|
|
|
|
Websites
|
www.tribpub.com
|
www.orlandosentinel.com
|
www.thedailymeal.com
|
www.chicagotribune.com
|
www.orlandosentinel/elsentinel.com
|
www.theactivetimes.com
|
www.chicagomag.com
|
www.baltimoresun.com
|
www.dailypress.com
|
www.sun-sentinel.com
|
www.capitalgazette.com
|
www.pilotonline.com
|
www.sun-sentinel/elsentinel.com
|
www.carrollcountytimes.com
|
www.vivelohoy.com
|
www.bestreviews.com
|
www.courant.com
|
www.redeyechicago.com
|
www.nydailynews.com
|
www.themorningcall.com
|
|
The Company’s results of operations, when examined on a quarterly basis, reflect the seasonality of Tribune’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 revenues, while the fourth quarter includes advertising revenues related to the holiday season.
Results of Operations
Consolidated
Operating results from continuing operations for the
three months ended March 31, 2019
and
April 1, 2018
are shown in the table below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Mar 31, 2019
|
|
Apr 1, 2018
|
|
% Change
|
Operating revenues
|
$
|
244,525
|
|
|
$
|
238,366
|
|
|
2.6
|
%
|
Compensation
|
97,709
|
|
|
110,765
|
|
|
(11.8
|
%)
|
Newsprint and ink
|
16,103
|
|
|
14,598
|
|
|
10.3
|
%
|
Outside services
|
83,813
|
|
|
98,982
|
|
|
(15.3
|
%)
|
Other operating expenses
|
42,218
|
|
|
32,653
|
|
|
29.3
|
%
|
Depreciation and amortization
|
12,084
|
|
|
12,446
|
|
|
(2.9
|
%)
|
Total operating expenses
|
251,927
|
|
|
269,444
|
|
|
(6.5
|
%)
|
Loss from operations
|
(7,402
|
)
|
|
(31,078
|
)
|
|
(76.2
|
%)
|
Interest expense, net
|
220
|
|
|
(6,564
|
)
|
|
*
|
Loss on equity investments, net
|
(487
|
)
|
|
(729
|
)
|
|
(33.2
|
%)
|
Other income, net
|
73
|
|
|
3,663
|
|
|
(98.0
|
%)
|
Income tax benefit
|
(2,882
|
)
|
|
(6,637
|
)
|
|
(56.6
|
%)
|
Loss from continuing operations
|
(4,714
|
)
|
|
(28,071
|
)
|
|
(83.2
|
%)
|
Income from discontinued operations, net of taxes
|
—
|
|
|
13,706
|
|
|
*
|
Net loss
|
(4,714
|
)
|
|
(14,365
|
)
|
|
(67.2
|
%)
|
Income (loss) attributable to noncontrolling interest
|
(39
|
)
|
|
262
|
|
|
*
|
Net loss attributable to Tribune
|
$
|
(4,675
|
)
|
|
$
|
(14,627
|
)
|
|
(68.0
|
%)
|
* Represents positive or negative change in excess of 100%
Three months ended March 31, 2019
compared to the
three months ended April 1, 2018
Operating Revenues
—Operating revenues
increased
2.6%
, or
$6.2 million
, in the
three months ended March 31, 2019
compared to the same period for 2018. The increase was due primarily to the combined impact of the acquisitions of BestReviews in the first quarter of 2018, and
The Virginian-Pilot
in the second quarter of 2018. Such acquisitions contributed $20.2 million in revenue during the
three months ended March 31, 2019
compared to $3.2 million during the
three months ended April 1, 2018
. The increase also includes TSA revenue of $6.9 million. These increases were partially offset by decreases in advertising revenue.
Compensation Expense
—Compensation expense
decreased
11.8%
, or
$13.1 million
, in the
three months ended March 31, 2019
. This decrease was due primarily to a decrease in salary expense of $18.1 million as a result of the reduction in headcount related to personnel restructuring in the current and prior periods. This decrease was partially offset by increases due to the acquisitions, which contributed $5.0 million in the
three months ended March 31, 2019
compared to $0.2 million during the
three months ended April 1, 2018
.
Newsprint and Ink Expense
—Newsprint and ink expense
increased
10.3%
, or
$1.5 million
, in the
three months ended March 31, 2019
. This increase was due primarily to the acquisitions, which contributed $1.2 million in the
three months ended March 31, 2019
.
Outside Services Expense
—Outside services expense
decreased
15.3%
, or
$15.2 million
, in the
three months ended March 31, 2019
. This decrease was due primarily to expense recorded in 2018 related to the Consulting Agreement described in Note
5
to the Consolidated Financial Statements. Additional decreases in expenses were offset by increases due to the
acquisitions, which contributed $4.8 million in the
three months ended March 31, 2019
compared to $0.2 million during the
three months ended April 1, 2018
.
Other Operating Expenses
—Other expenses include occupancy costs, promotion and marketing costs, affiliate fees and other miscellaneous expenses. These expenses
increased
29.3%
, or
$9.6 million
, in the
three months ended March 31, 2019
. This increase was due primarily to the acquisitions, which contributed $9.2 million in the
three months ended March 31, 2019
compared to $2.1 million during the
three months ended April 1, 2018
.
Depreciation and Amortization Expense
—Depreciation and amortization expense was consistent with the prior year.
Interest Expense, Net
—Interest expense decreased as the Company’s senior term facility was repaid in full in June 2018.
Loss on Equity Investments, Net
—Loss on equity investments, net was consistent with the prior year.
Other Income, Net
—The decrease in other income, net is due to increased credits in 2018 related to periodic benefit costs. In 2018 the Company terminated the non-union post-retirement medical plan. As such, remaining amounts in accumulated other comprehensive income were amortized to expense during 2018.
Income Tax Benefit
—Income tax benefit decreased
$3.8 million
for the
three months ended March 31, 2019
over the prior year period. For the
three months ended March 31, 2019
, the Company recorded an income tax benefit of
$2.9 million
. The effective tax rate on pretax income was
37.9%
in the
three months ended March 31, 2019
. This rate differs from the U.S. federal statutory rate of 21% primarily due to state income taxes, net of federal benefit and non-deductible expenses.
For the
three months ended April 1, 2018
, the Company recorded income tax benefit of
$6.6 million
. The effective tax rate on pretax income was
19.1%
in the
three months ended April 1, 2018
. This rate differs from the U.S. federal statutory rate of 21% primarily due to state income taxes, net of federal benefit and non-deductible expenses.
Segments
The Company manages its business as two distinct segments
, M and X. Segment M is comprised of the Company’s media groups excluding their digital revenues and related digital expenses, except digital subscription revenues when bundled with a print subscription. Segment X includes the Company’s digital revenues and related digital expenses from local Tribune websites, third party websites, mobile applications, digital only subscriptions, TCA, and BestReviews.
The Company measures segment profit using income (loss) from operations, which is defined as net income (loss) before net interest expense, gain on investment transactions, reorganization items and income taxes.
The tables below show the segmentation of income and expenses from continuing operations for the
three months ended
March 31, 2019
as compared to the
three months ended
April 1, 2018
(in thousands). Each three-month period consists of 13 weeks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
M
|
|
X
|
|
Corporate and Eliminations
|
|
Consolidated
|
|
Mar 31, 2019
|
|
Apr 1, 2018
|
|
Mar 31, 2019
|
|
Apr 1, 2018
|
|
Mar 31, 2019
|
|
Apr 1, 2018
|
|
Mar 31, 2019
|
|
Apr 1, 2018
|
Total revenues
|
$
|
198,025
|
|
|
$
|
204,211
|
|
|
$
|
39,583
|
|
|
$
|
35,144
|
|
|
$
|
6,917
|
|
|
$
|
(989
|
)
|
|
$
|
244,525
|
|
|
$
|
238,366
|
|
Operating expenses
|
184,227
|
|
|
204,411
|
|
|
44,783
|
|
|
35,755
|
|
|
22,917
|
|
|
29,278
|
|
|
251,927
|
|
|
269,444
|
|
Income (loss) from operations
|
13,798
|
|
|
(200
|
)
|
|
(5,200
|
)
|
|
(611
|
)
|
|
(16,000
|
)
|
|
(30,267
|
)
|
|
(7,402
|
)
|
|
(31,078
|
)
|
Depreciation and amortization
|
6,286
|
|
|
3,972
|
|
|
2,177
|
|
|
4,549
|
|
|
3,621
|
|
|
3,925
|
|
|
12,084
|
|
|
12,446
|
|
Adjustments
(1)
|
3,686
|
|
|
4,877
|
|
|
5,555
|
|
|
1,950
|
|
|
7,366
|
|
|
20,344
|
|
|
16,607
|
|
|
27,171
|
|
Adjusted EBITDA
|
$
|
23,770
|
|
|
$
|
8,649
|
|
|
$
|
2,532
|
|
|
$
|
5,888
|
|
|
$
|
(5,013
|
)
|
|
$
|
(5,998
|
)
|
|
$
|
21,289
|
|
|
$
|
8,539
|
|
(1) See Non-GAAP Measures for additional information on adjustments
.
Segment M
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(in thousands)
|
Mar 31, 2019
|
|
Apr 1, 2018
|
|
% Change
|
Operating revenues:
|
|
|
|
|
|
Advertising
|
$
|
75,932
|
|
|
$
|
82,742
|
|
|
(8.2
|
%)
|
Circulation
|
86,670
|
|
|
84,626
|
|
|
2.4
|
%
|
Other
|
35,423
|
|
|
36,843
|
|
|
(3.9
|
%)
|
Total revenues
|
198,025
|
|
|
204,211
|
|
|
(3.0
|
%)
|
Operating expenses
|
184,227
|
|
|
204,411
|
|
|
(9.9
|
%)
|
Income (loss) from operations
|
13,798
|
|
|
(200
|
)
|
|
*
|
Depreciation and amortization
|
6,286
|
|
|
3,972
|
|
|
58.3
|
%
|
Adjustments
(1)
|
3,686
|
|
|
4,877
|
|
|
(24.4
|
%)
|
Adjusted EBITDA
|
$
|
23,770
|
|
|
$
|
8,649
|
|
|
*
|
(1) See Non-GAAP Measures for additional information on adjustments
.
Three months ended March 31, 2019
compared to the
three months ended April 1, 2018
Advertising Revenues
—Total advertising revenues decreased
8.2%
, or
$6.8 million
, in the
three months ended March 31, 2019
. Retail advertising decreased $12.4 million, year over year, primarily due to decreases in furniture, department store, and general merchandise categories. Classified advertising revenues decreased $1.6 million due to decreases in the employment category partially offset by increases in the legal notice category. National advertising remained consistent year over year. These decreases were partially offset by the acquisition of
The Virginian-Pilot
in the second quarter of 2018. The acquisition contributed $6.6 million in revenue during the
three months ended March 31, 2019
.
Circulation Revenues
—Circulation
revenues increased
2.4%
, or
$2.0 million
, in the
three months ended March 31, 2019
. This increase was due primarily to the acquisition, which contributed $4.0 million in the
three months ended March 31, 2019
. The increase attributable to the acquisition was partially offset by a decrease in circulation volume which exceeded increases in rates.
Other Revenues
—Other revenues decreased
3.9%
, or
$1.4 million
, in the
three months ended March 31, 2019
, due primarily to declines of $2.9 million in revenues from commercial print and delivery. These decreases were partially offset by revenues from the acquisition, which contributed $1.2 million in the
three months ended March 31, 2019
.
Operating Expenses
—Operating expenses decreased
9.9%
, or
$20.2 million
, in the
three months ended March 31, 2019
. The decreases were in all expense categories with the largest being in compensation, insurance and bad debt expense. These decreases were partially offset by expenses from the acquisition, which contributed $14.3 million in the
three months ended March 31, 2019
.
Segment X
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(in thousands)
|
Mar 31, 2019
|
|
Apr 1, 2018
|
|
% Change
|
Operating revenues:
|
|
|
|
|
|
Advertising
|
$
|
20,836
|
|
|
$
|
22,050
|
|
|
(5.5
|
%)
|
Content
|
18,747
|
|
|
13,094
|
|
|
43.2
|
%
|
Total revenues
|
39,583
|
|
|
35,144
|
|
|
12.6
|
%
|
Operating expenses
|
44,783
|
|
|
35,755
|
|
|
25.2
|
%
|
Loss from operations
|
(5,200
|
)
|
|
(611
|
)
|
|
*
|
Depreciation and amortization
|
2,177
|
|
|
4,549
|
|
|
(52.1
|
%)
|
Adjustments
(1)
|
5,555
|
|
|
1,950
|
|
|
*
|
|
Adjusted EBITDA
|
$
|
2,532
|
|
|
$
|
5,888
|
|
|
(57.0
|
%)
|
* Represents positive or negative change in excess of 100%
(1) See Non-GAAP Measures for additional information on adjustments
.
Three months ended March 31, 2019
compared to the
three months ended April 1, 2018
Advertising Revenues
—Total advertising revenues
decreased
5.5%
, or
$1.2 million
, in the
three months ended March 31, 2019
. Classified advertising revenue decreased $2.2 million, primarily due to a decrease in the automotive category. Retail advertising revenue and national advertising revenue remained consistent with prior year. The net decrease in advertising revenue was partially offset by the combined impact of the acquisitions of BestReviews in the first quarter of 2018 and
The Virginian-Pilot
in the second quarter of 2018. Such acquisitions contributed $1.5 million in revenue during the
three months ended March 31, 2019
.
Content Revenues
—Content revenues
increased
43.2%
, or
$5.7 million
, in the
three months ended March 31, 2019
. This increase was due primarily to the acquisition of BestReviews in the first quarter of 2018 and
The Virginian-Pilot
,
which contributed $6.9 million in revenue during the
three months ended March 31, 2019
compared to $3.2 million during the
three months ended April 1, 2018
, and an increase of $2.6 million in digital subscription revenue.
Operating Expenses
—Operating expenses
increased
25.2%
, or
$9.0 million
, in the
three months ended March 31, 2019
. This increase was primarily due to acquisitions, which contributed $8.3 million in the
three months ended March 31, 2019
compared to $2.6 million during the
three months ended April 1, 2018
. Additionally, allocations of shared costs increased.
Non-GAAP Measures
Adjusted EBITDA
—The Company defines
Adjusted EBITDA as income (loss) from continuing operations before equity in earnings of unconsolidated affiliates, income taxes, loss on early debt extinguishment, interest expense, other (expense) income, realized gain (loss) on investments, reorganization items, depreciation and amortization, net income attributable to noncontrolling interest, and other items that the Company does not consider in the evaluation of ongoing operating performance. These items include stock-based compensation expense, restructuring charges, transaction expenses, certain other charges and gains that the Company does not believe reflects the underlying business performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ende
d
|
(in thousands)
|
March 31, 2019
|
|
April 1, 2018
|
|
% Change
|
Loss from continuing operations
|
$
|
(4,714
|
)
|
|
$
|
(28,071
|
)
|
|
(83.2
|
%)
|
Income tax benefit from continuing operations
|
(2,882
|
)
|
|
(6,637
|
)
|
|
(56.6
|
%)
|
Interest expense, net
|
(220
|
)
|
|
6,564
|
|
|
*
|
|
Loss on equity investments, net
|
487
|
|
|
729
|
|
|
(33.2
|
%)
|
Other income, net
|
(73
|
)
|
|
(3,663
|
)
|
|
(98.0
|
%)
|
Loss from continuing operations
|
(7,402
|
)
|
|
(31,078
|
)
|
|
(76.2
|
%)
|
Depreciation and amortization
|
12,084
|
|
|
12,446
|
|
|
(2.9
|
%)
|
Restructuring and transaction costs
(1)
|
10,870
|
|
|
25,584
|
|
|
(57.5
|
%)
|
Stock-based compensation
|
5,737
|
|
|
1,587
|
|
|
*
|
Adjusted EBITDA from continuing operations
|
$
|
21,289
|
|
|
$
|
8,539
|
|
|
*
|
* Represents positive or negative change in excess of 100%
|
|
(1) -
|
Restructuring and transaction costs include costs related to Tribune's internal restructuring, such as severance, charges associated with vacated space, costs related to completed and potential acquisitions and a one-time charge related to the Consulting Agreement.
|
Adjusted EBITDA is a financial measure that is not calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes that because Adjusted EBITDA excludes (i) certain non-cash expenses (such as depreciation, amortization, stock-based compensation, and gain/loss on equity investments) and (ii) expenses that are not reflective of the Company’s core operating results over time (such as restructuring costs, including the employee voluntary separation program and gain/losses on employee benefit plan terminations, litigation or dispute settlement charges or gains, premiums on stock buyback and transaction-related costs), this measure provides investors with additional useful information to measure the Company’s financial performance, particularly with respect to changes in performance from period to period. The Company’s management uses Adjusted EBITDA (a) as a measure of operating performance; (b) for planning and forecasting in future periods; and (c) in communications with the Company’s Board of Directors concerning the Company’s financial performance.
In addition, Adjusted EBITDA, or a similarly calculated measure, has been used as the basis for certain financial maintenance covenants that the Company was subject to in connection with certain credit facilities. Since not all companies use identical calculations, the Company’s presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies and should not be used by investors as a substitute or alternative to net income or any measure of financial performance calculated and presented in accordance with U.S. GAAP. Instead, management believes Adjusted EBITDA should be used to supplement the Company’s financial measures derived in accordance with U.S. GAAP to provide a more complete understanding of the trends affecting the business.
Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for, or more meaningful than, amounts determined in accordance with U.S. GAAP. Some of the limitations to using non-GAAP measures as an analytical tool are:
|
|
•
|
they do not reflect the Company’s interest income and expense, or the requirements necessary to service interest or principal payments on the Company’s debt;
|
|
|
•
|
they do not reflect future requirements for capital expenditures or contractual commitments; and
|
|
|
•
|
although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP measures do not reflect any cash requirements for such replacements.
|
Liquidity
and Capital Resources
The Company believes that its working capital and future cash from operations discussed below will provide adequate resources to fund its operating and financing needs for the foreseeable future. The Company’s access to, and the availability of, financing in the future will be impacted by many factors, including its credit rating, the liquidity of the overall capital markets and the current state of the economy. There can be no assurances that the Company will have access to capital markets on acceptable terms.
Sources and Uses
The Company expects to fund capital expenditures and pension payments due in
2019
and other operating requirements through a combination of cash flows from operations and investments. The Company’s financial and operating performance remains subject to prevailing economic and industry conditions and to financial, business and other factors, some of which are beyond the control of the Company and, despite the Company’s current liquidity position, no assurances can be made that cash flows from operations and investments, or dispositions of assets or operations will be sufficient to satisfy the Company’s future liquidity needs.
The table below details the total operating, investing and financing activity cash flows from continuing operations for the
three months ended March 31, 2019
and
April 1, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
April 1, 2018
|
Net cash provided by operating activities
|
|
$
|
4,744
|
|
|
$
|
16,495
|
|
Net cash used for investing activities
|
|
(4,061
|
)
|
|
(42,064
|
)
|
Net cash used for financing activities
|
|
(37
|
)
|
|
(6,131
|
)
|
Increase (decrease) in cash attributable to continuing operations
|
|
$
|
646
|
|
|
$
|
(31,700
|
)
|
Cash flow generated from operating activities is Tribune’s primary source of liquidity. Net cash provided by operating activities from continuing operations was
$4.7 million
for the
three months ended March 31, 2019
, down
$11.8 million
from
$16.5 million
for the
three months ended April 1, 2018
. The decrease was primarily driven by unfavorable fluctuations in working capital related to payments related to headcount reductions of $12.1 million and timing of newsprint payments of $9.4 million.
Net cash used for investing activities from continuing operations totaled
$4.1 million
in the
three months ended March 31, 2019
, primarily due to
$3.9 million
used for capital expenditures. In the
three months ended April 1, 2018
, net cash used in investing activities totaled
$42.1 million
primarily due to
$33.9 million
used for acquisitions and
$7.0 million
for capital expenditures.
There was no material cash used for financing activities for the
three months ended March 31, 2019
. In the
three months ended April 1, 2018
, net cash used for financing activities totaled
$6.1 million
, which included
$5.3 million
in loan payments on senior debt.
There was no cash provided by discontinued operations in the
three months ended March 31, 2019
. In the
three months ended April 1, 2018
, net cash used for discontinued operations totaled
$3.1 million
primarily due to cash used for operating activities of the
Los Angeles Times
and
The San Diego Union-Tribune.
Multiemployer pension
As disclosed in the 2018 Annual Report, the trustees of the
Chicago Newspaper Publishers Drivers’ Union Pension Plan’s (the “Drivers’ Plan”) agreed to a plan of merger with the Teamsters Local Union No. 727 Pension Fund. In contemplation of the merger, on December 13, 2018, the Drivers’ Plan adopted an amendment to its prior rehabilitation plan.
Under the amended rehabilitation plan, the Company will make future contributions of $68.4 million paid over seven years regardless of whether the merger is consummated. The merger agreement has been approved by both unions and is awaiting approval by the Pension Benefit Guaranty Corporation (“PBGC”). The effective date of the merger is 30 days after the PBGC approval. In addition to the committed future contributions under the amended rehabilitation plan, the Company’s funding obligation will be subject to change based on a number of factors, including the outcome of collective bargaining with the unions, actual returns on plan assets as compared to assumed returns, actions taken by trustees who manage the plan, changes in the number of plan participants, changes in the rate used for discounting future benefit obligations, as well as changes in legislation or regulations impacting funding and payment obligations. The Company expects to contribute $11.7 million to the Drivers’ Plan under amended rehabilitation plan during the remainder of 2019, including a contribution of $10.1 made in April 2019 which will be recognized as expense in the second quarter of 2019.
Employee Reductions
During the
three months ended March 31, 2019
, the Company
implemented reductions in staffing levels in its operations of
89
positions for which the Company recorded pretax charges related to these reductions totaling
$7.0 million
. These reductions include
23
positions related to the voluntary severance incentive plan initiated in the fourth quarter of 2018. The related salary continuation payments began during the first quarter and the final payment to the last employee is expected to be made in the first quarter of 2020.
New Accounting Standards
See Note
1
in the Consolidated Financial Statements for a description of new accounting standards issued and/or adopted in the
three months ended
March 31, 2019
.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of
March 31, 2019
, there had been no material changes in the Company’s exposure to market risk from the disclosure included in the 2018 Annual Report.
Item 4. Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934), as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
In conjunction with the adoption of ASU 2016-02, Topic 842,
Leases
, during first quarter 2019, the Company implemented a lease accounting system and modified certain leases accounting processes. This resulted in a material change in a component of the Company's internal control over financial reporting. The operating effectiveness of these process changes will be evaluated as part of Company's annual assessment of the effectiveness of internal controls over financial reporting.
Except as noted above, there has been no change in our internal control over financial reporting that occurred during the quarter ended
March 31, 2019
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.