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0001104659-07-013912.txt : 20070226
0001104659-07-013912.hdr.sgml : 20070226
20070226171703
ACCESSION NUMBER: 0001104659-07-013912
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 12
CONFORMED PERIOD OF REPORT: 20061231
FILED AS OF DATE: 20070226
DATE AS OF CHANGE: 20070226
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TRIBUNE CO
CENTRAL INDEX KEY: 0000726513
STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711]
IRS NUMBER: 361880355
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1225
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-08572
FILM NUMBER: 07650100
BUSINESS ADDRESS:
STREET 1: 435 N MICHIGAN AVE
STREET 2: STE 600
CITY: CHICAGO
STATE: IL
ZIP: 60611
BUSINESS PHONE: 3122229100
10-K
1
a07-1375_110k.htm
10-K
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
Commission file number 1-8572
TRIBUNE
COMPANY
(Exact
name of registrant as specified in its charter)
Delaware
|
|
36-1880355
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
435 North Michigan Avenue
Chicago, Illinois
|
|
60611
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Registrants telephone
number, including area code: (312) 222-9100
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
|
|
|
|
Name of each exchange on
which registered
|
Common
Stock ($.01 par value)
Preferred Share Purchase Rights
|
}
|
|
{
|
New York Stock Exchange
Chicago Stock Exchange
|
2%
Exchangeable Subordinated Debentures Due 2029
|
|
New York Stock Exchange
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes x No o
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (check one):
Large Accelerated Filer x Accelerated
Filer o Non-Accelerated Filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2).
Yes o No x
Aggregate
market value of the Companys voting and non-voting common equity held by
non-affiliates on June 23, 2006, based upon the closing price of the
Companys Common Stock as reported on the New York Stock Exchange
Composite Transactions list for such date: approximately $6,998,000,000.
At
February 16, 2007, there were 240,197,343 shares outstanding of the
Companys Common Stock ($.01 par value per share), excluding 60,683,388 shares
held by subsidiaries of the Company (see Note 15 to the Companys
Consolidated Financial Statements).
The following document is incorporated by reference,
in part:
Definitive
Proxy Statement for the registrants May 9, 2007 Annual Meeting of
Shareholders (Part III, to the extent described therein).
INDEX
TO TRIBUNE COMPANY
2006 FORM 10-K
PART I
ITEM 1. BUSINESS.
Tribune Company (Tribune or the Company) is a
media and entertainment company. Through its subsidiaries, the Company is
engaged in newspaper publishing, television and radio broadcasting and
entertainment. The Company was founded in 1847 and incorporated in Illinois in
1861. As a result of a corporate restructuring in 1968, the Company became a
holding company incorporated in Delaware. References in this report to the
Company include Tribune Company and its subsidiaries, unless the context
otherwise indicates. The information in this Item 1 should be read in
conjunction with the information contained in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations and
the Companys consolidated financial statements and related notes thereto
included in Item 8. Certain prior year amounts have been reclassified to
conform with the 2006 presentation. These reclassifications had no impact on
reported prior year total revenues, operating profit or net income.
This Annual Report on Form 10-K
(Form 10-K) contains certain forward-looking statements that
are based largely on the Companys current expectations. Forward-looking
statements are subject to certain risks, trends and uncertainties that could cause
actual results and achievements to differ materially from those expressed in
the forward-looking statements including, but not limited to, the items
discussed in Item 1A, Risk Factors. Such risks, trends and
uncertainties, which in some instances are beyond the Companys control,
include: changes in advertising demand, circulation levels and audience shares;
regulatory and judicial rulings; availability and cost of broadcast rights;
competition and other economic conditions; changes in newsprint prices; changes
in the Companys credit ratings and interest rates; changes in accounting
standards; adverse results from litigation, governmental investigations or tax
related proceedings or audits; the effect of labor strikes, lock-outs and
negotiations; the effect of acquisitions, investments and divestitures; the
effect of derivative transactions; the Companys reliance on third-party
vendors for various services; and the Companys exploration of alternatives for
creating additional value for shareholders. The words believe, expect, anticipate,
estimate, could, should, intend and similar expressions generally
identify forward-looking statements. Readers are cautioned not to place
undue reliance on such forward-looking statements, which are being made
as of the date of this filing. The Company undertakes no obligation to update
any forward-looking statements, whether as a result of new information,
future events or otherwise.
Significant Events
Common Stock RepurchasesThe Companys
common stock repurchases totaled 71 million shares for $2.3 billion in 2006 and
12 million shares for $440 million in 2005. The following table summarizes the
Companys 2006 common stock repurchases (in thousands):
|
|
Shares
|
|
Cost
|
|
Repurchases in
first quarter
|
|
4,604
|
|
$
|
137,746
|
|
Tender offer
repurchases
|
|
45,027
|
|
1,468,270
|
|
Repurchases from
the Robert R. McCormick Tribune Foundation
and Cantigny Foundation
|
|
10,000
|
|
325,300
|
|
Repurchases
subsequent to the tender offer
|
|
11,053
|
|
330,952
|
|
Total common stock
repurchases
|
|
70,684
|
|
$
|
2,262,268
|
|
On May 30, 2006, the Company initiated a modified
Dutch Auction tender offer to repurchase up to 53 million shares of its
common stock at a price per share not greater than $32.50 and not less than
$28.00. The tender offer closed on June 26, 2006, and the Company acquired
45 million shares of its common stock on July 5, 2006 at a price of $32.50
per share before transaction costs. The Company also acquired
1
10 million shares of
its common stock from the Robert R. McCormick Tribune Foundation and the
Cantigny Foundation on July 12, 2006 at a price of $32.50 per share before
transaction costs. The Robert R. McCormick Tribune Foundation and the Cantigny
Foundation are affiliated non-profit organizations, which together held 13.6%
of the Companys outstanding shares when the tender offer was launched. In
connection with the tender offer, the board of directors also authorized the
repurchase of an additional 12 million shares of the Companys common
stock commencing on the eleventh business day following the completion of the
tender offer. In the third quarter of 2006, the Company repurchased an
additional 11.1 million shares under that authorization at a weighted
average cost of $29.94 per share. In addition, the Company repurchased and
retired 4.6 million shares of its common stock in the first quarter of 2006.
Credit AgreementsOn June 19,
2006, the Company entered into a five-year credit agreement and a 364-day
bridge credit agreement, both of which were amended and restated on June 27,
2006. The five-year credit agreement provides for a $1.5 billion unsecured term
facility, of which $250 million was used to refinance the medium-term notes
that matured on Nov. 1, 2006, and a $750 million unsecured revolving
facility. The 364-day bridge credit agreement provided for a $2.15
billion unsecured bridge facility.
The Company entered into these agreements to finance
the Companys tender offer initiated on May 30, 2006; to repurchase shares
of the Companys common stock from the Robert R. McCormick Tribune Foundation
and Cantigny Foundation; to repurchase shares of the Companys common stock
pursuant to open market or privately negotiated transactions; to refinance
certain indebtedness; and to pay fees and expenses incurred in connection with
the repurchases. In addition, the revolving facility is available for working
capital and general corporate purposes, including acquisitions.
In general, borrowings under the credit agreements
bear interest at a rate equal to LIBOR plus a spread ranging from 0.35% to
1.25%. The applicable spread is determined on the basis of the Companys debt
ratings by S&P and Moodys. The Companys debt ratings are also used in
determining the annual facility fee, which may range from 0.07% to 0.25% of the
aggregate unused commitments. In addition, the Company has agreed to pay
customary fees to the lenders under the credit agreements.
As of Dec. 31, 2006, the Company had outstanding
borrowings of $1.5 billion and $1.3 billion under the term facility and the
bridge facility, respectively, and the Company had no borrowings under the
revolving facility. As of Dec. 31, 2006, the applicable interest rate on
both the term facility and the bridge facility was 6.2%.
The credit agreements contain certain restrictive
covenants, including financial covenants that require the Company to maintain a
maximum total leverage ratio and a minimum interest coverage ratio. At Dec. 31,
2006, the Company was in compliance with the covenants.
TMCT TransactionsAs a result of the
Companys acquisition of The Times Mirror Company (Times Mirror) in 2000, the
Company holds investment interests in TMCT, LLC (TMCT) and TMCT II, LLC (TMCT
II). TMCT and TMCT II were formed in 1997 and 1999, respectively, as a result
of transactions involving agreements between Times Mirror and its largest
shareholders, Chandler Trust No. 1 and Chandler Trust No. 2
(collectively, the Chandler Trusts). The Times Mirror acquisition resulted in
the Chandler Trusts becoming significant shareholders of the Company. The TMCT
and TMCT II LLC agreements have no specific term, and the dissolution,
determination of liquidation values and distribution of assets require the
mutual consent of the Company and the Chandler Trusts.
The collective assets of TMCT and TMCT II as of Dec. 25,
2005 included approximately 51.4 million shares of the Companys common stock
and 1.1 million shares of the Companys preferred stock, representing all of
the Companys issued Series C, D-1 and D-2 preferred stock.
The TMCT and TMCT II assets also include a variety of fixed income and equity
investments. In addition, TMCT owns eight real properties that are leased to
the Company. Additional information pertaining to the Companys
2
investments in TMCT and
TMCT II is provided in Note 7 to the consolidated financial statements in Item 8.
On Sept. 21, 2006, the Company and the Chandler Trusts
entered into agreements to restructure TMCT and TMCT II. Under the terms of the
agreements, the Company received on Sept. 22, 2006, a total of 38.9 million
shares of the Companys common stock and all 1.1 million shares of the Companys
preferred stock held collectively by TMCT and TMCT II. As a result of the
transactions, the Companys
interests in each of TMCT and TMCT II were reduced to approximately 5%. The
Sept. 21, 2006 agreements also provide for certain put and call options, which
are exercisable at fair market value beginning in September 2007, relating
to the Companys remaining ownership interests in TMCT and TMCT II. As a result
of the transactions, the Company in the third quarter of 2006 recorded a
one-time, non-operating gain of $48 million, net of tax; increased its common
treasury stock by $161 million and its preferred treasury stock by $107
million; and reduced its combined investment in TMCT and TMCT II by $195
million.
On Sept. 22, 2006, the Company and TMCT amended the
lease agreement for the eight properties the Company leases from TMCT. Under
the terms of the amended lease, the Company was granted an accelerated option
to acquire the eight properties during the month of January 2008 for $175
million. The Company was also granted an option to acquire the leased
properties from Feb. 8, 2008 to three months prior to the expiration of
the amended lease. In addition, the amendment extended the properties current
fixed rental rate through Aug. 7, 2021.
On Oct. 20, 2006, the remaining 12.4 million
shares of the Companys common stock held by TMCT and TMCT II were distributed
to the Company and the Chandler Trusts in accordance with their respective
ownership interests. The Company received 0.6 million shares and the Chandler
Trusts received 11.8 million shares.
The Company and the Chandler Trusts share in the cash
flows of the various assets held by TMCT and TMCT II. Prior to the Sept. 22,
2006 transactions, the cash flows from the Tribune common and preferred shares
held by TMCT and TMCT II were largely allocated to the Company, while the cash
flows from the other assets were largely allocated to the Chandler Trusts. As a
result, the Company included in treasury stock 80% of the Tribune common and
preferred shares held by TMCT and TMCT II. In addition, 80% of the dividends on
the preferred and common shares held by TMCT and TMCT II were effectively
eliminated. Following the Sept. 22, 2006 transactions and until the Oct. 20,
2006 distribution, the Company included in treasury stock approximately 5% of
the Tribune common shares held by TMCT and TMCT II. As a result of the
transactions, the Company no longer has any shares of its Series C, D-1
and D-2 preferred stock outstanding, and the Companys common shares
outstanding increased by 1.6 million.
Sales of WATL-TV, Atlanta,
WCWN-TV, Albany and WLVI-TV, BostonOn June 5,
2006, the Company announced the sale of WATL-TV, Atlanta to Gannett Co., Inc.
for $180 million. The sale closed on Aug. 7, 2006. On June 19, 2006,
the Company announced the sale of WCWN-TV, Albany to Freedom Communications, Inc.
for $17 million. The sale closed on Dec. 6, 2006. On Sept. 14, 2006, the
Company announced the sale of WLVI-TV, Boston, to Sunbeam Television Corp. for
$113.7 million. The sale closed on Dec. 19, 2006.
These businesses were considered components of the
Companys broadcasting and entertainment segment as their operations and cash
flows could be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the Company. The operations and cash flows of these
businesses have been eliminated from the ongoing operations of the Company as a
result of the sales, and the Company will not have any significant continuing
involvement in their operations. Accordingly, the results of operations of each
of these businesses have been reported as discontinued operations in the
consolidated
3
statements of income. Prior
year consolidated statements of income have been reclassified to conform to the
current year presentation of discontinued operations.
In conjunction with the sales of WATL-TV, Atlanta and
WCWN-TV, Albany, the Company recorded in the second quarter of 2006 a pretax
loss totaling $90 million, including $80 million of allocated television group
goodwill, to write down the net assets of the stations to estimated fair value,
less costs to sell. The Company subsequently reduced the pretax loss on sales
of the Atlanta and Albany stations during the third quarter of 2006 by $1
million. In addition, the Company recorded in the fourth quarter of 2006 a
pretax gain of $41 million, including $45 million of allocated television group
goodwill, for the sale of the Boston station. In accordance with FAS No. 142,
Goodwill and Other Intangible Assets, the Company aggregates all of its
television stations into one reporting unit for goodwill accounting purposes.
FAS No. 142 requires the Company to allocate a portion of its total
television group goodwill to stations that are to be sold on a relative fair
value basis. The net pretax loss on sales of the three stations sold during
2006 was $48 million, including $125 million of allocated television group
goodwill.
Acquisition of Additional
Equity in CareerBuilder, ShopLocal and TopixIn August 2006,
the Company completed its acquisition of additional equity interests in each of
CareerBuilder, LLC, ShopLocal, LLC (formerly CrossMedia Services, Inc.) and
Topix, LLC for an aggregate purchase price of $155 million. The negotiated
equity purchases followed the exercise of call options by the Company and
Gannett Co., Inc. on Knight-Ridder, Inc.s equity ownership in the
three online businesses after The McClatchy Companys announcement of its
proposed acquisition of Knight-Ridder, Inc. As a result of this
transaction, the Company and Gannett Co., Inc. each increased their
respective ownership of CareerBuilder, LLC and ShopLocal, LLC to 42.5% with The
McClatchy Company retaining a 15% interest in both entities. Additionally, each
of the Companys and Gannett Co., Inc.s interest in Topix, LLC increased
to 31.9%. As a result of subsequent funding, the current ownership of Topix,
LLC is approximately 33.7% for both the Company and Gannett Co., Inc.,
11.9% for The McClatchy Company and 20.7% for management of Topix, LLC.
Network AffiliationsOn Jan. 24,
2006, the Company announced that it had reached a 10-year agreement to
affiliate 16 of its television stations which were at that time affiliated with
the former WB Network (including those in New York, Los Angeles and Chicago)
with a new broadcast network, the CW Network. The new network was launched in September 2006
by Warner Bros. Entertainment and CBS. The new network airs a portion of the
programming previously carried on the WB Network and the UPN Network, as well
as new programming. The WB Network has shut down. The Company did not incur any
costs related to the shutdown of the WB Network.
In the second quarter of
2006, the Company announced that its other three former WB Network affiliates
(Philadelphia, Atlanta and Seattle) would become affiliates of the new
broadcast network, MyNetworkTV, which was launched in September 2006 by
the FOX Television Stations Network Inc. and Twentieth Century Television. The
new network airs primarily primetime dramas. The Company subsequently sold its
Atlanta station in August 2006 and its Albany and Boston stations in December 2006.
Business Segments
The Companys operations are divided into two industry
segments: publishing and broadcasting and entertainment. These segments operate
primarily in the United States. Certain administrative activities are not
included in either segment, but are reported as corporate. These segments
reflect the way the Company sells its products to the marketplace, manages
operations and makes business decisions.
The
Companys fiscal year ends on the last Sunday in December. Fiscal year 2006
ended on Dec. 31, 2006 and encompassed 53 weeks, while fiscal years 2005
and 2004 each encompassed 52 weeks. For 2006, the additional week
increased consolidated operating revenues and operating expenses by
approximately 1.5% and consolidated operating profit by approximately 2%. The
following table sets forth operating
4
revenues and operating profit information for each
segment of the Company for 2006, 2005 and 2004 (in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Operating revenues:
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
4,092,562
|
|
$
|
4,096,850
|
|
$
|
4,129,850
|
|
Broadcasting and entertainment
|
|
1,425,146
|
|
1,414,433
|
|
1,501,581
|
|
Total operating
revenues
|
|
$
|
5,517,708
|
|
$
|
5,511,283
|
|
$
|
5,631,431
|
|
Operating profit
(loss)(1):
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
749,189
|
|
$
|
759,713
|
|
$
|
726,207
|
|
Broadcasting and entertainment
|
|
391,533
|
|
416,891
|
|
513,289
|
|
Corporate expenses
|
|
(55,712
|
)
|
(49,413
|
)
|
(52,218
|
)
|
Total operating profit
|
|
$
|
1,085,010
|
|
$
|
1,127,191
|
|
$
|
1,187,278
|
|
(1) Operating
profit for each segment excludes interest and dividend income, interest
expense, equity income and loss, non-operating items and income taxes.
The
following table sets forth asset information for each industry segment (in
thousands):
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Assets:
|
|
|
|
|
|
Publishing(1)
|
|
$
|
8,512,512
|
|
$
|
8,637,176
|
|
Broadcasting and entertainment
|
|
3,987,449
|
|
4,425,135
|
|
Corporate(2)
|
|
900,811
|
|
1,483,931
|
|
Total assets
|
|
$
|
13,400,772
|
|
$
|
14,546,242
|
|
(1) Publishing
assets at Dec. 31, 2006 and Dec. 25, 2005 include $9 million and
$24 million of assets held for sale and $26 million and $34 million of
assets idled, respectively (see Note 3 to the consolidated financial
statements in Item 8).
(2) Corporate
assets include cash and cash equivalents, marketable securities and other
investments.
The Companys results of operations, when examined on
a quarterly basis, reflect the seasonality of the Companys 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.
5
Publishing
The publishing segment represented 74% of the Companys
consolidated operating revenues in 2006. For the six months ended September 2006,
total average paid circulation for Tribunes 11 metro newspapers averaged
2.8 million copies daily (Mon.-Fri.) and 4.1 million copies Sunday, a
decline of 4.5% and 4.4%, respectively, from 2005. The Companys primary daily
newspapers are the Los Angeles Times,
Chicago Tribune, Newsday, South Florida Sun-Sentinel, Orlando Sentinel, The Sun, Hartford Courant, The Morning Call, Daily Press, The Advocate and Greenwich
Time. The Companys publishing segment manages the websites of the
Companys daily newspapers and television stations, as well as other branded
sites targeting specific communities of interest. The Company also owns
entertainment listings, a newspaper syndication and media marketing company, a
Chicago-area cable television news channel and other publishing-related
businesses.
The
additional week in fiscal year 2006 increased publishing advertising revenues,
circulation revenues, and operating profit by approximately 2% and increased
operating expenses by approximately 1.5%. Operating revenues for the Companys
three largest newspapers, including their related businesses, for the last
three years were as follows (in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Operating revenues:
|
|
|
|
|
|
|
|
Los Angeles Times(1)
|
|
$
|
1,116,858
|
|
$
|
1,111,052
|
|
$
|
1,134,780
|
|
Chicago Tribune(1)
|
|
862,660
|
|
873,668
|
|
853,165
|
|
Newsday(1)
|
|
541,074
|
|
574,864
|
|
614,681
|
|
Other newspapers and businesses
|
|
1,571,970
|
|
1,537,266
|
|
1,527,224
|
|
Total publishing
revenues
|
|
$
|
4,092,562
|
|
$
|
4,096,850
|
|
$
|
4,129,850
|
|
(1) Includes
the daily newspaper and other related businesses.
The
following table provides a breakdown of operating revenues for the publishing
segment for the last three years (in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Advertising:
|
|
|
|
|
|
|
|
Retail
|
|
$
|
1,344,124
|
|
$
|
1,323,547
|
|
$
|
1,330,951
|
|
National
|
|
736,808
|
|
774,093
|
|
802,530
|
|
Classified
|
|
1,179,128
|
|
1,146,460
|
|
1,095,012
|
|
Total advertising
|
|
3,260,060
|
|
3,244,100
|
|
3,228,493
|
|
Circulation
|
|
575,043
|
|
596,163
|
|
643,947
|
|
Other(1)
|
|
257,459
|
|
256,587
|
|
257,410
|
|
Total
|
|
$
|
4,092,562
|
|
$
|
4,096,850
|
|
$
|
4,129,850
|
|
(1) Primarily
includes revenues from advertising placement services; the syndication of
columns, features, information and comics to newspapers; commercial printing
operations; delivery of other publications; direct mail operations; cable
television news programming; distribution of entertainment listings; and other
publishing-related activities.
6
The
following table sets forth information concerning the Companys advertising
volume for its daily newspapers for the last three years (in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Advertising
inches
|
|
|
|
|
|
|
|
Full run:
|
|
|
|
|
|
|
|
Retail
|
|
6,119
|
|
5,980
|
|
6,200
|
|
National
|
|
3,457
|
|
3,774
|
|
3,998
|
|
Classified
|
|
10,154
|
|
10,023
|
|
10,265
|
|
Total full run
|
|
19,730
|
|
19,777
|
|
20,463
|
|
Part run
|
|
21,217
|
|
20,112
|
|
20,575
|
|
Total advertising
inches
|
|
40,947
|
|
39,889
|
|
41,038
|
|
Preprint pieces
|
|
14,928,728
|
|
14,929,047
|
|
14,680,009
|
|
The
following table sets forth information concerning the Companys circulation for
its primary daily newspapers (in thousands):
|
|
Average Paid Circulation
For the Six Months Ended Sept.(1)
|
|
|
|
Daily(2)
|
|
Sunday
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
Los Angeles Times
|
|
776
|
|
843
|
|
877
|
|
1,172
|
|
1,248
|
|
1,292
|
|
Chicago Tribune
|
|
576
|
|
586
|
|
601
|
|
938
|
|
951
|
|
964
|
|
Newsday (Long
Island)
|
|
411
|
|
432
|
|
459
|
|
475
|
|
496
|
|
521
|
|
South Florida Sun-Sentinel
|
|
222
|
|
227
|
|
232
|
|
305
|
|
322
|
|
337
|
|
Orlando Sentinel
|
|
214
|
|
220
|
|
247
|
|
317
|
|
331
|
|
364
|
|
The Sun (Baltimore)
|
|
236
|
|
247
|
|
270
|
|
381
|
|
419
|
|
454
|
|
Other daily
newspapers(3)
|
|
408
|
|
422
|
|
436
|
|
559
|
|
571
|
|
597
|
|
Total Net Paid Circulation(4)
|
|
2,843
|
|
2,977
|
|
3,122
|
|
4,147
|
|
4,338
|
|
4,529
|
|
Total
Individually Paid Circulation(4)
|
|
2,724
|
|
2,759
|
|
2,880
|
|
4,066
|
|
4,171
|
|
4,324
|
|
(1) Circulation
data is based on internal records, is subject to audit by the Audit Bureau of
Circulations (ABC) and may be updated in subsequent filings.
(2) Average
daily circulation is based on a five-day (Mon.-Fri.) average.
(3) Other
daily newspapers include Hartford Courant, The
Morning Call, Daily Press, The Advocate and Greenwich
Time.
(4) Individually
paid circulation includes home delivery and single copy sales. This circulation
is more highly valued by advertisers and represented 96% of total daily
circulation and 98% of total Sunday circulation for the six months ended September 2006.
Total net paid circulation includes both individually paid and other paid
(education, sponsored, hotels) copies.
Each of the Companys newspapers operates
independently to most effectively meet the needs of the community it serves.
Local management establishes editorial policies. The Company coordinates
certain aspects of operations and resources in order to provide greater
operating efficiency and economies of scale.
The Companys newspapers compete for readership and
advertising with other metropolitan, suburban and national newspapers, and also
with television, radio, Internet services and other media. Competition for
newspaper advertising is based upon circulation levels, readership demographics,
price, service and advertiser results, while competition for circulation is
based upon the content of the newspaper, service and price.
7
The Los Angeles Times,
Chicago Tribune, South Florida Sun-Sentinel,
Orlando Sentinel, Daily Press, The Morning Call, The Advocate and Greenwich Time
are printed in Company-owned production facilities. Newsday,
The Sun and Hartford
Courant are printed on Company-owned presses in production
facilities leased from an affiliate (see Note 7 to the consolidated
financial statements in Item 8). The principal raw material is newsprint.
In 2006, the Companys newspapers consumed approximately 697,000 metric tons of
standard newsprint, 45.0 gram basis weight. Average newsprint prices
increased 10% in 2006 from 2005 reflecting increased market prices. Average
newsprint prices increased 12% and 10% in 2005 and 2004, respectively.
The Company is party to an
agreement with Abitibi Consolidated Inc., expiring in 2009, to supply
newsprint. Under the current agreement, the Company purchased approximately 369,000
metric tons of newsprint in 2006, representing 53% of the Companys newsprint
purchases and has agreed to purchase 369,000 metric tons in 2007, 2008 and
2009, subject to certain limitations, based on market prices at the time of
purchase.
Los Angeles Times and Related Businesses
The Los Angeles
Times has been published continuously since 1881. The newspaper has
won 37 Pulitzer Prizes and is the largest daily metropolitan newspaper in the
United States in circulation. The Los Angeles market ranks second in the nation
in terms of households. In its primary circulation areas of Los Angeles,
Orange, Ventura, San Bernardino and Riverside counties, the Los Angeles Times competes for advertising
and circulation with 16 local daily newspapers and three daily national
newspapers, with its largest local competitor having almost 300,000 in average
daily circulation. For the six-month period ended September 2006, the Los Angeles Times ranked fourth and second
in the country for average daily and Sunday circulation, respectively,
according to ABC. Approximately 78% and 81% of the papers daily and Sunday
circulation, respectively, was home delivered in 2006, with the remainder
primarily sold at newsstands and vending boxes.
In addition to the daily
edition covering the Los Angeles metropolitan area, the Los Angeles Times publishes Orange County,
San Fernando Valley, Inland Empire and Ventura County editions. Daily and
semi-weekly community newspapers are either inserted into the paper in selected
geographic areas or distributed to homes and through vending machines to
provide targeted local news coverage. The company operates latimes.com, an
online expanded version of the newspaper featuring 50,000 content pages, which
provides entertainment, local, national and international news, and
theenvelope.com, a comprehensive year-round entertainment awards website.
Through a subsidiary, EZ Buy & EZ Sell Recycler Corporation, the
company publishes a collection of eight alternative classified papers in
Southern California including titles such as Recycler,
AutoBuys, Truck Buys, Cycle & BoatBuys and Jobs, and also operates recycler.com, an online version of
the publications. The company owns 50% of California Independent Postal Systems
(CIPS), which provides alternative distribution services for advertising
preprints. MediaNews Group, Inc. owns the other 50% of CIPS.
Chicago Tribune and Related Businesses
Founded in 1847, the Chicago
Tribune is the flagship publication of the Chicago Tribune Company.
The newspaper has won 24 Pulitzer Prizes and is the largest circulation paper
in Chicago and the Midwest. It ranks eighth among U.S. daily newspapers with an
average daily paid circulation of approximately 576,000; and third among U.S.
Sunday newspapers with an average Sunday paid circulation of approximately
938,000. Approximately 84% of its weekday newspapers and 74% of its Sunday
newspapers are home delivered with the remainder primarily sold at newsstands
and vending boxes. Considered an industry leader in journalism and innovation,
Chicago Tribune Company has grown into a multi-product, multi-channel news and
information leader. It also operates chicagotribune.com, an online version of
the newspaper and RedEye, a free daily newspaper in
Chicago targeting young, urban commuters.
8
Other businesses owned by
Chicago Tribune Company include Tribune Direct, which provides integrated and
comprehensive direct mail services, and Chicagoland Publishing Company, which
publishes a number of free guides in the real estate, automotive and help
wanted categories. Chicagoland Publishing also publishes the monthly magazine Chicago, which earned a 2004 National
Magazine Ellie Award for general excellence.
Newsday and Related Businesses
Newsday is
published daily and circulated primarily in Nassau and Suffolk counties on Long
Island, New York, and in the borough of Queens in New York City. The paper has
been published since 1940 and has won 18 Pulitzer Prizes. The New York
metropolitan area ranks first among U.S. markets in terms of households. Newsday competes with three major
metropolitan newspapers, daily regional editions of several national newspapers
and numerous daily, weekly and semiweekly local newspapers and free
distribution newspapers. Approximately 70% of the papers daily and 66% of its
Sunday circulation is sold through home delivery, with the remainder primarily
sold at newsstands and vending boxes. See Note 4 to the consolidated financial
statements in Item 8 for a discussion of charges recorded in 2004 related to
the anticipated settlement with advertisers regarding misstated circulation at Newsday.
Newsday, Inc.,
publisher of Newsday, also
publishes Distinction, a magazine
serving Long Islands households, issued 10 times per year; Parents & Children, a magazine
for Long Island families, issued 12 times per year; Long Island Weddings, a magazine for brides-to-be, published
two times per year; and Wellness,
a magazine serving Long Islands 40+ health and fitness market, published six
times per year. Newsday, Inc.s subsidiary, Star Community Publishing
Group, LLC, publishes 183 pennysaver editions in Nassau and Suffolk counties on
Long Island, New York, and in the boroughs of Queens, Brooklyn and Staten
Island in New York City. Additionally, the results of amNew York, a free daily newspaper in New
York City targeting young, urban commuters, are included in Newsday, Inc.s
results. Newsday, Inc. also has several websites including newsday.com and
amny.com, which are online versions of the newspapers.
Other Newspapers
The Companys other primary daily newspapers are South Florida Sun-Sentinel, Orlando Sentinel, The Sun, Hartford
Courant, Daily Press, The Morning Call, The Advocate and Greenwich Time.
The South Florida
Sun-Sentinel is the major daily newspaper serving the Broward/Palm
Beach County market, leading in both circulation and readership. The Miami/Fort
Lauderdale/Miami Beach metropolitan area, which includes Broward and Palm Beach
counties, ranks sixth in the nation in terms of households. Approximately 75%
of the papers daily and 71% of its Sunday circulation is sold through home
delivery, with the remainder primarily sold at newsstands and vending boxes.
Sun-Sentinel Company, publisher of the South Florida Sun-Sentinel, also serves
the news and information needs of South Florida through sun-sentinel.com, its
breaking news and information website; southflorida.com, a South Florida
entertainment website; el Sentinel,
a weekly Spanish language newspaper; Teenlink,
a weekly newspaper distributed in Broward County high schools; weekly community
newspapers; niche publications; and television and radio partnerships,
including its close working relationship with Tribune Broadcastings WSFL-TV,
Miami, the CW Network affiliate serving South Florida.
Other publications produced by Sun-Sentinel Company
include: City & Shore, a
bimonthly lifestyle magazine; City Link,
an alternative weekly newspaper; Florida New
Homes & Condo Guide, a comprehensive bimonthly guide to
South Florida real estate; Jewish Journal,
a collection of weekly newspapers serving South Floridas Jewish community; and
South Florida Parenting, a
monthly magazine providing parenting information and resources for local
families.
9
The Orlando
Sentinel primarily serves a six-county area in central Florida. The
newspaper is the only major daily newspaper in the Orlando market, although it
competes with other Florida and national newspapers, as well as with other
media. The Orlando Sentinel has
been published since 1876 and has won three Pulitzer Prizes. The Orlando market
ranks 27th among U.S. markets in terms of households. Approximately 80% of the
papers daily and 73% of its Sunday circulation is sold through home delivery,
with the remainder primarily sold at newsstands and vending boxes.
Orlando Sentinel Communications Company, publisher of
the Orlando Sentinel and
orlandosentinel.com, also publishes ShopLocal,
a free weekly publication used to distribute advertising and content to
newspaper non-subscribers. In addition to orlandosentinel.com, the company
operates metromix.com covering central Florida. The company publishes the
weekly, Spanish-language newspaper, El
Sentinel, and its companion website, elsentinel.com, as well as six
weekly Forum community newspapers. The companys multimedia portfolio also
includes free-distribution, niche products in the central Florida market
including Job Xtra and AutoFinder magazines. Orlando Sentinel
Communications offers direct marketing/direct mail services through Tribune
Direct/Orlando in addition to distribution services for other publications.
The
Sun, Marylands largest newspaper, has won 15
Pulitzer Prizes since it began publishing a daily newspaper in 1837. The
Baltimore market ranks 20th in the United States in number of households. For
the six-month period ending Sept. 25, 2006, The
Sun was ranked the 22nd largest newspaper in the country by Sunday
circulation according to ABC. The Sun
competes with Baltimore Examiner
as well as The Washington Post in
Anne Arundel and Howard counties, with The
Annapolis Capital in Anne Arundel County and with The Carroll County Times in Carroll
County. It also competes with regional editions of national daily newspapers,
as well as other local dailies and weeklies. Approximately 79% of the papers
daily and 64% of its Sunday circulation is sold through home delivery, with the
remainder primarily sold at newsstands and vending boxes.
The Baltimore Suns subsidiaries, Patuxent Publishing
and Homestead Publishing, publish 17 weekly newspapers throughout Anne Arundel,
Baltimore, Carroll, Harford and Howard counties. The largest of these weekly
newspapers are The Columbia Flier, The
Towson Times, The Owings Mills Times and The Aegis. The Baltimore Sun also operates a market-leading
website, baltimoresun.com, as well as baltimore.metromix.com, a local
entertainment site targeting users in the 18-34 demographic.
Hartford
Courant, founded in 1764, is the oldest
continuously published newspaper in the United States. It is the most widely
circulated and read newspaper in Connecticut and the strongest medium in the
state for advertisers and readers alike. Winner of two Pulitzer Prizes and
twice named one of the five best-designed newspapers in the world, Hartford Courant is published in the
states capital, Hartford, and serves the states northern and central regions.
The Hartford Courants primary market is the Hartford market, which includes
Hartford, Tolland and Middlesex counties. The Hartford market ranks 44th among
U.S. markets in terms of households. Hartford Courant Company, publisher of Hartford Courant, has one of the most
extensive zoning operations in the country, publishing eight editions of Hartford Courant zoned for local news and
advertising. The company also operates courant.com, Connecticuts leading
online news site, and ctnow.com, a statewide entertainment website. It also
owns two subsidiaries: New Mass Media, Inc., a publisher of four weekly
alternative newspapers in Connecticut and Massachusetts, and ValuMail, Inc.,
a shared-mail company that distributes advertising supplements to more than
two million households in Connecticut, Massachusetts, New York and Rhode
Island. Approximately 90% of the papers daily and 78% of its Sunday
circulation is sold through home delivery, with the remainder primarily sold at
newsstands and vending boxes.
Founded in 1896, the Daily Press serves the Virginia Peninsula
market, which includes Newport News, Hampton, Williamsburg and eight other
cities and counties. This market, together with Norfolk, Portsmouth and
Virginia Beach, is the 40th largest U.S. market in terms of households. Daily Press is the
10
only major daily newspaper
in its primary market, although it competes with other regional and national
newspapers, as well as with other media. Approximately 84% of the papers daily
and 80% of its Sunday circulation is sold through home delivery, with the
remainder primarily sold at newsstands and vending boxes. The Daily Press, Inc.,
publisher of Daily Press, also
owns The Virginia Gazette, which
is published twice weekly and primarily serves Williamsburg, Va., and
surrounding counties. The Daily Press
serves the Internet community through its online affiliates dailypress.com,
7cities.com and hrtownsquare.com.
The
Morning Call, published since 1895, is the
dominant regional newspaper for nine counties in eastern Pennsylvania and New
Jersey. The Morning Call, Inc., publisher of The Morning Call, offers free publications serving the
recruitment and real estate markets, and selected high-income households. A free
weekly newspaper and a targeted online venture serve the 18-34 year-old
audience. Subsidiaries of The Morning Call, Inc. offer full service direct
marketing and saturation preprint delivery through non-subscriber distribution.
In addition, the company owns and operates the premier regional website,
mcall.com. Allentown-Bethlehem-Easton is the 60th largest U.S.
market in terms of households. Approximately 83% of the papers daily and 79%
of its Sunday circulation is sold through home delivery, with the remainder
primarily sold at newsstands and vending boxes.
The Advocate and
Greenwich Time primarily serve
the Stamford/Greenwich market in southwestern Fairfield County, Conn. The
newspapers also serve neighboring Norwalk. The
Advocate has won a Pulitzer Prize.
Other Publishing
Related Businesses
The Company also owns targeted publications, including
three editions of the Spanish language newspaper, Hoy. Hoy, New
York, a free publication as of January 2006, was introduced in 1998; Hoy, Chicago, is a free publication
introduced in September 2003; and Hoy,
Los Angeles, is a free publication introduced in March 2004. See
Note 3 to the consolidated financial statements in Item 8 for a
discussion of the charges recorded in 2004 related to the anticipated settlement
with advertisers regarding misstated circulation at Hoy, New York. Hoy provides
local, national and international news and features of interest to Hispanics. Hoy, New York, serves the second-largest
Hispanic market in the U.S.; Hoy,
Los Angeles, serves the largest Hispanic market in the U.S.; and Hoy, Chicago, serves the fourth largest
Hispanic market in the U.S. The Spanish-language daily newspaper also operates
hoyinternet.com, a national Spanish-language website. On Feb. 12, 2007,
the Company announced the sale of Hoy, New York
to ImpreMedia, LLC. The sale is expected to close in the first quarter of 2007.
The Company also owns Tribune Media Services, Inc.
(TMS), which creates, aggregates and distributes news, information and
entertainment content that reaches millions of users through print, online and
on-screen media. The TMS Entertainment Products group creates TV and movie
guide products for major media companies and consumers. TMS provides data for
interactive program guides to cable, satellite operators and consumer
electronics manufacturers. The TMS News and Features group licenses content from
more than 600 writers, artists, newspaper and magazine publishers, and wire
services to roughly 4,000 media customers worldwide.
The Company also operates
CLTV, a regional 24-hour cable news channel serving Chicagoland. CLTV was
launched in January 1993 and currently is available to more than
1.6 million cable households in the Chicago market.
Broadcasting and
Entertainment
The broadcasting and entertainment segment represented
26% of the Companys consolidated operating revenues in 2006. At Dec. 31,
2006, the segment included The CW Television Network (The CW Network)
affiliates located in New York, Los Angeles, Chicago, Dallas, Washington, D.C.,
Houston, Miami, Denver, St. Louis, Portland, Indianapolis, San Diego,
Hartford, and New Orleans; the FOX
11
Network television
affiliates in Seattle, Sacramento, Indianapolis, Hartford, Grand Rapids and
Harrisburg; MyNetworkTV affiliates in Philadelphia and Seattle; an ABC
television affiliate in New Orleans; one radio station in Chicago; the Chicago
Cubs baseball team; and Tribune Entertainment, a company that distributes its
own programming together with programming licensed from third parties. On Jan. 24,
2006, the Company announced that it had reached a 10-year agreement to
affiliate 16 of its former WB Network affiliates stations with The CW Network.
The network was launched in September 2006 by Warner Bros. Entertainment
and CBS. The network airs a portion of the programming previously carried on
the WB Network and the UPN Network, as well as new programming. The WB Network
was shut down in 2006. The Company did not incur any costs related to the
shutdown of the WB Network. The Company sold its Albany and Boston stations,
both CW Network affiliates, in December 2006.
In the second quarter of 2006, the Company announced
that its other three WB Network affiliates (Philadelphia, Atlanta and Seattle)
would become affiliates of the new broadcast network, MyNetworkTV, which was
launched in September 2006 by the FOX Television Stations Network Inc. and
Twentieth Century Television. The new network airs primarily prime-time dramas.
The Company subsequently sold its Atlanta station in August 2006.
The
additional week in fiscal year 2006 increased operating revenues, operating
expenses and operating profit by approximately 1%. The following table
shows sources of operating revenues for the broadcasting and entertainment
segment for the last three years (in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Television
|
|
$
|
1,178,104
|
|
$
|
1,165,821
|
|
$
|
1,258,802
|
|
Radio/entertainment
|
|
247,042
|
|
248,612
|
|
242,779
|
|
Total
|
|
$
|
1,425,146
|
|
$
|
1,414,433
|
|
$
|
1,501,581
|
|
12
Television
In
2006, television contributed 83% of the broadcasting and entertainment segments
operating revenues. The Companys television stations compete for audience and
advertising with other television and radio stations, cable television and
other media serving the same markets. Competition for audience and advertising
is based upon various interrelated factors including programming content,
audience acceptance and price. Selected data for the Companys television
stations are shown in the following table:
|
|
Market(1)
|
|
|
|
|
|
Major
Over-the Air
|
|
Expiration
|
|
|
|
|
|
National
Ranks
|
|
% of U.S
Households
|
|
FCC
%
|
|
Analog
Channel
|
|
Affiliation
|
|
Stations in
Market(2)
|
|
of FCC
License(3)
|
|
Year
Acquired
|
|
WPIXNew York, NY
|
|
|
1
|
|
|
|
6.6
|
|
|
|
6.6
|
|
|
11-VHF
|
|
|
CW
|
|
|
|
7
|
|
|
|
2007
|
(4)(6)
|
|
|
1948
|
(5)
|
|
KTLALos Angeles, CA
|
|
|
2
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
5-VHF
|
|
|
CW
|
|
|
|
8
|
|
|
|
2006
|
(4)(6)
|
|
|
1985
|
|
|
WGNChicago, IL
|
|
|
3
|
|
|
|
3.1
|
|
|
|
3.1
|
|
|
9-VHF
|
|
|
CW
|
|
|
|
8
|
|
|
|
2005
|
(6)
|
|
|
1948
|
(5)
|
|
WPHLPhiladelphia, PA
|
|
|
4
|
|
|
|
2.6
|
|
|
|
1.3
|
|
|
17-UHF
|
|
|
MNTV
|
|
|
|
7
|
|
|
|
2007
|
(7)
|
|
|
1992
|
|
|
KDAFDallas, TX
|
|
|
6
|
|
|
|
2.1
|
|
|
|
1.1
|
|
|
33-UHF
|
|
|
CW
|
|
|
|
9
|
|
|
|
2006
|
(6)
|
|
|
1997
|
|
|
WDCWWashington, D.C.
|
|
|
8
|
|
|
|
2.0
|
|
|
|
1.0
|
|
|
50-UHF
|
|
|
CW
|
|
|
|
7
|
|
|
|
2004
|
(6)
|
|
|
1999
|
|
|
KHCWHouston, TX
|
|
|
10
|
|
|
|
1.8
|
|
|
|
0.9
|
|
|
39-UHF
|
|
|
CW
|
|
|
|
9
|
|
|
|
2006
|
(6)
|
|
|
1996
|
|
|
KCPQSeattle, WA
|
|
|
14
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
13-VHF
|
|
|
FOX
|
|
|
|
8
|
|
|
|
2007
|
(6)
|
|
|
1999
|
|
|
KMYQSeattle, WA
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
22-UHF
|
|
|
MNTV
|
|
|
|
8
|
|
|
|
2007
|
(6)
|
|
|
1998
|
|
|
WSFLMiami, FL
|
|
|
16
|
|
|
|
1.4
|
|
|
|
0.7
|
|
|
39-UHF
|
|
|
CW
|
|
|
|
7
|
|
|
|
2013
|
(4)
|
|
|
1997
|
|
|
KWGNDenver, CO
|
|
|
18
|
|
|
|
1.3
|
|
|
|
1.3
|
|
|
2-VHF
|
|
|
CW
|
|
|
|
7
|
|
|
|
2006
|
(6)
|
|
|
1966
|
|
|
KTXLSacramento, CA
|
|
|
20
|
|
|
|
1.2
|
|
|
|
0.6
|
|
|
40-UHF
|
|
|
FOX
|
|
|
|
7
|
|
|
|
2006
|
(6)
|
|
|
1997
|
|
|
KPLRSt. Louis, MO
|
|
|
21
|
|
|
|
1.1
|
|
|
|
1.1
|
|
|
11-VHF
|
|
|
CW
|
|
|
|
6
|
|
|
|
2014
|
|
|
|
2003
|
|
|
KRCWPortland, OR
|
|
|
23
|
|
|
|
1.0
|
|
|
|
0.5
|
|
|
32-UHF
|
|
|
CW
|
|
|
|
7
|
|
|
|
2007
|
(6)
|
|
|
2003
|
|
|
WTTVIndianapolis, IN
|
|
|
25
|
|
|
|
1.0
|
|
|
|
1.0
|
|
|
4-VHF
|
|
|
CW
|
|
|
|
7
|
|
|
|
2013
|
|
|
|
2002
|
|
|
WXINIndianapolis, IN
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
59-UHF
|
|
|
FOX
|
|
|
|
7
|
|
|
|
2005
|
(6)
|
|
|
1997
|
|
|
KSWBSan Diego, CA
|
|
|
27
|
|
|
|
0.9
|
|
|
|
0.5
|
|
|
69-UHF
|
|
|
CW
|
|
|
|
7
|
|
|
|
2006
|
(6)
|
|
|
1996
|
|
|
WTICHartford, CT
|
|
|
28
|
|
|
|
0.9
|
|
|
|
0.5
|
|
|
61-UHF
|
|
|
FOX
|
|
|
|
7
|
|
|
|
2007
|
(4)(6)
|
|
|
1997
|
|
|
WTXXHartford, CT
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
20-UHF
|
|
|
CW
|
|
|
|
7
|
|
|
|
2007
|
(4)(6)
|
|
|
2001
|
|
|
WXMIGrand Rapids, MI
|
|
|
39
|
|
|
|
0.7
|
|
|
|
0.3
|
|
|
17-UHF
|
|
|
FOX
|
|
|
|
7
|
|
|
|
2005
|
(6)
|
|
|
1998
|
|
|
WPMTHarrisburg, PA
|
|
|
41
|
|
|
|
0.6
|
|
|
|
0.3
|
|
|
43-UHF
|
|
|
FOX
|
|
|
|
5
|
|
|
|
2007
|
(7)
|
|
|
1997
|
|
|
WGNONew Orleans, LA
|
|
|
54
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
26-UHF
|
|
|
ABC
|
|
|
|
7
|
|
|
|
2005
|
(6)
|
|
|
1983
|
|
|
WNOLNew Orleans, LA
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
38-UHF
|
|
|
CW
|
|
|
|
7
|
|
|
|
2013
|
|
|
|
2000
|
|
|
(1) Source:
Nielsen Station Index (DMA Market and Demographic Rank Report, September 2006).
Ranking of markets is based on number of television households in DMA
(Designated Market Area).
(2) Source:
Nielsen Station Index (Viewers in Profile Reports, 2006). Major over-the-air
stations program for a broad, general audience in the market.
(3) See
Governmental Regulation.
(4) See
Governmental Regulation for discussion of the Federal Communications
Commission (FCC) television/newspaper cross-ownership rule.
(5) Founded
by the Company.
(6) The
WDCW-TV license expired October 2004, the renewal application filed in June 2004
is pending; the WGNO-TV license expired June 2005, the renewal application
filed in February 2005 is pending; the WXIN-TV license expired August 2005,
the renewal application filed in March 2005 is pending; the WXMI-TV
license expired October 2005, the renewal application filed in May 2005
is pending; the WGN-TV license expired December 2005, the renewal
application filed in August 2005 is pending; the KWGN-TV license expired in
April 2006, the renewal application filed in December 2005 is
pending; the KDAF-TV license expired August 2006, the renewal application
filed in March 2006 is pending; the KHCW-TV license expired August 2006,
the renewal application filed in March 2006 is pending; the KTLA-TV
license expired December 2006, the renewal application filed in August 2006
is pending; the KTXL-TV license expired December 2006, the renewal
application filed in August 2006 is
13
pending; and the KSWB-TV license expired December 2006, the
renewal application filed in August 2006 is pending. The KCPQ-TV license
expired in February 2007, the renewal application filed in October 2006
is pending; the KMYQ-TV license expired in February 2007, the renewal
application filed in October 2006 is pending; the KRCW-TV license expired
in February 2007, the renewal application filed in October 2006 is
pending; the WTIC-TV license expires in April 2007, the renewal
application filed in December 2006 is pending; the WTXX-TV license expires
in April 2007, the renewal application filed in December 2006 is
pending; and the WPIX-TV license expires in June 2007, the renewal
application filed in February 2007 is pending.
(7) The
WPHL-TV and WPMT-TV license renewal applications are due by April 1, 2007.
Programming emphasis at the Companys stations is
placed on network-provided shows, syndicated series, feature motion
pictures, local and regional sports coverage, news, and childrens programs.
These stations acquire most of their programming from outside sources,
including The CW Network, the FOX Network and MyNetworkTV, although a
significant amount is produced locally. Superstation WGN programming is
delivered by cable or satellite outside of the Chicago area and includes
syndicated series, movies and first-run programming. Contracts for purchased
programming generally cover a period of one to five years, with payment also
typically made over several years. The expense for amortization of television
broadcast rights in 2006 was $361 million, which represented approximately
31% of total television operating revenues.
14
Average
audience share information for the Companys television stations for the past
three years is shown in the following table:
|
|
|
|
Average Audience Share(1)
|
|
|
|
|
|
Total Market
Year Ended December
|
|
In-Market Stations(2)
Year Ended December
|
|
|
|
Affiliation
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
WPIXNew York
|
|
|
CW
|
|
|
|
4.4
|
%
|
|
|
5.1
|
%
|
|
|
5.8
|
%
|
|
11.1
|
%
|
12.4
|
%
|
13.6
|
%
|
KTLALos Angeles
|
|
|
CW
|
|
|
|
3.6
|
|
|
|
4.0
|
|
|
|
4.6
|
|
|
9.9
|
|
10.7
|
|
11.4
|
|
WGNChicago
|
|
|
CW
|
|
|
|
5.9
|
|
|
|
6.2
|
|
|
|
7.0
|
|
|
12.9
|
|
13.2
|
|
13.9
|
|
WPHLPhiladelphia
|
|
|
MNTV
|
|
|
|
3.7
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
8.4
|
|
8.5
|
|
8.2
|
|
KDAFDallas
|
|
|
CW
|
|
|
|
4.3
|
|
|
|
4.3
|
|
|
|
6.4
|
|
|
9.2
|
|
9.1
|
|
12.4
|
|
WDCWWashington
|
|
|
CW
|
|
|
|
3.2
|
|
|
|
4.2
|
|
|
|
4.4
|
|
|
8.2
|
|
9.5
|
|
10.1
|
|
KHCWHouston
|
|
|
CW
|
|
|
|
4.5
|
|
|
|
4.8
|
|
|
|
5.1
|
|
|
9.9
|
|
9.8
|
|
10.3
|
|
KCPQSeattle
|
|
|
FOX
|
|
|
|
5.7
|
|
|
|
6.7
|
|
|
|
5.8
|
|
|
12.3
|
|
13.7
|
|
11.8
|
|
KMYQSeattle
|
|
|
MNTV
|
|
|
|
2.0
|
|
|
|
2.5
|
|
|
|
2.5
|
|
|
4.3
|
|
5.0
|
|
5.0
|
|
WSFLMiami
|
|
|
CW
|
|
|
|
3.9
|
|
|
|
5.2
|
(3)
|
|
|
5.2
|
|
|
11.0
|
|
13.9
|
(3)
|
13.9
|
|
KWGNDenver
|
|
|
CW
|
|
|
|
3.2
|
|
|
|
3.9
|
|
|
|
4.3
|
|
|
7.8
|
|
9.4
|
|
9.8
|
|
KTXLSacramento
|
|
|
FOX
|
|
|
|
5.2
|
|
|
|
5.7
|
|
|
|
5.8
|
|
|
10.3
|
|
13.3
|
|
13.2
|
|
KPLRSt. Louis
|
|
|
CW
|
|
|
|
5.5
|
|
|
|
5.0
|
|
|
|
5.8
|
|
|
10.4
|
|
9.5
|
|
10.8
|
|
KRCWPortland
|
|
|
CW
|
|
|
|
3.3
|
|
|
|
3.7
|
|
|
|
4.0
|
|
|
7.2
|
|
7.9
|
|
8.2
|
|
WTTVIndianapolis
|
|
|
CW
|
|
|
|
2.7
|
|
|
|
3.7
|
|
|
|
3.8
|
|
|
5.9
|
|
7.8
|
|
7.7
|
|
WXINIndianapolis
|
|
|
FOX
|
|
|
|
5.8
|
|
|
|
6.5
|
|
|
|
5.7
|
|
|
12.8
|
|
13.7
|
|
11.7
|
|
KSWBSan Diego
|
|
|
CW
|
|
|
|
2.6
|
|
|
|
3.1
|
|
|
|
3.8
|
|
|
6.8
|
|
7.7
|
|
9.2
|
|
WTICHartford
|
|
|
FOX
|
|
|
|
5.4
|
|
|
|
6.3
|
|
|
|
5.8
|
|
|
12.6
|
|
14.5
|
|
13.1
|
|
WTXXHartford
|
|
|
CW
|
|
|
|
2.1
|
|
|
|
2.1
|
|
|
|
2.4
|
|
|
4.9
|
|
4.7
|
|
5.5
|
|
WXMIGrand Rapids
|
|
|
FOX
|
|
|
|
6.4
|
|
|
|
7.1
|
|
|
|
6.6
|
|
|
12.2
|
|
13.6
|
|
12.6
|
|
WPMTHarrisburg
|
|
|
FOX
|
|
|
|
5.5
|
|
|
|
6.1
|
|
|
|
5.8
|
|
|
11.8
|
|
13.9
|
|
12.7
|
|
WGNONew Orleans
|
|
|
ABC
|
|
|
|
|
(4)
|
|
|
4.6
|
(3)
|
|
|
4.6
|
|
|
|
(4)
|
9.8
|
(3)
|
9.5
|
|
WNOLNew Orleans
|
|
|
CW
|
|
|
|
|
(4)
|
|
|
3.8
|
(3)
|
|
|
4.9
|
|
|
|
(4)
|
8.2
|
(3)
|
10.0
|
|
23 Station Unweighted Average (5)
|
|
|
|
|
|
|
4.2
|
|
|
|
4.7
|
|
|
|
5.0
|
|
|
9.5
|
|
10.4
|
|
10.6
|
|
(1) Represents
the estimated number of television households tuned to a specific station as a
percent of total viewing households in a defined area. The percentages shown
reflect the average Nielsen ratings shares for the February, May, July and
November measurement periods for 7 a.m. to 1 a.m. daily.
(2) Excludes
cable, satellite, public broadcasting, foreign language and minor independent
channels.
(3) Nielsen
did not release November 2005 data for WSFL-TV, WGNO-TV and WNOL-TV as a
result of hurricanes in these areas. The 2005 shares for these markets reflect
the average of ratings for the February, May and July measurement
periods only.
(4) Nielsen
did not release 2006 ratings data for WGNO-TV and WNOL-TV as a result of
Hurricane Katrina.
(5) 2006
unweighted station average is for 21 stations rather than 23, since New Orleans
was not measured in 2006.
Average audience shares
are shown on two bases: total market, which includes all channels, and
in-market stations, which includes only the major over-the-air stations.
Average in-market shares are a more relevant benchmark to determine the
stations performance in their respective markets as they compare the stations
performance to their primary programming and sales competition. In 2006, the
average total market share and the average in-market share for the 23-station
group declined versus 2005. Ratings for stations in the larger markets
continued to be affected by the introduction of Nielsens Local People Meters (LPMs).
LPMs have tended to reduce the overall share of broadcast television as
compared to cable television and, within the broadcast television universe,
disadvantage stations like Tribunes that target younger audiences. The
stations were also affected by some audience erosion due to a lack of major new
syndicated programming and by lower WB Network prime-time ratings. The WB
ceased operations in
15
September 2006.
Fourteen of Tribunes WB stations became affiliates of The CW network, a joint
venture between CBS Corporation and Warner Bros. Entertainment. Two Tribune WB
stations became affiliates of MyNetworkTV, a new television network owned by FOX
Television Stations Network Inc. and Twentieth Century Television.
Radio/Entertainment
In
2006, radio/entertainment operations contributed 17% of the broadcasting and
entertainment segments operating revenues. WGN-AM, Chicago, is the only radio
station owned by the Company. Selected information for WGN-AM, Chicago, is
shown in the following table:
|
|
|
Format
|
|
|
Frequency
|
|
National
Market
Rank(1)
|
|
Number of
Operating
Stations in
Market(2)
|
|
Audience
Share(3)
|
|
WGN-AM,
Chicago
|
|
Personality/Infotainment/Sports
|
|
|
720-AM
|
|
|
|
3
|
|
|
|
39
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Source:
Radio markets ranked by Arbitron Metro Survey Area, Arbitron Company 2006.
(2) Source:
Arbitron Company 2006.
(3) Source:
Average of Winter 2005 and Spring, Summer and Fall 2006 Arbitron shares for
persons 12 years old and over, 6 a.m. to midnight daily during the
period measured.
Entertainment includes Tribune Entertainment Company (Tribune
Entertainment) and the Chicago Cubs baseball team. The Chicago Cubs were
acquired in 1981. Cubs games are broadcast on WGN-TV and WGN-AM. Tribune
Entertainment is a distributor of programming in the United States syndicated
television, cable television and ancillary markets. Tribune Entertainment
distributes its own programming together with programming licensed from third
parties.
Tribune Entertainment is party to a variety of
distribution, marketing, and advertiser sales relationships with major
suppliers such as DreamWorks SKG for the exclusive domestic syndication and ad
sales of their film library, FremantleMedia, Hearst Entertainment, Rigel
Entertainment, Telco Productions, Debmar-Mercury Entertainment, DIC
Entertainment, Carlton America, and New Line Television. These relationships
comprise over 400 television and theatrical motion pictures and more than 1,300
episodes of various television series and specials including South Park, Family
Feud, Soul Train, The Soul Train Music Awards, and Ron Hazeltons House
Calls. Tribune Entertainment also distributes its television series
productions of Andromeda, Earth Final Conflict, Beastmaster, Mutant X,
and Nightman.
In the fall of 2006, the first of the DreamWorks SKG
titles became available. In addition, Tribune Entertainment launched American
Idol Rewind, in domestic syndication. The weekly one-hour series, includes
original, never-before-seen episodes of the highly successful American Idol
franchise.
Tribune California Properties,
a subsidiary of Tribune Entertainment, owns and maintains the 10.5-acre
studio production lot in Hollywood. Tribune Studios, also a subsidiary of
Tribune Entertainment, manages the site that includes facilities rental of nine
state-of-the art digital sound stages and associated production office space.
Investments
The Company has investments in several public and
private companies. See Note 8 to the consolidated financial statements in
Item 8 for further discussion of the Companys cost and equity method
investments.
16
The Companys principal
equity method investments currently include CareerBuilder, Classified Ventures,
TV Food Network, Comcast SportsNet Chicago, ShopLocal, Topix.net, TMCT and
TMCT II. CareerBuilder, an online recruiting company formed in 2000, is
owned 42.5 % by the Company, 42.5% by Gannett Co., Inc. and 15% by The
McClatchy Co., Inc. Classified Ventures is a network of automotive and
real estate classified advertising websites. TV Food Network is a 24-hour
cable/satellite television network focusing on food and entertaining. Comcast
SportsNet Chicago is a 24-hour cable/satellite television network, which
began programming in the fall of 2004, focusing on Chicago sports teams.
ShopLocal transforms traditionally print-based retail promotions into
search-based interactive formats. The Company, Gannett Co., Inc. and
McClatchy Co., each own a 42.5%, 42.5% and 15% interest in ShopLocal,
respectively. Topix.net is an online news and information aggregation website
that continuously monitors breaking news from over 10,000 online sources and
categorizes daily news content into over 300,000 topics, 24 hours a day. The ownership of Topix, LLC is approximately
33.7% for both the Company and Gannett Co., Inc., 11.9% for the McClatchy
Co. and 20.7% for management of Topix, LLC. On Sept. 21, 2006, the
Company and the Chandler Trusts entered into agreements to restructure TMCT and
TMCT II. As a result, the Companys interests in each of TMCT and TMCT II were
reduced to approximately 5%. The Companys investments in TMCT and TMCT II
are further discussed in Note 7 to the consolidated financial statements
in Item 8.
Non-Operating Items
The Company reported
several non-operating items in 2006, 2005 and 2004, which included gains and
losses resulting from sales of investments, changes in the fair values of the
Companys PHONES derivatives and related Time Warner investment, the TMCT and
TMCT II restructuring, the early retirement of debt, write-downs of
investments, and income tax adjustments, including additional tax expense
associated with the Matthew Bender and Mosby tax liability. These non-operating
items are further discussed in Note 2 to the consolidated financial
statements in Item 8.
Governmental
Regulation
Various aspects of the Companys operations are
subject to regulation by governmental authorities in the United States.
The Companys television and radio broadcasting
operations are subject to FCC jurisdiction under the Communications Act of
1934, as amended. FCC rules, among other things, govern the term, renewal and
transfer of radio and television broadcasting licenses, and limit
concentrations of broadcasting control inconsistent with the public interest.
Federal law also regulates the rates charged for political advertising and the
quantity of advertising within childrens programs. The Company is permitted to
own both newspaper and broadcast operations in the Chicago market by virtue of grandfather
provisions in the FCC regulations and in the Fort Lauderdale/Miami market by
virtue of a temporary waiver of the television/newspaper cross-ownership
rule.
Because the Times Mirror acquisition in 2000 did not
involve the transfer of any broadcast station licenses, FCC approval was not
required to complete the transaction. Under the television/newspaper cross-ownership
rule in effect at the time of the merger, companies were generally
prohibited from owning both a newspaper and a broadcast license in the same
market. However, it was also the FCCs policy to permit newly created television/newspaper
combinations to be held until the next broadcast license renewal. As such,
license renewals for three Tribune television propertiesKTLA-TV, Los Angeles
(renewal in 2006), WPIX-TV, New York (renewal in 2007) and WTIC-TV, Hartford
(renewal in 2007)are affected by the Times Mirror acquisition under the old
FCC media ownership rules. In June 2003, the FCC adopted new media
ownership rules, including a new television/newspaper cross-ownership
rule. The new rule would eliminate the cross-ownership prohibition
entirely in markets with nine or more television stations. Under this rule, the
Company would be permitted to retain its newspaper and television
17
operations in each of the
five markets where it owns both newspaper and television operationsNew York,
Los Angeles, Chicago, South Florida and Hartford.
In September 2003, the United States Court of
Appeals for the Third Circuit stayed the effectiveness of the new media
ownership rules pending the outcome of appeals by advocacy groups
challenging the new rules. In June 2004, the Third Circuit remanded the
new rules to the FCC for further proceedings while keeping the stay in
effect. In January 2005, the Company and other media companies filed a
joint petition seeking United States Supreme Court review of the June 2004
Third Circuit remand. In June 2005, the Supreme Court declined to review
the petition, without addressing the Constitutional arguments raised and
without foreclosing additional appeals if the Companys interests are not
adequately addressed as part of the FCCs remand proceeding. In June 2006,
the FCC adopted a Further Notice of Proposed Rulemaking seeking comment on the
issues raised by the Third Circuit in its stay and remand, including those
relating to the FCCs new television/newspaper cross-ownership rule. In October 2006,
the Company filed comments in response to the FCCs Further Notice of Proposed
Rulemaking. While the Company remains optimistic that the cross-ownership ban
will ultimately be loosened in major markets, it cannot predict with certainty
the outcome of the FCCs remand proceeding. Accordingly, in its FCC license renewal
applications, the Company has sought and expects to receive waivers to allow
continued ownership of both the Los Angeles Times
and KTLA-TV, both Hartford Courant and
WTIC-TV/WTXX-TV and both Newsday and
WPIX-TV pending the outcome of the FCC proceeding. The Company has a
temporary waiver, pending the outcome of the same rulemaking proceeding, in
connection with its 1997 acquisition of WSFL-TV, Miami, which is considered
part of the market served by the South
Florida Sun-Sentinel, published in Fort Lauderdale.
Congress removed national limits on the number of
broadcast stations a licensee may own in 1996. However, federal law continues
to limit the number of radio and television stations a single owner may own in
a local market, and caps the percentage of the national television audience
that may be reached by a licensees television stations in the aggregate at
39%. The local ownership rules allow, under certain conditions, common
ownership of two television stations and certain radio/television combinations.
In 2001, the Company acquired television station WTXX-TV, Hartford, pursuant to
a so-called failing station waiver allowing common ownership of WTIC-TV and
WTXX-TV in the same market.
Television and radio broadcasting licenses are subject
to renewal by the FCC, at which time they may be subject to petitions to deny
the license renewal applications. At Dec. 31, 2006, the Company had FCC authorization to operate 23
television stations and one AM radio station. At Dec. 31, 2006, the
Company had 16 television license renewal applications pending before the FCC
(WDCW-TV, Washington, D.C., WGNO-TV, New Orleans, WXIN-TV, Indianapolis,
WXMI-TV, Grand Rapids, WGN-TV, Chicago, KWGN-TV, Denver, KDAF-TV, Dallas,
KHCW-TV, Houston, KTLA-TV, Los Angeles, KTXL-TV, Sacramento, KSWB-TV, San
Diego, KRCW-TV, Portland, KCPQ-TV, KMYQ-TV, Seattle/Tacoma, and WTIC-TV and
WTXX-TV, Hartford/Waterbury). The Company expects the FCC to renew all of the
licenses.
The FCC has approved technical standards and channel
assignments for digital television (DTV) service. DTV permits broadcasters to
transmit video images with higher resolution than existing analog signals.
Operators of full-power television stations have each been assigned a second
channel for DTV while they continue analog broadcasts on the original channel.
After the transition is complete, broadcasters will be required to return one
of the two channels to the FCC and transmit exclusively in digital format. By
law, the transition to DTV was to occur by Dec. 31, 2006, subject to
extension if 80% or more of U.S. households did not have a DTV receiver, a
benchmark that was not met. In December 2005, the Senate passed a bill
that would, among other things, extend the digital transition deadline to Feb. 17,
2009. Conversion to digital transmission is requiring all television
broadcasters, including those owned by the Company, to invest in digital
equipment and facilities. At Dec. 31, 2006, all of the Companys
television stations were DTV compliant.
18
The FCC has not yet issued final DTV channel
assignments for operation after the transition from analog has ended, and has
not resolved a number of issues relating to the operation of DTV stations.
These issues include the obligations of DTV stations to broadcast childrens
programming as well as additional public interest obligations that may be
imposed on broadcasters use of digital spectrum.
From time to time, the FCC
revises existing regulations and policies in ways that could affect the Companys
broadcasting operations. In addition, Congress from time to time considers and
adopts substantive amendments to the governing communications legislation. The
Company cannot predict what regulations or legislation may be proposed or
finally enacted or what effect, if any, such regulations or legislation could
have on the Companys broadcasting operations.
Employees
The average number of full-time equivalent employees
of the Company in 2006 was 21,000, approximately 1,200 less than the average
for 2005, primarily due to the elimination of approximately 450 positions at
various times during 2006 and approximately 900 positions near the end of 2005,
primarily in the publishing segment.
During 2006, the Companys publishing segment employed
an average of approximately 17,800 full-time equivalent employees. About 13% of
these employees were represented by unions covered under 19 labor contracts.
Contracts with unionized employees of the publishing segment expire at various
times through April 2012.
The broadcasting and
entertainment segment had an average of approximately 3,100 full-time
equivalent employees in 2006. Approximately 19% of these employees were
represented by unions covered under 20 labor contracts. Contracts with
unionized employees of the broadcasting and entertainment segment expire at
various times through December 2009.
Executive Officers
of the Company
Information with respect
to the executive officers of the Company as of Feb. 26, 2007, is set forth
below. Their ages are indicated in parentheses. The descriptions of the
business experience of these individuals include the principal positions held
by them since February 2002. Unless otherwise indicated, all references to
positions are to officers of the Company.
Dennis J. FitzSimons (56)
Chairman (since January 2004), Chief Executive Officer (since January 2003)
and President (since July 2001); Chief Operating Officer from July 2001
until December 2002; Executive Vice President from January 2000 until
July 2001; President of Tribune Broadcasting Company* from May 1997
until January 2003.
Donald C. Grenesko (58)
Senior Vice President/Finance and Administration.
Crane H. Kenney (44)
Senior Vice President, General Counsel and Secretary.
Timothy J. Landon (44)
President of Tribune Interactive, Inc.* since March 2004; President
of Tribune Classified* from June 2000 until March 2004.
Thomas D. Leach (46)
Senior Vice President/Development since February 2005; Vice President/Development
from
19
February 2004 until February 2005; Vice
President and Chief Financial Officer of Tribune Broadcasting Company* from March 2001
until January 2004.
Luis E. Lewin (58)
Senior Vice President/Human Resources.
R. Mark Mallory (56)
Vice President and Controller.
Ruthellyn Musil (55)
Senior Vice President/Corporate Relations since February 2004; Vice
President/Corporate Relations until February 2004.
John E. Reardon (53)
President of Tribune Broadcasting Company* since November 2005; Vice
President of Tribune Broadcasting Company* from March 2004 until November 2005;
Vice President and General Manager of KTLA-TV, Los Angeles* until March 2004.
Scott C. Smith (56)
President of Tribune Publishing Company* since January 2005 and Publisher
of Chicago Tribune Company* since October 2006; Chief Operating Officer of
Tribune Publishing Company* from November 2004 until January 2005;
President of Chicago Tribune Company* until November 2004.
* A
subsidiary or a division of the Company
Available
Information
The Company maintains an Internet website at
www.tribune.com where the Companys Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and all amendments to those reports are available without charge, as soon as
reasonably practicable following the time that they are filed with or furnished
to the Securities and Exchange Commission.
20
ITEM 1A. RISK
FACTORS.
The foregoing business
discussion and the other information included in this Form 10-K
should be read in conjunction with the following risks, trends and
uncertainties, any of which, either individually or in the aggregate, could materially
and adversely affect our business, operating results or financial condition.
Advertising demand will continue to be impacted by
changes in economic conditions and fragmentation of the media landscape
Advertising revenue is the primary source of revenue
for our publishing and broadcasting businesses. National and local economic
conditions, particularly in major metropolitan markets, affect the levels of
retail, national and classified newspaper advertising revenue, as well as
television advertising revenue. Changes in Gross Domestic Product, consumer
spending, auto sales, housing sales, unemployment rates, job creation and
circulation levels and rates all impact demand for advertising. Consolidation
across various industries, particularly large department store and
telecommunications companies, may also reduce our overall advertising revenue.
Competition from other media, including other
metropolitan, suburban and national newspapers, broadcasters, cable systems and
networks, satellite television and radio, websites, magazines, direct marketing
and solo and shared mail programs, affects our ability to retain advertising
clients and raise rates. In recent years, Internet sites devoted to
recruitment, automobile and real estate have become significant competitors of
our newspapers and websites for classified advertising. While we have invested
in successful Internet ventures such as CareerBuilder and Classified Ventures
to capture some of the advertising dollars that have migrated online, retaining
our historical share of classified advertising revenues remains a challenge.
Seasonal variations in consumer spending cause our
quarterly advertising revenues to fluctuate. Second and fourth quarter
advertising revenues are typically higher than first and third quarter
advertising revenues, reflecting the slower economic activity in the winter and
summer and the stronger fourth quarter holiday season.
In broadcasting, the
proliferation of cable and satellite channels, advances in mobile and wireless
technology, the migration of television audiences to the Internet and the
viewing publics increased control over the manner and timing of their media
consumption through personal video recording devices, have resulted in greater
fragmentation of the television viewing audience and a more difficult sales
environment.
Circulation and
audience share may decline as consumers migrate to other media alternatives
Competition for newspaper advertising is based on
reader demographics, price, service, advertiser results, and circulation and
readership levels, while competition for circulation is based upon the content
of the newspaper, service and price. Competition for television advertising is
based on audience share and ratings information, audience demographics and
price.
The National Do Not Call Registry has impacted the way
newspapers sell home-delivery circulation, particularly for the larger
newspapers that historically have relied on telemarketing. Similarly, Nielsens
Local People Meters, which capture viewership data in a different manner than
historical Nielsen viewership data collection methods, have tended to reduce
the overall share of broadcast television compared to cable television and,
within the broadcast television universe, disadvantage stations like ours that target
younger audiences.
Both advertising and
circulation revenues are being affected by consumer trends, including declining
newspaper buying by young people and the migration to other available forms of
media for news. In order to address declining circulation in certain markets,
we may increase marketing designed to retain our
21
existing
subscriber base and continue to introduce niche publications targeted at
commuters and young adults. We may also increase marketing efforts to drive
traffic to our proprietary websites.
Changes in the
regulatory landscape could affect our business operations and asset mix
Various aspects of our operations are subject to
regulation by governmental authorities in the United States. Changes in the
current regulatory environment could result in increased operating costs or
divestitures of several of our properties.
Our television and radio broadcasting operations are
subject to FCC jurisdiction under the Communications Act of 1934, as amended.
FCC rules, among other things, govern the term, renewal and transfer of radio
and television broadcasting licenses and limit concentrations of broadcasting
control inconsistent with the public interest. Federal law also regulates the
rates charged for both political advertising and the quantity of advertising
within childrens programs.
From time to time, the FCC
revises existing regulations and policies in ways that could affect our
broadcasting operations. In addition, Congress from time to time considers and
adopts substantive amendments to governing communications legislation. We
cannot predict what regulations or legislation may be proposed or finally
enacted or what effect, if any, such regulations or legislation could have on
our broadcasting operations. See Item 1. BusinessGovernmental Regulation
for a discussion of the pending FCC review of the television/newspaper cross-ownership
rule and the effect the outcome could have on our business.
The availability
and cost of quality syndicated programming may impact television ratings
The cost of syndicated
programming represents a significant portion of television operating expenses.
Programming emphasis at our stations is placed on network-provided
programming, syndicated series, feature motion pictures, local and regional
sports coverage, news, and childrens programs. Most of our stations
programming is acquired from outside sources, including the networks with which
our stations are affiliated, and some is produced locally or supplied by
Tribune Entertainment Company. Syndicated programming costs are impacted
largely by market factors, including demand from other stations or cable
channels within the market. Availability of syndicated programming depends on
the production of compelling programming and the willingness of studios to offer
the programming to unaffiliated buyers. Our inability to continue to acquire or
produce affordable programming for our stations could adversely affect
operating results or our financial condition.
Events beyond our
control may result in unexpected adverse operating results
Our results could be
affected in various ways by global or domestic events beyond our control, such
as wars, political unrest, acts of terrorism, and natural disasters. Such
events can quickly result in significant declines in advertising revenues and
significant increases in newsgathering costs. Coverage of the war in Iraq and
Hurricane Katrina are two examples where newsgathering costs increased and, in
the case of Hurricane Katrina, revenues dropped off significantly at our two
New Orleans television stations.
Newsprint prices
may continue to be volatile and difficult to predict and control
Newsprint is one of the
largest expenses of our publishing units. The price of newsprint has
historically been volatile and the consolidation of North American newsprint
mills over the years has reduced the number of suppliers. We have historically
been able to realize favorable newsprint pricing by virtue of our company-wide
volume and a long-term contract with a significant supplier. Failure to maintain
our current consumption levels, further supplier consolidation or the inability
to maintain our existing relationships with our newsprint suppliers could
adversely impact newsprint prices in the future.
22
We
have certain risks relating to our existing credit agreements.
In June 2006, the Company entered into a
five-year credit agreement and a 364-day bridge credit agreement. The five-year
credit agreement provides for a $1.5 billion unsecured term facility and a
$750 million unsecured revolving facility. The 364-day bridge credit
agreement provided for a $2.15 billion unsecured bridge facility. As of
Dec. 31, 2006, the Company had outstanding borrowings of $1.5 billion
and $1.3 billion under the term facility and the bridge facility,
respectively, and the Company had no borrowings under the revolving facility.
For additional information regarding these credit agreements, see Item 7,
Managements Discussion and Analysis of Financial Condition and Results of
OperationsSignificant EventsCredit Agreements.
Interest rates for our borrowings under
these credit agreements are affected by our credit ratings. Increased debt
levels and/or decreased earnings could result in downgrades in these ratings,
which could increase our borrowing costs under our existing credit agreements
and could raise our other borrowing rates. In addition, borrowings under these
credit agreements bear interest at variable rates based on LIBOR plus a spread
determined on the basis of the Companys credit ratings. Accordingly, changes in
LIBOR may adversely affect our cost of borrowings. For additional discussion of
interest rate risk, see Part II, Item 7A, Quantitative and
Qualitative Disclosure About Market Risk. Further, the Company intends to
refinance borrowings under the bridge facility prior to maturity. Refinancing
these borrowings on similar financial terms will be contingent upon a number of
factors, including the outcome of the Companys exploration of strategic
alternatives, financial market conditions and the Companys credit ratings.
Changes in
accounting standards can significantly impact reported earnings and operating
results
Generally accepted
accounting principles and accompanying pronouncements and implementation
guidelines for many aspects of our business, including those related to
intangible assets, pensions, income taxes, derivatives, share-based
compensation, and broadcast rights, are complex and involve significant
judgments. Changes in these rules or their interpretation could
significantly change our reported earnings and operating results. See Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
OperationsCritical Accounting Policies and Estimates and Note 1 to the
consolidated financial statements in Item 8. Financial Statements and
Supplementary Data.
Adverse results from litigation or governmental
investigations can impact our business practices and operating results
From time to time, Tribune
and its subsidiaries are parties to litigation and regulatory, environmental
and other proceedings with governmental authorities and administrative
agencies. Adverse outcomes in lawsuits or investigations could result in
significant monetary damages or injunctive relief that could adversely affect
our operating results or financial condition as well as our ability to conduct
our businesses as they are presently being conducted.
We could be faced
with additional tax liabilities
We are subject to both
federal and state income taxes and are regularly audited by federal and state
taxing authorities. Significant judgment is required in evaluating our tax
positions and in establishing appropriate reserves. We analyze our tax
positions and reserves on an ongoing basis and make adjustments when warranted
based on changes in facts and circumstances. While we believe our tax positions
and reserves are reasonable, the resolution of our tax issues are unpredictable
and could negatively impact our effective tax rate, net income or cash flows
for the period or periods in question.
23
Labor strikes, lock-outs and protracted
negotiations can lead to business interruptions and increased operating costs
Union employees currently
comprise about 14% of our workforce. We are required to negotiate collective
bargaining agreements across our business units on an ongoing basis.
Complications in labor negotiations can lead to work slowdowns or other
business interruptions and greater overall employee costs.
Acquisitions,
investments and divestitures pose inherent financial and other risks and
challenges
We continuously evaluate
our businesses and make strategic acquisitions and investments, either
individually or with partners, and divestitures as part of our strategic plan.
These transactions involve challenges and risks in negotiation, execution,
valuation and integration. Moreover, competition for certain types of
acquisitions is significant, particularly in the Interactive space. Even if
successfully negotiated, closed and integrated, certain acquisitions or
investments may prove not to advance our business strategy and may fall short
of expected return on investment targets. In certain of our investments, we
take a minority position in a company with limited voting rights and an
inability to exert absolute control over the entity.
The effects and
results of our exploration of strategic alternatives are uncertain
On Sept. 21, 2006, we
announced that our board of directors established an independent special
committee to oversee managements exploration of alternatives for creating
additional value for shareholders. There can be no assurance that the
exploration of alternatives will result in a transaction. Further, it is not
certain what impact any particular alternative, or lack thereof, may have on
our stock price, credit ratings, operating results, financial condition or
business prospects.
ITEM 1B. UNRESOLVED
STAFF COMMENTS.
None.
24
ITEM 2. PROPERTIES.
The
corporate headquarters of the Company are located at 435 North Michigan Avenue,
Chicago, Illinois. The general character, location and approximate size of the
principal physical properties used by the Company on Dec. 31, 2006 are listed
below. In total, the Company owns or leases transmitter sites, parking lots and
other land aggregating approximately 1,100 acres in 92 separate locations. In
addition to those properties listed below, the Company owns or leases an
aggregate of approximately 2,732,000 square feet of office and production space
in 289 locations. The Company also owns Wrigley Field, the 41,118-seat
stadium used by the Chicago Cubs baseball team. The Company considers its
various properties to be in good condition and suitable for the purposes for
which they are used.
|
|
Approximate Area
in Square Feet
|
|
General Character of Property
|
|
|
|
Owned
|
|
Leased(1)
|
|
Publishing:
|
|
|
|
|
|
Printing plants,
business and editorial offices, and warehouse
space located in:
|
|
|
|
|
|
Los Angeles, CA
|
|
656,000
|
|
1,353,000
|
|
Chicago, IL
|
|
1,583,000
|
(2)
|
89,000
|
|
Melville, NY
|
|
|
|
719,000
|
|
Baltimore, MD
|
|
10,000
|
|
875,000
|
|
Hartford, CT
|
|
173,000
|
|
337,000
|
|
Orlando, FL
|
|
374,000
|
|
81,000
|
|
Deerfield Beach, FL
|
|
320,000
|
|
44,000
|
|
Costa Mesa, CA
|
|
339,000
|
|
47,000
|
|
Irwindale, CA
|
|
|
|
325,000
|
|
Allentown, PA
|
|
222,000
|
|
|
|
Chatsworth, CA
|
|
|
|
52,000
|
|
Newport News, VA
|
|
251,000
|
|
22,000
|
|
Northlake, IL
|
|
|
|
246,000
|
|
Fort Lauderdale, FL
|
|
|
|
163,000
|
|
Oakbrook, IL
|
|
|
|
99,000
|
|
Stamford, CT
|
|
85,000
|
|
|
|
Miller Place, NY
|
|
85,000
|
|
|
|
Glens Falls, NY
|
|
|
|
59,000
|
|
Bel Air, MD
|
|
52,000
|
|
|
|
Columbia, MD
|
|
29,000
|
|
14,000
|
|
Greenwich, CT
|
|
24,000
|
|
|
|
Washington, DC
|
|
|
|
41,000
|
|
Williamsburg, VA
|
|
25,000
|
|
3,000
|
|
Broadcasting and
entertainment:
|
|
|
|
|
|
Business offices,
studios and transmitters located in:
|
|
|
|
|
|
Los Angeles, CA
|
|
309,000
|
|
65,000
|
|
Chicago, IL
|
|
132,000
|
|
|
|
New York, NY
|
|
|
|
121,000
|
|
Indianapolis, IN
|
|
79,000
|
|
|
|
Seattle, WA
|
|
68,000
|
|
|
|
Greenwood Village, CO
|
|
42,000
|
|
|
|
Maryland Heights, MO
|
|
|
|
39,000
|
|
Houston, TX
|
|
35,000
|
|
|
|
Dallas, TX
|
|
33,000
|
|
|
|
|
|
|
|
|
|
|
|
25
San Diego, CA
|
|
|
|
26,000
|
|
Hartford, CT
|
|
|
|
22,000
|
|
Philadelphia, PA
|
|
21,000
|
|
4,000
|
|
Sacramento, CA
|
|
24,000
|
|
|
|
Grand Rapids, MI
|
|
21,000
|
|
|
|
Hollywood, FL
|
|
20,000
|
|
|
|
York, PA
|
|
20,000
|
|
|
|
Beaverton, OR
|
|
14,000
|
|
|
|
Washington, DC
|
|
|
|
13,000
|
|
(1) The
Company has financed eight real properties, constituting 2,989,000 square feet
from TMCT. This property financing arrangement was amended by Tribune and TMCT
on Sept. 22, 2006, to extend the properties current fixed rental rate through Aug. 7,
2021. Under the terms of the amended financing agreement, the Company was
granted an accelerated option to acquire the eight properties during the month
of January 2008 for $175 million. The Company was also granted an option
to acquire the leased properties from Feb. 8, 2008 to three months prior
to the expiration of the amended lease at the higher of the fair market value
or $195 million. See Note 7 to the consolidated financial statements in Item 8
for further discussion.
(2) Includes Tribune Tower, an
approximately 630,000 square foot office building in downtown Chicago, and
Freedom Center, the approximately 943,000 square foot production center of the
Chicago Tribune. Tribune Tower houses the Companys corporate headquarters, the
Chicago Tribunes business and editorial offices, offices of various subsidiary
companies and approximately 41,000 square feet of space leased to unaffiliated
tenants. Freedom Center houses the Chicago Tribunes printing, packaging and
distribution operations.
ITEM 3. LEGAL
PROCEEDINGS.
The Company and its subsidiaries are defendants from
time to time in actions for matters arising out of their business operations.
In addition, the Company and its subsidiaries are involved from time to time as
parties in various regulatory, environmental and other proceedings with
governmental authorities and administrative agencies.
In February 2004, a purported class action
lawsuit was filed in New York Federal Court by certain advertisers of Newsday and Hoy, New York, alleging that they were overcharged for
advertising as a result of inflated circulation numbers at these two
publications. The purported class action also alleges that entities that paid a
Newsday subsidiary to deliver
advertising flyers were overcharged. In July 2004, another lawsuit was
filed in New York Federal Court by certain advertisers of Newsday alleging damages resulting from
inflated Newsday circulation
numbers as well as federal and state antitrust violations. The Company is
vigorously defending these suits.
On June 17, 2004, the Company publicly disclosed
that it would reduce its reported circulation for both Newsday and Hoy, New York for the 12-month period ending
Sept. 30, 2003 and the six-month period ending March 31, 2004. The
circulation adjustments were the result of a review of reported circulation at Newsday and Hoy, New York, conducted by the Companys internal audit
staff and the Audit Bureau of Circulations (ABC). Subsequent to the June 17th disclosure, the Company continued its internal
review and found additional misstatements for these time periods, as well as
misstatements that impacted the 12-month period ending Sept. 30,
2002. On Sept. 10, 2004, the Company announced additional revisions to the
circulation figures for Newsday
and Hoy, New York, for the 12-month
period ending Sept. 30, 2003 and the six-month period ending March 31,
2004.
As a result of misstatements of reported circulation
at Newsday and Hoy, New York, the Company recorded a
total pretax charge of $90 million in 2004 as its estimate of the probable
cost to settle with advertisers. The Company will continue to evaluate the
adequacy of this charge on an ongoing basis (see Note 4 to the
consolidated financial statements in Item 8).
26
In addition to the advertiser lawsuits, several class
action and shareholder derivative suits were filed against the Company and
certain of its current and former directors and officers as a result of the
circulation misstatements at Newsday
and Hoy, New York. These suits
alleged breaches of fiduciary duties and other managerial and director failings
under Delaware law, the federal securities laws and ERISA. The consolidated
shareholder derivative suit filed in Illinois state court in Chicago was
dismissed with prejudice on March 10, 2006, and the dismissal is currently
being appealed to the Illinois State Court of Appeals. The consolidated
securities class action lawsuit and the consolidated ERISA class action lawsuit
filed in Federal District Court in Chicago were both dismissed with prejudice
on Sept. 29, 2006, and the dismissals are currently being appealed to the
United States Court of Appeals for the Seventh Circuit. The Company believes
these suits are without merit and will continue to vigorously defend them.
On May 30, 2006, the Securities and Exchange
Commission (SEC) concluded its inquiry into circulation practices at Newsday and Hoy, New York. In closing its inquiry, the SEC ordered the
Company to cease and desist from violating statutory provisions related to its
record keeping and reporting. No fines or other sanctions were levied against
the Company. The Company consented to the order without admitting or denying
any of the Commissions findings. The SEC acknowledged the prompt internal
investigation and remedial acts undertaken by the Company and the cooperation
the Company afforded the Commissions staff throughout its investigation.
The United States Attorney for the Eastern District of
New York and the Nassau County District Attorney are continuing their inquiries
into the circulation practices at Newsday
and Hoy, New York. To date, nine
former employees and contractors of Newsday
and Hoy, New York, have pleaded
guilty to various criminal charges in connection with the fraudulent
circulation practices uncovered by the Company. The Company is cooperating
fully with these inquiries. At the date of this report, the Company cannot
predict with certainty the outcome of these inquiries.
In March 1997, the Company acquired Renaissance
Communications Corp., a publicly traded company that owned six television
stations, for $1.1 billion in cash. The stations acquired were KDAF-TV,
Dallas, WSFL-TV, Miami, KTXL-TV, Sacramento, WXIN-TV, Indianapolis, WTIC-TV,
Hartford, and WPMT-TV, Harrisburg. The FCC granted a 12-month waiver of
its rule prohibiting television/newspaper cross-ownership in the
same market, which relates to the WSFL-TV, Miami television station and the South Florida Sun-Sentinel newspaper. In March 1998,
the FCC granted the Company a waiver extension to allow continued ownership of
both WSFL-TV, Miami, and the South Florida
Sun-Sentinel newspaper until the FCC concludes its review of the
television/newspaper cross-ownership rule. As discussed below, the new
television/newspaper cross-ownership rule adopted by the FCC in June 2003
permits Tribune to own the newspapers and broadcast licenses in all of its
current cross-owned markets, including South Florida. However, also as
discussed below, the new television/newspaper cross-ownership rule has
been remanded to the FCC for further proceedings. Depending on the outcome of
the FCC proceedings, the Company may require a waiver to allow continued
ownership of both WSFL-TV, Miami, and the South
Florida Sun-Sentinel.
In March 2000, as a result of the Times Mirror
merger, the Company acquired the Los Angeles
Times, Newsday, The Sun, Hartford
Courant, The Morning Call,
The Advocate, Greenwich Time and several smaller
newspapers. Because the Times Mirror acquisition did not involve the transfer
of any broadcast station licenses, approval of the FCC was not required to
complete the transaction. Under the FCCs television/newspaper cross-ownership
rule in effect at the time of the merger, companies were generally
prohibited from owning both a newspaper and a broadcast license in the same
market. However, it was also the FCCs policy to permit newly created
television/newspaper combinations to be held until the next broadcast license
renewal. As such, license renewals for three Tribune television propertiesKTLA-TV,
Los Angeles (renewal in 2006), WPIX-TV, New York (renewal in 2007) and WTIC-TV,
Hartford (renewal in 2007), are affected by the Times Mirror acquisition under
the old FCC media ownership rules. Accordingly, in its FCC license renewal applications, the Company has
sought and expects to receive
27
waivers
to allow continued ownership of both the Los Angeles Times
and KTLA-TV, both Hartford Courant and
WTIC-TV/WTXX-TV and both Newsday and
WPIX-TV pending the outcome of the FCC proceeding.
In 2001, the Company received FCC authorization to
operate television station WTXX-TV, Hartford. The FCC granted a so-called failing
station waiver to allow common ownership of WTIC-TV, Hartford, and WTXX-TV,
Hartford. In addition, the FCC granted a temporary six-month waiver of the
newspaper-broadcast ownership prohibition. The temporary waiver has been
extended until the FCC has completed its review of the renewal application for
WTXX-TV. Should there be no timely relief forthcoming from the new
television/newspaper cross-ownership rule, the Company will seek and expects to
receive a waiver to allow continued ownership of both WTIC-TV, Hartford, and
WTXX-TV, Hartford, and Hartford Courant.
In June 2003, the FCC adopted new media ownership
rules, including a new television/newspaper cross-ownership rule. The new
rule would eliminate the cross-ownership prohibition entirely in
markets with nine or more television stations and permits combinations of one
newspaper and one television station in markets having from four to eight
television stations. Under this rule, the Company would be permitted to retain
its newspaper and television operations in each of the five markets where it
owns bothNew York, Los Angeles, Chicago, South Florida, and Hartford. In September 2003,
the United States Court of Appeals for the Third Circuit stayed the
effectiveness of the new media ownership rules pending the outcome of
appeals by advocacy groups challenging the new rules. In June 2004, the
Third Circuit remanded the new rules to the FCC for further proceedings
while keeping the stay in effect. In January 2005, the Company and other
media companies filed a joint petition seeking United States Supreme Court
review of the June 2004 Third Circuit remand. In June 2005, the
Supreme Court declined to review the petition, without addressing the Constitutional
arguments raised and without foreclosing additional appeals if the Companys
interests are not adequately addressed as part of the FCCs remand proceeding.
In June 2006, the FCC adopted a Further Notice of Proposed Rulemaking
seeking comment on the issues raised by the Third Circuit in its stay and
remand, including those relating to the FCCs new television/newspaper
cross-ownership rule. In October 2006, the Company filed comments in
response to the FCCs Further Notice of Proposed Rulemaking. While the Company
remains optimistic that the cross-ownership ban will ultimately be
loosened in major markets, it cannot predict with certainty the timing or the
outcome of the FCCs remand proceeding.
During 1998, Times Mirror, which was acquired by the
Company in 2000, disposed of its Matthew Bender and Mosby subsidiaries in
separate transactions, which were structured to qualify as tax-free
reorganizations under the Internal Revenue Code. The Company believes these
transactions were completed on a tax-free basis. However, the Internal Revenue
Service (IRS) audited the transactions and disagreed with the position taken
by Times Mirror. In the fourth quarter of 2001, the Company received an IRS
adjustment to increase Times Mirrors 1998 taxable income by approximately
$1.6 billion. The Company filed a petition in United States Tax Court in November 2002
to contest the IRS position, and in December 2004, the Company presented
its position in Tax Court.
In September 2005, the Tax Court issued an
opinion contrary to the Companys position and determined that the Matthew
Bender transaction was a taxable sale. In January 2006, the Tax Court
extended its opinion in the Matthew Bender case to the Mosby transaction given
the similarity of the two transactions. Taxes and related interest for both the
Matthew Bender and Mosby transactions total approximately $1 billion. Over
time, deductions for state taxes and interest are expected to reduce the net
cash outlay to approximately $840 million.
The Company has appealed the Tax Court ruling to the
United States Court of Appeals for the Seventh Circuit. The Company does not
expect a ruling before the second half of 2007. The Company cannot predict with
certainty the outcome of this appeal.
28
Times Mirror established a tax reserve of
$180 million in 1998 when it entered into the transactions. The reserve
represented Times Mirrors best estimate of the amount the expected IRS and
state income tax claims could be settled for based upon an analysis of the
facts and circumstances surrounding the issue. The Company maintained this
initial reserve, plus interest, and evaluated the adequacy of the reserve on a
periodic basis. As a result of the Tax Court ruling, the Company increased its
tax reserve by an additional $609 million in the third quarter of 2005 by
recording additional income tax expense of $150 million, representing
additional after-tax interest applicable to the post-acquisition period, and
goodwill of $459 million. On Sept. 30, 2005, the Company paid
$880 million to the IRS, representing the federal tax and interest owed on
the transactions, and financed the payment through the issuance of commercial
paper. The Company made a related state tax and interest payment of approximately
$86 million in February 2006. See Note 13 to the consolidated
financial statements in Item 8.
The Company does not
believe that any other matters or proceedings presently pending will have a
material adverse effect on its consolidated financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
29
PART II
ITEM 5. MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
The
Companys common stock is presently listed on the New York and Chicago stock
exchanges. The high and low sales prices of the common stock by fiscal quarter
for the two most recent fiscal years, as reported on the New York Stock
Exchange Composite Transactions list, were as follows:
|
|
2006
|
|
2005
|
|
Quarter
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
|
|
$
|
31.84
|
|
$
|
27.79
|
|
$
|
42.37
|
|
$
|
38.59
|
|
Second
|
|
32.94
|
|
27.09
|
|
40.14
|
|
35.02
|
|
Third
|
|
34.28
|
|
28.66
|
|
39.56
|
|
34.53
|
|
Fourth
|
|
33.99
|
|
30.74
|
|
36.15
|
|
30.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following graph
compares the five-year cumulative total return on Tribune common stock with the
cumulative total return during the same period for companies included in the
S&P 500 Stock Index and the S&P 500 Publishing and Printing Index. The
S&P 500 Publishing and Printing Index includes Tribune Company, Dow Jones &
Company, Inc., Gannett Co., Inc., The McGraw-Hill Companies, Inc.,
Meredith Corporation, and The New York Times Company. The S&P 500 Stock
Index is comprised of 500 U.S. companies, including Tribune Company, in the
industrial, transportation, utilities and financial sectors. Both the S&P
500 Stock Index and the Publishing and Printing Index are weighted by market
capitalization.
![GRAPHIC](g13751dki001.gif)
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
Tribune Company
|
|
$
|
100.00
|
|
$
|
122.63
|
|
$
|
140.38
|
|
$
|
115.95
|
|
$
|
85.24
|
|
$
|
88.73
|
|
S&P 500
|
|
100.00
|
|
78.03
|
|
100.16
|
|
110.92
|
|
116.28
|
|
134.43
|
|
S&P 500 Publishing and Printing
|
|
100.00
|
|
106.57
|
|
126.41
|
|
122.76
|
|
107.23
|
|
123.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Feb. 16,
2007, there were 3,787 holders of record of the Companys common stock.
Quarterly cash dividends declared on common stock were $.18 per share for each
quarter during 2006 and 2005. Total cash dividends declared on common stock by
the Company were $195 million for 2006 and $225 million for 2005. The
Company announced in February 2007 that its first quarter 2007 cash dividend
would be $.18 per share.
30
Stock Repurchase ProgramIn 2000, the Companys
Board of Directors authorized the Company to repurchase $2.5 billion of
its common stock. Through Dec. 25, 2005, the Company repurchased 56 million
shares of its common stock at a cost of $2.3 billion under this authorization.
In December 2005, the Board of Directors authorized additional repurchases
of $1 billion (inclusive of $160 million of remaining authority under
the 2000 stock repurchase authorization). In the first quarter of 2006, the
Company repurchased an additional 5 million shares of its common stock at
a cost of $138 million pursuant to this authorization. As of Dec. 31,
2006, the Company may repurchase an additional $862 million of its common
stock pursuant to this authorization.
Modified
Dutch-Auction Tender OfferOn May 30,
2006, the Company initiated a modified Dutch Auction tender offer to
repurchase up to 53 million shares of its common stock at a price per share not
greater than $32.50 and not less than $28.00. The tender offer closed on June 26,
2006, and the Company acquired 45,026,835 shares of its common stock at a price
of $32.50 per share on July 5, 2006 before transaction costs. The Company
also acquired 10 million shares of its common stock from the Robert R.
McCormick Tribune Foundation and the Cantigny Foundation on July 12, 2006
at a price of $32.50 per share before transaction costs. In connection with the
tender offer, the board of directors, in May 2006, also authorized the
repurchase of an additional 12 million shares of the Companys common stock
commencing on the eleventh business day following the completion of the tender
offer. In the third quarter of 2006, the Company repurchased an additional 11.1 million
shares in the open market at a weighted average cost of $29.94 per share
pursuant to this authorization. The Company does not intend to repurchase any
additional shares of its common stock in the open market pursuant to the May 2006
authorization.
Repurchases during 2006,
by fiscal period, were as set forth below (in thousands, except average cost).
All repurchases during Period 7 and Period 8 were made in connection with
the tender offer and pursuant to the May 2006 authorization.
|
|
Shares
Repurchased
|
|
Average
Cost
|
|
Total Number of
Shares Repurchased
|
|
Value of Shares
that May Yet be
Repurchased(1)
|
|
Period 1 (5 weeks ended
Jan. 29, 2006)
|
|
|
1,000
|
|
|
$
|
30.46
|
|
|
57,426
|
|
|
|
$
|
969,520
|
|
|
Period 2 (4 weeks ended
Feb. 26, 2006)
|
|
|
3,604
|
|
|
29.74
|
|
|
61,030
|
|
|
|
862,254
|
|
|
Period 3 (4 weeks ended
March 26, 2006)
|
|
|
|
|
|
|
|
|
61,030
|
|
|
|
862,254
|
|
|
Period 4 (4 weeks ended
April 23, 2006)
|
|
|
|
|
|
|
|
|
61,030
|
|
|
|
862,254
|
|
|
Period 5 (4 weeks ended
May 21, 2006)
|
|
|
|
|
|
|
|
|
61,030
|
|
|
|
862,254
|
|
|
Period 6 (5 weeks ended
June 25, 2006)
|
|
|
|
|
|
|
|
|
61,030
|
|
|
|
862,254
|
|
|
Period 7 (5 weeks ended
July 30, 2006)
|
|
|
61,124
|
|
|
32.25
|
|
|
122,154
|
|
|
|
862,254
|
|
|
Period 8 (4 weeks ended
Aug. 27, 2006)
|
|
|
4,956
|
|
|
29.79
|
|
|
127,110
|
|
|
|
862,254
|
|
|
Period 9 (4 weeks ended
Sept. 24, 2006)
|
|
|
|
|
|
|
|
|
127,110
|
|
|
|
862,254
|
|
|
Period 10 (4 weeks ended
Oct. 22, 2006)
|
|
|
|
|
|
|
|
|
127,110
|
|
|
|
862,254
|
|
|
Period 11 (4 weeks ended
Nov. 19, 2006)
|
|
|
|
|
|
|
|
|
127,110
|
|
|
|
862,254
|
|
|
Period 12 (6 weeks ended Dec. 31, 2006)
|
|
|
|
|
|
|
|
|
127,110
|
|
|
|
862,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Values of shares that may
yet be repurchased at the end of Periods 6 through 12 do not include any amounts
related to the additional 12 million shares of the Companys common stock that
the board of directors authorized for repurchase in May 2006.
ITEM 6. SELECTED
FINANCIAL DATA.
Selected financial data
for the years 2002 through 2006 is contained under the heading Five Year
Financial Summary on pages 126 and 127 and is derived from financial
statements for those years. The information contained in the Five Year
Financial Summary is not necessarily indicative of the results of operations
to be expected for future years, and should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 7 and the consolidated financial statements and related
notes thereto included in Item 8 of this Form 10-K which were
audited by the Companys independent registered public accounting firm,
PricewaterhouseCoopers LLP.
31
ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion
presents the significant factors that have affected the businesses of Tribune
Company and its subsidiaries (the Company) over the last three years. This
commentary should be read in conjunction with the Companys consolidated
financial statements and Five Year Financial Summary, which are also
presented in this Form 10-K. Certain prior year amounts have been
reclassified to conform with the 2006 presentation. These reclassifications had
no impact on reported prior year total revenues, operating profit or net
income.
FORWARD-LOOKING
STATEMENTS
The discussion contained
in this Item 7 (including, in particular, the discussion under Overview),
the information contained in Item 7A, Quantitative and Qualitative Disclosures
about Market Risk, and the information contained in the subsequent notes to
the consolidated financial statements, contain certain forward-looking
statements that are based largely on the Companys current expectations.
Forward-looking statements are subject to certain risks, trends and
uncertainties that could cause actual results and achievements to differ
materially from those expressed in the forward-looking statements
including, but not limited to, the items discussed in Item 1A, Risk
Factors. Such risks, trends and uncertainties, which in some instances are
beyond the Companys control, include: changes in advertising demand,
circulation levels and audience shares; regulatory and judicial rulings;
availability and cost of broadcast rights; competition and other economic
conditions; changes in newsprint prices; changes in the Companys credit
ratings and interest rates; changes in accounting standards; adverse results
from litigation, governmental investigations or tax-related proceedings
or audits; the effect of labor strikes, lock-outs and negotiations; the effect
of acquisitions, investments and divestitures; the effect of derivative
transactions; the Companys reliance on third-party vendors for various
services; and the Companys exploration of alternatives for creating additional
value for shareholders. The words believe, expect, anticipate, estimate,
could, should, intend and similar expressions generally identify forward-looking
statements. Readers are cautioned not to place undue reliance on such forward-looking
statements, which are being made as of the date of this filing. The Company
undertakes no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.
OVERVIEW
Tribune Company is a media and entertainment company,
operating primarily in the United States, that conducts its operations through
two business segments: publishing and broadcasting and entertainment. These
segments reflect the manner in which the Company sells its products to the
marketplace, manages its operations and makes business decisions. The Companys
media operations are principally in major metropolitan areas of the United
States and compete against similar media and other types of media on both a
local and national basis.
Publishing currently consists primarily of 11 daily
newspapers, which include related businesses such as interactive websites.
Publishing represented 74% of the Companys consolidated revenues in 2006.
About 80% of publishing revenues were derived from advertising. These revenues
were generated from the sale of advertising space in published issues of the
newspapers and on interactive websites. Approximately 14% of publishing
revenues were generated from the sales of newspapers to individual subscribers
or to sales outlets, which re-sell the newspapers. The remaining 6% of revenues
came from a variety of activities including the syndication of columns,
features, information and comics to newspapers, commercial printing operations,
sales of entertainment listings and other publishing-related activities.
Publishing advertising revenues are comprised of three
basic categories: retail, national and classified. Changes in advertising
revenues are heavily correlated with changes in the level of economic activity
in the
32
United States. Changes in
Gross Domestic Product, consumer spending, auto sales, housing sales,
unemployment rates, job creation, circulation levels and rates all impact
demand for advertising in the Companys newspapers. The Companys advertising
revenues are subject to changes in these factors both on a national level and
on a local level in its markets.
Significant expense categories for publishing include
compensation, newsprint and ink and other operating expenses. Compensation,
which includes benefits expense and stock-based compensation expense in 2006,
represented 41% of publishings consolidated operating expenses in 2006.
Compensation expense is affected by many factors, including the level of merit
increases, the number of full-time equivalent employees and changes in the
design and costs of the Companys various employee benefit plans. Newsprint and
ink represented 15% of the 2006 operating expenses for publishing. The Company
consumed approximately 697,000 metric tons of newsprint in 2006. Newsprint is a
commodity and pricing can vary significantly between years. Other expenses
comprised 44% of total operating expenses. These expenses are principally for
the distribution of the newspaper, promotional activities and other general and
administrative expenses. These expenses are typically subject to less
variability.
Broadcasting and entertainment currently consists of
23 television stations, one radio station, the Chicago Cubs and Tribune
Entertainment, a company that distributes its own programming together with
programming licensed from third parties. Broadcasting and entertainment
represented 26% of the Companys consolidated revenues in 2006. About 78% of
these revenues came from the sale of advertising spots in its television group.
Changes in advertising revenues are heavily correlated with and influenced by
changes in the level of economic activity in the United States. Changes in
Gross Domestic Product, consumer spending levels, auto sales, programming
content, audience share and rates all impact demand for advertising on the
Companys television stations. The Companys advertising revenues are subject
to changes in these factors both on a national level and on a local level in
the markets in which it operates.
Significant expense categories for broadcasting and
entertainment include programming expense, compensation and other expenses.
Programming expense represented 34% of 2006 expenses. The level of programming
expense is affected by the cost of programs available for purchase and the
selection of programs aired by the Companys television stations. Compensation
expense represented 40% of broadcasting and entertainments 2006 expenses and
is impacted by the same factors as noted for publishing. Other expenses
represented 26% of total operating expenses and are for promotional activities
and other station operating expenses.
The Company uses revenues
and operating profit as ways to measure the financial performance of its
business segments. The Company uses average net paid circulation for its
newspapers and average audience share for its television stations as a means to
measure its publishing and broadcasting and entertainment market shares and
performance.
CRITICAL ACCOUNTING
POLICIES AND ESTIMATES
The Companys significant policies are summarized in
Note 1 to the Companys consolidated financial statements in Item 8.
These policies conform with accounting principles generally accepted in the
United States of America and reflect practices appropriate to the Companys
businesses. The preparation of the Companys consolidated financial statements
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates. On an ongoing basis, the Company evaluates
its policies and estimates, including those related to income taxes, pension
and postretirement benefits, broadcast rights, goodwill and other intangible
assets, self-insurance liabilities, accounts receivable allowances and stock-based
compensation.
Management has discussed
with the Audit Committee of the Board of Directors the development, selection
and disclosure of the critical accounting policies and estimates and the
application of these
33
policies
and estimates. In addition, there are other items within the financial
statements that require estimation, but are not deemed to be critical
accounting policies and estimates. Changes in the estimates used in these and
other items could have a material impact on the financial statements.
Income Taxes
Provisions for federal and
state income taxes are calculated on reported pretax earnings based on current
tax laws and also include, in the current period, the cumulative effect of any
changes in tax rates from those used previously in determining deferred tax
assets and liabilities. Taxable income reported to the taxing jurisdictions in
which the Company operates often differs from pretax earnings because some
items of income and expense are recognized in different time periods for income
tax purposes. The Company provides deferred taxes on these temporary
differences in accordance with Financial Accounting Standard (FAS) No. 109,
Accounting for Income Taxes. Taxable income also may differ from pretax
earnings due to statutory provisions under which specific revenues are exempt
from taxation and specific expenses are not allowable as deductions. The
Company establishes reserves for income tax when it is probable that one or
more of the taxing authorities will challenge and disallow a position taken by
the Company in its income tax returns and the resulting liability is estimable.
The consolidated tax provision and related accruals include estimates of the
potential taxes and related interest as deemed appropriate. These estimates are
reevaluated and adjusted, if appropriate, on a quarterly basis. Although
management believes its estimates and judgments are reasonable, the resolutions
of the Companys tax issues are unpredictable and could result in tax
liabilities that are significantly higher or lower than that which has been
provided by the Company. See Note 13 to the Companys consolidated
financial statements in Item 8 for additional information.
Pension and Other
Postretirement Benefits
The Company provides defined benefit pension,
postretirement health care and life insurance benefits to eligible employees
under a variety of plans (see Note 14 to the Companys consolidated
financial statements in Item 8). Accounting for pension and other
postretirement benefits requires the use of several assumptions.
Weighted
average assumptions used in 2006 and 2005 in accounting for pension benefits
and other postretirement benefits were:
|
|
Pension Plans
|
|
Other
Postretirement
Plans
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Discount rate for
expense
|
|
5.50
|
%
|
5.75
|
%
|
5.50
|
%
|
5.75
|
%
|
Discount rate for
obligations
|
|
5.75
|
%
|
5.50
|
%
|
5.75
|
%
|
5.50
|
%
|
Increase in
future salary levels for expense
|
|
3.50
|
%
|
3.50
|
%
|
|
|
|
|
Increase in
future salary levels for obligations
|
|
3.50
|
%
|
3.50
|
%
|
|
|
|
|
Long-term rate of
return on plans assets
|
|
8.50
|
%
|
8.50
|
%
|
|
|
|
|
The Company used a building block approach to
determine its current 8.5% assumption of the long-term expected rate of return
on pension plan assets. Based on historical market studies, the Companys
long-term expected returns for equity and fixed income securities approximate
10% and 6%, respectively. As of the date of this report, a 0.5% decrease in the
Companys long-term rate of return assumption would result in an $8 million
increase in the Companys net pension expense. In 2006, the pension plans
assets earned a return of approximately 15%. The Company bases the rate used
for discounting future benefit obligations and calculating interest cost on an
index of Aa-rated corporate bonds. The duration of the bonds in this
index approximates the timing of future payments for the Companys benefit
obligations.
34
In September 2006, the Financial Accounting
Standards Board (FASB) issued FAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R) which requires an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which changes occur through comprehensive income. The
Statement also requires an employer to measure the funded status of a plan as
of the date of its year-end statement of financial position, with limited
exceptions. The Company adopted the provisions of FAS No. 158 as of Dec. 31,
2006. Prior to the adoption of FAS No. 158, the Companys prepaid pension
asset at Dec. 31, 2006 and Dec. 25, 2005 included an unrecognized net
actuarial loss of $631 million and $870 million, respectively. A
significant portion of this net actuarial loss resulted from the difference
between the Companys expected returns on plan assets and the actual losses on
plan assets in 2002 and 2001. Expected returns on plan assets were
$158 million and $176 million in 2002 and 2001, respectively; actual
losses were $161 million and $113 million, respectively. Upon
adoption of FAS No. 158, the Company recognized the $631 million of actuarial
losses, net of tax, in the accumulated other comprehensive income (loss)
component of shareholders equity at Dec. 31, 2006. In accordance with FAS
No. 87, the actuarial loss will be recognized in net periodic pension
expense over approximately 11 years, representing the estimated average
remaining service period of active employees expected to receive benefits, with
corresponding adjustments made to accumulated other comprehensive income (loss)
in accordance with FAS No. 158. The Companys policy is to incorporate
asset-related gains and losses into the asset value used to calculate the
expected return on plan assets and into the calculation of amortization of
unrecognized net actuarial loss over a four-year period.
In December 2005, the pension benefits for former
Times Mirror non-union and non-Newsday employees were frozen. As a result of
the plan freeze, a pretax curtailment gain of $18 million ($13 million at
publishing, $1 million at broadcasting and entertainment, and $4 million at
corporate) was recorded. On March 31, 2006, the pension plan benefits for
Newsday union and non-union employees were frozen.
The Companys pension plans asset
allocations at Dec. 31, 2006 and Dec. 25, 2005 were as follows (in
millions):
|
|
Plan Assets
|
|
Asset Category
|
|
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Equity securities
|
|
$
|
1,344
|
|
76.2
|
%
|
$
|
1,186
|
|
74.2
|
%
|
Fixed income
securities
|
|
334
|
|
18.9
|
%
|
329
|
|
20.6
|
%
|
Other
|
|
86
|
|
4.9
|
%
|
83
|
|
5.2
|
%
|
Total
|
|
$
|
1,764
|
|
100
|
%
|
$
|
1,598
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys current 2007 target allocation for
pension plans assets are 75% in equity securities and 25% in fixed income
securities and other.
For purposes of measuring 2006 postretirement health
care costs, a 9.0% annual rate of increase in the per capita cost of covered
health care benefits was assumed for 2006. The rate was assumed to decrease
gradually to 5% for 2010 and remain at that level thereafter. For purposes of
measuring health care obligations at Dec. 31, 2006, a 9.0% annual rate of
increase in the per capita cost of covered health care benefits was assumed for
2007. The rate was assumed to decrease gradually to 5% for 2012 and remain at
that level thereafter. On Dec. 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (Act) were signed into law. The Act
resulted in a $15 million reduction in the accumulated other
postretirement obligations for prior service costs in 2004 and a
$1 million reduction in net periodic postretirement benefit costs.
35
Assumed
health care cost trend rates have a significant effect on the amounts reported
for health care plans. As of the date of this report, a 1% change in assumed
health care cost trend rates would have the following effects (in thousands):
|
|
1% Increase
|
|
1% Decrease
|
|
Service cost and
interest cost
|
|
|
$
|
415
|
|
|
|
$
|
(368
|
)
|
|
Projected benefit
obligation
|
|
|
$
|
7,486
|
|
|
|
$
|
(6,624
|
)
|
|
The Company contributed $7 million to certain of
its union and non-qualified pension plans and $14 million to its other
postretirement plans in 2006. The Company plans to contribute $8 million
to certain of its union and non-qualified pension plans and $13 million to
its other postretirement plans in 2007.
Expected
Future Benefit PaymentsThe following benefit payments,
which reflect expected future service, as appropriate, are expected to be paid
(in thousands):
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
2007
|
|
$
|
79,967
|
|
|
$
|
14,211
|
|
|
2008
|
|
81,579
|
|
|
14,233
|
|
|
2009
|
|
84,233
|
|
|
14,310
|
|
|
2010
|
|
87,050
|
|
|
14,488
|
|
|
2011
|
|
89,421
|
|
|
14,619
|
|
|
2012-2016
|
|
495,915
|
|
|
69,089
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast Rights
Broadcast rights consist principally of rights to
broadcast syndicated programs, sports and feature films and are stated at the
lower of cost or estimated net realizable value. The total cost of these rights
is recorded as an asset and a liability when the program becomes available for
broadcast. Syndicated program rights that have limited showings are generally
amortized using an accelerated method as programs are aired. Sports and feature
film rights are amortized using the straight-line method. The current portion
of broadcast rights represents those rights available for broadcast that are
expected to be amortized in the succeeding year. At Dec. 31, 2006 and Dec. 25,
2005, the Company had broadcast rights assets of $567 million and
$669 million, respectively.
The Company maintains an
allowance for programming that is not expected to be aired by the end of the
contract period. This allowance for excess programming inventory is based on a
program-by-program review of the Companys five-year broadcast plans and
historical write-off trends. The total reserve balance at Dec. 31, 2006
and Dec. 25, 2005 was $4 million. Actual write-offs in 2006 and 2005
were $.4 million and $1 million, respectively. Future write-offs can vary
based on changes in consumer viewing trends and the availability and costs of
other programming.
Goodwill and Other
Intangible Assets
The Company periodically reviews goodwill and certain
intangible assets no longer being amortized for impairment in accordance with
FAS No. 142, Goodwill and Other Intangible Assets. Under FAS No. 142,
the impairment review of goodwill and other intangible assets not subject to
amortization must be based generally on fair values.
The Company performs its annual impairment review in
the fourth quarter of each year. The estimated fair value of the reporting
units to which goodwill is allocated is determined using multiples of
36
operating cash flows for
purposes of analyzing goodwill for impairment. A significant decline in
multiples and/or operating cash flows for a reporting unit could result in a
non-cash impairment charge under FAS No 142. The estimated fair
values of other assets subject to the annual impairment review, which include
newspaper mastheads and FCC licenses, are calculated based on projected future
discounted cash flow analyses. The development of market multiples and cash
flow projections used in the analyses requires the use of assumptions,
including assumptions regarding revenue and market growth. The analyses use
discount rates based on specific economic factors in the publishing and
broadcasting industries. These assumptions reflect the Companys best
estimates, but these items involve inherent uncertainties based on market
conditions generally outside of the Companys control.
In the fourth quarter of 2004, the Company elected to
early adopt the provisions of the Financial Accounting Standards Boards
Emerging Issues Task Force Topic No. D-108, which requires the use
of a direct valuation method for valuing intangible assets, such as Federal
Communications Commission (FCC) licenses, and reviewing them for impairment.
Historically, the Company had been using a residual valuation method to review
its FCC licenses for impairment each year. A direct valuation method generally
results in a lower valuation than does a residual valuation method. The Company
performed an impairment review of its FCC licenses for the year ended Dec. 28,
2003 using a residual method. No impairments were required as a result of the
analyses performed in 2003. The effect of changing to a direct valuation method
for the 2004 FCC licenses impairment review was a pretax charge of
$29 million ($18 million after-tax). The charge was recorded in the
fourth quarter of 2004 as a cumulative effect of a change in accounting
principle in the consolidated statements of income.
The
Companys goodwill and other intangible assets at Dec. 31, 2006 consisted
of the following (in thousands):
|
|
Dec. 31, 2006
|
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Intangible assets subject to
amortization
|
|
|
|
|
|
|
|
|
|
Subscribers
(useful life of 15 to 20 years)
|
|
$
|
190,660
|
|
|
$
|
(72,126
|
)
|
|
$
|
118,534
|
|
Network
affiliation agreements (useful life of 40 years)(1)(2)
|
|
278,034
|
|
|
(22,614
|
)
|
|
255,420
|
|
Other (useful
life of 3 to 40 years)
|
|
25,128
|
|
|
(8,717
|
)
|
|
16,411
|
|
Total
|
|
$
|
493,822
|
|
|
$
|
(103,457
|
)
|
|
390,365
|
|
Goodwill
and other intangible assets not subject to amortization
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
|
|
|
|
|
|
4,395,967
|
|
Broadcasting and entertainment(2)
|
|
|
|
|
|
|
|
1,441,241
|
|
Total goodwill
|
|
|
|
|
|
|
|
5,837,208
|
|
Newspaper
mastheads
|
|
|
|
|
|
|
|
1,575,814
|
|
FCC licenses(2)
|
|
|
|
|
|
|
|
871,946
|
|
Tradename
|
|
|
|
|
|
|
|
7,932
|
|
Total
|
|
|
|
|
|
|
|
8,292,900
|
|
Total goodwill and other
intangible assets
|
|
|
|
|
|
|
|
$
|
8,683,265
|
|
(1) Network
affiliation agreements, net of accumulated amortization, included
$179 million related to Fox affiliations, $74 million related to CW
affiliations and $2 million related to MyNetworkTV affiliations.
(2) As a result of the sales of
WATL-TV, Atlanta, WCWN-TV, Albany and WLVI-TV, Boston, network affiliation
agreements, broadcasting and entertainment goodwill and FCC licenses declined
by $12 million, $125 million and $213 million, respectively.
37
Self-Insurance
Liabilities
The Company self-insures
for certain medical and disability benefits, workers compensation costs and
automobile and general liability claims. The recorded liabilities for
self-insured risks are calculated using actuarial methods and are not
discounted. The liabilities include amounts for actual claims, claim growth and
claims incurred but not reported. Actual experience, including claim frequency
and severity as well as health care inflation, could result in different
liabilities than the amounts currently recorded. The recorded liabilities for
self-insured risks totaled $115 million and $113 million at Dec. 31,
2006 and Dec. 25, 2005, respectively.
Accounts Receivable
Allowances
The Companys accounts
receivable are primarily due from advertisers. Credit is extended based on an
evaluation of a customers financial condition and generally collateral is not
required. The Company maintains an allowance for uncollectible accounts,
rebates and volume discounts. This allowance is determined based on historical
write-off experience and any known specific collectibility exposures. At Dec. 31,
2006 and Dec. 25, 2005, the Companys allowance for accounts receivable
was $34 million and $43 million, respectively.
Stock-Based
Compensation
In the first quarter of 2006, the Company adopted FAS No. 123R,
Share-Based Payment, which superseded Accounting Principles Board (APB)
Opinion No. 25, FAS No. 123 and related interpretations. FAS No. 123R
requires the Company to expense stock-based compensation in its income
statement. Under FAS No. 123R, stock-based compensation cost is measured
at the grant date based on the estimated fair value of the award. The Company
uses the Black-Scholes option-pricing model to determine the fair value
of each stock option it grants. The Black-Scholes model includes
assumptions regarding dividend yields, expected volatility, expected lives and
risk-free interest rates. These assumptions reflect the Companys best
estimates, but they involve certain risks, trends and uncertainties, which in
some instances are outside of the control of the Company. As a result, if other
assumptions had been used, stock-based compensation could have been
materially impacted. Furthermore, if the Company uses different assumptions in
future periods, share-based compensation expense could be materially
impacted. The Company adopted FAS No. 123R utilizing the modified
prospective application method and did not restate prior years. Additional
information on the accounting for stock-based compensation in accordance with
FAS No. 123R is provided in Note 16 to the Companys consolidated
financial statements in Item 8.
Prior to the adoption of FAS No. 123R, the
Company accounted for its stock-based compensation plans in accordance with APB
No. 25 and related interpretations. Under APB No. 25, no compensation
expense was recorded because the exercise price of employee stock options
equaled the market price of the underlying stock on the date of grant. Under
the provisions of APB No. 25, the Company was not required to recognize
compensation expense for its Employee Stock Purchase Plan. The pro forma
stock-based compensation expense was calculated under FAS No. 123, as
amended by FAS No. 148, for 2005 and 2004 and is disclosed in Note 1
to the consolidated financial statements in Item 8.
On June 24, 2005, the Company accelerated the
vesting of certain stock options granted on Feb. 11, 2003 and Feb. 10,
2004, totaling 2.4 million in each year. Unvested stock options awarded to
the then current executive officers of the Company on these grant dates, which
aggregated 0.8 million and 0.6 million, respectively, were not
accelerated at that time. On Dec. 16, 2005, the Company accelerated the
vesting of all stock options granted on Feb. 8, 2005, totaling
3.5 million. Also, on Dec. 16, 2005, the Company accelerated the
remaining unvested stock options granted to the current executive officers of
the Company on Feb. 11, 2003 and Feb. 10, 2004, totaling
0.4 million in both years. All other terms and conditions of the stock
option grants remain unchanged.
38
In accordance with APB No. 25 and related
interpretations, the acceleration of vesting of these stock options did not
require accounting recognition in the Companys income statement. The exercise
prices of the 2003, 2004 and 2005 grants were $45.90, $52.05 and $40.59,
respectively, and the Companys closing stock prices on the June 24, 2005
and Dec. 16, 2005 dates of acceleration were $35.64 and $30.80,
respectively. The impact of the accelerated vesting was to increase pro forma
stock-based compensation by $82 million, or $50 million net of
tax, in 2005. The accelerated vesting of these stock options was one of several
actions the Company took to reduce stock-based compensation expense with
the adoption of FAS No. 123R.
SIGNIFICANT
EVENTS
Common Stock
Repurchases
The
Company repurchased 71 million common shares for $2.3 billion in 2006 and
12 million common shares for $440 million in 2005. The following table
summarizes the Companys 2006 common stock repurchases (in thousands):
|
|
Shares
|
|
Cost
|
|
Repurchases in
first quarter
|
|
4,604
|
|
$
|
137,746
|
|
Tender offer
repurchases
|
|
45,027
|
|
1,468,270
|
|
Repurchases from
the Robert R. McCormick Tribune Foundation and Cantigny Foundation
|
|
10,000
|
|
325,300
|
|
Repurchases
subsequent to the tender offer
|
|
11,053
|
|
330,952
|
|
Total common stock
repurchases
|
|
70,684
|
|
$
|
2,262,268
|
|
On May 30, 2006, the
Company initiated a modified Dutch Auction tender offer to repurchase up to
53 million shares of its common stock at a price per share not greater
than $32.50 and not less than $28.00. The tender offer closed on June 26,
2006, and the Company acquired 45 million shares of its common stock on
July 5, 2006 at a price of $32.50 per share before transaction costs. The
Company also acquired 10 million shares of its common stock from the
Robert R. McCormick Tribune Foundation and the Cantigny Foundation on
July 12, 2006 at a price of $32.50 per share before transaction costs. The
Robert R. McCormick Tribune Foundation and the Cantigny Foundation are
affiliated non-profit organizations, which together held 13.6% of the Companys
outstanding shares when the tender offer was launched. In connection with the
tender offer, the board of directors also authorized the repurchase of an
additional 12 million shares of the Companys common stock commencing on the
eleventh business day following the completion of the tender offer. In the
third quarter of 2006, the Company repurchased an additional 11.1 million
shares under that authorization at a weighted average cost of $29.94 per share.
In addition, the Company repurchased and retired 4.6 million shares of its
common stock in the first quarter of 2006.
Credit Agreements
On June 19, 2006, the Company entered into a
five-year credit agreement and a 364-day bridge credit agreement, both of
which were amended and restated on June 27, 2006. The five-year credit
agreement provides for a $1.5 billion unsecured term facility, of which $250
million was used to refinance the medium-term notes that matured on
Nov. 1, 2006, and a $750 million unsecured revolving facility. The 364-day
bridge credit agreement provided for a $2.15 billion unsecured bridge facility.
39
The Company entered into these agreements to finance
the Companys tender offer initiated on May 30, 2006; to repurchase shares
of the Companys common stock from the Robert R. McCormick Tribune
Foundation and Cantigny Foundation; to repurchase shares of the Companys
common stock pursuant to open market or privately negotiated transactions; to
refinance certain indebtedness; and to pay fees and expenses incurred in
connection with the repurchases. In addition, the revolving facility is
available for working capital and general corporate purposes, including
acquisitions.
In general, borrowings under the credit agreements
bear interest at a rate equal to LIBOR plus a spread ranging from 0.35% to
1.25%. The applicable spread is determined on the basis of the Companys debt
ratings by S&P and Moodys. The Companys debt ratings are also used in
determining the annual facility fee, which may range from 0.07% to 0.25% of the
aggregate unused commitments. In addition, the Company has agreed to pay
customary fees to the lenders under the credit agreements.
As of Dec. 31, 2006, the Company had outstanding
borrowings of $1.5 billion and $1.3 billion under the term facility
and the bridge facility, respectively, and the Company had no borrowings under
the revolving facility. As of Dec. 31, 2006, the applicable interest rate
on both the term facility and the bridge facility was 6.2%.
The credit agreements
contain certain restrictive covenants, including financial covenants that
require the Company to maintain a maximum total leverage ratio and a minimum
interest coverage ratio. At Dec. 31, 2006, the Company was in compliance
with the covenants.
TMCT Transactions
As a result of the Companys acquisition of The Times
Mirror Company (Times Mirror) in 2000, the Company holds investment interests
in TMCT, LLC (TMCT) and TMCT II, LLC (TMCT II). TMCT and TMCT II
were formed in 1997 and 1999, respectively, as a result of transactions
involving agreements between Times Mirror and its largest shareholders,
Chandler Trust No. 1 and Chandler Trust No. 2 (collectively, the Chandler
Trusts). The Times Mirror acquisition resulted in the Chandler Trusts becoming
significant shareholders of the Company. The TMCT and TMCT II LLC
agreements have no specific term, and the dissolution, determination of
liquidation values and distribution of assets require the mutual consent of the
Company and the Chandler Trusts.
The collective assets of TMCT and TMCT II as of Dec. 25,
2005 included approximately 51.4 million shares of the Companys common
stock and 1.1 million shares of the Companys preferred stock, representing all
of the Companys issued Series C, D-1 and D-2 preferred stock.
The TMCT and TMCT II assets also include a variety of fixed income and
equity investments. In addition, TMCT owns eight real properties that are
leased to the Company. Additional information pertaining to the Companys
investments in TMCT and TMCT II is provided in Note 7 to the Companys
consolidated financial statements in Item 8.
On Sept. 21, 2006, the Company and the Chandler Trusts
entered into agreements to restructure TMCT and TMCT II. Under the terms
of the agreements, the Company received on Sept. 22, 2006, a total of 38.9 million
shares of the Companys common stock and all 1.1 million shares of the
Companys preferred stock held collectively by TMCT and TMCT II. As a
result of the transactions, the Companys interests in each of TMCT and TMCT II were reduced to
approximately 5%. The Sept. 21, 2006 agreements also provided for
certain put and call options, which are exercisable at fair market value
beginning in September 2007, relating to the Companys remaining ownership
interests in TMCT and TMCT II. As a result of the transactions, the
Company in the third quarter of 2006 recorded a one-time, non-operating gain of
$48 million, net of tax; increased its common treasury stock by $161 million
and its preferred treasury stock by $107 million; and reduced its combined
investment in TMCT and TMCT II by $195 million.
40
On Sept. 22, 2006, the Company and TMCT amended the
lease agreement for the eight properties the Company leases from TMCT. Under
the terms of the amended lease, the Company was granted an accelerated option
to acquire the eight properties during the month of January 2008 for $175 million.
The Company was also granted an option to acquire the leased properties from Feb. 8,
2008 to three months prior to the expiration of the amended lease. In addition,
the amendment extended the properties current fixed rental rate through Aug. 7,
2021.
On Oct. 20, 2006, the remaining 12.4 million
shares of the Companys common stock held by TMCT and TMCT II were distributed
to the Company and the Chandler Trusts in accordance with their respective
ownership interests. The Company received 0.6 million shares and the Chandler
Trusts received 11.8 million shares.
The Company and the
Chandler Trusts share in the cash flows of the various assets held by TMCT and
TMCT II. Prior to the Sept. 22, 2006 transactions, the cash flows from the
Tribune common and preferred shares held by TMCT and TMCT II were largely
allocated to the Company, while the cash flows from the other assets were
largely allocated to the Chandler Trusts. As a result, the Company included in
treasury stock 80% of the Tribune common and preferred shares held by TMCT and
TMCT II. In addition, 80% of the dividends on the preferred and common shares
held by TMCT and TMCT II were effectively eliminated. Following the Sept. 22,
2006 transactions and until the Oct. 20, 2006 distribution, the Company
included in treasury stock approximately 5% of the Tribune common shares held
by TMCT and TMCT II. As a result of the transactions, the Company no
longer has any shares of its Series C, D-1 and D-2 preferred
stock outstanding, and the Companys common shares outstanding increased by 1.6 million.
Sales of WATL-TV,
Atlanta, WCWN-TV, Albany and WLVI-TV, Boston
On June 5, 2006, the Company announced the sale
of WATL-TV, Atlanta to Gannett Co., Inc. for $180 million. The sale closed
on Aug. 7, 2006. On June 19, 2006, the Company announced the sale of
WCWN-TV, Albany to Freedom Communications, Inc. for $17 million. The sale
closed on Dec. 6, 2006. On Sept. 14, 2006, the Company announced the
sale of WLVI-TV, Boston, to Sunbeam Television Corp. for $113.7 million. The
sale closed on Dec. 19, 2006.
These businesses were considered components of the
Companys broadcasting and entertainment segment as their operations and cash
flows could be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the Company. The operations and cash flows of these
businesses have been eliminated from the ongoing operations of the Company as a
result of the sales, and the Company will not have any significant continuing
involvement in their operations. Accordingly, the results of operations of each
of these businesses have been reported as discontinued operations in the
consolidated statements of income. Prior year consolidated statements of income
have been reclassified to conform to the current year presentation of
discontinued operations.
In conjunction with the
sales of WATL-TV, Atlanta and WCWN-TV, Albany, the Company recorded in the
second quarter of 2006 a pretax loss totaling $90 million, including $80 million
of allocated television group goodwill, to write down the net assets of the
stations to estimated fair value, less costs to sell. The Company subsequently
reduced the pretax loss on sales of the Atlanta and Albany stations during the
third quarter of 2006 by $1 million. In addition, the Company recorded in the
fourth quarter of 2006 a pretax gain of $41 million, including $45 million of
allocated television group goodwill, for the sale of the Boston station. In
accordance with FAS No. 142, Goodwill and Other Intangible Assets, the
Company aggregates all of its television stations into one reporting unit for
goodwill accounting purposes. FAS No. 142 requires the Company to allocate
a portion of its total television group goodwill to stations that are to be
sold on a relative fair value basis. The net pretax loss on sales of the three
stations sold during 2006 was $48 million, including $125 million of allocated
television group goodwill.
41
Acquisition of
Additional Equity in CareerBuilder, ShopLocal and Topix
In August 2006, the
Company completed its acquisition of additional equity interests in each of
CareerBuilder, LLC, ShopLocal, LLC (formerly CrossMedia Services, Inc.)
and Topix, LLC for an aggregate purchase price of $155 million. The negotiated
equity purchases followed the exercise of call options by the Company and
Gannett Co., Inc. on Knight-Ridder, Inc.s equity ownership in the
three online businesses after The McClatchy Companys announcement of its
proposed acquisition of Knight-Ridder, Inc. As a result of this
transaction, the Company and Gannett Co., Inc. each increased their
respective ownership of CareerBuilder, LLC and ShopLocal, LLC to 42.5% with The
McClatchy Company retaining a 15% interest in both entities. Additionally, each
of the Companys and Gannett Co., Inc.s interest in Topix, LLC increased
to 31.9%. As a result of subsequent funding, the current ownership of Topix,
LLC is approximately 33.7% for both the Company and Gannett Co., Inc.,
11.9% for The McClatchy Company and 20.7% for management of Topix, LLC.
Network
Affiliations
On Jan. 24, 2006, the Company announced that it
had reached a 10-year agreement to affiliate 16 of its television
stations which were at that time affiliated with the former WB Network (including
those in New York, Los Angeles and Chicago) with a new broadcast network, the
CW Network. The new network was launched in September 2006 by Warner Bros.
Entertainment and CBS. The new network airs a portion of the programming
previously carried on the WB Network and the UPN Network, as well as new
programming. The WB Network has shut down. The Company did not incur any costs
related to the shutdown of the WB Network.
In the second quarter of
2006, the Company announced that its other three former WB Network affiliates
(Philadelphia, Atlanta and Seattle) would become affiliates of the new
broadcast network, MyNetworkTV, which was launched in September 2006 by
the FOX Television Stations Network Inc. and Twentieth Century Television. The
new network airs primarily primetime dramas. The Company subsequently sold its
Atlanta station in August 2006 and its Albany and Boston stations in December 2006.
Consolidation of
Los Angeles Times Production Operations
In December 2005, the Los Angeles Times announced it would close its San Fernando
Valley printing facility in January 2006 and consolidate production at its
remaining three facilities in Los Angeles, Costa Mesa, and Irwindale,
California. The closing of the printing facility resulted in the elimination of
approximately 120 positions from across the Los
Angeles Times production facilities.
As a result of the facility closing, the Company
reclassified the San Fernando Valley printing facility land and building as
held for sale at Dec. 25, 2005. The Company recorded a $2 million
pretax charge in the fourth quarter of 2005 to reduce the carrying value of the
San Fernando Valley printing facilitys land and building to $24 million,
representing the estimated fair value of the assets less costs to sell the
assets. On Oct. 30, 2006, the Company sold the San Fernando Valley land
and building for net proceeds of approximately $24 million.
The Company evaluated the machinery and equipment at
the San Fernando Valley printing facility and determined that press and other
related equipment with a net book value of $16 million would be abandoned.
Therefore, the Company reduced its estimate of the useful life of the press and
other related equipment and recorded accelerated depreciation of
$16 million in the fourth quarter of 2005. The Company idled the remaining
San Fernando Valley machinery and equipment, which had a net book value of
$26 million at Dec. 31, 2006 and $34 million at Dec. 25, 2005.
The Company is continuing to depreciate the remaining idled equipment. In the
fourth quarter of 2006, the Company disposed of and wrote off $4 million
of the idled equipment that had previously been designated for redeployment at Dec. 25,
2005.
42
The Company is currently
evaluating alternative uses of the remaining idled equipment, which will most
likely be redeployed elsewhere within the publishing segment.
The
Company recorded a pretax charge in the fourth quarter of 2005 of
$22 million, excluding severance related costs, as a result of its
decision to close the San Fernando Valley printing facility. A summary of the
significant components of the $22 million pretax charge recorded in the
fourth quarter of 2005 is as follows (in millions):
Accelerated
depreciation on machinery and equipment
|
|
$
|
16.1
|
|
Impairment of
assets held for sale
|
|
2.1
|
|
Other
|
|
4.0
|
|
Total
|
|
$
|
22.2
|
|
Employee Reductions
The Company reduced its
staffing levels by approximately 450 positions in 2006, primarily at
publishing, and recorded a pretax charge of $9 million. In 2005, the Company
reduced its staffing levels by approximately 900 positions and recorded a
pretax charge of $45 million ($43 million at publishing,
$1 million at broadcasting and entertainment and $1 million at
corporate). The eliminations in 2005 included 120 positions as a result of
closing the Los Angeles Times
San Fernando Valley printing facility, as discussed above. The Company recorded
a pretax charge of $41 million in 2004 related to the elimination of
approximately 600 positions in its publishing segment. The Company had a
current liability of approximately $7 million at Dec. 31, 2006 and $37 million
at Dec. 25, 2005 related to these employee reductions.
Non-Operating Items
Fiscal
years 2006, 2005 and 2004 included several non-operating items. Non-operating
items for 2006 are summarized as follows (in millions, except per share
data):
|
|
Proceeds
|
|
Pretax
Gain (Loss)
|
|
After-tax
Gain (Loss)
|
|
Diluted
EPS
|
|
Gain on change in
fair values of derivatives and related investments
|
|
|
$
|
|
|
|
|
$
|
11
|
|
|
|
$
|
7
|
|
|
|
$
|
.02
|
|
|
Gain on TMCT
transactions
|
|
|
|
|
|
|
60
|
|
|
|
48
|
|
|
|
.17
|
|
|
Gain on sales of
investments, net
|
|
|
83
|
|
|
|
37
|
|
|
|
22
|
|
|
|
.08
|
|
|
Other, net
|
|
|
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
Income tax
adjustments
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
.12
|
|
|
Total non-operating
items
|
|
|
$
|
83
|
|
|
|
$
|
103
|
|
|
|
$
|
110
|
|
|
|
$
|
.40
|
|
|
The 2006 change in the fair values of derivatives and
related investments pertained entirely to the Companys PHONES and related Time
Warner investment. The $11 million non-cash pretax gain resulted primarily
from a $66 million increase in the fair value of 16 million shares of
Time Warner common stock, which was partially offset by a $52 million
increase in the fair value of the derivative component of the Companys PHONES.
In 2006, the Company recorded a one-time gain of $48
million, net of tax, as a result of transactions related to its investments in
TMCT, LLC and TMCT II, LLC (see Note 7 to the Companys consolidated
financial statements in Item 8). In addition, the Company sold 2.8 million
shares of Time Warner common stock unrelated to the PHONES for net proceeds of
$46 million and recorded a pretax gain on sale of $19 million, and
sold its investment in BrassRing for a gain of $17 million.
43
Also in 2006, the Company recorded a favorable $34
million income tax expense adjustment, most of which related to the Companys
PHONES as a result of reaching an agreement with the Internal Revenue Service
appeals office pertaining to the deduction of interest expense on the PHONES
(see Note 13 to the Companys consolidated financial statements in Item 8).
Non-operating
items for 2005 are summarized as follows (in millions, except per share
data):
|
|
Proceeds
|
|
Pretax
Gain
|
|
After-tax
Gain (Loss)
|
|
Diluted
EPS
|
|
Gain on change in
fair values of derivatives and related investments
|
|
|
$
|
|
|
|
|
$
|
62
|
|
|
|
$
|
38
|
|
|
|
$
|
.12
|
|
|
Gain on sales of
investments, net
|
|
|
17
|
|
|
|
7
|
|
|
|
4
|
|
|
|
.01
|
|
|
Other, net
|
|
|
5
|
|
|
|
1
|
|
|
|
1
|
|
|
|
.01
|
|
|
Income tax
adjustments
|
|
|
|
|
|
|
|
|
|
|
(139
|
)
|
|
|
(.44
|
)
|
|
Total non-operating
items
|
|
|
$
|
22
|
|
|
|
$
|
70
|
|
|
|
$
|
(96
|
)
|
|
|
$
|
(.30
|
)
|
|
The 2005 change in the fair values of derivatives and
related investments pertained entirely to the Companys PHONES and related Time
Warner investment. The $62 million non-cash pretax gain resulted primarily
from an $87 million decrease in the fair value of the derivative component
of the Companys PHONES, which was partially offset by a $23 million
decrease in the fair value of 16 million shares of Time Warner common
stock.
As a result of the United States Tax Court opinion
issued on Sept. 27, 2005 related to the Matthew Bender tax dispute, the
Company recorded additional income tax expense of $150 million in the
third quarter of 2005 (see Note 13 to the Companys consolidated financial
statements in Item 8). In the first quarter of 2005, the Company reduced
its income tax expense and liabilities by a total of $12 million as a
result of favorably resolving certain other federal income tax issues.
Non-operating
items for 2004 are summarized as follows (in millions, except per share
data):
|
|
Proceeds
|
|
Pretax
Gain (Loss)
|
|
After-tax
Gain (Loss)
|
|
Diluted
EPS
|
|
Loss on change in
fair values of derivatives and related investments
|
|
|
$
|
|
|
|
|
$
|
(18
|
)
|
|
|
$
|
(11
|
)
|
|
|
$
|
(.03
|
)
|
|
Loss on early
debt retirement
|
|
|
|
|
|
|
(141
|
)
|
|
|
(87
|
)
|
|
|
(.26
|
)
|
|
Gain on sales of
investments, net
|
|
|
24
|
|
|
|
20
|
|
|
|
12
|
|
|
|
.03
|
|
|
Other, net
|
|
|
16
|
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
(.02
|
)
|
|
Total non-operating
items
|
|
|
$
|
40
|
|
|
|
$
|
(145
|
)
|
|
|
$
|
(90
|
)
|
|
|
$
|
(.28
|
)
|
|
The 2004 change in the fair values of derivatives and
related investments pertained entirely to the Companys PHONES and related Time
Warner investment. The $18 million non-cash pretax loss resulted from a
$39 million increase in the fair value of the derivative component of the
Companys PHONES, which was partially offset by a $21 million increase in
the fair value of 16 million shares of Time Warner common stock.
In 2004, the Company redeemed all of its outstanding
$400 million ($396 million net of unamortized discount) 7.45%
debentures due 2009 and retired $66 million ($64 million net of
unamortized discount) of its 7.25% debentures due 2013 and $165 million
($160 million net of unamortized discount) of its 6.61% debentures due
2027 through cash tender offers. The Company paid approximately
$760 million to retire this debt and, as a result, recorded a one-time,
pretax loss of $141 million in 2004. The Company funded these transactions
with cash and the issuance of commercial paper.
44
The 2004 gain on sales of
investments related primarily to the sale of the Companys 50% interest in La Opinión for $20 million, resulting
in a pretax gain of $18 million.
OTHER DEVELOPMENTS
In February 2004, a purported class action
lawsuit was filed in New York Federal Court by certain advertisers of Newsday and Hoy, New York, alleging that they were overcharged for
advertising as a result of inflated circulation numbers at these two
publications. The purported class action also alleges that entities that paid a
Newsday subsidiary to deliver
advertising flyers were overcharged. In July 2004, another lawsuit was
filed in New York Federal Court by certain advertisers of Newsday alleging damages resulting from
inflated Newsday circulation
numbers as well as federal and state antitrust violations. The Company is
vigorously defending these suits.
On June 17, 2004, the Company publicly disclosed
that it would reduce its reported circulation for both Newsday and Hoy, New York for the 12-month period ending
Sept. 30, 2003 and the six-month period ending March 31, 2004. The
circulation adjustments were the result of a review of reported circulation at Newsday and Hoy, New York, conducted by the Companys internal
audit staff and the Audit Bureau of Circulations (ABC). Subsequent to the June 17th disclosure, the Company continued its internal
review and found additional misstatements for these time periods, as well as
misstatements that impacted the 12-month period ending Sept. 30, 2002.
On Sept. 10, 2004, the Company announced additional revisions to the
circulation figures for Newsday
and Hoy, New York, for the 12-month
period ending Sept. 30, 2003 and the six-month period ending March 31,
2004.
As a result of misstatements of reported circulation
at Newsday and Hoy, New York, the Company recorded a
total pretax charge of $90 million in 2004 as its estimate of the probable
cost to settle with advertisers. The Company will continue to evaluate the
adequacy of this charge on an ongoing basis (see Note 4 to the Companys
consolidated financial statements in Item 8).
In addition to the advertiser lawsuits, several class
action and shareholder derivative suits were filed against the Company and
certain of its current and former directors and officers as a result of the
circulation misstatements at Newsday
and Hoy, New York. These
suits alleged breaches of fiduciary duties and other managerial and director
failings under Delaware law, the federal securities laws and ERISA. The
consolidated shareholder derivative suit filed in Illinois state court in
Chicago was dismissed with prejudice on March 10, 2006, and the dismissal
is currently being appealed to the Illinois State Court of Appeals. The
consolidated securities class action lawsuit and the consolidated ERISA class
action lawsuit filed in Federal District Court in Chicago were both dismissed
with prejudice on Sept. 29, 2006, and the dismissals are currently being
appealed to the United States Court of Appeals for the Seventh Circuit. The Company
believes these suits are without merit and will continue to vigorously defend
them.
On May 30, 2006, the Securities and Exchange
Commission (SEC) concluded its inquiry into circulation practices at Newsday and Hoy, New York. In closing its inquiry, the SEC ordered
the Company to cease and desist from violating statutory provisions related to
its record keeping and reporting. No fines or other sanctions were levied
against the Company. The Company consented to the order without admitting or
denying any of the Commissions findings. The SEC acknowledged the prompt
internal investigation and remedial acts undertaken by the Company and the
cooperation the Company afforded the Commissions staff throughout its
investigation.
The United States Attorney for the Eastern District of
New York and the Nassau County District Attorney are continuing their
inquiries into the circulation practices at Newsday
and Hoy, New York. To date,
nine former employees and contractors of Newsday
and Hoy, New York, have
pleaded guilty to various criminal charges in connection with the fraudulent
circulation practices uncovered by the Company. The Company is cooperating
fully with these inquiries. At the date of this report, the Company cannot
predict with certainty the outcome of these inquiries.
45
RESULTS OF
OPERATIONS
The Companys fiscal year
ends on the last Sunday in December. Fiscal year 2006 ended on Dec. 31,
2006 and encompassed 53 weeks, while fiscal years 2005 and 2004 each
encompassed 52 weeks. For 2006, the additional week increased consolidated
operating revenues and operating expenses by approximately 1.5% and
consolidated operating profit by approximately 2%.
Consolidated
The
Companys consolidated operating results for 2006, 2005 and 2004 are shown in
the table below.
|
|
|
|
|
|
|
|
Change
|
|
(in millions, except per share data)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Operating
revenues
|
|
$
|
5,518
|
|
$
|
5,511
|
|
$
|
5,631
|
|
|
|
- 2
|
%
|
Operating
profit(1)
|
|
$
|
1,085
|
|
$
|
1,127
|
|
$
|
1,187
|
|
- 4
|
%
|
- 5
|
%
|
Net income on
equity investments(2)
|
|
$
|
81
|
|
$
|
41
|
|
$
|
18
|
|
+ 96
|
%
|
+ 130
|
%
|
Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before cumulative
effect of change in accounting
principle
|
|
$
|
661
|
|
$
|
523
|
|
$
|
554
|
|
+ 26
|
%
|
- 6
|
%
|
Income (loss) from discontinued operations, net of
tax(3)
|
|
(67
|
)
|
12
|
|
19
|
|
*
|
|
- 37
|
%
|
Cumulative effect of change in accounting principle,
net of tax(4)
|
|
|
|
|
|
(18
|
)
|
|
|
*
|
|
Net income
|
|
$
|
594
|
|
$
|
535
|
|
$
|
555
|
|
+ 11
|
%
|
- 4
|
%
|
Diluted earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations before cumulative effect of
change in accounting principle
|
|
$
|
2.39
|
|
$
|
1.63
|
|
$
|
1.67
|
|
+ 47
|
%
|
- 2
|
%
|
Discontinued operations(3)
|
|
(.24
|
)
|
.04
|
|
.06
|
|
*
|
|
- 33
|
%
|
Cumulative effect of change in accounting principle,
net of tax(4)
|
|
|
|
|
|
(.05
|
)
|
|
|
*
|
|
Net income
|
|
$
|
2.14
|
|
$
|
1.67
|
|
$
|
1.67
|
|
+ 28
|
%
|
|
|
(1) Operating profit excludes
interest and dividend income, interest expense, equity income and losses,
non-operating items and income taxes. Operating profit in 2006 includes $32
million of stock-based compensation expense, a charge of $20 million for
severance and other payments associated with the new union contracts at
Newsday, a charge of $9 million for the elimination of approximately 400
positions at publishing, a charge of $4 million for the disposition of a press
at the Los Angeles Times San Fernando
Valley printing facility, a gain of $7 million related to real property sales
in Publishing and a gain of $7 million related to the sale of the corporate
airplane. Operating profit in 2005 includes $22 million of expenses
related to the shutdown of the San Fernando Valley printing facility,
$45 million of severance charges for the elimination of approximately 900
positions, primarily in publishing, and a pension curtailment gain of
$18 million. Operating profit in 2004 includes $90 million of charges
related to anticipated settlements with advertisers regarding misstated
circulation at Newsday and Hoy, New York, and $41 million of
charges related to the elimination of approximately 600 publishing positions.
(2) Net income on equity
investments for 2006 included the Companys $5.9 million share of a one-time
favorable income tax adjustment at CareerBuilder.
(3) In June 2006, the
Company announced agreements to sell its Atlanta and Albany television
stations. The sale of the Atlanta station closed in August. In September 2006,
the Company announced an agreement to sell its Boston television station. The
sales of the Albany and Boston stations closed in December 2006. Operating
results for these stations have been reported as discontinued operations.
(4) Refer
to Note 1 to the Companys consolidated financial statements in
Item 8 for further discussion.
* Not
meaningful
Earnings Per Share (EPS)Diluted EPS was
$2.14 in 2006 compared to $1.67 in 2005. Diluted EPS from continuing operations
in 2006 was $2.39, up from $1.63 in 2005. The 2006 results included a net non-
46
operating gain of $.40 per diluted share, a charge of
$.07 per diluted share as a result of the adoption of the new accounting
standard for stock-based compensation, a charge of $.04 per diluted share for
severance and other payments associated with the new union contracts at
Newsday, a charge of $.02 per diluted share for the elimination of
approximately 400 positions at publishing, a charge of $.01 per diluted share
for the disposition of a press at the Los
Angeles Times San Fernando
Valley printing facility, a gain of $.02 per diluted share related to real
property sales in publishing, a gain of $.02 per diluted share related to the
sale of the corporate airplane, and a gain of $.01 per diluted share related to
the Companys share of a one-time favorable income tax adjustment recorded at
CareerBuilder. Diluted EPS from continuing operations in 2005 was $1.63,
compared to $1.67 in 2004 before the cumulative effect of a change in
accounting principle. The 2005 results included a net non-operating loss of
$.30 per diluted share, a charge of $.04 per diluted share for the
shutdown of the San Fernando Valley printing facility, severance charges of
$.09 per diluted share for the elimination of approximately 900 positions,
primarily in publishing, and a pension curtailment gain of $.03 per diluted
share as a result of the Companys replacement of certain defined benefit plans
with a defined contribution plan. The 2004 results included a net non-operating
loss of $.28 per diluted share, a charge of $.17 per diluted share
related to the anticipated settlement with advertisers regarding misstated
circulation at Newsday and Hoy, New York, a charge of $.07 per
diluted share for the elimination of approximately 600 positions in the
publishing group and a one-time charge of $.05 per diluted share for the
cumulative effect of a change in accounting principle related to early adoption
of FASBs Emerging Issues Task Force Topic No. D-108, which covers
the use of a direct valuation method for intangible assets such as FCC
licenses.
The Company incurred a loss from discontinued
operations of $.24 per diluted share in 2006. In 2005 and 2004, income from
discontinued operations was $.04 per diluted share and $.06 per diluted share,
respectively.
Operating Revenues
and ProfitConsolidated operating revenues,
depreciation and amortization expense, and operating profit by business segment
were as follows:
|
|
|
|
|
|
|
|
Change
|
|
(in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
4,093
|
|
$
|
4,097
|
|
$
|
4,130
|
|
|
|
- 1%
|
|
Broadcasting and entertainment
|
|
1,425
|
|
1,414
|
|
1,501
|
|
+ 1%
|
|
- 6%
|
|
Total operating
revenues
|
|
$
|
5,518
|
|
$
|
5,511
|
|
$
|
5,631
|
|
|
|
- 2%
|
|
Depreciation
and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
Publishing(1)
|
|
$
|
174
|
|
$
|
191
|
|
$
|
179
|
|
- 9%
|
|
+ 7%
|
|
Broadcasting and entertainment
|
|
51
|
|
48
|
|
49
|
|
+ 6%
|
|
- 2%
|
|
Corporate expenses
|
|
2
|
|
2
|
|
2
|
|
- 15%
|
|
|
|
Total
depreciation and amortization expense
|
|
$
|
227
|
|
$
|
241
|
|
$
|
230
|
|
- 6%
|
|
+ 5%
|
|
Operating
profit (loss)(2)
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
749
|
|
$
|
760
|
|
$
|
726
|
|
- 1%
|
|
+ 5%
|
|
Broadcasting and entertainment
|
|
392
|
|
417
|
|
513
|
|
- 6%
|
|
- 19%
|
|
Corporate expenses
|
|
(56
|
)
|
(49
|
)
|
(52
|
)
|
- 13%
|
|
+ 5%
|
|
Total operating profit
|
|
$
|
1,085
|
|
$
|
1,127
|
|
$
|
1,187
|
|
- 4%
|
|
- 5%
|
|
(1) Depreciation
and amortization expense for 2005 included $16 million of accelerated
depreciation related to the shutdown of the San Fernando Valley printing
facility.
(2) Operating
profit (loss) for each segment excludes interest and dividend income, interest
expense, equity income and loss, non-operating items and income taxes.
47
Consolidated operating revenues were essentially flat
at $5.5 billion in 2006 as a decrease in publishing revenues was offset by an
increase in broadcasting and entertainment revenues. Consolidated operating
revenues decreased 2%, or $120 million, in 2005 due to declines in
publishing and broadcasting and entertainment revenues.
Consolidated operating profit decreased 4%, or $42
million, in 2006. Publishing operating profit decreased 1%, or $11 million, in
2006. Publishing operating profit in 2006 included $15 million of stock-based
compensation expense, a $20 million charge for severance and other payments
associated with the new union contracts at Newsday, a $9 million severance
charge for the elimination of approximately 400 positions, a $4 million charge
for the disposition of a press at the San Fernando
Valley printing facility, and a $7 million gain related to real property sales.
Publishing operating profit in 2005 included a $22 million charge for the shutdown
of the San Fernando Valley printing facility, a $43 million severance
charge for the elimination of over 800 positions and a pension curtailment gain
of $13 million. Broadcasting and entertainment operating profit decreased
6%, or $25 million, primarily due to higher programming and compensation
expenses, partially offset by higher revenues.
Consolidated operating profit decreased 5%, or
$60 million, in 2005. Publishing operating profit rose 5%, or
$34 million, in 2005. Publishing operating profit in 2005 included a
$22 million charge for the shutdown of the Los Angeles Times San Fernando Valley printing facility, a
$43 million charge for the elimination of over 800 positions and a pension
curtailment gain of $13 million. In 2004, publishing operating profit
included a $90 million charge related to the anticipated settlement with
advertisers regarding misstated circulation at Newsday
and Hoy, New York and a
$41 million charge for the elimination of approximately 600 positions.
Broadcasting and entertainment operating profit decreased 19%, or $96 million,
in 2005 primarily due to decreased television revenues and increased
compensation and programming expenses, partially offset by a rise in Chicago
Cubs revenues.
Operating
ExpensesConsolidated operating expenses
were as follows:
|
|
|
|
|
|
|
|
Change
|
|
(in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Cost of sales
(exclusive of items shown below)
|
|
$
|
2,737
|
|
$
|
2,696
|
|
$
|
2,669
|
|
+ 2%
|
|
+ 1%
|
|
Selling, general
and administrative
|
|
1,469
|
|
1,447
|
|
1,545
|
|
+ 2%
|
|
- 6%
|
|
Depreciation and
amortization
|
|
227
|
|
241
|
|
230
|
|
- 6%
|
|
+ 5%
|
|
Total operating expenses
|
|
$
|
4,433
|
|
$
|
4,384
|
|
$
|
4,444
|
|
+ 1%
|
|
- 1%
|
|
Cost of sales increased 2%, or $41 million, in 2006
primarily due to increases in programming, newsprint and ink, and circulation
distribution expenses, partially offset by a decrease in compensation expense.
Programming expenses increased 7%, or $22 million, primarily due to higher
broadcast rights amortization. Newsprint and ink expense was up 3%, or $17
million. The Companys newspapers have transitioned to lighter weight newsprint
that on a per ton basis, costs more, but yields more pages. On a same-weight
basis, average newsprint cost per metric ton increased 10% and consumption
declined 6% in 2006. Circulation distribution expense increased 5%, or $23
million, primarily due to higher mailed preprint advertising postage expenses
resulting from higher postage rates and increased volume. Compensation expense
decreased 2%, or $21 million, mainly due to the impact of position eliminations
in 2006 and 2005.
Cost of sales increased 1%, or $27 million, in
2005 primarily due to higher newsprint and ink and outside services expense,
partially offset by a decline in circulation distribution expense. Compensation
expense was flat compared with 2004. Newsprint and ink expense was up 3%, or
$14 million, in 2005, due to a 16% increase in newsprint costs per
ton, partially offset by an 11% drop in consumption. Outside services
expense increased 11%, or $18 million, in 2005 due largely to higher legal fees
and outside printing costs. Programming expenses were flat compared to 2004.
Circulation distribution expense declined 1%, or
48
$5 million, primarily
due to lower payments to outside contractors as a result of circulation volume
declines.
Selling, general and administrative expenses (SG&A)
expenses were up 2%, or $22 million, in 2006. Compensation expense increased
5%, or $34 million, in 2006. Compensation expense in 2006 included $32 million
of stock-based compensation, a $20 million charge for severance and other
payments associated with the new union contracts at Newsday and a $9 million
severance charge for the elimination of approximately 400 positions at
publishing. Compensation expense in 2005 included a $45 million severance
charge for the elimination of approximately 900 positions and a pension
curtailment gain of $18 million. Promotion expense decreased 4%, or $4
million, due to the Companys efforts to reduce costs in 2006. SG&A expense
in 2006 also included a $7 million gain on real property sales in Publishing
and a $7 million gain related to the sale of the corporate airplane.
SG&A expenses were down 6%, or $98 million,
in 2005. Compensation expense decreased 1%, or $5 million, in 2005.
Compensation expense in 2005 included a $45 million severance charge for
the elimination of approximately 900 positions and a pension curtailment gain
of $18 million, while 2004 compensation expense included a
$41 million severance charge for the elimination of about 600 positions in
publishing. Circulation expense decreased 6%, or $7 million, in 2005.
Other SG&A expenses declined $81 million in 2005. Other SG&A
expenses in 2004 included a charge of $90 million related to the
anticipated settlement with advertisers regarding misstated circulation at Newsday and Hoy, New York.
The decrease in depreciation
and amortization of intangible assets in 2006 and the increase in 2005 is
primarily due to $16 million of accelerated depreciation in 2005 related to the
shutdown of the Los Angeles Times
San Fernando Valley printing facility.
Publishing
For 2006, the additional week increased publishing
advertising revenues, circulation revenues, other operating revenues, and
operating profit by approximately 2%, and increased operating expenses by
approximately 1.5%.
Operating Revenues and
ProfitIn 2006, publishing contributed
74% of the Companys revenues and 69% of its operating profits. Daily newspaper
revenue is derived principally from advertising and circulation sales, which
accounted for 80% and 14%, respectively, of the publishing segments total
revenues in 2006. Advertising revenue is comprised of three basic categories:
retail, national and classified. Newspaper advertising volume is categorized as
full run inches, part run inches or preprint pieces. Circulation revenue
results from the sale of newspapers. Other publications/services revenue
accounted for 6% of the segments total revenues in 2006 and includes
syndication of editorial products, advertising placement services, direct mail
operations, cable television news programming, distribution of entertainment
listings and other publishing-related activities.
Explanations of certain
advertising types used in this discussion are as follows:
Retail:
|
|
Display or preprint
advertising from local retailers, such as department stores
|
National:
|
|
Display or preprint
advertising by national advertisers that promote products or brand names on a
nation-wide basis
|
Classified:
|
|
Local advertising listed
together and organized by type (including help wanted, real estate and
automotive) and display advertisements in these same categories
|
Full run inches:
|
|
Advertising appearing in
all editions of a newspaper
|
49
Part run inches:
|
|
Advertising appearing in
only select editions or zones of a newspapers market
|
Preprint pieces:
|
|
Advertising supplements prepared by advertisers and
inserted into a newspaper
|
The
table below presents publishing operating revenues, operating expenses and
operating profit:
|
|
|
|
|
|
|
|
Change
|
|
(in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Operating
revenues
|
|
$
|
4,093
|
|
$
|
4,097
|
|
$
|
4,130
|
|
|
|
- 1
|
%
|
Operating
expenses
|
|
3,344
|
|
3,337
|
|
3,404
|
|
|
|
- 2
|
%
|
Operating profit
|
|
$
|
749
|
|
$
|
760
|
|
$
|
726
|
|
- 1
|
%
|
+ 5
|
%
|
Publishing operating revenues in 2006 were essentially
flat at $4.1 billion as an increase in advertising revenue was offset by a decrease
in circulation revenue. The largest increases in advertising revenue were at
Orlando and South Florida while the biggest declines in circulation revenues
were at Chicago, Los Angeles and Baltimore. Publishing operating revenues
in 2005 decreased 1% to $4.1 billion, down $33 million from 2004, due
mainly to lower circulation revenue in Los Angeles, Chicago and New York.
Operating profit decreased 1%, or $11 million, in
2006. For 2006, publishing operating profit included $15 million of stock-based
compensation expense, a $20 million charge for severance and other payments
associated with the new union contracts at Newsday, a $9 million severance
charge for the elimination of approximately 400 positions, a $4 million charge
for the disposition of a press at the Los
Angeles Times San Fernando
Valley printing facility, and a $7 million gain related to real property sales.
Operating profit increased 5%, or $34 million, in 2005 primarily due to
lower one-time charges. For 2005, publishing operating profit included a
$22 million charge for the shutdown of the San Fernando Valley printing
facility, $43 million of severance charges for the elimination of over 800
positions and a $13 million pension curtailment gain as a result of
changes to the retirement programs at the Company. For 2004, publishing
operating profit included a $90 million charge related to the anticipated
settlement with advertisers regarding misstated circulation at Newsday and Hoy, New York, for the periods of September 2001
through March 2004. Operating profit for 2004 also included a
$41 million severance charge for the elimination of about 600 positions.
Operating
RevenuesTotal operating revenues were
essentially flat in 2006 and decreased 1% in 2005 compared to 2004. Total
publishing operating revenues, by classification, were as follows:
|
|
|
|
|
|
|
|
Change
|
|
(in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Advertising
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
1,344
|
|
$
|
1,324
|
|
$
|
1,331
|
|
|
+ 2
|
%
|
|
|
- 1
|
%
|
|
National
|
|
737
|
|
774
|
|
803
|
|
|
- 5
|
%
|
|
|
- 4
|
%
|
|
Classified
|
|
1,179
|
|
1,146
|
|
1,095
|
|
|
+ 3
|
%
|
|
|
+ 5
|
%
|
|
Total advertising
|
|
3,260
|
|
3,244
|
|
3,229
|
|
|
|
|
|
|
|
%
|
|
Circulation
|
|
575
|
|
596
|
|
644
|
|
|
- 4
|
%
|
|
|
- 7
|
%
|
|
Other
|
|
258
|
|
257
|
|
257
|
|
|
|
|
|
|
|
|
|
Total operating
revenues
|
|
$
|
4,093
|
|
$
|
4,097
|
|
$
|
4,130
|
|
|
|
|
|
|
- 1
|
%
|
|
Advertising Revenue and
VolumeTotal advertising revenues were
essentially flat in 2006 compared to 2005. Retail advertising revenues were up
2%, or $20 million, primarily due to increases in the hardware/home improvement
stores, amusements and personal services categories, partially offset by a
decrease in the department store category. Preprint revenues, which are
primarily included in retail
50
advertising, rose 1%, or
$8 million, due to increases at Chicago, Los Angeles, Orlando, Baltimore and
Hartford, partially offset by a decrease at Newsday. National advertising
revenues decreased 5%, or $37 million, primarily due to decreases in the
auto, movies and resorts categories, partially offset by increases in the media
and health care categories. Classified advertising revenues increased 3%, or
$33 million, in 2006, with an increase in real estate of 23%, partially
offset by decreases in automotive and help wanted of 10% and 2%, respectively.
Interactive revenues, which are included in the above categories, increased
29%, or $51 million, in 2006.
Total advertising revenues were essentially flat in
2005 compared to 2004. Retail advertising revenues were down 1%, or
$7 million, for the year as decreases in the department stores, food &
drug stores, electronics and furniture/home furnishings categories were
partially offset by increases in the hardware/home improvement and other retail
categories. Preprint revenues, which are primarily included in retail
advertising, rose 2%, or $15 million, due to increases at Los Angeles and
Chicago, partially offset by a decrease at Newsday. National advertising revenue
decreased 4%, or $29 million, in 2005 as decreases in the wireless,
transportation, technology and movies categories were offset by an increase in
the financial category. Classified advertising revenues increased 5%, or
$51 million, in 2005 due to increases in real estate and help wanted of
15% and 13%, respectively, partially offset by an 8% decrease in auto.
Interactive revenues, which are included in the above categories, increased
43%, or $53 million, in 2005.
Advertising
volume data for 2006, 2005 and 2004 was as follows:
|
|
|
|
|
|
|
|
Change
|
|
Inches (in thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Full run inches
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
6,119
|
|
5,980
|
|
6,200
|
|
|
+ 2
|
%
|
|
|
- 4
|
%
|
|
National
|
|
3,457
|
|
3,774
|
|
3,998
|
|
|
- 8
|
%
|
|
|
- 6
|
%
|
|
Classified
|
|
10,154
|
|
10,023
|
|
10,265
|
|
|
+ 1
|
%
|
|
|
- 2
|
%
|
|
Total full run
inches
|
|
19,730
|
|
19,777
|
|
20,463
|
|
|
|
|
|
|
- 3
|
%
|
|
Part run
inches
|
|
21,217
|
|
20,112
|
|
20,575
|
|
|
+ 5
|
%
|
|
|
- 2
|
%
|
|
Total inches
|
|
40,947
|
|
39,889
|
|
41,038
|
|
|
+ 3
|
%
|
|
|
- 3
|
%
|
|
Preprint pieces (in millions)
|
|
14,929
|
|
14,929
|
|
14,680
|
|
|
|
|
|
|
+ 2
|
%
|
|
Full run advertising inches were flat in 2006 as a
decrease in national advertising inches was offset by increases in retail and
classified advertising inches. Full run retail advertising inches were up 2% in
2006 mainly due to increases at Hoy
and Newsday, partially offset by a decrease at South Florida. Full run national
advertising inches were down 8% in 2006 primarily due to decreases at Chicago,
Los Angeles, South Florida and Allentown. Full run classified advertising
inches rose 1% in 2006 mainly due to increases at Orlando and Los Angeles,
partially offset by decreases at Chicago, Newport News and Newsday. Part run
advertising inches were up 5% in 2006 due to increases at Chicago and Los
Angeles, partially offset by decreases at Newsday and Orlando. Preprint
advertising pieces were flat in 2006 as increases at Los Angeles, Orlando and
Hartford were offset by a decrease at Newsday.
51
Full run advertising inches were down 3% in 2005 due
to decreases in all three major advertising categories. Full run retail
advertising inches were down 4% mainly due to decreases at Southern Connecticut
and Baltimore, partially offset by increases at Orlando and Hoy. Full run national advertising inches
were down 6% in 2005 primarily due to decreases at Los Angeles, Orlando,
Hartford and Baltimore. Full run classified advertising inches fell 2% for the
year due to declines at South Florida, Baltimore, Hoy and Los Angeles, partially offset by an increase at
Orlando. Part run advertising inches were down 2% in 2005 due to a
decrease at Los Angeles, partially offset by an improvement at Newsday.
Preprint advertising pieces rose 2% for the year due to increases at Los
Angeles and Chicago, partially offset by a decrease at Newsday.
Circulation RevenuesCirculation revenues
were down 4% in 2006 and 7% in 2005, primarily due to selective home delivery
discounting and volume declines. The largest revenue declines in 2006 were at
Chicago, Los Angeles and Baltimore. The largest revenue declines in 2005 were
at Los Angeles, Chicago and Newsday.
Other RevenuesOther revenues are
derived from advertising placement services; the syndication of columns,
features, information and comics to newspapers; commercial printing operations;
delivery of other publications; direct mail operations; cable television news
programming; distribution of entertainment listings; and other publishing-related
activities. Other revenues were flat in both 2006 and 2005 compared to 2004.
Operating ExpensesOperating expenses
for 2006, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
Change
|
|
(in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Compensation
|
|
$
|
1,387
|
|
$
|
1,396
|
|
$
|
1,410
|
|
|
-1
|
%
|
|
|
-1
|
%
|
|
Newsprint and ink
|
|
508
|
|
491
|
|
477
|
|
|
+3
|
%
|
|
|
+3
|
%
|
|
Circulation distribution
|
|
485
|
|
462
|
|
474
|
|
|
+5
|
%
|
|
|
-2
|
%
|
|
Outside services
|
|
322
|
|
310
|
|
289
|
|
|
+4
|
%
|
|
|
+7
|
%
|
|
Promotion
|
|
105
|
|
109
|
|
110
|
|
|
-4
|
%
|
|
|
-1
|
%
|
|
Depreciation and
amortization
|
|
174
|
|
191
|
|
179
|
|
|
-9
|
%
|
|
|
+7
|
%
|
|
Newsday and Hoy, New York charge
|
|
|
|
|
|
90
|
|
|
|
|
|
|
*
|
|
|
Other
|
|
363
|
|
378
|
|
375
|
|
|
-4
|
%
|
|
|
+1
|
%
|
|
Total operating expenses
|
|
$
|
3,344
|
|
$
|
3,337
|
|
$
|
3,404
|
|
|
|
|
|
|
-2
|
%
|
|
* Not meaningful
Publishing operating expenses were flat in 2006.
Compensation expense decreased 1%, or $9 million, in 2006 primarily due to a 5%
(1,000 full-time equivalent positions) reduction in staffing. Compensation
expense in 2006 included a $20 million charge related to the new union
contracts at Newsday, $15 million of stock-based compensation expense and a $9
million charge for the elimination of 400 positions. Compensation expense in
2005 included $43 million of severance charges for the elimination of over 800 positions
and a $13 million pension curtailment gain. Newsprint and ink expense was up
3%, or $17 million, for 2006. The Companys newspapers have transitioned to
lighter weight newsprint that on a per ton basis costs more, but yields more
pages. On a same-weight basis, average newsprint cost per metric ton increased
10% and consumption declined 6% in 2006. Circulation distribution expense
increased 5%, or $23 million, primarily due to higher mailed preprint
advertising postage expenses resulting from higher postage rates and increased
volume. Outside services expense was up 4%, or $12 million, in 2006 due largely
to higher outside printing costs. Promotion expense decreased 4%, or $4
million, due to the Companys efforts to reduce costs in 2006. Depreciation and
amortization expense decreased 9%, or $17 million, primarily due to $16
million of accelerated depreciation in 2005 related to the shutdown of the Los Angeles
Times San Fernando Valley printing facility. Other expenses for
2006 included a $4 million charge for the disposition of a press at the
San Fernando Valley printing facility and a $7 million gain on real
property sales.
52
Publishing operating
expenses decreased 2%, or $67 million, in 2005 primarily due to the
absence of the Newsday and Hoy, New York charge and a decrease in
compensation and circulation distribution expenses, partially offset by
increases in newsprint and ink, depreciation and amortization expense.
Compensation expense decreased 1%, or $14 million, in 2005, primarily due
to the $13 million pension curtailment gain. The Company recorded
$43 million of severance charges for the elimination of over 800 positions
in 2005 and $41 million of severance charges for the elimination of about
600 positions in 2004. Newsprint and ink expense was up 3%, or
$14 million, in 2005, as newsprint cost per ton increased 16%, while
consumption decreased 11%. The Companys newspapers were transitioning to
lighter weight newsprint in 2005. The increase in newsprint cost per ton
reflects increased market prices and the higher cost of lighter weight paper.
Circulation distribution expense declined 2%, or $12 million, due to lower
payments to outside contractors primarily as a result of circulation volume
declines. Outside services expense rose 7%, or $21 million, in 2005 due largely
to higher legal fees and outside printing costs. Depreciation and amortization
expense increased 7%, or $12 million, primarily due to $16 million of
accelerated depreciation as a result of the shutdown of the San Fernando Valley
printing facility. Publishing operating expenses in 2004 included a charge of
$90 million related to the anticipated settlement with advertisers regarding
misstated circulation at Newsday
and Hoy, New York.
Broadcasting and
Entertainment
For 2006, the additional week increased operating
revenues, operating expenses and operating profit by approximately 1%.
Operating Revenues and
ProfitIn 2006,
broadcasting and entertainment contributed 26% of the Companys revenues and
36% of its operating profits. The following table presents broadcasting and
entertainment operating revenues, operating expenses and operating profit for
television and radio/entertainment. The Companys broadcasting operations at
the end of 2006 included 23 television stations. Radio/entertainment
includes WGN-AM, Chicago, Tribune Entertainment and the Chicago Cubs.
|
|
|
|
|
|
|
|
Change
|
|
(in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
1,178
|
|
$
|
1,165
|
|
$
|
1,259
|
|
|
+1
|
%
|
|
-7%
|
|
Radio/entertainment
|
|
247
|
|
249
|
|
243
|
|
|
-1
|
%
|
|
+2%
|
|
Total operating
revenues
|
|
$
|
1,425
|
|
$
|
1,414
|
|
$
|
1,501
|
|
|
+1
|
%
|
|
-6%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
820
|
|
$
|
782
|
|
$
|
764
|
|
|
+5
|
%
|
|
+2%
|
|
Radio/entertainment
|
|
213
|
|
215
|
|
225
|
|
|
-1
|
%
|
|
-4%
|
|
Total operating
expenses
|
|
$
|
1,033
|
|
$
|
998
|
|
$
|
988
|
|
|
+4
|
%
|
|
+1%
|
|
Operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
358
|
|
$
|
383
|
|
$
|
495
|
|
|
-7
|
%
|
|
-22%
|
|
Radio/entertainment
|
|
34
|
|
33
|
|
18
|
|
|
+1
|
%
|
|
+80%
|
|
Total operating profit
|
|
$
|
392
|
|
$
|
417
|
|
$
|
513
|
|
|
-6
|
%
|
|
-19%
|
|
Broadcasting and entertainment revenues increased 1%,
or $11 million, in 2006 due to increased television revenues, partially offset
by lower radio/entertainment revenues. Television revenues increased 1%, or $13
million, as declines in the retail, restaurant and fast food, health care and
pharmacy and automotive categories were offset by increases in the political,
telecom, education and movie categories. Radio/entertainment revenues decreased
1%, or $2 million, due to lower revenues at Tribune Entertainment, partially
offset by increased revenues at the Chicago Cubs. Tribune Entertainment
53
revenues declined due to
lower syndication revenues and Chicago Cubs revenues increased as a result of
higher game receipts, marketing revenues and broadcasting revenues.
Broadcasting and entertainment revenues decreased 6%,
or $87 million, in 2005 due mainly to lower television revenues, partially
offset by an increase in radio/entertainment revenues. Television revenues decreased
7%, or $94 million, in 2005 due to lower advertising revenues. Television
advertising revenues reflected weakness in the telecom, automotive, and food
categories, partially offset by increases in the financial and education
categories. In addition, station revenues in New York, Los Angeles and Chicago were
impacted by lower audience ratings due in part to the use of Nielsens Local
People Meters (LPMs) in these markets. Compared to Nielsens previous
measurement methodology, LPMs have tended to reduce the overall share of
broadcast television in relation to cable television and, within the broadcast
television universe, disadvantage stations like Tribunes that target younger
audiences. Radio/entertainment revenues increased 2%, or $6 million, in
2005 due to an increase at the Chicago Cubs, partially offset by lower revenues
at Tribune Entertainment. Chicago Cubs revenues increased primarily as a result
of growth in marketing and broadcasting revenues, while Tribune Entertainment
revenues declined due to lower syndication revenues.
Operating profit for broadcasting and entertainment
was down 6%, or $25 million, in 2006. Television operating profit declined 7%,
or $25 million, in 2006 due to higher programming expenses and stock-based compensation,
partially offset by higher operating revenues. Radio/entertainment operating
profit increased 1%, or $1 million, due to higher revenues at the Chicago Cubs,
partially offset by reduced revenues at Tribune Entertainment.
Operating profit for broadcasting and entertainment
was down 19%, or $96 million, in 2005. Television operating profit
declined 22%, or $112 million, in 2005 due to lower operating revenues and
increased compensation and programming expenses. Radio/entertainment operating
profit increased 80%, or $15 million, in 2005 due to higher revenues at
the Chicago Cubs and lower operating expenses primarily due to fewer programs
in production at Tribune Entertainment.
Operating ExpensesOperating expenses
for 2006, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
Change
|
|
(in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Compensation
|
|
$
|
417
|
|
$
|
412
|
|
$
|
402
|
|
|
+1
|
%
|
|
|
+2
|
%
|
|
Programming
|
|
352
|
|
330
|
|
330
|
|
|
+7
|
%
|
|
|
|
|
|
Depreciation and
amortization
|
|
51
|
|
48
|
|
49
|
|
|
+6
|
%
|
|
|
-2
|
%
|
|
Other
|
|
213
|
|
208
|
|
207
|
|
|
+3
|
%
|
|
|
|
|
|
Total operating expenses
|
|
$
|
1,033
|
|
$
|
998
|
|
$
|
988
|
|
|
+4
|
%
|
|
|
+1
|
%
|
|
Broadcasting and entertainment operating expenses
increased 4%, or $35 million, in 2006 primarily due to an increase in
compensation, programming and other expenses. Compensation expense increased
1%, or $5 million, due to $5 million of stock-based compensation in 2006.
Programming expenses were up 7%, or $22 million, in 2006 due to higher
broadcast rights amortization. Other expenses increased 3%, or $5 million, in
2006.
Broadcasting and
entertainment operating expenses increased 1%, or $10 million, in 2005
primarily due to an increase in compensation expense. Compensation expense
increased 2%, or $10 million, in 2005 due to higher player compensation at
the Chicago Cubs and increases in television. Depreciation and amortization was
down 2%, or $1 million, in 2005.
54
Equity Results
|
|
|
|
|
|
|
|
Change
|
|
(in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Net income on
equity investments
|
|
|
$
|
81
|
|
|
|
$
|
41
|
|
|
|
$
|
18
|
|
|
|
+96
|
%
|
|
+130%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity income totaled $81 million in 2006, an
increase of $40 million from 2005. The increase primarily reflects
improvements at TV Food Network, CareerBuilder and Classified Ventures and the
absence of losses from The WB Network. In addition, equity income for 2006
includes the Companys $6 million share of a one-time favorable income tax
adjustment at CareerBuilder.
Equity income totaled
$41 million in 2005, an increase of $23 million from 2004. The
increase primarily reflects improvements at TV Food Network and Comcast
SportsNet Chicago. In addition, the Company stopped recording losses for The WB
Network in the fourth quarter of 2005 as the Companys recorded investment had
been reduced to zero with no future funding requirements.
Interest and Dividend Income and Interest Expense
|
|
|
|
|
|
|
|
Change
|
|
(in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Interest and
dividend income
|
|
$
|
14
|
|
$
|
7
|
|
$
|
3
|
|
|
+88
|
%
|
|
+147%
|
|
Interest expense
|
|
$
|
(274
|
)
|
$
|
(155
|
)
|
$
|
(153
|
)
|
|
+76
|
%
|
|
+1%
|
|
Interest and dividend income increased to
$14 million in 2006, from $7 million in 2005, due to higher average
cash balances, higher interest rates and an increase in Time Warner dividend
income. Interest and dividend income increased to $7 million in 2005, from
$3 million in 2004, due to higher cash balances and $1.9 million of Time
Warner dividend income. Time Warner began paying quarterly dividends in September 2005.
The Company currently holds 16.3 million shares of Time Warner stock.
Interest expense increased
76%, or $119 million, in 2006 primarily due to higher debt levels from
financing the share repurchases in the third quarter of 2006 (see Note 9 to the
Companys consolidated financial statements in Item 8) and higher interest
rates. Interest expense increased 1% in 2005 primarily due to new long-term
notes issued in August 2005 and the issuance of commercial paper in September 2005
to pay the federal portion of the Matthew Bender and Mosby tax liabilities (see
Note 13 to the Companys consolidated financial statements in
Item 8). Excluding the PHONES, the average debt level was
$3.6 billion in 2006, $2.1 billion in 2005 and $2.1 billion in
2004. Including the PHONES, average debt levels were $4.2 billion in 2006,
$2.6 billion in 2005 and $2.6 billion in 2004. Excluding the PHONES,
outstanding debt was $4.4 billion at year-end 2006, $2.8 billion at
year-end 2005 and $2.0 billion at year-end 2004. Including the PHONES,
outstanding debt was $5.0 billion at year-end 2006, $3.3 billion at
year-end 2005 and $2.6 billion at year-end 2004.
Other
Corporate
expenses for 2006, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
Change
|
|
(in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
06-05
|
|
05-04
|
|
Corporate
expenses
|
|
$
|
(56
|
)
|
$
|
(49
|
)
|
$
|
(52
|
)
|
|
+13
|
%
|
|
-5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses increased 13%, or $7 million,
in 2006 primarily due to $11 million of stock-based compensation expense,
partially offset by a $7 million gain related to the sale of the corporate
airplane in 2006. Corporate expenses decreased 5%, or $3 million, in 2005
compared to 2004 primarily due to a pension curtailment gain of $4 million as a
result of changes to the retirement programs at the Company.
55
The effective tax rate on
income from continuing operations in 2006 was 34.5%, compared with a rate of
52.1% in 2005 and 39.1% in 2004. The effective tax rates for 2006 and 2005 were
affected by income tax settlements and adjustments, as well as other
non-operating items (see Note 2 to the consolidated financial statements in
Item 8). In 2006, the Company recorded a favorable $34 million income tax
expense adjustment, most of which related to the Companys PHONES as a result
of reaching an agreement with the Internal Revenue Service appeals office
pertaining to the deduction of interest on the PHONES. In the third quarter of
2005, the Company recorded additional income tax expense of $150 million
related to the Matthew Bender and Mosby tax liabilities (see Note 13 to
the Companys consolidated financial statements in Item 8). In the first
quarter of 2005, the Company reduced its income tax expense and liabilities by
$12 million as a result of favorably resolving certain other federal
income tax issues. In the aggregate, non-operating items lowered the effective
tax rate for 2006 by 4.7 percentage points and increased the effective tax
rate in 2005 by 12.7 percentage points.
DISCONTINUED
OPERATIONS
On June 5, 2006, the Company announced the sale
of WATL-TV, Atlanta to Gannett Co., Inc. for $180 million. The sale closed
on Aug. 7, 2006. On June 19, 2006, the Company announced the sale of
WCWN-TV, Albany to Freedom Communications, Inc. for $17 million. The sale
closed on Dec. 6, 2006. On Sept. 14, 2006, the Company announced the sale
of WLVI-TV, Boston, to Sunbeam Television Corp. for $113.7 million. The sale
closed on Dec. 19, 2006.
These businesses were considered components of the
Companys broadcasting and entertainment segment as their operations and cash
flows could be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the Company. The operations and cash flows of these
businesses have been eliminated from the ongoing operations of the Company as a
result of the sales, and the Company will not have any significant continuing
involvement in their operations. Accordingly, the results of operations of each
of these businesses have been reported as discontinued operations in the
consolidated statements of income. Prior year consolidated statements of income
have been reclassified to conform to the current year presentation of
discontinued operations.
In conjunction with the sales of WATL-TV, Atlanta and
WCWN-TV, Albany, the Company recorded in the second quarter of 2006 a pretax
loss totaling $90 million, including $80 million of allocated television group
goodwill, to write down the net assets of the stations to estimated fair value,
less costs to sell. The Company subsequently reduced the pretax loss on sales
of the Atlanta and Albany stations during the third quarter of 2006 by $1
million. In addition, the Company recorded in the fourth quarter of 2006 a
pretax gain of $41 million, including $45 million of allocated television group
goodwill, for the sale of the Boston station. In accordance with FAS No. 142,
Goodwill and Other Intangible Assets, the Company aggregates all of its
television stations into one reporting unit for goodwill accounting purposes.
FAS No. 142 requires the Company to allocate a portion of its total
television group goodwill to stations that are to be sold on a relative fair
value basis. The net pretax loss on sales of the three stations sold during
2006 was $48 million, including $125 million of allocated television group
goodwill.
56
Selected
financial information related to discontinued operations is summarized as
follows (in millions, except per share data):
|
|
2006
|
|
2005
|
|
2004
|
|
Operating
revenues
|
|
|
$
|
65
|
|
|
|
$
|
84
|
|
|
|
$
|
95
|
|
|
Operating profit(1)
|
|
|
$
|
2
|
|
|
|
$
|
20
|
|
|
|
$
|
31
|
|
|
Loss on sales of
discontinued operations
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss)
from discontinued operations before income taxes
|
|
|
(46
|
)
|
|
|
20
|
|
|
|
31
|
|
|
Income taxes(2)
|
|
|
(21
|
)
|
|
|
(8
|
)
|
|
|
(12
|
)
|
|
Income (loss)
from discontinued operations, net of tax
|
|
|
$
|
(67
|
)
|
|
|
$
|
12
|
|
|
|
$
|
19
|
|
|
Income (loss)
from discontinued operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
(.25
|
)
|
|
|
$
|
.04
|
|
|
|
$
|
.06
|
|
|
Diluted
|
|
|
$
|
(.24
|
)
|
|
|
$
|
.04
|
|
|
|
$
|
.06
|
|
|
(1) Operating
profit for 2006 included $6 million of severance and related charges incurred
as a result of the sales of the three television stations.
(2) Income taxes for 2006
included a tax benefit of $12 million related to the $89 million pretax loss on
sales of the Atlanta and Albany stations. The $12 million tax benefit was only
13% of the pretax loss because most of the $80 million goodwill allocation,
which is included in the loss, is not deductible for income tax purposes.
Income taxes for 2006 also included a tax expense of $32 million related
to the $41 million pretax gain on sale of the Boston station. The $32 million
tax expense was 77% of the pretax gain because most of the $45 million goodwill
allocation included in the Boston gain is not deductible for income tax
purposes.
LIQUIDITY AND
CAPITAL RESOURCES
Cash flow generated from operations is the Companys
primary source of liquidity. Net cash provided by operations was $788 million
in 2006, up from $659 million in 2005, due in part to lower income tax
payments. The Company expects to fund dividends, capital expenditures and other
operating requirements with net cash provided by operations. Funding required
for share repurchases and acquisitions is financed by available cash flow from
operations, borrowings under the new credit agreements described below, and, if
necessary, by the issuance of debt and proceeds from the issuance of stock
related to stock option exercises.
Net cash provided by investments totaled
$26 million in 2006 compared with net cash used by investments of
$725 million in 2005. The Companys capital expenditures totaled $222
million in 2006. The Company spent $174 million in cash for investments
and $48 million for acquisitions and received $471 million from the sales
of subsidiaries, investments and real estate in 2006. Included in the $471 million
received from the sales was $325 million for the sale of the Atlanta, Albany
and Boston television stations (see Note 3 to the Companys consolidated
financial statements in Item 8).
Net cash used for financing activities was $791 million
in 2006. The Company borrowed $1.6 billion under its bridge credit facility and
$1.5 billion under its five-year credit agreement in 2006. The Company repaid
$827 million of commercial paper, net of issuances, $290 million on the bridge
credit facility and $319 million of long-term debt in 2006. The Company
repurchased 70.7 million shares of its common stock for $2.3 billion in 2006.
Under the Companys 2000 and 2005 general stock repurchase authorizations, the
Company may buy back an additional $862 million of common stock. Dividends paid
on common and preferred shares totaled $201 million in 2006. Quarterly
dividends per share on common stock were $.18 in 2006, flat compared to 2005.
57
The Company completed its tender offer and acquired 45
million shares of its common stock on July 5, 2006 at a price of $32.50
per share before transaction costs. The Company also acquired 10 million
shares of its common stock from the Robert R. McCormick Tribune Foundation and
the Cantigny Foundation on July 12, 2006 at a price of $32.50 per share
before transaction costs. In connection
with the tender offer, the board of directors also authorized the repurchase of
an additional 12 million shares of the Companys common stock commencing on the
eleventh business day following the completion of the tender offer. In the
third quarter of 2006, the Company repurchased an additional 11.1 million
shares under that authorization at a weighted average cost of $29.94 per share.
On June 19, 2006, the Company entered into a
five-year credit agreement and a 364-day bridge credit agreement, both of
which were amended and restated on June 27, 2006. The five-year credit
agreement provides for a $1.5 billion unsecured term facility, of which $250
million was used to refinance the medium-term notes that matured on Nov. 1,
2006, and a $750 million unsecured revolving facility. The 364-day bridge
credit agreement provided for a $2.15 billion unsecured bridge facility. As of Dec. 31,
2006, the Company had outstanding borrowings of $1.5 billion and $1.3 billion
under the term facility and the bridge facility, respectively, and the Company
had no borrowings under the revolving facility. The Company intends to
refinance borrowings under the bridge facility prior to maturity. Refinancing
these borrowings on similar financial terms will be contingent upon a number of
factors, including the outcome of the Companys exploration of strategic
alternatives, financial market conditions and the Companys credit ratings.
The Companys commercial paper is currently rated B,
NP, and R-2m by Standard and Poors (S&P), Moodys Investors
Services (Moodys), and Dominion Bond Rating Service (Dominion),
respectively. The Companys senior unsecured long-term debt is rated BB+ by
S&P, Ba1 by Moodys, BB+ by Fitch Ratings (Fitch) and BBB by
Dominion. Moodys has a negative outlook on the Company, and S&P and
Fitch have the Company on negative credit watch. Dominion has the Company
under review with negative implications.
The Company has for several years maintained active
debt shelf registration statements for its medium-term note program and other
financing needs. A $1 billion shelf registration statement was declared
effective in February 2006. In July 2006, a new shelf registration
statement was filed and declared effective, replacing the shelf registration
statement declared effective in February 2006. The new shelf registration
statement does not have a designated amount, but the Companys Board of
Directors has authorized the issuance and sale of up to $3 billion of debt
securities, inclusive of the $1 billion that was registered pursuant to the February 2006
registration statement. Proceeds from any future debt issuances under the new
shelf would be used for general corporate purposes, including repayment of
short-term and long-term borrowings, capital expenditures, working capital,
financing of acquisitions and stock repurchase programs.
Although management believes its estimates and
judgments are reasonable, the resolutions of the Companys tax issues are
unpredictable and could result in tax liabilities that are significantly higher
or lower than that which has been provided by the Company.
Off-Balance Sheet
ArrangementsOff-balance sheet arrangements as
defined by the Securities and Exchange Commission include the following four
categories: obligations under certain guarantees or contracts; retained or
contingent interests in assets transferred to an unconsolidated entity or
similar arrangements; obligations under certain derivative arrangements; and
obligations under material variable interests. The Company has not entered into
any material arrangements, which would fall under any of these four categories,
which would be reasonably likely to have a current or future material effect on
the Companys financial condition, revenues or expenses, results of operations,
liquidity or capital expenditures.
58
Contractual ObligationsThe table below
presents long-term debt maturities, required payments under contractual
agreements for broadcast rights recorded in the consolidated balance sheet, future
minimum lease payments to be made under non-cancelable operating leases, and
other purchase obligations as of Dec. 31, 2006 (in thousands).
Fiscal Year
|
|
|
|
Long-term Debt
|
|
Broadcast Rights
Contracts Payable
|
|
Future
Minimum
Lease Payments
|
|
Other
Purchase Obligations(1)
|
|
Total(2)
|
|
2007
|
|
|
$
|
1,429,007
|
|
|
|
$
|
317,945
|
|
|
|
$
|
62,149
|
|
|
|
$
|
192,910
|
|
|
$
|
2,002,011
|
|
2008
|
|
|
287,023
|
|
|
|
163,374
|
|
|
|
55,835
|
|
|
|
213,497
|
|
|
719,729
|
|
2009
|
|
|
15,851
|
|
|
|
123,766
|
|
|
|
47,350
|
|
|
|
174,671
|
|
|
361,638
|
|
2010
|
|
|
451,246
|
|
|
|
73,052
|
|
|
|
34,370
|
|
|
|
153,519
|
|
|
712,187
|
|
2011
|
|
|
1,832,963
|
|
|
|
40,984
|
|
|
|
23,844
|
|
|
|
107,097
|
|
|
2,004,888
|
|
Thereafter
|
|
|
989,128
|
|
|
|
24,751
|
|
|
|
45,878
|
|
|
|
313,131
|
|
|
1,372,888
|
|
Total
|
|
|
$
|
5,005,218
|
|
|
|
$
|
743,872
|
|
|
|
$
|
269,426
|
|
|
|
$
|
1,154,825
|
|
|
$
|
7,173,341
|
|
(1) Other
purchase obligations include $682 million for commitments for broadcast rights
that are not currently available for broadcast (see Note 12 to the Companys
consolidated financial statements in Item 8), and $473 million for talent
contracts.
(2) In
addition to the amounts listed in the table above, the Company had commitments
totaling $63 million at Dec. 31, 2006 related to the purchase of
inventory and property, plant and equipment. In addition, under its current
agreement with Abitibi Consolidated Inc., the Company has a commitment to
purchase 369,000 metric tons of newsprint each year over the next three years,
subject to certain limitations, at prevailing market prices at the time of
purchase (see Note 12 to the Companys consolidated financial statements
in Item 8).
Capital SpendingThe Company spent
$222 million for capital expenditures during 2006 and $206 million in
2005 (see Note 18 to the Companys consolidated financial statements in
Item 8 for capital spending by business segment). The Company classifies
capital expenditures that are expected to provide a rate of return on
investment above an internally set minimum rate as growth expenditures. The
Company spent $133 million in 2006 and $87 million in 2005 on growth
expenditures, primarily in publishing.
Major capital projects that were in process during
2006 included the expansion of preprint inserting operations and color press
capacities and the implementation of new standard advertising, editorial and
circulation systems.
Capital spending for the expansion of preprint
inserting capacity in Chicago and Orlando totaled $20 million in 2006. The
new inserters in Orlando began production in 2006. As of Dec. 31, 2006,
the installation of additional equipment and systems at Chicago was in
progress. The Chicago expansion is scheduled to be completed by mid-2007
with additional capital spending of approximately $22 million in 2007.
During 2005 and 2004, the Company spent $6 million and $7 million,
respectively, for preprint inserting capacity expansions at Los Angeles, South
Florida and Orlando. The Los Angeles and South Florida expansions were
operational in 2004.
The Companys Los Angeles, Chicago and South Florida
newspapers are increasing their color press capacities. The Los Angeles and
South Florida expansions were operational in 2005 and 2006, respectively, while
the Chicago expansion is scheduled to be completed in mid-2007. Capital
spending for the color expansion at these three newspapers totaled
$17 million, $45 million and $78 million in 2006, 2005 and 2004,
respectively. Additional capital spending of $4 million is expected for
the color expansions in 2007.
The Company is in the process of implementing a new
standard advertising system in all ten of its newspaper markets at a total
estimated capital cost of approximately $80 million. The project began in
2004 and is expected to be completed in late 2008. Capital spending for this
project totaled $22 million, $12 million, and $4 million in 2006, 2005 and
2004, respectively. Capital spending for this project is expected to be
approximately $30 million in 2007.
59
The Company started new projects in 2006 to replace
the editorial and circulation systems in all ten of its newspaper markets. The
total estimated capital costs for the new editorial and circulation systems are
approximately $35 million and $20 million, respectively. The targeted
completion dates are late 2008 for the editorial systems and late 2007 for the
circulation systems. The editorial system spending was $11 million in
2006, while the circulation system spending was $13 million. Capital
spending for these two projects is expected to total approximately $20 million
in 2007.
The Company expects total capital expenditures to be
somewhat lower in 2007 compared to 2006. Management reviews the capital
expenditure program periodically and modifies it as required to meet current
business needs. It is expected that 2007 capital expenditures will be funded
from cash flow generated from operations.
Effects of InflationThe Consumer Price
Index, a widely used measure of the impact of changing prices, has increased
only moderately in recent years, up between 2% and 3% each year since 1991.
This level of inflation has not impacted the Companys operations
significantly, nor have historically higher inflation levels that prevailed
prior to 1991. The principal effect of inflation on the Companys operating results
is to increase costs. Subject to normal competitive conditions, the Company
generally has demonstrated an ability to raise sales prices to offset these
cost increases.
60
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate RiskAll of the Companys
borrowings are denominated in U.S. dollars. The Company manages interest rate
risk by issuing a combination of both fixed and variable rate debt.
Information
pertaining to the Companys debt at Dec. 31, 2006 is shown in the table
below (in thousands).
Maturities
|
|
|
|
Fixed Rate
Debt
|
|
Weighted Avg.
Interest Rate
|
|
Variable Rate
Debt
|
|
Weighted Avg.
Interest Rate
|
|
Total
Debt
|
|
2007(1)(2)
|
|
$
|
353,044
|
|
|
2.3
|
%
|
|
|
$
|
1,407,019
|
|
|
|
6.2
|
%
|
|
$
|
1,760,063
|
|
2008
|
|
287,023
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
287,023
|
|
2009
|
|
15,851
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
15,851
|
|
2010
|
|
451,246
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
451,246
|
|
2011
|
|
1,907
|
|
|
|
|
|
|
1,500,000
|
|
|
|
6.2
|
%
|
|
1,501,907
|
|
Thereafter(3)(4)
|
|
989,128
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
989,128
|
|
Total at Dec. 31, 2006
|
|
$
|
2,098,199
|
|
|
|
|
|
|
$
|
2,907,019
|
|
|
|
|
|
|
$
|
5,005,218
|
|
Fair Value at
Dec. 31, 2006(5)
|
|
$
|
1,997,371
|
|
|
|
|
|
|
$
|
2,907,019
|
|
|
|
|
|
|
$
|
4,904,390
|
|
(1) Includes
$331 million related to the Companys 2% PHONES (fixed rate debt). This amount
was classified as long-term and treated as maturing after 2011 for financial
statement presentation purposes because of the Companys ability and intent to
refinance these securities, on a long-term basis, in the event that the 2%
PHONES are put to the Company in 2007. See Note 9 to the Companys consolidated
financial statements in Item 8 for further discussion.
(2) Includes
$20 million of property financing obligation (fixed rate debt). See Note 7
to the consolidated financial statements in Item 8 for further discussion.
(3) Includes
$242 million related to the Companys 2% PHONES, due 2029. The Company may
redeem the PHONES at any time for the greater of the principal value of the
PHONES ($156.47 per PHONES as Dec. 31, 2006) or the then market value of
two shares of Time Warner common stock, subject to certain adjustments.
Quarterly interest payments are made to the PHONES holders at an annual rate of
2% of the initial principal. The Company records both cash and non-cash
interest expense on the discounted debt component of the PHONES. See Note 9 to
the consolidated financial statements in Item 8 for further discussion.
(4) Includes
$25 million related to the interest rate swap agreement on the
$100 million 7.5% debentures due in 2023 effectively converting the fixed
7.5% rate to a variable rate based on LIBOR.
(5) Fair
value was estimated based on quoted market prices for similar issues or on
current rates available to the Company for debt of the same remaining
maturities and similar terms. The carrying value of the Companys derivative
instruments approximates fair value. The fair value of the PHONES was
determined by reference to the market value resulting from trading on a
national securities exchange.
Variable Interest Rate DebtOn June 19,
2006, the Company entered into new credit agreements to finance the Companys
tender offer to repurchase shares of the Companys common stock as well as to
refinance certain indebtedness. In addition, one of the credit agreements
includes an unsecured revolving credit facility that is available for working
capital and general corporate purposes, including acquisitions. These credit
agreements were subsequently amended and restated on June 27, 2006. In
general, borrowings under these credit facilities bear interest at a variable
rate based on LIBOR plus a spread ranging from 0.35% to 1.25% based on the
Companys credit ratings. As of Dec. 31, 2006, the Company had $2.8 billion
of variable rate borrowings outstanding under these credit facilities. At this
borrowing level, a hypothetical one percent increase in the underlying interest
rates for the Companys variable rate borrowings under these agreements would
result in an additional $28.1 million of annual pretax interest expense.
61
Information
pertaining to the Companys debt at Dec. 25, 2005 is shown in the table
below (in thousands).
Maturities
|
|
|
|
Fixed Rate
Debt
|
|
Weighted Avg.
Interest Rate
|
|
Variable Rate
Debt
|
|
Weighted Avg.
Interest Rate
|
|
Total
Debt
|
|
2006(1)(2)
|
|
$
|
578,928
|
|
|
4.6
|
%
|
|
|
$
|
923,532
|
|
|
|
4.4
|
%
|
|
$
|
1,502,460
|
|
2007
|
|
18,550
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
18,550
|
|
2008
|
|
282,247
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
282,247
|
|
2009
|
|
13,224
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
13,224
|
|
2010
|
|
451,056
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
451,056
|
|
Thereafter(3)(4)
|
|
994,185
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
994,185
|
|
Total at Dec. 25, 2005
|
|
$
|
2,338,190
|
|
|
|
|
|
|
$
|
923,532
|
|
|
|
|
|
|
$
|
3,261,722
|
|
Fair Value at
Dec. 25, 2005(5)
|
|
$
|
2,445,475
|
|
|
|
|
|
|
$
|
923,532
|
|
|
|
|
|
|
$
|
3,369,007
|
|
(1) Includes
$638 million related to the Companys commercial paper (variable rate
debt), $269 million related to the Companys 2% PHONES (fixed rate debt)
and $293 million related to the Companys medium-term notes (fixed rate
debt). These amounts were classified as long-term and treated as maturing in
2008 for financial statement presentation purposes because of the Companys
ability and intent to refinance these securities, on a long-term basis, as the
commercial paper and medium-term notes matured in 2006 or, in the case of the
2% PHONES, if put to the Company in 2006. See Note 9 to the consolidated
financial statements in Item 8 for further discussion.
(2) Includes
$15 million of property financing obligation (fixed rate debt). See
Note 9 to the consolidated financial statements in Item 8 for further
discussion.
(3) Includes
$241 million related to the Companys 2% PHONES, due 2029. The Company may
redeem the PHONES at any time for the greater of the principal value of the
PHONES ($156.84 per PHONES at Dec. 25, 2005) or the then market value of
two shares of Time Warner common stock, subject to certain adjustments.
Quarterly interest payments are made to the PHONES holders at an annual rate of
2% of the initial principal. The Company records both cash and non-cash
interest expense on the discounted debt component of the PHONES. See
Note 9 to the Companys consolidated financial statements in Item 8
for further discussion.
(4) Includes
$30 million related to the interest rate swap agreement on the
$100 million 7.5% debentures due in 2023 effectively converting the fixed
7.5% rate to a variable rate based on LIBOR.
(5) Fair value was estimated
based on quoted market prices for similar issues or on current rates available
to the Company for debt of the same remaining maturities and similar terms. The
carrying value of the Companys derivative instruments approximates fair value.
The fair value of the PHONES was determined by reference to the market value
resulting from trading on a national securities exchange.
Equity Price Risk
Available-For-Sale SecuritiesThe Company has
common stock investments in publicly traded companies that are subject to
market price volatility. Except for 16 million shares of Time Warner
common stock (see discussion below), these investments are classified as
available-for-sale securities and are recorded on the balance sheet at fair
value with unrealized gains or losses, net of related tax effects, reported in
the accumulated other comprehensive income (loss) component of shareholders
equity.
2006The following
analysis presents the hypothetical change at Dec. 31, 2006 in the fair
value of the Companys common stock investments in publicly traded companies
that are classified as available-for-sale, assuming hypothetical stock price
fluctuations of plus or minus 10%, 20% and 30% in each stocks price. As of Dec. 31,
2006, the Companys common stock investments in publicly traded companies
consisted primarily of 274,080 shares of Time Warner common stock unrelated to
PHONES (see discussion below in Derivatives and Related Trading Securities)
and 3.4 million shares of AdStar, Inc.
62
|
|
Valuation of Investments
Assuming Indicated Decrease
in Stocks Price
|
|
|
|
Valuation of Investments
Assuming Indicated Increase
in Stocks Price
|
|
(In thousands)
|
|
-30%
|
|
-20%
|
|
-10%
|
|
Dec. 31, 2006
Fair Value
|
|
+10%
|
|
+20%
|
|
+30%
|
|
Common stock
investments in public companies
|
|
$
|
9,728
|
|
$
|
11,117
|
|
$
|
12,507
|
|
|
$
|
13,897
|
(1)
|
|
$
|
15,286
|
|
$
|
16,676
|
|
$
|
18,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes
16 million shares of Time Warner common stock. See discussion below in Derivatives
and Related Trading Securities.
During the last 12 quarters preceding Dec. 31,
2006, market price movements caused the fair value of the Companys common stock
investments in publicly traded companies to change by 10% or more in two of the
quarters, by 20% or more in one of the quarters and by 30% or more in one of
the quarters.
2005The following
analysis presents the hypothetical change at Dec. 25, 2005 in the fair
value of the Companys common stock investments in publicly traded companies
that are classified as available-for-sale, assuming hypothetical stock price
fluctuations of plus or minus 10%, 20% and 30% in each stocks price. As of Dec. 25,
2005, the Companys common stock investments in publicly traded companies
consisted primarily of 3.1 million shares of Time Warner common stock
unrelated to PHONES (see discussion below in Derivatives and Related Trading
Securities).
|
|
Valuation of Investments
Assuming Indicated Decrease
in Stocks Price
|
|
|
|
Valuation of Investments
Assuming Indicated Increase
in Stocks Price
|
|
(In thousands)
|
|
-30%
|
|
-20%
|
|
-10%
|
|
Dec. 25, 2005
Fair Value
|
|
+10%
|
|
+20%
|
|
+30%
|
|
Common stock
investments in public companies
|
|
$
|
38,139
|
|
$
|
43,588
|
|
$
|
49,036
|
|
|
$
|
54,485
|
(1)
|
|
$
|
59,933
|
|
$
|
65,382
|
|
$
|
70,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes
16 million shares of Time Warner common stock. See discussion below in Derivatives
and Related Trading Securities.
During the last 12 quarters preceding Dec. 25,
2005, market price movements caused the fair value of the Companys common
stock investments in publicly traded companies to change by 10% or more in
three of the quarters, by 20% or more in one of the quarters and by 30% or more
in one of the quarters.
Derivatives and Related Trading SecuritiesThe Company issued
8 million PHONES in April 1999 indexed to the value of its investment
in 16 million shares of Time Warner common stock (see Note 9 to the
consolidated financial statements in Item 8). Since the second quarter of
1999, this investment in Time Warner has been classified as a trading security,
and changes in its fair value, net of the changes in the fair value of the
related derivative component of the PHONES, have been recorded in the statement
of income.
At maturity, the PHONES will be redeemed at the
greater of the then market value of two shares of Time Warner common stock or
the principal value of the PHONES ($156.47 per PHONES at Dec. 31, 2006).
At Dec. 31, 2006 and Dec. 25, 2005, the PHONES carrying value was
approximately $573 million and $510 million, respectively. Since the
issuance of the PHONES in April 1999, changes in the fair value of the
derivative component of the PHONES have partially offset changes in the fair
value of the related Time Warner shares. There have been and may continue to be
periods with significant non-cash increases or decreases to the Companys net
income pertaining to the PHONES and the related Time Warner shares.
2006The following
analysis presents the hypothetical change at Dec. 31, 2006, in the fair
value of the Companys 16 million shares of Time Warner common stock
related to the PHONES assuming hypothetical stock price fluctuations of plus or
minus 10%, 20% and 30% in the stocks price.
63
|
|
Valuation of Investment
Assuming Indicated Decrease
in Stock Price
|
|
|
|
Valuation of Investment
Assuming Indicated Increase
in Stock Price
|
|
(In thousands)
|
|
-30%
|
|
-20%
|
|
-10%
|
|
Dec. 31, 2006
Fair Value
|
|
+10%
|
|
+20%
|
|
+30%
|
|
Time Warner common
stock
|
|
$
|
243,936
|
|
$
|
278,784
|
|
$
|
313,632
|
|
|
$
|
348,480
|
|
|
$
|
383,328
|
|
$
|
418,176
|
|
$
|
453,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the last 12 quarters preceding Dec. 31,
2006, market price movements have caused the fair value of the Companys
16 million shares of Time Warner common stock to change by 10% or more in
two of the quarters, by 20% or more in one of the quarters and by 30% or more
in none of the quarters.
2005The following
analysis presents the hypothetical change at Dec. 25, 2005 in the fair
value of the Companys 16 million shares of Time Warner common stock
related to the PHONES assuming hypothetical stock price fluctuations of plus or
minus 10%, 20% and 30% in the stocks price.
|
|
Valuation of Investment
Assuming Indicated Decrease
in Stock Price
|
|
|
|
Valuation of Investment
Assuming Indicated Increase
in Stock Price
|
|
(In thousands)
|
|
-30%
|
|
-20%
|
|
-10%
|
|
Dec. 25, 2005
Fair Value
|
|
+10%
|
|
+20%
|
|
+30%
|
|
Time Warner common
stock
|
|
$
|
198,016
|
|
$
|
226,304
|
|
$
|
254,592
|
|
|
$
|
282,880
|
|
|
$
|
311,168
|
|
$
|
339,456
|
|
$
|
367,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the last 12 quarters preceding Dec. 25,
2005, market price movements have caused the fair value of the Companys
16 million shares of Time Warner common stock to change by 10% or more in
three of the quarters, by 20% or more in one of the quarters and by 30% or more
in one of the quarters.
64
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
INDEX
TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
* All
other schedules required under Regulation S-X are omitted because
they are not applicable or not required.
65
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Shareholders of Tribune Company:
We have completed
integrated audits of Tribune Companys consolidated financial statements and of
its internal control over financial reporting as of December 31, 2006, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are presented below.
Consolidated
financial statements and financial statement schedule
In our opinion, the consolidated financial statements
listed in the accompanying index present fairly, in all material respects, the
financial position of Tribune Company and its subsidiaries at December 31,
2006 and December 25, 2005, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
2006 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit of
financial statements includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in
Note 1 to the consolidated financial statements, the Company changed the
manner in which it evaluates certain indefinite-lived intangible assets for
impairment. Additionally, as discussed in Notes 14 and 16 to the consolidated
financial statements, the Company changed the manner in which it accounts for defined
benefit pension and other postretirement plans effective December 31, 2006
and the manner in which it accounts for share-based compensation in 2006.
Internal control
over financial reporting
Also, in our opinion, managements assessment, included
in the accompanying Managements Report on Internal Control Over Financial
Reporting, that the Company maintained effective internal control over
financial reporting as of December 31, 2006 based on criteria established
in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31,
2006, based on criteria established in Internal
ControlIntegrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express opinions on
managements assessment and on the effectiveness of the Companys internal
control over financial reporting based on our audit. We conducted our audit of
internal control over financial reporting in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial reporting,
evaluating managements assessment, testing
66
and evaluating the design
and operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A companys internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A companys
internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
PricewaterhouseCoopers
LLP
Chicago,
Illinois
February 21, 2007
67
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS
AND
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Managements
Responsibility for Financial Statements
Management is responsible for the preparation,
integrity and fair presentation of the Companys consolidated financial
statements and related financial information included in this Annual Report on Form 10-K
to shareholders. The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America and necessarily include certain amounts that are based on managements
best estimates and judgments.
The system of internal control over financial
reporting is periodically assessed for its effectiveness and is augmented by
written policies and procedures, the careful selection and training of
qualified personnel and a program of internal audit.
The consolidated financial statements were audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
and their report is shown on pages 66 and 67. PricewaterhouseCoopers LLP
was given unrestricted access to all financial records and related data,
including minutes of all meetings of shareholders, the Board of Directors and
committees of the Board. The Company believes that all representations made to
the independent accountants during their audits were valid and appropriate.
The Audit Committee of the
Board of Directors is responsible for reviewing and monitoring the Companys
financial reporting and accounting practices. The Audit Committee consists of
four independent directors. The Committee meets with representatives of
management, the independent registered public accounting firm and internal
auditors to discuss financial reporting, accounting and internal control
matters. PricewaterhouseCoopers LLP and the internal auditors have direct
access to the Audit Committee.
Managements Report
on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America. As of Dec. 31, 2006, the Companys
management conducted an evaluation of the effectiveness of the design and
operation of the Companys internal control over financial reporting based on
criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and concluded that the Companys internal control over
financial reporting was effective as of that date. Our managements assessment
of the effectiveness of the Companys internal control over financial reporting
as of Dec. 31, 2006 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which
appears herein.
![GRAPHIC](g13751fgi001.gif)
|
![GRAPHIC](g13751fgi002.gif)
|
Dennis J.
FitzSimons
|
Donald C. Grenesko
|
Chairman,
President and Chief Executive Officer
|
Senior Vice President/Finance and
Administration
|
68
TRIBUNE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share data)
|
|
Year Ended
|
|
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Dec. 26, 2004
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
$
|
3,260,060
|
|
|
|
$
|
3,244,100
|
|
|
|
$
|
3,228,493
|
|
|
Circulation
|
|
|
575,043
|
|
|
|
596,163
|
|
|
|
643,947
|
|
|
Other
|
|
|
257,459
|
|
|
|
256,587
|
|
|
|
257,410
|
|
|
Total
|
|
|
4,092,562
|
|
|
|
4,096,850
|
|
|
|
4,129,850
|
|
|
Broadcasting and
entertainment
|
|
|
1,425,146
|
|
|
|
1,414,433
|
|
|
|
1,501,581
|
|
|
Total operating
revenues
|
|
|
5,517,708
|
|
|
|
5,511,283
|
|
|
|
5,631,431
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
(exclusive of items shown below)
|
|
|
2,736,411
|
|
|
|
2,695,818
|
|
|
|
2,668,969
|
|
|
Selling, general
and administrative
|
|
|
1,469,274
|
|
|
|
1,447,233
|
|
|
|
1,545,067
|
|
|
Depreciation
|
|
|
207,200
|
|
|
|
222,153
|
|
|
|
211,561
|
|
|
Amortization of
intangible assets
|
|
|
19,813
|
|
|
|
18,888
|
|
|
|
18,556
|
|
|
Total operating
expenses
|
|
|
4,432,698
|
|
|
|
4,384,092
|
|
|
|
4,444,153
|
|
|
Operating
Profit
|
|
|
1,085,010
|
|
|
|
1,127,191
|
|
|
|
1,187,278
|
|
|
Net income on
equity investments
|
|
|
80,773
|
|
|
|
41,209
|
|
|
|
17,931
|
|
|
Interest and
dividend income
|
|
|
14,145
|
|
|
|
7,539
|
|
|
|
3,053
|
|
|
Interest expense
|
|
|
(273,902
|
)
|
|
|
(155,191
|
)
|
|
|
(153,118
|
)
|
|
Gain (loss) on
change in fair values of derivatives and related investments
|
|
|
11,088
|
|
|
|
62,184
|
|
|
|
(18,497
|
)
|
|
Loss on early debt
retirement
|
|
|
|
|
|
|
|
|
|
|
(140,506
|
)
|
|
Gain on TMCT
transactions
|
|
|
59,596
|
|
|
|
|
|
|
|
|
|
|
Gain on sales of
investments, net
|
|
|
36,732
|
|
|
|
6,780
|
|
|
|
20,347
|
|
|
Other non-operating
gain (loss), net
|
|
|
(4,447
|
)
|
|
|
897
|
|
|
|
(6,388
|
)
|
|
Income
From Continuing Operations Before Income Taxes and Cumulative Effect of
Change in Accounting Principle
|
|
|
1,008,995
|
|
|
|
1,090,609
|
|
|
|
910,100
|
|
|
Income taxes
(Note 13)
|
|
|
(348,142
|
)
|
|
|
(567,820
|
)
|
|
|
(355,724
|
)
|
|
Income
from Continuing Operations Before Cumulative Effect of Change in Accounting
Principle
|
|
|
660,853
|
|
|
|
522,789
|
|
|
|
554,376
|
|
|
Income
(Loss) from Discontinued Operations, net of tax (Note 3)
|
|
|
(66,858
|
)
|
|
|
11,900
|
|
|
|
18,948
|
|
|
Income
Before Cumulative Effect of Change in Accounting Principle
|
|
|
593,995
|
|
|
|
534,689
|
|
|
|
573,324
|
|
|
Cumulative effect
of change in accounting principle, net of tax (Note 1)
|
|
|
|
|
|
|
|
|
|
|
(17,788
|
)
|
|
Net
Income
|
|
|
593,995
|
|
|
|
534,689
|
|
|
|
555,536
|
|
|
Preferred
dividends
|
|
|
(6,309
|
)
|
|
|
(8,364
|
)
|
|
|
(8,308
|
)
|
|
Net
Income Attributable to Common Shares`
|
|
|
$
|
587,686
|
|
|
|
$
|
526,325
|
|
|
|
$
|
547,228
|
|
|
Earnings
Per Share (Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations before cumulative effect of change in accounting principle
|
|
|
$
|
2.40
|
|
|
|
$
|
1.64
|
|
|
|
$
|
1.69
|
|
|
Discontinued
operations
|
|
|
(.25
|
)
|
|
|
.04
|
|
|
|
.06
|
|
|
Cumulative effect
of change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
(.05
|
)
|
|
Net income
|
|
|
$
|
2.16
|
|
|
|
$
|
1.68
|
|
|
|
$
|
1.70
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations before cumulative effect of change in accounting principle
|
|
|
$
|
2.39
|
|
|
|
$
|
1.63
|
|
|
|
$
|
1.67
|
|
|
Discontinued
operations
|
|
|
(.24
|
)
|
|
|
.04
|
|
|
|
.06
|
|
|
Cumulative effect
of change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
(.05
|
)
|
|
Net income
|
|
|
$
|
2.14
|
|
|
|
$
|
1.67
|
|
|
|
$
|
1.67
|
|
|
See Notes to Consolidated Financial Statements.
69
(This page has been left blank intentionally.)
70
TRIBUNE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except share data)
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Assets
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
174,686
|
|
$
|
151,110
|
|
Accounts receivable (net of allowances of $33,771
and $42,558)
|
|
765,871
|
|
798,441
|
|
Inventories
|
|
40,962
|
|
44,103
|
|
Broadcast rights
|
|
271,995
|
|
308,011
|
|
Deferred income taxes
|
|
74,450
|
|
114,274
|
|
Prepaid expenses and other
|
|
49,466
|
|
52,458
|
|
Total current assets
|
|
1,377,430
|
|
1,468,397
|
|
Properties
|
|
|
|
|
|
Machinery, equipment and furniture
|
|
2,306,400
|
|
2,314,085
|
|
Buildings and leasehold improvements
|
|
1,014,865
|
|
992,083
|
|
|
|
3,321,265
|
|
3,306,168
|
|
Accumulated depreciation
|
|
(1,907,365
|
)
|
(1,853,914
|
)
|
|
|
1,413,900
|
|
1,452,254
|
|
Land
|
|
127,797
|
|
127,167
|
|
Construction in progress
|
|
143,415
|
|
152,506
|
|
Net properties
|
|
1,685,112
|
|
1,731,927
|
|
Other
Assets
|
|
|
|
|
|
Broadcast rights
|
|
295,186
|
|
361,376
|
|
Goodwill
|
|
5,837,208
|
|
5,947,142
|
|
Other intangible assets, net
|
|
2,846,057
|
|
3,087,723
|
|
Time Warner stock related to PHONES debt
|
|
348,480
|
|
282,880
|
|
Other investments
|
|
564,750
|
|
632,663
|
|
Prepaid pension costs (Note 14)
|
|
293,455
|
|
871,382
|
|
Assets held for sale
|
|
9,172
|
|
24,436
|
|
Other
|
|
143,922
|
|
138,316
|
|
Total other assets
|
|
10,338,230
|
|
11,345,918
|
|
Total assets
|
|
$
|
13,400,772
|
|
$
|
14,546,242
|
|
See Notes to Consolidated Financial Statements.
71
TRIBUNE
COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except share data)
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
Borrowings under bridge
credit facility
|
|
$
|
1,310,000
|
|
$
|
|
|
Other debt due within one
year
|
|
119,007
|
|
302,460
|
|
Accounts payable
|
|
151,601
|
|
168,205
|
|
Employee compensation and
benefits
|
|
185,551
|
|
244,156
|
|
Contracts payable for
broadcast rights
|
|
317,945
|
|
329,930
|
|
Deferred income
|
|
108,607
|
|
101,065
|
|
Other
|
|
354,003
|
|
300,842
|
|
Total current liabilities
|
|
2,546,714
|
|
1,446,658
|
|
Long-Term Debt
|
|
|
|
|
|
PHONES debt related to
Time Warner stock
|
|
572,960
|
|
509,701
|
|
Other long-term
debt (less portions due within one year)
|
|
3,003,251
|
|
2,449,561
|
|
Total long-term
debt
|
|
3,576,211
|
|
2,959,262
|
|
Other Non-Current Liabilities
|
|
|
|
|
|
Deferred income taxes
|
|
1,974,672
|
|
2,352,633
|
|
Contracts payable for
broadcast rights
|
|
425,927
|
|
528,878
|
|
Deferred compensation and
benefits
|
|
392,187
|
|
356,612
|
|
Other obligations
|
|
165,445
|
|
176,648
|
|
Total other non-current
liabilities
|
|
2,958,231
|
|
3,414,771
|
|
Commitments
and Contingent Liabilities (Note 12)
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
Series C convertible preferred stock
|
|
|
|
|
|
Authorized: no
shares at Dec. 31, 2006 and 823,568 shares at Dec. 25, 2005; Issued
and outstanding: no shares at Dec. 31, 2006 and 88,519 shares
(net of 354,077 treasury shares) at Dec. 25, 2005 (liquidation value
$500 per share)
|
|
|
|
44,260
|
|
Series D-1 convertible preferred stock
|
|
|
|
|
|
Authorized: 137,643 shares
at Dec. 31, 2006 and 380,972 shares at Dec. 25, 2005; Issued
and outstanding: no shares (net of 137,643 treasury shares) at
Dec. 31, 2006 and 76,194 shares (net of 304,778 treasury shares) at
Dec. 25, 2005 (liquidation value $500 per share)
|
|
|
|
38,097
|
|
Series D-2 convertible preferred stock
|
|
|
|
|
|
Authorized: no shares at
Dec. 31, 2006 and 245,100 shares at Dec. 25, 2005; Issued and outstanding: no
shares at Dec. 31, 2006 and 49,020 shares (net of 196,080 treasury
shares) at Dec. 25, 2005 (liquidation value $500 per share)
|
|
|
|
24,510
|
|
Common stock ($0.01 par value)
|
|
|
|
|
|
Authorized: 1,400,000,000
shares; 387,179,076 shares issued at Dec. 31, 2006 and 390,122,184
shares issued at Dec. 25, 2005
|
|
2,241
|
|
2,270
|
|
Additional paid-in
capital
|
|
6,834,788
|
|
6,818,533
|
|
Retained earnings
|
|
3,138,313
|
|
2,824,762
|
|
Treasury common stock (at
cost) 147,971,659 shares in 2006 and 83,441,765 shares in 2005
|
|
(5,288,341
|
)
|
(3,015,581
|
)
|
Accumulated other
comprehensive income (loss)
|
|
(367,385
|
)
|
(11,300
|
)
|
Total shareholders
equity
|
|
4,319,616
|
|
6,725,551
|
|
Total liabilities and shareholders equity
|
|
$
|
13,400,772
|
|
$
|
14,546,242
|
|
See Notes to Consolidated Financial Statements.
72
(This page has been left blank intentionally.)
73
TRIBUNE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands, except per share data)
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
Comprehensive
|
|
Convertible Preferred Stock
|
|
|
|
Total
|
|
Earnings
|
|
Income (Loss)
|
|
Series C(1)
|
|
Series D-1(1)
|
|
Series D-2(1)
|
|
Balance at Dec. 28, 2003
|
|
$
|
7,028,124
|
|
$
|
3,008,460
|
|
|
$
|
13,516
|
|
|
|
$
|
44,260
|
|
|
|
$
|
38,097
|
|
|
|
$
|
24,510
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
555,536
|
|
555,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on securities, net
|
|
896
|
|
|
|
|
896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liabilities, net
|
|
(1,700
|
)
|
|
|
|
(1,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments,
net
|
|
118
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
554,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($.48 per share)
|
|
(154,702
|
)
|
(154,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C, D-1 and D-2 preferred
|
|
(8,308
|
)
|
(8,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under option and stock plans
|
|
242,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit on stock options exercised
|
|
32,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares tendered as payment for options exercised
|
|
(124,473
|
)
|
(51,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
(734,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of treasury stock
|
|
|
|
(538,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Dec. 26, 2004
|
|
$
|
6,836,844
|
|
$
|
2,810,542
|
|
|
$
|
12,830
|
|
|
|
$
|
44,260
|
|
|
|
$
|
38,097
|
|
|
|
$
|
24,510
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
534,689
|
|
534,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on securities, net
|
|
(3,463
|
)
|
|
|
|
(3,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liabilities, net
|
|
(20,597
|
)
|
|
|
|
(20,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments,
net
|
|
(70
|
)
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
510,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($.72 per share)
|
|
(225,110
|
)
|
(225,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C, D-1 and D-2 preferred
|
|
(8,364
|
)
|
(8,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under option and stock plans
|
|
51,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit on stock options exercised
|
|
5,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares tendered as payment for options exercised
|
|
(1,101
|
)
|
(769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
(443,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of treasury stock
|
|
|
|
(286,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Dec. 25, 2005
|
|
$
|
6,725,551
|
|
$
|
2,824,762
|
|
|
$
|
(11,300
|
)
|
|
|
$
|
44,260
|
|
|
|
$
|
38,097
|
|
|
|
$
|
24,510
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
593,995
|
|
593,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on securities, net
|
|
(9,396
|
)
|
|
|
|
(9,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liabilities, net
|
|
18,987
|
|
|
|
|
18,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments,
net
|
|
183
|
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
603,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments, net of tax, for initial adoption of FAS
No. 158 (see Note 1 and Note 14)
|
|
(365,859
|
)
|
|
|
|
(365,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($.72 per share)
|
|
(194,640
|
)
|
(194,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C, D-1 and D-2 preferred
|
|
(6,309
|
)
|
(6,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under option and stock plans
|
|
38,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits on stock options exercised
|
|
4,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares tendered as payment for options exercised
|
|
(138
|
)
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
31,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TMCT transactions (see Note 7)
|
|
(267,978
|
)
|
|
|
|
|
|
|
|
(44,260
|
)
|
|
|
(38,097
|
)
|
|
|
(24,510
|
)
|
|
Purchases of treasury stock
|
|
(2,249,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of treasury stock
|
|
|
|
(79,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at Dec. 31, 2006
|
|
$
|
4,319,616
|
|
$
|
3,138,313
|
|
|
$
|
(367,385
|
)
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
(1) Amounts
are net of treasury stock.
See Notes to Consolidated Financial Statements.
74
|
|
Common Stock and
|
|
|
|
|
|
|
|
Additional Paid-In Capital
|
|
Treasury Common Stock
|
|
|
|
Amount
|
|
|
|
Amount
|
|
|
|
|
|
(at cost)
|
|
Shares
|
|
(at cost)
|
|
Shares
|
|
Balance
at Dec. 28, 2003
|
|
$
|
6,924,484
|
|
412,370
|
|
$
|
(3,025,203
|
)
|
(84,073
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
Change in unrealized
gain on securities, net
|
|
|
|
|
|
|
|
|
|
Change in minimum
pension liabilities, net
|
|
|
|
|
|
|
|
|
|
Change in
foreign currency translation adjustments, net
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
Dividends
declared:
|
|
|
|
|
|
|
|
|
|
Common
($.48 per share)
|
|
|
|
|
|
|
|
|
|
Series C,
D-1 and D-2 preferred
|
|
|
|
|
|
|
|
|
|
Shares
issued under option and stock plans
|
|
167,563
|
|
5,006
|
|
75,057
|
|
1,726
|
|
Tax
benefit on stock options exercised
|
|
32,819
|
|
|
|
|
|
|
|
Shares tendered as
payment for options exercised
|
|
(13,309
|
)
|
(1,335
|
)
|
(59,285
|
)
|
(1,095
|
)
|
Purchases
of treasury stock
|
|
|
|
|
|
(734,086
|
)
|
(15,526
|
)
|
Retirement
of treasury stock
|
|
(193,052
|
)
|
(15,526
|
)
|
731,617
|
|
15,526
|
|
Balance
at Dec. 26, 2004
|
|
$
|
6,918,505
|
|
400,515
|
|
$
|
(3,011,900
|
)
|
(83,442
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
Change in unrealized
gain on securities, net
|
|
|
|
|
|
|
|
|
|
Change in minimum
pension liabilities, net
|
|
|
|
|
|
|
|
|
|
Change in
foreign currency translation adjustments, net
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
Dividends
declared:
|
|
|
|
|
|
|
|
|
|
Common
($.72 per share)
|
|
|
|
|
|
|
|
|
|
Series C,
D-1 and D-2 preferred
|
|
|
|
|
|
|
|
|
|
Shares
issued under option and stock plans
|
|
51,102
|
|
1,814
|
|
|
|
|
|
Tax
benefit on stock options exercised
|
|
5,395
|
|
|
|
|
|
|
|
Shares tendered as
payment for options exercised
|
|
(332
|
)
|
(26
|
)
|
|
|
|
|
Purchases
of treasury stock
|
|
|
|
|
|
(443,774
|
)
|
(12,181
|
)
|
Retirement
of treasury stock
|
|
(153,867
|
)
|
(12,181
|
)
|
440,093
|
|
12,181
|
|
Balance
at Dec. 25, 2005
|
|
$
|
6,820,803
|
|
390,122
|
|
$
|
(3,015,581
|
)
|
(83,442
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
Change in unrealized
gain on securities, net
|
|
|
|
|
|
|
|
|
|
Change in minimum
pension liabilities, net
|
|
|
|
|
|
|
|
|
|
Change in
foreign currency translation adjustments, net
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
Adjustments,
net of tax, for initial adoption of FAS No. 158 (see Note 1 and
Note 14)
|
|
|
|
|
|
|
|
|
|
Dividends
declared:
|
|
|
|
|
|
|
|
|
|
Common
($.72 per share)
|
|
|
|
|
|
|
|
|
|
Series C,
D-1 and D-2 preferred
|
|
|
|
|
|
|
|
|
|
Shares
issued under option and stock plans
|
|
38,714
|
|
1,665
|
|
|
|
|
|
Tax
benefits on stock options exercised
|
|
4,256
|
|
|
|
|
|
|
|
Shares tendered as
payment for options exercised
|
|
(59
|
)
|
(4
|
)
|
|
|
|
|
Stock-based
compensation
|
|
31,645
|
|
|
|
|
|
|
|
TMCT
transactions (see Note 7)
|
|
|
|
|
|
(161,111
|
)
|
1,550
|
|
Purchases
of treasury stock
|
|
|
|
|
|
(2,249,395
|
)
|
(70,684
|
)
|
Retirement
of treasury stock
|
|
(58,330
|
)
|
(4,604
|
)
|
137,746
|
|
4,604
|
|
Balance
at Dec. 31, 2006
|
|
$
|
6,837,029
|
|
387,179
|
|
$
|
(5,288,341
|
)
|
(147,972
|
)
|
75
TRIBUNE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
|
|
Year Ended
|
|
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Dec. 26, 2004
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
593,995
|
|
|
|
$
|
534,689
|
|
|
|
$
|
555,536
|
|
|
Adjustments to reconcile net income to net cash
provided by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
31,927
|
|
|
|
|
|
|
|
|
|
|
Pension costs in
excess of contributions
|
|
|
20,611
|
|
|
|
13,355
|
|
|
|
7,677
|
|
|
(Gain) loss on
change in fair values of derivatives and related investments
|
|
|
(11,088
|
)
|
|
|
(62,184
|
)
|
|
|
18,497
|
|
|
Loss on early debt
retirement
|
|
|
|
|
|
|
|
|
|
|
140,506
|
|
|
Gain on TMCT
transactions
|
|
|
(59,596
|
)
|
|
|
|
|
|
|
|
|
|
Gain on sales of
investments, net
|
|
|
(36,732
|
)
|
|
|
(6,780
|
)
|
|
|
(20,347
|
)
|
|
Loss on investment
write-downs
|
|
|
|
|
|
|
|
|
|
|
5,599
|
|
|
Other non-operating
(gain) loss, net
|
|
|
4,447
|
|
|
|
(897
|
)
|
|
|
789
|
|
|
Cumulative effect
of change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
17,788
|
|
|
Depreciation
|
|
|
209,341
|
|
|
|
224,625
|
|
|
|
214,226
|
|
|
Amortization of
intangible assets
|
|
|
20,002
|
|
|
|
19,195
|
|
|
|
18,863
|
|
|
Loss on sales of
discontinued operations
|
|
|
48,238
|
|
|
|
|
|
|
|
|
|
|
Net income on
equity investments
|
|
|
(80,773
|
)
|
|
|
(41,209
|
)
|
|
|
(17,931
|
)
|
|
Distributions from
equity investments
|
|
|
65,302
|
|
|
|
48,883
|
|
|
|
14,439
|
|
|
Deferred income taxes
|
|
|
(112,600
|
)
|
|
|
93,071
|
|
|
|
40,006
|
|
|
Tax benefit on
stock options exercised
|
|
|
4,256
|
|
|
|
5,395
|
|
|
|
32,819
|
|
|
Changes in working
capital items excluding effects from acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
20,668
|
|
|
|
51,773
|
|
|
|
17,220
|
|
|
Inventories,
prepaid expenses and other current assets
|
|
|
5,310
|
|
|
|
4,293
|
|
|
|
(800
|
)
|
|
Accounts payable,
employee compensation and benefits, deferred income and accrued
liabilities
|
|
|
(25,798
|
)
|
|
|
2,464
|
|
|
|
14,656
|
|
|
Income taxes
|
|
|
39,707
|
|
|
|
6,177
|
|
|
|
2,007
|
|
|
Change in
broadcast rights, net of liabilities
|
|
|
2,056
|
|
|
|
(16,329
|
)
|
|
|
6,558
|
|
|
Change in Matthew
Bender and Mosby tax reserve
|
|
|
|
|
|
|
(221,133
|
)
|
|
|
5,997
|
|
|
Other, net
|
|
|
48,491
|
|
|
|
3,965
|
|
|
|
(915
|
)
|
|
Net cash provided
by operations
|
|
|
787,764
|
|
|
|
659,353
|
|
|
|
1,073,190
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(221,907
|
)
|
|
|
(205,945
|
)
|
|
|
(217,348
|
)
|
|
Acquisitions
|
|
|
(48,144
|
)
|
|
|
(4,207
|
)
|
|
|
(551
|
)
|
|
Investments
|
|
|
(174,085
|
)
|
|
|
(78,071
|
)
|
|
|
(48,831
|
)
|
|
Matthew Bender and
Mosby tax liability allocated to goodwill (Note 13)
|
|
|
|
|
|
|
(459,116
|
)
|
|
|
|
|
|
Proceeds from
sales of subsidiaries, investments and real estate
|
|
|
470,608
|
|
|
|
22,534
|
|
|
|
40,232
|
|
|
Net cash provided
by (used for) investments
|
|
|
26,472
|
|
|
|
(724,805
|
)
|
|
|
(226,498
|
)
|
|
Financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under
bridge credit facility
|
|
|
1,600,000
|
|
|
|
|
|
|
|
|
|
|
Repayments under
bridge credit facility
|
|
|
(290,000
|
)
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings
|
|
|
1,500,829
|
|
|
|
777,660
|
|
|
|
|
|
|
Repayments of long-term
debt
|
|
|
(319,055
|
)
|
|
|
(198,880
|
)
|
|
|
(823,028
|
)
|
|
(Repayments)
issuances of commercial paper, net
|
|
|
(826,513
|
)
|
|
|
150,326
|
|
|
|
773,206
|
|
|
Premium on early
debt retirement
|
|
|
|
|
|
|
|
|
|
|
(137,331
|
)
|
|
Debt issuance
costs
|
|
|
(29,881
|
)
|
|
|
(4,762
|
)
|
|
|
|
|
|
Sales of common
stock to employees, net
|
|
|
37,177
|
|
|
|
41,374
|
|
|
|
111,896
|
|
|
Purchases of
Tribune common stock
|
|
|
(2,262,268
|
)
|
|
|
(440,093
|
)
|
|
|
(731,617
|
)
|
|
Dividends
|
|
|
(200,949
|
)
|
|
|
(233,474
|
)
|
|
|
(163,010
|
)
|
|
Net cash provided
by (used for) financing
|
|
|
(790,660
|
)
|
|
|
92,151
|
|
|
|
(969,884
|
)
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
23,576
|
|
|
|
26,699
|
|
|
|
(123,192
|
)
|
|
Cash and cash
equivalents, beginning of year
|
|
|
151,110
|
|
|
|
124,411
|
|
|
|
247,603
|
|
|
Cash and cash
equivalents, end of year
|
|
|
$
|
174,686
|
|
|
|
$
|
151,110
|
|
|
|
$
|
124,411
|
|
|
See Notes to Consolidated Financial Statements.
76
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The significant accounting
policies of Tribune Company and subsidiaries (the Company), as summarized
below, conform with accounting principles generally accepted in the United
States of America and reflect practices appropriate to the Companys
businesses.
Nature of OperationsThe Company
is a media and entertainment company. Through its subsidiaries, the Company is
engaged in newspaper publishing, television and radio broadcasting and
entertainment.
Fiscal YearThe Companys fiscal
year ends on the last Sunday in December. The Companys 2006 fiscal year ended
on Dec. 31, 2006, and encompassed a 53-week period. Fiscal years
2005 and 2004 each encompassed a 52-week period.
Principles of ConsolidationThe
consolidated financial statements include the accounts of Tribune Company and
all majority-owned subsidiaries. In general, investments comprising 20 to
50 percent of the voting stock of companies and certain partnership
interests are accounted for using the equity method. All other investments are
generally accounted for using the cost method. All significant intercompany
transactions are eliminated.
The Company evaluates its
investments and other transactions for consolidation under the provisions of
Financial Accounting Standards Board (FASB) Interpretation No. 46R, Consolidation
of Variable Interest Entities (FIN 46R). The Company holds significant
variable interests, as defined by FIN 46R, in Classified Ventures, LLC,
ShopLocal, LLC (formerly CrossMedia Services, Inc.) and Topix, LLC, but
the Company has determined that it is not the primary beneficiary of these
entities. The Companys maximum loss exposure related to these entities is
limited to its equity investments in Classified Ventures, LLC, ShopLocal, LLC
and Topix, LLC, which were $44 million, $31 million, and
$26 million, respectively, at Dec. 31, 2006. At Dec. 25, 2005,
the Companys equity investments in Classified Ventures, LLC, ShopLocal, LLC
and Topix, LLC were $42 million, $25 million and $15 million,
respectively. The Company continues to hold an investment in CareerBuilder,
LLC, which no longer meets the definition of a variable interest entity.
PresentationOn June 5,
2006, the Company announced the sale of WATL-TV, Atlanta and on June 19,
2006 announced the sale of WCWN-TV, Albany. The sale of WATL-TV, Atlanta closed
on Aug. 7, 2006. On Sept. 14, 2006, the Company announced the sale of
WLVI-TV, Boston. The Albany and Boston station sales closed on Dec. 6,
2006 and Dec. 19, 2006, respectively. The results of operations of each of
these businesses have been reported as discontinued operations in the
accompanying consolidated statements of income. Prior year consolidated
statements of income have been reclassified to conform to the current year
presentation of these businesses as discontinued operations. See Note 3 for
further discussion. In addition, certain other prior year financial information
has been reclassified to conform to the current year presentation.
Revenue RecognitionThe Companys
primary sources of revenue are from the sales of advertising space in published
issues of its newspapers and on interactive websites owned by, or affiliated
with, the Company; distribution of preprinted advertising inserts in its
newspapers; sales of newspapers to distributors and individual subscribers; and
sales of airtime on its television and radio stations. Newspaper advertising
revenue is recorded, net of agency commissions, when advertisements are
published in newspapers. Website advertising revenue is recognized ratably over
the contract period or as services are delivered, as appropriate. Proceeds from
subscriptions are deferred and are included in revenue on a pro-rata basis over
the term of the subscriptions. Broadcast revenue is recorded, net of agency
commissions, when commercials are aired. The Company records rebates when
earned as a reduction of advertising revenue.
77
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Use of EstimatesThe preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from these estimates.
Cash and Cash EquivalentsCash
and cash equivalents are stated at cost, which approximates market value.
Investments with original maturities of three months or less at the time of
purchase are considered to be cash equivalents.
Accounts ReceivableThe Companys
accounts receivable are primarily due from advertisers. Credit is extended
based on an evaluation of each customers financial condition, and generally
collateral is not required. The Company maintains an allowance for
uncollectible accounts, rebates and volume discounts. This allowance is
determined based on historical write-off experience and any known specific
collectibility exposures.
InventoriesInventories are
stated at the lower of cost or market. Cost is determined on the last-in,
first-out (LIFO) basis for newsprint and on the first-in, first-out (FIFO)
basis for all other inventories.
Broadcast RightsBroadcast
rights consist principally of rights to broadcast syndicated programs, sports
and feature films and are stated at the lower of cost or estimated net
realizable value. The total cost of these rights is recorded as an asset and a
liability when the program becomes available for broadcast. Syndicated program
rights that have limited showings are generally amortized using an accelerated
method as programs are aired. Sports and feature film rights are amortized
using the straight-line method. The current portion of broadcast rights
represents those rights available for broadcast that are expected to be
amortized in the succeeding year.
The Company maintains an
allowance for programming that is not expected to be aired by the end of the
contract period. This allowance for excess programming inventory is based on a
program-by-program review of the Companys five-year broadcast plans and
historical write-off trends. The total reserve balance at Dec. 31, 2006
and Dec. 25 2005 was $4 million. Actual write-offs in 2006 and 2005
were $.4 million and $1 million, respectively. Future write-offs can vary based
on changes in consumer viewing trends and the availability and costs of other
programming.
PropertiesProperty,
plant and equipment are stated at cost. The Company capitalizes major property,
plant and equipment additions, improvements and replacements, as well as
interest incurred during construction of major facilities and equipment.
Depreciation is computed using the straight-line method over the following
estimated useful lives: 10 to 40 years for buildings, 7 to 20 years
for newspaper printing presses and 3 to 10 years for all other equipment.
Expenditures for repairs and maintenance of existing assets are charged to
expense as incurred.
Goodwill
and Other Intangible AssetsGoodwill and other intangible
assets are summarized in Note 6. The Company periodically reviews goodwill
and certain intangible assets no longer being amortized for impairment in
accordance with Financial Accounting Standard (FAS) No. 142, Goodwill
and Other Intangible Assets. Under FAS No. 142, the impairment review of
goodwill and other intangible assets not subject to amortization must be based
generally on fair values.
The Company performs its
annual impairment review in the fourth quarter of each year. The estimated fair
value of the reporting units to which goodwill is allocated is determined using
multiples of operating cash flows for purposes of analyzing goodwill for
impairment. A significant decline in multiples and/or operating cash flows for
a reporting unit could result in a non-cash impairment charge under FAS No. 142.
The estimated fair values of other assets subject to the annual impairment
review, which include newspaper mastheads and Federal Communications Commission
(FCC) licenses, are calculated based
78
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
on
projected future discounted cash flow analyses. The development of market
multiples and cash flow projections used in the analyses requires the use of
assumptions, including assumptions regarding revenue and market growth. The
analyses use discount rates based on specific economic factors in the publishing
and broadcasting industries. These assumptions reflect the Companys best
estimates, but these items involve inherent uncertainties based on market
conditions generally outside of the Companys control.
In the fourth quarter of
2004, the Company elected to early adopt the provisions of the FASBs Emerging
Issues Task Force Topic No. D-108, which requires the use of a
direct valuation method for valuing intangible assets, such as FCC licenses,
and reviewing them for impairment. Historically, the Company had been using a
residual valuation method to review its FCC licenses for impairment each year.
A direct valuation method generally results in a lower valuation than does a
residual valuation method. The effect of changing to a direct valuation method
for the 2004 FCC licenses impairment review was a pretax charge of
$29 million ($18 million after-tax). The charge was recorded in the
fourth quarter of 2004 as a cumulative effect of a change in accounting
principle in the consolidated statements of income.
Impairment Review of Long-Lived AssetsIn accordance with FAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, the Company evaluates the
carrying value of long-lived assets to be held and used whenever events or
changes in circumstances indicate that the carrying amount of a long-lived
asset or asset group may be impaired. The carrying value of a long-lived asset
or asset group is considered impaired when the projected future undiscounted
cash flows to be generated from the asset or asset group over its remaining
depreciable life are less than its current carrying value.
InvestmentsThe Company records
its investments in debt and equity securities at fair value, except for debt
securities that the Company intends to hold to maturity and equity securities
that are accounted for under the equity method or that are issued by private
companies. Except for 16 million Time Warner shares (see Derivative
Instruments below), investments are currently classified as
available-for-sale, and accordingly, the difference between cost and fair
value, net of related tax effects, is recorded in the accumulated other
comprehensive income (loss) component of shareholders equity.
Derivative InstrumentsFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, requires all
derivative instruments to be recorded in the balance sheet at fair value.
Changes in the fair value of derivative instruments are recognized periodically
in income. The provisions of FAS No. 133 affect the Companys accounting
for its 8 million Exchangeable Subordinated Debentures due 2029 (PHONES)
and its interest rate swap related to its $100 million 7.5% debentures
(see Note 9).
Under the provisions of
FAS No. 133, the initial value of the PHONES was split into a debt
component and a derivative component. Changes in the fair value of the
derivative component of the PHONES are recorded in the statement of income.
Beginning in the second quarter of 1999, changes in the fair value of the
related 16 million Time Warner shares are also recorded in the statement
of income and should at least partially offset changes in the fair value of the
derivative component of the PHONES. However, there have been, and may continue
to be, periods with significant non-cash increases or decreases to the Companys
net income pertaining to the PHONES and the related Time Warner shares.
The carrying values of the
Companys derivative instruments approximate fair value. The fair values of the
PHONES were determined by reference to market values resulting from trading on
a national securities exchange.
The Companys interest
rate swap is a fair value hedge and is used to manage exposure to market risk
associated with changes in interest rates. The changes in fair value of the
swap agreement and the related debt instrument are recorded in income. Changes
in the fair value of the swap agreement offset changes in the fair value of the
related debt (see Note 9).
79
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pension Plans and Other Postretirement BenefitsRetirement
benefits are provided to employees through pension plans sponsored either by
the Company or by unions. Under the Company-sponsored plans, pension
benefits are primarily a function of both the years of service and the level of
compensation for a specified number of years, depending on the plan. It is the
Companys policy to fund the minimum for Company-sponsored pension plans
as required by ERISA. Contributions made to union-sponsored plans are based
upon collective bargaining agreements.
The Company also provides
certain health care and life insurance benefits for retired employees. The
expected cost of providing these benefits is accrued over the years that the
employees render services. It is the Companys policy to fund postretirement
benefits as claims are incurred.
In September 2006,
the FASB issued FAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87,
88, 106 and 132(R), which requires an employer to recognize the overfunded or
underfunded status of a defined benefit pension or other postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year
in which changes occur through comprehensive income. The Statement also
requires an employer to measure the funded status of a plan as of the date of
its year-end statement of financial position, with limited exceptions.
Additional minimum pension liabilities and related intangible assets previously
recognized under FAS No. 87, Employers Accounting for Pensions, are
reversed upon adoption. The Company adopted the provisions of FAS No. 158
as of Dec. 31, 2006.
Additional information pertaining to the Companys
pension plans and other postretirement benefits and to the Companys adoption
of FAS No. 158 is provided in Note 14. The following table summarizes the
impact of the adoption of FAS No. 158 on the Companys consolidated
balance sheet as of Dec. 31, 2006 (in thousands):
|
|
|
|
Adjustments Due to Adoption
of FAS No. 158
|
|
|
|
|
|
Prior to
Adoption of
FAS No. 158
|
|
Reversal of
Minimum
Pension
Liabilities
|
|
Pension Plans
|
|
Other
Postretirement
Benefits
|
|
As Reported at
Dec. 31, 2006
|
|
Prepaid pension costs
|
|
$
|
850,771
|
|
|
$
|
|
|
|
|
$
|
(557,316
|
)
|
|
|
$
|
|
|
|
|
$
|
293,455
|
|
|
Total assets
|
|
13,958,088
|
|
|
|
|
|
|
(557,316
|
)
|
|
|
|
|
|
|
13,400,772
|
|
|
Non-current deferred
income taxes
|
|
2,208,582
|
|
|
5,699
|
|
|
|
(246,953
|
)
|
|
|
7,344
|
|
|
|
1,974,672
|
|
|
Employee compensation
and benefits
|
|
194,001
|
|
|
(14,613
|
)
|
|
|
6,163
|
|
|
|
|
|
|
|
185,551
|
|
|
Deferred compensation
and benefits
|
|
341,284
|
|
|
|
|
|
|
69,733
|
|
|
|
(18,830
|
)
|
|
|
392,187
|
|
|
Total liabilities
|
|
9,272,613
|
|
|
(8,914
|
)
|
|
|
(171,057
|
)
|
|
|
(11,486
|
)
|
|
|
9,081,156
|
|
|
Accumulated other
comprehensive income (loss)
|
|
(1,526
|
)
|
|
8,914
|
|
|
|
(386,259
|
)
|
|
|
11,486
|
|
|
|
(367,385
|
)
|
|
Total shareholders
equity
|
|
4,685,475
|
|
|
8,914
|
|
|
|
(386,259
|
)
|
|
|
11,486
|
|
|
|
4,319,616
|
|
|
Total liabilities and shareholders equity
|
|
$
|
13,958,088
|
|
|
$
|
|
|
|
|
$
|
(557,316
|
)
|
|
|
$
|
|
|
|
|
$
|
13,400,772
|
|
|
Self-InsuranceThe Company
self-insures for certain employee medical and disability income benefits,
workers compensation costs and automobile and general liability claims. The
recorded liabilities for self-insured risks are calculated using actuarial
methods and are not discounted. The recorded liabilities for self-insured risks
totaled $115 million and $113 million at Dec. 31, 2006 and Dec. 25,
2005, respectively.
80
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred
IncomeDeferred income arises in the normal course of
business from advance subscription payments for newspapers, interactive
advertising sales and prepaid ticket revenue related to the Chicago Cubs.
Deferred income is recognized in the period it is earned.
Stock-Based CompensationIn the first quarter of 2006, the Company
adopted FAS No. 123R, Share-Based Payment, which superseded
Accounting Principles Board (APB) Opinion No. 25, FAS No. 123 and
related interpretations. FAS No. 123R requires the Company to expense stock-based
compensation in its income statement. Under FAS No. 123R, stock-based
compensation cost is measured at the grant date based on the estimated fair
value of the award. The Company uses the Black-Scholes option-pricing
model to determine the fair value of each stock option it grants. The Black-Scholes
model includes assumptions regarding dividend yields, expected volatility,
expected lives and risk-free interest rates. These assumptions reflect the
Companys best estimates, but they involve certain risks, trends and uncertainties,
which in some instances are outside of the control of the Company. As a result,
if other assumptions had been used, stock-based compensation could have
been materially impacted. Furthermore, if the Company uses different
assumptions in future periods, stock-based compensation expense could be
materially impacted. The Company adopted FAS No. 123R utilizing the
modified prospective application method and did not restate prior years.
Additional information on the accounting for stock-based compensation in
accordance with FAS No. 123R is provided in Note 16.
Prior to the adoption of FAS No. 123R, the
Company accounted for its stock-based compensation plans in accordance with APB
No. 25 and related interpretations. Under APB No. 25, no compensation
expense was recorded because the exercise price of employee stock options
equaled the market price of the underlying stock on the date of grant. Under
the provisions of APB No. 25, the Company was not required to recognize
compensation expense for its Employee Stock Purchase Plan.
Under FAS No. 123, Accounting for Stock-Based
Compensation, as amended by FAS No. 148, compensation cost was measured
at the grant date based on the estimated fair value of the award and was
recognized as compensation expense over the vesting period. Had compensation
cost for the Companys stock-based compensation plans been determined
consistent with FAS No. 123 prior to the adoption of FAS No. 123R in
2006, the Companys 2005 and 2004 net income and earnings per share (EPS)
would have been reduced to the following pro forma amounts (in thousands,
except per share data):
|
|
2005
|
|
2004
|
|
Net income, as
reported
|
|
|
$
|
534,689
|
|
|
|
$
|
555,536
|
|
|
Less: Pro forma stock-based
employee compensation expense, net of tax:
|
|
|
|
|
|
|
|
|
|
General options
|
|
|
(89,508
|
)
|
|
|
(49,887
|
)
|
|
Replacement options
|
|
|
(1,242
|
)
|
|
|
(17,245
|
)
|
|
Employee Stock Purchase Plan
|
|
|
(3,361
|
)
|
|
|
(3,808
|
)
|
|
Total pro forma
stock-based employee compensation expense, net of tax
|
|
|
(94,111
|
)
|
|
|
(70,940
|
)
|
|
Pro forma net
income
|
|
|
440,578
|
|
|
|
484,596
|
|
|
Preferred
dividends
|
|
|
(8,364
|
)
|
|
|
(8,308
|
)
|
|
Pro forma net
income attributable to common shares
|
|
|
$
|
432,214
|
|
|
|
$
|
476,288
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
$
|
1.68
|
|
|
|
$
|
1.70
|
|
|
Pro forma
|
|
|
$
|
1.38
|
|
|
|
$
|
1.48
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
$
|
1.67
|
|
|
|
$
|
1.67
|
|
|
Pro forma
|
|
|
$
|
1.37
|
|
|
|
$
|
1.46
|
|
|
81
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In determining the pro
forma compensation cost under the fair value method of FAS No. 123, using
the Black-Scholes option-pricing model, the following weighted average
assumptions were used for general awards and replacement options:
|
|
2005
|
|
2004
|
|
|
|
General
Awards
|
|
Replacement
Options
|
|
General
Awards
|
|
Replacement
Options
|
|
Risk-free interest
rate
|
|
|
3.7
|
%
|
|
|
3.3
|
%
|
|
|
3.2
|
%
|
|
|
1.7
|
%
|
|
Expected dividend yield
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
Expected stock price
volatility
|
|
|
28.1
|
%
|
|
|
22.8
|
%
|
|
|
31.1
|
%
|
|
|
25.4
|
%
|
|
Expected life (in years)
|
|
|
5
|
|
|
|
3
|
|
|
|
5
|
|
|
|
2
|
|
|
Weighted average fair value
|
|
|
$
|
10.49
|
|
|
|
$
|
6.96
|
|
|
|
$
|
15.45
|
|
|
|
$
|
7.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 24, 2005, the
Company accelerated the vesting of certain stock options granted on Feb. 11,
2003 and Feb. 10, 2004, totaling 2.4 million in each year. Unvested stock
options awarded to the then current executive officers of the Company on these
grant dates, which aggregated 0.8 million and 0.6 million, respectively,
were not accelerated at that time. On Dec. 16, 2005, the Company
accelerated the vesting of all stock options granted on Feb. 8, 2005,
totaling 3.5 million, and the remaining unvested stock
options granted to the
then current executive officers of the Company on Feb. 11, 2003 and Feb. 10,
2004, totaling 0.4 million in both years. All other terms and conditions of the
stock option grants remain unchanged.
In accordance with APB No. 25 and related
interpretations, the acceleration of vesting of these stock options did not
require accounting recognition in the Companys income statement. The exercise
prices of the 2003, 2004 and 2005 grants were $45.90, $52.05 and $40.59,
respectively, and the Companys closing stock prices on the June 24, 2005
and Dec. 16, 2005 dates of acceleration were $35.64 and $30.80,
respectively. The impact of the accelerated vesting was to increase pro forma
stock-based compensation by $82 million, or $50 million net of
tax, in 2005.
The accelerated vesting of these stock options was one
of several actions taken by the Company in 2004 and 2005 to reduce the
stock-based compensation expense that would have otherwise been recorded with
the adoption of FAS No. 123R. The Company reduced the number of stock
options granted in 2004 and 2005 by approximately 45%. Also, beginning in 2004,
option grants have 8-year terms, down from 10 years for grants in
previous years, and do not have a replacement option feature.
Income TaxesProvisions for
federal and state income taxes are calculated on reported pretax earnings based
on current tax laws and also include, in the current period, the cumulative
effect of any changes in tax rates from those used previously in determining deferred
tax assets and liabilities. Taxable income reported to the taxing jurisdictions
in which the Company operates often differs from pretax earnings because some
items of income and expense are recognized in different time periods for income
tax purposes. The Company provides deferred taxes on these temporary
differences in accordance with FAS No. 109, Accounting for Income Taxes.
Taxable income also may differ from pretax earnings due to statutory provisions
under which specific revenues are exempt from taxation and specific expenses
are not allowable as deductions. The Company establishes reserves for income
tax when it is probable that one or more of the taxing authorities will
challenge and disallow a position taken by the Company in its income tax
returns and the resulting liability is estimable. The consolidated tax
provision and related accruals include estimates of the potential taxes and
related interest as deemed appropriate. These estimates are reevaluated and
adjusted, if appropriate, on a quarterly basis. Although management believes
its estimates and judgments are reasonable, the resolutions of the Companys
tax issues are unpredictable and could result in tax liabilities that are
significantly higher or lower than that which has been provided by the Company.
82
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Comprehensive IncomeComprehensive income
consists of net income and other gains and losses affecting shareholders
equity that, under accounting principles generally accepted in the United
States of America, are excluded from net income. Other comprehensive income
(loss) primarily includes gains and losses on marketable securities classified
as available-for-sale and the change in minimum pension liabilities. Beginning
in the Companys 2007 fiscal year, and as a result of the Companys adoption of
FAS No. 158 as of Dec. 31, 2006, other comprehensive income (loss)
will no longer include the change in minimum pension liabilities, but will
include changes in unrecognized benefit cost gains and losses. The Companys
comprehensive income (loss) is summarized in Note 17.
New Accounting StandardsIn February 2006,
the FASB issued FAS No. 155, Accounting for Certain Hybrid Financial
Instruments, which allows the Company to elect to account for its PHONES
obligation as a single financial instrument recorded at fair value each period.
Changes in the fair value of the PHONES, as determined by the quoted market
price, would be reflected in the Companys results of operations. The Company
is currently evaluating whether it will elect to adopt FAS No. 155 or
continue to account for the PHONES under the provisions of FAS No. 133. If
the Company makes the election, the Company would be required to adopt FAS
No. 155 in the first quarter of 2007.
In June 2006, the FASB issued Interpretation
No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which
clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in
a tax return. FIN 48 requires that the Company recognize, in the financial
statements, the impact of a tax position, if that position is more likely than
not of being sustained on audit, based on the technical merits of the position.
FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods and disclosure. The provisions of
FIN 48 are effective for fiscal years beginning after Dec. 15, 2006,
with the cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The Company does not expect the
adoption of FIN 48 will have a material effect on its consolidated financial
statements.
In September 2006, the FASB issued FAS
No. 157, Fair Value Measurements, which defines fair value, establishes
a framework for measuring fair value and expands disclosures about fair value
measurements. The provisions of FAS No. 157 are effective for financial
statements issued for fiscal years beginning after Nov. 15, 2007 and
interim periods beginning within these fiscal years. Accordingly, the Company
will be required to adopt FAS No. 157 in the first quarter of 2008. The
Company is currently evaluating the impact of adopting FAS No. 157 on its
consolidated financial statements.
83
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Earnings Per Share (EPS)Basic EPS is
computed by dividing net income attributable to common shares by the weighted
average number of common shares outstanding during the period. The Companys
stock-based awards and convertible securities are included in the calculation
of diluted EPS unless their effects are antidilutive. In all of the diluted EPS
calculations presented below, weighted average shares outstanding were adjusted
for the dilutive effect of stock-based compensation awards. All of the Companys
Series C, D-1 and D-2 preferred shares were issued to and held
by TMCT, LLC and TMCT II, LLC. In connection with a restructuring of these
limited liability companies, all of these preferred shares were distributed to
the Company on Sept. 22, 2006. As a result, the Company has no preferred shares
outstanding effective as of Sept. 22, 2006. In the 2006, 2005 and 2004
calculations of diluted EPS, 2.6 million, 2.9 million and
2.3 million shares, respectively, of the Companys Series C, D-1
and D-2 convertible preferred stocks, and 34.0 million, 35.5 million
and 10.6 million shares, respectively, of the Companys outstanding
options were not reflected because their effects were antidilutive.
In connection with the adoption of FAS 123R, the
Company elected to calculate its windfall pool of available tax benefits under
the long-form method. This windfall pool of available tax benefits is utilized when
calculating, under the treasury stock method, the dilutive impact of the
Companys share-based awards that are accounted for in accordance with FAS
123R.
84
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The computations of basic
and diluted EPS were as follows (in thousands, except per share data):
|
|
2006
|
|
2005
|
|
2004
|
|
Basic EPS
|
|
|
|
|
|
|
|
Income from
continuing operations before cumulative effect of change in accounting
principle
|
|
$
|
660,853
|
|
$
|
522,789
|
|
$
|
554,376
|
|
Income (loss)
from discontinued operations, net of tax
|
|
(66,858
|
)
|
11,900
|
|
18,948
|
|
Cumulative effect
of change in accounting principle, net of tax
|
|
|
|
|
|
(17,788
|
)
|
Net income
|
|
$
|
593,995
|
|
$
|
534,689
|
|
$
|
555,536
|
|
Preferred
dividends
|
|
(6,309
|
)
|
(8,364
|
)
|
(8,308
|
)
|
Net income
attributable to common shares
|
|
$
|
587,686
|
|
$
|
526,325
|
|
$
|
547,228
|
|
Weighted average
common shares outstanding
|
|
272,672
|
|
312,880
|
|
322,420
|
|
Basic EPS:
|
|
|
|
|
|
|
|
Continuing
operations before cumulative effect of change in accounting principle
|
|
$
|
2.40
|
|
$
|
1.64
|
|
$
|
1.69
|
|
Discontinued
operations
|
|
(0.25
|
)
|
.04
|
|
.06
|
|
Cumulative effect
of change in accounting principle, net of tax
|
|
|
|
|
|
(.05
|
)
|
Net income
|
|
$
|
2.16
|
|
$
|
1.68
|
|
$
|
1.70
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
Income from
continuing operations before cumulative effect of change in accounting
principle
|
|
$
|
660,853
|
|
$
|
522,789
|
|
$
|
554,376
|
|
Income (loss)
from discontinued operations, net of tax
|
|
(66,858
|
)
|
11,900
|
|
18,948
|
|
Cumulative effect
of change in accounting principle, net of tax
|
|
|
|
|
|
(17,788
|
)
|
Net income
|
|
$
|
593,995
|
|
$
|
534,689
|
|
$
|
555,536
|
|
Preferred
dividends
|
|
(6,309
|
)
|
(8,364
|
)
|
(8,308
|
)
|
Net income
attributable to common shares
|
|
$
|
587,686
|
|
$
|
526,325
|
|
$
|
547,228
|
|
Weighted average
common shares outstanding
|
|
272,672
|
|
312,880
|
|
322,420
|
|
Adjustment for
stock-based awards, net
|
|
1,739
|
|
2,458
|
|
4,817
|
|
Adjusted weighted
average common shares outstanding
|
|
274,411
|
|
315,338
|
|
327,237
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
Continuing
operations before cumulative effect of change in accounting principle
|
|
$
|
2.39
|
|
$
|
1.63
|
|
$
|
1.67
|
|
Discontinued
operations
|
|
(0.24
|
)
|
.04
|
|
.06
|
|
Cumulative effect
of change in accounting principle, net of tax
|
|
|
|
|
|
(.05
|
)
|
Net income
|
|
$
|
2.14
|
|
$
|
1.67
|
|
$
|
1.67
|
|
NOTE 2: CHANGES
IN OPERATIONS AND NON-OPERATING ITEMS
AcquisitionsThe Company
had no significant acquisitions in 2006, 2005 and 2004. The results of acquired
companies are included in the consolidated statements of income since their
respective dates of acquisition.
85
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Supplemental Cash Flow
InformationInformation for
acquisitions made in 2006, 2005 and 2004 is summarized in the table below (in
thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Fair value of
assets acquired(1)
|
|
$
|
48,144
|
|
$
|
4,207
|
|
$
|
854
|
|
Liabilities
assumed
|
|
|
|
|
|
(303
|
)
|
Net cash paid
|
|
$
|
48,144
|
|
$
|
4,207
|
|
$
|
551
|
|
(1) Includes intangible assets, net of
acquisition-related deferred taxes.
Cash
paid for interest and income taxes in 2006, 2005 and 2004 is summarized below
(in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Interest
|
|
$
|
238,894
|
|
$
|
134,955
|
|
$
|
138,392
|
|
Income taxes(1)
|
|
$
|
408,507
|
|
$
|
1,157,243
|
|
$
|
286,129
|
|
(1) In 2005, the Company paid $880 million to the
Internal Revenue Service, representing the federal tax and interest owed on the
Matthew Bender and Mosby transactions (see Note 13).
Consolidation of Los Angeles Times Production Operations
In December 2005, the Los Angeles Times announced it would close its San Fernando
Valley printing facility in January 2006 and consolidate production at its
remaining three facilities in Los Angeles, Costa Mesa, and Irwindale,
California. The closing of the printing facility resulted in the elimination of
approximately 120 positions from across the Los
Angeles Times production facilities.
As a result of the facility closing, the Company
reclassified the San Fernando Valley printing facility land and building as
held for sale at Dec. 25, 2005. The Company recorded a $2 million
pretax charge in the fourth quarter of 2005 to reduce the carrying value of the
San Fernando Valley printing facilitys land and building to $24 million,
representing the estimated fair value of the assets less costs to sell the
assets. On Oct. 30, 2006, the Company sold the San Fernando Valley land
and building for net proceeds of approximately $24 million.
The Company evaluated the machinery and equipment at
the San Fernando Valley printing facility and determined that press and other
related equipment with a net book value of $16 million would be abandoned.
Therefore, the Company reduced its estimate of the useful life of the press and
other related equipment and recorded accelerated depreciation of $16 million
in the fourth quarter of 2005. The Company idled the remaining San Fernando
Valley machinery and equipment, which had a net book value of $26 million
at Dec. 31, 2006 and $34 million at Dec. 25, 2005. The Company is
continuing to depreciate the remaining idled equipment. In the fourth quarter
of 2006, the Company disposed of and wrote off $4 million of the idled
equipment that had previously been designated for redeployment at Dec. 25,
2005. The Company is currently evaluating alternative uses of the remaining
idled equipment, which will most likely be redeployed elsewhere in the
publishing segment.
86
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The
Company recorded a pretax charge in the fourth quarter of 2005 of
$22 million, excluding severance related costs, as a result of its
decision to close the San Fernando Valley printing facility. A summary of the
significant components of the $22 million pretax charge in 2005 is as
follows (in thousands):
Accelerated depreciation on machinery and equipment
|
|
$
|
16,109
|
|
Impairment of
assets held for sale
|
|
2,127
|
|
Other
|
|
3,992
|
|
Total
|
|
$
|
22,228
|
|
Acquisition of
Additional Equity in CareerBuilder, ShopLocal and Topix
In August 2006, the
Company completed its acquisition of additional equity interests in each of
CareerBuilder, LLC, ShopLocal, LLC (formerly CrossMedia Services, Inc.)
and Topix, LLC for an aggregate purchase price of $155 million. The negotiated
equity purchases followed the exercise of call options by the Company and
Gannett Co., Inc. on Knight-Ridder, Inc.s equity ownership in the
three online businesses after The McClatchy Companys announcement of its
proposed acquisition of Knight-Ridder, Inc. As a result of this
transaction, the Company and Gannett Co., Inc. each increased their
respective ownership of CareerBuilder, LLC and ShopLocal, LLC to 42.5% with The
McClatchy Company retaining a 15% interest in both entities. Additionally, each
of the Companys and Gannett Co., Inc.s interest in Topix, LLC increased
to 31.9%. As a result of subsequent funding, the current ownership of Topix,
LLC is approximately 33.7% for both the Company and Gannett Co., Inc.,
11.9% for The McClatchy Company and 20.7% for management of Topix, LLC.
Employee Reductions
The Company reduced its staffing levels by
approximately 450 positions in 2006, primarily at publishing, and recorded a
pretax charge of $9 million. In 2005, the Company reduced its staffing levels
by approximately 900 positions and recorded a pretax charge of $45 million
($43 million at publishing, $1 million at broadcasting and
entertainment and $1 million at corporate). The eliminations in 2005
included 120 positions as a result of closing the Los Angeles Times San Fernando Valley printing facility, as
discussed above. The Company recorded a
pretax charge of $41 million in 2004 related to the elimination of
approximately 600 positions in its publishing segment. The Company had a current
liability of approximately $7 million at Dec. 31, 2006 and $37 million at Dec.
25, 2005 related to these employee reductions.
Non-Operating ItemsFiscal years
2006, 2005 and 2004 included several non-operating items.
Non-operating
items for 2006 are summarized as follows (in thousands):
|
|
Proceeds
|
|
Pretax
Gain
(Loss)
|
|
After-tax
Gain
(Loss)
|
|
Gain on change in fair
values of derivatives and related investments
|
|
$
|
|
|
$
|
11,088
|
|
$
|
6,764
|
|
Gain on TMCT
transactions
|
|
|
|
59,596
|
|
47,988
|
|
Gain on sales of
investments, net
|
|
82,903
|
|
36,732
|
|
22,339
|
|
Other, net
|
|
|
|
(4,447
|
)
|
(1,044
|
)
|
Income tax adjustments
|
|
|
|
|
|
33,563
|
|
Total non-operating items
|
|
$
|
82,903
|
|
$
|
102,969
|
|
$
|
109,610
|
|
87
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The 2006 change in the fair values of derivatives and
related investments pertained entirely to the Companys PHONES and related Time
Warner investment. The $11 million non-cash pretax gain resulted primarily
from a $66 million increase in the fair value of 16 million shares of
Time Warner common stock, which was partially offset by a $52 million
increase in the fair value of the derivative component of the Companys PHONES.
In 2006, the Company recorded a one-time gain of $48
million, net of tax, as a result of transactions related to its investments in
TMCT, LLC and TMCT II, LLC (see Note 7). In addition, the Company sold 2.8
million shares of Time Warner common stock unrelated to the PHONES for net
proceeds of $46 million and recorded a pretax gain on sale of $19 million, and
sold its investment in BrassRing for net proceeds of $27 million and
recorded a pretax gain of $17 million.
Also in 2006, the Company recorded a favorable $34
million income tax expense adjustment, most of which related to the Companys
PHONES as a result of reaching an agreement with the Internal Revenue Service
appeals office pertaining to the deduction of interest expense on the PHONES
(see Note 13).
Non-operating
items for 2005 are summarized as follows (in thousands):
|
|
Proceeds
|
|
Pretax
Gain
|
|
After-tax
Gain
(Loss)
|
|
Gain on change in fair
values of derivatives and related investments
|
|
$
|
|
|
$
|
62,184
|
|
$
|
37,932
|
|
Gain on sales of investments,
net
|
|
17,368
|
|
6,780
|
|
4,136
|
|
Other, net
|
|
5,166
|
|
897
|
|
547
|
|
Income tax adjustments
|
|
|
|
|
|
(138,664
|
)
|
Total non-operating items
|
|
$
|
22,534
|
|
$
|
69,861
|
|
$
|
(96,049
|
)
|
The 2005 change in the fair values of derivatives and
related investments pertained entirely to the Companys PHONES and related Time
Warner investment. The $62 million non-cash pretax gain resulted primarily
from an $87 million decrease in the fair value of the derivative component
of the Companys PHONES, which was partially offset by a $23 million
decrease in the fair value of 16 million shares of Time Warner common
stock.
As a result of the United States Tax Court opinion
issued on Sept. 27, 2005 related to the Matthew Bender tax dispute, the
Company recorded additional income tax expense of $150 million in the
third quarter of 2005 (see Note 13). In the first quarter of 2005, the
Company reduced its income tax expense and liabilities by a total of
$12 million as a result of favorably resolving certain other federal income
tax issues.
88
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Non-operating
items for 2004 are summarized as follows (in thousands):
|
|
Proceeds
|
|
Pretax
Gain (Loss)
|
|
After-tax
Gain (Loss)
|
|
Loss on change in
fair values of derivatives and related investments
|
|
$
|
|
|
$
|
(18,497
|
)
|
|
$
|
(11,283
|
)
|
|
Loss on early
debt retirement
|
|
|
|
(140,506
|
)
|
|
(87,549
|
)
|
|
Gain on sales of
investments, net
|
|
23,973
|
|
20,347
|
|
|
12,412
|
|
|
Loss on
investment write-downs and other, net
|
|
16,259
|
|
(6,388
|
)
|
|
(3,897
|
)
|
|
Total non-operating
items
|
|
$
|
40,232
|
|
$
|
(145,044
|
)
|
|
$
|
(90,317
|
)
|
|
The 2004 change in the
fair values of derivatives and related investments pertained entirely to the
Companys PHONES and related Time Warner investment. The $18 million
non-cash pretax loss resulted from a $39 million increase in the fair
value of the derivative component of the Companys PHONES, which was partially
offset by a $21 million increase in the fair value of 16 million
shares of Time Warner common stock.
In 2004, the Company
redeemed all of its outstanding $400 million ($396 million net of
unamortized discount) 7.45% debentures due 2009 and retired $66 million
($64 million net of unamortized discount) of its 7.25% debentures due 2013
and $165 million ($160 million net of unamortized discount) of its
6.61% debentures due 2027 through cash tender offers. The Company paid
approximately $760 million to retire this debt and, as a result, recorded
a one-time, pretax loss of $141 million in 2004. The Company funded these
transactions with cash and the issuance of commercial paper.
The 2004 gain on sales of
investments related primarily to the sale of the Companys 50% interest in La Opinión for $20 million, resulting
in a pretax gain of $18 million.
NOTE 3: DISCONTINUED
OPERATIONS AND ASSETS HELD FOR SALE
Sales of WATL-TV, Atlanta, WCWN-TV, Albany and
WLVI-TV, BostonOn June 5, 2006, the Company
announced the sale of WATL-TV, Atlanta to Gannett Co., Inc. for $180
million. The sale closed on Aug. 7, 2006. On June 19, 2006, the
Company announced the sale of WCWN-TV, Albany to Freedom Communications, Inc.
for $17 million. The sale closed on Dec. 6, 2006. On Sept. 14, 2006, the
Company announced the sale of WLVI-TV, Boston, to Sunbeam Television Corp. for
$113.7 million. The sale closed on Dec. 19, 2006.
These businesses were
considered components of the Companys broadcasting and entertainment segment
as their operations and cash flows could be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the
Company. The operations and cash flows of these businesses have been eliminated
from the ongoing operations of the Company as a result of the sales, and the
Company will not have any significant continuing involvement in their
operations. Accordingly, the results of operations of each of these businesses
have been reported as discontinued operations in the consolidated statements of
income. Prior year consolidated statements of income have been reclassified to
conform to the current year presentation of discontinued operations.
In conjunction with the
sales of WATL-TV, Atlanta and WCWN-TV, Albany, the Company recorded in the
second quarter of 2006 a pretax loss totaling $90 million, including $80
million of allocated television group goodwill, to write down the net assets of
the stations to estimated fair value, less costs to sell. The Company
subsequently reduced the pretax loss on sales of the Atlanta and Albany
stations during the third quarter of 2006 by $1 million. In addition, the
Company recorded in the fourth quarter of 2006 a pretax
89
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
gain of
$41 million, including $45 million of allocated television group goodwill, for
the sale of the Boston station. In accordance with FAS No. 142, Goodwill
and Other Intangible Assets, the Company aggregates all of its television
stations into one reporting unit for goodwill accounting purposes. FAS No. 142
requires the Company to allocate a portion of its total television group
goodwill to stations that are to be sold on a relative fair value basis. The
net pretax loss on sales of the three stations sold during 2006 was $48
million, including $125 million of allocated television group goodwill.
Selected
financial information related to discontinued operations for 2006, 2005 and
2004 is summarized as follows (in thousands, except per share data):
|
|
2006
|
|
2005
|
|
2004
|
|
Operating
revenues
|
|
|
$
|
64,870
|
|
|
|
$
|
84,334
|
|
|
|
$
|
94,816
|
|
|
Operating profit(1)
|
|
|
$
|
2,300
|
|
|
|
$
|
19,632
|
|
|
|
$
|
31,011
|
|
|
Loss on sales of
discontinued operations
|
|
|
(48,238
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss)
from discontinued operations before income taxes
|
|
|
(45,938
|
)
|
|
|
19,632
|
|
|
|
31,011
|
|
|
Income taxes(2)
|
|
|
(20,920
|
)
|
|
|
(7,732
|
)
|
|
|
(12,063
|
)
|
|
Income (loss)
from discontinued operations, net of tax.
|
|
|
$
|
(66,858
|
)
|
|
|
$
|
11,900
|
|
|
|
$
|
18,948
|
|
|
Income (loss) from
discontinued operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
(.25
|
)
|
|
|
$
|
.04
|
|
|
|
$
|
.06
|
|
|
Diluted
|
|
|
$
|
(.24
|
)
|
|
|
$
|
.04
|
|
|
|
$
|
.06
|
|
|
(1) Operating profit for 2006 included $6 million
of severance and related charges incurred as a result of the sales of the three
television stations.
(2) Income taxes for 2006 included a tax benefit
of $12 million related to the $89 million pretax loss on sales of the Atlanta
and Albany stations. The $12 million tax benefit was only 13% of the pretax
loss because most of the $80 million goodwill allocation, which is included in
the loss, is not deductible for income tax purposes. Income taxes for 2006 also
included a tax expense of $32 million related to the $41 million pretax gain on
sale of the Boston station. The $32 million tax expense was 77% of the pretax
gain because most of the $45 million goodwill allocation included in the Boston
gain is not deductible for income tax purposes.
Assets Held for SaleIn December 2006, the Company entered into a non-binding
agreement to sell the land and building of one of its production facilities.
The $5 million carrying value of the land and building of this facility approximates
fair value less costs to sell and is included in non-current assets held for
sale at Dec. 31, 2006. The Company expects to complete this sale sometime
during the third quarter of 2007.
In February 2007, the Company sold its
interactive program guide assets, including software and a portfolio of patents
(collectively the IPG intellectual property). Accordingly, the $4 million
carrying value of the intangible assets related to the IPG intellectual
property is included in non-current assets held for sale at Dec. 31, 2006.
The Company received net proceeds of approximately $10 million and will record
a pretax gain on sale of approximately $6 million in the first quarter of
2007.
Non-current assets held
for sale of $24 million at Dec. 25, 2005 pertained entirely to the Companys
San Fernando Valley, California printing facility, which was sold in October 2006
for net proceeds of approximately $24 million. See Note 2 for additional
information related to the shutdown and subsequent sale of this facility.
90
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4: NEWSDAY AND HOY, NEW YORK CHARGE
In February 2004, a purported class action
lawsuit was filed in New York Federal Court by certain advertisers of Newsday and Hoy, New York, alleging that they were overcharged for
advertising as a result of inflated circulation numbers at these two
publications. The purported class action also alleges that entities that paid a
Newsday subsidiary to deliver
advertising flyers were overcharged. In July 2004, another lawsuit was
filed in New York Federal Court by certain advertisers of Newsday alleging damages resulting from
inflated Newsday circulation
numbers as well as federal and state antitrust violations. The Company is
vigorously defending these suits.
On June 17, 2004, the Company publicly disclosed
that it would reduce its reported circulation for both Newsday and Hoy, New York for the 12-month period ending
Sept. 30, 2003 and the six-month period ending March 31, 2004. The
circulation adjustments were the result of a review of reported circulation at Newsday and Hoy, New York, conducted by the Companys internal audit
staff and the Audit Bureau of Circulations (ABC). Subsequent to the June 17th disclosure, the Company continued its internal
review and found additional misstatements for these time periods, as well as
misstatements that impacted the 12-month period ending Sept. 30,
2002. On Sept. 10, 2004, the Company announced additional revisions to the
circulation figures for Newsday
and Hoy, New York, for the 12-month
period ending Sept. 30, 2003 and the six-month period ending March 31,
2004.
As a result of misstatements of reported circulation
at Newsday and Hoy, New York, the Company recorded a
total pretax charge of $90 million in 2004 as its estimate of the probable
cost to settle with advertisers. The Company will continue to evaluate the
adequacy of this charge on an ongoing basis.
A summary of the
activity with respect to the Newsday
and Hoy, New York, advertiser
settlement accrual is as follows (in millions):
Advertiser
settlement accrual balance at Dec. 28, 2003
|
|
$
|
|
|
2004 provision
|
|
90
|
|
2004 payments
|
|
(41
|
)
|
Advertiser
settlement accrual balance at Dec. 26, 2004
|
|
49
|
|
2005 payments
|
|
(34
|
)
|
Advertiser
settlement accrual balance at Dec. 25, 2005
|
|
15
|
|
2006 payments
|
|
(8
|
)
|
Advertiser settlement
accrual balance at Dec. 31, 2006
|
|
$
|
7
|
|
In addition to the advertiser lawsuits, several class
action and shareholder derivative suits were filed against the Company and
certain of its current and former directors and officers as a result of the
circulation misstatements at Newsday
and Hoy, New York. These suits
alleged breaches of fiduciary duties and other managerial and director failings
under Delaware law, the federal securities laws and ERISA. The consolidated
shareholder derivative suit filed in Illinois state court in Chicago was
dismissed with prejudice on March 10, 2006, and the dismissal is currently
being appealed to the Illinois State Court of Appeals. The consolidated
securities class action lawsuit and the consolidated ERISA class action lawsuit
filed in Federal District Court in Chicago were both dismissed with prejudice
on Sept. 29, 2006, and the dismissals are currently being appealed to the
United States Court of Appeals for the Seventh Circuit. The Company believes
these suits are without merit and will continue to vigorously defend them.
On May 30, 2006, the Securities and Exchange
Commission (SEC) concluded its inquiry into circulation practices at Newsday and Hoy, New York. In closing its inquiry, the SEC ordered the
Company
91
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
to cease and desist from
violating statutory provisions related to its record keeping and reporting. No
fines or other sanctions were levied against the Company. The Company consented
to the order without admitting or denying any of the Commissions findings. The
SEC acknowledged the prompt internal investigation and remedial acts undertaken
by the Company and the cooperation the Company afforded the Commissions staff
throughout its investigation.
The United States Attorney
for the Eastern District of New York and the Nassau County District Attorney
are continuing their inquiries into the circulation practices at Newsday and Hoy, New York. To date, nine former employees and
contractors of Newsday and Hoy, New York, have pleaded guilty to
various criminal charges in connection with the fraudulent circulation
practices uncovered by the Company. The Company is cooperating fully with these
inquiries. At the date of this report, the Company cannot predict with
certainty the outcome of these inquiries.
NOTE 5: INVENTORIES
Inventories
consisted of the following (in thousands):
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Newsprint
|
|
|
$
|
28,629
|
|
|
|
$
|
32,672
|
|
|
Supplies and
other
|
|
|
12,333
|
|
|
|
11,431
|
|
|
Total inventories
|
|
|
$
|
40,962
|
|
|
|
$
|
44,103
|
|
|
Newsprint inventories
valued under the LIFO method were less than current cost by approximately
$15 million at Dec. 31, 2006 and $14 million at Dec. 25,
2005.
92
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6: GOODWILL
AND OTHER INTANGIBLE ASSETS
Goodwill
and other intangible assets at Dec. 31, 2006 and Dec. 25, 2005
consisted of the following (in thousands):
|
|
|
|
Dec. 31, 2006
|
|
|
|
|
|
Dec. 25, 2005
|
|
|
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Intangible assets subject to
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribers (useful life of 15 to 20 years)
|
|
|
$
|
190,660
|
|
|
|
$
|
(72,126
|
)
|
|
$
|
118,534
|
|
$
|
190,657
|
|
|
$
|
(62,110
|
)
|
|
$
|
128,547
|
|
Network affiliation agreements (useful life of
40 years)(1)
|
|
|
278,034
|
|
|
|
(22,614
|
)
|
|
255,420
|
|
290,320
|
|
|
(16,330
|
)
|
|
273,990
|
|
Other (useful life of 3 to 40 years)
|
|
|
25,128
|
|
|
|
(8,717
|
)
|
|
16,411
|
|
23,482
|
|
|
(6,696
|
)
|
|
16,786
|
|
Total
|
|
|
$
|
493,822
|
|
|
|
$
|
(103,457
|
)
|
|
390,365
|
|
$
|
504,459
|
|
|
$
|
(85,136
|
)
|
|
419,323
|
|
Goodwill and other intangible
assets not subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
|
|
|
|
|
|
|
|
4,395,967
|
|
|
|
|
|
|
|
4,380,483
|
|
Broadcasting and entertainment
|
|
|
|
|
|
|
|
|
|
1,441,241
|
|
|
|
|
|
|
|
1,566,659
|
|
Total goodwill
|
|
|
|
|
|
|
|
|
|
5,837,208
|
|
|
|
|
|
|
|
5,947,142
|
|
Newspaper mastheads
|
|
|
|
|
|
|
|
|
|
1,575,814
|
|
|
|
|
|
|
|
1,575,814
|
|
FCC licenses
|
|
|
|
|
|
|
|
|
|
871,946
|
|
|
|
|
|
|
|
1,084,654
|
|
Tradename
|
|
|
|
|
|
|
|
|
|
7,932
|
|
|
|
|
|
|
|
7,932
|
|
Total
|
|
|
|
|
|
|
|
|
|
8,292,900
|
|
|
|
|
|
|
|
8,615,542
|
|
Total goodwill and
other intangible assets
|
|
|
|
|
|
|
|
|
|
$
|
8,683,265
|
|
|
|
|
|
|
|
$
|
9,034,865
|
|
(1) Network
affiliation agreements, net of accumulated amortization, included
$179 million related to Fox affiliations, $74 million related to CW
affiliations and $2 million related to MyNetworkTV affiliations as of Dec. 31,
2006.
93
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The
changes in the carrying amounts of intangible assets during the years ended Dec. 31,
2006 and Dec. 25, 2005 were as follows (in thousands):
|
|
Publishing
|
|
Broadcasting and
Entertainment
|
|
Total
|
|
Intangible assets subject to
amortization
|
|
|
|
|
|
|
|
|
|
Balance as of
Dec. 26, 2004
|
|
$
|
92,215
|
|
|
$
|
346,064
|
|
|
$
|
438,279
|
|
Amortization
expense
|
|
(7,231
|
)
|
|
(11,657
|
)
|
|
(18,888
|
)
|
Amortizable
intangibles acquired during year
|
|
239
|
|
|
|
|
|
239
|
|
Sales of discontinued
operations (see Note 3)
|
|
|
|
|
(307
|
)
|
|
(307
|
)
|
Balance as of
Dec. 25, 2005
|
|
$
|
85,223
|
|
|
$
|
334,100
|
|
|
$
|
419,323
|
|
Amortization
expense
|
|
(8,258
|
)
|
|
(11,555
|
)
|
|
(19,813
|
)
|
Assets held for
sale, net (IPG intellectual property)
|
|
(4,002
|
)
|
|
|
|
|
(4,002
|
)
|
Amortizable
intangibles acquired during year
|
|
6,452
|
|
|
|
|
|
6,452
|
|
Sales of
discontinued operations (see Note 3)
|
|
|
|
|
(11,595
|
)
|
|
(11,595
|
)
|
Balance as of
Dec. 31, 2006
|
|
$
|
79,415
|
|
|
$
|
310,950
|
|
|
$
|
390,365
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
Balance as of
Dec. 26, 2004
|
|
$
|
3,920,720
|
|
|
$
|
1,566,659
|
|
|
$
|
5,487,379
|
|
Goodwill acquired
during year
|
|
4,147
|
|
|
|
|
|
4,147
|
|
Adjustment for
tax resolutions(1)
|
|
(3,500
|
)
|
|
|
|
|
(3,500
|
)
|
Adjustment
related to Matthew Bender and Mosby tax liability (see Note 13)
|
|
459,116
|
|
|
|
|
|
459,116
|
|
Balance as of
Dec. 25, 2005
|
|
$
|
4,380,483
|
|
|
$
|
1,566,659
|
|
|
$
|
5,947,142
|
|
Goodwill acquired
during year
|
|
45,477
|
|
|
|
|
|
45,477
|
|
Sales of
discontinued operations (see Note 3)
|
|
|
|
|
(125,418
|
)
|
|
(125,418
|
)
|
Adjustment for
tax resolutions(1)
|
|
(28,186
|
)
|
|
|
|
|
(28,186
|
)
|
Other
|
|
(1,807
|
)
|
|
|
|
|
(1,807
|
)
|
Balance as of
Dec. 31, 2006
|
|
$
|
4,395,967
|
|
|
$
|
1,441,241
|
|
|
$
|
5,837,208
|
|
Other
intangible assets not subject to amortization
|
|
|
|
|
|
|
|
|
|
Balance as of
Dec. 25, 2005 and Dec. 26, 2004
|
|
$
|
1,583,746
|
|
|
$
|
1,084,654
|
|
|
$
|
2,668,400
|
|
Sales of discontinued
operations (see Note 3)
|
|
|
|
|
(212,708
|
)
|
|
(212,708
|
)
|
Balance as of
Dec. 31, 2006
|
|
$
|
1,583,746
|
|
|
$
|
871,946
|
|
|
$
|
2,455,692
|
|
Total goodwill and other
intangibles as of Dec. 31, 2006
|
|
$
|
6,059,128
|
|
|
$
|
2,624,137
|
|
|
$
|
8,683,265
|
|
(1) Adjustment
for the resolution of uncertain income tax positions related to the Times
Mirror Company acquisition.
Estimated annual
amortization expense will be approximately $20 million for each of the
next five years, excluding the effects of any acquisitions or dispositions
subsequent to Dec. 31, 2006.
94
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7: TMCT and
TMCT II
As a result of the Companys acquisition of The Times
Mirror Company (Times Mirror) in 2000, the Company holds investment interests
in TMCT, LLC (TMCT) and TMCT II, LLC (TMCT II). TMCT and TMCT II were
formed in 1997 and 1999, respectively, as a result of transactions involving
agreements between Times Mirror and its largest shareholders, Chandler Trust No. 1
and Chandler Trust No. 2 (collectively, the Chandler Trusts). The Times
Mirror acquisition resulted in the Chandler Trusts becoming significant
shareholders of the Company. The TMCT and TMCT II LLC agreements have no
specific term, and the dissolution, determination of liquidation values and
distribution of assets require the mutual consent of the Company and the
Chandler Trusts.
The collective assets of TMCT and TMCT II as of Dec. 25,
2005 included approximately 51.4 million shares of the Companys common stock
and 1.1 million shares of the Companys preferred stock, representing all of
the Companys issued Series C, D-1 and D-2 preferred stock.
The TMCT and TMCT II assets also include a variety of fixed income and
equity investments. In addition, TMCT owns eight real properties that are
leased to the Company. Additional financial information pertaining to TMCT and
TMCT II is provided below.
TMCT TransactionsOn Sept. 21,
2006, the Company and the Chandler Trusts entered into agreements to restructure
TMCT and TMCT II. Under the terms of the agreements, the Company received on
Sept. 22, 2006, a total of 38.9 million shares of the Companys common
stock and all 1.1 million shares of the Companys preferred stock held
collectively by TMCT and TMCT II. As a result, the Companys interests in each of TMCT and TMCT II were reduced to
approximately 5%. The Sept. 21, 2006 agreements also provided for
certain put and call options, which are exercisable at fair market value
beginning in September 2007, relating to the Companys remaining ownership
interests in TMCT and TMCT II. As a result of the transactions, the
Company in the third quarter of 2006 recorded a one-time, non-operating gain of
$48 million, net of tax; increased its common treasury stock by $161 million
and its preferred treasury stock by $107 million; and reduced its combined
investment in TMCT and TMCT II by $195 million.
On Oct. 20, 2006, the remaining 12.4 million
shares of the Companys common stock held by TMCT and TMCT II were distributed
to the Company and the Chandler Trusts in accordance with their respective
ownership interests. The Company received 0.6 million shares and the Chandler
Trusts received 11.8 million shares.
The Company and the Chandler Trusts share in the cash
flows of the various assets held by TMCT and TMCT II. Prior to the Sept. 22,
2006 transactions, the cash flows from the Tribune common and preferred shares
held by TMCT and TMCT II were largely allocated to the Company, while the cash
flows from the other assets were largely allocated to the Chandler Trusts. As a
result, the Company included in treasury stock 80% of the Tribune common and
preferred shares held by TMCT and TMCT II. In addition, 80% of the
dividends on the preferred and common shares held by TMCT and TMCT II were
effectively eliminated. Following the Sept. 22, 2006 transactions and
until the Oct. 20, 2006 distribution, the Company included in treasury
stock approximately 5% of the Tribune common shares held by TMCT and TMCT II.
As a result of the transactions, the Company no longer has any shares of its Series C,
D-1 and D-2 preferred stock outstanding, and the Companys common
shares outstanding increased by 1.6 million.
TMCTAt Dec. 31,
2006 and Dec. 25, 2005, the assets of TMCT included eight real properties
(Real Properties) leased to the Company and a portfolio of fixed income and
equity investments (TMCT
95
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Portfolio). The TMCT assets at Dec. 25, 2005
also included 13 million shares of the Companys common stock and 442,596
shares of the Companys Series C preferred stock (collectively, TMCT Shares).
As discussed above, all of the TMCT Shares were distributed to the Company and
the Chandler Trusts in 2006. TMCT has no outstanding debt. The estimated
fair market values of the TMCT Shares and TMCT Portfolio at Dec. 31, 2006
and Dec. 25, 2005 are shown in the table below (in thousands):
|
|
TMCT Asset Information
(unaudited)
|
|
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
TMCT Shares
|
|
|
$
|
|
|
|
|
$
|
602,900
|
|
|
TMCT Portfolio
|
|
|
$
|
265,200
|
|
|
|
$
|
260,800
|
|
|
The Company accounts for the Real Properties lease as
a property-financing obligation in its consolidated balance sheet. Under the
terms of the original lease agreement, the Company had the option to purchase
all of the Real Properties for their fair market value on Aug. 8, 2009,
the end of the current lease term. In connection with the TMCT restructuring
discussed above, the Company and TMCT amended the lease agreement on Sept. 22,
2006. Under the terms of the amended lease, the Company was granted an
accelerated option to acquire the eight properties during the month of January 2008
for $175 million. The Company was also granted an option to acquire the
leased properties from Feb. 8, 2008 to three months prior to the
expiration of the amended lease. If the Company does not elect to purchase the
Real Properties, the Company may elect to extend the lease for two additional 12-year
lease terms, with fair market value purchase options at the end of each term.
The Sept. 22, 2006 lease amendment extended the properties current fixed
rental rate through the first additional 12-year lease term. A fair
market rental rate would be payable during the second additional 12-year
lease term.
Summarized
income and expense information for TMCT is shown in the following table for the
years ended Dec. 31, 2006, Dec. 25, 2005 and Dec. 26, 2004 (in
thousands):
|
|
TMCT Income and Expense
Information (unaudited)
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
TMCT Shares
dividend income
|
|
$
|
20,030
|
|
$
|
26,706
|
|
$
|
23,705
|
|
Real Properties
lease income
|
|
24,166
|
|
24,166
|
|
24,166
|
|
TMCT Portfolio
interest and dividend income
|
|
12,043
|
|
9,508
|
|
9,949
|
|
TMCT Portfolio
net realized gains
|
|
3,956
|
|
835
|
|
2,670
|
|
Total
|
|
$
|
60,195
|
|
$
|
61,215
|
|
$
|
60,490
|
|
TMCT operating expenses
|
|
$
|
(9,629
|
)
|
$
|
(9,301
|
)
|
$
|
(9,983
|
)
|
The Company accounts for its investment in the TMCT
Portfolio under the equity method. The Companys investment in
TMCT totaled $24 million, $83 million and $82 million at Dec. 31,
2006, Dec. 25, 2005 and Dec. 26, 2004, respectively. In 2006, 2005
and 2004, the Company recognized equity income of $2 million in each year
related to the TMCT Portfolio.
TMCT IIAt Dec. 31,
2006 and Dec. 25, 2005, the assets of TMCT II included a portfolio of
fixed income investments that were funded with the proceeds from the redemption
of six unrelated real estate investment trust interests in 2004 and two in 2005
(REIT Portfolio); a portfolio of fixed income and equity investments (TMCT II
Portfolio); and a portfolio of venture capital and private equity investments
(Venture Capital Portfolio). The TMCT II assets at Dec. 25, 2005 also
included 39 million
96
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
shares of the Companys common stock, 380,972 shares
of the Companys Series D-1 preferred stock and 245,100 shares of
the Companys Series D-2 preferred stock (collectively, TMCT II
Shares). As discussed above, all of the TMCT II Shares were distributed to the
Company and the Chandler Trusts in 2006. TMCT II has no outstanding debt.
The estimated fair market values of the TMCT II assets at Dec. 31,
2006 and Dec. 25, 2005 are shown in the table below (in thousands):
|
|
TMCT II Asset Information
(unaudited)
|
|
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
TMCT II
Shares
|
|
|
$
|
|
|
|
$
|
1,498,800
|
|
REIT Portfolio
|
|
|
$
|
591,900
|
|
|
$
|
593,300
|
|
TMCT II Portfolio
|
|
|
$
|
114,600
|
|
|
$
|
112,300
|
|
Venture Capital
Portfolio
|
|
|
$
|
222,500
|
|
|
$
|
260,400
|
|
Summarized
income and expense information for TMCT II is shown in the following table
for the years ended Dec. 31, 2006, Dec. 25, 2005 and Dec. 26,
2004 (in thousands):
|
|
TMCT II Income and Expense
Information (unaudited)
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
TMCT II
Shares dividend income
|
|
$
|
37,204
|
|
$
|
48,853
|
|
$
|
38,809
|
|
REIT Portfolio
income
|
|
37,409
|
|
38,417
|
|
51,520
|
|
TMCT II
Portfolio and Venture Capital Portfolio interest and dividend income
|
|
8,907
|
|
8,244
|
|
5,126
|
|
TMCT II
Portfolio, Venture Capital Portfolio and REIT Portfolio net realized losses
|
|
(7,902
|
)
|
(778
|
)
|
(21,192
|
)
|
Total
|
|
$
|
75,618
|
|
$
|
94,736
|
|
$
|
74,263
|
|
TMCT II
operating expenses
|
|
$
|
(9,897
|
)
|
$
|
(11,319
|
)
|
$
|
(10,286
|
)
|
The Company accounts for its investments in the REIT
Portfolio, the TMCT II Portfolio and the Venture Capital Portfolio under
the equity method. The Companys investment in TMCT II totaled $42 million
at Dec. 31, 2006, $196 million at Dec. 25, 2005 and
$198 million at Dec. 26, 2004. The Company recognized equity income
related to the REIT Portfolio, TMCT II Portfolio and Venture Capital
Portfolio investments of $6 million in 2006, $8 million in 2005 and
$9 million in 2004.
97
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8: INVESTMENTS
Investments
consisted of the following (in thousands):
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Time Warner stock
related to PHONES debt
|
|
|
$
|
348,480
|
|
|
|
$
|
282,880
|
|
|
Other cost method
investments
|
|
|
14,150
|
|
|
|
59,355
|
|
|
Equity
investments in TMCT and TMCT II(1)
|
|
|
66,016
|
|
|
|
279,766
|
|
|
Other equity
method investments
|
|
|
484,584
|
|
|
|
293,542
|
|
|
Total investments
|
|
|
$
|
913,230
|
|
|
|
$
|
915,543
|
|
|
(1) See Note 7 for further discussion.
Cost method investments in public companies and debt
securities were recorded at fair value in the consolidated balance sheets. At Dec. 31,
2006, the Companys cost method investments included public companies, mainly
Time Warner, and private companies. In the third quarter of 2006, the Company
sold 2.8 million shares of Time Warner common stock unrelated to the PHONES for
net proceeds of $46 million and recorded a pretax gain on sale of $19 million.
The cost basis of the Time Warner shares sold was determined using the specific
identification method. The investment in Time Warner at Dec. 31, 2006
consisted of 16.3 million shares, mostly related to the PHONES (see
Notes 1 and 9).
The
Companys equity method investments at Dec. 31, 2006 included the
following private companies:
Company
|
|
|
|
% Owned
|
|
CareerBuilder,
LLC
|
|
|
43
|
%
|
|
California
Independent Postal Systems
|
|
|
50
|
%
|
|
Classified
Ventures, LLC
|
|
|
28
|
%
|
|
Comcast SportsNet
Chicago
|
|
|
25
|
%
|
|
Consumer Networks
|
|
|
17
|
%
|
|
ShopLocal, LLC
|
|
|
43
|
%
|
|
Legacy.com
|
|
|
40
|
%
|
|
TMCT, LLC(1)
|
|
|
5
|
%
|
|
TMCT II,
LLC(1)
|
|
|
5
|
%
|
|
Topix, LLC
|
|
|
34
|
%
|
|
TV Food Network
|
|
|
31
|
%
|
|
(1) See Note 7 for further discussion.
The Company does not guarantee any indebtedness for
any of its investees. In the third quarter of 2006, the Company recorded a
one-time gain of $48 million, net of tax, as a result of transactions related
to its investments in TMCT, LLC and TMCT II, LLC (see Note 7). In the fourth
quarter of 2006, the Company sold its 27% interest in BrassRing, resulting in a
pretax gain of $17 million. During 2005, the Company sold certain investments
resulting in a pretax gain of $7 million. During 2004, the Company sold
its 50% interest in La Opinion for $20 million and recorded a pretax gain of
$18 million.
98
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For investments
classified as available-for-sale and recorded at fair value under FAS No. 115,
the aggregate cost basis, unrealized gain and fair value were as follows (in
thousands):
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
|
|
Cost
Basis
|
|
Unrealized
Gain
|
|
Fair
Value
|
|
Cost
Basis
|
|
Unrealized
Gain
|
|
Fair
Value
|
|
Marketable equity
securities
|
|
$
|
2,335
|
|
|
$
|
11,562
|
|
|
$
|
13,897
|
|
$
|
27,521
|
|
|
$
|
26,964
|
|
|
$
|
54,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between
cost and fair value, net of related tax effects, is recorded in the accumulated
other comprehensive income (loss) component of shareholders equity and
amounted to a net gain of $7 million at Dec. 31, 2006 and
$16 million at Dec. 25, 2005. The cost bases of the investments in
the tables above are net of write-downs recorded in the consolidated
statements of income.
NOTE 9: DEBT
Debt
consisted of the following (in thousands):
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Borrowings under
bridge credit facility due 2007, interest rate of 6.2%
|
|
$
|
1,310,000
|
|
$
|
|
|
Term loan due
2011, interest rate of 6.2%
|
|
1,500,000
|
|
|
|
Commercial paper,
weighted average interest rate of 5.9% in 2006 and 4.4% in 2005
|
|
97,019
|
|
923,532
|
|
Medium-term
notes, weighted average interest rate of 5.6% in 2006 and 6.2% in 2005, due
2006-2008
|
|
262,585
|
|
555,585
|
|
Property
financing obligation, effective interest rate of 7.7%, expiring 2009 (see
Note 7)
|
|
55,711
|
|
60,372
|
|
4.875% notes due
2010, net of unamortized discount of $564 and $718, respectively
|
|
449,436
|
|
449,282
|
|
7.25% debentures
due 2013, net of unamortized discount of $2,137 and $2,478, respectively
|
|
79,946
|
|
79,605
|
|
5.25% notes due
2015, net of unamortized discount of $1,362 and $1,519, respectively
|
|
328,638
|
|
328,481
|
|
7.5% debentures
due 2023, net of unamortized discount of $3,969 and $4,204, respectively
|
|
94,781
|
|
94,546
|
|
6.61% debentures
due 2027, net of unamortized discount of $2,200 and $2,305, respectively
|
|
82,760
|
|
82,655
|
|
7.25% debentures
due 2096, net of unamortized discount of $18,116 and $18,304, respectively
|
|
129,884
|
|
129,696
|
|
Interest rate
swap
|
|
24,600
|
|
29,714
|
|
Other notes and
obligations
|
|
16,898
|
|
18,553
|
|
Total debt
excluding PHONES
|
|
4,432,258
|
|
2,752,021
|
|
Less debt due
within one year
|
|
(1,429,007
|
)
|
(302,460
|
)
|
Long-term
debt excluding PHONES
|
|
3,003,251
|
|
2,449,561
|
|
2% PHONES debt
related to Time Warner stock, due 2029
|
|
572,960
|
|
509,701
|
|
Total long-term
debt
|
|
$
|
3,576,211
|
|
$
|
2,959,262
|
|
Credit
AgreementsOn June 19, 2006, the Company
entered into a five-year credit agreement and a 364-day bridge credit
agreement, both of which were amended and restated on June 27, 2006. The
five-
99
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
year credit agreement
provides for a $1.5 billion unsecured term facility, of which $250 million was
available and used to refinance the medium-term notes that matured on Nov. 1,
2006, and a $750 million unsecured revolving facility. The 364-day bridge
credit agreement provided for a $2.15 billion unsecured bridge facility.
The Company entered into these agreements to finance
the Companys tender offer initiated on May 30, 2006 (see Note 15); to
repurchase shares of the Companys common stock from the Robert R. McCormick
Tribune Foundation and Cantigny Foundation (see Note 15); to repurchase shares
of the Companys common stock pursuant to open market or privately negotiated
transactions; to refinance certain indebtedness; and to pay fees and expenses
incurred in connection with the repurchases. In addition, the revolving
facility is available for working capital and general corporate purposes,
including acquisitions.
In general, borrowings under the credit agreements
bear interest at a rate equal to LIBOR plus a spread ranging from 0.35% to
1.25%. The applicable spread is determined on the basis of the Companys debt
ratings by S&P and Moodys. The Companys debt ratings are also used in
determining the annual facility fee, which may range from 0.07% to 0.25% of the
aggregate unused commitments. In addition, the Company has agreed to pay
customary fees to the lenders under the credit agreements.
As of Dec 31, 2006, the Company had outstanding
borrowings of $1.5 billion and $1.3 billion under the term facility and the
bridge facility, respectively, and the Company had no borrowings under the
revolving facility. As of Dec. 31, 2006, the applicable interest rate on
both the term facility and the bridge facility was 6.2%. The credit agreements
contain certain restrictive covenants, including financial covenants that
require the Company to maintain a maximum total leverage ratio and a minimum
interest coverage ratio. At Dec. 31, 2006, the Company was in compliance
with the covenants.
Other
Long-Term Debt IssuanceIn 2005, the Company issued
$450 million ($449 million net of unamortized discount) 4.875% notes
due 2010 and $330 million ($328 million net of unamortized discount)
5.25% notes due 2015. The proceeds from the issuance were used to repay
commercial paper.
Medium-Term
NotesNotes issued under these programs may
not be redeemed by the Company prior to maturity.
Interest
Rate SwapThe Company is currently a party
to one interest rate swap agreement. This swap agreement relates to the
$100 million 7.5% debentures due in 2023 and effectively converts the
fixed 7.5% rate to a variable rate based on LIBOR.
Debt
Due Within One YearDebt due within one year at Dec. 31,
2006 includes $1.31 billion of borrowings under the 364-day bridge
credit agreement, $97 million of commercial paper and $22 million of
property financing and other obligations.
Exchangeable
Subordinated Debentures due 2029 (PHONES)In 1999, the Company
issued 8 million PHONES for an aggregate principal amount of approximately
$1.3 billion. The principal amount was equal to the value of
16 million shares of Time Warner common stock at the closing price of
$78.50 per share on April 7, 1999. Quarterly interest payments are made to
the PHONES holders at an annual rate of 2% of the initial principal. The
Company records both cash and non-cash interest expense on the discounted debt
component of the PHONES. The PHONES debenture agreement requires principal
payments equal to any dividends declared on the 16 million shares of Time
Warner common stock. Time Warner declared total dividends of $.21 per share in
2006 and $.10 per share in 2005. The Company
100
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
records the dividends it
receives on its Time Warner common stock as dividend income and accounts for
the related payment to the PHONES holders as principal reduction.
The Company may redeem the PHONES at any time for the
higher of the principal value of the PHONES ($156.47 per PHONES at Dec. 31,
2006) or the then market value of two shares of Time Warner common stock,
subject to certain adjustments. At any time, holders of the PHONES may exchange
a PHONES for an amount of cash equal to 95% (or 100% under certain
circumstances) of the market value of two shares of Time Warner common stock.
At Dec. 31, 2006, the market value per PHONES was $68.65, and the market
value of two shares of Time Warner common stock was $43.56.
Under the provisions of FAS No. 133, the PHONES
consist of a discounted debt component, which is presented at book value, and a
derivative component, which is presented at fair value. Changes in the fair
value of the derivative component of the PHONES are recorded in the statement
of income. The fair value of the derivative component of the PHONES debt is
calculated as the difference between the quoted market value of the PHONES and
the estimated fair value of the discounted debt component of the PHONES. The
fair value of the discounted debt component of the PHONES is calculated based
on an estimate of the current interest rate available to the Company for debt
of the same remaining maturity and similar terms to the PHONES. The book value
of the discounted debt component is based on the prevailing interest rate
(8.125%) at issuance of the PHONES. The market value of the PHONES, which are
traded on the New York Stock Exchange, was $549 million and
$592 million at Dec. 31, 2006 and Dec. 25, 2005, respectively.
The
discounted debt component and derivative component of the PHONES were as
follows (in thousands):
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
PHONES Debt:
|
|
|
|
|
|
|
|
|
|
Discounted debt component (at book value)
|
|
|
$
|
465,280
|
|
|
|
$
|
454,038
|
|
|
Derivative component (at estimated fair value)
|
|
|
107,680
|
|
|
|
55,663
|
|
|
Total
|
|
|
$
|
572,960
|
|
|
|
$
|
509,701
|
|
|
Time Warner stock
related to PHONES (at fair value)
|
|
|
$
|
348,480
|
|
|
|
$
|
282,880
|
|
|
If the PHONES are exchanged in the next year, the
Company intends to refinance the PHONES, and has the ability to do so on a
long-term basis through its existing revolving credit agreements. Accordingly,
the PHONES have been classified as long-term.
MaturitiesDebt at Dec. 31,
2006 matures as shown below (in thousands):
2007
|
|
$
|
1,429,007
|
|
2008
|
|
287,023
|
|
2009
|
|
15,851
|
|
2010
|
|
451,246
|
|
2011
|
|
1,832,963
|
|
Thereafter
|
|
989,128
|
|
Total
|
|
$
|
5,005,218
|
|
101
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10: CONTRACTS
PAYABLE FOR BROADCAST RIGHTS
Contracts
payable for broadcast rights are classified as current or long-term liabilities
in accordance with the payment terms of the contracts. Required payments under
contractual agreements for broadcast rights recorded at Dec. 31, 2006 are
shown in the table below (in thousands):
2007
|
|
$
|
317,945
|
|
2008
|
|
163,374
|
|
2009
|
|
123,766
|
|
2010
|
|
73,052
|
|
2011
|
|
40,984
|
|
Thereafter
|
|
24,751
|
|
Total
|
|
$
|
743,872
|
|
NOTE 11: FAIR VALUE
OF FINANCIAL INSTRUMENTS
Estimated
fair values and carrying amounts of the Companys financial instruments are as
follows (in thousands):
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Cost method
investments
|
|
$
|
365,445
|
|
$
|
362,630
|
|
$
|
348,791
|
|
$
|
342,235
|
|
Debt
|
|
$
|
4,904,390
|
|
$
|
5,005,218
|
|
$
|
3,369,007
|
|
$
|
3,261,722
|
|
Contracts payable for
broadcast rights
|
|
$
|
696,363
|
|
$
|
743,872
|
|
$
|
796,278
|
|
$
|
858,808
|
|
The following methods and assumptions were used to
estimate the fair value of each category of financial instruments.
Cost
Method InvestmentsCost method investments in public
companies were recorded at fair value in the consolidated balance sheets (see
Notes 1 and 8). Cost method investments in private companies were recorded
at cost, net of write-downs, and fair value was generally estimated based
on prices recently paid for shares in those companies.
DebtFair value was
estimated based on quoted market prices for similar issues or on current rates
available to the Company for debt of the same remaining maturities and similar
terms. The carrying value of the Companys derivative instruments approximates
fair value. The fair value of the PHONES was determined by reference to the
market value resulting from trading on a national securities exchange.
Contracts Payable for
Broadcast RightsFair value was estimated using the
discounted cash flow method.
NOTE 12:
COMMITMENTS AND CONTINGENCIES
The Company has entered into commitments for broadcast
rights that are not currently available for broadcast and are therefore not
included in the financial statements. These commitments totaled
$682 million at Dec. 31, 2006. Payments for broadcast rights
generally commence when the programs become available for broadcast.
The
Company had commitments totaling $536 million at Dec. 31, 2006
related to the purchase of property, plant and equipment and talent contracts.
In addition, under its current agreement with Abitibi
102
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Consolidated Inc., the Company has a commitment
to purchase 369,000 metric tons of newsprint each year over the next three
years based on market prices at the time of purchase. The Company leases
certain equipment and office and production space under various operating
leases. Net lease expense from continuing operations was $56 million in
2006, $57 million in 2005 and $55 million in 2004. The table below
presents the future minimum lease payments to be made under non-cancelable
operating leases at Dec. 31, 2006 (in thousands):
2007
|
|
$
|
62,149
|
|
2008
|
|
55,835
|
|
2009
|
|
47,350
|
|
2010
|
|
34,370
|
|
2011
|
|
23,844
|
|
Thereafter
|
|
45,878
|
|
Total
|
|
$
|
269,426
|
|
The Company and its
subsidiaries are defendants from time to time in actions for matters arising
out of their business operations. In addition, the Company and its subsidiaries
are involved from time to time as parties in various regulatory, environmental
and other proceedings with governmental authorities and administrative agencies.
See Note 4 for a discussion of potential liability related to Newsday and Hoy, New York, and see Note 13 for a discussion of
potential income tax liabilities. The Company does not believe that any other
matters or proceedings presently pending will have a material adverse effect on
its consolidated financial position, results of operations or liquidity.
NOTE 13: INCOME
TAXES
The
following is a reconciliation of income taxes computed at the U.S. federal
statutory rate to income taxes reported for continuing operations in the
consolidated statements of income (in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Income from
continuing operations before income taxes and cumulative effect of change in
accounting principle
|
|
$
|
1,008,995
|
|
$
|
1,090,609
|
|
$
|
910,100
|
|
Federal income
taxes at 35%
|
|
$
|
353,148
|
|
$
|
381,713
|
|
$
|
318,535
|
|
State and local
income taxes, net of federal tax benefit
|
|
30,581
|
|
37,881
|
|
31,549
|
|
Matthew
Bender/Mosby adjustment
|
|
|
|
150,493
|
|
|
|
Income tax
settlements and adjustments
|
|
(33,563
|
)
|
(11,829
|
)
|
|
|
Other
|
|
(2,024
|
)
|
9,562
|
|
5,640
|
|
Income taxes
reported
|
|
$
|
348,142
|
|
$
|
567,820
|
|
$
|
355,724
|
|
Effective tax rate
|
|
34.5
|
%
|
52.1
|
%
|
39.1
|
%
|
In 2006, the Company recorded a favorable $34 million
income tax expense adjustment, most of which related to the Companys PHONES as
a result of reaching an agreement with the Internal Revenue Service appeals
office pertaining to the deduction of interest expense on the PHONES (see PHONES
Interest discussion below). In 2005, the Company increased its income tax
expense by $150 million as a result of the Matthew Bender Tax Court
decision (see Matthew Bender and Mosby Tax Liability discussion below) and
reduced its income tax expense by $12 million as a result of resolving
certain federal income tax issues.
103
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Components
of income tax expense charged to income from continuing operations were as
follows (in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Currently
payable:
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
287,455
|
|
$
|
436,362
|
|
$
|
273,770
|
|
State and local
|
|
43,907
|
|
44,710
|
|
42,289
|
|
Sub-total
|
|
331,362
|
|
481,072
|
|
316,059
|
|
Deferred:
|
|
|
|
|
|
|
|
U.S. federal
|
|
13,639
|
|
72,716
|
|
32,767
|
|
State and local
|
|
3,141
|
|
14,032
|
|
6,898
|
|
Sub-total
|
|
16,780
|
|
86,748
|
|
39,665
|
|
Total
|
|
$
|
348,142
|
|
$
|
567,820
|
|
$
|
355,724
|
|
Significant
components of the Companys net deferred tax liabilities were as follows (in
thousands):
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Net properties
|
|
$
|
214,770
|
|
$
|
239,821
|
|
Net intangible
assets
|
|
1,209,999
|
|
1,252,851
|
|
Pensions
|
|
74,891
|
|
316,467
|
|
Investments
|
|
406,409
|
|
417,214
|
|
PHONES interest
|
|
219,552
|
|
267,885
|
|
Other future
taxable items
|
|
18,325
|
|
25,880
|
|
Total deferred
tax liabilities
|
|
2,143,946
|
|
2,520,118
|
|
Broadcast rights
|
|
(5,262
|
)
|
(4,968
|
)
|
Postretirement
and postemployment benefits other than pensions
|
|
(54,990
|
)
|
(64,579
|
)
|
Deferred compensation
|
|
(84,288
|
)
|
(76,901
|
)
|
Other accrued
liabilities
|
|
(55,270
|
)
|
(89,642
|
)
|
Accrued employee
compensation and benefits
|
|
(7,462
|
)
|
(9,731
|
)
|
Accounts
receivable
|
|
(13,211
|
)
|
(15,834
|
)
|
Other future
deductible items
|
|
(18,327
|
)
|
(15,639
|
)
|
State operating
loss carryforwards
|
|
(42,371
|
)
|
(34,391
|
)
|
Valuation
allowances on state operating loss carryforwards
|
|
37,457
|
|
29,926
|
|
Total deferred
tax assets
|
|
(243,724
|
)
|
(281,759
|
)
|
Net deferred tax
liability
|
|
$
|
1,900,222
|
|
$
|
2,238,359
|
|
Operating
Loss CarryforwardsAt Dec. 31, 2006, the Company
had approximately $823 million of operating loss carryforwards for state
income tax purposes. These carryforwards arose in certain states primarily as a
result of intercompany interest expense, royalty expense and management fees
allocated to the Companys various subsidiaries, and expire between 2007 and
2026. The deferred tax assets related to these carryforwards totaled
approximately $42 million, net of federal taxes, at Dec. 31, 2006.
However, the Company believes it is more likely than not that $37 million
of the deferred tax assets will not be realized because the related
carryforwards will expire before being utilized. Therefore, in accordance with
FAS No. 109, Accounting for Income Taxes, the Company has established
valuation allowances of $37 million
104
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
on the deferred tax assets
related to the state carryforwards. The state operating loss carryforwards
increased in 2006 because the Company generated additional tax losses in
certain states.
Matthew
Bender and Mosby Tax LiabilityDuring 1998, Times
Mirror, which was acquired by the Company in 2000, disposed of its Matthew
Bender and Mosby subsidiaries in separate transactions, which were structured
to qualify as tax-free reorganizations under the Internal Revenue Code. The
Company believes these transactions were completed on a tax-free basis.
However, the Internal Revenue Service (IRS) audited the transactions and
disagreed with the position taken by Times Mirror. In the fourth quarter of
2001, the Company received an IRS adjustment to increase Times Mirrors 1998
taxable income by approximately $1.6 billion. The Company filed a petition
in the United States Tax Court in November 2002 to contest the IRS
position, and in December 2004, the Company presented its position in Tax
Court.
On Sept. 27, 2005, the Tax Court issued an
opinion contrary to the Companys position and determined that the Matthew
Bender transaction was a taxable sale. In January 2006, the Tax Court
extended its opinion in the Matthew Bender case to the Mosby transaction given
the similarity of the two transactions. Taxes and related interest for both the
Matthew Bender and Mosby transactions totaled approximately $1 billion.
Over time, deductions for state taxes and interest are expected to reduce the
net cash outlay to approximately $840 million.
The Company has appealed the Tax Court ruling to the
United States Court of Appeals for the Seventh Circuit. The Company does not
expect a ruling before the second half of 2007. The Company cannot predict with
certainty the outcome of this appeal.
Times Mirror established a tax reserve of
$180 million in 1998 when it entered into the transactions. The reserve
represented Times Mirrors best estimate of the amount the expected IRS and
state income tax claims could be settled for based upon an analysis of the
facts and circumstances surrounding the issue. In accordance with Emerging
Issues Task Force (EITF) Issue No. 93-7, Uncertainties Related to
Income Taxes in a Purchase Business Combination, the Company treated this item
as an uncertain tax position at the time of the Times Mirror acquisition in
2000 and concluded that the estimate determined by Times Mirror was the most
appropriate estimate of the exposure. The Company maintained this initial
reserve, plus interest, and evaluated the adequacy of the reserve on a periodic
basis. At Dec. 26, 2004, the reserve, including pretax interest of $66
million, totaled $246 million ($221 million after considering the tax benefit
of the interest). In 2005, prior to the Tax Court ruling, the Company recorded
additional after-tax interest of $7 million on the reserve.
As a result of the Tax Court ruling, the Company
increased its tax reserve by an additional $609 million in the third
quarter of 2005 by recording additional income tax expense of
$150 million, representing additional after-tax interest applicable to the
post-acquisition period, and goodwill of $459 million. In accordance with
EITF No. 93-7, the Company adjusted goodwill because the tax
contingencies existed at the time of the Times Mirror acquisition. On
Sept. 30, 2005, the Company paid $880 million to the IRS,
representing the federal tax and interest owed on the transactions, and
financed the payment through the issuance of commercial paper. On Feb. 10,
2006, the Company made a California state tax and interest payment of
approximately $86 million ($55 million after considering the federal tax
benefit of the state taxes and interest). The Company expects to make the
remaining state tax and interest payments during 2007 and 2008.
105
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A
summary of the activity with respect to the Matthew Bender and Mosby tax
liability is as follows (in millions):
Liability at
Dec. 26, 2004:
|
|
|
|
Tax
|
|
$
|
180
|
|
After-tax interest ($66 million pretax)
|
|
41
|
|
Liability at
Dec. 26, 2004 (included in other obligations)
|
|
221
|
|
After-tax interest recorded in income tax
expense in the first three quarters of 2005 ($11 million pretax)
|
|
7
|
|
Additional
reserve recorded as a result of the Tax Court ruling:
|
|
|
|
Charged to income tax expense
|
|
150
|
|
Additional goodwill
|
|
459
|
|
Liability at
Sept. 25, 2005
|
|
837
|
|
Federal tax and
interest paid on Sept. 30, 2005:
|
|
|
|
Federal tax
|
|
(542
|
)
|
After-tax interest ($338 million pretax)
|
|
(210
|
)
|
After-tax interest recorded in income tax
expense in the fourth quarter of 2005 ($3 million pretax)
|
|
2
|
|
Liability at
Dec. 25, 2005
|
|
87
|
|
After-tax interest ($4 million pretax)
|
|
3
|
|
California tax
and interest paid in February 2006:
|
|
|
|
State tax ($55 million pretax)
|
|
(36
|
)
|
After-tax interest ($31 million pretax)
|
|
(19
|
)
|
Liability at
Dec. 31, 2006 (included in other current liabilities)
|
|
$
|
35
|
|
PHONES
InterestIn connection with the routine
examination of the Companys federal income tax returns for 2000 through 2003,
the IRS proposed that the Company capitalize the interest on the PHONES as
additional tax basis in the Companys 16 million shares of Time Warner
common stock, rather than allowing the Company to currently deduct such
interest. The National Office of the IRS has issued a Technical Advice Memorandum
that supports the proposed treatment. The Company disagrees with the IRSs
position and requested that the IRS administrative appeals office review the
issue. The effect of the treatment proposed by the IRS would be to increase the
Companys tax liability by approximately $189 million for the period 2000
through 2003 and by approximately $177 million for the period 2004 through
2006. If the IRS were to prevail in its proposed treatment, there would be no
effect on the Companys reported income for any of these periods. The potential
tax payments would be recorded as a reduction in the Companys deferred tax
liability, and the Company has accrued the interest that would be assessed on
these potential payments.
During the fourth quarter of 2006, the Company reached
an agreement with the IRS appeals office regarding the deductibility of the
PHONES interest expense. The agreement will apply for the tax years 2000
through 2029. Under the terms of the agreement reached with the IRS appeals
office, the Company paid approximately $81 million of tax plus interest for tax
years 2000 through 2005. The tax payments were recorded as a reduction in the
Companys deferred tax liability, and the interest was recorded as a reduction
in the Companys income tax reserves. The agreement reached with the appeals
office may be reviewed by the Joint Committee on Taxation.
106
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income
Tax ReservesThe Companys liability for
estimated federal and state audit adjustments, including after-tax interest,
was approximately $84 million and $96 million at Dec. 31, 2006
and Dec. 25, 2005, respectively. These amounts are included in other
obligations in the Companys consolidated balance sheet. The liability
declined in 2006 due to the settlement of certain federal and state income tax
audits and the PHONES agreement with the IRS appeals office, partially offset
by an increase to the liability related to the TMCT transactions discussed in
Note 7.
Although management
believes its estimates and judgments are reasonable, the resolutions of the Companys
tax issues are unpredictable and could result in tax liabilities that are
significantly higher or lower than that which has been provided by the Company.
NOTE 14: PENSION
AND OTHER POSTRETIREMENT BENEFITS
Employee
Pension PlansIn connection with the
establishment of the Tribune Company ESOP in 1988, Tribune amended its company-sponsored
pension plan for employees not covered by a collective bargaining agreement.
The Tribune Company pension plan continued to provide substantially the same
pension benefits as under the pre-amended plan until December 1998. After
that date, Tribune pension benefit credits were frozen in terms of pay and
service.
In connection with the Times Mirror acquisition, the
Company assumed defined benefit pension plans and various other contributory
and non-contributory retirement plans covering substantially all of Times
Mirrors former employees. In general, benefits under the Times Mirror defined
benefit plans were based on years of service and the employees compensation during
the last five years of employment. In December 2005, the pension plan
benefits for former Times Mirror non-union and non-Newsday employees were
frozen. As a result of the plan freeze, a pretax curtailment gain of
$18 million was recorded in 2005. On March 31, 2006, the pension plan
benefits for Newsday union and non-union employees were frozen. Benefits
provided by Times Mirrors Employee Stock Ownership Plan (Times Mirror ESOP)
are coordinated with certain pension benefits and, as a result, the defined
benefit plan obligations are net of the actuarially equivalent value of the
benefits earned under the Times Mirror ESOP. The maximum offset is equal to the
value of the benefits earned under the defined benefit plan.
The Company also maintains several small plans for
other employees. The Companys portion of assets and liabilities for multi-employer
union pension plans is not determinable.
Postretirement
Benefits Other Than PensionsThe Company provides
postretirement health care and life insurance benefits to eligible employees
under a variety of plans. The various plans have significantly different
provisions for lifetime maximums, retiree cost-sharing, health care providers,
prescription drug coverage and other benefits.
Obligations
and Funded StatusAs discussed in Note 1, the Company adopted FAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132(R), as of Dec. 31, 2006. FAS No. 158
requires the Company to recognize the overfunded or underfunded status
of its defined benefit pension and other postretirement plans as an asset or
liability in its statement of financial position and to recognize changes in
that funded status in the year in which changes occur through comprehensive
income. See Note 1 for a summary of the impact the adoption of FAS 158 had on
the Companys consolidated balance sheet as of Dec. 31, 2006. Prior to Dec. 31,
2006, the Company accounted for its defined benefit pension plans under FAS No. 87,
Employers Accounting for Pensions and accounted for its other postretirement
benefit plans under FAS No. 106, Employers Accounting for Postretirement
Benefits Other Than Pensions.
107
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized
information for the Companys defined benefit pension and other postretirement
plans is provided below (in thousands):
|
|
Pension Plans
|
|
Other Postretirement
Plans
|
|
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Change in benefit
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit
obligations, beginning of year
|
|
$
|
1,599,129
|
|
$
|
1,461,180
|
|
|
$
|
140,465
|
|
|
|
$
|
191,540
|
|
|
Service cost
|
|
3,934
|
|
25,160
|
|
|
1,335
|
|
|
|
1,469
|
|
|
Interest cost
|
|
84,349
|
|
81,436
|
|
|
7,367
|
|
|
|
7,774
|
|
|
Plan amendments
|
|
|
|
|
|
|
|
|
|
|
97
|
|
|
Curtailment gain
|
|
|
|
(44,566
|
)
|
|
|
|
|
|
|
|
|
Special
termination benefits
|
|
1,382
|
|
1,434
|
|
|
|
|
|
|
|
|
|
Impact of
Medicare Reform Act
|
|
|
|
|
|
|
1,200
|
|
|
|
|
|
|
Actuarial (gain)
loss
|
|
(57,317
|
)
|
156,385
|
|
|
3,471
|
|
|
|
(45,095
|
)
|
|
Benefits paid
|
|
(84,566
|
)
|
(81,900
|
)
|
|
(14,006
|
)
|
|
|
(15,320
|
)
|
|
Projected benefit
obligations, end of year
|
|
1,546,911
|
|
1,599,129
|
|
|
139,832
|
|
|
|
140,465
|
|
|
Change in plans assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
plans assets, beginning of year
|
|
1,598,398
|
|
1,559,351
|
|
|
|
|
|
|
|
|
|
Actual return on
plans assets
|
|
243,209
|
|
113,769
|
|
|
|
|
|
|
|
|
|
Employer
contributions
|
|
7,429
|
|
7,178
|
|
|
14,006
|
|
|
|
15,320
|
|
|
Benefits paid
|
|
(84,566
|
)
|
(81,900
|
)
|
|
(14,006
|
)
|
|
|
(15,320
|
)
|
|
Fair value of
plans assets, end of year
|
|
1,764,470
|
|
1,598,398
|
|
|
|
|
|
|
|
|
|
Funded (under
funded) status of the plans
|
|
$
|
217,559
|
|
(731
|
)
|
|
$
|
(139,832
|
)
|
|
|
(140,465
|
)
|
|
Unrecognized net
actuarial loss (gain)
|
|
|
|
869,596
|
|
|
|
|
|
|
(12,659
|
)
|
|
Unrecognized
prior service cost
|
|
|
|
2,518
|
|
|
|
|
|
|
(11,213
|
)
|
|
Unrecognized
transition asset
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Prepaid (accrued)
benefit cost
|
|
|
|
$
|
871,382
|
|
|
|
|
|
|
$
|
(164,337
|
)
|
|
Amounts
recognized in the statement of financial position at Dec. 31, 2006
consisted of (in thousands):
|
|
Pension Plans
|
|
Other Postretirement
Plans
|
|
Prepaid pension
costs
|
|
|
$
|
293,455
|
|
|
|
$
|
|
|
|
Employee
compensation and benefits
|
|
|
(6,163
|
)
|
|
|
|
|
|
Deferred
compensation and benefits
|
|
|
(69,733
|
)
|
|
|
(139,832
|
)
|
|
Net amount recognized
|
|
|
$
|
217,559
|
|
|
|
$
|
(139,832
|
)
|
|
108
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amounts
included in prepaid (accrued) benefit costs at Dec. 25, 2005 consisted of
(in thousands):
|
|
Pension Plans
|
|
Other Postretirement
Plans
|
|
Prepaid benefit
costs
|
|
|
$
|
908,895
|
|
|
|
$
|
|
|
|
Accrued benefit
costs
|
|
|
(83,759
|
)
|
|
|
(164,337
|
)
|
|
Intangible asset
|
|
|
507
|
|
|
|
|
|
|
Accumulated other
comprehensive income (loss)
|
|
|
45,739
|
|
|
|
|
|
|
Net amount recognized
|
|
|
$
|
871,382
|
|
|
|
$
|
(164,337
|
)
|
|
The accumulated benefit obligation, which excludes the
impact of future compensation increases, for all defined benefit pension plans
was $1,543 million and $1,566 million at Dec. 31, 2006 and Dec. 25,
2005, respectively. The projected benefit obligation at Dec. 31, 2006
includes $1,473 million related to the Companys qualified pension plans
and $74 million related to its non-qualified plans. The Companys
non-qualified plans are not funded.
The
components of net periodic benefit cost for Company-sponsored plans were
as follows (in thousands):
|
|
Pension Plans
|
|
Other Postretirement Plans
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
Service cost
|
|
$
|
3,934
|
|
$
|
25,160
|
|
$
|
21,177
|
|
$
|
1,335
|
|
$
|
1,469
|
|
$
|
1,752
|
|
Interest cost
|
|
84,349
|
|
81,436
|
|
80,474
|
|
7,367
|
|
7,774
|
|
10,323
|
|
Expected return
on plans assets
|
|
(128,836
|
)
|
(127,346
|
)
|
(131,118
|
)
|
|
|
|
|
|
|
Recognized
actuarial loss
|
|
67,018
|
|
59,095
|
|
44,533
|
|
(127
|
)
|
|
|
|
|
Amortization of
prior service costs
|
|
220
|
|
(1,415
|
)
|
(1,834
|
)
|
(1,444
|
)
|
(1,444
|
)
|
(1,314
|
)
|
Amortization of
transition asset
|
|
(1
|
)
|
(5
|
)
|
(5
|
)
|
|
|
(439
|
)
|
|
|
Special
termination benefits(1)
|
|
1,382
|
|
1,434
|
|
1,440
|
|
|
|
|
|
|
|
Curtailment gain
|
|
|
|
(17,825
|
)
|
|
|
|
|
|
|
|
|
Net periodic benefit
cost
|
|
$
|
28,066
|
|
$
|
20,534
|
|
$
|
14,667
|
|
$
|
7,131
|
|
$
|
7,360
|
|
$
|
10,761
|
|
(1) Costs
related to position eliminations.
The
changes in minimum pension liabilities included in other comprehensive income
(loss) for Company-sponsored plans were as follows (in thousands):
|
|
Pension Plans
|
|
Other Postretirement
Plans
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
Change in minimum
pension liabilities included in other comprehensive income, net of tax
|
|
$
|
18,987
|
|
$
|
(20,597
|
)
|
$
|
(1,700
|
)
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amounts
recognized in the accumulated other comprehensive income (loss) component of
shareholders equity for Company-sponsored plans as a result of the
adoption of FAS No. 158 as of Dec. 31, 2006 were as follows (in
thousands):
|
|
Pension Plans
|
|
Other
Postretirement
Plans
|
|
Total
|
|
Unrecognized net
actuarial gains (losses), net of tax
|
|
|
$
|
(384,859
|
)
|
|
|
$
|
5,527
|
|
|
$
|
(379,332
|
)
|
Unrecognized prior
service costs, net of tax
|
|
|
(1,400
|
)
|
|
|
5,959
|
|
|
4,559
|
|
Total
|
|
|
$
|
(386,259
|
)
|
|
|
$
|
11,486
|
|
|
$
|
(374,773
|
)
|
During 2007, the Company expects to recognize as part
of its net periodic pension benefit cost approximately $51.3 million of net
actuarial losses and $.2 million of prior service costs that are included,
after taxes, in the accumulated other comprehensive income (loss) component of
shareholders equity at Dec. 31, 2006.
AssumptionsWeighted average
assumptions used each year in accounting for pension benefits and other
postretirement benefits were:
|
|
Pension
Plans
|
|
Other
Postretirement
Plans
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Discount rate for
expense
|
|
5.50
|
%
|
5.75
|
%
|
5.50
|
%
|
5.75
|
%
|
Discount rate for
obligations
|
|
5.75
|
%
|
5.50
|
%
|
5.75
|
%
|
5.50
|
%
|
Increase in
future salary levels for expense
|
|
3.50
|
%
|
3.50
|
%
|
|
|
|
|
Increase in
future salary levels for obligations
|
|
3.50
|
%
|
3.50
|
%
|
|
|
|
|
Long-term rate of
return on plans assets
|
|
8.50
|
%
|
8.50
|
%
|
|
|
|
|
The Company used a building block approach to
determine its current 8.5% assumption for the long-term expected rate of return
on pension plan assets. Based on historical market studies, the Companys
long-term expected returns for equity and fixed income securities approximate
10% and 6%, respectively. The Companys current 2007 target asset allocation
for pension plan assets is 75% in equity securities and 25% in fixed income
securities and other. The Company bases the rate used for discounting future
benefit obligations and calculating interest cost on an index of Aa-rated
corporate bonds. The duration of the
bonds in the index approximates the timing of future payments for the Companys
benefit obligations.
Prior to the adoption of FAS No. 158, the Companys
prepaid pension asset at Dec. 31, 2006 and Dec. 25, 2005 included an
unrecognized net actuarial loss of $631 million and $870 million,
respectively. A significant portion of this net actuarial loss resulted from
the difference between the Companys expected returns on plan assets and the
actual losses on plan assets in 2002 and 2001. Expected returns on plan assets
were $158 million and $176 million in 2002 and 2001, respectively;
actual losses were $161 million and $113 million, respectively. Upon
adoption of FAS No. 158, the Company recognized the $631 million of actuarial
losses, after taxes, in the accumulated other comprehensive income (loss)
component of shareholders equity at Dec. 31, 2006. In accordance with FAS
No. 87, the actuarial loss will be recognized in net periodic pension
expense over approximately 11 years, representing the estimated average
remaining service period of active employees expected to receive benefits, with
corresponding adjustments made to accumulated other comprehensive income (loss)
in accordance with FAS No. 158. The Companys policy is
110
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
to incorporate asset-related
gains and losses into the asset value used to calculate the expected return on
plan assets and into the calculation of amortization of unrecognized net
actuarial loss over a four-year period.
Plan AssetsThe Companys
pension plans asset allocations at Dec. 31, 2006 and Dec. 25, 2005
were as follows (in millions):
|
|
Plan Assets
|
|
Asset Category
|
|
|
|
Dec. 31, 2006
|
|
Dec. 25, 2005
|
|
Equity securities
|
|
$
|
1,344
|
|
76.2%
|
|
$
|
1,186
|
|
74.2%
|
|
Fixed income securities
|
|
334
|
|
18.9%
|
|
329
|
|
20.6%
|
|
Other
|
|
86
|
|
4.9%
|
|
83
|
|
5.2%
|
|
Total
|
|
$
|
1,764
|
|
100%
|
|
$
|
1,598
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
Care Cost Trend RatesFor purposes of measuring 2006
postretirement health care costs, a 9.0% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2006. The rate was
assumed to decrease gradually to 5.0% for 2010 and remain at that level
thereafter. For purposes of measuring health care obligations at Dec. 31,
2006, a 9.0% annual rate of increase in the per capita cost of covered health
care benefits was assumed for 2007. The rate was assumed to decrease gradually
to 5.0% for 2012 and remain at that level thereafter. On Dec. 8, 2003, the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act)
were signed into law. The Act resulted in a $15 million reduction in the
accumulated other postretirement obligations for prior service costs in 2004
and a $1 million reduction in net periodic postretirement benefit costs.
Assumed
health care cost trend rates have a significant effect on the amounts reported
for health care plans. As of the date of this report, a 1% change in assumed
health care cost trend rates would have the following effects (in thousands):
|
|
1% Increase
|
|
1% Decrease
|
|
Service cost and
interest cost
|
|
|
$
|
415
|
|
|
|
$
|
(368
|
)
|
|
Projected benefit obligation
|
|
|
$
|
7,486
|
|
|
|
$
|
(6,624
|
)
|
|
Cash
FlowsThe Company
contributed $7 million to certain of its union and non-qualified pension
plans and $14 million to its other postretirement plans in 2006. The
Company plans to contribute $8 million to certain of its union and
non-qualified pension plans and $13 million to its other postretirement
plans in 2007.
Expected Future Benefit
PaymentsThe following benefit payments,
which reflect expected future service, as appropriate, are expected to be paid
(in thousands):
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
2007
|
|
|
$
|
79,967
|
|
|
|
$
|
14,211
|
|
|
2008
|
|
|
81,579
|
|
|
|
14,233
|
|
|
2009
|
|
|
84,233
|
|
|
|
14,310
|
|
|
2010
|
|
|
87,050
|
|
|
|
14,488
|
|
|
2011
|
|
|
89,421
|
|
|
|
14,619
|
|
|
2012-2016
|
|
|
495,915
|
|
|
|
69,089
|
|
|
111
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15: CAPITAL
STOCK AND SHARE PURCHASE RIGHTS PLAN
Under the Companys Restated Certificate of Incorporation,
12 million shares of preferred stock are authorized. Preferred stock is
issuable in series under terms and conditions determined by the Companys Board
of Directors.
Series C,
D-1 and D-2 Convertible Preferred StockIn connection with the June 12, 2000 merger with Times
Mirror, outstanding shares of Times Mirror cumulative, non-voting preferred
stock were converted into shares of Tribune preferred stock with similar terms.
A total of 213,733 shares of the Companys Series C-1, D-1 and
D-2 convertible preferred stock, net of treasury stock, were issued due
to the conversion. The Series C, D-1
and D-2 convertible preferred stocks related to Times Mirror
recapitalization transactions whereby TMCT, LLC and TMCT II, LLC (see
Note 7) were formed. In connection with a restructuring of TMCT, LLC and
TMCT II, LLC, all of these preferred shares were distributed to the Company on
Sept. 22, 2006. As a result, the Company has no preferred shares outstanding
effective as of Sept. 22, 2006.
Series C convertible preferred stock was cumulative, non-voting
preferred stock, which was entitled to annual dividends of 8%, based on
liquidation value. Dividends for Series D-1 and D-2 preferred stock were
paid at the annual rate of 6.91%, 6.67% and 6.44% in 2006, 2005, and 2004,
respectively. The Series C, D-1 and D-2 preferred stocks were convertible into
the Companys common stock in 2025 and thereafter. The conversion factor was
calculated by dividing $500 plus accrued and unpaid dividends by the average
closing prices of the Companys common stock for the 20 trading days
immediately preceding the conversion date.
Common and Treasury StockAt Feb. 16,
2007, there were 3,787 holders of record. The following table summarizes the
Companys common stock repurchases during 2006 (in thousands):
|
|
Shares
|
|
Cost
|
|
Repurchases in the first
quarter
|
|
4,604
|
|
$
|
137,746
|
|
Tender offer repurchases
|
|
45,027
|
|
1,468,270
|
|
Repurchases from the
Robert R. McCormick Tribune Foundation and Cantigny Foundation
|
|
10,000
|
|
325,300
|
|
Repurchases subsequent
to the tender offer
|
|
11,053
|
|
330,952
|
|
Total common stock repurchases
|
|
70,684
|
|
$
|
2,262,268
|
|
On May 30, 2006, the Company initiated a modified
Dutch Auction tender offer to repurchase up to 53 million shares of its
common stock at a price per share not greater than $32.50 and not less than
$28.00. The tender offer closed on June 26, 2006, and the Company acquired
45 million shares of its common stock on July 5, 2006 at a price of $32.50
per share before transaction costs. The Company also acquired 10 million shares
of its common stock from the Robert R. McCormick Tribune Foundation and the
Cantigny Foundation on July 12, 2006 at a price of $32.50 per share before
transaction costs. The Robert R. McCormick Tribune Foundation and the Cantigny
Foundation are affiliated non-profit organizations, which together held 13.6%
of the Companys outstanding shares when the tender offer was launched. In connection
with the tender offer, the board of directors also authorized the repurchase of
an additional 12 million shares of the Companys common stock commencing on the
eleventh business day following the completion of the tender offer. In the
third quarter of 2006, the Company repurchased an additional 11.1 million
shares under that authorization at a weighted average cost of $29.94 per share.
In addition, the Company repurchased and retired 4.6 million shares of its
common stock in the first quarter of 2006.
112
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2005, the Company repurchased and retired
12.2 million shares of its common stock in the open market for
$440 million. During 2004, the Company repurchased and retired
15.5 million shares of its common stock in the open market for $732 million.
At Dec. 31, 2006, 60.7 million treasury shares were held by
subsidiaries of the Company.
Share Purchase Rights PlanIn December 1997,
the Company adopted a Share Purchase Rights Plan that replaced a similar
agreement. The plan provides for a dividend of one right on each outstanding
share of the Companys common stock. Each right will entitle stockholders to
buy one two-hundredth of a share of Series A Junior Participating
preferred stock at an exercise price of $125. These rights expire Jan. 5,
2008. The rights have no voting rights and are not exercisable until
10 days after the occurrence of certain triggering events, upon which the
holders of the rights are entitled to purchase either the common stock of an
acquirer or additional common stock of the Company at a discounted price. The
rights are redeemable at the option of the Company for $.005 per right. The
Company has established a series of two million shares of Series A
Junior Participating Preferred Stock in connection with the plan, none of which
have been issued.
NOTE 16: INCENTIVE
COMPENSATION AND STOCK PLANS
Defined
Contribution PlansThe Company maintains various
qualified 401(k) savings plans, which permit eligible employees to make
voluntary contributions on a pretax basis. The plans allow participants to
invest their savings in various investments including the Companys common
stock. In 2004, the Company enhanced its primary 401(k) plan to include a
larger Company contribution. This new plan was designed to replace the Companys
Employee Stock Ownership Plan that was fully allocated at the end of 2003. In
2006, the Company amended its primary 401(k) plan to make a portion of the
Companys contributions discretionary. Amounts charged to expense for all of
the Companys defined contribution plans totaled $65 million in 2006, $59 million
in 2005 and $60 million in 2004.
Employee
Stock Purchase PlanThis plan permits eligible employees to purchase the
Companys common stock at 85% of market price. The Company incurred charges of
$.2 million in 2006, 2005 and 2004 related to the administration of this
plan. During 2006, 2005 and 2004, 598,186, 682,624 and 617,651 shares,
respectively, were sold to employees under this plan. A total of
16 million shares can be purchased under this plan. As of Dec. 31,
2006, a total of 2.5 million shares remained available for sale. The
weighted average fair value of shares sold in 2006 was $30.64.
Tribune
Company Incentive Compensation PlanIn 1997, the 1992 Long-Term Incentive
Plan was replaced with the 1997 Incentive Compensation Plan, which was amended
and restated in 2004 as the Tribune Company Incentive Compensation Plan (the Incentive
Plan). At Dec. 31, 2006, there were no options outstanding under the 1992
plan. The Incentive Plan provides for the granting of awards to eligible
employees in any one or combination of stock options, performance equity
program awards and annual management incentive program bonuses. At
Dec. 31, 2006, options outstanding under the Incentive Plan totaled
35.9 million shares, of which 32.4 million shares were exercisable.
At Dec. 31, 2006, a total of 33.9 million shares were available for award
under the Incentive Plan. The stock options assumed in the Times Mirror
acquisition are fully vested and exercisable. At Dec. 31, 2006, the
converted Times Mirror stock options outstanding and exercisable totaled
6.2 million shares. Beginning in
2007, the Company intends to reissue shares from treasury stock for the exercise
of its outstanding stock options and the vesting of restricted stock units and
dividend equivalent units.
113
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the first quarter of 2006, the Company adopted FAS No. 123R,
Share-Based Payment, which superseded Accounting Principles Board (APB)
Opinion No. 25, FAS No. 123 and related interpretations. FAS No. 123R
requires the Company to expense stock-based compensation in its income
statement. Under FAS No. 123R, stock-based compensation cost is measured
at the grant date based on the estimated fair value of the award. The Company
adopted FAS No. 123R in the first quarter of 2006 using the modified
prospective application method and did not restate prior years. FAS No. 123R
requires stock-based compensation expense to be recognized over the period from
the date of grant to the date when the award is no longer contingent on the
employee providing additional service (the substantive vesting period). The Incentive
Plan provides that awards generally vest upon the death, disability or retirement
of an employee. As a result, stock-based grants issued to retirement eligible
employees are required to be expensed immediately.
Prior to the adoption of FAS No. 123R, the
Company accounted for its stock-based compensation plans in accordance with APB
No. 25 and related interpretations. Under APB No. 25, no compensation
expense was recorded because the exercise price of employee stock options
equaled the market price of the underlying stock on the date of grant. Under
the provisions of APB No. 25, the Company was not required to recognize
compensation expense for its Employee Stock Purchase Plan. See Note 1 for pro
forma stock-based compensation expense calculated under FAS No. 123 for
2005 and 2004.
The
following table summarizes the impact of the adoption of FAS 123R on the
Companys consolidated statement of income for the year ended Dec. 31,
2006 (in thousands except per share data):
Stock-based compensation
expense:
|
|
|
|
Options
|
|
$
|
8,774
|
|
Restricted stock units(1)
|
|
20,117
|
|
Employee stock purchase
plan
|
|
2,704
|
|
Total stock-based
compensation expense
|
|
31,595
|
|
Income tax benefit
|
|
(12,322
|
)
|
Total impact on net
income from continuing operations
|
|
(19,273
|
)
|
Impact on discontinued
operations, net of tax
|
|
(134
|
)
|
Total impact on net
income
|
|
$
|
(19,139
|
)
|
Impact on earnings per
share from continuing operations:
|
|
|
|
Basic
|
|
$
|
.07
|
|
Diluted
|
|
$
|
.07
|
|
(1) Expense for restricted
stock units would have been recorded under APB No. 25
Total stock-based
compensation costs included $.2 million of costs related to discontinued
operations and $.1 million of capitalized costs for a total of
$31.9 million in 2006. A deferred tax asset of $11 million was recorded
related to stock-based compensation costs during 2006.
As of Dec. 31,
2006, the Company had not yet recognized compensation cost on the following
non-vested awards (in thousands):
|
|
Non-vested
|
|
Remaining
|
|
|
|
Compensation
|
|
Recognition Period
|
|
Options
|
|
|
$
|
5,478
|
|
|
|
2.12 years
|
|
|
Restricted stock units
|
|
|
23,214
|
|
|
|
2.12 years
|
|
|
Total
|
|
|
$
|
28,692
|
|
|
|
|
|
|
114
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In
determining the fair value of compensation cost, the Company values restricted
stock unit awards at the quoted closing market price on the date of grant. The
fair value of stock option awards is determined using the Black-Scholes
option-pricing model, which incorporated the assumptions in the following table
for general and replacement awards granted during 2006, 2005 and 2004. The
risk-free rate is based on the U.S. Treasury yield curve in effect at the time
of grant. Expected volatility is based on actual historical volatility.
Expected life is based on historical experience and consideration of changes in
option terms.
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
General
Awards
|
|
Replacement
Awards
|
|
General
Awards
|
|
Replacement
Awards
|
|
General
Awards
|
|
Replacement
Awards
|
|
Risk-free interest
rate
|
|
|
4.6
|
%
|
|
|
*
|
|
|
|
3.7
|
%
|
|
|
3.3
|
%
|
|
|
3.2
|
%
|
|
|
1.7
|
%
|
|
Expected dividend yield
|
|
|
2.5
|
%
|
|
|
*
|
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
Expected stock price
volatility
|
|
|
22.0
|
%
|
|
|
*
|
|
|
|
28.1
|
%
|
|
|
22.8
|
%
|
|
|
31.1
|
%
|
|
|
25.4
|
%
|
|
Expected life (in years)
|
|
|
4
|
|
|
|
*
|
|
|
|
5
|
|
|
|
3
|
|
|
|
5
|
|
|
|
2
|
|
|
Weighted average fair value
|
|
|
$
|
5.96
|
|
|
|
*
|
|
|
|
$
|
10.49
|
|
|
|
$
|
6.96
|
|
|
|
$
|
15.45
|
|
|
|
$
|
7.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*No replacement awards were granted in 2006
Under the Incentive Plan, the exercise price of a
stock option award may not be less than the market price of the Companys
common stock at the time the stock option award is granted. Stock option awards
are exercisable not less than six months or more than 10 years after the date
the stock option award is granted. General stock option awards granted after
2003 have an 8-year term. General stock option awards granted under the
Plan prior to 2006 vest in annual 25% increments beginning one year from the
date of the grant. General stock option awards granted under the Plan in 2006
vest in annual 33% increments beginning one year from the date of the grant.
Under certain circumstances, replacement options are
granted when a participant pays the exercise price of a stock option and
related tax withholding obligations with previously acquired shares of common
stock. The number of replacement options granted is equal to the number of
shares used to pay the exercise price and related tax withholding obligations.
The exercise price of a replacement option is equal to the market price of the
underlying stock on the date of grant, and the term is equal to the remaining
term of the original option. Replacement options vest one year from the date of
grant. Beginning in 2004, general stock option awards do not have a replacement
stock option award feature.
115
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A
summary of activity and weighted average exercise prices and fair values
related to general stock option awards follows (shares in thousands):
|
|
General Options(1)
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
Shares
|
|
Weighted
Avg.
Exercise
Price
|
|
Weighted
Avg. Fair
Value
|
|
Shares
|
|
Weighted
Avg.
Exercise
Price
|
|
Weighted
Avg. Fair
Value
|
|
Shares
|
|
Weighted
Avg.
Exercise
Price
|
|
Weighted
Avg. Fair
Value
|
|
Outstanding,
beginning of year
|
|
|
34,489
|
|
|
|
$
|
38.35
|
|
|
|
$
|
15.03
|
|
|
|
32,991
|
|
|
|
$
|
37.92
|
|
|
|
$
|
15.59
|
|
|
|
34,117
|
|
|
|
$
|
35.76
|
|
|
|
$
|
15.50
|
|
|
Granted
|
|
|
1,938
|
|
|
|
31.16
|
|
|
|
5.96
|
|
|
|
3,780
|
|
|
|
40.30
|
|
|
|
10.64
|
|
|
|
4,102
|
|
|
|
51.95
|
|
|
|
15.44
|
|
|
Exercised
|
|
|
(1,101
|
)
|
|
|
21.24
|
|
|
|
20.25
|
|
|
|
(993
|
)
|
|
|
23.96
|
|
|
|
18.40
|
|
|
|
(4,667
|
)
|
|
|
33.33
|
|
|
|
15.00
|
|
|
Canceled/forfeited
|
|
|
(1,884
|
)
|
|
|
42.13
|
|
|
|
13.57
|
|
|
|
(1,289
|
)
|
|
|
43.57
|
|
|
|
13.68
|
|
|
|
(561
|
)
|
|
|
43.81
|
|
|
|
14.05
|
|
|
Outstanding, end
of year
|
|
|
33,442
|
|
|
|
38.30
|
|
|
|
14.38
|
|
|
|
34,489
|
|
|
|
38.35
|
|
|
|
15.03
|
|
|
|
32,991
|
|
|
|
37.92
|
|
|
|
15.59
|
|
|
Exercisable, end
of year(2)
|
|
|
31,469
|
|
|
|
$
|
38.75
|
|
|
|
$
|
14.93
|
|
|
|
32,993
|
|
|
|
$
|
38.28
|
|
|
|
$
|
15.08
|
|
|
|
20,610
|
|
|
|
$
|
33.13
|
|
|
|
$
|
16.35
|
|
|
(1) Includes
options assumed in the Times Mirror acquisition.
(2) In
2005, the Company accelerated the vesting of approximately nine million options
granted in 2003, 2004 and 2005 (see Note 1).
116
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of activity and
weighted average exercise prices and fair values related to replacement options
follows (shares in thousands):
|
|
Replacement Options
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
Shares
|
|
Weighted
Avg.
Exercise
Price
|
|
Weighted
Avg. Fair
Value
|
|
Shares
|
|
Weighted
Avg.
Exercise
Price
|
|
Weighted
Avg. Fair
Value
|
|
Shares
|
|
Weighted
Avg.
Exercise
Price
|
|
Weighted
Avg.Fair
Value
|
|
Outstanding, beginning of
year
|
|
|
9,520
|
|
|
|
$
|
47.79
|
|
|
|
$
|
8.06
|
|
|
|
10,845
|
|
|
|
$
|
47.79
|
|
|
|
$
|
8.11
|
|
|
|
10,420
|
|
|
|
$
|
46.08
|
|
|
|
$
|
8.27
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
41.83
|
|
|
|
6.96
|
|
|
|
2,428
|
|
|
|
51.16
|
|
|
|
7.46
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
42.20
|
|
|
|
8.43
|
|
|
|
(1,274
|
)
|
|
|
41.48
|
|
|
|
8.16
|
|
|
Canceled/forfeited
|
|
|
(2,335
|
)
|
|
|
46.83
|
|
|
|
8.13
|
|
|
|
(1,318
|
)
|
|
|
47.93
|
|
|
|
8.46
|
|
|
|
(729
|
)
|
|
|
46.48
|
|
|
|
8.14
|
|
|
Outstanding, end of year
|
|
|
7,185
|
|
|
|
48.10
|
|
|
|
8.04
|
|
|
|
9,520
|
|
|
|
47.79
|
|
|
|
8.06
|
|
|
|
10,845
|
|
|
|
47.79
|
|
|
|
8.11
|
|
|
Exercisable, end
of year
|
|
|
7,185
|
|
|
|
$
|
48.10
|
|
|
|
$
|
8.04
|
|
|
|
9,507
|
|
|
|
$
|
47.80
|
|
|
|
$
|
8.06
|
|
|
|
8,589
|
|
|
|
$
|
46.92
|
|
|
|
$
|
8.29
|
|
|
The weighted average remaining contractual term of
general and replacement stock option awards was approximately 4.1 years for all
outstanding awards and approximately 4.0 years for exercisable awards as of Dec. 31,
2006.
The total intrinsic value (the excess of the market
price over the exercise price) was approximately $49 million
for general and replacement stock option awards outstanding and exercisable as
of Dec. 31, 2006. The total intrinsic value for stock options exercised in
2006 was approximately $11 million. In addition, the Company realized
approximately $4 million of tax benefits and received approximately
$22 million from the exercise of stock options during 2006.
The following table
summarizes information about general options outstanding and general options
exercisable at Dec. 31, 2006 (shares in thousands):
|
|
General Options(1)
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
Weighted Avg.
Remaining
Life
|
|
Weighted Avg.
Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Avg.
Exercise
Price
|
|
$12.32-$24.35
|
|
|
5,968
|
|
|
|
3.9
|
|
|
|
$
|
22.60
|
|
|
|
5,968
|
|
|
|
$
|
22.60
|
|
|
$24.36-$39.93
|
|
|
6,105
|
|
|
|
4.5
|
|
|
|
$
|
34.20
|
|
|
|
4,143
|
|
|
|
$
|
35.49
|
|
|
$39.94-$40.50
|
|
|
8,420
|
|
|
|
4.4
|
|
|
|
$
|
40.36
|
|
|
|
8,420
|
|
|
|
$
|
40.36
|
|
|
$40.51-$52.50
|
|
|
12,949
|
|
|
|
5.6
|
|
|
|
$
|
46.13
|
|
|
|
12,938
|
|
|
|
$
|
46.13
|
|
|
Totals
|
|
|
33,442
|
|
|
|
4.8
|
|
|
|
$38.30
|
|
|
|
31,469
|
|
|
|
$
|
38.75
|
|
|
(1) Includes options assumed in the Times Mirror
acquisition.
117
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The
following table summarizes information about replacement options outstanding
and replacement options exercisable at Dec. 31, 2006 (shares in
thousands):
|
|
Replacement Options
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
Weighted Avg.
Remaining Life
|
|
Weighted Avg.
Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Avg.
Exercise
Price
|
|
$30.44-$42.61
|
|
|
497
|
|
|
|
1.7
|
|
|
|
$
|
41.34
|
|
|
|
497
|
|
|
|
$
|
41.34
|
|
|
$42.62-$48.70
|
|
|
3,149
|
|
|
|
2.0
|
|
|
|
$
|
45.84
|
|
|
|
3,149
|
|
|
|
$
|
45.84
|
|
|
$48.71-$60.88
|
|
|
3,539
|
|
|
|
3.1
|
|
|
|
$
|
51.06
|
|
|
|
3,539
|
|
|
|
$
|
51.06
|
|
|
Totals
|
|
|
7,185
|
|
|
|
2.5
|
|
|
|
$
|
48.10
|
|
|
|
7,185
|
|
|
|
$
|
48.10
|
|
|
The Incentive Plan also
allows the Company to grant restricted stock units. The Company did not grant
restricted stock units prior to 2006. In 2006, the Company granted restricted
stock units which vest either in annual 33% increments beginning one year from
the date of the grant, or 100% three years from the date of grant. Each
restricted stock unit represents the Companys obligation to deliver to the
holder one share of common stock upon vesting.
Holders of restricted
stock units will also receive dividend equivalent units until the restricted stock
units vest. The number of dividend equivalent units granted for each restricted
stock unit is calculated based on the value of the dividends per share paid on
Tribunes common stock and the closing price of Tribune stock on the dividend
payment date. The dividend equivalent units vest with the underlying restricted
stock units. In accordance with the provisions of FAS No. 123R, the
Company does not record compensation expense for the dividend equivalent units
granted. The dilutive effect of the dividend equivalent units is included in
the Companys calculation of diluted earnings per share.
A
summary of restricted stock unit and dividend equivalent unit activity and
weighted average fair values follows (shares in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
Shares
|
|
Weighted
Avg. Fair
Value *
|
|
Shares
|
|
Weighted
Avg. Fair
Value *
|
|
Shares
|
|
Weighted
Avg. Fair
Value *
|
|
Outstanding and
nonvested,
beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
units granted
|
|
|
1,523
|
|
|
|
$
|
31.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
equivalent units granted
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(33
|
)
|
|
|
$
|
31.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and
nonvested, end of year
|
|
|
1,524
|
|
|
|
$
|
31.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Represents weighted
average fair value of restricted stock units at date of grant or assumption.
118
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17: COMPREHENSIVE
INCOME
Comprehensive income reflects all changes in the net
assets of the Company during the period from transactions and other events and
circumstances, except those resulting from stock issuances, stock repurchases
and dividends. The Companys comprehensive income includes net income, the
change in minimum pension liabilities, unrealized gains and losses on
marketable securities classified as available-for-sale, and foreign currency
translation adjustments. Beginning in the Companys 2007 fiscal year, and as a
result of the Companys adoption of FAS No. 158 as of Dec. 31, 2006,
other comprehensive income (loss) will no longer include the change in minimum
pension liabilities, but will include changes in unrecognized benefit cost
gains and losses. The Companys comprehensive income was as follows (in
thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Net income
|
|
$
|
593,995
|
|
$
|
534,689
|
|
$
|
555,536
|
|
Change in minimum
pension liabilities, net of taxes of ($12,139), $13,168 and $1,116,
respectively
|
|
18,987
|
|
(20,597
|
)
|
(1,700
|
)
|
Unrealized gain (loss) on marketable securities:
|
|
|
|
|
|
|
|
Unrealized holding gain (loss)
arising during the period, net of taxes of $1,234, ($2,098), and $612,
respectively
|
|
1,929
|
|
(3,282
|
)
|
796
|
|
Adjustment for (gain)
loss on investment sales included in net income, net of taxes of ($7,241),
$116 and ($64), respectively
|
|
(11,325
|
)
|
(181
|
)
|
100
|
|
Unrealized gain (loss)
on marketable securities, net of taxes
|
|
(9,396
|
)
|
(3,463
|
)
|
896
|
|
Change in foreign
currency translation adjustments, net of taxes of
$117, ($45) and $75, respectively
|
|
183
|
|
(70
|
)
|
118
|
|
Other comprehensive
income (loss)
|
|
9,774
|
|
(24,130
|
)
|
(686
|
)
|
Comprehensive income
|
|
$
|
603,769
|
|
$
|
510,559
|
|
$
|
554,850
|
|
119
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated other comprehensive income (loss) is a
separate component of shareholders equity on the Companys balance sheet. A
reconciliation of the components of accumulated other comprehensive income
(loss) is as follows (in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
Minimum pension
liabilities, net of tax:
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
(27,901
|
)
|
$
|
(7,304
|
)
|
$
|
(5,604
|
)
|
Current year change prior to adoption of FAS
No. 158
|
|
18,987
|
|
(20,597
|
)
|
(1,700
|
)
|
Change due to adoption of FAS No. 158
|
|
8,914
|
|
|
|
|
|
Balance, end of year
|
|
|
|
(27,901
|
)
|
(7,304
|
)
|
Unrecognized benefit
cost gains and (losses), net of tax:
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
|
|
|
|
|
Change due to adoption of FAS No. 158
|
|
(374,773
|
)
|
|
|
|
|
Balance, end of year
|
|
(374,773
|
)
|
|
|
|
|
Unrealized gain (loss),
net of tax, on marketable securities:
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
16,447
|
|
19,910
|
|
19,014
|
|
Current year change
|
|
(9,396
|
)
|
(3,463
|
)
|
896
|
|
Balance, end of year
|
|
7,051
|
|
16,447
|
|
19,910
|
|
Foreign currency
translation adjustments, net of tax:
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
154
|
|
224
|
|
106
|
|
Current year change
|
|
183
|
|
(70
|
)
|
118
|
|
Balance, end of year
|
|
337
|
|
154
|
|
224
|
|
Accumulated other
comprehensive income (loss)
|
|
$
|
(367,385
|
)
|
$
|
(11,300
|
)
|
$
|
12,830
|
|
The adoption of FAS No. 158
resulted in a net increase in accumulated other comprehensive loss, and a
corresponding net decrease in shareholders equity, of $366 million at Dec. 31,
2006 (see Notes 1 and 14 for additional information on the impact of the
adoption of FAS No. 158).
NOTE 18: BUSINESS
SEGMENTS
Tribune Company is a media
and entertainment company that conducts its operations through two business
segments: publishing and broadcasting and entertainment. In addition, certain
administrative activities are reported and included under corporate. These
segments reflect the manner in which the Company sells its products to the
marketplace and the manner in which it manages its operations and makes
business decisions.
PublishingTribune Publishing operates 11
market-leading daily newspapers and related businesses, distributes
entertainment listings and syndicated content, operates a 24-hour cable news
channel, and manages the websites of Tribunes daily newspapers and television
stations, along with other branded sites targeting specific communities of
interest. The daily newspapers are the Los Angeles Times;
Chicago Tribune; Newsday;
serving Nassau and Suffolk counties on Long Island, New York and the
borough of Queens, New York; South Florida Sun-Sentinel;
Orlando Sentinel; The Sun;
Hartford Courant; The Morning
Call, serving Pennsylvanias Lehigh
Valley; Daily Press, serving
the Virginia Peninsula; and The Advocate
and Greenwich Time, each serving
Connecticuts Fairfield County.
120
TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Broadcasting
and EntertainmentThe Companys broadcasting
operations currently consist of The CW Network affiliates in New York, Los
Angeles, Chicago, Dallas, Washington D.C., Houston, Miami, Denver,
St. Louis, Portland, Indianapolis, San Diego, Hartford, and New Orleans;
FOX television affiliates in Seattle, Sacramento, Indianapolis, Hartford, Grand
Rapids and Harrisburg; MyNetwork affiliates in Philadelphia and Seattle; an ABC
television affiliate in New Orleans; and one radio station in Chicago. The
Companys affiliates of the CW Network and MyNetworkTV were formerly affiliates
of the WB Television Network. On Jan. 24, 2006, the Company announced that
it had reached a 10-year agreement to affiliate 16 of its former WB
Network affiliated stations with a new broadcast network, The CW Network, which
launched in the fall of 2006. The WB Network shut down at that time. In the
second quarter of 2006, the Company announced that its other three former WB
Network affiliates (Atlanta, Philadelphia and Seattle) would become affiliates
of the new broadcast network, MyNetworkTV, which was launched in September 2006
by FOX Television Stations Network Inc. and Twentieth Century Television. The
Company subsequently sold its Atlanta affiliate in August 2006 and its CW
Network affiliates in Boston and Albany in December 2006 (see Note 3 for
additional information on the sales of these stations). Entertainment
operations include Tribune Entertainment, which distributes its own programming
together with programming licensed from third parties, and the Chicago Cubs
baseball team.
No single customer
provides more than 10% of the Companys revenue. In determining operating
profit for each segment, none of the following items have been added or
deducted: interest and dividend income, interest expense, equity income and
loss, non-operating items or income taxes. Assets represent those tangible and
intangible assets used in the operations of each segment. Corporate assets
include cash and the Companys investment portfolio.
121
TRIBUNE COMPANY AND SUBSIDIARIES
BUSINESS SEGMENTS
(In thousands of dollars)
|
|
2006
|
|
2005
|
|
2004
|
|
Operating Revenues
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
4,092,562
|
|
$
|
4,096,850
|
|
$
|
4,129,850
|
|
Broadcasting and entertainment
|
|
1,425,146
|
|
1,414,433
|
|
1,501,581
|
|
Total operating revenues
|
|
$
|
5,517,708
|
|
$
|
5,511,283
|
|
$
|
5,631,431
|
|
Operating Profit (Loss)(1)
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
749,189
|
|
$
|
759,713
|
|
$
|
726,207
|
|
Broadcasting and entertainment
|
|
391,533
|
|
416,891
|
|
513,289
|
|
Corporate expenses
|
|
(55,712
|
)
|
(49,413
|
)
|
(52,218
|
)
|
Total operating profit
|
|
$
|
1,085,010
|
|
$
|
1,127,191
|
|
$
|
1,187,278
|
|
Depreciation
|
|
|
|
|
|
|
|
Publishing(2)
|
|
$
|
166,005
|
|
$
|
183,695
|
|
$
|
171,599
|
|
Broadcasting and entertainment
|
|
39,815
|
|
36,828
|
|
38,327
|
|
Corporate
|
|
1,380
|
|
1,630
|
|
1,635
|
|
Total depreciation
|
|
$
|
207,200
|
|
$
|
222,153
|
|
$
|
211,561
|
|
Amortization of Intangible
Assets
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
8,258
|
|
$
|
7,231
|
|
$
|
7,430
|
|
Broadcasting and entertainment
|
|
11,555
|
|
11,657
|
|
11,126
|
|
Total amortization of intangible assets
|
|
$
|
19,813
|
|
$
|
18,888
|
|
$
|
18,556
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
173,459
|
|
$
|
163,317
|
|
$
|
171,435
|
|
Broadcasting and entertainment
|
|
42,227
|
|
36,851
|
|
35,266
|
|
Corporate
|
|
6,221
|
|
5,777
|
|
10,647
|
|
Total capital expenditures
|
|
$
|
221,907
|
|
$
|
205,945
|
|
$
|
217,348
|
|
Assets
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
8,512,512
|
|
$
|
8,637,176
|
|
$
|
8,218,516
|
|
Broadcasting and entertainment
|
|
3,987,449
|
|
4,425,135
|
|
4,444,988
|
|
Corporate
|
|
900,811
|
|
1,483,931
|
|
1,491,928
|
|
Total assets
|
|
$
|
13,400,772
|
|
$
|
14,546,242
|
|
$
|
14,155,432
|
|
(1) Operating profit for each segment excludes
interest and dividend income, interest expense, equity income and loss, non-operating
items and income taxes.
(2) Publishing depreciation for 2005 includes
$16 million of accelerated depreciation expense related to the shut down
of the Los Angeles Times
San Fernando Valley printing facility (see Note 2).
122
TRIBUNE COMPANY AND SUBSIDIARIES
2006 QUARTERLY RESULTS (Unaudited)
(In thousands of dollars, except per share data)
|
|
Quarters
|
|
2006
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
996,529
|
|
$
|
1,028,303
|
|
$
|
956,480
|
|
$
|
1,111,250
|
|
$
|
4,092,562
|
|
Broadcasting and entertainment
|
|
284,102
|
|
392,886
|
|
392,555
|
|
355,603
|
|
1,425,146
|
|
Total operating revenues
|
|
$
|
1,280,631
|
|
$
|
1,421,189
|
|
$
|
1,349,035
|
|
$
|
1,466,853
|
|
$
|
5,517,708
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
174,222
|
|
$
|
208,657
|
|
$
|
141,232
|
|
$
|
225,078
|
|
$
|
749,189
|
|
Broadcasting and entertainment
|
|
67,451
|
|
110,396
|
|
107,800
|
|
105,886
|
|
391,533
|
|
Corporate expenses
|
|
(20,363
|
)
|
(14,020
|
)
|
(13,718
|
)
|
(7,611
|
)
|
(55,712
|
)
|
Total operating profit
|
|
221,310
|
|
305,033
|
|
235,314
|
|
323,353
|
|
1,085,010
|
|
Net income on equity investments
|
|
6,548
|
|
26,017
|
|
18,743
|
|
29,465
|
|
80,773
|
|
Interest and dividend income
|
|
2,180
|
|
2,472
|
|
4,678
|
|
4,815
|
|
14,145
|
|
Interest expense
|
|
(48,772
|
)
|
(47,279
|
)
|
(84,324
|
)
|
(93,527
|
)
|
(273,902
|
)
|
Gain (loss) on change in fair values of derivatives
and related investments(1)
|
|
(10,317
|
)
|
(6,121
|
)
|
(17,746
|
)
|
45,272
|
|
11,088
|
|
Gain on TMCT transactions(1)
|
|
|
|
|
|
59,596
|
|
|
|
59,596
|
|
Gain (loss) on sales of investments, net(1)
|
|
3,466
|
|
(161
|
)
|
17,507
|
|
15,920
|
|
36,732
|
|
Other non-operating gain (loss), net(1)
|
|
(6,846
|
)
|
(442
|
)
|
4,168
|
|
(1,327
|
)
|
(4,447
|
)
|
Income from Continuing Operations Before Income
Taxes
|
|
167,569
|
|
279,519
|
|
237,936
|
|
323,971
|
|
1,008,995
|
|
Income taxes(1)
|
|
(65,718
|
)
|
(116,385
|
)
|
(74,154
|
)
|
(91,885
|
)
|
(348,142
|
)
|
Income from Continuing Operations
|
|
101,851
|
|
163,134
|
|
163,782
|
|
232,086
|
|
660,853
|
|
Income (Loss) from Discontinued Operations, net
of tax
|
|
913
|
|
(75,300
|
)
|
558
|
|
6,971
|
|
(66,858
|
)
|
Net Income
|
|
102,764
|
|
87,834
|
|
164,340
|
|
239,057
|
|
593,995
|
|
Preferred dividends
|
|
(2,103
|
)
|
(2,103
|
)
|
(2,103
|
)
|
|
|
(6,309
|
)
|
Net Income Attributable to Common Shares
|
|
$
|
100,661
|
|
$
|
85,731
|
|
$
|
162,237
|
|
$
|
239,057
|
|
$
|
587,686
|
|
Earnings Per Share(2)
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
.33
|
|
$
|
.53
|
|
$
|
.65
|
|
$
|
.97
|
|
$
|
2.40
|
|
Discontinued Operations
|
|
|
|
(.25
|
)
|
|
|
.03
|
|
(.25
|
)
|
Net income
|
|
$
|
.33
|
|
$
|
.28
|
|
$
|
.66
|
|
$
|
1.00
|
|
$
|
2.16
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
.33
|
|
$
|
.53
|
|
$
|
.65
|
|
$
|
.96
|
|
$
|
2.39
|
|
Discontinued Operations
|
|
|
|
(.25
|
)
|
|
|
.03
|
|
(.24
|
)
|
Net income
|
|
$
|
.33
|
|
$
|
.28
|
|
$
|
.65
|
|
$
|
.99
|
|
$
|
2.14
|
|
Common Dividends Per Share
|
|
$
|
.18
|
|
$
|
.18
|
|
$
|
.18
|
|
$
|
.18
|
|
$
|
.72
|
|
Common
Stock Price (High-Low)
|
|
$
|
27.79-31.84
|
|
$
|
27.09-32.94
|
|
$
|
28.66-34.28
|
|
$
|
30.74-33.99
|
|
|
|
Notes to
Quarterly Results:
(1) See Note 2 to the consolidated financial
statements for information pertaining to non-operating items recorded in 2006
and 2005.
123
TRIBUNE COMPANY AND SUBSIDIARIES
2005 QUARTERLY RESULTS (Unaudited)
(In thousands of dollars, except per share data)
|
|
Quarters
|
|
2005
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
1,005,512
|
|
$
|
1,038,624
|
|
$
|
980,354
|
|
$
|
1,072,360
|
|
$
|
4,096,850
|
|
Broadcasting and entertainment
|
|
289,593
|
|
401,855
|
|
403,349
|
|
319,636
|
|
1,414,433
|
|
Total operating revenues
|
|
$
|
1,295,105
|
|
$
|
1,440,479
|
|
$
|
1,383,703
|
|
$
|
1,391,996
|
|
$
|
5,511,283
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
198,539
|
|
$
|
217,651
|
|
$
|
169,730
|
|
$
|
173,793
|
|
$
|
759,713
|
|
Broadcasting and entertainment
|
|
62,353
|
|
128,370
|
|
126,866
|
|
99,302
|
|
416,891
|
|
Corporate expenses
|
|
(13,448
|
)
|
(13,472
|
)
|
(13,108
|
)
|
(9,385
|
)
|
(49,413
|
)
|
Total operating profit
|
|
247,444
|
|
332,549
|
|
283,488
|
|
263,710
|
|
1,127,191
|
|
Net income on equity investments
|
|
471
|
|
11,897
|
|
8,051
|
|
20,790
|
|
41,209
|
|
Interest and dividend income
|
|
1,082
|
|
1,165
|
|
2,888
|
|
2,404
|
|
7,539
|
|
Interest expense
|
|
(35,091
|
)
|
(35,367
|
)
|
(38,617
|
)
|
(46,116
|
)
|
(155,191
|
)
|
Gain (loss) on change in fair values of derivatives
and related investments(1)
|
|
(2,253
|
)
|
61,803
|
|
27,120
|
|
(24,486
|
)
|
62,184
|
|
Gain on sales of investments, net(1)
|
|
1,109
|
|
1,299
|
|
487
|
|
3,885
|
|
6,780
|
|
Other non-operating gain (loss), net(1)
|
|
(2,700
|
)
|
3,794
|
|
(432
|
)
|
235
|
|
897
|
|
Income from Continuing Operations Before Income
Taxes
|
|
210,062
|
|
377,140
|
|
282,985
|
|
220,422
|
|
1,090,609
|
|
Income taxes(1)
|
|
(70,031
|
)
|
(147,254
|
)
|
(261,298
|
)
|
(89,237
|
)
|
(567,820
|
)
|
Income from Continuing Operations
|
|
140,031
|
|
229,886
|
|
21,687
|
|
131,185
|
|
522,789
|
|
Income from Discontinued Operations, net of tax
|
|
2,814
|
|
3,506
|
|
2,324
|
|
3,256
|
|
11,900
|
|
Net Income
|
|
142,845
|
|
233,392
|
|
24,011
|
|
134,441
|
|
534,689
|
|
Preferred dividends
|
|
(2,090
|
)
|
(2,090
|
)
|
(2,090
|
)
|
(2,094
|
)
|
(8,364
|
)
|
Net Income Attributable to Common Shares
|
|
$
|
140,755
|
|
$
|
231,302
|
|
$
|
21,921
|
|
$
|
132,347
|
|
$
|
526,325
|
|
Earnings Per Share(2)
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
.43
|
|
$
|
.72
|
|
$
|
.06
|
|
$
|
.42
|
|
$
|
1.64
|
|
Discontinued Operations
|
|
.01
|
|
.01
|
|
.01
|
|
.01
|
|
.04
|
|
Net income
|
|
$
|
.44
|
|
$
|
.73
|
|
$
|
.07
|
|
$
|
.43
|
|
$
|
1.68
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
.43
|
|
$
|
.72
|
|
$
|
.06
|
|
$
|
.42
|
|
$
|
1.63
|
|
Discontinued Operations
|
|
.01
|
|
.01
|
|
.01
|
|
.01
|
|
.04
|
|
Net income
|
|
$
|
.44
|
|
$
|
.73
|
|
$
|
.07
|
|
$
|
.43
|
|
$
|
1.67
|
|
Common Dividends Per Share
|
|
$
|
.18
|
|
$
|
.18
|
|
$
|
.18
|
|
$
|
.18
|
|
$
|
.72
|
|
Common
Stock Price (High-Low)
|
|
$
|
42.37-38.59
|
|
$
|
40.14-35.02
|
|
$
|
39.56-34.53
|
|
$
|
36.15-30.05
|
|
|
|
Notes to Quarterly Results:
(2) The total of the 2006 and 2005 quarters may not equal
the respective full year amounts for earnings per share due to differences in
the weighted average number of shares outstanding used in the computations for
the respective periods. Per share amounts for the respective quarters and years
have been computed using the average number of common shares outstanding for
each period. Diluted earnings per share is adjusted for the dilutive effect of
the Companys common stock equivalents. The calculation may change each quarter
depending on whether the common stock equivalents are antidilutive for that
period.
124
(This page has been left blank intentionally.)
125
TRIBUNE COMPANY AND SUBSIDIARIES
FIVE YEAR FINANCIAL SUMMARY
(In thousands of dollars, except per share data)
|
|
2006
|
|
2005
|
|
Operating Revenues
|
|
|
|
|
|
Publishing
|
|
$
|
4,092,562
|
|
$
|
4,096,850
|
|
Broadcasting and entertainment
|
|
1,425,146
|
|
1,414,433
|
|
Total operating revenues
|
|
$
|
5,517,708
|
|
$
|
5,511,283
|
|
Operating Profit
|
|
|
|
|
|
Publishing
|
|
$
|
749,189
|
|
$
|
759,713
|
|
Broadcasting and entertainment
|
|
391,533
|
|
416,891
|
|
Corporate expenses
|
|
(55,712
|
)
|
(49,413
|
)
|
Restructuring charges(1)
|
|
|
|
|
|
Total operating profit
|
|
1,085,010
|
|
1,127,191
|
|
Net income (loss) on equity investments
|
|
80,773
|
|
41,209
|
|
Interest and dividend income
|
|
14,145
|
|
7,539
|
|
Interest expense
|
|
(273,902
|
)
|
(155,191
|
)
|
Non-operating items
|
|
102,969
|
|
69,861
|
|
Income from Continuing Operations Before Income
Taxes and Cumulative Effect of Changes in Accounting Principle
|
|
1,008,995
|
|
1,090,609
|
|
Income taxes
|
|
(348,142
|
)
|
(567,820
|
)
|
Income from Continuing Operations Before
Cumulative Effect of Changes in Accounting Principle
|
|
660,853
|
|
522,789
|
|
Income (Loss) from Discontinued Operations, net of
tax(2)
|
|
(66,858
|
)
|
11,900
|
|
Cumulative effect of changes in accounting principle,
net of tax(3)
|
|
|
|
|
|
Net Income(4)
|
|
$
|
593,995
|
|
$
|
534,689
|
|
Share
Information
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
Continuing operations before cumulative effect of
changes in accounting principle
|
|
$
|
2.40
|
|
$
|
1.64
|
|
Discontinued operations
|
|
(0.25
|
)
|
0.04
|
|
Cumulative effect of changes in accounting principle
|
|
|
|
|
|
Net income
|
|
$
|
2.16
|
|
$
|
1.68
|
|
Diluted earnings per
share
|
|
|
|
|
|
Continuing operations before cumulative effect of
changes in accounting principle
|
|
$
|
2.39
|
|
$
|
1.63
|
|
Discontinued operations
|
|
(0.24
|
)
|
0.04
|
|
Cumulative effect of changes in accounting principle
|
|
|
|
|
|
Net income
|
|
$
|
2.14
|
|
$
|
1.67
|
|
Common dividends per share
|
|
$
|
0.72
|
|
$
|
0.72
|
|
Weighted average common shares outstanding (000s)
|
|
272,672
|
|
312,880
|
|
Financial Ratios
|
|
|
|
|
|
Operating profit margin
|
|
19.7
|
%
|
20.5
|
%
|
Debt to capital including PHONES(5)
|
|
44
|
%
|
26
|
%
|
Debt to capital excluding PHONES(5)
|
|
41
|
%
|
23
|
%
|
Financial Position and Other
Data
|
|
|
|
|
|
Total assets
|
|
$
|
13,400,772
|
|
$
|
14,546,242
|
|
Long-term debt including PHONES
|
|
3,576,211
|
|
2,959,262
|
|
Long-term debt excluding PHONES
|
|
3,003,251
|
|
2,449,561
|
|
Shareholders equity
|
|
4,319,616
|
|
6,725,551
|
|
Capital
expenditures
|
|
221,907
|
|
205,945
|
|
(1) During the second quarter of 2001, the Company
announced a voluntary employee retirement program. The Company implemented this
program as well as various other cost reduction initiatives throughout the
remainder of 2001 and the first quarter of 2002. The restructuring charges
related to these programs decreased 2002 full year net income by $17 million
and diluted EPS by $.05.
(2) Includes income from operations and net loss on sales
of WATL-TV, Atlanta, WCWN-TV, Albany, and WLVI-TV, Boston. See Note 3 to
the consolidated financial statements for additional information pertaining to
discontinued operations.
(3) The cumulative effect of adopting a new
accounting pronouncement for the valuation of certain intangible assets
decreased net income by $18 million in 2004. The cumulative effect of
adopting a new accounting pronouncement for goodwill and other intangible
assets decreased net income by $166 million in 2002.
126
|
|
2004
|
|
2003
|
|
2002
|
|
Operating
Revenues
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
4,129,850
|
|
$
|
4,036,920
|
|
$
|
3,940,478
|
|
Broadcasting
and entertainment
|
|
1,501,581
|
|
1,457,496
|
|
1,344,799
|
|
Total
operating revenues
|
|
$
|
5,631,431
|
|
$
|
5,494,416
|
|
$
|
5,285,277
|
|
Operating
Profit
|
|
|
|
|
|
|
|
Publishing
|
|
$
|
726,207
|
|
$
|
885,306
|
|
$
|
851,417
|
|
Broadcasting
and entertainment
|
|
513,289
|
|
491,733
|
|
437,008
|
|
Corporate
expenses
|
|
(52,218
|
)
|
(53,351
|
)
|
(45,770
|
)
|
Restructuring
charges(2)
|
|
|
|
|
|
(27,253
|
)
|
Total
operating profit
|
|
1,187,278
|
|
1,323,688
|
|
1,215,402
|
|
Net
income (loss) on equity investments
|
|
17,931
|
|
5,590
|
|
(40,875
|
)
|
Interest
and dividend income
|
|
3,053
|
|
6,048
|
|
8,818
|
|
Interest
expense
|
|
(153,118
|
)
|
(198,123
|
)
|
(213,309
|
)
|
Non-operating
items and minority interest expense
|
|
(145,044
|
)
|
241,247
|
|
(63,211
|
)
|
Income
from Continuing Operations Before Income Taxes and Cumulative Effect of
Changes in Accounting Principle
|
|
910,100
|
|
1,378,450
|
|
906,825
|
|
Income
taxes
|
|
(355,724
|
)
|
(509,214
|
)
|
(318,218
|
)
|
|
|
554,376
|
|
869,236
|
|
588,607
|
|
Discontinued
Operations of sold Television Stations, net of tax
|
|
18,948
|
|
22,143
|
|
19,972
|
|
Cumulative
effect of changes in accounting principles, net of tax(3)
|
|
(17,788
|
)
|
|
|
(165,587
|
)
|
Net
Income(4)
|
|
$
|
555,536
|
|
$
|
891,379
|
|
$
|
442,992
|
|
Share
Information
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
Continuing
operations before cumulative effect of changes in accounting principle
|
|
$
|
1.69
|
|
$
|
2.71
|
|
$
|
1.87
|
|
Discontinued
operations
|
|
0.06
|
|
0.07
|
|
0.07
|
|
Cumulative effect of changes
in accounting principle
|
|
(.05
|
)
|
|
|
(.55
|
)
|
Net
income
|
|
$
|
1.70
|
|
$
|
2.78
|
|
$
|
1.38
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
Continuing
operations before cumulative effect of changes in accounting principle
|
|
$
|
1.67
|
|
$
|
2.54
|
|
$
|
1.73
|
|
Discontinued
operations
|
|
0.06
|
|
0.07
|
|
0.06
|
|
Cumulative effect of
changes in accounting principle
|
|
(.05
|
)
|
|
|
(.50
|
)
|
Net income
|
|
$
|
1.67
|
|
$
|
2.61
|
|
$
|
1.30
|
|
Common
dividends per share
|
|
$
|
0.48
|
|
$
|
0.44
|
|
$
|
0.44
|
|
Weighted average
common shares outstanding (000s)
|
|
322,420
|
|
311,295
|
|
301,932
|
|
Financial
Ratios
|
|
|
|
|
|
|
|
Operating
profit margin
|
|
21.1
|
%
|
24.1
|
%
|
23.0
|
%
|
Debt to
capital including PHONES(5)
|
|
22
|
%
|
22
|
%
|
29
|
%
|
Debt to
capital excluding PHONES(5)
|
|
18
|
%
|
18
|
%
|
26
|
%
|
Financial
Position and Other Data
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
14,155,432
|
|
$
|
14,280,152
|
|
$
|
13,974,048
|
|
Long-term
debt excluding PHONES
|
|
2,317,933
|
|
2,381,617
|
|
3,260,795
|
|
Long-term
debt excluding PHONES
|
|
1,733,053
|
|
1,846,337
|
|
2,737,355
|
|
Shareholders
equity
|
|
6,836,844
|
|
7,028,124
|
|
6,119,235
|
|
Capital
expenditures
|
|
217,348
|
|
193,535
|
|
186,737
|
|
(4) See Note 2 to the consolidated financial
statements for information pertaining to non-operating items recorded in 2006,
2005 and 2004. Fiscal year 2003 included the following after-tax non-operating
items; gain on changes in fair values of derivatives and related investments of
$52 million, gain on sales of subsidiaries and investments of
$90 million, loss on investment write-downs of $6 million, gain
on insurance recoveries of $14 million, an other non-operating loss of
$2 million and a favorable income tax settlement adjustment of
$25 million, totaling a gain of $173 million, or $.52 per diluted
share. Fiscal year 2002 included the following after-tax non-operating items;
loss on changes in fair values of derivatives and related investments of
$98 million, gain on sales of subsidiaries and investments of
$65 million, loss on investment write-downs of $11 million,
other non-operating gain of $6 million and a favorable income tax
settlement adjustment of $29 million, totaling a loss of $9 million,
or $.02 per diluted share.
(5) Capital
comprises total debt, non-current deferred income taxes and shareholders
equity.
127
TRIBUNE COMPANY AND SUBSIDIARIES
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands of dollars)
Description
|
|
|
|
Balance at
Beginning
of Period
|
|
Additions
Charged to
Costs and
Expenses
|
|
Additions
Recorded
Upon
Acquisitions
|
|
Deductions(1)
|
|
Balance
at End
of Period
|
|
Valuation accounts
deducted from assets to which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended Dec. 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debts
|
|
|
$
|
29,977
|
|
|
|
$
|
49,143
|
|
|
|
$
|
|
|
|
|
$
|
57,179
|
|
|
$
|
21,941
|
|
Rebates, volume discounts and other
|
|
|
12,581
|
|
|
|
31,410
|
|
|
|
55
|
|
|
|
32,216
|
|
|
11,830
|
|
Total
|
|
|
$
|
42,558
|
|
|
|
$
|
80,553
|
|
|
|
$
|
55
|
|
|
|
$
|
89,395
|
|
|
$
|
33,771
|
|
Year ended Dec. 25, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debts
|
|
|
$
|
35,837
|
|
|
|
$
|
53,383
|
|
|
|
$
|
|
|
|
|
$
|
59,243
|
|
|
$
|
29,977
|
|
Rebates, volume discounts and other
|
|
|
13,670
|
|
|
|
27,131
|
|
|
|
|
|
|
|
28,220
|
|
|
12,581
|
|
Total
|
|
|
$
|
49,507
|
|
|
|
$
|
80,514
|
|
|
|
$
|
|
|
|
|
$
|
87,463
|
|
|
$
|
42,558
|
|
Year ended Dec. 26, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debts
|
|
|
$
|
34,024
|
|
|
|
$
|
60,072
|
|
|
|
$
|
|
|
|
|
$
|
58,259
|
|
|
$
|
35,837
|
|
Rebates, volume discounts and other
|
|
|
15,444
|
|
|
|
33,338
|
|
|
|
|
|
|
|
35,112
|
|
|
13,670
|
|
Total
|
|
|
$
|
49,468
|
|
|
|
$
|
93,410
|
|
|
|
$
|
|
|
|
|
$
|
93,371
|
|
|
$
|
49,507
|
|
(1) Deductions for the year ended Dec. 31, 2006 included
approximately $521 due to the sales of discontinued operations. See Note 3
for additional information on the sales of discontinued operations.
128
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS
AND PROCEDURES
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and
with the participation of the Companys management, including its principal
executive officer and principal financial officer, the Company conducted an
evaluation of its disclosure controls and procedures, as such term is defined
in Exchange Act Rules 13a-15(e) and 15d-15(e), as of Dec. 31,
2006. Based upon that evaluation, the principal executive officer and principal
financial officer have concluded that the Companys disclosure controls and
procedures are effective.
Managements Report
on Internal Control Over Financial Reporting
The Companys management is responsible for
establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Under the supervision and with the participation of the Companys management,
including its principal executive officer and principal financial officer, the
Company conducted an evaluation of the effectiveness of the design and
operation of internal control over financial reporting based on criteria
established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on that evaluation, the Companys
management concluded that internal control over financial reporting was
effective as of Dec. 31, 2006. Managements assessment of the
effectiveness of internal control over financial reporting as of Dec. 31,
2006 has been audited by PricewaterhouseCoopers, LLP, an independent registered
public accounting firm, as stated in their report included in Item 8.
The Companys internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with policies or
procedures may deteriorate.
Changes in Internal
Control Over Financial Reporting
There has been no change
in the Companys internal control over financial reporting that occurred during
the Companys fiscal quarter ended Dec. 31, 2006 that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.
ITEM 9B. OTHER
INFORMATION
None.
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information contained
under the heading Executive Officers of the Company in Item 1 hereof,
and the information contained under the headings Stock OwnershipSection 16(a) Beneficial
Ownership Reporting Compliance, Corporate GovernanceOverview, Corporate
GovernanceCommunicating with the Board of Directors and Board of Directors
in the definitive Proxy Statement for the Companys May 9, 2007 Annual Meeting
of Shareholders is incorporated herein by reference.
129
ITEM 11. EXECUTIVE
COMPENSATION.
The information contained
under the headings Executive Compensation, 2006 Non-Employee Director
Compensation and Board of DirectorsCertain Relationships and Related Party
TransactionsCompensation Committee Interlocks and Insider Participation in
the definitive Proxy Statement for the Companys May 9, 2007 Annual
Meeting of Shareholders is incorporated herein by reference.
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The information contained
under the headings Stock OwnershipManagement Ownership and Stock OwnershipPrincipal
Shareholders in the definitive Proxy Statement for the Companys May 9, 2007
Annual Meeting of Shareholders is incorporated herein by reference.
Equity Compensation
Plan Information Table
The
following table provides information as of Dec. 31, 2006 regarding the
number of shares of Tribune common stock that may be issued under Tribunes
equity compensation plans.
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Plan Category(1)
|
|
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
|
|
Equity
compensation plans approved by security holders
|
|
|
36,391,398
|
(2)
|
|
|
$
|
43.18
|
(3)
|
|
|
36,453,519
|
(4)
|
|
Equity
compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
36,391,398
|
(2)
|
|
|
$
|
43.18
|
(3)
|
|
|
36,453,519
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
table does not include information regarding the following equity compensation
plans:
401(k) Plans: As of Dec. 31, 2006, there were an
aggregate of 16,996,624 shares of Tribune common stock outstanding and held in
the Tribune Company 401(k) Savings and Profit Sharing Plan, the Times
Mirror Savings Plus Plan and the other 401(k) plans available to Tribune
employees.
Times
Mirror Plans: As of Dec. 31, 2006, there were an aggregate of 6,228,104
shares of Tribune common stock issuable upon exercise of stock options granted
under equity compensation plans assumed in connection with the merger of The
Times Mirror Company into Tribune on June 12, 2000. The weighted-average
exercise price of these shares is $22.64. No grants have been made under these
plans since the time of the merger and none will be issued in the future.
(2) Consists
of 34,398,769 outstanding stock options, 1,490,625 outstanding restricted stock
units and 33,189 outstanding dividend equivalent units relating to the
restricted stock units, all of which were issued under Tribune equity
compensation plans, 367,273 outstanding stock equivalents under the Tribune
bonus deferral plan (the Bonus Deferral Plan) and 101,542 shares held in
deferral accounts under the Tribune Company 1996 Nonemployee Director Stock
Compensation Plan (the Director Plan). The restricted stock units are
credited with dividend equivalent units, and neither the restricted stock units
nor the dividend equivalent units have voting rights prior to conversion into
shares of common stock. The stock equivalents in deferral accounts under both
the Bonus Deferral Plan and the Director Plan do not have voting rights, but
are credited with dividend equivalents. The Bonus Deferral Plan permits the
deferral of cash or stock awards made under the Tribune Company Incentive
Compensation Plan (the Incentive Plan) into either an interest bearing or
stock equivalent account. Deferrals in the stock equivalent account are valued
as if each deferral were invested in Tribune common stock as of the deferral
date, and are paid out only in shares of Tribune common stock, on a one-for-one
basis. Shares issued under this plan are attributed to the Incentive Plan and
reduce the number of shares available for issuance under that plan. The
Director Plan permits directors to defer stock awards into deferral accounts.
The deferred awards and shares acquired upon reinvestment of dividends are
distributed to the director after termination of his or her Board service. The
stock equivalents in deferral accounts under both the Bonus Deferral Plan and
the Director Plan do not have voting rights, but are credited with dividend
equivalents.
130
(3) Measured
only with respect to the 34,398,769 stock options included in this table.
Restricted stock units and the related dividend equivalent units and the stock
equivalents in deferral accounts do not have exercise prices.
(4) Consists of 33,967,498
shares of Tribune common stock available for issuance under Tribune Company
equity compensation plans and 2,486,021 shares available for issuance under the
Tribune Company Employee Stock Purchase Plan (the ESPP). Under the ESPP,
Tribune employees may purchase Tribune common stock through payroll deductions.
On the third Wednesday of each month, shares of common stock are purchased for
the accounts of participants at a per share price equal to 85% of the fair
market value of Tribune common stock on that date. Participants may withdraw
from the plan at any time prior to the purchase date.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information contained
under the headings Board of DirectorsCertain Relationships and Related Party
Transactions, and Corporate GovernanceDirector Independence and Policy
Regarding Related Party Transactions in the definitive Proxy Statement for the
Companys May 9, 2007 Annual Meeting of Shareholders is incorporated
herein by reference.
ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
The information contained
under the headings Board of DirectorsBoard, Board Committees and MeetingsAudit
Committee, Audit CommitteePolicy on Audit Committee Pre-Approval of Audit,
Audit-Related and Permissible Non-Audit Services of Independent
Accountants and Audit CommitteeFees Paid to Independent Accountants in the
definitive Proxy Statement for the Companys May 9, 2007 Annual Meeting of
Shareholders is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES.
(a)(1)&(2)
|
|
Financial
Statements and Financial Statement Schedule filed as part of this report
|
|
|
|
See Index to Financial Statements and Financial
Statement Schedule on page 55 hereof.
|
|
(a)(3)
|
|
Index to Exhibits filed as part of this report
|
|
|
|
See Exhibit Index on pages 134 to 138
hereof.
|
|
(b)
|
|
Exhibits
|
|
|
|
See Exhibit Index on pages 134 to 138
hereof.
|
|
(c)
|
|
Financial Statement Schedule
|
|
|
|
See Index to
Financial Statements and Financial Statement Schedule on page 65 hereof.
|
|
131
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on Feb. 26, 2007.
|
TRIBUNE COMPANY
|
|
(Registrant)
|
|
/s/
DENNIS J. FITZSIMONS
|
|
Dennis J.
FitzSimons
|
|
Chairman,
President and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated on Feb. 26, 2007.
|
Signature
|
|
|
|
Title
|
|
/s/ DENNIS J.
FITZSIMONS
|
|
Chairman,
President, Chief Executive Officer and Director
|
Dennis
J. FitzSimons
|
|
/s/ DONALD C.
GRENESKO
|
|
Senior Vice President/Finance and Administration
(principal
financial officer)
|
Donald
C. Grenesko
|
|
/s/ R. MARK
MALLORY
|
|
Vice President
and Controller (principal accounting officer)
|
R.
Mark Mallory
|
|
/s/ JEFFREY
CHANDLER
|
|
Director
|
Jeffrey
Chandler
|
|
/s/ ROGER
GOODAN
|
|
Director
|
Roger
Goodan
|
|
/s/ BETSY D.
HOLDEN
|
|
Director
|
Betsy D. Holden
|
|
132
/s/ WILLIAM A. OSBORN
|
|
Director
|
William A. Osborn
|
|
/s/ J. CHRISTOPHER REYES
|
|
Director
|
J. Christopher Reyes
|
|
/s/ DUDLEY S. TAFT
|
|
Director
|
Dudley S. Taft
|
|
133
TRIBUNE
COMPANY
EXHIBIT INDEX
Exhibits
marked with an asterisk (*) are incorporated by reference to documents
previously filed by Tribune Company with the Securities and Exchange
Commission, as indicated. Exhibits marked with a circle (o) are
management contracts or compensatory plan contracts or arrangements filed
pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K. All other
documents listed are filed with this Report.
Number
|
|
Description
|
3.1 *
|
|
Amended and Restated Certificate of Incorporation of
Tribune Company, dated June 12, 2000 (Exhibit 3.1 to Annual Report
on Form 10-K for 2001)
|
|
|
|
3.1a *
|
|
Amended Certificate of Designation of Series A
Junior Participating Preferred Stock, dated June 12, 2000
(Exhibit 3.1a to Current Report on Form 8-K dated
June 12, 2000)
|
|
|
|
3.1b *
|
|
Amended Certificate of Designation of Series D-1
Preferred Stock, dated February 13, 2001 (Exhibit 3.1d to Annual
Report on Form 10-K for 2000)
|
|
|
|
3.2 *
|
|
By-Laws of Tribune Company, as amended and in
effect on October 19, 2005 (Exhibit 99 to Current Report on
Form 8-K dated October 21, 2005)
|
|
|
|
4.1 *
|
|
Rights Agreement between Tribune Company and First
Chicago Trust Company of New York, as Rights Agent, dated as of
December 12, 1997 (Exhibit 1 to Current Report on Form 8-K
dated December 12, 1997)
|
|
|
|
4.1a *
|
|
Amendment No. 1, dated as of June 12,
2000, to the Rights Agreement between Tribune Company and First Chicago Trust
Company of New York, as Rights Agent (Exhibit 4.1 to Current Report on
Form 8-K dated June 12, 2000)
|
|
|
|
4.1b*
|
|
Amendment No. 2, dated as of September 21,
2006, to the Rights Agreement between Tribune Company and Computershare Trust
Company, N.A. (formerly known as EquiServe Trust Company, N.A., formerly
known as First Chicago Trust Company of New York), as Rights Agent
(Exhibit 4.1 to Current Report on Form 8-K dated
September 21, 2006)
|
|
|
|
4.2 *
|
|
Indenture, dated as of March 1, 1992, between
Tribune Company and Citibank, N.A. (successor to Bank of New York, Bank
of Montreal Trust Company and Continental Bank, N.A.), as Trustee
(Exhibit 4.1 to Registration Statement on Form S-3,
Registration No. 333-02831)
|
|
|
|
4.3 *
|
|
Indenture, dated as of January 1, 1997, between
Tribune Company and Citibank, N.A. (successor to Bank of New York), as Trustee
(Exhibit 4 to Current Report on Form 8-K dated
January 14, 1997)
|
|
|
|
4.4 *
|
|
Indenture, dated as of April 1, 1999, between
Tribune Company and Citibank, N.A. (successor to Bank of New York and
Bank of Montreal Trust Company), as Trustee for the PHONES securities
(Exhibit 4 to Current Report on Form 8-K dated April 5,
1999)
|
|
|
|
134
4.5 *
|
|
Indenture, dated January 30, 1995, between
Tribune Company (successor to The Times Mirror Company) and
Citibank, N.A. (successor to The Bank of New York, Wells Fargo Bank, N.A.
and First Interstate Bank of California), as Trustee for the 71¤4%
Debentures due 2013 and 71¤2%
Debentures due 2023 (Exhibit 4.1 to The Times Mirror Companys Annual
Report on Form 10-K for 1995)
|
|
|
|
4.5a *
|
|
First Supplemental Indenture, dated as of
June 12, 2000, among Tribune Company, The Times Mirror Company and The
Bank of New York, as Trustee (Exhibit 4.13 to Current Report on
Form 8-K dated June 12, 2000)
|
|
|
|
4.6 *
|
|
Indenture, dated March 19, 1996, between
Tribune Company (successor to The Times Mirror Company) and
Citibank, N.A., as Trustee for the 6.61% Debentures due 2027 and the 71¤4%
Debentures due 2096 (Exhibit 4.1 to The Times Mirror Companys Current
Report on Form 8-K dated March 13, 1996)
|
|
|
|
4.6a *
|
|
First Supplemental Indenture, dated as of
October 19, 1999, between The Times Mirror Company and
Citibank, N.A., as Trustee (Exhibit 4.3 to The Times Mirror
Companys Current Report on Form 8-K dated October 19, 1999)
|
|
|
|
4.6b *
|
|
Second Supplemental Indenture, dated as of
June 12, 2000, among Tribune Company, The Times Mirror Company and
Citibank, N.A., as Trustee (Exhibit 4.12 to Current Report on
Form 8-K dated June 12, 2000)
|
|
|
|
4.7 *
|
|
Agreement of Resignation, Appointment and
Assumption, dated as of September 4, 2002, among Tribune Company, The
Bank of New York and Citibank, N.A., appointing Citibank, N.A. as
Trustee under the Indentures dated March 1, 1992, January 30, 1995,
January 1, 1997 and April 1, 1999 (Exhibit 4.7 to Annual
Report on Form 10-K for 2004)
|
|
|
|
4.8 *
|
|
Form of Exchangeable Subordinated Debenture due
2029 relating to the PHONES securities (Exhibit 4 to Current Report on
Form 8-K dated April 13, 1999)
|
|
|
|
4.9 *
|
|
Specimen Note for 71¤4%
Debenture due 2013 (Exhibit 4.2 to The Times Mirror Companys Annual
Report on Form 10-K for 1995)
|
|
|
|
4.10 *
|
|
Specimen Note for 71¤2%
Debenture due 2023 (Exhibit 4.3 to The Times Mirror Companys Annual
Report on Form 10-K for 1995)
|
|
|
|
4.11 *
|
|
Officers Certificate, dated November 13, 1996,
establishing the terms of the 71¤4%
Debentures due 2096 and attaching the specimen Form of Debenture
(Exhibit 4.2 to The Times Mirror Companys Current Report on Form 8-K
dated November 7, 1996)
|
|
|
|
4.12 *
|
|
Officers Certificate, dated September 9, 1997,
establishing the terms of the 6.61% Debentures due 2027, and the specimen
Form of Debenture (Exhibit 4.2 to The Times Mirror Companys
Current Report on Form 8-K dated September 4, 1997)
|
|
|
|
4.13 *
|
|
Form of Note relating to Tribune Companys
4.875% Notes due 2010 (Exhibit 4.1a to Current Report on Form 8-K
dated August 10, 2005)
|
|
|
|
135
4.14 *
|
|
Form of Note relating to Tribune Companys
5.25% Notes due 2015 (Exhibit 4.1b to Current Report on Form 8-K
dated August 10, 2005)
|
|
|
|
4.15*
|
|
Amended and Restated Credit Agreement dated as of
June 27, 2006 by and among Tribune Company, as borrower, the lenders
party thereto, Citicorp North America, Inc., as administrative agent,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as syndication
agent, JPMorgan Chase Bank, N.A., Bank of America, N.A., Morgan Stanley Bank
and The Bank of Tokyo-Mitsubishi UFJ, Ltd., Chicago Branch, as
co-documentation agents, and Citigroup Global Markets Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan
Securities Inc., as joint lead arrangers and joint bookrunners
(Exhibit (b)(5) to Amendment No. 7 to Schedule TO dated
June 28, 2006)
|
|
|
|
4.16*
|
|
Amendment No. 1 dated as of July 10, 2006
to the Amended and Restated Credit Agreement dated as of June 27, 2006
by and among Tribune Company, as borrower, the lenders party thereto,
Citicorp North America, Inc., as administrative agent, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as syndication agent, JPMorgan
Chase Bank, N.A., Bank of America, N.A., Morgan Stanley Bank and The Bank of
Tokyo-Mitsubishi UFJ, Ltd., Chicago Branch, as co-documentation agents,
and Citigroup Global Markets Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and J.P. Morgan Securities Inc., as
joint lead arrangers and joint bookrunners (Exhibit 10.2 to Quarterly
Report on Form 10-Q for the quarter ended June 25, 2006)
|
|
|
|
4.17*
|
|
Amended and Restated Bridge Credit Agreement dated
as of June 27, 2006 by and among Tribune Company, as borrower, the
lenders party thereto, Citicorp North America, Inc., as administrative
agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
syndication agent, JPMorgan Chase Bank, N.A., as documentation agent, and
Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and J.P. Morgan Securities Inc., as joint lead
arrangers and joint bookrunners (Exhibit (b)(6) to Amendment
No. 7 to Schedule TO dated June 28, 2006)
|
|
|
|
4.18*
|
|
Amendment No. 1 dated as of July 10, 2006
to the Amended and Restated Bridge Credit Agreement dated as of June 27,
2006 by and among Tribune Company, as borrower, the lenders party thereto,
Citicorp North America, Inc., as administrative agent, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as syndication agent, JPMorgan
Chase Bank, N.A., as documentation agent, and Citigroup Global Markets Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan
Securities Inc., as joint lead arrangers and joint bookrunners
(Exhibit 10.4 to Quarterly Report on Form 10-Q for the
quarter ended June 25, 2006)
|
|
|
|
4.19*
|
|
Amendment No. 2 dated as of July 21, 2006
to the Amended and Restated Bridge Credit Agreement dated as of June 27,
2006, as amended, by and among Tribune Company, as borrower, the lenders
party thereto, Citicorp North America, Inc., as administrative agent, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as syndication agent,
JPMorgan Chase Bank, N.A., as documentation agent, and Citigroup Global
Markets Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and J.P. Morgan Securities Inc., as joint lead arrangers
and joint bookrunners (Exhibit 10.5 to Quarterly Report on Form 10-Q
for the quarter ended June 25, 2006)
|
|
|
|
136
4.20
|
|
Amendment No. 3 dated as of January 22,
2007 to the Amended and Restated Bridge Credit Agreement dated as of
June 27, 2006, as amended, by and among Tribune Company, as borrower,
the lenders party thereto, Citicorp North America, Inc., as
administrative agent, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as syndication agent, JPMorgan Chase Bank, N.A., as
documentation agent, and Citigroup Global Markets Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and J.P. Morgan
Securities Inc., as joint lead arrangers and joint bookrunners
|
|
|
|
10.1 o*
|
|
Tribune Company Supplemental Retirement Plan, as
amended and restated October 18, 2006 (Exhibit 10.3 to Current
Report on Form 8-K dated October 18, 2006)
|
|
|
|
10.2 o*
|
|
Tribune Company Directors Deferred Compensation
Plan, as amended and restated effective as of January 1, 2005
(Exhibit 10.2 to Current Report on Form 8-K dated
December 22, 2005)
|
|
|
|
10.3 o*
|
|
The Times Mirror Company Deferred Compensation Plan
for Non-Employee Directors (Exhibit 10.7 to The Times Mirror
Companys Annual Report on Form 10-K for 1994)
|
|
|
|
10.4 o*
|
|
Tribune Company Bonus Deferral Plan, as amended and
restated as of October 18, 2006 (Exhibit 10.1 to Current Report on
Form 8-K dated October 18, 2006)
|
|
|
|
10.5 o*
|
|
Tribune Company 1992 Long-Term Incentive Plan,
effective as of April 29, 1992, as amended April 19, 1994
(Exhibit 10.11 to Annual Report on Form 10-K for 1994)
|
|
|
|
10.5a o*
|
|
Amendment of Tribune Company 1992 Long-Term
Incentive Plan, effective October 24, 2000 (Exhibit 10.6a to Annual
Report on Form 10-K for 2000)
|
|
|
|
10.6 o*
|
|
Tribune Company Executive Financial Counseling Plan,
effective October 19, 1988, as amended January 1, 1994
(Exhibit 10.13 to Annual Report on Form 10-K for 1993)
|
|
|
|
10.7 o
|
|
Tribune Company Transitional Compensation Plan for
Executive Employees, amended and restated effective as of July 19, 2006
|
|
|
|
10.8 o*
|
|
Tribune Company Supplemental Defined Contribution
Plan, as amended and effective as of October 18, 2006 (Exhibit 10.2
to Current Report on Form 8-K dated October 18, 2006)
|
|
|
|
10.9 o*
|
|
Tribune Company Employee Stock Purchase Plan, as
amended and restated July 27, 1999 (Exhibit 10.10 to Annual Report
on Form 10-K for 1999)
|
|
|
|
10.9a o*
|
|
First Amendment to Tribune Company Employee Stock
Purchase Plan, as amended and restated July 27, 1999
(Exhibit 10.10a to Quarterly Report on Form 10-Q for the
quarter ended September 24, 2000)
|
|
|
|
10.9b o*
|
|
Second Amendment to Tribune Company Employee Stock
Purchase Plan, effective as of May 7, 2002 (Exhibit 10.8b to Annual
Report on Form 10-K for 2002)
|
|
|
|
10.10 o*
|
|
Tribune Company 1995 Nonemployee Director Stock
Option Plan, as amended and restated effective December 9, 2003
(Exhibit 10.9 to Annual Report on Form 10-K for 2003)
|
|
|
|
137
10.11 o*
|
|
Tribune Company 1996 Nonemployee Director Stock
Compensation Plan, as amended and restated effective January 1, 2005
(Exhibit 10.4 to Current Report on Form 8-K dated
December 22, 2005)
|
|
|
|
10.12 o*
|
|
Tribune Company Incentive Compensation Plan, as
amended and restated effective May 12, 2004 (Exhibit 10.1 to
Quarterly Report on Form 10-Q for the quarter ended June 27,
2004)
|
|
|
|
10.12a o*
|
|
Form of Notice of Grant and Stock Option Term
Sheet (Exhibit 10.1 to Current Report on Form 8-K dated
February 11, 2005)
|
|
|
|
10.12b o*
|
|
Form of Restricted Stock Unit Award Notice
(Exhibit 10.1 to Current Report on Form 8-K dated
February 21, 2006)
|
|
|
|
10.13 o*
|
|
The Times Mirror Company 1997 Directors Stock Option
Plan (Exhibit 10.15 to The Times Mirror Companys Annual Report on
Form 10-K for 1996)
|
|
|
|
10.14*
|
|
Distribution Agreement, dated September 21,
2006, by and among TMCT, LLC, Tribune Company, Candle Holdings Corporation,
Fortify Holdings Corporation, Chandler Trust No. 1, and Chandler Trust
No. 2 (Exhibit 10.1 to Current Report on Form 8-K dated
September 21, 2006)
|
|
|
|
10.15*
|
|
Distribution Agreement, dated September 21,
2006, by and among TMCT II, LLC, Tribune Company, Fortification Holdings
Corporation, Wick Holdings Corporation, Eagle New Media Investments, LLC,
Eagle Publishing Investments, LLC, Chandler Trust No. 1, and
Chandler Trust No. 2 (Exhibit 10.3 to Current Report on Form 8-K
dated September 21, 2006)
|
|
|
|
10.16 *
|
|
Amended and Restated Lease Agreement between TMCT,
LLC and Tribune Company, dated September 22, 2006 (Exhibit 10.5 to
Current Report on Form 8-K dated September 21, 2006)
|
|
|
|
14 *
|
|
Code of Ethics for CEO and Senior Financial Officers
(Exhibit 14 to Annual Report on Form 10-K for 2003)
|
|
|
|
21
|
|
Table of Subsidiaries of Tribune Company
|
|
|
|
23
|
|
Consent of Independent Registered Public Accounting
Firm
|
|
|
|
31.1
|
|
Rule 13a-14 Certification of Chief
Executive Officer
|
|
|
|
31.2
|
|
Rule 13a-14 Certification of Chief
Financial Officer
|
|
|
|
32.1
|
|
Section 1350 Certification of Chief Executive
Officer
|
|
|
|
32.2
|
|
Section 1350 Certification of Chief Financial
Officer
|
|
|
|
99
|
|
Form 11-K financial statements for the
KPLR, Inc. 401(k) Plan, the Times Mirror Savings Plus Plan, the
Tribune Broadcasting Retirement Plan, the Tribune Company Defined
Contribution Retirement Plan and the Tribune Company 401(k) Savings and
Profit Sharing Plan (to be filed by amendment)
|
138
EX-4.20
2
a07-1375_1ex4d20.htm
EX-4.20
Exhibit 4.20
EXECUTION VERSION
AMENDMENT NO. 3
This AMENDATORY AGREEMENT, dated as of January 22,
2007 (this Amendment), is among TRIBUNE COMPANY, a Delaware
corporation (the Borrower), the Agent and certain of the Lenders
(capitalized terms used herein have the meanings set forth in, or are defined
by reference in, Article I below).
W I T N E S S E T H:
WHEREAS, the Borrower, the Initial Lenders and
Citicorp North America, Inc., as the administrative agent (the Agent),
are parties to an Amended and Restated Bridge Credit Agreement, dated as of
June 27, 2006 (as amended, supplemented, amended and restated or otherwise
modified prior to the date hereof, the Existing Bridge Credit Agreement,
and as amended by this Amendment and as the same may be further amended,
supplemented, amended and restated or otherwise modified from time to time, the
Bridge Credit Agreement);
WHEREAS,
the Borrower has requested that the Lenders amend certain provisions of the
Existing Bridge Credit Agreement and the Lenders are willing, on the terms and
subject to the conditions hereinafter set forth, to amend such provisions of
the Existing Bridge Credit Agreement as set forth below;
NOW,
THEREFORE, in consideration of the premises and the mutual agreements herein
contained, the Borrower, the Lenders and the Agent hereby agree as follows.
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Definitions. The following terms (whether or not
underscored) when used in this Amendment shall have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
Agent is defined in the first recital.
Amendment is defined in the preamble.
Amendment No. 3 Effective Date is defined in Article III
hereof.
Borrower is defined in the preamble.
Bridge Credit Agreement is defined in the first
recital.
Existing Bridge Credit Agreement is defined
in the first recital.
Amendment
No. 3
A&R Bridge Credit Agreement
1
SECTION 1.2. Other Definitions. Terms for which meanings are provided in the
Existing Bridge Credit Agreement are, unless otherwise defined herein or the
context otherwise requires, used in this Amendment with such meanings.
ARTICLE II
AMENDMENT
Effective on and subject to the occurrence of the
Amendment No. 3 Effective Date, the Existing Bridge Credit Agreement is hereby
amended as set forth below in this Article II.
SECTION 2.1. Amendment to Section 1.01. Section 1.01 of the Existing Bridge Credit
Agreement is hereby amended by adding the following new defined terms in their
respective alphabetically appropriate places:
Amendment No. 3 means the Amendatory Agreement dated as of
January 22, 2007 among the Borrower, the Agent and the Lenders party thereto.
Amendment No. 3 Effective Date means January 22, 2007.
SECTION 2.2. Amendment to Section 2.16. Section 2.16 of the Existing Bridge Credit
Agreement is hereby amended and restated in its entirety to read as follows:
The proceeds of the
Advances shall be available (and the Borrower agrees that it shall use such
proceeds) solely to finance (i) a portion of the Stock Repurchase and the
Refinancing and to pay fees and expenses related thereto and (ii) the repayment
of an aggregate amount of up to $100,000,000 of Debt for Borrowed Money
consisting of commercial paper incurred by the Borrower or any of its
Subsidiaries and outstanding as of the Amendment No. 3 Effective Date.
ARTICLE III
CONDITIONS PRECEDENT
This Amendment shall become effective on the date (the
Amendment No. 3 Effective Date) when each of the conditions set forth
in this Article III shall have been fulfilled to the satisfaction of the
Agent.
SECTION 3.1. Execution of Counterparts. The Agent shall have received counterparts of
this Amendment, duly executed and delivered on behalf of (i) the Borrower, (ii)
the Agent, and (iii) the Required Lenders.
SECTION 3.2. Fees and Expenses. The Agent shall have received all reasonable
and documented fees and expenses, if any, due and payable pursuant to the
Bridge Credit Agreement.
2
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter
into this Amendment, the Borrower hereby represents and warrants as follows:
(a) The representations and warranties
contained in Section 4.01 of the Existing Bridge Credit Agreement (except the
representations set forth in the last sentence of clause (e)(i) thereof and in
clause (f) thereof) are correct in all material respects, before and after
giving effect to this Amendment (unless stated to relate solely to an earlier
date, in which case such representations and warranties are correct as of such
earlier date).
(b) As of the date hereof, no Default
exists or has occurred and is continuing.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1. Full Force and Effect; Limited Amendment. Except as expressly provided herein, all of
the representations, warranties, terms, covenants, conditions and other
provisions of the Existing Bridge Credit Agreement and the Notes shall remain
in full force and effect in accordance with their respective terms and are in
all respects hereby ratified and confirmed.
The amendments set forth herein shall be limited precisely as provided
for herein to the provisions expressly amended hereby and shall not be deemed
to be an amendment to or modification of any other term or provision of the
Existing Bridge Credit Agreement, any Note or of any transaction or further or
future action on the part of the Borrower which would require the consent of
any of the Lenders under the Existing Bridge Credit Agreement or the Notes.
SECTION 5.2. Loan Document. This Amendment is executed pursuant to the
Existing Bridge Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof, including, without limitation, Article VIII
thereof.
SECTION 5.3. Fees and Expenses. The Borrower agrees to pay those reasonable
and documented fees payable to the Agent in connection with this Amendment and
all other reasonable and documented out-of-pocket expenses incurred by the
Agent in connection with the preparation, negotiation, execution and delivery
of this Amendment and the documents and transactions contemplated hereby,
including the reasonable and documented fees and disbursements of Mayer, Brown,
Rowe & Maw LLP, as counsel for the Agent.
SECTION 5.4. Headings. The various headings of this Amendment are
inserted for convenience only and shall not affect the meaning or
interpretation of this Amendment or any provisions hereof.
3
SECTION 5.5. Execution in Counterparts. This Amendment may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
SECTION 5.6. Cross-References. References in this Amendment to any Article
or Section are, unless otherwise specified or otherwise required by the
context, to such Article or Section of this Amendment.
SECTION 5.7. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
SECTION 5.8. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
4
IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective partners or officers thereunto duly authorized as of the
day and year first above written.
|
TRIBUNE COMPANY
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By:
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/s/ Chandler Bigelow
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Name: Chandler Bigelow
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|
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Title: Treasurer
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|
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CITICORP NORTH AMERICA, INC., as Agent
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By:
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/s/ Anish M. Shah
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|
|
Name: Anish M. Shah
|
|
|
Title: Vice President
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5
|
|
LENDERS
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BANK OF AMERICA, N.A.
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By:
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/s/ Todd Shipley
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|
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Name: Todd Shipley
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|
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Title: Senior Vice President
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6
|
|
LENDERS
|
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CITICORP NORTH AMERICA, INC.
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|
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By:
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/s/ Anish M. Shah
|
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|
|
Name: Anish M. Shah
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|
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Title: Vice President
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7
|
|
LENDERS
|
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JPMORGAN CHASE BANK, N.A.
|
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By:
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/s/ Tracy Navin Ewing
|
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|
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Name: Tracy
Navin Ewing
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|
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Title: Vice
President
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8
|
|
LENDERS
|
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|
MERRILL LYNCH CAPITAL CORPORATION
|
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|
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By:
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/s/ Nancy Meadows
|
|
|
|
Name: Nancy
Meadows
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|
|
Title: Vice President
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9
|
|
LENDERS
|
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MORGAN STANLEY BANK
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By:
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/s/ Daniel Twenge
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Name: Daniel
Twenge
|
|
|
Title: Vice
President
|
10
EX-10.7
3
a07-1375_1ex10d7.htm
EX-10.7
Exhibit
10.7
Tribune
Company
Transitional
Compensation Plan for Executive Employees
Tribune Company, by
resolution of its Board of Directors, adopted the Tribune Company Transitional
Compensation Plan for Executive Employees (the Plan) on December 9, 1985, to
attract and retain executives of outstanding competence and to provide
additional assurance that they will remain with Tribune Company and its
subsidiaries on a long-term basis. The following provisions constitute an
amendment and restatement of the Plan effective as of July 19, 2006.
1. Participation. Any full-time, key executive
employee of Tribune Company or of any of its subsidiaries shall be eligible to
participate in the Plan in one of three separate tiers, if at the time his
employment terminates he has been designated by the Committee as being covered
by the Plan within a specific tier, and such designation has not been revoked;
provided, however, that no revocation of such designation shall be effective if
made: (a) on the day of, or within 36 months after, occurrence of a Change in
Control, as such term is hereinafter defined; or (b) prior to a Change in
Control, but at the request of any third party participating in or causing the
Change in Control; or (c) otherwise in connection with or in anticipation of a
Change in Control.
For the purposes of the Plan, the term subsidiary shall mean any
corporation, more than 50 percent of the outstanding, voting stock in which is
owned by Tribune Company or by a subsidiary.
2. Administration. The Plan shall be administered by the
Compensation & Organization Committee of the Board of Directors of Tribune
Company (the Committee) or by a successor committee. The Committee shall have
the authority to make rules and regulations governing the administration of the
Plan, to designate executive employees to be covered by the Plan, to revoke
such designations, and to make all other determinations or decisions, and to
take such actions, as may be necessary or advisable for the administration of
the Plan. The Committees determinations need not be uniform, and may be made
selectively among eligible employees, whether or not they are similarly
situated.
3. Eligibility for Transitional Compensation. An executive who is a Participant in the
Plan shall be eligible to receive transitional compensation, in the amounts and
at the times described in paragraph 5, if:
(a) His employment with the Company and all
of its subsidiaries is terminated:
(i) On
the day of, or within 36 months (24 months in the case of Tier II Participants
and 18 months in the case of Tier III Participants) after, occurrence of a Change
in Control, as such term is hereinafter defined;
(ii) Prior
to a Change in Control, but at the request of any third party participating in
or causing the Change in Control; or
(iii) Otherwise in connection
with or in anticipation of a Change in Control; and
(b) The Participants termination of
employment was not:
(i) On
account of his death;
(ii) On account of a physical or mental
condition that would entitle him to long-term disability benefits under the
Tribune Company Long Term Disability Plan, as then in effect (whether or not he
is actually a Participant in such plan);
(iii) For conduct involving
dishonesty or willful misconduct which, in either case, is detrimental in a
significant way to the business of Tribune Company or any of its subsidiaries;
or
(iv) On
account of the employees voluntary resignation; provided that a resignation
shall not be considered to be voluntary for the purposes of the Plan in the
following situations: (x) if the resignation by Tribune Companys Chairman
& Chief Executive Officer or a Participant designated as a Tier I
Participant as of December 13, 1994, occurs during the 30-day period
immediately following the first anniversary of the Change in Control (i.e.,
this provision is not available for Tier II or Tier III Participants or other
Tier I Participants); or (y) if the resignation occurs under the circumstances
described in paragraph 14(a) of the Plan; or (z) if, subsequent to the Change
in Control and prior to such resignation, there has been a reduction in the
nature or scope of the Participants authority or duties, a reduction in the
Participants compensation or benefits or a change in the city in which he is
required to perform his duties.
4. Change in Control. For the purposes of the Plan, a Change
in Control shall mean:
(a) The acquisition, other than from Tribune
Company, by any person, entity, or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the Exchange Act)),
excluding for this purpose the Company, the Robert R. McCormick Tribune
Foundation, the Cantigny Foundation, (or
any charitable trust, foundation, organization, or similar entity or entities
succeeding to one or both of those Foundations or any substantial part thereof)
and any employee benefit plan or trust of Tribune Company or its subsidiaries,
of beneficial ownership (within the
2
meaning of Rule
13d-3 promulgated under the Exchange Act) of 20 percent or more of either
the then outstanding shares of common stock or the combined voting power of
Tribune Companys then outstanding voting securities entitled to vote generally
in the election of directors;
(b) Individuals
who, as of January 1, 2005, constitute the Board of Directors of Tribune
Company (as of January 1, 2005 the Incumbent Board and, generally, the Board) cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof whose
election, or nomination for election, by the shareholders of Tribune Company
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board (other than an election or nomination of an individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the members of the
Board of Tribune Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) shall be considered as
though such person were a member of the Incumbent Board; or
(c) Consummation
of a reorganization, merger, consolidation or other transaction involving Tribune Company, in each case, with
respect to which persons who were the shareholders of Tribune Company
immediately prior to such reorganization, merger, consolidation or other
transaction do not, immediately thereafter, own, directly or indirectly, 50% or
more of the combined voting power of the then outstanding securities entitled to
vote generally in the election of directors of the reorganized, merged or
consolidated company, or a liquidation or dissolution of Tribune Company, or
the sale of all or substantially all of the assets of Tribune Company.
5. Amount
and Payment of Transitional Compensation.
A Participant who is eligible for transitional compensation shall
receive:
(a) Subject
to paragraph 6, a lump-sum cash payment, payable within 30 calendar days after
the date on which his employment terminates, in an amount equal to the sum of:
(i) For
Tier I Participants, three (3) multiplied by the sum of (x) the Participants
highest annual rate of Base Salary in effect within the three years prior to or
upon the effective date of termination and (y) two hundred percent (200%) of
the Participants target bonus payable for the year in which the Change in
Control occurs under the Tribune Company Incentive Compensation Plan (As
Amended and Restated Effective May 12, 2004), as now or hereafter amended, or
any replacement or successor plan;
3
(ii) For
Tier II Participants, two (2) multiplied by the sum of (x) the Participants
highest annual rate of Base Salary in effect within the three years prior to or
upon the effective date of termination and (y) two hundred percent (200%) of
the Participants target bonus payable for the year in which the Change in
Control occurs under the Tribune Company
Incentive Compensation Plan (As Amended and Restated Effective May 12,
2004), as now or hereafter amended, or any replacement or successor plan; or
(iii)
For Tier III Participants, one (1) multiplied by the sum of (x) the Participants
highest annual rate of Base Salary in effect within the three years prior to or
upon the effective date of termination and (y) one hundred percent (100%) of
the Participants target bonus payable for the year in which the Change in
Control occurs under the Tribune Company
Incentive Compensation Plan (As Amended and Restated Effective May 12,
2004), as now or hereafter amended, or any replacement or successor plan;
(b) Outplacement
services at a qualified agency selected by Tribune Company; and
(c) Continuation of coverage under his
employers group medical, group life, and group long-term disability
plans, if any, and under any policy or policies of split dollar life insurance
maintained by his employer, until the earliest to occur of:
(i) The
expiration of 36 months for Tier I Participants, the expiration of 24 months
for Tier II Participants and the expiration of 12 months for Tier III
Participants, from the date on which his employment terminates; or
(ii) The
date on which he obtains comparable coverage provided by a new employer.
For purposes of this
paragraph 5, a Participants annual rate of base salary shall be determined
prior to any reduction for deferred compensation, 401(k) plan contributions,
and similar items, provided that any reduction in a Participants annual rate
of salary, group insurance or split dollar coverage, occurring within 36 months
after a Change in Control shall be disregarded, and the payments and coverage
under this paragraph shall be governed by the annual salary, group insurance
and split dollar coverage, provided to such Participant immediately prior to
such reduction.
6. Certain Distributions. Notwithstanding any provision of the
Plan to the contrary, a Participant who is a specified employee as defined in
Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the Code)
4
may not receive a
distribution under the Plan prior to the date which is 6 months after the date
of the Participants termination of employment, or, if earlier, the date of
death of the Participant.
7. Taxes.
If, for any reason, any part or all of the amounts payable to a Tier
I or Tier II Participant pursuant to the Plan (or otherwise, if such amounts
are paid by Tribune Company or any of its subsidiaries in connection with a
Change in Control) are deemed to be excess parachute payments within the
meaning of Section 280G(b)(1) of the
Code , Tribune Company shall pay to such Participant, in addition to any
other amounts that he may be entitled to receive pursuant to the Plan, an
amount which, after all federal, state, and local taxes (of whatever kind)
imposed on the Participant with respect to such amount are subtracted
therefrom, is equal to the excise taxes imposed on such excess parachute
payments pursuant to Section 4999 of the Code.
8. No Funding of Transitional Compensation. Nothing herein contained shall require or be
deemed to require Tribune Company or a subsidiary to segregate, earmark, or
otherwise set aside any funds or other assets to provide for any payments
required to be made hereunder, and the rights of a terminating Participant to
transitional compensation hereunder shall be solely those of a general,
unsecured creditor of Tribune Company. However, Tribune Company may, in its
discretion, deposit cash or property, or both, equal in value to all or a
portion of the amounts anticipated to be payable hereunder for any or all
Participants into a trust, the assets of which are to be distributed at such
times as are provided for in the Plan; provided that such assets shall be
subject at all times to the rights of Tribune Companys general creditors.
9. Death.
In the event of a Participants death, any amount or benefit payable or
distributable to him pursuant to paragraph 5(a) and paragraph 7 shall be paid
to the beneficiary designated by such Participant for such purpose in the last
written instrument received by the Committee prior to the Participants death,
if any, otherwise, to the Participants estate.
10. Rights in the Event of Dispute. If a claim or dispute arises concerning the
rights of a Participant or beneficiary to benefits under the Plan, regardless
of the party by whom such claim or dispute is initiated, Tribune Company shall,
upon presentation of appropriate vouchers, pay all legal expenses, including
reasonable attorneys fees, court costs, and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the Participant or by anyone
claiming under or through the Participant (such person being hereinafter
referred to as the Participants claimant), in connection with the bringing,
prosecuting, defending, litigating, negotiating, or settling such claim or
dispute; provided that:
(a) The Participant or the Participants
claimant shall repay to Tribune Company any such expenses theretofore paid or
advanced by Tribune Company if and to the extent that the party disputing the
Participants
5
rights obtains a judgment in its favor from a court of
competent jurisdiction from which no appeal may be taken, whether because the
time to do so has expired or otherwise, and it is determined that such expenses
were not incurred by the Participant or the Participants claimant while acting
in good faith; provided further that
(b) In the case of any claim or dispute
initiated by a Participant or the Participants claimant, such claim shall be
made, or notice of such dispute given, with specific reference to the
provisions of this Plan, to the Committee within one year after the occurrence
of the event giving rise to such claim or dispute.
11. Amendment or Termination. Subject to Section 409A of the Code, the Board of Directors of Tribune Company reserves the
right to amend, modify, suspend, or terminate the Plan at any time; provided
that:
(a) Without
the consent of the Participant, no such amendment, modification, suspension, or
termination shall reduce or diminish his right to receive any payment or
benefit which becomes due and payable under the Plan as then in effect by
reason of his termination of employment prior to the date on which such
amendment, modification, suspension, or termination becomes effective; and
(b) No
such amendment, modification, suspension, or termination which has the effect
of reducing or diminishing the right of any Participant to receive any payment
or benefit under the Plan will become effective prior to the expiration of the
36 consecutive month period commencing on the date of a Change in Control, if
such amendment, modification, suspension, or termination was effected: (i) on
the day of or subsequent to the Change in Control; (ii) prior to the Change in
Control, but at the request of any third party participating in or causing the
Change in Control; or (iii) otherwise in connection with or in anticipation of
a Change in Control.
12. No Obligation to Mitigate Damages. In the event a Participant becomes
eligible to receive benefits hereunder, the Participant shall have no
obligation to seek other employment in an effort to mitigate damages. To the
extent a Participant shall accept other employment after his termination of
employment, the compensation and benefits received from such employment shall
not reduce any compensation and benefits due under this Plan, except as
provided in paragraph 5(c).
13. Other Benefits. The benefits provided under the Plan
shall, except to the extent otherwise specifically provided herein, be in
addition to, and not in derogation or diminution of, any benefits that a
Participant or his beneficiary may be entitled to receive under any other plan
or program now or hereafter maintained by Tribune Company or by any of its
subsidiaries.
6
14. Successors.
(a) Tribune Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of Tribune Company,
to expressly assume and agree to perform Tribune Companys obligations under
this Plan in the same manner and to the same extent that Tribune Company would
be required to perform them if no such succession had taken place unless, in
the opinion of legal counsel mutually acceptable to a majority of the
Participants, such obligations have been assumed by the successor as a matter
of law. Failure of Tribune Company to obtain such agreement prior to the
effectiveness of any such succession (unless the foregoing opinion is rendered
to the Participants) shall entitle each Participant to terminate his employment
and to receive the payments provided for in paragraphs 5 and 7 above. As used
in this Plan, Tribune Company shall mean such company, as presently
constituted, and any successor to its business and/or assets which executes and
delivers the agreement provided for in this paragraph 14 or which otherwise
becomes bound by all the terms and provisions of the Plan as a matter of law.
(b) A
Participants rights under this Plan shall inure to the benefit of, and shall
be enforceable by, the Participants legal representative or other successors
in interest, but shall not otherwise be assignable or transferable.
15. Notices. Any notices referred to herein shall be in
writing and shall be sufficient if delivered in person or sent by U.S.
registered or certified mail to the Participant at his address on file with his
employer (or to such other address as the Participant shall specify by notice),
or to Tribune Company at 435 North Michigan Avenue, Chicago, Illinois 60611,
Attention: Compensation & Organization Committee.
16. Waiver.
Any waiver of any breach of any of the provisions of the Plan shall not
operate as a waiver of any other breach of such provisions or any other
provisions, nor shall any failure to enforce any provision of the Plan operate
as a waiver of any partys right to enforce such provision or any other
provision.
17. Severability. If any provision of the Plan or the
application thereof is held invalid or unenforceable by a court of competent
jurisdiction, the invalidity or unenforceability thereof shall not affect any
other provisions or applications of this Plan which can be given effect without
the invalid or unenforceable provision or application.
18. Governing Law. The validity,
interpretation, construction, and performance of the Plan shall be governed by
the laws of the state of Illinois.
7
19. Headings. The headings and paragraph
designations of the Plan are included solely for convenience of reference and
shall in no event be construed to effect or modify any provisions of the Plan.
20. Gender and Number. In the Plan
where the context admits, words in any gender shall include the other gender,
words in the plural shall include the singular, and words in the singular shall
include the plural.
IN
WITNESS WHEREOF, the Tribune Company Employee Benefits Committee has caused the
foregoing to be executed on behalf of Tribune Company by the undersigned duly
authorized Chairman of the Committee as of the 19th day of July, 2006.
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TRIBUNE COMPANY
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By:
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/s/ Donald C. Grenesko
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Chairman of Tribune Company
Employee Benefits Committee
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8
EX-21
4
a07-1375_1ex21.htm
EX-21
Exhibit
21
TRIBUNE COMPANYLIST OF SUBSIDIARIES
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Jurisdiction of
Incorporation
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Other names under which subsidiary does
business
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PUBLISHING
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Tribune Publishing Company
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Delaware
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The Baltimore Sun Company
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Maryland
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The Sun; baltimoresun.com
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Homestead
Publishing Company
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Maryland
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The Aegis; The Record; APG News; The Weekenders;
Harford Magazine; Harford Business Ledger; TheAegis.com; harfordledger.com
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Patuxent
Publishing Company
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Maryland
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Eldersburg Eagle; Westminster Eagle; Howard County
Times; Columbia Flier; Laurel Leader; SoundOff; Catonsville Times; Arbutus
Times; Owings Mills Times; Baltimore Messenger; Towson Times; Northeast
Booster; Northwest Reporter; North County News; Jeffersonian; The View
Ellicott City; The View West Howard County; The View Catonsville; The
View Elkridge; Maryland Family; ChesapeakeHome Magazine; Howard/Columbia
Magazine
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Baltimore
Newspaper Network, Inc.
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Maryland
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Chicago Tribune Company
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Illinois
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Chicago Tribune; chicagotribune.com; RedEye
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Chicagoland
Publishing Company
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Delaware
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Apartments.com Magazine; AutoFinder; Chicago Tribune
Cars Magazine; Chicago Fashion Magazine; Chicago Home Magazine; Chicago
Magazine; JobFinder; New Homes Guide; Relcon
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Chicago Tribune
Newspapers, Inc.
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Illinois
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Chicago Tribune
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Chicago Tribune
Press Service, Inc.
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Illinois
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Tribune Newspaper Network
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Newspaper
Readers Agency, Inc.
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Illinois
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Tribune Direct
Marketing, Inc.
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Delaware
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Tribune Direct Marketing
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The Daily Press, Inc.
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Delaware
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Daily Press; dailypress.com
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Virginia Gazette
Companies, LLC
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Delaware
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Virginia Gazette; vagazette.com
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Virginia
Community Shoppers, LLC
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Delaware
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E Z Buy & E Z Sell Recycler Corporation
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Delaware
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E Z Buy & E
Z Sell Recycler Corporation of Southern California
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Delaware
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AutoBuys; AutoPix; AutoSeller; AutoTruckBuys; Big
Truck & Equipment; Car Buys; Cycle&Boat Buys; EZ-Ads; Recycler;
Recycler.com; RV Buys; Jobs; TruckBuys
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The Renter, Inc.
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Delaware
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Forum Publishing Group, Inc.
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Delaware
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Jewish Journal
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The Hartford Courant Company
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Connecticut
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Hartford Courant; courant.com; ctnow.com
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Courant
Specialty Products, Inc.
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Connecticut
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New Mass Media,
Inc.
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Massachusetts
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Fairfield Weekly; Hartford Advocate; New Haven
Advocate; Valley Advocate; Westchester Weekly
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Heart &
Crown Advertising, Inc.
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Connecticut
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TMLH2, Inc.
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California
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Hoy Publications, LLC
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Delaware
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Hoy; Hola Hoy; hoyinternet.com
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Orlando Sentinel Communications Company
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Delaware
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Orlando Sentinel; orlandosentinel.com; Orlando City
Book; El Sentinel; Sentinel Express; elsentinel.com
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Neocomm, Inc.
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Delaware
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Neocomm of Delaware, Inc.
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Sentinel
Communications News Ventures, Inc.
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Delaware
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The Morning Call, Inc.
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Pennsylvania
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Morning Call; mcall.com
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Direct Mail Associates,
Inc.
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Pennsylvania
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Southern Connecticut Newspapers, Inc.
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Connecticut
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The Adovcate; stamfordadvocate.com; Greenwich Time;
greenwichtime.com
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TMLS1, Inc.
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California
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Sun-Sentinel Company
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Delaware
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Sun-Sentinel; sun-sentinel.com
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Gold Coast
Publications, Inc.
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Delaware
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City Link; City & Shore; Teen Link; Sun-Sentinel
Direct; Sentinel; South Florida Parenting; Florida New Homes Guide
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TMD, Inc.
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Delaware
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Newsday, Inc.
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New York
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Newsday; newsday.com
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Distribution
Systems of America, Inc.
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New York
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Star Community Publishing Group, LLC
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Delaware
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Huntington Pennysaver; Results Media; Shoppers
Guide; This Week; Yankee Trader
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Hoy, LLC
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New York
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Hoy
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Tribune Interactive, Inc.
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Delaware
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chicagosports.com; go2orlando.com; metromix.com
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Tribune Los Angeles, Inc.
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Delaware
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Los Angeles
Times Communications LLC
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Delaware
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The Burbank Leader; latimes.com; Glendale-News
Press; La Canada Valley Sun; La Crescenta Valley Sun; Laguna Beach Coastline;
Newport Beach/ Costa Mesa Daily Pilot; Times Community News
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Los Angeles
Times Newspapers, Inc.
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Delaware
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Tribune
Manhattan Newspaper Holdings, Inc.
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Delaware
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Tribune New York
Newspaper Holdings, LLC
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Delaware
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amNewYork
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Tribune Media Services, Inc.
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Delaware
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Tribune Media Services International;
tms.tribune.com; Zap2It
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TMS
Entertainment Guides, Inc.
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Delaware
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TMS
Entertainment Guides Canada Corp
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Canada
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Tribune Media
Services, BV
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Netherlands
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Tribune Media Net, Inc.
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Delaware
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Tribune National Marketing Company
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Delaware
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BROADCASTING
AND ENTERTAINMENT
Tribune Broadcasting Company
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Delaware
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Tribune Cable; Tribune Creative Services Group;
Tribune Plus; Tribune Plus Corporate Sales; Tribune Television
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ChicagoLand Microwave Licensee, Inc.
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Delaware
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ChicagoLand Television News, Inc.
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Delaware
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ChicagoLand Television/CLTV News; cltv.com
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KHCW Inc.
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Delaware
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KHCW-TV; khcw.com
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KSWB Inc.
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Delaware
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KSWB-TV; sandiegocw.com
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KPLR, Inc.
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Missouri
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KPLR-TV; cw11tv.com
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KTLA Inc.
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California
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KTLA-TV; ktla.com
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KWGN Inc.
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Delaware
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KWGN-TV; cw2.com
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Oak Brook Productions, Inc.
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Delaware
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Tower Distribution Company
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Delaware
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WGN Cable; Superstation WGN; wgncable.com
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Tribune Broadcasting News
Network, Inc.
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Delaware
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TribNet
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Tribune
Broadcast Holdings, Inc.
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Delaware
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KRCW-TV; WTTV-TV; thecw4.com; WTTK-TV
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Tribune
Entertainment Company
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Delaware
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Magic T Music Publishing Company
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Delaware
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Tribune Entertainment Production Company
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Delaware
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435 Production Company
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Delaware
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5800 Sunset Productions Inc.
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Delaware
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Chicago River Production Company
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Delaware
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North Michigan Production Company
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Delaware
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Towering T Music Publishing Company
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Delaware
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Tribune (FN)
Cable Ventures, Inc.
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Delaware
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Tribune Network
Holdings Company
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Delaware
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Tribune
Television Company
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Delaware
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WPMT-TV; wpmt.com; WXIN-TV; fox59.com; WTIC-TV;
fox61.com; KDAF-TV; cw33.com WPHL-TV; myphl17.com
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Channel 20, Inc.
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Delaware
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Channel 40, Inc.
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Delaware
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KTXL-TV; fox40.com
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Channel 39, Inc.
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Delaware
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WSFL-TV; cwsfl.com
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Tribune Television Holdings, Inc.
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Delaware
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WXMI-TV, wxmicom; KMYQ-TV; myq2.com
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Tribune Television New Orleans, Inc.
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Delaware
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WGNO-TV; wgno.com; WNOL-TV; wnol.com
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Tribune Television Northwest, Inc.
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Delaware
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KCPQ-TV; q13.com
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WDCW Broadcasting, Inc.
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Delaware
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WDCW-TV; thecwdc.com
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WGN Continental Broadcasting Company
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Delaware
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WGN-TV; wgntv.com; WGN Radio; wgnradio.com; Tribune
Radio Network
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Tribune Sports Network Holdings, LLC
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Delaware
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WPIX, Inc.
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Delaware
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WPIX-TV; cw11.com
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WTXX Inc.
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Delaware
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WTXX-TV; wtxx.xom
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Chicago National
League Ball Club, Inc.
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Delaware
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Chicago Cubs; cubs.com
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Chicago Cubs
Dominican Baseball Operations, Inc.
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Delaware
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Diana-Quentin,
Inc.
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Illinois
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Tribune
California Properties, Inc.
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Delaware
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MISCELLANEOUS
California Community News
Corporation
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Delaware
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Chicago Avenue
Construction Company
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Illinois
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Eagle New Media
Investments, LLC
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Delaware
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Stemweb, Inc.
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New York
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ForSaleByOwner.com
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New York
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Homeowners Realty, Inc.
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Utah
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Internet Foreclosure Service, Inc.
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New York
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Newport Media, Inc.
|
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Delaware
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ValuMail, Inc.
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Connecticut
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Eagle Publishing
Investments, LLC
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Delaware
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GreenCo, Inc.
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Delaware
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Los Angeles
Times International, Ltd.
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California
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JuliusAir II,
LLC
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Delaware
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Multimedia
Insurance Company
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Vermont
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Riverwalk Center
I Joint Venture
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Florida (Partnership)
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Tribune License,
Inc.
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Delaware
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Tribune Finance
Service Center, Inc.
|
|
Delaware
|
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Wrigley Field Premium
Ticket Services, Inc.
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Delaware
|
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EX-23
5
a07-1375_1ex23.htm
EX-23
EXHIBIT 23
CONSENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
hereby consent to the incorporation by reference in the Registration Statement
on Form S-3 (File No. 333-135905) and in the Registration
Statements on Form S-8 (File Nos. 2-90727, 33-21853,
33-26239, 33-47547, 33-59233, 333-00575, 333-03245,
333-18269, 333-35422, 333-70692, 333-70696, 333-118280,
333-118281, 333-118282, 333-118283 and 333-118284) of
Tribune Company of our report dated Feb. 21, 2007, relating to the consolidated
financial statements, financial statement schedule, managements assessment of
the effectiveness of internal control over financial reporting and the
effectiveness of internal control over financial reporting, which appears in
this Form 10-K. We also consent to the reference to us under the
heading Selected Financial Data in this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS
LLP
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PricewaterhouseCoopers LLP
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Chicago, Illinois
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February 21, 2007
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139
EX-31.1
6
a07-1375_1ex31d1.htm
EX-31.1
EXHIBIT 31.1
Form 10-K
Certification
I, Dennis J. FitzSimons, certify that:
1. I have reviewed
this annual report on Form 10-K of Tribune Company;
2. Based on my
knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my
knowledge, the financial statements, and other financial information included
in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of Tribune Company as of, and
for, the periods presented in this annual report;
4. Tribune Companys
other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for Tribune
Company and have:
a) Designed such
disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to Tribune Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) Designed such
internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the
effectiveness of Tribune Companys disclosure controls and procedures and
presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
annual report based on such evaluation; and
d) Disclosed in this
annual report any change in Tribune Companys internal control over financial
reporting that occurred during Tribune Companys most recent fiscal quarter (Tribune
Companys fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, Tribune
Companys internal control over financial reporting; and
5. Tribune
Companys other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to Tribune
Companys auditors and the audit committee of Tribune Companys board of
directors:
a) All significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely
affect Tribune Companys ability to record, process, summarize and report
financial information; and
b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in Tribune Companys internal control over financial
reporting.
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/s/ DENNIS
J. FITZSIMONS
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Dennis J. FitzSimons
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Date: February 26,
2007
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Chairman, President and
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Chief Executive Officer
|
140
EX-31.2
7
a07-1375_1ex31d2.htm
EX-31.2
EXHIBIT 31.2
Form 10-K
Certification
I, Donald C. Grenesko, certify that:
1. I have reviewed
this annual report on Form 10-K of Tribune Company;
2. Based on my
knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my
knowledge, the financial statements, and other financial information included
in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of Tribune Company as of, and
for, the periods presented in this annual report;
4. Tribune Companys
other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for Tribune
Company and have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to Tribune Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated
the effectiveness of Tribune Companys disclosure controls and procedures and
presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
annual report based on such evaluation; and
d) Disclosed
in this annual report any change in Tribune Companys internal control over
financial reporting that occurred during Tribune Companys most recent fiscal
quarter (Tribune Companys fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, Tribune Companys internal control over financial reporting; and
5. Tribune Companys
other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to Tribune Companys
auditors and the audit committee of Tribune Companys board of directors:
a) All significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely
affect Tribune Companys ability to record, process, summarize and report
financial information; and
b) Any fraud, whether
or not material, that involves management or other employees who have a
significant role in Tribune Companys internal control over financial
reporting.
|
|
/s/ DONALD C.
GRENESKO
|
|
|
Donald C. Grenesko
|
|
|
Senior Vice President/
|
Date:
February 26, 2007
|
|
Finance and Administration
|
141
EX-32.1
8
a07-1375_1ex32d1.htm
EX-32.1
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO
18 UNITED STATES CODE SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I,
Dennis J. FitzSimons, the Chairman, President and Chief Executive Officer of
Tribune Company, certify that (i) Tribune Companys Form 10-K
for the year ended Dec. 31, 2006 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and (ii) the information
contained in the Form 10-K for the year ended Dec. 31, 2006
fairly presents, in all material respects, the financial condition and the
results of operations of Tribune Company.
|
|
/s/ DENNIS
J. FITZSIMONS
|
|
|
Dennis J. FitzSimons
|
|
|
Chairman, President and
|
|
|
Chief Executive Officer
|
|
|
|
|
|
February 26, 2007
|
142
EX-32.2
9
a07-1375_1ex32d2.htm
EX-32.2
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO
18 UNITED STATES CODE SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I,
Donald C. Grenesko, the Senior Vice President/Finance and Administration of
Tribune Company, certify that (i) Tribune Companys Form 10-K
for the year ended Dec. 31, 2006 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and (ii) the information
contained in the Form 10-K for the year ended Dec. 31, 2006
fairly presents, in all material respects, the financial condition and the
results of operations of Tribune Company.
|
|
/s/ DONALD
C. GRENESKO
|
|
|
Donald C. Grenesko
|
|
|
Senior Vice President/
|
|
|
Finance and Administration
|
|
|
|
|
|
February 26, 2007
|
143
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