TRIBUNE PUBLISHING COMPANY The following discussion and analysis should be read in conjunction with the other sections of this Quarterly Report on Form 10-Q, including the Company's Consolidated Financial Statements and related Notes filed as part of this Quarterly Report, and "Cautionary Statement Concerning Forward-Looking Statements." Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and other factors described throughout this Quarterly Report as well as the factors described in our Annual Report on Form 10-K as filed with theSecurities and Exchange Commission ("SEC") onMarch 8, 2021 ("the "2020 Annual Report"), particularly under Item 1A. "Risk Factors," and in the Company's other filings with theSEC . We believe that the assumptions underlying the Consolidated Financial Statements included in this Quarterly Report are reasonable. However, the Consolidated Financial Statements may not necessarily reflect our results of operations, financial position and cash flows for future periods. OVERVIEWTribune Publishing Company was formed as aDelaware corporation onNovember 21, 2013 .Tribune Publishing Company together with its subsidiaries (collectively, the "Company" or "Tribune") is a media company rooted in award-winning journalism. Headquartered inChicago , Tribune operates local media businesses in eight markets with titles including theChicago Tribune ,New York Daily News ,The Baltimore Sun ,Hartford Courant ,South Florida's Sun Sentinel ,Orlando Sentinel , Virginia'sDaily Press andThe Virginian-Pilot , andThe Morning Call ofLehigh Valley, Pennsylvania . Tribune also operatesTribune Content Agency ("TCA"). Tribune's unique and valuable content across its brands have earned a combined 65 Pulitzer Prizes and are committed to informing, inspiring and engaging local communities. Tribune's brands create and distribute content across our media portfolio, offering integrated marketing, media, and business services to consumers and advertisers, including digital solutions and advertising opportunities. OnDecember 29, 2020 , the Company completed the sale of its majority ownership ofBestReviews Inc. ("BestReviews"). See Note 5 to the Consolidated Financial Statements for additional information on the disposition and related discontinued operations. OnFebruary 16, 2021 , the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") by and amongTribune Enterprises, LLC , aDelaware limited liability company ("TELLC"),Tribune Merger Sub, Inc , aDelaware corporation and a direct, wholly owned subsidiary of TELLC ("Merger Sub"), and the Company, pursuant to which Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of TELLC. TELLC is an affiliate ofAlden Global Opportunities Master Fund, L.P. andAlden Global Value Recovery Master Fund, L.P. (collectively, "Alden Funds"), the Company's largest shareholder. Upon completion of the transaction the Company will become a privately held company, and its common stock will no longer be listed on any public market. See Note 11 to the Consolidated Financial Statements for additional information related to the Merger Agreement. The Company continues to position itself as a leaner, more agile operation in order to sustain itself for the long term. Accordingly, the Company is aggressively eliminating fixed cost infrastructure as well as continually assessing its operations in an effort to identify opportunities to enhance operational efficiencies and reduce expenses. In the past these activities have included, and could include in the future, outsourcing of various functions or operations, abandonment of leased space and other activities which may result in changes to employee headcount. See Note 4 to the Consolidated Financial Statements for more information on changes in operations in the three months endedMarch 28, 2021 . The Company expects to continue to take actions deemed appropriate to enhance profitability but does not currently know whether or when any such actions will occur or the potential costs and expected savings. Depending on the actions taken and the timing of any such actions, the anticipated cost savings could be recognized in fiscal periods that do not correspond to the fiscal period(s) in which the charges are recognized. As a result, the Company's net income trends could be impacted and be more difficult to predict. 23 -------------------------------------------------------------------------------- Products and Services Our publication product mix includes three primary types: (i) daily newspapers, (ii) weekly newspapers and (iii) niche publications and direct mail. The key characteristics of each of these types of publications are summarized in the table below. Daily Newspapers Weekly Newspapers Niche Publications Cost: Paid Paid and free Paid and free Distributed four to seven Distributed one to three days Distributed weekly, monthly Distribution: days per week per week or on an annual basis Paid: Revenue from Revenue from advertisers, advertising, subscribers, Paid: Revenue from Income: subscribers, rack/box sales rack/box sales advertising, rack/box sales Free: Advertising revenue Free:
Advertising revenue only only
As ofMarch 28, 2021 , the Company's prominent print publications and websites include: Media Group City Masthead Website Circulation Type Paid or FreeChicago Tribune Media Group
Chicago, IL Chicago Tribune www.chicagotribune.com Daily Paid
Chicago, IL Chicago Magazine www.chicagomag.com Monthly Paid
New York, NY New York Daily News www.nydailynews.com Daily Paid
Baltimore, MD The Baltimore Sun www.baltimoresun.com Daily Paid
Annapolis, MD The Capital www.capitalgazette.com Daily Paid
Westminster, MD Carroll County Times www.carrollcountytimes.com Daily Paid
Hartford County, CT, Hartford Courant www.courant.com Daily Paid
Middlesex County, CT,
Tolland County, CT
Broward County, FL, Sun Sentinel www.sun-sentinel.com Daily Paid
Palm Beach County, FL
Broward County, FL, el Sentinel www.sun-sentinel/elsentinel.com Weekly Free
Palm Beach County, FL
Orlando, FL Orlando Sentinel www.orlandosentinel.com Daily Paid
Orlando, FL el Sentinel www.orlandosentinel/elsentinel.com Weekly Free
Newport News, VA Daily Press www.dailypress.com Daily Paid
(Peninsula)
Norfolk, VA The Virginian-Pilot www.pilotonline.com Daily Paid
Lehigh Valley, PA The Morning Call www.themorningcall.com Daily Paid
TCA is a syndication and licensing business providing content solutions for
publishers around the globe. Working with a vast collection of the world's news
and information sources, TCA delivers a daily news service and syndicated
premium content to over 2,000 media and digital information publishers in more
than 70 countries. Tribune News Service delivers material from 70 leading
publications, including Chicago Tribune , Bloomberg News , Miami Herald , The
Dallas Morning News , Seattle Times , The Philadelphia Inquirer , and Los Angeles
Times . Tribune Premium Content syndicates columnists such as Leonard Pitts , Cal
Thomas , Clarence Page , Ask Amy and Rick Steves . TCA manages the licensing of
premium content from publications such as Rolling Stone , The Atlantic , Fast
Company , Mayo Clinic , Variety and many more. TCA traces its roots back to 1918.
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Revenue Sources
Circulation revenue results from the sale of print and digital editions of
newspapers and other owned publications to individual subscribers, the sale of
print editions of newspapers to sales outlets that re-sell the newspapers, and
the sale of digital subscription access to the Company's websites.
Print advertising is typically in the form of display, preprint or classified
advertising. Advertising and marketing services revenues are comprised of three
basic categories: retail, national and classified. Retail is a category of
customers who generally do business directly with the public. National is a
category of customers who generally do business directly with other businesses.
Classified is a type of advertising which is other than display or preprint.
Digital advertising consists of website display, banner ads, advertising
widgets, coupon ads, video, search advertising and linear ads placed on Tribune
and affiliated websites. Digital marketing services include development of
mobile websites, search engine marketing and optimization, social media account
management and content marketing for customers' web presence for small to medium
size businesses.
Other revenues are derived from commercial printing and delivery services
provided to other newspapers, direct mail advertising and services, content
syndication and licensing, referral fees and other related activities. The
Company contracts with a number of national and local newspapers to both print
and distribute their respective publications in local markets where it is a
newspaper publisher. In some instances where it prints publications, it also
manages and procures newsprint, ink and plates on their behalf. These
arrangements allow the Company to leverage its investment in infrastructure in
those markets that support its own publications. As a result, these arrangements
tend to contribute incremental profitability and revenues. The Company currently
distributes national newspapers (including The New York Times, USA Today , and
The Wall Street Journal) in its local markets under multiple agreements.
Additionally, in New York , Chicago , and South Florida , the Company provides some
or all of these services to other local publications.
RESULTS OF OPERATIONS
Operating results from continuing operations are shown in the table below (in
thousands):
Three months ended
Mar 28, 2021 Mar 29, 2020 % Change
Circulation $ 87,542 $ 90,012 (2.7%)
Advertising 56,531 76,816 (26.4%)
Other 29,481 39,613 (25.6%)
Total operating revenues 173,554 206,441 (15.9%)
Compensation 61,759 96,268 (35.8%)
Newsprint and ink 6,624 10,720 (38.2%)
Outside services 63,200 74,585 (15.3%)
Other operating expenses 28,284 30,154 (6.2%)
Depreciation and amortization 5,242 8,813 (40.5%)
Impairment - 51,049 *
Total operating expenses 165,109 271,589 (39.2%)
Income (loss) from operations 8,445 (65,148) *
Interest expense, net (144) (30) *
Other income, net 403 387 4.1%
Income tax (expense) benefit (2,582) 15,811 *
Net income (loss) from continuing operations 6,122 (48,980) *
Plus: Income from discontinued operations, net of
taxes 20,500 4,974 *
Net income (loss) 26,622 (44,006) *
Less: Income (loss) attributable to noncontrolling interest ("NCI")
(413) 1,330 *
Net income (loss) attributable to Tribune common
stockholders $ 27,035 $ (45,336) *
* Represents positive or negative change in excess of 100%
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Three months ended March 28, 2021 compared to the three months ended
March 29, 2020
Circulation Revenue-Circulation revenues decreased 2.7%, or $2.5 million , in the
three months ended March 28, 2021 , compared to the same period for 2020. Home
delivery revenue decreased $5.9 million and single copy sales decreased $2.3
million . These decreases were partially offset by an increase of $5.8 million in
digital subscription revenue as customers turn to digital delivery.
Advertising Revenue-Advertising revenues decreased 26.4%, or $20.3 million , in
the three months ended March 28, 2021 , compared to the same period for 2020, due
to decreases in all revenue categories. Retail advertising decreased $18.4
million , classified advertising decreased $1.8 million and national advertising
decreased $0.2 million . The COVID-19 pandemic continues to exacerbate the
decline in advertising revenue when comparing to pre-pandemic periods and the
prior year included $2.0 million related to cars.com and forsalebyowner.com
transition sales contracts which fully cycled in the second quarter of last
year..
Other Revenue-Other revenues consist of commercial print and delivery, direct
mail and marketing, and content syndication and licensing, referral fees and
other revenue. Other revenues decreased 25.6%, or $10.1 million , in the three
months ended March 28, 2021 , compared to the same period for 2020. Commercial
print and delivery revenue decreased $4.9 million , direct mail revenue decreased
$2.6 million , and revenue from the TSA agreement decreased $1.7 million due to
the conclusion of the operational transition to NantMedia Holdings, LLC in the
second quarter of 2020.
Compensation Expense-Compensation expense decreased 35.8%, or $34.5 million , in
the three months ended March 28, 2021 . This decrease was due primarily to a
decrease in salary and payroll tax expense of $17.2 million , a decrease in
severance costs of $15.1 million and a decrease of $1.4 million in workers
compensation expense. These decreases were partially offset by an increase of
$1.6 million in multiemployer pension expense.
Newsprint and Ink Expense-Newsprint and ink expense decreased 38.2%, or $4.1
million , in the three months ended March 28, 2021 . This decrease was due
primarily to a decrease in the average cost per ton of newsprint and a decrease
in volume.
Outside Services Expense-Outside services expense decreased 15.3%, or $11.4
million , in the three months ended March 28, 2021 . This decrease was due
primarily to a decrease of $5.8 million in third party delivery expense, a
decrease of $1.7 million in digital services related to consolidation of third
party providers, a decrease of $1.4 million in accrued legal expense, a decrease
of $1.1 million in temporary help and a decrease of $1.0 million in freelance
purchased content.
Other Operating Expenses-Other expenses include occupancy costs, promotion and
marketing costs, affiliate fees and other miscellaneous expenses, including
gains on fixed asset sales. These expenses decreased 6.2%, or $1.9 million , in
the three months ended March 28, 2021 , due primarily to a decrease of $3.4
million in occupancy expenses, a decrease of $1.9 million in promotion expenses,
a decrease of $0.9 million in travel and entertainment expenses, a decrease of
$0.9 million in repairs and maintenance. These decreases were partially offset
by a $2.4 million legal settlement related to the Rights Agreement.
Additionally, in the first quarter of 2020, the Company recognized a gain on the
sale of fixed assets of $5.2 million which partially offset the decreases in
expenses in the first quarter of 2021.
Depreciation and Amortization Expense-Depreciation and amortization expense
decreased 40.5%, or $3.6 million , primarily due to decreased depreciation
related to asset retirements in previous periods.
Impairment Expense-During the first quarter of 2020, the Company recorded a
non-cash impairment charge of $51.0 million with $41.4 million related to
long-lived assets, $7.1 million related to mastheads, and $2.5 million related
to goodwill. Long-lived asset impairments included $7.0 million related to
abandoned lease space.
Income Tax Expense (Benefit)-Income tax expense increased $18.4 million for the
three months ended March 28, 2021 , over the prior year period. For the three
months ended March 28, 2021 , the Company recorded an income tax expense of $2.6
million . The effective tax rate on pretax income was 29.7% in the three months
ended March 28, 2021 . This rate differs from the U.S. federal statutory rate of
21% primarily due to state income taxes, net of federal benefit, tax expense
related to vesting of stock compensation, and non-deductible expenses.
For the three months ended March 29, 2020 , the Company recorded income tax
benefit of $15.8 million which includes an additional $0.0 million benefit from
the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") relating to
the carryback of a loss to a period with a higher tax rate. The effective tax
rate on pretax income was 24.4% in the three months ended March 29, 2020 . The
rate differs from the U.S. federal statutory rate of 21% primarily due to state
income taxes, net of
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federal benefit, impact of the CARES Act, tax expense related to the vesting of
stock compensation, and non-deductible expenses.
Discontinued Operations-Income from discontinued operations, net of tax
increased $15.5 million or 312.1% primarily due to the gain of $29.5 million
recognized on the sale of BestReviews during the first quarter of 2021.
NON-GAAP MEASURES
Adjusted EBITDA-The Company defines Adjusted EBITDA as income (loss) from
continuing operations before equity in earnings of unconsolidated affiliates,
income taxes, loss on early debt extinguishment, interest income (expense),
other (expense) income, realized gain (loss) on investments, reorganization
items, depreciation and amortization, net income attributable to noncontrolling
interest, and other items that the Company does not consider in the evaluation
of ongoing operating performance. These items include stock-based compensation
expense, restructuring charges, impairment, transaction expenses, certain other
charges and gains that the Company does not believe reflects the underlying
business performance.
Three months ended
(in thousands) Mar 28, 2021 Mar 29, 2020 % Change
Net income (loss) from continuing operations $ 6,122 $ (48,980) *
Income tax expense (benefit) from continuing
operations 2,582 (15,811) *
Interest expense, net 144 30 *
Other income, net (403) (387) 4.1%
Income (loss) from operations 8,445 (65,148) *
Depreciation and amortization 5,242 8,813 (40.5%)
Impairment - 51,049 *
Restructuring and transaction costs (1) 10,664 13,221 (19.3%)
Stock based compensation 1,116 1,592 (29.9%)
Adjusted EBITDA from continuing operations $ 25,467 $ 9,527 *
* Represents positive or negative change in excess of 100%
(1) - Restructuring and transaction costs include costs related to Tribune's
internal restructuring, such as severance, charges associated with vacated space
and costs related to completed and potential acquisitions.
Adjusted EBITDA is a financial measure that is not calculated in accordance with
U.S. GAAP. Management believes that because Adjusted EBITDA excludes (i) certain
non-cash expenses (such as depreciation, amortization, stock-based compensation,
and gain/loss on equity investments) and (ii) expenses that are not reflective
of the Company's core operating results over time (such as restructuring costs,
including the employee voluntary separation program and gain/losses on employee
benefit plan terminations, litigation or dispute settlement charges or gains,
premiums on stock buyback, impairment, and transaction-related costs), this
measure provides investors with additional useful information to measure the
Company's financial performance, particularly with respect to changes in
performance from period to period. The Company's management uses Adjusted
EBITDA (a) as a measure of operating performance; (b) for planning and
forecasting in future periods; and (c) in communications with the Company's
Board of Directors (the "Board") concerning the Company's financial performance.
In addition, Adjusted EBITDA, or a similarly calculated measure, has been used
as the basis for certain financial maintenance covenants that the Company was
subject to in connection with certain credit facilities. Since not all companies
use identical calculations, the Company's presentation of Adjusted EBITDA may
not be comparable to other similarly titled measures of other companies and
should not be used by investors as a substitute or alternative to net income or
any measure of financial performance calculated and presented in accordance with
U.S. GAAP. Instead, management believes Adjusted EBITDA should be used to
supplement the Company's financial measures derived in accordance with U.S. GAAP
to provide a more complete understanding of the trends affecting the business.
Although Adjusted EBITDA is frequently used by investors and securities analysts
in their evaluations of companies, Adjusted EBITDA has limitations as an
analytical tool, and investors should not consider it in isolation or as a
substitute for, or more meaningful than, amounts determined in accordance with
U.S. GAAP. Some of the limitations to using non-GAAP measures as an analytical
tool are:
•they do not reflect the Company's interest income and expense, or the
requirements necessary to service interest or principal payments on the
Company's debt;
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•they do not reflect future requirements for capital expenditures or contractual
commitments; and
•although depreciation and amortization charges are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the future,
and non-GAAP measures do not reflect any cash requirements for such
replacements.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to fund capital expenditures and potential pension
contributions in 2021 and other operating requirements through a combination of
existing cash balances and cash flows from operations and investments. The
Company believes that its working capital and future cash from operations
discussed below will provide adequate resources to fund its operating and
financing needs for the foreseeable future. Despite the Company's current
liquidity position, no assurances can be made that cash flows from operations
and investments, or dispositions of assets or operations will be sufficient to
satisfy the Company's future liquidity needs.
Sources and Uses
The table below details the total operating, investing and financing activity
cash flows from continuing operations (in thousands):
Three months ended
March 28, 2021 March 29, 2020
Net cash provided by (used for) operating activities $ 22,741 $ (9,123)
Net cash provided by (used for) investing activities (2,271) 5,500
Net cash used for financing activities 1,597 (9,674)
Increase (decrease) in cash attributable to continuing operations
22,067 (13,297)
Increase in cash attributable to discontinued operations 99,825 4,907
Net increase (decrease) in cash $
121,892
Cash flow generated from operating activities is Tribune's primary source of liquidity. Cash provided by continuing operating activities for the three months endedMarch 28, 2021 , totaled$22.7 million compared to cash used for continuing operating activities of$9.1 million for the three months endedMarch 29, 2020 . The increase in cash provided by operating activities was driven by an increase in cash from working capital of$19.5 million primarily related to favorable changes in accounts payable and prepaid expenses and an increase in operating results of$12.3 million (defined as net income (loss) adjusted for non-working capital items). Net cash used for investing activities from continuing operations totaled$2.3 million in the three months endedMarch 28, 2021 , primarily used for capital expenditures. In the three months endedMarch 29, 2020 , net cash provided by investing activities from continuing operations totaled$5.5 million , primarily due to the net proceeds of$9.0 million related to the sale of real property inNorfolk, Virginia , partially offset by$3.5 million used for capital expenditures. Net cash provided by financing activities totaled$1.6 million for the three months endedMarch 28, 2021 , primarily due to withholding for taxes on restricted stock unit vesting. In the three months endedMarch 29, 2020 , net cash used for financing activities was$9.7 million , primarily due to payment of a cash dividend of$9.1 million to the Company's common stockholders onMarch 16, 2020 . Net cash provided by discontinued operations totaled$99.8 million for the three months endedMarch 28, 2021 primarily related to the$99.9 million proceeds for the sale of BestReviews. Cash provided by discontinued operations totaled$4.9 million for the three months endedMarch 29, 2020 , primarily related to BestReviews operating results partially offset by a payment of$5.2 million in dividends paid to the noncontrolling interest. Multiemployer pension During 2021 the Company is required to make$9.1 million in payments to the Teamsters Local Union No. 727Pension Fund (the "Teamsters Fund ") under the amended rehabilitation plan. During the three months endedMarch 28, 2021 , the Company has paid$2.3 million of the payments required. The Company expects to contribute an additional$6.8 million during the remainder of 2021. 28
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The Company's funding obligations under multiemployer plans are subject to change based on a number of factors, including the outcome of collective bargaining with the unions, actual returns on plan assets as compared to assumed returns, actions taken by trustees who manage the plan, changes in the number of plan participants, changes in the rate used for discounting future benefit obligations, as well as changes in legislation or regulations impacting funding and payment obligations. These payments are expensed as the payments become due. Employee Reductions During the three months endedMarch 28, 2021 , the Company implemented reductions in staffing levels in its operations of 86 positions for which the Company recorded pretax charges related to these reductions totaling$1.6 million . Item 3. Quantitative and Qualitative Disclosures About Market Risk As ofMarch 28, 2021 , there had been no material changes in the Company's exposure to market risk from the disclosure included in the 2020 Annual Report. Item 4. Controls and Procedures The Company carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Interim Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934), as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Interim Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting that occurred during the quarter endedMarch 28, 2021 , that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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