Tribune Co lower OCF

By Lou Grant | Aug 14, 7:06 AM

The results of the Tribune Co. were released yesterday. There isn't any surprise that the company lost money. The operating cash flow of the units has been the mantra at the Tribune Co. since Sam Zell took the company private in December. And, publishing has been taking a beating both due to broad economic factors, such as the decline in advertising among key segments and also due to changes in the structure of the economy, especially the use of the Internet by readers.

In the second quarter of 2008, the company saw its OCF from publishing decline by $5.06 million. That's a decline of 4.23 percent from the 2007 2nd quarter. OCF from broadcasting and entertainment also declined in the quarter $4.33 million, or 3.59 percent.

The company highlights its losses in the quarter in its press release, but also notes, "the 2008 loss from continuing operations was due to after-tax non-cash charges of $3.8 billion to write down the Company's publishing goodwill and newspaper masthead intangible assets, nearly all of which resulted from the Company's Times Mirror acquisition in 2000."

In other words the $8.3 billion purchase of the Los Angeles Times and other Times Mirror properties was written down by $3.8 billion in the quarter.

The company has paid down its borrowings as noted by CEO Sam Zell, "we have repaid an additional $807 million of borrowings under the Tranche X Facility from the net proceeds of our asset-backed commercial paper program and from the Newsday transaction. These payments satisfy the December 2008 portion of the Tranche X Facility, and leave us with a remaining principal balance of $593 million due in June 2009."

One of the means of repaying the ESOP buyout was through the factoring of accounts receivable. Essentially, selling the accounts receivable of the company. The company said it borrowed $225 million against a $300 million line, using the proceeds to repay the ESOP loan. Although this was controversial, the idea doesn't seem to have harmed the company.

930 fewer full-time equivalent employees worked at the Tribune Cos. at the end of the 2nd quarter. Meaning the company had about 18,670 FTE on June 30, a decline of 4.74 percent. The sale of Newsday and the most recent round of layoffs occurred after the close of the quarter; the current number of FTE is even lower today. Most of the job losses were at publishing units, although there were some cuts at broadcasting stations too.

So, that's the facts. What to make of them? First, the Tribune Co. has been trumpeting its increase in web page views. However, the financial statements do not breakout the portion of revenue created by the web. And in any case it is likely to be small and disappointing. Advertising revenue on the web has also been off due to the same factors effecting publishing.

Second, the broadcasting units are throwing off less cash, primarily due to greater investments in them. A key question is when will these units provide an improved return on the investment.

The 930 eliminated employees were disproportionately among publishing group units. The company has said it is "right-sizing" for 2010. If the plans of the company to rejuvenate the publishing brands fail, and it sees lower revenue increases than the industry, will it continue to blame employees, or will it begin to look at management?

Finally, the ESOP loan requires a payment of $593 million in June 2009. Assuming the Cubs are sold before that date, this next repayment date seems to be within reach. However, assuming that happens, the company will have made its repayments with the sale of two assets. If the value of publishing assets remains depressed and if the advertising market continues to sputter resulting in lower revenues and OCF, how does the company plan to make future loan payments?

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