Read cases first, then answer the following qurstions:
make sure you are good at corporate finance
Eaton Case Questions:
- (a) What is the appropriate discount rate for the cash flows shown in Exhibit 5 (i.e., the forecast for the Hydraulics business, excluding the filtration and golf grips businesses, which are not part of the proposed deal)? You may assume a target D/V of 0.20.
Tronc Case Questions:
- What is your assessment of Tribune’s value, based on the recent (at the time of the case) market valuations of publicly traded firms in the news publishing industry?
- What is your assessment of Tribune’s value, assuming that the management plan to rebrand as tronc will transform Tribune into a digital content company and that the firms mentioned on page 13 of the Tribune investor presentation are appropriate comparables?
- You may assume that the relative contribution to EBITDA of each business shifts to the projections on slide 15 of the presentation (http://vol11.cases.som.yale.edu/tronc/what-was- tribune-worth/tribune-response-gannett)
Sampa Case Questions:
- (a) Value of the project, assuming it is entirely equity financed. a. What are the annual projected cash flows?b. What discount rate is appropriate?c. What is the NPV?
- (b) Value the project using WACC assuming the company retains a 20% debt-to-value ratio in perpetuity.
- (c) Value the project using the APV methodology assuming the company raises $450,000 in debt financing and keeps this level constant.
- (d) How do the DCF values using WACC versus the APV method compare? When is one more appropriate or easier to implement than the others?
Copyright
Eaton Corporation: Portfolio Transformation and The Cost of Capital
Harvard Business School Case 221-006
HBS Courseware #221-704
This courseware was prepared solely as the basis for class discussion. Cases are not intended to
serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management. Copyright © 2020, 2021 President and Fellows of Harvard College. No part of this
product may be reproduced, stored in a retrieval system, used in a spreadsheet or transmitted in any
form or by any means—electronic, mechanical, photocopying, recording or otherwise—without the
permission of Harvard Business School.
Created 9/8/20
Revised
2/10/2021
Revised
6/23/2021
1
Exhibit 1: Eaton Corporation Income Statement, 2018 and 2019 (in millions)
Source: Casewriter analysis using data from S&P Capital IQ, accessed 7/14/20.
Fiscal Year Ending Dec. 31
2018
2019
Revenue
Cost of Goods Sold
Gross Profit
Operating Expenses
Operating Profit
Net Interest Expense
Other expenses
Profit before Taxes
Income Tax Expense
Profit after Tax
Minority Interest
Net Income
$21,609
$14,511
$7,098
$4,126
$2,972
($271)
($277)
$2,424
$278
$2,146
($1)
$2,145
$21,390
$14,338
$7,052
$4,201
$2,851
($236)
($24)
$2,591
$378
$2,213
($2)
$2,211
Avg. Basic Shares Out
Dividends per Share
434.3
$2.64
419.0
$2.84
Revenue Growth
Profit Margins
Gross Margin
Operating Margin
Net Margin
Return on Equity (EOY)
Tax Rate (Average Paid)
Interest Coverage
Deprec. & Amortization
Research & Dvlp. Expense
5.9%
(1.0%)
33%
14%
10%
13%
11.5%
11.0
$521
$584
33%
13%
10%
14%
14.6%
12.1
$517
$606
$16,142
$16,133
Equity
Exhibit 2: Eaton Corporation Balance Sheet, 2018 and 2019 (in millions)
Source: Casewriter analysis using data from S&P Capital IQ, accessed 7/14/20.
Fiscal Year Ending Dec. 31
2018
2019
Assets
Cash & Short-term Securities
Accounts Receivable
Inventory
Other Current Assets
Total Current Assets
$440
$3,952
$2,785
$413
$7,590
$591
$3,541
$2,805
$1,791
$8,728
Net PP&E
Goodwill
Other Intangibles
Other Long-term Assets
Total Assets
$3,467
$13,328
$4,846
$1,861
$31,092
$3,932
$13,456
$4,638
$2,051
$32,805
Liabilities
Accounts Payable
Accrued Expenses
Current Portion of LT Debt
Short-term Debt
Other Current Liabilities
Total Current Liabilities
Long-term Debt
Pension & Other Benefits
Other Long-term Liabilities
Total Liabilities
Equity
Total Liabilities & Equity
$2,130
$521
$340
$414
$1,749
$5,154
$6,797
$1,625
$1,374
$14,950
$16,142
$31,092
$2,114
$526
$369
$255
$1,868
$5,132
$8,192
$1,790
$1,558
$16,672
$16,133
$32,805
$29,084
423.6
$68.66
$7,551
$7,111
A-
$39,148
413.3
$94.72
$8,816
$8,225
A-
32%
31%
20%
1.47
99,000
35%
34%
17%
1.70
101,000
Market Capitalization
Total Shares Outstanding (mil)
Year-end Stock Price ($)
Total Debt
Net Debt (less Cash & ST Investments)
S&P Corporate Credit Rating (long-term)
Leverage Ratios
Debt-to-Total Capital = D/(D+E)
Net Debt-to-Total Capital (at book value)
Net Debt-to-Value (at market value)
Current Ratio
Number of Employees
Exhibit 3: Eaton Corporation Segment Financials in 2019; Excludes Corporate Expenses ($ in millions)
Source: Casewriter analysis, Eaton 2019 Annual Report pp. 69-70.
Segment
Electrical Products
Electrical Systems/Services
Hydraulics*
Aerospace
Vehicle
eMobility
Segment Totals
Corporate Expenses
Corporate Total
Net Operating
Sales
Profit
$7,148
$6,287
$2,552
$2,044
$3,038
$321
$21,390
$0
$21,390
$1,390
$1,027
$286
$495
$460
$17
$3,675
($807)
$2,868
Assets
$2,201
$2,532
$1,439
$1,362
$2,145
$141
$9,820
Capital
Expend.
Deprec.
& Amort.
$162
$108
$90
$47
$127
$8
$542
$45
$587
$126
$87
$66
$27
$102
$5
$413
$52
$465
Percent
of Total
Sales
33%
29%
12%
10%
14%
2%
100%
Note: The Hydraulics Segment included two other business units (Filtration and Golf Grips) which accounted for 14% of the segment’s sales
es ($ in millions)
Operating
Margin
2-Year
Sales
Growth
19%
16%
11%
24%
15%
5%
17%
3%
11%
3%
17%
(9%)
13%
5%
13%
nted for 14% of the segment’s sales.
Exhibit 4: Danfoss Corporation and Segment Financials in 2019 (millions of Euros and US Dollars)
Source: Case writer analysis using data from Danfoss’s 2019 Annual Report, pp. 50, 57. Converted to USD based on the
exchange rate of €1.000 = US$1.120 at 12/31/19 from OandA.com.
FY 2019 in Euros (mil)
Corporate
Net Sales
Sales Growth
Operating profit
Operating Margin
Profit Before Tax
Taxes
Net Income
Total Assets
Implied Tax Rate
Number of Employees
€ 6,285
3%
€ 695
11%
€ 662
€ 160
€ 502
€ 6,096
24%
27,871
FY 2019 in USD (mil)
Power
Solutions
as % of
Corporate
Total
Corporate
Power
Solutions
Segment
35%
$7,039
$2,461
56%
$778
$438
€ 1,481
24%
$741
$179
$562
$6,828
$1,659
7,826
28%
Power
Solutions
Division
€ 2,197
4%
€ 391
18%
Exhibit 5: Value of Eaton’s Hydraulics Business Excluding the Filtration & Grips Businesses ($ mil)
Source: Case writer estimates based on analyst forecasts and historical segment performance. Reports include: UBS Global Research,
Initiation of Coverage on Eaton Corp. PLC, by M. Mittermaier et al., 12/11/19; and Jefferies Equity Research, Eaton, by S. Volkmann et
al., 12/23/19.Both available on Thomson One, accessed 8/17/20.
2019
Model Assumptions
Revenue Growth Rate
EBIT (Operating) Margin
Deprec. & Amort. / Sales
Net Working Capital (NWC) / Sales
Total NWC ($)
CapEx / Sales
2.0%
9.5%
Total Segment Revenue
Retained (Grips & Filters) Revenue
Divested (Hydraulics) Revenue
$2,552
$350
$2,202
2020E
2021E
2022E
2023E
2.0%
9.5%
3.5%
20.0%
$449
3.5%
2.0%
9.5%
3.5%
20.0%
$458
3.5%
2.0%
9.5%
3.5%
20.0%
$467
3.5%
2.0%
9.5%
3.5%
20.0%
$477
3.5%
$2,246
$2,291.0
$2,336.8
$2,383.5
$217.6
$27.2
$190.4
$80.2
($9.0)
($80.2)
$181.5
$222.0
$27.7
$194.2
$81.8
($9.2)
($81.8)
$185.1
$226.4
$28.3
$198.1
$83.4
($9.3)
($83.4)
$188.8
0.930
$169
0.865
$160
0.805
$152
EBIT (Operating Profit, Hydraulics business only)
Less Taxes
12.5%
Earnings before Interest after Taxes (EBIAT)
+ Deprec. & Amortization
– Change in Net Working Capital
– Capital Expenditures
= Free Cash flow (FCF)
Terminal Value = Growing Perpetuity
TV Growth Rate (g)
2.0%
TV24 = [FCF24 * (1+g) ] / (Discount Rate – g)
Discount Rate (IRR for the offer)
7.5%
Discount Factor
PV of FCF at Year-end 2020 (Expected Close 12/31/20)
Total Present Value (Set Equal to Danfoss Offer)
Sensititivity Analysis
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
$3,300
$6,048
$5,184
$4,536
$4,032
$3,629
$3,299
$3,024
$2,792
$2,592
$2,419
$2,268
1.000
$3,300
de: UBS Global Research,
Eaton, by S. Volkmann et
2024E
2.0%
9.5%
3.5%
20.0%
$486
3.5%
$2,431.2
$231.0
$28.9
$202.1
$85.1
($9.5)
($85.1)
$192.6
$3,571.7
0.749
$2,819
Exhibit 6: Current Capital Markets Data as of 12/31/19
Source: Federal Reserve Board, Report H15 Selected Interest Rates, FRED Economic Data, Federal
Reserve Bank of St. Louis, Accessed 7/14/20. Debt betas are from “Capital Structure and Systematic
Risk,” by M. Schwert and I. Strebulaev, Appendix Table A1, Stanford Graduate School of Business,
Maturity
Yield on
US Treasury
Securities
1-month
3-month
1-year
5-year
10-year
20-year
30-year
1.48%
1.55%
1.59%
1.69%
1.92%
2.25%
2.39%
S&P Credit
Rating
AAA
AA
A
BBB
BB
B
CCC & Lower
Credit Spread
Over 10-Year
US Treasury
Yield
Estimated
Debt Betas
by Rating
0.52%
0.53%
0.76%
1.29%
2.02%
3.56%
10.08%
0.04
0.05
0.05
0.10
0.24
0.31
0.43
Exhibit 7: Market Risk Premium Estimates in 2019 (Annual Percent, %)
Forward-Looking Estimates
[1] Survey Data (212 Chief Financial Officers in 2018)
[2] Survey Data (1,200 Economists, Analysts, and Executives in 2019)
[3] Implied from Gordon Growth Model (Equity Cash Flows as of Jan. 2020)
Average of the Estimates
4.4%
5.6%
5.2%
5.1%
Historical Stock Market Returns: 1926 to 2018
[4] Large-Cap Stocks minus Long-Term Government Bonds
[4] Large-Cap Stocks minus Short-Term Treasury Bills
6.0%
8.5%
Sources:
[1] Graham, J.R., and C. R. Harvey, The Equity Risk Premium in 2018, Duke University working papers, available at:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3151162, accessed 8/11/20.
[2] Fernandez, P., M. Martinez, and I. Fernandez Acin, “Market Risk Premium and Risk Free Rate for 69 countries in 2019:
A Survey, available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3358901, accessed 8/11/20.
[3]
[4]
A. Damodaran, Damodaran Online, Historical Implied Equity Risk Premiums, January 2020, available at:
http://pages.stern.nyu.edu/~adamodar/, accessed 8/11/20.
2019 SBBI Yearbook (Stocks, Bonds, Bills, and Inflation), R. Ibbotson and Duff & Phelps, US Capital Markets
Performance by Asset Class, 1926-2018 (2018).
pers, available at:
or 69 countries in 2019:
sed 8/11/20.
ailable at:
pital Markets
Exhibit 8A: Financial Data on Firms that Manufacture or Purchase Hydraulic Equipment
Source: Case writer analysis of data contained in S&P Capital IQ database, accessed 7/8/20.
S&P
Credit
Rating
Market Value
2-Year Leverage Ratios
Equity
= Net Debt
Betas (a)
to Value (b)
Firm Name (Ticker Symbol)
Year Ending 12/31/19
Operating
Assets Revenues
Margins
Eaton Corp (ETN)
$32,805
$21,390
13.3%
A-
1.09
18%
Parker Hannifin (PH)
Helios Technologies (HLIO)
Enerpac Tool Group (EPAC)
$21,044
$1,022
$909
$14,201
$555
$643
14.5%
17.0%
11.6%
BBB
n/a
BB
1.42
1.72
1.51
17%
18%
16%
Caterpillar (CAT)
$78,453
$53,800
15.1%
A
1.52
28%
Note a: The equity betas were calculated using two years of weekly returns regressed against returns on the
S&P 500 Index.
Note b: The market value leverage ratios are the average quarterly ratio over two years starting 4Q17 and ending
ending 4Q19 (9 observations). The net debt-to-value ratio = (Debt – Cash) / (Debt – Cash + Equity). It was
calculated using the book value of debt and the market value of equity.
9-201-094
REV: OCTOBER 7, 2003
GREGOR ANDRADE
Sampa Video, Inc.
Sampa Video, Inc. was the second largest chain of videocassette rental stores in the greater Boston
area, operating 30 wholly owned outlets. Begun in 1988 as a small store in Harvard Square catering
mostly to students, the company grew rapidly, primarily due to its reputation for customer service
and an extensive selection of foreign and independent movies. These differentiating factors allowed
Sampa Video to compete directly with the leader in the industry, Blockbuster Video. But unlike the
larger rival, Sampa had no ambitions to grow outside of its Boston territory. Exhibit 1 contains
summary financial information on the company as of their latest fiscal year-end.
In March 2001, Sampa Video was considering entering the business of home delivery of movie
rentals. The company would set up a web page where customers could choose movies based on
available in-store inventory and pick a time for delivery. This would put Sampa in competition with
new internet-based competitors, such as Netflix.com that rented DVDs through the mail and
Kramer.com and Cityretrieve.com that hand delivered DVDs and videocassettes.
While it was expected that the project would cannibalize the existing operations to some extent,
management believed that incremental sales would be substantial in the long run. The project would
provide customers the same convenience as internet-based DVD rentals for the wider selection of
movies available on videocassettes. Sampa also planned to hand deliver DVDs. The company
expected that the project would increase its annual revenue growth rate from 5% to 10% a year over
the following 5 years. After that, as the home delivery business matured, the free cash flow would
grow at the same 5% long-term rate as the videocassette rental industry as a whole. Exhibit 2
contains management’s projections for the expected incremental revenues and cash flows achievable
from the project.
Sampa management’s major concern was the significant up-front investment required to start the
project. This consisted primarily of setting up a network of delivery vehicles and staff, developing
the website, and some initial advertising and promotional efforts to make existing customers aware
of the new service. Management estimated these costs at $1.5 million, all of which would be incurred
in December 2001, as the service would be launched in January 2002.1
Management was debating how to assess the project’s debt capacity and the impact of any
financing decisions on value. In thinking about how much debt to raise for the project, two options
were being considered. The first was to fund a fixed amount of debt, which would either be kept in
perpetuity or paid down gradually. The second alternative was to adjust the amount of debt so as to
1 For the purposes of this exercise, it is assumed that all start-up costs would have been capitalized, and depreciated over time.
In reality, some of these costs would have been capitalized (e.g., investment in delivery vehicles) while others would have been
expensed immediately (e.g., advertising costs).
________________________________________________________________________________________________________________
Professor Gregor Andrade prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as
endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2001 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
This document is authorized for use only in Heather Tookes’s Corporate Finance Fall 2023 at Yale University from Aug 2023 to Feb 2024.
201-094
Sampa Video, Inc.
maintain a constant ratio of debt to firm value. Exhibit 3 contains information on market conditions
as well as management’s assumptions regarding the project’s expected cost of debt.
2
This document is authorized for use only in Heather Tookes’s Corporate Finance Fall 2023 at Yale University from Aug 2023 to Feb 2024.
Sampa Video, Inc.
Exhibit 1
201-094
Summary Financial Information on Sampa Video, Inc., 2000 (in thousands of dollars)
FY 2000
22,500
Sales
EBITDAa
2,500
Depreciation
1,100
Operating Profit
1,400
Net Income
660
Source: Casewriter estimates.
aEBITDA is the Earnings Before Interest, Taxes, Depreciation and Amortization.
Exhibit 2 Projections of Incremental Expected Sales and Cash Flows for Home Delivery Project
2002-2006 (in thousands of dollars).
Sales
2002E
1,200
2003E
2,400
2004E
3,900
2005E
5,600
2006E
7,500
EBITDa
180
360
585
840
1,125
(200)
(225)
(250)
(275)
(300)
(20)
135
335
565
825
Depreciation
EBIT
Tax Expense
8
(54)
(134)
(226)
(330)
EBIAT a
(12)
81
201
339
495
CAPXb
300
300
300
300
300
0
0
0
0
0
Investment in Working Capital
Source: Casewriter estimates.
aEBITD is the Earnings Before Interest, Taxes and Depreciation. EBIAT is the Earnings Before Interest and After Taxes. Taxes
calculated assuming no interest expense.
bAnnual capital expenditures of $300,000 were in addition to the initial $1.5 million outlay, and are assumed to remain
constant in perpetuity.
Exhibit 3
Additonal Assumptions.
Risk-free Rate (Rf)
Project Cost of Debt (Rd)
5.0%
6.8%
Market Risk Premium
7.2%
Marginal Corporate Tax Rate
40%
Project Debt Beta (!d)
0.25
Asset Beta for Kramer.com and Cityretrieve.com
1.50
Source: Casewriter estimates.
3
This document is authorized for use only in Heather Tookes’s Corporate Finance Fall 2023 at Yale University from Aug 2023 to Feb 2024.
2023/9/17 23:56
Tribune Rebrands to tronc | Cases Volume 11
tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
tronc
Background
Introduction
U.S. Newspaper
Publishing
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Tribune Publishing
Creating the New
Gannett
Tribune Response to
Gannett
Tribune Rebrands to
tronc
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Tribune Rebrands to tronc | Cases Volume 11
tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
tronc
Background
Introduction
U.S. Newspaper
Publishing
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Tribune Publishing
Creating the New
Gannett
Tribune Response to
Gannett
Tribune Rebrands to
tronc
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What Was Tribune Worth? Tribune Rebrands to tronc
tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
Tribune Rebrands to tronc
tronc
Background
Introduction
Tribune
Publishing
Introduces
tronc, June 2,
2016
U.S. Newspaper
Publishing
Slate Magazine
Pans tronc
Rebranding
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Tribune Publishing
Creating the New
Gannett
Tribune Response to
Gannett
Tribune Rebrands to
tronc
Video
Introducing
tronc to
Employees
HBR Article
Market
Multiples for
Selected Tech
Firms
As part of its response to the unwelcome Gannett bid, Tribune’s CEO Justin Dearborn announced a new
strategy for the venerable publisher: a new name, a new logo, and a new emphasis on technology.
Dearborn noted,
Today, I am pleased to announce another important step in our transformation – the renaming of
our Company to tronc, for TRibune ONline Content. At our core, we remain a content curation and
monetization company focused on creating and distributing premium, verified content across all
channels. This rebranding acknowledges our important evolution as a company and captures the
essence of our vision for the future.
Tribune Publishing has a proud history, with iconic brands that remain the core of who we are. But
as we are all well aware, the media industry is shifting rapidly, and the path to success requires an
innovative new approach and a fundamentally different way of operating.
In addition to rebranding, the new direction included a goal of being considered – and valued as – a
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Tribune Rebrands to tronc | Cases Volume 11
technology company, not a newspaper company. The Board shifted the company shares from the New York
tronc
Stock Exchange to NASDAQ, under the new listing TRNC.
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
The announcement described three units within the restructured company – Tribune legacy print business
tronc the Chicago Tribune),
Background
Setup
for Takeover
What
Was Tribune
(including
which provided 70%
of total
revenue; the Los
Angeles
Times, which
Introduction
Battle
Worth?
provided 25% of total revenue; and tronc. Although Creating
management
that
Tribune acknowledged
Gannett
Bidstronc
for was not a major
U.S. Newspaper
Publishing
revenue source, they described
the new division as Publishing
the only successful way Tribune
forward
into the future. Tronc
Publishing
Creating the New
Tribune Response to
announced a goal of using artificial intelligence software
1,000 videos a day, using tech
Gannettto create and postGannett
tools to speed assembly and distribution.
Tribune Rebrands to
tronc
The strategy was announced in response to the Gannett offers, but it reflected the new leadership that had
taken over Tribune Publishing in the two years since its separation from Tribune Media. Tribune
Publishing’s new major shareholders had brought a focus on high-tech and artificial intelligence, and
minimal experience in newspaper publishing. Board Chair Ferro had made his fortune in healthcare
technology and had very little publishing experience. Dr. Patrick Soon-Shiong, announced as the new vice
chair of the board, was an AI billionaire with no publishing experience. The new CEO Justin Dearborn had
worked with Ferro in healthcare technology and had no media experience.
The company’s rebranding as a tech company was ridiculed by many analysts. Forbes pointed out that the
“the word ‘newspaper’ does not appear in the 667-word press release.”
Observers poured particular scorn on the company’s video to employees. Slate’s senior business and
economics correspondent Jordan Weissmann described the video as “a horror — an unrelenting circular
saw of vapid media-consultant clichés.” The article also provided a copy of the video, all under a title that
captured Weismann’s judgment, “The Future of Journalism Is a Deadly Swarm of Buzzwords, According to
Tronc.”
Analyst Greg Satell savaged the plan, as well as the video, in the Harvard Business Review. He said, “The
notion that you can transform a failing media company — or any company in any industry for that matter —
by infusing it with data and algorithms is terribly misguided… While technology can certainly improve
operational performance, the idea that it can replace a sound strategy is a dangerous delusion.”
Financing the new management plan
Although the move to digital would be expensive, the Tribune announcements made no mention of how
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Tribune Rebrands to tronc | Cases Volume 11
the plan would be financed. Would the new tronc look to raise debt? or use internal funds? or issue new
tronc
equity? Were there other alternatives?
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
tronc
‹ Tribune Response to Gannett
Background
Introduction
U.S. Newspaper
Publishing
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Tribune Publishing
Creating the New
Tribune Response to
Gannett
Help us improve our web site’s performance. If you experience an issue, please contact us with a description, the page where it occurred, and
your operating system
and browser version.
Gannett
Tribune Rebrands to
This web site has been developed by the Yale School of Management. This case has been developed fortronc
pedagogical purposes from published
sources. The case is not intended to furnish primary data, serve as an endorsement of the organization in question, or illustrate either
effective or ineffective management techniques or strategies. No part of this site (including articles, maps and videos) should be posted to
another web site or e-mailed to anyone. This stipulation will be strictly enforced.
We welcome your comments and questions. Please email us at case.comments@yale.edu.
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tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
tronc
Background
Introduction
U.S. Newspaper
Publishing
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Tribune Publishing
Creating the New
Gannett
Tribune Response to
Gannett
Tribune Rebrands to
tronc
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tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
tronc
Background
Introduction
U.S. Newspaper
Publishing
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Tribune Publishing
Creating the New
Gannett
Tribune Response to
Gannett
Tribune Rebrands to
tronc
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What Was Tribune Worth? Tribune Response to Gannett
tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
Tribune Response to Gannett’s Valuation
tronc
Background
Introduction
Tribune
Publishing
Investor
Presentation,
May 12, 2016
U.S. Newspaper
Publishing
The Gamble of
Tronc’s “Just
Say No
Defense”
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Tribune Publishing
Creating the New
Gannett
Tribune Response to
Gannett
Tribune Rebrands to
tronc
After delaying a response for several weeks, Tribune executives responded publicly only when Gannett
announced its offers and began a direct appeal to Tribune shareholders. On May 12, 2016, the company
presented its argument in a slide deck, emphasizing that the first offer undervalued the company and thus
did not represent a reasonable offer for shareholders.
In explaining its actions to its shareholders, Tribune management focused on Gannett’s valuation of the
company. It shared its conclusion that Gannett’s initial offer of $12.25 per share was so low that it did not
“constitute a basis for engagement.” Tribune argued that Gannett’s calculation used a depressed value of
the Tribune Publishing. The Tribune presentation used more recent balance sheet data (and more positive,
given a lower debt load) to calculate what it considered a more accurate EV/EBITDA.
In addition, Tribune Publishing argued that with either version of the calculation, the Gannett offer was
below trading comparables for traditional print media. In Tribune’s analysis, the Gannett offer:
Implied a 4.6x 2016 EBITDA multiple (not the 5.6x claimed by Gannett), but either value was well
below comparable print media trading multiples of 6.4x
Used a 2016E EBITDA of $146MM vs. management’s $166MM – $172MM which (at the midpoint)
represents a discount of $23MM of EBITDA (or approximately $4.00 per share)
Used a Q4 2015 balance sheet instead of a Q1 2016 balance sheet, which overstates net debt
In looking at multiples for comparable acquisitions, Tribune argued that the median in the industry was
6.4 times EBITDA (see U.S. Newspaper Publishing section for detail).
The Board rejected Gannett’s valuation of $12.25 and instituted a new management plan, while starting
conversations about a higher price
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Tribune Response to Gannett’s Valuation | Cases Volume 11
conversations about a higher price.
tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
‹ Gannett Bids for Tribune Publishing
tronc
Background
Introduction
Tribune Rebrands to tronc ›
Setup for Takeover
Battle
What Was Tribune
Worth?
Help us improve our web site’s performance. If you experience an issue, please contact us with a description, the page where it occurred, and
Creating Tribune
Gannett Bids for
U.S. Newspaper
your operating system
and browser version.
Publishing
Tribune Publishing
Publishing
Creating the New
Tribune Response to
This web site has been developed by the Yale School of Management.Gannett
This case has been developed forGannett
pedagogical purposes from published
sources. The case is not intended to furnish primary data, serve as an endorsement of the organization
question, or
TribuneinRebrands
to illustrate either
effective or ineffective management techniques or strategies. No part of this site (including articles,tronc
maps and videos) should be posted to
another web site or e-mailed to anyone. This stipulation will be strictly enforced.
We welcome your comments and questions. Please email us at case.comments@yale.edu.
For Yale’s accessibility policies, please visit Yale University Usability & Web Accessibility.
To access additional cases, visit the Yale School of Management CRDT case study directory.
© Copyright 2010-2023. Yale University. All rights reserved.
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tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
tronc
Background
Introduction
U.S. Newspaper
Publishing
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Creating the New
Gannett
Tribune Response to
Gannett
Tribune Publishing
Tribune Rebrands to
tronc
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tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
tronc
Background
Introduction
U.S. Newspaper
Publishing
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Creating the New
Gannett
Tribune Response to
Gannett
Tribune Publishing
Tribune Rebrands to
tronc
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What Was Tribune Worth? Gannett Bids for Tribune Publishing
tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
Gannett Makes Unsolicited Bids for Tribune
Publishing
tronc
Background
Introduction
U.S. Newspaper
Publishing
Gannett
Proposes to
Acquire
Tribune
Publishing
Company
Tribune
Publishing
Confirms
Receipt of
Unsolicited
Proposal from
Gannett
Can Gannett
Pry Michael
Ferro from
Tribune chair?
Tribune
Publishing
chairman Ferro
says Gannett
‘trying to steal
the company’
Gannett Mails
Letter to
Tribune
Publishing
Company
Stockholders
Tribune
Publishing
Comments on
Gannett Letter
to
Shareholders
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Creating the New
Gannett
Tribune Response to
Gannett
Tribune Publishing
Tribune Rebrands to
tronc
April 12: Gannett Offers to Buy Tribune Publishing
On April 12, 2016 (within days of completing the merger with the Journal Media Group), Gannett made an
unsolicited bid for Tribune Publishing Company at $12.25 a share.
To outsiders, Tribune looked vulnerable for Gannett’s takeover. It had recently “installed new executives,
overhauled its business strategy, admitted accounting weaknesses and issued shares to fund an
acquisition that was ultimately rejected by regulators. For the Gannett Company, the owner of the national
paper USA Today, all that turmoil looked like an opportunity.” [1]
April 25: Gannett Goes Public with Tribune Board’s Rejection
Gannett received no response from Tribune Publishing for two weeks following the initial offer. With no
satisfactory response from Tribune until a rejection on April 22, Gannett went public with a press release
on April 25, outlining its offer and Tribune’s negative response.
MCLEAN, VA – Gannett Co., Inc. (NYSE: GCI) (“Gannett”) today announced a proposal to
acquire all of the outstanding shares of common stock of Tribune Publishing Company
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Gannett Makes Unsolicited Bids for Tribune Publishing | Cases Volume 11
(NYSE: TPUB) (“Tribune”) for $12.25 in cash per Tribune share. The total value of the
tronc proposal is approximately $815 million, including the assumption of certain Tribune
Valuing the Future of Newspapers
liabilities,
which Case
include
approximately
$390 million of debt outstanding as of December
Yale School
of Management
Study
#17-015
tronc
31, 2015. Gannett’s all cash proposal would provide Tribune stockholders a 63% premium
Background
Setup for Takeover
What Was Tribune
to the closing stock price of Tribune on April
Battle22, 2016, a 58% premium
Worth? to the volume
Introduction
Gannett
Bids Tribune’s
for
weighted average
trading
price over theCreating
past 90Tribune
days, and a multiple
of 5.6x
U.S.
Newspaper
Publishing
Tribune Publishing
estimated 2016 Publishing
EBITDA, based on consensus
research estimates.
The $12.25 per share
Creating the New
Tribune Response to
Gannett to the $8.50 share
Gannett
offer price also represents a significant premium
price at which
Tribune Rebrands to
Tribune recently issued common shares and provides immediatetronc
and certain cash value
to Tribune stockholders….”
Gannett’s $12.25 per share all-cash proposal provides Tribune stockholders a significant
premium and immediate and certain value by eliminating the risk associated with Tribune
continuing to operate on a standalone basis in an increasingly uncertain time for the
industry.
The proposed transaction is expected to deliver substantial synergies of approximately
$50 million annually, subject to due diligence, that are anticipated to drive compelling
near- and long-term growth and value creation at the combined company.
As one company, Gannett and Tribune would have the financial stability to continue
maintaining journalistic excellence, independence, high standards and integrity for years
to come.
Gannett can quickly consummate a transaction without any financing condition and has
been advised that the proposed combination will not impact the tax-free treatment of
Tribune’s recent spin-off transaction.
Gannett’s press release also included the text of a letter from Gannett’s CEO Robert Dickey to Justin
Dearborn, Tribune CEO & Director, dated April 25, 2015, which included the following:
We are disappointed by the response we received from you in your letter of April 22, 2016
regarding our proposal to acquire all of the outstanding shares of Tribune Publishing
Company (“Tribune”) for an all-cash purchase price of $12.25 per share, and Tribune’s
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Gannett Makes Unsolicited Bids for Tribune Publishing | Cases Volume 11
continued refusal to begin constructive discussions with us. We believe our proposal,
tronc which we first made in my letter to your Board dated April 12, 2016 and reiterated in
Valuing the Future of Newspapers
several
phone discussions
Michael Ferro and you since, is highly compelling for
Yale School
of Management
Case Study with
#17-015
tronc
Tribune’s stockholders and represents substantial value and immediate liquidity for
them.
Background
Introduction
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Gannett Bids for
U.S. Newspaper
Publishing
Tribune Publishing
I want to remindPublishing
you that Gannett’s $12.25 per share offer price represents
a 63%
Creating
the New
Tribune
Response
to
premium to Friday’s closing stock price of
Tribune,
a 58% premium
to the
volume
Gannett
Gannett
weighted average trading price over the past 90 days, and a multiple
5.6x (including
Tribuneof
Rebrands
to
tronc
estimated pension and post-retirement benefits payable) your 2016
EBITDA estimate
based on consensus research. The $12.25 per share offer price also represents a
significant premium to the $8.50 share price at which Tribune recently issued common
shares.…
Given the substantial value represented by our offer and the other compelling benefits of
a combination of Gannett and Tribune, we are confident that Tribune’s non-management
stockholders will support our proposal. Continuing to refuse to engage in a dialogue with
us will only serve to delay the ability of your stockholders to receive the value represented
by our all-cash offer. We therefore are prepared to consider all alternatives to complete
this transaction. In the meantime, we remain eager to meet with you and your team as
soon as possible to progress the transaction.[2]
April 25: Tribune Responds Publicly
With Gannett’s public announcement, Tribune Publishing made its first public response on April 25,
confirming that on April 12 it had “received an unsolicited proposal, with numerous contingencies…” The
news release stated that the Tribune Publishing had engaged financial and legal advisors and was
conducting a thorough review of the Gannett proposal. [3]
A day after Gannett made its offer public, Tribune’s CEO Dearborn used the company’s lead asset, The
Chicago Tribune, to accuse Gannett executives of “playing games” and of “erratic and unreliable”
behavior.
Gannett CEO Robert Dickey “fired back that all he wanted was a substantive response to our proposal and
an opportunity to meet,” the Chicago Tribune reported.[4]
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,
g
p
Gannett Makes Unsolicited Bids for Tribune Publishing | Cases Volume 11
tronc
Valuing the Future of Newspapers
Yale School of Management Case Study #17-015
tronc
Background
Introduction
U.S. Newspaper
Publishing
May 4: Tribune Publishing
What Was Tribune
Press Release
Worth?
Setup for Takeover
Battle
Creating Tribune
Gannett Bids for
On May 4, Tribune Publishing
issued a press
Publishing
Tribune Publishing
Creating release,
the New describing
Tribune
Response to
its rejection
of Gannett’s
Gannett
Gannett
offer. “Tribune Publishing’s
Board has
Tribune Rebrands to
tronc
unanimously determined
that Gannett’s
opportunistic proposal understates the
Company’s true value and is not in the best
interests of its shareholders.”
Tribune April stock price
May 16: Gannett Raises Its Bid
On May 16, 2016, Gannett raised its offer, making a $15/share cash bid, a 99% premium over the $7.52
closing price on April 22 (the day before Gannett made public its intentions to purchase Tribune). The new
offer was a 22% premium above Gannett’s initial offer. Gannett sent its letter directly to Tribune Publishing
shareholders, along with urging a “WITHHOLD vote for ALL Eight Tribune Director Nominees.”[5]
Tribune Responds in Letter to Shareholders
In response, the Tribune board issued its own letter to its shareholders, which included the following
strong language:
Notwithstanding the fact that Gannett continues to engage in the reckless use of false
and misleading comments about the meeting between the companies on May 12 and has
resorted to ad hominem attacks on the Tribune Publishing Board, our Board is in the
process of dispassionately, thoughtfully and thoroughly reviewing Gannett’s latest
proposal and will respond to it in short order.
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tronc
Valuing the Future of Newspapers
. ^ https://perma.cc/9H8Y-SR7P
Yale School of Management Case Study #17-015
. ^ https://perma.cc/36F5-XXWU
. ^ https://perma.cc/K4EK-7JSF
tronc
Background
. ^ https://perma.cc/8A8W-2ESMIntroduction
. ^ https://perma.cc/WD43-AGKR U.S. Newspaper
Publishing
Setup for Takeover
Battle
What Was Tribune
Worth?
Creating Tribune
Publishing
Gannett Bids for
Creating the New
Gannett
Tribune Response to
Gannett
Tribune Publishing
Tribune
Rebrands
to
Tribune
Response
to Gannett ›
tronc
‹ What Was Tribune Worth?
Help us improve our web site’s performance. If you experience an issue, please contact us with a description, the page where it occurred, and
your operating system and browser version.
This web site has been developed by the Yale School of Management. This case has been developed for pedagogical purposes from published
sources. The case is not intended to furnish primary data, serve as an endorsement of the organization in question, or illustrate either
effective or ineffective management techniques or strategies. No part of this site (including articles, maps and videos) should be posted to
another web site or e-mailed to anyone. This stipulation will be strictly enforced.
We welcome your comments and questions. Please email us at case.comments@yale.edu.
For Yale’s accessibility policies, please visit Yale University Usability & Web Accessibility.
To access additional cases, visit the Yale School of Management CRDT case study directory.
© Copyright 2010-2023. Yale University. All rights reserved.
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#
#
#
#
#
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Introduction | Cases Volume 11
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Introduction | Cases Volume 11
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6APR201517172035
2015 Annual Report
Dear Shareholders,
For over 250 years, Tribune Publishing and our award-winning brands have earned the trust of millions
of readers through our world class content and commitment to excellence.
We are also evolving to meet the new demands of a digital world. While technology has disrupted
consumer behaviors and expectations, our vision remains ambitious and we are committed to purposeful
change to ensure our market-leading content informs and engages readers for hundreds of years to come.
A content-first strategy of creating relevant and impactful journalism is core to our mission. Total unique
visitors across all digital properties grew to 51 million at the end of 2015, compared to 41 million at the end
of 2014. More people are engaging with our content than ever before, and with brands like the Los Angeles
Times, we have a tremendous opportunity to expand our reach globally.
In the year ahead, we will embrace technology to accelerate our digital and commerce expansion. We
have implemented several changes across the organization that position us to work more collaboratively and
execute against local and company-wide initiatives to the benefit of all stakeholders.
You can expect to see an increasingly agile and innovative company. We will continue to create
groundbreaking journalism for our consumers across all platforms. We will maintain and build upon the trust
of our readers and uphold the highest standards of journalistic integrity, all while implementing key
initiatives that drive the business forward and stimulate growth. We have a significant opportunity to enhance
value—and it starts with a commitment to exceptional content.
We want to thank our loyal readers and advertisers for their business and for continuing to place their
trust in our products. We are also grateful to our talented employees for their dedication to our company—
and, always, to our shareholders for their continued support.
8APR201621533797
Justin Dearborn
CEO, Tribune Publishing
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 27, 2015
OR
អ
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 001-36230
Tribune Publishing Company
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
38-3919441
(I.R.S. employer
identification no.)
435 North Michigan Avenue
Chicago Illinois
(Address of principal executive offices)
60611
(Zip code)
Registrant’s telephone number, including area code: (312) 222-9100
Securities registered pursuant to Section 12(b) of the Act:
(Title of Class)
(Name of Exchange on Which Registered)
Common Stock, par value $.01 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes អ No ፤
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes អ
No ፤
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 ፤ No អ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ፤ No អ
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 registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any
amendment to the Form 10-K ፤
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting
company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act:
Large accelerated filer អ
Accelerated filer ፤
Non-accelerated filer អ
Smaller reporting company អ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes អ No ፤
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $422,770,157 based upon
the closing market price of $16.10 per share of Common Stock on the New York Stock Exchange as of June 26, 2015.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at March 10, 2016
Common Stock, par value $0.01 per share
31,657,676
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the registrant to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, for the 2016 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.
TRIBUNE PUBLISHING COMPANY
FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Item 4.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . .
28
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . .
50
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52
Item 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . .
53
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . .
53
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-1
PART II
Item 5.
PART III
PART IV
Item 15.
1
PART I
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K, as well as the information contained in the notes to
our Consolidated and Combined Financial Statements, include certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are based largely
on our current expectations and reflect various estimates and assumptions by us. 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 such forward-looking statements. Such risks, trends and uncertainties, which in some instances are beyond our
control, include: competition and other economic conditions including fragmentation of the media landscape and
competition from other media alternatives; changes in advertising demand, circulation levels and audience shares; our
ability to develop and grow our online businesses; our reliance on revenue from printing and distributing third-party
publications; changes in newsprint prices; macroeconomic trends and conditions; our ability to adapt to technological
changes; our ability to realize benefits or synergies from acquisitions or divestitures or to operate our businesses effectively
following acquisitions or divestitures; our success in implementing expense mitigation efforts; changes in newsprint prices;
our reliance on third-party vendors for various services; adverse results from litigation, governmental investigations or
tax-related proceedings or audits; our ability to attract and retain employees; our ability to satisfy pension and other
postretirement employee benefit obligations; changes in accounting standards; the effect of labor strikes, lockouts and
labor negotiations; regulatory and judicial rulings; our indebtedness and ability to comply with debt covenants applicable to
our debt facilities; our adoption of fresh-start reporting which has caused our consolidated and combined financial
statements for periods subsequent to December 31, 2012 to not be comparable to prior periods; our ability to satisfy
future capital and liquidity requirements; and our ability to access the credit and capital markets at the times and in the
amounts needed and on acceptable terms. For more information about these and other risks, see Item 1A.—Risk Factors
in this filing.
The words ‘‘believe,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘could,’’ ‘‘should,’’ ‘‘intend,’’ ‘‘may,’’ ‘‘will,’’ ‘‘plan,’’ ‘‘seek’’
and similar expressions generally identify forward-looking statements. However, such words are not the exclusive means for
identifying forward-looking statements, and their absence does not mean that the statement is not forward looking.
Whether or not any such forward-looking statements are, in fact, achieved will depend on future events, some of which are
beyond our control. Readers are cautioned not to place undue reliance on such forward-looking statements, which are
being made as of the date of this Annual Report on Form 10-K. Except as required by law, we undertake no obligation to
update any forward-looking statements, whether as a result of new information, future events or otherwise.
Item 1. Business
Overview
Tribune Publishing Company (collectively with its subsidiaries, ‘‘Tribune Publishing,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our,’’ or the
‘‘Company’’) was formed as a Delaware corporation on November 21, 2013. Tribune Media Company, formerly Tribune
Company (‘‘TCO’’), owned all of Tribune Publishing until August 4, 2014, when TCO distributed 98.5% of the shares of
common stock TCO held in Tribune Publishing to TCO’s stockholders on a prorata basis. Prior to August 4, 2014, Tribune
Publishing had no separate operations. Tribune Publishing’s historical financial information is derived from the accounting
records of TCO on a carve-out basis.
Tribune Publishing is a multiplatform media and marketing solutions company that delivers innovative experiences for
audiences and advertisers. The Company’s diverse portfolio of iconic news and information brands includes award-winning
daily and weekly titles, substantial digital properties and key verticals in major markets across the country. The Company’s
brands are leading sources of local news and information across all platforms—print, online, mobile and social—in the
markets they serve.
Tribune Publishing’s award-winning media groups include the Chicago Tribune Media Group, the California News
Group, the Sun Sentinel Media Group, the Orlando Sentinel Media Group, The Baltimore Sun Media Group, the
Hartford Courant Media Group, The Morning Call Media Group and the Daily Press Media Group. The Company’s
diverse offerings also include a suite of digital, custom content, and direct mail services and solutions for marketers,
including: Tribune Content Agency, a syndication and licensing business that delivers daily news service, video and
syndicated premium content to more than 3,000 media and digital publishers in 92 countries; Tribune Direct, a one-stop
direct-marketing solution that works with advertisers to create and execute various direct mail campaigns; and Tribune
Content Solutions, the Company’s in-house digital marketing services group, which partners with local and regional
2
businesses to develop and execute online strategies and custom-content solutions. The Company operates as one
reportable segment.
In March 2014, The Baltimore Sun Media Group acquired the Baltimore City Paper and its related publications. In
April 2014, the Hartford Courant Media Group acquired Reminder Media and its related publications in eastern and
northern Connecticut. In May 2014, The Baltimore Sun Media Group acquired The Capital and the Carroll County Times
and their related publications. In May 2014, Tribune Publishing’s subsidiary, TCA News Service, LLC, acquired the
outstanding 50% interest in McClatchy/Tribune Information Services (‘‘MCT’’), making the subsidiary wholly-owned. In
August 2014, the Company acquired a 20% equity interest in Contend, LLC (‘‘Contend’’), a content creation company. In
October 2014, the Chicago Tribune Media Group acquired six daily and 32 weekly suburban news and information brands
from Wrapports, LLC (‘‘Wrapports’’). In May 2015, the Company acquired The San Diego Union-Tribune (f/k/a the
U-T San Diego) and nine community weeklies and related digital properties in San Diego County, California. For further
information regarding the Company’s acquisitions, see Note 6 and Note 9 of the Consolidated and Combined Financial
Statements.
Tribune Publishing’s core products include:
• 11 major daily newspapers in 9 major markets with total Sunday circulation of approximately 2.4 million copies;
• 160 community/niche publications and products, primarily published weekly or monthly;
• More than 120 digital platforms online and on mobile, collectively attracting more than 51.2 million unique visitors
during the month of December 2015 based on the comScore Multi-platform Media Report for such period; and
• A robust suite of digital marketing services for local, regional and national marketers.
Tribune Publishing’s major daily newspapers have served their respective communities with local, regional, national
and international news and information for more than 150 years. In fact, the Hartford Courant is the nation’s oldest
continuously published newspaper and celebrated its 250th anniversary in October 2014.
The Company’s three primary revenue streams are advertising and marketing services, circulation and third-party
printing and distribution. Our advertising and marketing services are delivered to customers through three main channels:
run of press (‘‘ROP’’), preprint and digital. ROP advertising is comprised of advertisements that are printed in the
newspapers while preprint advertising primarily consists of glossy, color inserts that are delivered as part of the newspaper,
in the mail or by carrier. Digital advertising is primarily related to advertising revenue sold on our owned and operated
newspaper websites. Circulation revenue results from the sale of print and digital editions of newspapers to individual
subscribers and the sale of print editions of newspapers to sales outlets, which re-sell the newspapers. The Company
generates third-party print and distribution revenue by printing and distributing a number of national and local
newspapers.
Restructuring and Spin-off from TCO
On December 8, 2008 (the ‘‘Petition Date’’), TCO and 110 of its direct and indirect wholly-owned subsidiaries (each a
‘‘Debtor’’ and, collectively, the ‘‘Debtors’’), filed voluntary petitions for relief under Chapter 11 (‘‘Chapter 11’’) of title 11
of the United States Code in the United States Bankruptcy Court for the District of Delaware (the ‘‘Bankruptcy Court’’).
On March 16, 2015, the Chapter 11 estates of 88 of the Debtors were closed by a final decree issued by the Bankruptcy
Court. On July 24, 2015, the Chapter 11 estates of an additional 8 of the Debtors were closed by a final decree. The
remaining Debtors’ Chapter 11 cases, including several of the Tribune Publishing Debtors’ cases, have not yet been closed
by the Bankruptcy Court and continue to be jointly administered under the caption ‘‘In re: Tribune Media Company, et al.,’’
Case No. 111-08-13141. Certain of the legal entities included in the Consolidated and Combined Financial Statements of
Tribune Publishing were Debtors or, as a result of the restructuring transactions described below, are successor legal
entities to legal entities that were Debtors (collectively, the ‘‘Tribune Publishing Debtors’’). A joint plan of reorganization
for the Debtors (the ‘‘Plan’’), including the Tribune Publishing Debtors, became effective and the Debtors emerged from
Chapter 11 on December 31, 2012 (the ‘‘Effective Date’’). For details of the proceedings under Chapter 11 and the terms
of the Plan, see Note 2 of the Consolidated and Combined Financial Statements included elsewhere in this report.
On July 10, 2013, TCO announced its plan to spin-off essentially all of its publishing business into an independent
company (the ‘‘Distribution’’). The business represented the principal publishing operations of TCO and certain other
entities wholly-owned by TCO, as described below, and was organized as a new company, Tribune Publishing. On
August 4, 2014 (‘‘Distribution Date’’), TCO completed the spin-off of its principal publishing operations into an
independent company, Tribune Publishing, by distributing 98.5% of the outstanding shares of Tribune Publishing common
stock to holders of TCO common stock and warrants. In the Distribution, each holder of TCO Class A common stock,
3
Class B common stock and warrants received 0.25 of a share of Tribune Publishing common stock for each share of TCO
common stock or TCO warrant held as of the record date of July 28, 2014. Based on the number of shares of TCO
common stock and TCO warrants outstanding as of 5:00 P.M. Eastern time on July 28, 2014 and the distribution ratio,
25,042,263 shares of Tribune Publishing common stock were distributed to the TCO stockholders and holders of TCO
warrants and TCO retained 381,354 shares of Tribune Publishing common stock, representing 1.5% of outstanding
common stock of Tribune Publishing. Subsequent to the Distribution, Tribune Publishing became a separate publiclytraded company with its own board of directors and senior management team. Shares of Tribune Publishing common stock
are listed on the New York Stock Exchange under the symbol ‘‘TPUB.’’ In connection with the spin-off, Tribune
Publishing paid a $275.0 million cash dividend to TCO from a portion of the proceeds of a senior secured credit facility
entered into by Tribune Publishing.
Products and Services
Our product mix consists of three publication types: (i) daily newspapers, (ii) weekly newspapers and (iii) niche
publications. Most of these publications also have a digital presence. The key characteristics of each of these types of
publications are summarized in the table below.
Daily Newspapers
Weekly Newspapers
Niche Publication
Cost: . . . . . . . . . . . . . . . . .
Paid
Paid and free
Paid and free
Distribution: . . . . . . . . . . . .
Distributed four to seven
days per week
Distributed one to three
days per week
Distributed weekly, monthly
or on an annual basis
Income: . . . . . . . . . . . . . . .
Revenue from advertisers,
subscribers, rack/box sales
Paid: Revenue from
advertising, subscribers,
rack/box sales
Paid: Revenue from
advertising, rack/box sales
Free: Advertising revenue
only
Free: Advertising revenue
only
Major publications maintain
locally oriented websites and
mobile sites for select
locations
Selectively available online
Internet availability: . . . . . .
Maintain locally oriented
websites, mobile sites and
mobile apps, for select
locations
4
As of December 27, 2015, Tribune Publishing’s prominent publications included:
Media Group
City
Masthead
Circulation
Type
Paid or
Free
Chicago Tribune Media Group
Chicago, IL
Chicago Tribune
www.chicagotribune.com
Daily
Paid
Chicago, IL
Chicago Magazine
www.chicagomag.com
Monthly
Paid
Chicago, IL
Hoy
www.vivelohoy.com
Daily
Free
Chicago, IL
Redeye
www.redeyechicago.com
Daily
Free
Los Angeles, CA
Los Angeles Times
www.latimes.com
Daily
Paid
Los Angeles, CA
Hoy Los Angeles
www.hoylosangeles.com
Weekly
Free
San Diego, CA
The San Diego Union-Tribune
www.sandiegouniontribune.com
Daily
Paid
Broward County, FL, Palm
Beach County, FL
Sun Sentinel
www.SunSentinel.com
Daily
Paid
Broward County, FL, Palm
Beach County, FL
el Sentinel
www.ElSentinel.com
Weekly
Free
Orlando, FL
Orlando Sentinel
www.OrlandoSentinel.com
Daily
Paid
Orlando, FL
el Sentinel
www.ElSentinel.com
Weekly
Free
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
Middlesex County, CT,
Tolland County, CT,
Hartford County, CT
The Hartford Courant
www.courant.com
Daily
Paid
Newport News, VA
(Peninsula)
Daily Press
www.dailypress.com
Daily
Paid
Lehigh Valley, PA
The Morning Call
www.themorningcall.com
Daily
Paid
California News Group
Sun Sentinel Media Group
Orlando Sentinel Media Group
The Baltimore Sun Media Group
Hartford Courant Media Group
Daily Press Media Group
The Morning Call Media Group
5
ForSaleByOwner.com is a national consumer-to-consumer focused real estate website. The site has been the largest
‘‘by owner’’ website in the country since 1999. The majority of the revenue generated by ForSaleByOwner.com is
e-commerce, but approximately one third of its revenue is generated through an in-house call center and strategic
partnerships with service providers in the real estate industry. The business generates the majority of its revenue by selling
listing packages directly to home sellers who receive online advertising, home pricing tools, marketing advice, yard signs
and technical support. ForSaleByOwner.com also sells packages that allow home sellers to syndicate to other national
websites such as Zillow and Realtor.com as well as their local multiple listing service.
Tribune Content Agency (‘‘TCA’’) is a syndication and licensing business providing quality content solutions for
publishers around the globe. Working with a vast collection of the world’s best sources, we deliver a daily news service and
syndicated premium content to over 3,000 media and digital information publishers in 92 countries. Tribune News Service
delivers the best material from 70 leading companies, including Los Angeles Times, Chicago Tribune, Bloomberg News,
Miami Herald, The Dallas Morning News, Seattle Times and The Philadelphia Inquirer. Tribune Premium Content syndicates
columnists such as Arianna Huffington, Cal Thomas, Clarence Page, Ask Amy, Mario Batali 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 Originals is a new service that matches remarkable journalism with Hollywood movie
and TV producers for video storytelling. TCA traces its roots to 1918.
We contract with a number of national and local newspapers to both print and distribute their respective publications
in local markets where we are a newspaper publisher. In some instances where we print publications, we also manage and
procure newsprint, ink and plates on their behalf. These arrangements allow us to leverage our investment in
infrastructure in those markets to support our own publications. As a result, these arrangements tend to contribute
significant incremental profitability relative to the underlying revenues. We currently distribute national newspapers
(including USA Today, The New York Times, and The Wall Street Journal) in our local markets under multiple agreements.
Additionally, both in Los Angeles and Chicago, we provide some or all of these services to other local publications.
Revenue Sources
In 2015, 57.1% of Tribune Publishing operating revenues were derived from advertising and marketing services. These
revenues were generated from the sale of advertising space in published issues of the newspapers and on interactive
websites, from the delivery of preprinted advertising supplements and providing print and digital marketing services.
Approximately 27.9% of operating revenues for 2015 were generated from the sale of newspapers, digital subscriptions and
other publications to individual subscribers or to sales outlets, which re-sell the newspapers. The remaining 15.1% of
operating revenues for 2015 were generated from the provision of commercial printing and delivery services to other
newspapers, direct mail advertising and services, the distribution of syndicated content, and other related activities.
Advertising revenue includes newspaper print advertising, digital advertising and marketing services. Newspaper print
advertising is typically in the form of display or preprint advertising whereas digital advertising can be in the form of
display, banner ads, coupon ads, video, search advertising and linear ads placed on Tribune Publishing and affiliated
websites. Advertising services include development of mobile websites, search engine marketing and optimization, social
media account management and content marketing for its customers’ web presence for small to medium size businesses. In
the fourth quarter of 2015, the Company reclassified digital marketing services previously reported in Other revenue to
Advertising revenue. Prior periods have been adjusted to reflect this reclassification. Advertising and marketing services
revenues are comprised of three basic categories: retail, national and classified. Retail is a category of customers who tend
to do business directly with the general public. National is a category of customers who tend to do business directly with
other businesses. Classified is a type of advertising which is other than display or preprint.
Changes in advertising revenues are heavily correlated with changes in the level of economic activity in the United
States. Changes in gross domestic product, consumer spending levels, auto sales, housing sales, unemployment rates, job
creation, circulation levels and rates all impact demand for advertising in Tribune Publishing’s newspapers and websites.
Tribune Publishing’s advertising revenues are subject to changes in these factors both on a national level and on a local
level in its markets.
Circulation revenue results from the sale of print and digital editions of the Company’s newspapers to individual
subscribers and the sale of print editions of the Company’s newspapers to sales outlets, which re-sell the newspapers.
Other revenues are derived from direct mail services, commercial printing and delivery services provided to other
newspapers, direct mail advertising and other related activities.
Tribune Publishing uses operating revenues, income from operations and Adjusted EBITDA to measure financial
performance. In addition, Tribune Publishing uses average net paid circulation for its newspapers, together with other
6
factors, to measure its market share and performance. Net paid circulation includes both individually paid copy sales
(home delivery, single copy and digital copy sales) and other paid copy sales (education, sponsored and hotel copy sales).
Tribune Publishing’s results of operations, when examined on a quarterly basis, reflect the seasonality of Tribune
Publishing’s revenues. Second and fourth quarter advertising revenues are typically higher than first and third quarter
revenues. Results for the second quarter reflect spring advertising revenues, while the fourth quarter includes advertising
revenues related to the holiday season.
Competition
Each of our 11 major daily newspapers holds a leading market position in their respective DMAs, or designated
market areas, as determined by Nielsen, and competes for readership and advertising with both local or community
newspapers as well as national newspapers and other traditional and web-based media sources. We face competition for
both advertising dollars and consumers’ dollars and attention.
The competition for advertising dollars comes from local, regional, and national newspapers, the Internet, magazines,
broadcast, cable and satellite television, radio, direct mail, yellow pages, and other media as advertisers adjust their
spending based on the perceived value of the audience reached and the cost to reach that audience.
The secular shift impacting how content is consumed has led to increased competition from a wide variety of new
digital content offerings, many of which are often free to users. Besides price, variables impacting customer acquisition and
retention include the quality and nature of the user experience and the quality of the content offered.
To address the structural shift to digital media, our daily newspapers provide editorial content on a wide variety of
platforms and formats—from our printed daily newspaper to our leading local websites; on social network sites such as
Facebook and Twitter; on smartphones and e-readers; on websites and blogs; in niche online publications and in e-mail
newsletters. In fiscal year 2015, the Company has made significant progress in our digital transformation including:
• Ensuring we have a solid, flexible and agile technology platform and product development approach;
• Developing consumer-led and data-driven local and national product platforms;
• Growing audience reach and engagement across the portfolio;
• Optimizing our digital consumer, advertising and alternative revenue streams, and
• Laying the groundwork for a mobile-first development culture.
Raw Materials
As a publisher of newspapers, Tribune Publishing utilizes substantial quantities of various types of paper. During 2015,
we consumed approximately 185 thousand metric tons of newsprint. We currently obtain the majority of our newsprint
from six North American suppliers, primarily under long-term contracts. Substantially all of our paper purchasing is done
on a regional, volume purchase basis, and draws upon Canadian and U.S. based suppliers. We believe that our current
sources of paper supply are adequate. Our earnings are sensitive to changes in newsprint prices. Newsprint and ink
expense accounted for 7.4% of total operating expenses in fiscal year 2015.
Employees
As of December 27, 2015, we had approximately 7,165 full-time and part-time employees, including approximately
842 employees represented by various employee unions. We believe our relations with our employees are satisfactory.
Intellectual Property
Currently, we do not face major barriers to our operations from patents owned by third parties. However, because we
operate a large number of websites and mobile applications in high-visibility markets, we do defend patent litigation, from
time to time, brought primarily by non-practicing entities, as opposed to marketplace competitors. We have sought patent
protection in certain instances; however, we do not consider patents to be material to our business as a whole. Of greater
importance to our overall business are the federal, international and state trademark registrations and applications that
protect, along with our common law rights, our brands, certain of which are long-standing and well known, such as Los
Angeles Times, Chicago Tribune and The Hartford Courant. Generally, the duration of a trademark registration is perpetual,
if it is renewed on a timely basis and continues to be used properly as a trademark. We also own a large number of
copyrights, none of which individually is material to the business. We maintain certain licensing and content sharing
7
relationships with third-party content providers that allow us to produce the particular content mix we provide to our
customers in our markets. In connection with the Distribution, we entered into a number of agreements with TCO or its
subsidiaries that provide for licenses to certain intellectual property, and in particular, we entered into a license agreement
with TCO that provides a non-exclusive, royalty-free license for us to use certain trademarks, service marks and trade
names, including the Tribune name. Other than the foregoing and commercially available software licenses, we do not
believe that any of our licenses to third-party intellectual property are material to our business as a whole.
Available Information
Tribune Publishing maintains its corporate website at www.tribpub.com. Tribune Publishing makes available free of
charge on www.tribpub.com this Annual Report on Form 10-K, the Company’s Quarterly Reports on Form 10-Q, the
Company’s Current Reports on Form 8-K, and amendments to all those reports, all as filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the
reports are electronically filed with or furnished to the Securities and Exchange Commission (‘‘SEC’’).
Item 1A. Risk Factors
Investors should carefully consider each of the following risks, together with all of the other information in this Annual
Report on Form 10-K, in evaluating an investment in the Company’s common stock. Some of the following risks relate to the
Company’s business, indebtedness, the securities markets and ownership of the Company’s common stock. Other risks relate to
the separation from TCO and the effect of the separation from TCO. If any of the following risks and uncertainties develop into
actual events, the Company could be materially and adversely affected. If this occurs, the trading price of the Company’s
common stock could decline, and investors may lose all or part of their investment.
Risks Relating to Our Business
Advertising demand is expected to continue to be affected by changes in economic conditions and fragmentation of the media
landscape.
Advertising revenue is our primary source of revenue. Expenditures by advertisers tend to be cyclical, reflecting
overall economic conditions, as well as budgeting and buying patterns. National and local economic conditions, particularly
in major metropolitan markets, affect the levels of retail, national and classified newspaper advertising revenue. Changes
in gross domestic product, consumer spending, auto sales, housing sales, unemployment rates, job creation, and circulation
levels and rates, as well as federal, state and local election cycles, all affect demand for advertising.
A decline in the economic prospects of advertisers or the economy in general could alter current or prospective
advertisers’ spending priorities. Consolidation across various industries, such as large department store and
telecommunications companies, may also reduce 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 maintain or raise rates. In recent years, Internet sites devoted
to recruitment, automotive and real estate have become significant competitors of our newspapers and websites for
classified advertising, and retaining our historical share of classified advertising revenue remains a significant ongoing
challenge.
Seasonal variations in consumer spending cause our quarterly advertising revenue to fluctuate. Second and fourth
quarter advertising revenue is typically higher than first and third quarter advertising revenue, reflecting the slower
economic activity in the winter and summer and the stronger fourth quarter holiday season.
Demand for our products is also a factor in determining advertising rates. For example, circulation levels for our
newspapers, which have been declining, are a factor in determining advertising rates.
All of these factors continue to contribute to a difficult advertising sales environment and may further adversely affect
our ability to grow or maintain our advertising revenue.
Increasing popularity of digital media and the shift in newspaper readership demographics, consumer habits and advertising
expenditures from traditional print to digital media have adversely affected and may continue to adversely affect our operating
revenues and may require significant capital investments due to changes in technology.
Technology in the media industry continues to evolve rapidly. Advances in technology have led to an increasing
number of methods for delivery of news and other content and have resulted in a wide variety of consumer demands and
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expectations, which are also rapidly evolving. If we are unable to exploit new and existing technologies to distinguish our
products and services from those of our competitors or adapt to new distribution methods that provide optimal user
experiences, our business and financial results may be adversely affected.
The increasing number of digital media options available on the Internet, through social networking tools and through
mobile and other devices distributing news and other content, is expanding consumer choice significantly. Faced with a
multitude of media choices and a dramatic increase in accessible information, consumers may place greater value on when,
where, how and at what price they consume digital content than they do on the source or reliability of such content.
Further, as existing newspaper readers get older, younger generations may not develop similar readership habits. News
aggregation websites and customized news feeds (often free to users) may reduce our traffic levels by driving interaction
away from our websites or our digital applications. If traffic levels stagnate or decline, we may not be able to create
sufficient advertiser interest in our digital businesses or to maintain or increase the advertising rates of the inventory on
our digital platforms.
In addition, the range of advertising choices across digital products and platforms and the large inventory of available
digital advertising space have historically resulted in significantly lower rates for digital advertising than for print
advertising. Digital advertising networks and exchanges, real-time bidding and other programmatic buying channels that
allow advertisers to buy audiences at scale are also playing a more significant role in the advertising marketplace and
causing downward pricing pressure. In addition, evolving standards for delivery of digital advertising, such as viewability,
could adversely affect advertising revenues. Consequently, our digital advertising revenue may not be able to replace print
advertising revenue lost as a result of the shift to digital consumption. A decrease in our customers’ advertising
expenditures, reduced demand for our offerings or a surplus of advertising inventory could lead to a reduction in pricing
and advertising spending, which could have an adverse effect on our businesses and assets. Our inability to maintain
and/or improve the performance of our customers’ advertising results on our digital properties may negatively influence
rates we achieve in the marketplace for our advertising inventory.
Paywalls on our newspaper websites require users to pay for content after accessing a limited number of pages or
news articles for free each month. Our ability to build a subscriber base on our digital platforms through these packages
depends on market acceptance, consumer habits, pricing, an adequate online infrastructure, terms of delivery platforms
and other factors. In addition, the paywall may result in fewer page views or unique visitors to our websites if digital
viewers are unwilling to pay to gain access to our digital content. Stagnation or a decline in website traffic levels may
adversely affect our advertiser base and advertising rates and result in a decline in digital revenue. In order to retain and
grow our digital subscription base and audience, we may have to further evolve our digital subscription model, address
changing consumer requirements and develop and improve our digital products while continuing to deliver high-quality
journalism and content that is interesting and relevant to our audience. There can be no assurance that we will be able to
successfully maintain and increase our digital subscription base and audience or that we will be able to do so without
taking steps such as reducing pricing or increasing costs that would affect our financial condition and results of operations.
Technological developments also pose other challenges that could adversely affect our operating revenues and
competitive position. New delivery platforms may lead to pricing restrictions, the loss of distribution control and the loss
of a direct relationship with consumers. Our advertising and circulation revenues have declined, reflecting general trends
in the newspaper industry, including declining newspaper buying (by young people in particular) and the migration to
other available forms of media for news. We may also be adversely affected if the use of technology developed to block
the display of advertising on websites and mobile devices proliferates.
Any changes we make to our business model to address these challenges may require significant capital investments.
We may be limited in our ability to invest funds and resources in digital products, services or opportunities and we may
incur costs of research and development in building and maintaining the necessary and continually evolving technology
infrastructure. Some of our competitors may have greater operational, financial and other resources or may otherwise be
better positioned to compete for opportunities and as a result, our digital businesses may be less successful, which may
adversely affect our business and financial results.
Macroeconomic trends may adversely impact our business, financial condition and results of operations.
Our operating revenues are sensitive to discretionary spending available to advertisers and subscribers in the markets
we serve, as well as their perceptions of economic trends and uncertainty. Weak economic indicators in various regions
across the nation, such as high unemployment rates, weakness in housing and continued uncertainty caused by national
and state governments’ inability to resolve fiscal issues in a cost efficient manner to taxpayers may adversely impact
advertiser and subscriber sentiment. These conditions could impair our ability to maintain and grow our advertiser and
subscriber bases.
9
Our business operates in highly competitive markets and our ability to maintain market share and generate operating
revenues depends on how effectively we compete with our competition.
Our business operates in highly competitive markets. Our newspapers compete for audiences and advertising revenue
with other newspapers as well as with other media such as the Internet, magazines, broadcast, cable and satellite
television, radio, direct mail, and yellow pages. Some of our competitors have greater financial and other resources than
we do.
Our newspaper publications generate significant percentages of their advertising revenue from a few categories,
including automotive, employment, and real estate classified advertising. In recent years, websites dedicated to automotive,
employment, and real estate advertising have become significant competitors of our newspapers and websites. As a result,
even in the absence of a recession or economic downturn, technological, industry, or other changes specifically affecting
these advertising sources could reduce advertising revenues and adversely affect our financial condition and results of
operations.
Our operating revenues primarily consist of advertising and paid circulation. Competition for advertising expenditures
and paid circulation comes from a variety of sources, including local, regional and national newspapers, the Internet,
magazines, broadcast, cable and satellite television, radio, direct mail, yellow pages, outdoor billboards, and other media.
Free daily newspapers have been recently introduced in several metropolitan markets, and there can be no assurance that
free daily publications, or other publications, will not be introduced in any markets in which we publish newspapers. The
National Do Not Call Registry has affected the way newspapers solicit home-delivery circulation, particularly for larger
newspapers that historically have relied on telemarketing. Competition for newspaper advertising revenue is based largely
upon advertiser results, advertising rates, readership, demographics, and circulation levels. Competition for circulation is
based largely upon the content of the newspaper, its price, editorial quality, customer service, and other sources of news
and information. Circulation revenue and our ability to achieve price increases for our print products may be affected by
competition from other publications and other forms of media available in our various markets, declining consumer
spending on discretionary items like newspapers, decreasing amounts of free time, and declining frequency of regular
newspaper buying among certain demographics. We may incur higher costs competing for advertising dollars and paid
circulation. If we are not able to compete effectively for advertising dollars and paid circulation, our operating revenues
may decline and our financial condition and results of operations may be adversely affected.
Decreases, or slow growth, in circulation may adversely affect our circulation and advertising revenues.
Our newspapers, and the newspaper industry as a whole, are experiencing challenges to maintain or grow print
circulation and circulation revenue. This results from, among other factors, increased competition from other media,
particularly the Internet (which are often free to users), changing newspaper readership demographics and shifting
preferences among some consumers to receive all or a portion of their news other than from a newspaper. These factors
could affect our ability to implement circulation price increases for our print products.
In addition, our circulation revenue is sensitive to discretionary spending available to subscribers in the markets we
serve, as well as their perceptions of economic trends and uncertainty. Weak economic indicators in various regions across
the nation may adversely impact subscriber sentiment and therefore impair our ability to maintain and grow our
circulation.
A prolonged decline in circulation could affect the rate and volume of advertising revenue. To maintain our
circulation base, we may incur additional costs, and may not be able to recover these costs through circulation and
advertising revenue. To address declining circulation, we may increase spending on marketing designed to retain our
existing subscriber base and continue or create niche publications targeted at specific market groups. We may also increase
marketing efforts to drive traffic to our proprietary websites.
We anticipate that readership analyses will become increasingly important now that the Alliance for Audited Media
has agreed to publish readership statistics and recognize Internet use in addition to circulation information. We believe
this is a positive industry development but we cannot predict its effect on advertising revenue.
We rely on revenue from the printing and distribution of publications for third parties that may be subject to many of the
same business and industry risks that we are.
In 2015, we generated approximately 8.5% of our revenue from printing and distributing third-party publications, and
our relationships with these third parties are generally pursuant to short-term contracts. As a result, if the macroeconomic
and industry trends described herein such as the sensitivity to perceived economic weakness of discretionary spending
10
available to advertisers and subscribers, circulation declines, shifts in consumer habits and the increasing popularity of
digital media affect those third parties, we may lose, in whole or in part, a substantial source of revenue.
A decision by any of the three largest national publications or the major local publications to cease publishing and
distribution in those markets, or seek alternatives to their current business practice of partnering with us, could materially
impact our profitability.
If we are unable to execute cost-control measures successfully, our total operating costs may be greater than expected, which
would adversely affect our profitability.
Commencing in 2014, we have taken steps to reduce operating costs by implementing general cost-control measures
across the Company, which include offering employee buyouts and amending retirement benefits, and we plan to continue
these cost management efforts. If we do not achieve expected savings or our operating costs increase as a result of
investments in strategic initiatives, our total operating costs would be greater than anticipated. In addition, if we do not
manage our costs properly, such efforts may affect the quality of our products and our ability to generate future revenues.
Reductions in staff and employee benefits and changes to our compensation structure could also adversely affect our
ability to attract and retain key employees.
Significant portions of our expenses are fixed costs that neither increase nor decrease proportionately with revenues.
If we are not able to implement further cost-control efforts or reduce our fixed costs sufficiently in response to a decline
in our revenues, this could adversely affect our results of operations.
Newsprint prices may continue to be volatile and difficult to predict and control.
Newsprint and ink expense was 7.4% of our total operating expenses in 2015. 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 may adversely affect
newsprint prices in the future.
We may not be able to adapt to technological changes.
Advances in technologies or alternative methods of content delivery or changes in consumer behavior driven by these
or other technologies could have a negative effect on our business. We cannot predict the effect such technologies will
have on our operations. In addition, the expenditures necessary to implement these new technologies could be substantial
and other companies employing such technologies before we are able to do so could aggressively compete with our
business.
Technological developments may increase the threat of content piracy and limit our ability to protect intellectual property
rights.
We seek to limit the threat of content piracy; however, policing unauthorized use of our products and services and
related intellectual property is often difficult and the steps taken by us may not prevent the infringement by unauthorized
third parties. Developments in technology increase the threat of content piracy by making it easier to duplicate and widely
distribute pi…
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