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EX-32 - EXHIBIT 32 - Tribune Publishing Coa2018q310qexhibit32.htm
EX-31.2 - EXHIBIT 31.2 - Tribune Publishing Coa2018q310qexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Tribune Publishing Coa2018q310qexhibit311.htm
EX-3.1 - EXHIBIT 3.1 - Tribune Publishing Coa2018q310qexhibit31.htm





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
 
OR
[ ]
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
 
38-3919441
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. employer
identification no.)
 
 
 
160 N. Stetson Avenue
 
 
Chicago Illinois
 
60601
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code: (312) 222-9100
 
Former name, former address and former fiscal year, if changed since last report.
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  X   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes  X   No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” an “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ____
 
Accelerated filer   X   
Non-accelerated filer ____
 
Smaller reporting company ____
 
 
Emerging growth company ____
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ____
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes __  No  X
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 November 5, 2018
Common Stock, $0.01 par value
 
35,601,362






 
 
TRIBUNE PUBLISHING COMPANY
 
 
 
 
FORM 10-Q
 
 
 
 
TABLE OF CONTENTS
 
 
 
 
 
 
Page
 
 
 
 
 
PART I
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 

1




CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q, as well as the information contained in the notes to our Consolidated 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, without limitation, changes in advertising demand, circulation levels and audience shares; competition and other economic conditions; economic and market conditions that could impact the level of our required contributions to the defined benefit pension plans to which we contribute; decisions by trustees under rehabilitation plans (if applicable) or other contributing employers with respect to multiemployer plans to which we contribute which could impact the level of our contributions; our ability to develop and grow our online businesses; changes in newsprint price; our ability to maintain effective internal control over financial reporting; concentration of stock ownership among our principal stockholders whose interests may differ from those of other stockholders; and other events beyond our control that may result in unexpected adverse operating results. For more information about these and other risks, see “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 16, 2018, and in our other filings with the SEC.
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, in fact occur 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 Quarterly Report on Form 10-Q. 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.

2




PART I.
Item 1.    Financial Statements
TRIBUNE PUBLISHING COMPANY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)
 
 
Three months ended
 
Nine months ended
 
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
 
 
 
 
 
 
 
 
 
Operating revenues
 
$
255,770

 
$
236,155

 
$
747,173

 
$
719,565

Operating expenses:
 
 
 
 
 
 
 
 
Compensation
 
107,762

 
97,304

 
324,982

 
286,306

Newsprint and ink
 
16,980

 
12,974

 
48,348

 
41,399

Outside services
 
81,572

 
78,572

 
262,372

 
239,593

Other operating expenses
 
47,270

 
37,302

 
116,220

 
113,828

Depreciation and amortization
 
12,179

 
12,124

 
37,567

 
35,105

Total operating expenses
 
265,763

 
238,276

 
789,489

 
716,231

Income (loss) from operations
 
(9,993
)
 
(2,121
)
 
(42,316
)
 
3,334

Interest income (expense), net
 
303

 
(6,510
)
 
(11,673
)
 
(19,310
)
Loss on early extinguishment of debt
 

 

 
(7,666
)
 

Premium on stock buyback
 

 

 

 
(6,031
)
Loss on equity investments, net
 
(434
)
 
(403
)
 
(1,828
)
 
(2,024
)
Other income, net
 
3,640

 
86

 
10,943

 
653

Loss from continuing operations before income taxes
 
(6,484
)
 
(8,948
)
 
(52,540
)
 
(23,378
)
Income tax expense (benefit)
 
(5,835
)
 
3,697

 
(8,719
)
 
1,612

Loss from continuing operations
 
(649
)
 
(12,645
)
 
(43,821
)
 
(24,990
)
Plus: Earnings (loss) from discontinued operations, net of taxes
 
(3,586
)
 
14,701

 
290,665

 
30,898

Net income (loss)
 
(4,235
)
 
2,056

 
246,844

 
5,908

Less: Income (loss) attributable to noncontrolling interest
 
(239
)
 

 
471

 

Net income (loss) attributable to Tribune common stockholders
 
$
(3,996
)
 
$
2,056

 
$
246,373

 
$
5,908

Loss from continuing operations per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.01
)
 
$
(0.38
)
 
$
(1.26
)
 
$
(0.73
)
Diluted
 
$
(0.01
)
 
$
(0.38
)
 
$
(1.26
)
 
$
(0.73
)
Net income (loss) attributable to Tribune per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.11
)
 
$
0.06

 
$
7.01

 
$
0.17

Diluted
 
$
(0.11
)
 
$
0.06

 
$
7.01

 
$
0.17

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
35,409

 
33,242

 
35,166

 
34,124

Diluted
 
35,409

 
33,242

 
35,166

 
34,124

  
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3




TRIBUNE PUBLISHING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
Three months ended
 
Nine months ended
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
Net income (loss)
$
(4,235
)
 
$
2,056

 
$
246,844

 
$
5,908

Other comprehensive income, net of taxes:
 
 
 
 
 
 
 
Amortization of items to periodic pension cost during the period, net of taxes of ($916), ($134), ($2,746) and ($401), respectively
(2,376
)
 
(204
)
 
(7,128
)
 
(614
)
Foreign currency translation
(6
)
 

 
(11
)
 
1

Other comprehensive loss, net of taxes
(2,382
)
 
(204
)
 
(7,139
)
 
(613
)
Comprehensive income (loss) recognized in continuing operations
(6,617
)
 
1,852

 
239,705

 
5,295

Accumulated other comprehensive income recognized in discontinued operations, net of taxes of $9,702

 

 
25,397

 

Comprehensive income (loss)
(6,617
)
 
1,852

 
265,102

 
5,295

Comprehensive income (loss) attributable to noncontrolling interest
(239
)
 

 
471

 

Comprehensive income (loss) attributable to Tribune common stockholders
$
(6,378
)
 
$
1,852

 
$
264,631

 
$
5,295



The accompanying notes are an integral part of these unaudited consolidated financial statements.

4



TRIBUNE PUBLISING COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

 
 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
 
Current assets
 
 
 
 
Cash
 
$
97,582

 
$
185,351

Accounts receivable, (net of allowances of $11,190 and $8,988)
 
135,950

 
122,501

Inventories
 
11,402

 
7,412

Prepaid expenses and other
 
38,991

 
29,663

Assets related to discontinued operations
 

 
61,778

Total current assets
 
283,925

 
406,705


 
 
 
 
Property, plant and equipment
 
 
 
 
Machinery, equipment and furniture
 
126,423

 
110,598

Buildings and leasehold improvements
 
81,233

 
36,987

 
 
207,656

 
147,585

Accumulated depreciation
 
(72,132
)
 
(61,473
)
 
 
135,524

 
86,112

Advance payments on property, plant and equipment
 
10,543

 
8,386

Property, plant and equipment, net
 
146,067

 
94,498

 
 
 
 
 
Other assets
 
 
 
 
Goodwill
 
134,747

 
48,700

Intangible assets, net
 
79,383

 
64,996

Software, net
 
29,515

 
40,700

Restricted cash
 
43,947

 

Deferred income taxes
 

 
1,124

Other long-term assets
 
30,001

 
31,163

Assets related to discontinued operations
 

 
177,247

Total other assets
 
317,593

 
363,930

 
 
 
 
 
Total assets
 
$
747,585

 
$
865,133

 
 
 
 
 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5



TRIBUNE PUBLISHING COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
(In thousands, except per share data)
(Unaudited)


 
 
September 30, 2018
 
December 31, 2017
Liabilities and stockholders’ equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
65,946

 
$
65,724

Employee compensation and benefits
 
40,058

 
49,262

Deferred revenue
 
53,580

 
50,314

Current portion of long-term debt
 
405

 
21,486

Other current liabilities
 
22,309

 
15,453

Liabilities associated with discontinued operations
 
51,380

 
58,665

Total current liabilities
 
233,678

 
260,904

 
 
 
 
 
Non-current liabilities
 
 
 
 
Pension and postretirement benefits payable
 
17,813

 
23,438

Deferred income tax liability
 
3

 

Deferred revenue
 
3,086

 
4,818

Long-term debt
 
6,773

 
331,065

Workers’ compensation, general liability and auto insurance payable
 
31,453

 
33,452

Other obligations
 
41,815

 
25,794

Liabilities associated with discontinued operations
 

 
116,500

Total non-current liabilities
 
100,943

 
535,067

 
 
 
 
 
Noncontrolling interest
 
39,371

 

 
 
 
 
 
Stockholders’ equity
 
 
 
 
Preferred stock, $.01 par value. Authorized 30,000 shares; no shares issued or outstanding at September 30, 2018 and December 31, 2017
 

 

Common stock, $.01 par value. Authorized 300,000 shares, 37,447 shares issued and 35,494 shares outstanding at September 30, 2018; 37,551 shares issued and 33,684 shares outstanding at December 31, 2017
 
374

 
376

Additional paid-in capital
 
164,665

 
150,229

Retained earnings (accumulated deficit)
 
229,983

 
(16,390
)
Accumulated other comprehensive income (loss)
 
4,731

 
(13,527
)
Treasury stock, at cost - 1,954 shares at September 30, 2018 and 3,867 shares at December 31, 2017
 
(26,160
)
 
(51,526
)
Total stockholders’ equity
 
373,593

 
69,162

 
 
 
 
 
Total liabilities and stockholders’ equity
 
$
747,585

 
$
865,133



The accompanying notes are an integral part of these unaudited consolidated financial statements.

6




TRIBUNE PUBLISHING COMPANY
CONSOLIDATED STATEMENT OF EQUITY
(In thousands)
(Unaudited)

 
 
Common Stock
 
Additional Paid in Capital
 
Retained earnings
 
AOCI
 
Treasury Stock
 
Total Equity
 
 
Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2017
 
37,551

 
$
376

 
$
150,229

 
$
(16,390
)
 
$
(13,527
)
 
$
(51,526
)
 
$
69,162

Comprehensive income (loss) attributable to controlling interests
 

 

 

 
246,373

 
(7,139
)
 

 
239,234

AOCI recognized in discontinued operations
 

 

 

 

 
25,397

 

 
25,397

Issuance of stock from treasury for acquisition
 

 

 
9,229

 

 

 
25,366

 
34,595

Issuance of stock from restricted stock and restricted stock unit conversions
 
339

 
3

 
(3
)
 

 

 

 

Exercise of stock options
 
7

 

 
134

 

 

 

 
134

Stock-based compensation
 

 

 
8,177

 

 

 

 
8,177

Withholding for taxes on restricted stock unit conversions
 

 

 
(3,106
)
 

 

 

 
(3,106
)
Forfeited restricted stock
 
(450
)
 
(5
)
 
5

 

 

 

 

Balance at September 30, 2018
 
37,447

 
$
374

 
$
164,665

 
$
229,983

 
$
4,731

 
$
(26,160
)
 
$
373,593




The accompanying notes are an integral part of these unaudited consolidated financial statements.

7




TRIBUNE PUBLISHING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
 
Nine Months Ended
 
 
September 30, 2018
 
September 24, 2017
Operating Activities From Continuing Operations
 
 
 
 
Net loss
 
$
(43,821
)
 
$
(24,990
)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
 
 
 
 
Depreciation and amortization
 
37,567

 
35,105

Stock compensation expense
 
7,513

 
7,279

Loss on equity investments, net
 
1,828

 
2,449

Loss on early extinguishment of debt
 
7,666

 

Deferred income taxes
 
3,818

 
11,292

Non-current deferred revenue
 
(1,732
)
 
(1,070
)
Premium on stock buyback
 

 
6,031

Pension contribution
 
(3,419
)
 

Postretirement medical, life and other benefits
 
(12,615
)
 
(1,646
)
Changes in working capital items, excluding acquisitions:
 
 
 
 
Accounts receivable, net
 
2,045

 
25,287

Prepaid expenses, inventories and other current assets
 
14,084

 
(11,314
)
Accounts payable, employee compensation and benefits, deferred revenue and other current liabilities
 
(22,700
)
 
(26,776
)
Other, net
 
2,474

 
941

Net cash provided by (used for) operating activities
 
(7,292
)
 
22,588

 
 
 
 
 
Investing Activities From Continuing Operations
 
 
 
 
Capital expenditures
 
(48,956
)
 
(13,137
)
Acquisition of business, net of cash acquired
 
(70,999
)
 
3,305

Other, net
 
(2,207
)
 
(1,841
)
Net cash used for investing activities
 
(122,162
)
 
(11,673
)
 
 
 
 
 
Financing Activities From Continuing Operations
 
 
 
 
Repayment of long-term debt
 
(353,253
)
 
(15,817
)
Purchase of treasury stock
 

 
(56,189
)
Withholding for taxes on RSU vesting
 
(3,106
)
 
(2,077
)
Dividends paid to noncontrolling interest
 
(2,000
)
 

Dividends paid to common stockholders
 

 
(145
)
Proceeds from exercise of stock options
 

 
95

Other
 
(151
)
 
(34
)
Net cash used for financing activities
 
(358,510
)
 
(74,167
)
 
 
 
 
 
Decrease in cash attributable to continuing operations
 
$
(487,964
)
 
$
(63,252
)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

8




TRIBUNE PUBLISHING COMPANY.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
(Unaudited)

 
 
Nine Months Ended
 
 
September 30, 2018
 
September 24, 2017
Cash Flows From Discontinued Operations
 
 
 
 
Cash flows provided by (used for) operating activities of discontinued operations, net
 
$
(47,071
)
 
$
42,469

Cash flows provided by investing activities of discontinued operations, net
 
491,504

 
7,828

Cash flows used for financing activities of discontinued operations, net
 
(291
)
 
(242
)
Increase in cash attributable to discontinued operations
 
444,142

 
50,055

 
 
 
 
 
Net decrease in cash
 
(43,822
)
 
(13,197
)
Cash, cash equivalents and restricted cash beginning of period
 
185,351

 
198,349

Cash, cash equivalents and restricted cash, end of period
 
$
141,529

 
$
185,152


The accompanying notes are an integral part of these unaudited consolidated financial statements.

9


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



NOTE 1: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business—Tribune Publishing Company, formerly tronc. Inc., was formed as a Delaware corporation on November 21, 2013. Tribune Publishing Company together with its subsidiaries (collectively, the “Company” or “Tribune”) is a media company rooted in award-winning journalism. Headquartered in Chicago, the Company operates local media businesses in eight markets with titles including the Chicago Tribune, New York Daily News, The Baltimore Sun, Orlando Sentinel, South Florida’s Sun Sentinel, Virginia’s Daily Press and The Virginian-Pilot, The Morning Call of Lehigh Valley, Pennsylvania and the Hartford Courant. Tribune also operates Tribune Content Agency and the Daily Meal and on February 6, 2018, the Company became a majority owner in BestReviews LLC (“BestReviews”). On May 28, 2018, the Company acquired Virginian-Pilot Media Companies LLC, owner of the The Virginian-Pilot, a daily newspaper based in Norfolk, Virginia, and associated businesses (“Virginian-Pilot”). See Note 5 for further information on acquisitions.
On May 23, 2018, the Company completed the sale of substantially all of the assets of forsalebyowner.com and on June 18, 2018, the Company completed the sale of the Los Angeles Times, The San Diego Union-Tribune and various other titles of the Company’s California properties (“California Properties”). See Note 6 for more information on the dispositions and related discontinued operations.
Subsequent to September 30, 2018, the Company changed its corporate name from tronc, Inc. to Tribune Publishing Company. The common stock of the Company began trading the morning of October 10, 2018 on Nasdaq under the ticker symbol “TPCO.”
Tribune’s continuing legacy of brands, including the New York Daily News and The Virginian-Pilot, have earned a combined 60 Pulitzer Prizes and are committed to informing, inspiring and engaging local communities. Tribune’s brands create and distribute content across its media portfolio, offering integrated marketing, media, and business services to consumers and advertisers, including digital solutions and advertising opportunities.
Fiscal Periods—The Company’s fiscal year ends on the last Sunday in December. Fiscal year 2018 ends on December 30, 2018 and fiscal year 2017 ended on December 31, 2017. Fiscal year 2018 is a 52-week year with 13 weeks in each quarter. Fiscal year 2017 was a 53-week year with 13 weeks in the first through third quarters and 14 weeks in the fourth quarter.
Basis of Presentation—The accompanying unaudited Consolidated Financial Statements and notes of the Company have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited Consolidated Financial Statements and accompanying notes. Actual results could differ from these estimates. In the opinion of management, the financial statements contain all adjustments necessary to present fairly the financial position of Tribune as of September 30, 2018 and December 31, 2017 and the results of operations for the three and nine months ended September 30, 2018 and September 24, 2017, respectively, and the cash flows for the nine months ended September 30, 2018 and September 24, 2017, respectively. This includes all normal and recurring adjustments and elimination of intercompany transactions. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The year-end Consolidated Balance Sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
Effective as of the sale dates, the operations of the California Properties and forsalebyowner.com qualify as discontinued operations. Accordingly, operations for all periods presented have been reflected as discontinued operations in the accompanying Consolidated Statements of Income (Loss) and Consolidated Statements of Cash Flows. Additionally, assets and liabilities related to the divested properties are classified as such in all prior periods in the Consolidated Condensed Balance Sheets. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate to continuing operations and exclude all discontinued operations including the California Properties and forsalebyowner.com.
The Company assesses its operating segments in accordance with ASC Topic 280, “Segment Reporting.” Subsequent to the Company’s name change, Tribune renamed its existing segments to M and X. The Company is managed

10


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



by its chief operating decision maker, as defined by ASC Topic 280, in two reportable segments, M and X. Segment M is comprised of the Company’s media groups excluding their digital revenues and related digital expenses, except digital subscription revenues when bundled with a print subscription. Segment X includes the Company’s digital revenues and related digital expenses from local Tribune websites, third party websites, mobile applications, digital-only subscriptions, BestReviews and Tribune Content Agency (“TCA”). See Note 17 for additional segment information.
New Accounting Standards—In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Subtopic 350-40, Intangibles-Goodwill and Other-Internal-Use Software; Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The ASU can be applied either retrospectively or prospectively. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating how the adoption of this standard will impact the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Topic 220, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU amends ASC 220, Income Statement — Reporting Comprehensive Income, to “allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.” In addition, under the ASU, an entity will be required to provide certain disclosures regarding stranded tax effects. The ASU is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating how the adoption of this standard will impact the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Topic 715, Compensation - Retirement Benefits; Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 requires the disaggregation of the service cost component from other components of net periodic benefit cost, clarifies how to present the service cost component and other components of net benefit costs in the financial statements and allows only the service cost component of net benefit costs to be eligible for capitalization. The Company adopted the standard on January 1, 2018 and has applied the standard on a retrospective basis. Accordingly, prior period amounts have been adjusted. Adoption of the standard had no effect on the Company’s overall results of operations. The disclosures required by the standard can be found in Note 11.
In January 2017, the FASB issued ASU 2017-04, Topic 350, Intangibles-Goodwill and Other; Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test thereby standardizing the impairment assessment to measure a reporting unit’s carrying value against its fair value and eliminate the calculation of an implied fair value of goodwill. ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019 and should be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating how the adoption of this standard will impact the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Topic 805, Clarifying the Definition of a Business, which establishes criteria to determine when an integrated set of assets and activities is not a business. ASU 2017-01 is effective for interim and annual reporting periods beginning after December 15, 2017 and should be applied prospectively. The Company adopted the standard effective January 1, 2018 and will apply the standard to acquisitions or dispositions after that date.
In November 2016, the FASB issued ASU 2016-18, Topic 230, Statement of Cash Flows, which clarifies how companies present and classify restricted cash in the statement of cash flows. ASU 2016-18 is effective for interim and annual reporting periods beginning after December 15, 2017. The guidance is required to be applied on a retrospective basis. The Company adopted the standard effective January 1, 2018. The adoption had no retrospective effect on the Company’s consolidated financial statements as the Company had no restricted cash during 2017 or the first quarter of 2018. However, beginning in the second quarter of 2018, the Company has restricted cash and the restricted cash balances are included in the beginning and ending cash balances in the statements of cash flows and Note 18 provides a reconciliation between cash balances presented on the balance sheets with the amounts presented in the statements of cash flows.

11


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



In August 2016, the FASB issued ASU 2016-15, Topic 230, Statement of Cash Flows, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. The guidance is required to be applied on a retrospective basis. The Company adopted the standard effective January 1, 2018. The adoption had no effect on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Topic 842, Leases, which requires lessees to recognize lease assets and lease liabilities for operating leases. The Company expects to adopt this standard in the first quarter of 2019 using the transition option whereby companies may initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has initiated efforts to assess the impact of this new standard on the Company’s future reported results and operating and accounting processes and systems. The Company expects to elect the practical expedients which allow the Company to forgo reassessing whether existing contracts are or contain leases, forgo reassessing the classification of existing leases and forgo reassessing initial direct costs of existing leases at the initial application date. The Company has not finalized its assessment, but believes the adoption of the new standard will have a material impact on its consolidated balance sheets primarily due to the recognition of right-of-use assets and lease liabilities for its capital lease obligations. The Company does not expect the adoption of the new standard to have a material impact on its consolidated statements of operations or cash flows.
In May 2014, the FASB issued ASU 2014-09, Topic 606, Revenue from Contracts with Customers and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively. The new standard supersedes a majority of existing revenue recognition guidance under U.S. GAAP and requires a company to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled. Companies may need to use more judgment and make more estimates while recognizing revenue, which could result in additional disclosures to the financial statements. On January 1, 2018, the Company adopted ASU 2014-09 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results of operations for periods after January 1, 2018 reflect the changes under ASU 2014-09. Results of operations for periods before January 1, 2018, continue to be reported under guidance in effect at that time. The adoption did not have a material effect on the Company’s consolidated financial statements. See Note 2 for disclosures as a result of the adoption.
NOTE 2: REVENUE RECOGNITION
Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services. Revenues are recognized as performance obligations that are satisfied at either a point in time, such as when an advertisement is published, or over time, such as content licensing.
Advertising revenue
Print advertising revenue is typically in the form of print display appearing in Tribune newspapers and preprinted advertising inserted into Tribune newspapers. Digital advertising consists of website display, banner ads, advertising widgets, coupon ads, video, search advertising and linear ads placed by customers on Tribune or other third-party websites. Customers submit ads to appear either in the print newspapers or on websites. Advertising revenue is recognized when the Company satisfies the performance obligation by transferring the promised goods or services to the customer in an amount that reflects the consideration the Company is entitled to receive. For print advertising, classified and preprint advertising, this transfer, which occurs at a point in time, occurs when the advertising appears in the newspaper.
Digital advertising is typically sold on a cost-per-impression basis. An advertiser pays an amount based on the number of times their ad is displayed on the Company’s websites. Revenue is recognized at a point in time when the ad is displayed on the websites.
Advertising revenue also includes digital marketing services which include development of mobile websites, search engine marketing and optimization, social media account management and content marketing for customers’ web presence for small to medium size businesses. For mobile website development, revenue is recognized when the website is live. For

12


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



search engine marketing and optimization, social account management and content marketing, revenue is recognized over the period of time the service is performed for the customer.
Certain customers receive cash-based incentives or credits, which are accounted for as variable consideration. The Company estimates these amounts based on the expected amount to be provided to customers and reduces revenues recognized. The Company expects there will be no significant changes to our estimates of variable consideration.
Circulation revenue
Circulation revenue results from the sale of print editions of newspapers to individual subscribers and to sales outlets that re-sell the newspapers. For individual subscribers, revenue is recognized at a point in time when the newspapers are delivered to the subscribers. For sales outlets, revenue is recognized at a point in time when the newspapers are delivered to the sales outlets or to an intermediary which has purchased the newspapers to resell to the sales outlets.
Other revenue
Other revenues are derived from commercial printing and delivery services provided to other newspapers, direct mail advertising and services, syndication and licensing revenue, ecommerce lead generation revenue and digital-only subscriptions.
Digital circulation revenue results from the provision of online content to subscribers. Tribune recognizes revenue daily, per the contract term as the customer receives access to digital content.
For commercial printing and delivery services, the Company contracts with a number of national and local newspapers to both print and/or distribute their respective publications in local markets where it is a newspaper publisher. For commercial printing, revenue is recognized as the papers are printed and available for delivery. For commercial delivery, the Company operates under two models, the buy/sell model and the fee-for-delivery model. Under the buy/sell model, the Company buys the customers newspapers and resells them to subscribers and sales outlets. Revenue the Company receives for the sale of the newspapers is recognized when the newspapers are delivered to subscribers or sales outlets. Under the fee-for-delivery model, the Company receives a fee for each newspaper delivered. Revenue is recognized at the time the newspaper is delivered either to the subscriber or to the sales outlet.
For direct mail advertising and services, the Company enters into an arrangement with customers to design, print and distribute advertising materials. Revenue is recognized when the items are delivered to the postage courier.
For licensing and syndication revenue, the Company enters into a sales-based royalty arrangement with the customer to provide a license to Tribune content. The Company receives a periodic royalty payment based on usage of the content or derived sales of the content. Revenue is recognized based on royalties received.
For ecommerce lead generation revenue, the Company provides leads to ecommerce sites such as Amazon.com and Walmart.com. Once the leads convert to sales on these sites, the Company receives a percentage of the sales. Revenue is recognized when the leads have been converted to sales, net of a reserve for returned items.
The Company’s revenues disaggregated by type of revenue and segment are presented in Note 17.
The Company receives a significant portion of the payments from its subscribers in advance of the delivery of the content both either in print or digitally. These up-front payments and fees are recorded as deferred revenue upon receipt and generally require deferral of revenue recognition to a future period until the Company performs its obligations under the subscription agreement. The deferred revenue is recognized as revenue as the content is delivered. The deferred revenue is considered a contract liability under ASC 606. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. Therefore, the Company has no contract assets as defined under ASC 606. As of December 31, 2017, the Company had a contract liabilities balance from continuing operations of $55.1 million, of which $45.6 million has been recognized as revenue in the nine months ended September 30, 2018. The balance as of December 31, 2017 and the revenue recognized during the nine months ended September 30, 2018 exclude amounts related to discontinued operations.

13


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within cost of sales. Additionally, the Company does not disclose the value of unsatisfied performance obligations because the vast majority of contracts have original expected lengths of one year or less and payment terms are generally short-term in nature unless a customer is in bankruptcy.
NOTE 3: CHANGES IN OPERATIONS
Employee Reductions
The Company continually assesses its operations in an effort to identify opportunities to enhance operational efficiencies and reduce expenses. In the past these activities have included, and could include in the future, outsourcing of various functions or operations, abandonment of leased space and other activities which may result in changes to employee headcount. The discussion and amounts below represent activity in the Company’s continuing operations and exclude any amounts in the Company’s assets, liabilities or operations from discontinued operations.
During the second quarter of 2017, the Company contracted with a third party to outsource the printing, packaging and delivery of the Orlando Sentinel. The services were fully transitioned to the third party by the end of the third quarter of 2017. The change in operations resulted in staff reductions of 112 positions and a pretax charge related to those reductions of $2.2 million. The related salary continuation payments began in the third quarter of 2017 and are expected to continue through the fourth quarter of 2018.
During the third quarter of 2018, the Company identified reductions in staffing levels of 178 positions of which approximately 50% were at the New York Daily News. The Company took a pretax charge related to those reductions of $4.6 million. The related salary continuation payments began in the third quarter of 2018 and will continue until the third quarter of 2019.
In addition to the initiatives mentioned above, the Company implemented additional reductions of 52 and 339 positions during the three and nine months ended September 30, 2018, respectively, and recorded pretax charges related to these reductions of $3.5 million and $14.3 million, respectively. The Company implemented reductions of 60 and 162 positions during the three and nine months ended September 24, 2017, respectively, and recorded pretax charges related to these reductions of $3.9 million and $6.8 million, respectively. A summary of the activity with respect to the Company’s severance accrual for the nine months ended September 30, 2018 is as follows (in thousands):
Balance at December 31, 2017
 
$
11,532

Provision
 
18,914

Payments
 
(21,200
)
Balance at September 30, 2018
 
$
9,246

Charges for severance and related expenses are included in compensation expense in the accompanying Consolidated Statements of Income (Loss).
In October, the truck drivers’ union of the New York Daily News ratified a new collective bargaining agreement with the Company that extended the existing agreement from 2021 to 2024 and relinquishes to NYDN the right of delivery of the remaining 60 single copy routes in New York City. The agreement allows for the separation of a total of 80 drivers with a minimum of 55 drivers at the outset.  The remaining drivers separations will occur later in the term of the contract.  In addition, the Company received other rights and reductions, including reduced dock manning, move to bi-weekly payroll and move to Company provided medical benefits.  The severance cost related to this agreement will be a minimum of $10.4 million with at least $8.5 million to be incurred upon the initial separations in the fourth quarter of 2018. The Company expects to achieve savings derived from driver salaries, overtime, collection pay, medical contributions to the union welfare plan, worker’s comp, fleet expenses, insurance and other expenses, net of the third-party cost of single copy newspaper delivery.

14


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Lease Abandonment
A summary of the activity with respect to the Company’s lease abandonment accrual for the nine months ended September 30, 2018 is as follows (in thousands):
Balance at December 31, 2017
 
$
3,127

Provision
 
33

Payments and other
 
(2,095
)
Balance at September 30, 2018
 
$
1,065

These charges are included in other operating expenses in the accompanying Consolidated Statements of Income (Loss).
Other ChargesAdditionally, as a result of the printing, packaging and delivery outsourcing in Orlando discussed above, certain assets required to print and package the Orlando Sentinel are no longer used as of the transition date. The first piece of equipment was idled June 12, 2017. As a result, the Company recognized $1.9 million in accelerated depreciation in the second quarter of 2017. These charges are included in depreciation and amortization expenses in the accompanying Consolidated Statements of Income (Loss).
NOTE 4: RELATED PARTY TRANSACTIONS
Transition Services Agreement with NantMedia Holdings, LLC
In connection with the closing of the sale of the California Properties, the Company entered into a transition services agreement (“TSA”) with NantMedia Holdings, LLC (“NantMedia”), providing for up to twelve months of transition services between the parties at negotiated rates approximating cost. Either party may discontinue all or a portion of the services being provided to such party by providing 60 days advance notice. See Note 6 for additional information on the sale of the California Properties.
As the operational transition continues, there are certain costs that the Company paid on behalf of NantMedia due to comingled contracts and processes. Such costs include newsprint, rent, payroll, benefits, and other operating activities. The TSA provides for reimbursement to the Company for such charges until the contracts and processes can be separated. Additionally, the Company receives some revenue payments related to comingled revenue contracts that include the California Properties. These payments are reimbursed to NantMedia. A summary of the activity with respect to the TSA for the three and nine months ended September 30, 2018 is as follows (in thousands):
 
 
Three months ended September 30, 2018
 
Nine months ended September 30, 2018
Accounts receivable from NantMedia beginning balance
 
$
12,521

 
$

Revenue for TSA services
 
8,618

 
9,799

Reimbursable costs
 
23,495

 
35,523

Amounts received for TSA services
 
(5,189
)
 
(5,189
)
Amounts received for reimbursable costs
 
(8,339
)
 
(8,339
)
Amounts paid under comingled revenue contracts
 
2,898

 
2,898

Amounts collected under comingled revenue contracts
 
(5,093
)
 
(5,781
)
Accounts receivable from NantMedia balance as of September 30, 2018(i)
 
$
28,911

 
$
28,911

(i)The accounts receivable from NantMedia balance as of September 30, 2018 consists of $23.9 million of charges which have been billed and $5.0 million of charges which have not been billed.
As of the filing date of this report all amounts billed and outstanding as of September 30, 2018 have been received from NantMedia.

15


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Merrick Consulting Agreement
On December 20, 2017, the Company entered into a Consulting Agreement with Merrick Ventures LLC (“Merrick Ventures”) and solely for certain sections thereof, Michael W. Ferro, Jr. and Merrick Media, LLC (“Merrick Media”). Mr. Ferro is: (1) Chairman and Chief Executive Officer of Merrick Ventures and (2) the manager of Merrick Venture Management, LLC which is the sole manager of Merrick Media. At the time the agreement was signed, Mr. Ferro was also Chairman of Tribune’s Board of Directors and, together with Merrick Ventures and Merrick Media, a significant stockholder. The Consulting Agreement provided for the engagement of Merrick Ventures on a non-exclusive basis to provide certain management expertise and technical services for an annual fee of $5 million in cash, payable in advance on the first business day of each calendar year. The Consulting Agreement provided for a rolling three-year term, with the initial term continuing through December 31, 2020. The Company made the initial $5.0 million payment in early January 2018. During the term of the Consulting Agreement, Merrick Ventures and Mr. Ferro agreed to certain non-competition covenants relating to engaging in certain other daily printed newspaper businesses, subject to certain exceptions, and amended certain terms of the Securities Purchase Agreement by and among the Company, Merrick Media and Mr. Ferro. The Consulting Agreement also provided for termination of the Aircraft Dry Sublease Agreement described below, as of December 31, 2017 and after such time, Merrick Ventures and Mr. Ferro are responsible for all travel expenses (including private plane expenses) incurred by them in performance of their services for the Company, rather than the Company reimbursing them for such expenses. Such Aircraft Dry Sublease expenses totaled $3.0 million in fiscal 2017 and $2.7 million in fiscal 2016.
On March 18, 2018, Mr. Ferro retired from the Company’s Board. As Mr. Ferro was no longer actively engaged in the business and the Company remained contractually committed for the future payments due under the Consulting Agreement, the Company recognized expense for the full $15.0 million due under the Consulting Agreement in outside services in the first quarter of 2018. In the second quarter of fiscal 2018, the Company amended the Consulting Agreement. The amendment reduced the total fees due under the Consulting Agreement by $2.5 million (from $15 million to $12.5 million) and allows the Company to engage Merrick Ventures as its advisor, if it so chooses, but at no additional cost to the Company. If so engaged, the Company would indemnify Merrick Ventures if the Company requests it to meet with third parties. In June 2018, the Company paid the remaining $7.5 million in fees due under the amended Consulting Agreement in connection with the execution of the amendment. The Company recognized a credit of $2.5 million for the reduction in fees due under the Consulting Agreement in outside services in the second quarter of 2018. The non-compete covenants and amended Securities Purchase Agreement terms contained in the Consulting Agreement were not altered by the amendment and remain in place through December 31, 2020.
In the second quarter of 2018, the Company agreed to pay $0.3 million in legal fees incurred by Mr. Ferro while conducting the Company’s business. Such legal fees were paid directly to the legal firms.
Aircraft Dry Sublease
During 2017, the Company was party to an Aircraft Dry Sublease Agreement with Merrick Ventures. Under the agreement, the Company subleased on a non-exclusive basis, a Bombardier aircraft leased by Merrick Ventures, which included the Company’s proportionate share of the insurance premiums and maintenance expenses and for charges attributable to the Company for the operation of the aircraft by the Company during the lease term. This lease was terminated effective December 31, 2017. During the three and nine months ended September 24, 2017, the Company incurred $0.7 million and $2.0 million related to the aircraft sublease. For the three and nine months ended September 24, 2017, the Company paid $0.6 million and $1.6 million, respectively, to Merrick Ventures and $0.1 million and $0.3 million, respectively, to an outside party for pilot services.
Event tickets
In April 2017, the Company acquired Merrick Ventures’ interest and obligations in connection with the license of a suite and tickets to certain sporting events. The suite and tickets were utilized in the Company’s sales and marketing efforts and for other corporate purposes. The aggregate cost of the suite and regular season tickets approximated $0.3 million annually. During the first quarter of 2017, the Company paid Merrick Ventures $0.2 million for the face value of the suite and tickets for events. There are no further obligations to Merrick Ventures for these tickets.

16


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Nucleus Marketing Solutions, LLC
In April 2016, Tribune, along with other leading media companies McClatchy, Gannett and Hearst, formed Nucleus Marketing Solutions, LLC (“Nucleus”). This network connects national advertisers to audiences across existing and emerging print and digital platforms. Nucleus works with its marketing partners to address their goals by offering integrated services across all platforms. The Company owned 25% of Nucleus as of September 30, 2018, which is accounted for as an equity method investment. During the three and nine months ended September 24, 2017, the Company recorded $2.5 million and $6.1 million, respectively, on a net basis for revenue related to the Nucleus agreement. The revenue recorded during the three and nine months ended September 30, 2018 was immaterial.
NOTE 5: ACQUISITIONS
Virginian-Pilot
On May 28, 2018, Tribune Publishing Company, LLC, a wholly-owned subsidiary of the Company, acquired Virginian-Pilot Media Companies, LLC (“Virginian-Pilot”), the owner of The Virginian-Pilot daily newspaper based in Norfolk, Virginia, pursuant to a Securities Purchase Agreement, entered into on the same date (the “VP Purchase Agreement”), by and among the Company, Virginian-Pilot and Landmark Media Enterprises, LLC (“Seller”).
Upon the terms and subject to the conditions set forth in the VP Purchase Agreement, the Company acquired all of the issued and outstanding membership interests in Virginian-Pilot from Seller for a cash purchase price of $34.0 million, subject to a post-closing working capital adjustment (the “VP Acquisition”). Subsequent to September 30, 2018, the Company received a working capital adjustment of $0.1 million from the Seller. As part of the VP Acquisition, the Company also acquired Virginian-Pilot’s real estate portfolio (comprised of approximately 460,000 square feet), including its headquarters building in downtown Norfolk, its printing and distribution facilities in Virginia Beach and a number of satellite offices in Norfolk and North Carolina. The VP Purchase Agreement also contains representations, warranties, covenants, and indemnities of the parties thereto.
The allocation of the purchase price presented below is based upon management’s preliminary estimates. The Company has engaged a valuation firm to assist with the valuation of the assets acquired and liabilities assumed, including property, plant and equipment and intangible assets. The preliminary allocation of the purchase price is as follows (in thousands):
Consideration
 
 
Cash consideration for acquisition
 
$
34,004

Total consideration
 
$
34,004

 
 
 
Allocated Fair Value of Acquired Assets and Assumed Liabilities
 
 
Accounts receivable and other current assets
 
8,257

Property, plant and equipment
 
30,576

Mastheads
 
4,700

Accounts payable and other current liabilities
 
(10,749
)
Other long term obligations
 
(68
)
Total identifiable assets (liabilities), net
 
32,716

Goodwill
 
1,288

Total net assets acquired
 
$
34,004

The allocation of the purchase price is preliminary as of the filing of this report. The valuation of the property plant and equipment and intangible assets are not complete. The intangible assets currently being evaluated are mastheads, subscriber and advertiser relationships; however, the Company may identify additional intangible assets prior to finalizing the purchase price allocation. Goodwill is calculated as the excess of the consideration transferred over the fair value of the

17


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including expected future cost and revenue synergies. The goodwill above is expected to be deductible for tax purposes pursuant to Internal Revenue Code Section 197.
The results of operations of Virginian-Pilot and related goodwill have been included in the Consolidated Financial Statements beginning on the closing date of the acquisition and are primarily included in the results of the Company’s segment M. For the three and nine months ended September 30, 2018, reported revenues from Virginian-Pilot were $15.6 million and $21.1 million, respectively, and reported operating expenses were $15.1 million and $20.2 million, respectively. The pro forma effect of the acquisition is not material to the Company’s Consolidated Financial Statements.
BestReviews
Acquisition Agreement
On February 6, 2018, the Company acquired a 60% membership interest in BestReviews LLC (“BestReviews”), a company engaged in the business of testing, researching and reviewing consumer products, pursuant to an Acquisition Agreement, entered into on the same date (the “BestReviews Acquisition Agreement”), among the Company, BestReviews Inc., a Delaware corporation (“BR Parent”), BestReviews and the stockholders of Best Reviews Inc.
Upon the terms and subject to the conditions set forth in the BestReviews Acquisition Agreement, the Company acquired 60% of BR Parent’s membership interest in BestReviews for a total purchase price of $68.3 million, consisting of $33.7 million in cash, less a post-closing working capital adjustment from the seller of $0.6 million, and $34.6 million in common stock of the Company (the “BR Acquisition”). The Company issued 1,913,438 shares of common stock in connection with the closing (the “Stock Consideration”). The Stock Consideration is subject to lock-up provisions that prohibit certain transfers of the shares and standstill provisions based upon the following schedule: 25% of the Stock Consideration ceased to be subject to the lockup provisions on the 6-month anniversary of the closing date of the BR Acquisition, an additional 50% of the Stock Consideration will cease to be subject to the lock-up provisions on the 9-month anniversary of the closing date of the BR Acquisition and an additional 25% of the Stock Consideration will cease to be subject to the lock-up provisions on the 12-month anniversary of the closing date of the BR Acquisition. The BestReviews Acquisition Agreement also contains representations, warranties, covenants, and indemnities of the parties thereto.
Limited Liability Company Agreement
In connection with the BR Acquisition, the Company and BR Parent also entered into an amended and restated limited liability company agreement of BestReviews (the “LLC Agreement”). Subject to the terms of the LLC Agreement, the Company currently has the right, which began six months after the closing of the BR Acquisition, to purchase all (but not less than all) of the remaining 40% of the membership interests of BestReviews (the “Call Option”) using, at the Company’s election, cash, shares of common stock of the Company, or a combination thereof, at a purchase price to be based on a pre-determined multiple of BestReviews’ trailing 12-month EBITDA, with such purchase price capped per the LLC Agreement if the Call Option is exercised prior to the third anniversary of the closing of the BR Acquisition. In addition, beginning six months after closing the BR Acquisition, the Company is entitled to exercise a one-time right to purchase 25% of the units of membership interest of BestReviews retained by BR Parent (10% of the issued and outstanding equity) with terms identical to those applicable to the Call Option.
BR Parent also has the right, beginning three years after closing of the BR Acquisition, to cause the Company to purchase all (but not less than all) of the remaining 40% of the membership interests of BestReviews (the “Put Option”) using, at the Company’s election, cash, shares of common stock of the Company, or a combination thereof, at a purchase price to be determined in the same manner as if the Call Option was exercised.
If the exercise of the Call Option or the Put Option requires that the Company seek stockholder approval prior to issuing common stock of the Company as consideration in connection with such exercise, and the Company does not obtain requisite stockholder approval, then BestReviews will initiate a sale process for disposition of a majority of the voting power interests of BestReviews or other disposition of all or substantially all of BestReviews’ assets.

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TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



The LLC Agreement provides that BR Parent is entitled to certain registration rights under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the Company’s common stock issued to BR Parent. The Company (1) was required to file a registration statement on Form S-3 (“Form S-3”) with the Securities and Exchange Commission (“SEC”) to register the resale of the Stock Consideration within 90 days following the closing date of the BR Acquisition, which filing was completed, and (2) the Company is required to file a Form S-3 with the SEC to register the resale of any shares of common stock of the Company issued in connection with an exercise of the Call Option or the Put Option within 60 days after the issuance of such shares.
The LLC Agreement contains other terms and conditions, including transfer restrictions, tag-along and drag-along rights, and indemnification obligations.
The allocation of the purchase price presented below is based upon management’s preliminary estimates. The Company has engaged a valuation firm to assist with the valuation of intangible assets and noncontrolling interest. The preliminary allocation of the purchase price is as follows (in thousands):
Consideration
 
 
Cash consideration for acquisition
 
$
33,085

Fair value of noncontrolling interest
 
40,900

Value of shares issued for acquisition
 
34,595

Total consideration
 
108,580

 
 
 
Allocated Fair Value of Acquired Assets and Assumed Liabilities
 
 
Accounts receivable and other current assets
 
9,966

Property, plant and equipment
 
36

Intangible assets
 
12,540

Accounts payable and other current liabilities
 
(993
)
Total identifiable assets (liabilities), net
 
21,549

Goodwill
 
87,031

Total net assets acquired
 
$
108,580

The allocation of the purchase price is preliminary as of the filing of this report. The valuation of the noncontrolling interest and intangible assets are not complete. The intangible assets currently being evaluated are trade names, proprietary technology and processes and certain relationships; however, the Company may identify additional intangible assets prior to finalizing the purchase price allocation. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including access to the Company’s subscriber base and non-contractual relationships, as well as expected future cost and revenue synergies. The entire amount of purchase price allocated to intangible assets and 60% of goodwill is expected to be deductible for tax purposes pursuant to Internal Revenue Code Section 197.
The results of operations and related goodwill of BestReviews have been included in the Consolidated Financial Statements beginning on the closing date of the acquisition and are included in the results of the Company’s segment X. For the three and nine months ended September 30, 2018, reported revenues from BestReviews were $4.5 million and $13.6 million, respectively, and reported operating expenses were $5.1 million and $12.4 million, respectively. The pro forma effect of the acquisitions is not material to the Company’s Consolidated Financial Statements.
New York Daily News
On September 3, 2017, the Company completed the acquisition of 100% of the partnership interests in Daily News, L. P. (“DNLP”), the owner of the New York Daily News in New York City, pursuant to the Partnership Interest Purchase Agreement dated September 3, 2017, for a cash purchase price of $1 and the assumption of certain liabilities, subject to a post-closing working capital adjustment. During the second quarter of 2018, the Company finalized the working capital

19


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



calculation which resulted in an immaterial adjustment. During the third quarter of 2018, the final determination of the fair value of assets acquired and liabilities assumed has been completed. The final assigned values are presented in the table below (in thousands):
Allocated Fair Value of Acquired Assets and Assumed Liabilities
 
 
Cash acquired as part of the purchase
 
$
2,555

Accounts receivable and other current assets
 
17,703

Property, plant and equipment, including assets under capital leases
 
48,099

Mastheads
 
3,400

Other long-term assets
 
9,565

Accounts payable and other current liabilities
 
(20,271
)
Pension and postemployment benefits liability
 
(25,446
)
Workers compensation and auto insurance liability
 
(25,116
)
Other long-term liabilities
 
(10,489
)
Total net assets acquired
 
$

NOTE 6: DISPOSITIONS AND DISCONTINUED OPERATIONS
California Properties
On February 7, 2018, the Company entered into a Membership Interest Purchase Agreement (“MIPA”) by and between the Company and Nant Capital, LLC (“Nant Capital”) pursuant to which the Company agreed to sell the California Properties to Nant Capital for an aggregate purchase price of $500 million in cash, plus the assumption of unfunded pension liabilities related to the San Diego Pension Plan, subject to a customary post-closing working capital adjustment (the "Nant Transaction"). The Nant Transaction closed on June 18, 2018 and resulted in a pre-tax gain of $404.1 million. The operations of the California Properties were included in both the M and X segments.
The sale of the California Properties represents a strategic shift that will have a major effect on our operations and financial results. As a result, and as discussed in Note 1, effective as of the date of the sale, the California Properties are reflected as discontinued operations on the consolidated balance sheets in accordance with ASC 360 and the results of operations of the California Properties are presented as discontinued operations in the statements of income in accordance with ASC 205-20 for all periods presented.
Dr. Patrick Soon-Shiong, a former director of the Company, together with Nant Capital, beneficially own 8,743,619 shares of Tribune common stock, which represented 24.6% of the outstanding shares of Tribune common stock as of September 30, 2018. The sale price also resulted in full realization of recorded asset values indicating no impairment incurred prior to the sale.
Nant Works, LLC
In connection with the private placement with Nant Capital in the second quarter of 2016, the Company entered into a term sheet with NantWorks, LLC pursuant to which the Company would receive access to certain patents as well as studio space in exchange for the Company issuing to NantStudio, LLC 333,333 shares of common stock and entering into a revenue sharing arrangement. With the completion of the Nant Transaction, the term sheet was terminated.
CIPS Marketing Group Inc.
The California Properties utilize the services of CIPS Marketing Group, Inc. (“CIPS”) for local marketing efforts such as distribution, door-to-door marketing and total market coverage. Prior to the Company’s sale of its 50% interest in CIPS in July 2017, the investment was recorded as an equity investment, therefore income and expense recognized related to the marketing efforts are related party transactions. During the three and nine months ended September 24, 2017, the Company recorded $0.1 million and $0.6 million in revenue, respectively, from CIPS and $0.4 million and $4.2 million,

20


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



respectively, in other operating expenses related to such marketing services. The CIPS revenue and marketing services expenses are included in discontinued operations.
forsalebyowner.com
On May 23, 2018, the Company sold substantially all of the assets of forsalebyowner.com in an asset sale for $2.5 million, less a post closing working capital payment to the buyer of $0.1 million, plus an advertising sales commitment of $4.5 million over a term of two years.
The forsalebyowner.com balances are reflected as related to discontinued operations on the consolidated balance sheets for all periods presented and the results of operations are included in discontinued operations for all periods presented. In prior filings, forsalebyowner.com was part of segment X.
Discontinued Operations
Earnings from discontinued operations through the respective transaction dates, included in the Consolidated Statements of Income (Loss) are comprised of the following (in thousands):
 
 
Three months ended
 
Nine months ended
 
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
 
 
 
 
 
 
 
 
 
Operating revenues
 
$
11

 
$
116,936

 
$
211,511

 
$
369,433

Operating expenses:
 
 
 
 
 
 
 
 
Compensation
 
3

 
37,977

 
58,839

 
109,245

Newsprint and ink
 
3

 
7,968

 
14,376

 
25,914

Outside services
 
57

 
32,536

 
61,711

 
100,705

Other operating expenses
 
474

 
28,284

 
57,224

 
93,685

Depreciation and amortization
 

 
2,032

 
3,530

 
6,890

Total operating expenses
 
537

 
108,797

 
195,680

 
336,439

Income from operations
 
(526
)
 
8,139

 
15,831

 
32,994

Gain (loss) on sale
 
(3,151
)
 

 
406,183

 

Interest expense, net
 

 
(34
)
 
(52
)
 
(115
)
Gain on equity investments, net
 

 
5,396

 

 
5,745

Other income, net
 

 
150

 
1,338

 
239

Income tax (expense) benefit
 
91

 
1,050

 
(132,635
)
 
(7,965
)
Income (loss) from discontinued operations, net of tax
 
$
(3,586
)
 
$
14,701

 
$
290,665

 
$
30,898


21


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Discontinued operations by segment are presented below (in thousands):
 
 
Three months ended
 
Nine months ended
 
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
Operating revenues
 
 
 
 
 
 
 
 
M
 
$
(25
)
 
$
99,058

 
$
185,811

 
$
314,206

X
 
36

 
17,806

 
25,638

 
55,080

Corporate and eliminations
 

 
72

 
62

 
147

 
 
$
11

 
$
116,936

 
$
211,511

 
$
369,433

Income (loss) from Operations
 
 
 
 
 
 
 
 
M
 
$
(350
)
 
$
3,278

 
$
9,997

 
$
18,248

X
 
(171
)
 
4,948

 
5,795

 
14,850

Corporate and eliminations
 
(5
)
 
(87
)
 
39

 
(104
)
 
 
$
(526
)
 
$
8,139

 
$
15,831

 
$
32,994

Depreciation and amortization
 
 
 
 
 
 
 
 
M
 
$

 
$
1,967

 
$
3,426

 
$
6,698

X
 

 
65

 
104

 
192

 
 
$

 
$
2,032

 
$
3,530

 
$
6,890


The following table presents the aggregate carrying amounts of assets and liabilities related to discontinued operations in the Consolidated Balance Sheets (in thousands):
 
 
September 30, 2018
 
December 31, 2017
Carrying amount of assets related to discontinued operations:
 
 
 
 
Accounts receivable, (net of allowances of $0 and $7,388)
 
$

 
$
51,200

All other current assets
 

 
10,578

Goodwill
 

 
73,207

Intangibles
 

 
60,181

Property, plant and equipment, net
 

 
14,635

Deferred income taxes
 

 
28,787

All other long term assets
 

 
437

Total assets related to discontinued operations
 
$

 
$
239,025

 
 
 
 
 
Carrying amount of liabilities associated with discontinued operations:
 
 
 
 
Accounts payable and employee compensation and benefits
 
$

 
$
27,140

Deferred revenue
 

 
26,362

Other current liabilities
 

 
5,487

Pensions and postretirement benefits payable
 

 
90,155

Insurance
 

 
12,271

Income Tax Payable
 
51,380

 

All other long term liabilities
 

 
13,750

Total liabilities associated with discontinued operations
 
$
51,380

 
$
175,165



22


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



NOTE 7: INVENTORIES
Inventories consisted of the following (in thousands):
 
 
As of
 
 
September 30, 2018
 
December 31, 2017
Newsprint
 
$
11,122

 
$
7,072

Supplies and other
 
280

 
340

Total inventories
 
$
11,402

 
$
7,412

Inventories are stated at the lower of cost or net realizable value determined using the first-in, first-out (“FIFO”) basis for all inventories.
NOTE 8: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets at September 30, 2018 and December 31, 2017, excluding assets related to discontinued operations, consisted of the following (in thousands):
 
 
September 30, 2018
 
December 31, 2017
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Intangible assets subject to amortization:
 
 
 
 
 
 
 
 
 
 
 
 
Subscribers (useful life of 2 to 10 years)
 
$
7,312

 
$
(4,466
)
 
$
2,846

 
$
7,312

 
$
(3,762
)
 
$
3,550

Advertiser relationships (useful life of 2 to 13 years)
 
26,348

 
(11,799
)
 
14,549

 
26,348

 
(10,013
)
 
16,335

Tradenames (useful life of 20 years)
 
15,100

 
(3,159
)
 
11,941

 
15,100

 
(2,583
)
 
12,517

Other (useful life of 1 to 20 years)
 
17,741

 
(2,519
)
 
15,222

 
5,379

 
(2,243
)
 
3,136

Total intangible assets subject to amortization
 
$
66,501

 
$
(21,943
)
 
44,558

 
$
54,139

 
$
(18,601
)
 
35,538

 
 
 
 
 
 
 
 
 
 
 
 
 
Software (useful life of 2 to 10 years)
 
$
135,808

 
$
(106,293
)
 
29,515

 
$
129,795

 
$
(89,095
)
 
40,700

 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and other intangible assets not subject to amortization:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
 
 
 
 
134,747

 
 
 
 
 
48,700

Newspaper mastheads
 
 
 
 
 
34,825

 
 
 
 
 
29,458

Total goodwill and other intangible assets
 
 
 
 
 
$
243,645

 
 
 
 
 
$
154,396


23


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



NOTE 9: DEBT
During the second quarter of 2018, the Company used a portion of the proceeds received from the Nant Transaction to repay all the amounts outstanding under the Senior Term Facility and terminated the Senior ABL Facility.
Senior Term Facility
On June 21, 2018, the Company repaid the outstanding principal balance of $348.0 million under its credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders party thereto and terminated the agreement. As a result of the early extinguishment of debt, the Company incurred a $7.7 million loss related to expensing the remaining balance of original issue discount and debt origination fees.
Senior ABL Facility
On June 21, 2018, the Company terminated the Senior ABL Facility. As a result of the Senior ABL Facility termination, the Company established restricted cash to collateralize outstanding letters of credit previously secured by the Senior ABL Facility. At September 30, 2018, the balance of such restricted cash was $43.9 million.
Capital Leases
The Company has capital leases on land and technology licenses. The total balance outstanding as of September 30, 2018 for capital leases was $7.2 million, of which $0.4 million is in short-term debt. The total balance as of December 31, 2017 for capital leases was $7.5 million, of which $0.4 million is in short-term debt.
NOTE 10: INCOME TAXES
For the three and nine months ended September 30, 2018, the Company recorded income tax benefit related to continuing operations of $5.8 million and $8.7 million, respectively. The effective tax rate on pretax income from continuing operations was 90% and 16.6% in the three and nine months ended September 30, 2018, respectively. For the three months ended September 30, 2018, the rate differs from the U.S. federal statutory rate of 21% primarily due to a year-to-date true-up that increased the income tax benefit for the quarter by $4.3 million as a result of changes to the estimated annual tax provision. The rate also differs due to state income taxes, net of federal benefit, and nondeductible expenses. For the nine months ended September 30, 2018, the rate differs from the U.S. federal statutory rate of 21% primarily due to state income taxes, net of federal benefit, and nondeductible expenses. In the case of a pretax loss, the unfavorable permanent differences, such as non-deductible meals and entertainment expense, have the effect of decreasing the tax benefit which, in turn, decreases the effective tax rate. Also, in periods in which income (loss) before income taxes is close to break-even, permanent differences and changes in estimate tend have a greater impact on the effective tax rate.
For the three and nine months ended September 24, 2017, the Company recorded income tax expense of $3.7 million and $1.6 million, respectively. The effective tax rate on pretax income from continuing operations was (41.3%) and (6.9%) in the three and nine months ended September 24, 2017, respectively. For the three and nine months ended September 24, 2017, the rate differs from the U.S. federal statutory rate of 35% primarily because the $6.0 million premium on stock buyback is a non-deductible permanent difference for the calculation of income taxes. The rate also differs due to state income taxes, net of federal benefit and nondeductible expenses and the domestic production activities deduction. In the case of a pretax loss, the unfavorable permanent differences, such as non-deductible meals and entertainment expense, have the effect of decreasing the tax benefit which, in turn, decreases the effective tax rate.
In the fourth quarter of 2017, the Company recorded an additional tax expense of $10.8 million, which represented the Company’s provisional estimate of the impact of the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).  The Company has recorded an additional $0.2 million of expense in the quarter ending September 30, 2018, to bring the total expense to $11.0 million. The expense was based on currently available information and interpretations, which are continuing to evolve. As a result, the expense is considered provisional.  The Company continues to analyze additional information and guidance related to the Tax Act as supplemental legislation, regulatory guidance, or evolving technical interpretations become available, which could result in additional adjustments in future periods. Final calculations will be

24


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



completed within the one-year measurement period ending December 22, 2018, as required under the rules issued by the SEC.
NOTE 11: PENSION AND OTHER POSTRETIREMENT BENEFITS
Multiemployer Pension Plans
The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover its union-represented employees.
Defined Benefit Plans
The Company was formerly the sponsor of the San Diego Union-Tribune, LLC Retirement Plan (the “San Diego Pension Plan”), which was divested in June 2018 as part of the Nant Transaction. The Company contributed $5.7 million to the San Diego Pension Plan during fiscal 2018 prior to the divestiture. Expenses related to the San Diego Pension Plan are included in discontinued operations.
The Company is the sponsor of a single-employer defined benefit plan, the Daily News Retirement Plan (the “NYDN Pension Plan”). The NYDN Pension Plan provides benefits to certain current and former employees of the New York Daily News. As of March 31, 2018, future benefits under the NYDN Pension Plan were frozen and no new participants are permitted after that time. The Company contributed $3.4 million to the NYDN Pension Plan in the nine months ended September 30, 2018. The Company expects to contribute $0.5 million to the NYDN Pension Plan during the remainder of 2018. The components of net periodic benefit for the NYDN Pension Plan are as follows (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
Affected Line Items in the Consolidated Statements of Income (Loss)
 
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
 
Service cost
 
$

 
$

 
$
72

 
$

 
Compensation
Interest cost
 
818

 

 
2,454

 

 
Other income, net
Expected return on assets
 
(1,167
)
 

 
(3,500
)
 

 
Other income, net
Net periodic benefit
 
$
(349
)
 
$

 
$
(974
)
 
$

 
 
Postretirement Benefits Other Than Pensions
The Company provides postretirement health care to retirees pursuant to a number of benefit plans. The plans are frozen for new non-union employees. There is some variation in the provisions of these plans, including different provisions for lifetime maximums, prescription drug coverage and certain other benefits. The components of net periodic benefit credit for the Company’s postretirement health care and life insurance plans were as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
Affected Line Items in the Consolidated Statements of Income (Loss)
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
 
Service cost
$
3

 
$
3

 
$
10

 
$
9

 
Compensation
Interest cost
9

 
55

 
26

 
165

 
Other income, net
Amortization of prior service credits
(2,634
)
 
(291
)
 
(7,901
)
 
(875
)
 
Other income, net
Amortization of actuarial gains
(658
)
 
(47
)
 
(1,973
)
 
(140
)
 
Other income, net
Net periodic benefit
$
(3,280
)
 
$
(280
)
 
$
(9,838
)
 
$
(841
)
 
 
NOTE 12: NONCONTROLLING INTEREST
Noncontrolling interest represents the 40% membership interest in BestReviews not owned by the Company and is presented between liabilities and stockholders’ equity within the Company’s consolidated balance sheet because the Put

25


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Option described in Note 5 could, upon exercise, require the Company, under certain circumstances, to pay cash to purchase the noncontrolling interest. Each quarter, the carrying value of noncontrolling interest is adjusted to the amount the Company would be required to pay the noncontrolling interest holders as if the Put Option had been exercised as of the balance sheet date, with an offsetting adjustment to stockholders’ equity. Adjustments to increase (decrease) the carrying value of noncontrolling interest also reduce (increase) the amount of net income or loss attributable to Tribune common stockholders for purposes of determining both basic and diluted earnings per share.
In the three months ended September 30, 2018, BestReviews declared a $5.0 million dividend to its shareholders. The Company’s portion of this dividend was $3.0 million and the noncontrolling shareholders’ portion was $2.0 million.
A summary of the activity with respect to non-controlling interest for the nine months ended September 30, 2018 is as follows (in thousands):
Balance at December 31, 2017
 
$

Acquisition of BestReviews
 
40,900

Income attributable to noncontrolling interest
 
471

Dividends paid to noncontrolling interest
 
$
(2,000
)
Balance at September 30, 2018
 
$
39,371


26


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



NOTE 13: EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income attributable to Tribune common stockholders by the weighted average number of shares of common stock outstanding. Diluted earnings per common share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of common shares under equity-based compensation plans, except where the inclusion of such common shares would have an anti-dilutive impact. In accordance with ASC 260-10-55, net loss from continuing operations is the control number in determining whether potential common shares are dilutive. Since there is loss from continuing operations, all potential common shares are considered anti-dilutive.
For the three and nine months ended September 30, 2018 and September 24, 2017, basic and diluted earnings per common share were as follows (in thousands, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
Income (Loss) - Numerator:
 
 
 
 
 
 
 
Loss from continuing operations
$
(649
)
 
$
(12,645
)
 
$
(43,821
)
 
$
(24,990
)
Less: Net income (loss) from continuing operations attributable to noncontrolling interest
(239
)
 

 
471

 

Loss available to common shareholders, before discontinued operations
(410
)
 
(12,645
)
 
(44,292
)
 
(24,990
)
Income (loss) from discontinued operations
(3,586
)
 
14,701

 
290,665

 
30,898

Net income (loss) available to Tribune stockholders
$
(3,996
)
 
$
2,056

 
$
246,373

 
$
5,908

 
 
 
 
 
 
 
 
Shares - Denominator:
 
 
 
 
 
 
 
Weighted average number of common shares outstanding (basic)
35,409

 
33,242

 
35,166

 
34,124

Dilutive effect of employee stock options and RSUs

 

 

 

Adjusted weighted average shares outstanding (diluted)
35,409

 
33,242

 
35,166

 
34,124

 
 
 
 
 
 
 
 
Net income (loss) attributable to Tribune per common share:
 
 
 
 
 
 
 
Continuing operations
$
(0.01
)
 
$
(0.38
)
 
$
(1.26
)
 
$
(0.73
)
Discontinued operations
(0.10
)
 
0.44

 
8.27

 
0.90

Net income (loss) per common share
$
(0.11
)
 
$
0.06

 
$
7.01

 
$
0.17

 
 
 
 
 
 
 
 
Diluted income (loss) per common share:
 
 
 
 
 
 
 
Continuing operations
$
(0.01
)
 
$
(0.38
)
 
$
(1.26
)
 
$
(0.73
)
Discontinued operations
(0.10
)
 
0.44

 
8.27

 
0.90

Net income (loss) per common share-diluted
$
(0.11
)
 
$
0.06

 
$
7.01

 
$
0.17

The number of stock options that were excluded from the computation of diluted earnings per share because their inclusion would result in an anti-dilutive effect on per share amounts was 924,887 for both the three and nine months ended September 30, 2018, respectively. The number of stock options that were excluded from the computation of diluted earnings per share because their inclusion would result in an anti-dilutive effect on per share amounts was 911,857 for both the three and nine months ended September 24, 2017, respectively.

27


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



The number of RSUs that were excluded from the computation of diluted earnings per share because their inclusion would result in an anti-dilutive effect on per share amounts was 1,437,363 for both the three and nine months ended September 30, 2018, respectively. The number of RSUs that were excluded from the computation of diluted earnings per share because their inclusion would result in an anti-dilutive effect on per share amounts was 1,884,602 for both the three and nine months ended September 24, 2017, respectively.
NOTE 14: STOCKHOLDERS’ EQUITY
Stock Repurchases
On March 23, 2017, the Company entered into a purchase agreement with investment funds associated with Oaktree Capital Management, L.P. (“Oaktree”), pursuant to which the Company acquired 3,745,947 shares of the Company’s common stock for $15.00 per share or a total purchase price of $56.2 million. The purchase agreement contained a “standstill” covenant prohibiting Oaktree from acquiring, directly or indirectly, any of the Company’s common stock, soliciting proxies to vote shares of the Company’s common stock or taking certain actions with respect to any business combination, asset acquisition or disposition or similar transaction involving the Company through March 22, 2019 (the “Standstill Period”). The parties also agreed to a mutual non-disparagement covenant applicable during the Standstill Period and to a mutual release of claims. On March 22, 2017, the Company’s stock price closed at $13.39. The $6.0 million difference between the aggregate purchase price and the fair value of the acquired stock at the transaction date was expensed as a premium on stock buyback in the Consolidated Statements of Income (Loss).
Significant Shareholders
Merrick Media, LLC
On March 23, 2017, the Company entered into Amendment No. 1 (the “Amendment”) to the Securities Purchase Agreement dated February 3, 2016 among the Company, Merrick Media, LLC (“Merrick Media”) and Michael W. Ferro, Jr., the Company’s non-executive Chairman of the Board at the time the agreement was signed. The Amendment increased from 25% to 30% the maximum percentage of the Company’s outstanding shares of common stock that Merrick Media and its affiliates may acquire. This restriction expires on the later of February 4, 2019 or 30 days after the consulting agreement with Merrick Ventures is terminated.
Mr. Ferro is the manager of Merrick Venture Management, LLC, which is the sole manager of Merrick Media. Because Merrick Venture Management, LLC serves as the sole manager of Merrick Media, Mr. Ferro may be deemed to indirectly control all of the shares of the Company’s common stock owned by Merrick Media. Mr. Ferro, together with his affiliated entities, beneficially owned 9,071,529 shares of Tribune common stock, which represented 25.6% of Tribune common stock as of September 30, 2018. On April 13, 2018, Mr. Ferro, Merrick Media, LLC and Merrick Ventures Management, LLC entered into an agreement to sell all of their shares in the Company to an unrelated third party. This agreement was subsequently canceled during the second fiscal quarter of 2018.

28


TRIBUNE PUBLISHING COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Nant Capital, LLC
Dr. Patrick Soon-Shiong, a former director of the Company, together with Nant Capital, LLC (“Nant Capital”), beneficially own 8,743,619 shares of Tribune common stock, which represented 24.6% of the outstanding shares of Tribune common stock as of September 30, 2018. California Capital Equity, LLC (“CalCap”) directly owns all of the equity interests of Nant Capital, and CalCap may be deemed to have beneficial ownership of the shares held by Nant Capital. Dr. Soon-Shiong directly owns all of the equity interests of CalCap and may be deemed to beneficially own, and share voting power and investment power with Nant Capital over all shares of Tribune common stock beneficially owned by Nant Capital. Under the Securities Purchase Agreement dated May 22, 2016, among the Company, Nant Capital and Dr. Patrick Soon-Shiong (“Nant Purchase Agreement”), Nant Capital and Dr. Soon-Shiong and their respective affiliates are prohibited, without the prior written approval of the Board of Directors, from acquiring additional equity of the Company if the acquisition could result in their beneficial ownership of more than 25% of the Company’s then-outstanding shares of common stock. This prohibition expires on June 1, 2019. The Nant Purchase Agreement also includes covenants perpetually prohibiting the transfer of shares of the Company’s common stock if the transfer would result in a person beneficially owning more than 4.9% of the Company’s then-outstanding shares of common stock following the transfer, as well as transfers to a material competitor of the Company in any of the Company’s then-existing primary geographical markets.
NOTE 15: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table sets forth the components of accumulated other comprehensive income (loss), net of tax, where applicable (in thousands):
 
 
Foreign Currency
 
OPEB
 
Pension
 
Total
Balance at December 31, 2017
 
$
(31
)
 
$
9,932

 
$
(23,428
)
 
$
(13,527
)
Amounts reclassified from AOCI
 

 
(7,128
)
 

 
(7,128
)
Foreign currency translation adjustments
 
(11
)
 

 

 
(11
)
AOCI recognized in discontinued operations
 

 

 
25,397

 
25,397

Balance at September 30, 2018
 
$
(42
)
 
$
2,804

 
$
1,969

 
$
4,731

The following table presents the amounts and line items in the Consolidated Statements of Income (Loss) where adjustments reclassified from accumulated other comprehensive income (loss) were recorded during the three and nine months ended September 30, 2018 and September 24, 2017 (in thousands):
 
Three Months Ended
 
Nine months ended
 
 
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
 
Affected Line Items in the Consolidated Statements of Income (Loss)
Accumulated Other Comprehensive Income (Loss) Components
 
 
 
 
 
 
 
 
 
Pension and postretirement benefit adjustments:
 
 
 
 
 
 
 
 
 
Amortization of prior service credits
$
(2,634
)
 
$
(291
)
 
$
(7,901
)
 
$
(875
)
 
Other income, net
Amortization of actuarial gains
(658
)
 
(47
)
 
(1,973
)
 
(140
)
 
Other income, net