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March 19, 2024

Newsonomics: Fixing the Financials at Tribune Publishing

If you think keeping track of Tribune Publishing’s many ups and downs has been hard for media observers, consider the issues within the company. For the second year in a row, TPUB’s annual 10-K filing has had to note “material weaknesses in the Company’s internal control over financial reporting.” In fact, it reported more instances of such “material weaknesses” in 2015 than in 2014.

This year, the identified flaws cover key parts of Tribune’s business. Those include its highly profitable preprint business (“insert volume forecasts and variance analysis for preprint advertising”), circulation rates (“documentation of approval of”) and the broad area of compensation expense (“including sales commissions and bonus plans”).

From this year’s report, in Item 9A of the 62-page filing: “Management, including our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of the company’s internal control over financial reporting as of December 27, 2015…. Management has concluded that the Company’s internal control over financial reporting was not effective as of December 27, 2015 due to material weaknesses in the Company’s internal control over financial reporting described below.”

The filing notes that “The material weaknesses described above could result in misstatements of the accounts and disclosures that would result in a material misstatement of the annual or interim consolidated and combined financial statements that would not be prevented or detected.”

First published at Politico Media

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I shared the document with several industry executives who have financial oversight responsibilities. Their confidential responses: Sounds like trouble, with the citing of “material” — meaning significant — issues the most notable.

One executive called out the preprint issues: “If their preprint forecasts were off and inconsistent with actuals and no variance analysis was done, theoretically customers could be over charged on distribution or at a minimum, producing too many preprint quantities unknowingly.” Preprints – those Sunday ad circulars from Best Buy, Home Depot and other Big Box stores — now amount to much of the Sunday paper profit. Matching the advertiser preprint numbers to actual circulation, then, is key.

Which, of course, leads to the key question: Are the numbers reported by TPUB on the money? Will there be any restatement of financials given the issues noted?

Tribune Publishing, though, looks at the issues as procedural ones, and emphasizes auditor PWC’s “clean audit.” In other words: The company doesn’t expect to have to change its numbers.

“The Company is confident in the numbers stated in our 10-K,” Tribune Publishing spokesperson Dana Meyer told me. “There are process deficiencies that are being remediated and retested in 2016.”

In the filing, Tribune Publishing says it has taken a number of steps to remediate the issues, including the appointment of a compliance officer and a change in procedures.

In detail, the company has pledged to fix the problems by “year end 2015.” Among the work noted:

• the Company appointed an executive over the Corporate Compliance function to lead management’s efforts related to effective control design, documentation and implementation, as well as remediate ineffective controls;

• the volume forecasting process related to preprint advertisements has been centralized in order to ensure proper management of the process and consistent execution between business units, and;

• [the company will] evaluate and modify the Company’s processes and controls over advertising insert variance analyses to identify and address any control gaps and to ensure the appropriate controls are in place to address the associated risks;

• the Company has formalized the process for single copy rate changes to ensure compliance with contractual rates and maintenance of supporting documentation.

• [the company will] modify processes to ensure supporting documentation for all circulation rate changes is properly maintained;

That’s management’s work. Given that the Board of Directors, now headed by chair Michael Ferro, too, shares responsibility for financial accuracy, it, too, has set out new work.

“In addition, under the direction of the Audit Committee of the Company’s Board of Directors, management will continue to develop and implement policies and procedures to improve the overall effectiveness of internal control over financial reporting.”

Further, the report notes that financial reporting irregularities were found, and reported, one year earlier, and that those have been repaired. They, too, included a single “material weakness,” and involved issues of financial reconciliation, and “critical accounting policies and review controls.”

Why all the miscues, and why would there be more in 2015 than in 2014? Blame the split of Tribune Publishing from parent Tribune Company, in summer 2014, say insiders. The split, they say, made the accounting switch-over problematic, with a number of procedures getting tangled up. While many newspaper publishers have been subject to similar splits in the last five years, though, I can’t recall another that’s had this kind of issue.

Tribune Publishing has also seen more executive change than many other split companies. Relevant here: current Chief Financial Officer Sandy Martin serves as the second executive in that position since replacing founding CFO John Bode, who unexpectedly parted with company in April, 2015. Martin was unavailable to talk about the 10-K concerns, as was chairman Michael Ferro.

Financial reporting has bedeviled Tribune Publishing before.

Last fall, the company endured much bad press as its own California executives said they were directed by Tribune head office to revise downward their financial numbers, wrongly, to make them more negative. Soon after, Tribune Publishing lowered its own earnings projections, a move that shook investor confidence; TPUB’s share price never recovered from that series of events.

At this point, the PWC-approved clean audit seems to clear a path forward, though the galloping change at the company (“Tribune’s New Ferro Era Begins, With Massive Leadership Change“) may provide future surprises.

Clearly, the company should feel the pressure to right its financial ship. As the filing sums up, “If we do not complete our remediation in a timely manner or if the remediation measures that we have implemented and intend to implement are inadequate to address our existing material weaknesses or to identify or prevent additional material weaknesses, there will continue to be an increased risk of future material misstatements in our annual or interim financial statements.”

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