Supplemental Cash Flow Information—Information for acquisitions made in 2011 and 2010 is summarized
in the table below (in thousands):
2011 2010
Fair value of assets acquired (1) . . . $ 2,385 $ 10,607 Liabilities assumed . . . 1,251 2,587 Net cash paid . . . $ 1,134 $ 8,020 (1) Includes intangible assets, net of acquisition-related deferred taxes.
Cash paid (received) for interest and income taxes in 2012, 2011 and 2010 is summarized below (in thousands):
2012 2011 2010
Interest . . . $ 90 $ 182 $ 485 Income taxes (1). . . $ (23,994 ) $ 4,665 $ 5,065
(1) In 2012, the Company received an income tax refund of $35 million as a result of a resolution of certain issues in connection with the
Company’s tax returns in the State of California.
In the Company’s consolidated statements of cash flows, the effects of reclassifying prepetition liabilities subject to compromise in the Company’s Dec. 30, 2012, Dec. 25, 2011 and Dec. 26, 2010 consolidated balance sheets were not considered when determining changes in working capital items and other affected balance sheet amounts because the reclassifications had no effect on the Company’s cash flows for 2012, 2011 and 2010.
Employee Reductions—The Company reduced staffing levels in its operations by approximately 900 positions
related expenses totaling $15 million in 2012 ($14 million at publishing and $1 million at broadcasting), $17 million in 2011 ($15 million at publishing, $1 million at broadcasting and $1 million at corporate) and $15 million in 2010 ($11 million at publishing, $3 million at broadcasting and $1 million at corporate). All of these charges are included in selling, general and administrative expenses in the Company’s consolidated statements of operations. The Company’s accrued liability for severance and related expenses was $6 million and $8 million at Dec. 30, 2012 and Dec. 25, 2011, respectively.
Incentive Compensation Plans—The Company implemented a court-approved management incentive plan
(“MIP”) for 2010 for all eligible management employees other than five then-current management employees whose participation was not approved by the Bankruptcy Court at that time. These five individuals were among the
defendants named in the FitzSimons Complaint (see Note 1) and were identified in a limited objection to the 2010 MIP filed by the Creditors’ Committee. The Bankruptcy Court’s order approving the 2010 MIP states that it was without prejudice to the Debtors’ right to seek future payout of the 2010 MIP to these five individuals, or the right of third parties to object to such a request. The 2010 MIP for all other eligible management employees was paid in February 2011. The Bankruptcy Court’s order also included a “clawback” provision that requires repayment to the Company of the amount of the 2010 MIP award received by any MIP participant who is later found to have breached his or her fiduciary duty or committed an intentional tortious wrong as part of the Leveraged ESOP Transactions.
During 2010, the Company recorded $39 million of compensation expense related to the 2010 MIP program, which included awards for the five management employees that then remained subject to approval.
The Company implemented a court-approved MIP for 2011 for all eligible management employees. The Bankruptcy Court’s order approving the 2011 MIP states that, with respect to the two remaining management employees who are among the defendants named in the FitzSimons Complaint (the “Trust Participants”) (see Note 5), payments under the 2011 MIP to the Trust Participants shall be held in interest-bearing rabbi trust accounts established for the benefit of each such Trust Participant pending the final resolution of all claims filed against the Trust Participants in the FitzSimons Complaint. The 2011 MIP for all eligible management employees was paid in January 2012. The portion attributable to the Trust Participants was paid into rabbi trust accounts. The Bankruptcy Court’s order also includes a “clawback” provision that requires repayment to the Company of the amount of the 2011 MIP award received by any MIP participant who is later found to have breached his or her fiduciary duty or committed an intentional tortious wrong as part of the Leveraged ESOP Transactions.
During 2011, the Company recorded $33 million of compensation expense related to the 2011 MIP program, which includes the amounts held in the rabbi trust accounts.
The Company implemented a court-approved MIP for 2012 for all eligible management employees. The Bankruptcy Court’s order approving the 2012 MIP states that payments under the 2012 MIP to the Trust Participants shall be held in interest-bearing rabbi trust accounts established for the benefit of each such Trust Participant pending the final resolution of all claims filed against the Trust Participants in the FitzSimons Complaint. The 2012 MIP for all eligible management employees was paid in January 2013. The portion attributable to the Trust
Participants was paid into rabbi trust accounts. The Bankruptcy Court’s order also includes a “clawback” provision that requires repayment to the Company of the amount of the 2012 MIP award received by any MIP participant who is later found to have breached his or her fiduciary duty or committed an intentional tortious wrong as part of the Leveraged ESOP Transactions.
During 2012, the Company recorded $29 million of compensation expense related to the 2012 MIP program, which includes the amounts held in the rabbi trust accounts.
In July 2012, the Bankruptcy Court authorized the Company to pay into interest-bearing rabbi trust accounts established for the benefit of each of the Trust Participants such individuals’ 2010 MIP awards (which, as noted, had not previously been approved for payment), pending the final resolution of all claims filed against the Trust
Participants in the FitzSimons Complaint. These amounts were paid into rabbi trust accounts for the Trust
Participants in August 2012. Similar to the orders approving the 2011 and 2012 MIP, the Bankruptcy Court’s order includes a “clawback” provision that requires repayment to the Company of the amount of the 2010 MIP award received by any Trust Participant who is later found to have breached his or her fiduciary duty or committed an intentional tortious wrong as part of the Leveraged ESOP Transactions.
In June 2012, attorneys for the three remaining (now former) management employees whose 2010 MIP awards were not approved by the Bankruptcy Court (i.e., those of the five individuals initially excluded from the 2012 MIP, other than the two Trust Participants) filed a motion with the Bankruptcy Court seeking approval for the Company to pay their 2010 MIP awards into rabbi trusts. Following a hearing on such motion on July 11, 2012, the
Bankruptcy Court took this motion under advisement. On March 27, 2013, the Bankruptcy Court entered an order denying the motion.
The liabilities for the 2012 MIP and the 2011 MIP, including the amounts held in the rabbi trust accounts and the portion of the 2010 MIP related to the three former management employees that remain unpaid, are included in employee compensation and benefits in the Company’s consolidated balance sheets at Dec. 30, 2012 and Dec. 25, 2011, respectively.
Consolidation of Los Angeles Times’ Production Operations—In January 2010, the Los Angeles Times
announced it would close its Costa Mesa, California printing facility during the first half of 2010 and consolidate production at its facility in Los Angeles, California. Accordingly, the Company reduced its estimate of the remaining useful life of the press and other related equipment at the Costa Mesa facility and recorded accelerated depreciation of $9 million during the first half of 2010. In addition, the Company eliminated approximately 40 non- union positions and incurred severance and related expenses of approximately $1 million during the first half of 2010 as a result of closing this facility. The Company also eliminated approximately 40 union personnel to whom no severance was paid pursuant to the union contract.
Non-Operating Items—Fiscal years 2012, 2011 and 2010 included several non-operating items.
Non-operating items for 2012 are summarized as follows (in thousands):
Proceeds Pretax Gain (Loss) After-tax Gain (Loss) Gain on investment transactions, net . . . $ 22,063 $ 21,811 $ 20,258 Write-downs of investments . . . — (7,041 ) (6,816) Other, net . . . — 294 285 Income tax adjustments . . . — — 26,867 Total non-operating items . . . $ 22,063 $ 15,064 $ 40,594
Non-operating items in 2012 included a $22 million pretax gain on the sale of the Company’s 47.3% interest in Legacy.com, Inc. (“Legacy”). On April 2, 2012, the Company and the other shareholders of Legacy closed a transaction to sell their collective interests in Legacy to a third party. The Company received net proceeds of $22 million upon the closing of the transaction, which amount remains subject to final adjustments.
In 2012, the Company recorded non-cash pretax charges totaling $7 million to write down two of its equity method investments. These write-downs resulted from declines in the fair value of the investments that the Company determined to be other than temporary. These investments constitute nonfinancial assets measured at fair value on a nonrecurring basis in the Company’s consolidated balance sheet and are classified as Level 3 assets in the fair value hierarchy established under ASC Topic 820, “Fair Value Measurement and Disclosures.” See Note 12 for a
description of the hierarchy’s three levels.
The Company recorded favorable income tax adjustments of $27 million in 2012 primarily related to the resolution of certain issues relating to audits of certain of the Company’s state income tax returns. See Note 14 for further information.
Non-operating items for 2011 are summarized as follows (in thousands):
Proceeds Pretax Gain (Loss) After-tax Gain (Loss) Gain on investment transactions, net . . . $ 892 $ 295 $ 294 Other, net . . . — (595 ) (581 ) Income tax adjustments . . . — — 14,298 Total non-operating items . . . $ 892 $ (300 ) $ 14,011
Non-operating items in 2011 included favorable income tax adjustments of $14 million primarily related to the resolution of open tax issues relating to audits of certain of the Company’s state income tax returns. See Note 14 for further information.
Non-operating items for 2010 are summarized as follows (in thousands): Proceeds Pretax Gain (Loss) After-tax Gain (Loss) Loss on change in fair value of interest rate hedging instrument, net . . . $ — $ (2,131 ) $ (2,106 ) Write-down of investment . . . — (6,600 ) (6,523 ) Gain on investment transactions, net . . . 394 394 389 Other, net . . . — (1,868 ) (2,004 ) Income tax adjustments . . . — — 106,472 Total non-operating items . . . $ 394 $ (10,205 ) $ 96,228 Non-operating items in 2010 included a non-cash pretax loss of $2 million as a result of changes in the fair value of the Company’s interest rate cap related to a $2.5 billion notional amount of the Company’s variable rate borrowings. See the “Prepetition Interest Rate Hedging Instruments” section of Note 10 for further information pertaining to this instrument.
In 2010, the Company recorded a $7 million non-cash pretax write-down of its investment in NHLLC. The write-down resulted from a decline in the fair value of this investment that the Company determined to be other than temporary. Other, net in 2010 included a $4 million pretax charge related to a partial withdrawal liability for a multiemployer pension plan, partially offset by a $2 million pretax gain on the exchange of certain broadcasting equipment used in the Company’s electronic newsgathering operations.
The Company recorded favorable income tax adjustments of $106 million in 2010 primarily due to the resolution of open tax issues relating to audits of the Company’s federal income tax returns for 2006 and 2007, settlements of certain state income tax issues and reductions in the Company’s liability for unrecognized tax benefits for other tax positions that are no longer considered uncertain. See Note 14 for further information.
On April 1, 2007, the Board, based on the recommendation of a special committee of the Board comprised entirely of independent directors, approved the Leveraged ESOP Transactions. On Dec. 20, 2007, the Company completed the Leveraged ESOP Transactions, which culminated in the cancellation of all issued and outstanding shares of the Company’s common stock as of that date, other than shares held by the Company or the ESOP, and with the Company becoming wholly-owned by the ESOP. The Company accounted for these transactions as a leveraged recapitalization and, accordingly, maintained a historical cost presentation in its consolidated financial statements.