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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-8598
A. H. BELO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-0135890
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 655237
DALLAS, TEXAS 75265-5237
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 977-6606
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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SERIES A COMMON STOCK, $1.67 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act:
SERIES B COMMON STOCK, $1.67 PAR VALUE
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
nonaffiliates on January 29, 1999, based on the closing price for the
registrant's Series A Common Stock on such date as reported on the New York
Stock Exchange, was approximately $1,974,221,000. *
Shares of Common Stock outstanding at January 29, 1999: 118,343,375 shares.
(Consisting of 99,418,699 shares of Series A Common Stock and 18,924,676 shares
of Series B Common Stock.)
* For purposes of this calculation, the market value of a share of Series B
Common Stock was assumed to be the same as the share of Series A Common Stock
into which it is convertible.
Documents incorporated by reference:
Portions of the registrant's Proxy Statement relating to the Annual Meeting of
Shareholders to be held May 12, 1999 are incorporated by reference into Part III
(Items 10, 11, 12 and 13).
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A. H. BELO CORPORATION
FORM 10-K
TABLE OF CONTENTS
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PART I
Item 1. Business.......................................................................................... 1
Item 2. Properties........................................................................................ 7
Item 3. Legal Proceedings................................................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders............................................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................. 8
Item 6. Selected Financial Data........................................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 11
Item 7A. Quantitative and Qualitative Disclosures about Market Risks....................................... 20
Item 8. Financial Statements and Supplementary Data (see Index to Financial Statements below)............. 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 20
PART III
Item 10. Directors and Executive Officers of the Registrant................................................ 20
Item 11. Executive Compensation............................................................................ 21
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................... 21
Item 13. Certain Relationships and Related Transactions.................................................... 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................... 21
Signatures .................................................................................................. 25
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors............................................................................... 27
Consolidated Statements of Earnings for the Years Ended December 31, 1998, 1997 and 1996..................... 28
Consolidated Balance Sheets as of December 31, 1998 and 1997................................................. 29
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 ........ 31
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996................... 32
Notes to Consolidated Financial Statements................................................................... 33
Management's Responsibility for Financial Statements......................................................... 46
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PART I
ITEM 1. BUSINESS
A. H. Belo Corporation (the "Company" or "Belo") is one of the nation's
largest media companies, with a diversified group of television broadcasting,
newspaper publishing and cable news operations. The Company's group of 17
television stations currently reaches 14.3 percent of U.S. television
households. In addition, the Company manages four television stations through
local marketing agreements ("LMA") and owns four local or regional cable news
channels.
Three of the Company's television stations are located in major
metropolitan areas which are among the fastest growing in the country: WFAA-TV
(ABC) in Dallas/Fort Worth, KHOU-TV (CBS) in Houston and KING-TV (NBC) in
Seattle/Tacoma. Belo has three stations in the top 12 television markets, seven
stations in the top 30 markets, 12 stations in the top 50 markets, and network
affiliations as follows: four ABC affiliates, six CBS affiliates, five NBC
affiliates and two FOX affiliates. Thirteen of the Company's 17 stations are
ranked either number one or two in overall sign-on/sign-off audience delivery.
Belo's Publishing Division is headed by The Dallas Morning News, which has
the country's eighth-largest Sunday circulation and ninth-largest daily
circulation, and The Providence Journal, the leading newspaper in terms of both
advertising and circulation in Rhode Island and southeastern Massachusetts. Belo
also owns The Press-Enterprise, a daily newspaper serving Riverside, California,
and other daily newspapers as follows: the Messenger-Inquirer in Owensboro,
Kentucky; The Eagle in Bryan-College Station, Texas; and The Gleaner in
Henderson, Kentucky. In addition, the Company publishes the Arlington Morning
News and eight community newspapers in the Dallas/Fort Worth suburban area and
operates a commercial printing business.
The Dallas Morning News is one of the leading newspaper franchises in
America. The Dallas Morning News' success is founded upon the highest standards
of journalistic excellence, with an emphasis on comprehensive news, information
and community service. The newspaper's reporting and photography initiatives
have earned six Pulitzer Prizes since 1986.
The Providence Journal also has a long history of journalistic excellence
and service to its community. It is America's oldest major daily newspaper of
general circulation and continuous publication. The Providence Journal has
earned four Pulitzer Prizes since 1945.
The Company believes the success of its media franchises is built upon
providing local and regional news, information and community service of the
highest caliber. These principles have attracted and built relationships with
viewers, readers and advertisers and have guided Belo's success for 157 years.
Note 14 to the Consolidated Financial Statements contains information about
the Company's industry segments for the years ended December 31, 1998, 1997 and
1996.
TELEVISION BROADCASTING
The Company's television broadcasting operations began in 1950 with the
acquisition of WFAA-TV shortly after the station commenced operations. In 1984,
the Company expanded its television operations with the purchase of stations in
Houston, Sacramento, Hampton/Norfolk and Tulsa. In June 1994 and February 1995,
the Company acquired stations in New Orleans and Seattle/Tacoma, respectively.
The Providence Journal Company ("PJC") acquisition in February 1997 added nine
television stations, including NBC-affiliated KING-TV. In accordance with
Federal Communications Commission ("FCC" or "Commission") regulations
prohibiting ownership of two or more stations in a single market, Belo exchanged
its United Paramount Network ("UPN") affiliate, KIRO-TV in Seattle/Tacoma, for
CBS affiliate KMOV-TV in St. Louis, Missouri, in June 1997. In October 1997,
Belo acquired CBS affiliate KENS-TV in San Antonio, Texas. On February 25, 1999,
the Company announced that it has entered into an agreement to acquire KVUE-TV,
the ABC affiliate in Austin, Texas in exchange for KXTV, the Company's ABC
affiliate in Sacramento, California.
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The following table sets forth information for each of the Company's
stations and their markets:
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Number of Station
Commercial Station Audience
Market Year Network Stations in Rank in Share in
Market Rank(1) Station Acquired Affiliation Channel Market(2) Market(3) Market(4)
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Dallas/Fort Worth 7 WFAA-TV 1950 ABC 8 15 1 19
Houston 11 KHOU-TV 1984 CBS 11 15 1* 15
Seattle/Tacoma 12 KING-TV 1997 NBC 5 10 1* 16
Sacramento(5) 20 KXTV 1984 ABC 10 10 2* 12
St. Louis 21 KMOV-TV 1997 CBS 4 8 2 17
Portland 23 KGW-TV 1997 NBC 8 8 2* 14
Charlotte 28 WCNC-TV 1997 NBC 36 8 3 9
San Antonio 37 KENS-TV 1997 CBS 5 9 2* 13
Hampton/Norfolk 40 WVEC-TV 1984 ABC 13 7 1* 15
New Orleans 41 WWL-TV 1994 CBS 4 9 1 21
Louisville 48 WHAS-TV 1997 ABC 11 7 1* 15
Albuquerque 49 KASA-TV 1997 FOX 2 6 4 9
Tulsa 59 KOTV 1984 CBS 6 9 1 21
Honolulu 71 KHNL-TV 1997 NBC 13 9 4 10
Spokane 72 KREM-TV 1997 CBS 2 5 1* 17
Tucson 78 KMSB-TV 1997 FOX 11 7 4 9
Boise 125 KTVB-TV 1997 NBC 7 5 1 25
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* Tied with one or more other stations in the market.
(1) Market rank is based on the relative size of the television market, or
Designated Market Area ("DMA"), among the 211 generally recognized
DMAs in the United States, based on November 1998 Nielsen estimates.
(2) Represents the number of television stations (both VHF and UHF)
broadcasting in the market, excluding public stations, low power
broadcast stations and national cable channels.
(3) Station rank is derived from the station's rating, which is based on
November 1998 Nielsen estimates of the number of television households
tuned to the Company's station for the Sunday-Saturday 7:00 a.m. to
1:00 a.m. period ("sign-on/sign-off") as a percentage of the number of
television households in the market.
(4) Station audience share is based on November 1998 Nielsen estimates of
the number of television households tuned to the Company's station as
a percentage of the number of television households with sets in use
in the market for the sign-on/sign-off period.
(5) The Company has entered into an agreement to exchange KXTV for the ABC
affiliate in Austin, Texas (market rank 60).
Generally, rates for national and local spot advertising sold by the
Company are determined by each station, which receives all of the revenues, net
of agency commissions, for that advertising. Rates are influenced by the demand
for advertising time, the popularity of the station's programming and market
size.
Commercial television stations generally fall into one of three categories.
The first category of stations includes those affiliated with one of the four
major national networks (ABC, CBS, NBC and FOX). The second category is
comprised of stations affiliated with newer national networks, such as UPN and
the Warner Brothers ("WB") Television Network. The third category includes
independent stations ("IND") that are not affiliated with any network and rely
principally on local and syndicated programming.
Affiliation with a television network can have a significant influence on
the revenues of a television station because the audience ratings generated by a
network's programming can affect the rates at which a station can sell
advertising time. Each of the Company's network affiliation agreements provides
the station with the right to broadcast all programs transmitted by the network
with which the station is affiliated. In return, the network has the right to
sell most of the advertising time during such broadcasts. Each station receives
a specified amount of network compensation for broadcasting network programming.
To the extent that a station's preemptions of network programming exceed a
designated amount, that compensation may be reduced. These payments are also
subject to decreases by the network during the term of an affiliation agreement
under other circumstances, with provisions for advance notice. The Company has
long-term network affiliation agreements in place with ABC and CBS, and
shorter-term agreements in place with NBC and FOX. Final documentation of the
ABC affiliation agreements has not been completed. However, the Company is
currently compensated under the terms of the draft agreements with ABC. Three of
the Company's LMA's have affiliation agreements with UPN. In addition, two of
these LMA's have a secondary affiliation with the WB network.
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NEWSPAPER PUBLISHING
The Company's principal newspaper, The Dallas Morning News, was established
in 1885. In late 1991, after years of intense competition, The Dallas Morning
News' principal newspaper competitor, the Dallas Times Herald, ceased
operations, and the Company purchased its assets. In late 1995 and early 1996,
the Company expanded its Publishing Division by acquiring daily newspapers
serving Bryan-College Station, Texas and Owensboro, Kentucky. The Providence
Journal was acquired in February 1997 and The Gleaner, serving Henderson,
Kentucky, was acquired in March 1997. In July 1997, Belo completed the
acquisition of The Press-Enterprise, a daily newspaper serving Riverside,
California.
The following table sets forth information concerning the Company's daily
newspaper operations:
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1998 1997
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Daily Sunday Daily Sunday
Newspaper Location Circulation(1) Circulation(1) Circulation(1) Circulation(1)
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The Dallas Morning News ("TDMN") Dallas, TX 515,181 780,084 517,215 789,004
The Providence Journal ("PJ") Providence, RI 167,381 239,193 170,292 242,755
The Press-Enterprise ("PE") Riverside, CA 161,612 168,222 162,551 170,478
Messenger-Inquirer Owensboro, KY 31,767 34,991 31,754 34,657
The Eagle Bryan-College Station, TX 22,449 27,219 21,939 27,358
The Gleaner Henderson, KY 11,152 13,167 11,247 13,476
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(1) Average paid circulation for the six months ended September 30, 1998 and
1997, respectively, according to the Audit Bureau of Circulation's FAS-FAX
report.
Each of Belo's daily newspapers strives to serve community interests by
maintaining a strong and independent voice in matters of public concern. It is
the policy of the Company to allocate such resources as may be necessary to
maintain excellence in news reporting and editorial comment in all of its
newspaper publications.
The Company's three largest newspapers, The Dallas Morning News, The
Providence Journal and The Press-Enterprise, provide coverage of local, state,
national and international news. The Dallas Morning News is distributed
throughout the Southwest, though its circulation is concentrated primarily in
the 12 counties surrounding Dallas. The Providence Journal is the leading
newspaper in Rhode Island and southeastern Massachusetts. The Press-Enterprise
is distributed throughout Riverside County and the inland southern California
area. Riverside County is expected to be among the fastest growing counties in
California over the next decade.
The basic material used in publishing Belo's newspapers is newsprint.
During 1998, the Company's publishing operations consumed approximately 253,000
metric tons of newsprint at an average cost of $566 per metric ton. Consumption
of newsprint in the previous year was approximately 254,000 metric tons at an
average cost per metric ton of $535. At present, newsprint is generally
purchased from eight suppliers. In addition, The Providence Journal and The
Press-Enterprise purchased approximately 50 percent and 70 percent,
respectively, of their newsprint from other suppliers under pre-existing
contracts. These contracts provide for certain minimum purchases per year at
rates commonly available throughout the region. Management believes its sources
of newsprint, along with alternate sources that are available, are adequate for
its current needs.
COMPETITION
The success of broadcast operations depends on a number of factors,
including the general strength of the economy, the ability to provide attractive
programming, audience ratings, relative cost efficiency for advertisers in
reaching audiences as compared to other advertising media, technical
capabilities and governmental regulations and policies. The Company's television
stations compete for advertising revenues directly with other media such as
newspapers (including those owned and operated by the Company), other television
stations, direct satellite distribution, radio stations, cable television
systems, outdoor advertising, the Internet, magazines and direct mail
advertising.
The four major national television networks are represented in each
television market in which the Company has a television station. Competition for
advertising sales and local viewers within each market is intense, particularly
among the network-affiliated television stations.
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The entry of local telephone companies into the market for video
programming services, as permitted under the Telecommunications Act of 1996 (the
"1996 Act"), can be expected to have an impact on competition in the television
industry. The Company is unable to predict the effect that these or other
technological and related regulatory changes will have on the television
industry or on the future results of the Company's operations.
Each of the Company's daily newspapers competes for advertising with
television and radio stations (including stations owned and operated by the
Company in the same or overlapping markets), magazines, direct mail, cable
television, direct satellite distribution, outdoor advertising, the Internet and
other newspapers. The Dallas Morning News' primary competitor in certain smaller
cities located between Dallas and Fort Worth is the Fort Worth Star-Telegram.
The Providence Journal and The Press-Enterprise each has five competing daily
newspapers in the Rhode Island and Riverside County markets, respectively.
REGULATION OF TELEVISION BROADCASTING
The Company's television broadcasting operations are subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended (the
"Act"). Among other things, the Act empowers the FCC to assign frequency bands;
determine stations' operating frequencies, location and power; issue, renew,
revoke and modify station licenses; regulate equipment used by stations; impose
penalties for violation of the Act or of FCC regulations; impose fees for
processing applications and other administrative functions; and adopt
regulations to carry out the Act's provisions. The Act also prohibits the
assignment of a broadcast license or the transfer of control of a broadcast
licensee without prior FCC approval. Under the Act, the FCC also regulates
certain aspects of the operation of cable television systems and other
electronic media that compete with television stations.
The Act would prohibit the Company's subsidiaries from continuing as
broadcast licensees if record ownership or power to vote more than one-fourth of
the Company's stock were to be held by aliens, foreign governments or their
representatives, or by corporations formed under the laws of foreign countries.
The Act previously would have prohibited the Company's subsidiaries from
continuing as broadcast licensees if any officer or more than one-fourth of the
directors of the Company were aliens. The 1996 Act, however, eliminated the
restriction on alien officers and directors.
Prior to the passage of the 1996 Act, television station licenses were
granted for a period of five years. Renewal applications were granted without a
hearing if there were no competing applications or issues raised by petitioners
to deny such applications that would cause the FCC to order a hearing. If
competing applications were filed, a full comparative hearing was required.
Under the 1996 Act, the statutory restriction on the length of a license term
was amended to allow the FCC to grant television licenses for terms of up to
eight years. In January 1997, the FCC adopted specific procedures to extend
television license terms to the eight-year limit. The 1996 Act also requires
renewal of a television license if the FCC finds that (1) the station has served
the public interest, convenience, and necessity; (2) there have been no serious
violations of either the Act or the FCC's rules and regulations by the licensee;
and (3) there have been no other violations of either the Act or the FCC's rules
and regulations by the licensee which, taken together, constitute a pattern of
abuse. In making its determination, the FCC cannot consider whether the public
interest would be better served by a party other than the renewal applicant.
Under the 1996 Act, competing applications for the same frequency may be
accepted only after the Commission has denied an incumbent's application for
renewal of license.
The current license expiration dates for each of the Company's television
broadcast stations are as follows: WVEC-TV, October 1, 2004; WCNC-TV, December
1, 2004; WWL-TV, June 1, 2005; WHAS-TV, August 1, 2005; KMOV-TV, February 1,
2006; KOTV, June 1, 2006; KENS-TV, August 1, 2006; KHOU-TV, August 1, 2006;
WFAA-TV, August 1, 2006; KASA-TV, October 1, 2006; KMSB-TV, October 1, 2006;
KTVB-TV, October 1, 2006; KXTV, December 1, 2006; KING-TV, February 1, 2007;
KGW-TV, February 1, 2007; KREM-TV, February 1, 2007; and KHNL-TV, February 1,
2007.
FCC ownership rules, as modified pursuant to the 1996 Act, limit the
aggregate audience reach of television stations that may be under common
ownership, operation and control, or in which a single person or entity may hold
office or have more than a specified interest or percentage of voting power, to
35 percent of the total national audience. FCC rules also place certain limits
on common ownership, operation and control of, or cognizable
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interests or voting power in, (a) television stations serving the same area, (b)
television stations and daily newspapers serving the same area and (c)
television stations and cable systems serving the same area.
The 1996 Act left in place the FCC rule which prohibits common ownership of
two television stations serving the same area, but directed the Commission to
conduct a rulemaking proceeding to determine whether the restriction should be
eliminated or modified. In addition, the 1996 Act eliminated a statutory
prohibition against common ownership of television stations and cable systems
serving the same area, but left the FCC rule in place. The 1996 Act stipulates
that the FCC should not consider the repeal of this statutory ban in any review
of its applicable rules. The 1996 Act also left in place the FCC rule which
prohibits common ownership of a broadcast station and a daily newspaper serving
the same area, but required the Commission to review this and all other
cross-ownership rules biennially, beginning in 1998, to determine if they remain
necessary. In early 1998, the FCC announced the beginning of the biennial review
process, which will also include a review of a broad range of other rules
affecting broadcasters. In late 1998, the Commission announced a number of such
changes which, among other things, are directed toward simplifying application
and ownership report forms and supplying greater certainty as to construction
deadlines for technical facilities modifications.
The FCC ownership rules affect the number, type and location of newspaper,
broadcast and cable television properties that the Company might acquire in the
future. For example, under current FCC rules, the Company generally could not
acquire any daily newspaper, broadcast or cable television properties in a
market where it now owns or has an interest in a television station deemed
attributable under FCC rules. However, the FCC's rules and policies (as modified
by the 1996 Act) provide that waivers of these restrictions generally would be
available to permit the Company's acquisition of radio stations in most of the
markets in which the Company currently owns television stations or of
"satellite" television stations located within a parent station's Grade B
service contour which rebroadcast all or most of the parent station's
programming.
The Company's ownership of The Dallas Morning News and WFAA, which are both
located in the Dallas/Fort Worth DMA, predates the adoption of the FCC's rules
regarding newspaper/broadcast cross-ownership and was "grandfathered" by the
FCC.
The FCC has instituted proceedings looking toward possible relaxation of
certain of its rules regulating television station ownership and changes in the
standards used to determine what type of interests are considered to be
attributable under its rules. For example, the FCC has initiated proceedings
looking toward possible relaxation of its rules regulating the common ownership
of two television stations. In addition, other parties have challenged the
newspaper/television cross-ownership prohibition in court and in petitions to
the FCC, and legislation to repeal that prohibition has been introduced in the
U.S. Senate and House of Representatives.
The FCC has significantly reduced its regulation of broadcast stations,
including elimination of formal ascertainment requirements and guidelines
concerning amounts of certain types of programming and commercial matter that
may be broadcast. There are, however, FCC rules and policies, and rules and
policies of other federal agencies, that regulate matters such as
network/affiliate relations, cable systems' carriage of syndicated and network
television programming on distant stations, political advertising practices,
obscene and indecent programming, application procedures and other areas
affecting the business or operations of broadcast stations. The FCC has
eliminated its former rules that restricted network participation in program
production and syndication. The FCC also eliminated the prime time access rule
("PTAR"), effective August 30, 1996. The PTAR limited the ability of some
stations in the 50 largest television markets to broadcast network programming
(including syndicated programming previously broadcast over a network) during
prime time hours. The elimination of PTAR could increase the amount of network
programming televised by a station affiliated with ABC, NBC or CBS. The U.S.
Supreme Court refused to review a lower court decision that upheld FCC action
invalidating most aspects of the Fairness Doctrine, which required broadcasters
to present contrasting views on controversial issues of public importance. The
FCC may, however, continue to regulate other aspects of fairness obligations in
connection with certain types of broadcasts.
The FCC has adopted rules to implement the Children's Television Act of
1990, which, among other provisions, limits the permissible amount of commercial
matter in children's television programs and requires each television station to
present educational and informational children's programming. The Commission
recently adopted stricter children's programming requirements, including a
requirement that television broadcasters provide a minimum of three hours of
"core" children's educational programming per week.
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In April 1998, the U.S. Court of Appeals for the D.C. Circuit struck down
the FCC's Equal Employment Opportunity regulations as being unconstitutional.
Recently the Commission commenced a proceeding in which it proposed new rules
that it suggests would not share the constitutional flaws of the former rules.
It has invited public comment on its proposals. The Company cannot predict
whether new rules will be adopted, the form of any such rules, or the impact of
the rules on the Company's operations.
The FCC also has adopted various regulations to implement certain
provisions of the Cable Television Consumer Protection and Competition Act of
1992 ("1992 Cable Act") which, among other matters, includes provisions
respecting the carriage of television stations' signals by cable systems. In
March 1997, the Supreme Court upheld a statutory provision requiring cable
systems to devote a specified portion of their channel capacity to the carriage
of the signals of local television stations. Moreover, the 1992 Cable Act was
amended in certain important respects by the 1996 Act. Most notably, the 1996
Act repealed the cross-ownership ban between cable and telephone entities and
the FCC's video dial tone rules. These actions, among other regulatory
developments, permit involvement by telephone companies in providing video
services.
In April 1997, the FCC adopted rules for implementing digital television
("DTV") service in the United States. Implementation of DTV will improve the
technical quality of television signals received by viewers and will give
television broadcasters the flexibility to provide new services, including
high-definition television or multiple programs of standard definition
television and data transmission.
Under the FCC's DTV rules, each broadcaster who, as of April 3, 1997, held
a license to operate a full-power television station or a construction permit
for such a station will be assigned, for an eight-year transition period, a
second channel on which to initially provide separate DTV programming or
simulcast its analog programming. Stations must construct their DTV facilities
and be on the air with a digital signal according to a schedule set by the FCC
based on the type of station and the size of the market in which it is located.
For example, all ABC, CBS, NBC and FOX network affiliates in the 10 largest
markets must be on the air with a digital signal by May 1, 1999. (Several
stations in the top 10 markets voluntarily committed in writing to the FCC to
build DTV facilities by November 1, 1998. The Company's stations, WFAA, KHOU and
KING, made such commitments and subsequently met the accelerated schedule.)
Affiliates of the four major networks in the top 30 markets must be transmitting
digital signals by November 1999 and all other commercial broadcasters must
follow suit by 2002. At the end of the transition period, analog television
transmissions will cease, and DTV channels will be reassigned to a smaller
segment of the broadcasting spectrum. It is likely that some of the vacated
spectrum will be allocated to public safety, while the remainder will be
auctioned for use by other telecommunication services.
The FCC hopes to complete the full transition to DTV by 2006. Although the
FCC has targeted December 31, 2006 as the date by which all television
broadcasters must return their analog licenses, the Balanced Budget Act of 1997
allows broadcasters to keep both their analog and digital licenses until at
least 85 percent of the television households in their respective markets can
receive a digital signal. Local zoning laws and the lack of qualified tall-tower
builders to construct the facilities needed for DTV operations, among other
factors, may cause delays in this transition. The FCC is currently considering a
rule which would set strict time limits within which local zoning authorities
must act on zoning petitions by local television stations. The Commission has
announced that it will review the progress of DTV every two years and make
adjustments to the 2006 target date, if necessary.
The Commission is currently considering whether cable television system
operators should be required to carry stations' DTV signals in addition to the
currently required carriage of stations' analog signals. In July 1998, the
Commission issued a Notice of Proposed Rulemaking posing seven different options
for the carriage of digital signals and solicited comments from all interested
parties. The Commission has yet to issue a decision on this matter.
Under their network affiliation agreements and licensing agreements with
program syndicators, television stations obtain the valuable right to serve as
the exclusive or primary source of certain programming in their local service
areas. A recent FCC proposal aimed at rectifying perceived problems in the
Satellite Home View Act (which established a copyright license for limited
distribution of television network programming to direct broadcast satellite
viewers) also could result in significant shrinkage of the area generally
considered to be the station's local service area. Whether the FCC will adopt
this proposal and how new FCC rules may be affected by related legislative or
judicial action cannot be predicted at this time.
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The foregoing does not purport to be a complete summary of all the
provisions of the Act or the regulations and policies of the FCC thereunder.
Proposals for additional or revised regulations and requirements are pending
before and are considered by Congress and federal regulatory agencies from time
to time. The Company cannot predict the effect of existing and proposed federal
legislation, regulations and policies on its broadcast business. Also, various
of the foregoing matters are now, or may become, the subject of court
litigation, and the Company cannot predict the outcome of any such litigation or
the impact on its broadcast business.
EMPLOYEES
As of December 31, 1998, the Company had 6,920 full-time employees. The
Company has approximately 900 employees who are represented by various employee
unions. The majority of these employees are located in Providence, Rhode Island,
with the remaining union employees working at various television stations. The
Company believes its relations with its employees are satisfactory.
ITEM 2. PROPERTIES
At December 31, 1998, the Company owned broadcast operating facilities in
the following U. S. cities: Dallas, Texas (WFAA); Houston, Texas (KHOU);
Seattle, Washington (KING); Sacramento, California (KXTV); Portland, Oregon
(KGW); Charlotte, North Carolina (WCNC); San Antonio, Texas (KENS); Norfolk,
Virginia (WVEC); New Orleans, Louisiana (WWL); Louisville, Kentucky (WHAS);
Albuquerque, New Mexico (KASA); Tulsa, Oklahoma (KOTV); Spokane, Washington
(KREM); Tucson, Arizona (KMSB); and Boise, Idaho (KTVB). The Company also leases
broadcast facilities for the operations of KMOV in St. Louis, Missouri and KHNL
in Honolulu, Hawaii. Four of the Company's broadcast facilities use broadcast
towers that are jointly owned with another network-affiliated television station
in the same market (WFAA, KXTV, KENS and KOTV). The broadcast towers associated
with the Company's other television stations are wholly-owned by the Company.
The Company leases a facility in Washington, D.C. that is used by its
broadcasting and publishing operations for the gathering and distribution of
news from the nation's capital. This facility includes a broadcast studio as
well as general office space.
The Company owns and operates a newspaper printing facility and
distribution center in Plano, Texas where seven high-speed offset presses are
housed to print The Dallas Morning News. An eighth press of The Dallas Morning
News has been placed with a broker for sale in anticipation of the installation
of a replacement press, which will provide improved production capacity and
greater flexibility. Certain other operations of The Dallas Morning News are
housed in a Company-owned, five-story building in downtown Dallas, which is
equipped with computerized input and photocomposition equipment and other
equipment that is used in the production of both news and advertising copy.
The Company also owns and operates a newspaper printing facility in
Providence, Rhode Island, where three high-speed flexographic presses are housed
to print The Providence Journal. The remainder of The Providence Journal's
operations is housed in a Company-owned, five-story building in downtown
Providence. This facility is equipped with computerized input and
photocomposition equipment and other equipment that is used in the production of
both news and advertising copy.
The Company owns and operates a newspaper publishing facility, a commercial
printing facility and various other properties in southern California. The
newspaper publishing facility is located in downtown Riverside, California and
is equipped with three high-speed offset presses to print The Press-Enterprise.
This facility also contains computerized input and photocomposition equipment
and other equipment that is used in the production of both news and advertising
copy.
The Company owns other newspaper production facilities in Owensboro and
Henderson, Kentucky and Bryan-College Station, Texas.
During 1998, the Company converted a former newsprint warehouse in downtown
Dallas into a fully-equipped digital television facility for its 24-hour
regional cable news operation, Texas Cable News ("TXCN"). TXCN's studios and
newsroom, along with its editorial, sales, marketing and administrative offices
are located in this facility. TXCN
7
<PAGE> 10
began transmitting news and information 24 hours a day on January 1, 1999.
TXCN's signal is distributed to cable companies by either fiber or Ku-band
satellite.
Northwest Cable News ("NWCN"), the Company's regional cable news network in
the Pacific Northwest, conducts its operations from the KING facility.
The Company's corporate operations, several departments of The Dallas
Morning News and certain broadcast administrative functions have offices located
in downtown Dallas in a 17-story office building owned by the Company.
All of the foregoing operations have additional leasehold and other
interests that are used in their respective activities. The Company believes its
properties are in satisfactory condition and are well maintained, and that such
properties are adequate for present operations.
ITEM 3. LEGAL PROCEEDINGS
There are legal proceedings pending against the Company, including a number
of actions for alleged libel and slander. In the opinion of management,
liabilities, if any, arising from these actions would not have a material
adverse effect on the consolidated results of operations, liquidity or financial
position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year covered by
this Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's authorized common equity consists of 450,000,000 shares of
Common Stock, par value $1.67 per share. The Company has two series of Common
Stock outstanding, Series A and Series B. Shares of the two series are identical
in all respects except that Series B shares are entitled to 10 votes per share
on all matters submitted to a vote of shareholders, while the Series A shares
are entitled to one vote per share. Transferability of the Series B shares is
limited to family members and affiliated entities of the holder, and Series B
shares are convertible at any time on a one-for-one basis into Series A shares.
Shares of the Company's Series A Common Stock are traded on the New York Stock
Exchange (NYSE symbol: BLC). There is no established public trading market for
shares of Series B Common Stock. The Company has also issued certain Preferred
Stock Purchase Rights that accompany the outstanding shares of the Company's
Common Stock. See Note 9 of the Notes to Consolidated Financial Statements.
On June 5, 1998, the Company completed a two-for-one stock split in the
form of a stock dividend whereby one additional share of Series A and Series B
Common Stock was issued for each share of Series A and Series B Common Stock
outstanding on May 22, 1998, the record date for the split. The effect of the
stock split was to double the number of shares outstanding and reduce earnings
per share amounts by one-half. Total shareholders' equity and the proportionate
ownership in the Company of individual shareholders were not affected by the
stock split. All earnings and dividends per share, weighted average shares
outstanding and share trading prices in this report have been restated to
reflect the stock split.
8
<PAGE> 11
The following table lists the high and low trading prices and the closing
prices for Series A Common Stock as reported on the New York Stock Exchange for
each of the quarterly periods in the last two years.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
HIGH LOW CLOSE DIVIDENDS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 Fourth Quarter $19 15/16 $13 15/16 $19 15/16 $.06
Third Quarter $25 5/8 $18 3/8 $20 $.06
Second Quarter $27 3/4 $22 1/8 $24 3/8 $.06
First Quarter $28 15/32 $26 3/16 $27 1/2 $.06
- --------------------------------------------------------------------------------------
1997 Fourth Quarter $28 1/16 $22 1/2 $28 1/16 $.055
Third Quarter $25 5/8 $20 17/32 $24 1/4 $.055
Second Quarter $21 1/2 $17 1/16 $20 13/16 $.055
First Quarter $19 3/4 $16 5/8 $18 7/16 $.055
- --------------------------------------------------------------------------------------
</TABLE>
On January 29, 1999, the closing price for the Company's Series A Common
Stock as reported on the New York Stock Exchange was $18.8125. The approximate
number of shareholders of record of the Series A and Series B Common Stock at
the close of business on such date was 19,483 and 601, respectively.
9
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company for
each of the five years in the period ended December 31, 1998. For a more
complete understanding of this selected financial data, see Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 8. "Financial Statements and Supplementary Data," including
the Notes thereto. Certain operations have been reclassified to reflect new
requirements under segment reporting standards.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
In thousands, except per share amounts 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Broadcasting revenues (a) $ 609,068 $ 536,737 $ 333,396 $ 322,642 $258,040
Newspaper publishing revenues (b) 787,541 694,495 487,560 409,099 369,366
Other (c) 10,736 17,149 3,352 3,602 719
- ---------------------------------------------------------------------------------------------------------------------
Net operating revenues $1,407,345 $1,248,381 $ 824,308 $ 735,343 $628,125
========================================================================
Net earnings $ 64,902 $ 82,972 $ 87,505 $ 66,576 $ 68,867
========================================================================
Per share amounts: (d)
Basic earnings per share $ .53 $ .72 $ 1.07 $ .85 $ .86
Diluted earnings per share $ .52 $ .71 $ 1.05 $ .84 $ .85
Cash dividends $ .24 $ .22 $ .21 $ .16 $ .15
Other data:
Segment operating cash flow: (e)
Broadcasting (f) $ 238,745 $ 216,654 $ 122,837 $ 121,716 $106,396
Newspaper publishing (g) $ 207,663 $ 204,898 $ 127,945 $ 90,915 $ 87,284
Segment operating cash flow margins:
Broadcasting (f) 39.2% 40.4% 36.8% 37.7% 41.2%
Newspaper publishing (g) 26.4% 29.5% 26.2% 22.2% 23.6%
- ---------------------------------------------------------------------------------------------------------------------
Total assets (a) (b) $3,539,089 $3,622,954 $1,224,072 $1,154,022 $913,791
Long-term debt (h) $1,634,029 $1,614,045 $ 631,857 $ 557,400 $330,400
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Company purchased WWL in June 1994, KIRO in February 1995, nine
television stations as part of the PJC acquisition in February 1997 and
KENS in October 1997. KMOV was acquired in exchange for KIRO in June 1997.
(b) The Company purchased The Eagle in December 1995, the Messenger-Inquirer in
January 1996, The Providence Journal in February 1997, The Gleaner in March
1997, and increased its ownership in The Press-Enterprise to 100 percent in
July 1997.
(c) "Other" includes revenues associated with the Company's cable news
operations (beginning in March 1997), television production subsidiary and
a programming distribution partnership. The Company sold its interest in
the partnership in February 1996. From March 1997 through June 1997,
"Other" also included a cable network acquired in connection with the PJC
acquisition. The cable network was subsequently disposed of and its
operations are excluded effective July 1, 1997.
(d) Per share amounts have been restated to reflect the two-for-one common
stock split effected as a stock dividend on June 5, 1998 and have been
rounded to the nearest whole cent.
(e) Operating cash flow is defined as segment earnings from operations plus
depreciation and amortization. Operating cash flow is used in the
broadcasting and publishing industries to analyze and compare companies on
the basis of operating performance, leverage and liquidity. However,
operating cash flow should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles. In 1998, newspaper publishing
operating cash flow excludes a non-cash charge of $11,478 for the
write-down of a press at TDMN. See Note 14 of the Consolidated Financial
Statements.
(f) Broadcasting operating cash flow in 1998 includes a non-recurring charge
for a voluntary early retirement program and other employee reduction
initiatives, totaling $6,996.
(g) Newspaper publishing operating cash flow in 1998 includes certain voluntary
early retirement charges of $6,344.
(h) Long-term debt increased in 1997 due to borrowings of $1,100,545 to finance
various acquisitions and in 1998 due to repurchases of 6,727,400 shares of
the Company's stock for $129,786.
10
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is an owner and operator of 17 network-affiliated television
stations and publisher of six daily newspapers. The following table sets forth
the Company's major media assets by segment as of December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Television Broadcasting
- ------------------------------------------------------------------------------------------------------------------
Network
Market Market Rank (a) Station Affiliation Status Acquired
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dallas/Fort Worth 7 WFAA ABC Owned March 1950
Houston 11 KHOU CBS Owned February 1984
Seattle/Tacoma 12 KING NBC Owned February 1997
Seattle/Tacoma 12 KONG IND LMA February 1997
Sacramento(b) 20 KXTV ABC Owned February 1984
St. Louis 21 KMOV CBS Owned June 1997
Portland 23 KGW NBC Owned February 1997
Charlotte 28 WCNC NBC Owned February 1997
San Antonio 37 KENS CBS Owned October 1997
Hampton/Norfolk 40 WVEC ABC Owned February 1984
New Orleans 41 WWL CBS Owned June 1994
Louisville 48 WHAS ABC Owned February 1997
Albuquerque 49 KASA FOX Owned February 1997
Tulsa 59 KOTV CBS Owned February 1984
Honolulu 71 KHNL NBC Owned February 1997
Honolulu(c) 71 KFVE UPN/WB LMA February 1997
Spokane 72 KREM CBS Owned February 1997
Spokane(c) 72 KSKN UPN/WB LMA February 1997
Tucson 78 KMSB FOX Owned February 1997
Tucson 78 KTTU UPN LMA February 1997
Boise 125 KTVB NBC Owned February 1997
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Newspaper Publishing
- --------------------------------------------------------------------------------------------------------------------------
Daily Sunday
Newspaper Location Acquired Circulation(e) Circulation(e)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Dallas Morning News("TDMN") Dallas, TX (d) 515,181 780,084
The Providence Journal("PJ") Providence, RI February 1997 167,381 239,193
The Press-Enterprise ("PE") Riverside, CA July 1997 161,612 168,222
Messenger-Inquirer Owensboro, KY January 1996 31,767 34,991
The Eagle Bryan-College Station, TX December 1995 22,449 27,219
The Gleaner Henderson, KY March 1997 11,152 13,167
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Other
- ---------------------------------------------------------------------------------------------------------------------------
Company Description
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Northwest Cable News Cable news network offering regional news distributed to approximately 2 million
("NWCN") homes in the Pacific Northwest
Texas Cable News ("TXCN") Cable news network offering regional news in Texas; operations began January 1, 1999
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Market rank is based on the relative size of the television market, or
Designated Market Area ("DMA"), among the 211 generally recognized DMAs in
the United States, based on November 1998 Nielsen estimates.
(b) The Company has entered into an agreement to exchange KXTV for the ABC
affiliate in Austin, Texas (market rank 60). See Other Matters.
(c) The primary affiliation is with UPN. The WB network is currently a
secondary affiliation.
(d) The first issue of The Dallas Morning News was published by Belo on October
1, 1885.
(e) Average paid circulation for the six months ended September 30, 1998,
according to the Audit Bureau of Circulation's FAS-FAX report.
The Company depends on advertising as its principal source of revenues. As
a result, the Company's operations are sensitive to changes in the economy,
particularly in the Dallas/Fort Worth metropolitan area, where its two largest
properties are located. The Company also derives revenues, to a much lesser
extent, from the daily sale of newspapers and from compensation paid by networks
to its television stations for broadcasting network programming.
11
<PAGE> 14
All references herein to broadcasting operating cash flow or newspaper
publishing operating cash flow refer to segment earnings from operations plus
depreciation and amortization, as defined in Item 6. "Selected Financial Data."
Operating cash flow as defined should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles. All references to earnings per share represent
diluted earnings per share.
Statements in Items 7. and 7A. and elsewhere in this Annual Report on Form
10-K concerning the Company's business outlook or future economic performance,
anticipated profitability, revenues, expenses, capital expenditures or other
financial items, together with the discussion regarding Year 2000 impact and
other statements that are not historical facts, are "forward-looking statements"
as that term is defined under applicable Federal Securities Laws.
Forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from those statements. Such
risks, uncertainties and factors include, but are not limited to, changes in
advertising demand, interest rates and newsprint prices; technological changes;
development of Internet commerce; industry cycles; changes in pricing or other
actions by competitors and suppliers; regulatory changes; the effects of Company
acquisitions and dispositions; and general economic conditions, as well as other
risks detailed in the Company's filings with the Securities and Exchange
Commission ("SEC"), including this Annual Report on Form 10-K.
RESULTS OF OPERATIONS
(dollars in thousands, except per share amounts)
1998 COMPARED WITH 1997
Results for 1998 include a full year's operations for each of the following
1997 acquisitions: The Providence Journal Company ("PJC"), acquired February 28,
1997, The Gleaner, acquired March 31, 1997, The Press-Enterprise, acquired July
25, 1997 and KENS, acquired October 15, 1997. Also in 1997, TVFN, a cable
network acquired in connection with PJC, was disposed of as a part of the
acquisition of KENS. In addition, KIRO was exchanged for KMOV effective June 2,
1997.
Consolidated Results of Operations
The Company recorded net earnings of $64,902 or 52 cents per share for
1998, compared with $82,972 or 71 cents per share in 1997. Results for 1998
include non-recurring charges of $26,157, comprised of an $11,478 non-cash
charge for the write-down of a press at The Dallas Morning News, separation
costs of $14,229 associated with a voluntary early retirement program and other
employee reduction initiatives and $450 for severance and asset disposal costs
related to the termination of operations of the Company's programming
subsidiary. These charges resulted in a reduction in earnings per share of 13
cents in 1998. In addition, the Company realized a net gain of two cents per
share related to the disposition of its investment in Peapod, Inc. stock, which
was acquired in the PJC acquisition. Excluding these non-recurring items,
earnings per share for 1998 were 63 cents compared with 71 cents for 1997.
Depreciation and amortization expense for 1998 was $159,442, excluding the
$11,478 write-down of a press at TDMN, compared with 1997 depreciation and
amortization of $134,993. The increase in 1998 is due to a full year's effect of
the 1997 acquisitions.
Interest expense in 1998 was $107,638, compared with $90,778 in 1997.
Average debt levels in 1998 were up 14.3 percent from 1997 average debt levels,
due to a full year's effect of the debt incurred to finance 1997 acquisitions
and 1998 share repurchases of $129,786. In addition, the 1998 weighted average
interest rate on total debt was 6.7 percent, compared with 6.6 percent in 1997.
This increase was due to the conversion of $1 billion of revolving debt to
fixed-rate debt during the second and third quarters of 1997.
The effective tax rate in 1998 was 50.3 percent compared with 46.2 percent
in 1997. The increase for 1998 was due primarily to lower pre-tax earnings and a
full year's effect of non-deductible goodwill amortization expense.
12
<PAGE> 15
Segment Results of Operations
To enhance comparability of the Company's segment results of operations for
the years ended December 31, 1998 and 1997, certain information below is
presented on an "as adjusted" basis and takes into account the acquisitions of
PJC, The Gleaner, The Press-Enterprise and KENS and reflects the KIRO/KMOV
exchange as though each had occurred at the beginning of 1997. The "as adjusted"
amounts exclude TVFN, which was acquired from PJC but subsequently disposed of
in connection with the KENS acquisition. In addition, certain operations have
been reclassified to reflect new requirements under Statement of Financial
Accounting Standard ("SFAS") No. 131 "Disclosures about Segments of an
Enterprise and Related Information."
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
% %
Year ended December 31, 1998 1997 Change 1998 1997 Change
- -----------------------------------------------------------------------------------------------------------------
As Adjusted As Reported
------------------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Operating Revenues:
Broadcasting $ 609,068 $ 580,908 4.8% $ 609,068 $ 536,737 13.5%
Newspaper publishing 787,541 770,713 2.2% 787,541 694,495 13.4%
Other 10,736 9,185 16.9% 10,736 17,149 (37.4)%
Operating Cash Flow:
Broadcasting $ 238,745 $ 235,375 1.4% $ 238,745 $ 216,654 10.2%
Newspaper publishing (1) 207,663 217,928 (4.7)% 207,663 204,898 1.3%
Other (4,182) (2,496) (67.5)% (4,182) (7,672) 45.5%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Both as reported and as adjusted operating cash flow for newspaper
publishing in 1998 exclude the effect of the $11,478 non-cash charge to
write down a press at TDMN.
The discussion that follows compares segment operations on an "as adjusted"
basis only.
BROADCAST DIVISION
Broadcasting revenues in 1998 were $609,068, an increase of 4.8 percent
over 1997 revenues of $580,908. Double digit revenue increases were realized by
several Belo television stations, including three stations in the top 25 markets
(Sacramento, St. Louis and Portland). The majority of these revenue increases
were attributable to political advertising revenues. Congressional and
gubernatorial races in several states contributed to political advertising
revenues of more than $36 million in 1998, compared with 1997 political
advertising revenues of just over $7 million. Local advertising revenues in 1998
increased by 1.8 percent over the prior year due to early gains in automotive
advertising and broadcast of the Winter Olympics on the Company's six CBS
stations. These gains were offset by lower national advertising revenues, which
were down 3.8 percent compared with 1997. The decline was attributable to
generally weak demand from national advertisers beginning in the second quarter,
which continued with the General Motors strike in the third quarter.
Belo's Television Group includes four ABC affiliates, five NBC affiliates
and six CBS affiliates, with the top three stations by market rank each
affiliated with a different network (ABC in Dallas/Fort Worth, CBS in Houston
and NBC in Seattle/Tacoma). This balance contributes to more stable revenues
despite variations in network ratings performance, caused by factors such as
prime time programming preferences and special events like the Olympics and the
Super Bowl. Revenue increases by affiliate group in 1998 compared with 1997 were
as follows: ABC, 4.6 percent; NBC, 4.2 percent; and CBS, 4.7 percent.
Broadcasting operating cash flow increased 1.4 percent to $238,745 during
1998 compared with 1997 broadcasting operating cash flow of $235,375.
Broadcasting operating cash flow margin of 39.2 percent was down from the 1997
margin of 40.5 percent. Excluding the effect of the fourth quarter 1998 charge
for the voluntary early retirement program and other employee reduction
initiatives totaling $6,996, operating cash flow was $245,741 and operating cash
flow margin was 40.3 percent. Total cash expenses increased 7.2 percent in 1998,
including the fourth quarter non-recurring charge. Excluding this charge, total
cash expenses were up 5.1 percent, led by an increase in employee costs of 6
percent due to an increased number of employees (primarily in sales), normal
merit adjustments, overtime and higher benefit costs. Programming expenses were
higher in 1998 by nearly 10 percent as
13
<PAGE> 16
programming content was improved at some of Belo's recently acquired stations.
Other expenses were relatively flat when compared with 1997 as higher costs
related to Olympic coverage were substantially offset by lower expenditures for
advertising and promotion.
NEWSPAPER PUBLISHING DIVISION
Newspaper publishing revenues of $787,541 increased 2.2 percent in 1998
compared with 1997 revenues of $770,713. Revenues increased at all of the
Company's newspapers, including .4 percent at The Dallas Morning News, 4.2
percent at The Providence Journal and 6.4 percent at The Press-Enterprise.
Advertising revenues comprised 85 percent of total 1998 newspaper publishing
revenues, circulation revenues accounted for 12 percent, and commercial printing
contributed to the remainder.
Newspaper volume is measured in column inches. Volume for TDMN was as
follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Year ended December 31, 1998 1997 % Change
- -------------------------------------------------------------
<S> <C> <C> <C>
Full-run ROP inches (1)
Classified 1,989 2,053 (3.1)%
Retail 1,376 1,485 (7.3)%
General 304 327 (7.0)%
----- -----
Total 3,669 3,865 (5.1)%
- -------------------------------------------------------------
</TABLE>
(1) Full-run ROP inches refers to the number of column inches of display and
classified advertising that is printed and distributed in all editions of
the newspaper.
While advertising linage decreased in all three major categories at TDMN in
1998 versus 1997, the newspaper instituted rate increases in all categories
effective January 1, 1998. These rate increases ranged from 5 percent to 12.75
percent. The decline in classified advertising volume was primarily in the
classified employment category. In 1997, TDMN had a year of record performance
and classified employment linage reached a five-year high. However, low
unemployment levels in North Texas contributed to an 11.1 percent decline in
employment classified advertising volume during 1998. Despite the decline in
employment classified volume, higher average rates and increased linage in the
automotive and real estate categories contributed to an overall year-to-year
increase in total classified advertising revenues. Retail volumes declined 7.3
percent while average rates increased 3.9 percent, resulting in a 3.8 percent
decrease in retail revenue in 1998 versus 1997. The decrease in retail
advertising was primarily due to a decline in department store linage. General
advertising revenues were down 8.2 percent due to a volume decline of 7 percent
and lower average rates. Circulation revenues were lower by 5 percent due to
declines in both daily and Sunday volumes of 1 percent and 1.5 percent,
respectively, and higher contractor rates.
Revenues for PJ were higher in 1998 versus 1997 due to gains in both retail
and classified advertising. Higher rates contributed the majority of the
increase in retail advertising revenue, with average rates during 1998 up 6.1
percent over the prior year. The 1998 classified advertising gain over the
previous year was largely due to higher rates as volume gains in classified
employment were offset by lower linage in automotive, rentals and merchandise
classified advertising. General advertising volumes were down at PJ, primarily
due to a decline in airline advertising. Circulation revenues were down .9
percent due to declines in daily and Sunday volume of 1.5 percent and 1.4
percent, respectively.
Advertising revenue at PE increased 7.5 percent in 1998 compared with 1997,
due primarily to increases in classified advertising, which improved 15.8
percent. Classified volumes were up 3.5 percent, most significantly in
employment advertising, and average rates were better by 3.9 percent.
Advertising revenue improvement was also the result of the expansion of PE's
total market coverage program and an increase in preprints. Circulation revenues
for PE in 1998 were unchanged relative to 1997 as increased volume in daily
circulation was offset by decreased Sunday circulation.
Newspaper publishing operating cash flow for 1998 was $207,663, a decrease
of 4.7 percent when compared with $217,928 in 1997. Operating cash flow margin
was 26.4 percent in 1998 compared to 28.3 percent in 1997. Excluding the effect
of a $6,344 non-recurring charge for early retirement costs in the fourth
quarter, newspaper
14
<PAGE> 17
publishing operating cash flow for 1998 was $214,007 and the margin was 27.2
percent. Total cash expenses for the publishing segment were up $27,095 or 4.9
percent in 1998 compared with 1997, including the fourth quarter charge.
Excluding the charge, cash expenses increased 3.8 percent. The largest
contributing factor to the increase was newsprint, ink and other supplies
expense, which was up 5.8 percent over last year as a result of higher newsprint
prices. Employee costs for the publishing segment during 1998, excluding the
early retirement charge, increased 2.6 percent over the prior year. Other
production, distribution and operating costs were 3.4 percent higher in 1998,
due to higher distribution costs and advertising and promotion efforts.
OTHER
Other revenues comprised the Company's regional cable news operations and
programming subsidiary. The improvement in 1998 was due to increased revenues at
Northwest Cable News, offset somewhat by slightly lower revenues at the
programming subsidiary. Other operating cash flow declined due to start-up costs
associated with TXCN, a regional cable news operation that was launched on
January 1, 1999. Other operating cash flow also included a $450 non-recurring
charge for severance and asset disposition costs related to the termination of
operations of the programming subsidiary.
1997 COMPARED WITH 1996
Consolidated Results of Operations
The Company recorded net earnings for 1997 of $82,972 or 71 cents per
share, compared with $87,505 or $1.05 per share in 1996. Results for 1996
include a net gain of $3,895 (3 cents per share) on the sale of Maxam
Entertainment, a programming distribution partnership, to CBS. Net earnings and
earnings per share for 1997 were diluted by the amortization of intangibles,
increased interest expense and an increase in shares outstanding as a result of
the Company's acquisitions during 1997, as described previously.
Depreciation and amortization expense in 1997 was $134,993 compared with
$65,183 in 1996. The majority of the increase in 1997 was due to the PJC
acquisition in February. Amortization of intangibles associated with PJC was
approximately $39,024 for the year while additional depreciation expense due to
the step-up in fixed asset basis was $4,729 in 1997.
Interest expense for 1997 was $90,778 compared with $27,643 in 1996. Total
borrowings for 1997 acquisitions were $1,100,545, a significant portion of which
related to the PJC acquisition. Also contributing to the increase in 1997
interest expense was the additional debt associated with fourth quarter 1996
share repurchases of $306,146. In addition, during 1997 the Company converted $1
billion in revolving debt to fixed-rate debt to reduce the Company's exposure to
interest rate risk. Overall, weighted average interest rates for 1997 increased
to 6.6 percent from 5.7 percent in 1996.
The effective tax rate for 1997 was 46.2 percent compared with 39.2 percent
in 1996. The increase in the effective rate in 1997 was due primarily to the
amortization of non-deductible goodwill and higher state taxes, both of which
were a result of the PJC acquisition.
15
<PAGE> 18
Segment Results of Operations
To enhance comparability of Belo's segment results of operations for the
years ended December 31, 1997 and 1996, certain information below is presented
on an "as adjusted" basis and includes the acquisitions of PJC, The Gleaner, The
Press-Enterprise and KENS and reflects the KIRO/KMOV exchange as though each had
occurred at the beginning of the respective periods presented. The "as adjusted"
amounts exclude TVFN, which was acquired from PJC but subsequently disposed of
in connection with the KENS acquisition. In addition, certain operations have
been reclassified to reflect new requirements under segment reporting standards.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
As Adjusted As Reported
------------------------------------------ -----------------------------------------
Year ended December 31, 1997 1996 % Change 1997 1996 % Change
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Operating Revenues:
Broadcasting $ 580,908 $ 560,759 3.6% $ 536,737 $ 333,396 61.0%
Newspaper publishing 770,713 718,491 7.3% 694,495 487,560 42.4%
Other 9,185 6,244 47.1% 17,149 3,352 *
Operating Cash Flow:
Broadcasting $ 235,375 $ 226,044 4.1% $ 216,654 $ 122,837 76.4%
Newspaper publishing 217,928 164,361 32.6% 204,898 127,945 60.1%
Other (2,496) (3,754) 33.5% (7,672) (865) *
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Not meaningful.
The discussion that follows compares segment operations on an "as adjusted"
basis only.
BROADCAST DIVISION
Broadcasting revenues in 1997 of $580,908 were $20,149 higher than 1996
broadcasting revenues of $560,759, an increase of 3.6 percent. Local and
national spot revenues combined for an increase of $41,011, while political
advertising revenues were down $24,636 compared with the prior year.
Local revenues were 8.4 percent higher in 1997 compared with 1996, with
increases in each of Belo's television markets with the exception of New Orleans
and Honolulu, where local economic conditions were generally unfavorable
throughout 1997. Of the 15 stations recording local revenue increases, 13 had
increases of 5 percent or more and six were up 10 percent or more. The largest
local revenue increases were in Seattle/Tacoma, Dallas/Fort Worth, Houston, St.
Louis, Sacramento, Portland and Louisville, due largely to strong ratings,
market growth and substantial automotive advertising.
National revenues in 1997 were 9.1 percent higher than 1996, with 10 of
Belo's television stations recording increases ranging from 8.1 percent to 22.6
percent. The most significant growth in national revenues occurred in the
Dallas/Fort Worth, Seattle/Tacoma, Portland, Houston, St. Louis and San Antonio
markets. Much of this growth was due to automotive, communications and financial
advertising.
Political revenues in 1997 decreased significantly from those in 1996, a
Presidential election year that also included Senate races in Texas and
California and several local and state political issues. Year-to-year spot
revenue increases by affiliate group were as follows: ABC, 6.1 percent; CBS, 1.1
percent; and NBC, 2.5 percent.
Broadcasting operating cash flow for 1997 was $235,375, an increase of 4.1
percent over 1996 broadcasting operating cash flow of $226,044. Operating cash
flow margins grew slightly to 40.5 percent in 1997 compared with 40.3 percent in
1996. Revenues increased 3.6 percent, while cash expenses increased 3.2 percent.
Salaries, wages and employee benefits expense was up 4.3 percent due to a
greater number of employees, normal merit increases and higher bonuses.
Programming expenses were 3.6 percent higher in 1997 due to increased rates for
certain first-run programming. These increases were offset by savings of 8
percent in advertising and promotion expense, due to several significant
advertising campaigns in 1996 that were not repeated in 1997.
16
<PAGE> 19
NEWSPAPER PUBLISHING DIVISION
Newspaper publishing revenues increased 7.3 percent in 1997. Revenues were
up at The Dallas Morning News by 7.5 percent. The Providence Journal revenues
improved 7.8 percent while The Press-Enterprise revenues were up 6.7 percent.
Advertising revenues comprised 84 percent of total 1997 newspaper publishing
revenues while circulation contributed 13 percent. Commercial printing
contributed most of the remainder.
Newspaper advertising volume is measured in column inches. Volume for TDMN
was as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Years ended December 31, 1997 1996 % change
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Full-run ROP inches:
Classified 2,053 2,057 (.2)%
Retail 1,485 1,435 3.5%
General 327 296 10.5%
----- -----
Total 3,865 3,788 2.0%
- ------------------------------------------------------------------------------
</TABLE>
Classified advertising revenue at TDMN increased 11.2 percent despite
relatively flat volumes, due to higher average rates. Employment advertising led
the improvement in classified over 1996 with increases in both volume and rate,
while automotive and real estate advertising had higher rates but lower volumes.
Retail advertising revenue at TDMN increased 7.7 percent due to a 3.5 percent
increase in volume combined with a 4.1 percent increase in average rates. A 7.9
percent increase in general advertising revenue was driven by a 10.5 percent
volume increase, primarily in the technology category, slightly offset by lower
average rates. While year-to-year circulation volumes were relatively unchanged,
circulation revenue at TDMN was down 3.4 percent due to changes in circulation
mix between home delivery and single-copy sales.
Advertising revenues at PJ increased 8.1 percent due to across-the-board
rate increases effective January 1, 1997, PJ's first rate increases since
October 1, 1995. Classified revenues in 1997 increased 12.5 percent over 1996,
due primarily to the rate increases in the employment and automotive categories.
Volumes were also up 4 percent in classified advertising. Retail advertising
revenues were 11.6 percent higher than the prior year, due to the higher rates
and increased volumes of 3.3 percent. On average, retail rates were up 9.6
percent over 1996. Contributing to the volume gains in 1997 were improvements in
automotive and telecommunication advertising and gains from a new monthly Health
& Fitness section. General advertising revenue was down slightly as airline
advertising, which was significant in 1996 due to the completion of an airport
renovation in Providence, was replaced in 1997 by lower-rate automotive
advertising. Circulation revenue for PJ was up slightly due to increases in
Sunday prices in February 1996 and daily home delivery prices in January 1997,
which were offset by volume declines of 1 percent and 2.4 percent for daily and
Sunday, respectively.
The majority of PE's 1997 revenue improvement over 1996 was attributable to
classified advertising, which was up 11.8 percent due to higher rates, offset
somewhat by a reduction in volume. Circulation revenues for PE were up 2.6
percent in 1997 over 1996 due to both rate and volume increases.
Newspaper publishing operating cash flow was $217,928 in 1997 and $164,361
in 1996, resulting in operating cash flow margins of 28.3 percent and 22.9
percent, respectively. The 32.6 percent increase in operating cash flow and
corresponding improvement in operating cash flow margin were due to the 7.3
percent increase in revenues, while cash expenses were substantially unchanged.
Newsprint, ink and other supplies expense was 13.5 percent lower than in 1996,
due primarily to lower prices for newsprint, offset somewhat by increased
consumption. Salaries, wages and employee benefits expense in 1997 was 4 percent
higher due to a greater number of employees and merit increases. Other operating
expenses were up 10.5 percent over 1996 due to increases in distribution
expenses, outside services, features and news services, solicitation fees,
advertising and promotion, and bad debt expense.
17
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
(dollars in thousands, except per share amounts)
Net cash provided by operations, bank borrowings and term debt are Belo's
primary sources of liquidity. On an as reported basis, 1998 net cash provided by
operations was $234,872, compared with $256,418 in 1997. During 1998, increases
in cash earnings (defined as net earnings plus depreciation and amortization and
other non-cash charges) and receivable collections were more than offset by
greater working capital requirements for interest and 1997 bonuses paid in 1998
and the timing of payments for income taxes, including those resulting from
acquisition-related transactions. Net cash provided by operations was used to
fund capital expenditures, common stock dividends and a substantial portion of
1998 share repurchases of $129,786. As a result, long-term debt increased
$19,984 from December 31, 1997 to December 31, 1998.
During 1998, the Company recorded non-recurring charges of $26,157
comprising a non-cash charge of $11,478 for the write-down of a press at TDMN,
separation costs of $14,229 associated with a voluntary early retirement program
and other employee reduction initiatives, and $450 for severance and asset
disposal costs related to the termination of operations of Belo's programming
subsidiary. The majority of the separation costs were paid in 1998.
At December 31, 1998, the Company had $1 billion in fixed-rate debt
securities as follows: $250,000 of 6-7/8% Senior Notes due 2002; $300,000 of
7-1/8% Senior Notes due 2007; $200,000 of 7-3/4% Senior Debentures due 2027; and
$250,000 of 7-1/4% Senior Debentures due 2027. The weighted average effective
interest rate for these debt instruments is 7.3 percent. The Company also has
$500,000 of additional debt securities available for issuance under a shelf
registration statement filed in April 1997. Future issues of fixed-rate debt may
be used to refinance variable-rate debt in whole or in part or for other
corporate purposes as determined by management.
At December 31, 1998, the Company had a $1 billion variable-rate revolving
credit agreement with a syndicate of 26 banks under which borrowings were
$580,000. Borrowings under the agreement mature upon expiration of the agreement
on August 29, 2002, with one year extensions possible through August 29, 2004,
at the request of the Company and with the consent of the participating banks.
The Company also had $31,500 of short-term unsecured notes outstanding at
December 31, 1998. These borrowings may be converted at the Company's option to
revolving debt. Accordingly, such borrowings are classified as long-term in the
Company's financial statements. The Company is required to maintain certain
financial ratios as of the end of each quarter, as defined in its revolving
credit agreement. As of December 31, 1998, the Company was in compliance with
all ratio requirements.
On June 25, 1998, the Company announced its intention to repurchase shares
from time to time under its existing share repurchase authorization. This
repurchase authority covered 10,673,744 shares at the time of the announcement.
As of December 31, 1998, 6,727,400 shares had been repurchased for an aggregate
purchase price of $129,786. These purchases were funded primarily through cash
from operations and borrowings under the Company's revolving credit facility.
All treasury shares purchased during 1998 have been retired. The remaining
authorization for the repurchase of shares as of December 31, 1998 was 3,946,344
shares. During January and February 1999, the Company repurchased an additional
861,200 shares of its stock for an aggregate cost of $15,990.
During 1998, the Company paid dividends of $29,694 or 24 cents per share on
Series A and Series B Common Stock outstanding, compared with $24,428 or 22
cents per share during 1997. The higher dividends in 1998 were due to the higher
dividend rate and the full-year effect of the shares issued in 1997 in
connection with the PJC acquisition. In June 1998, the Company completed a
two-for-one stock split in the form of a dividend. All record holders of Series
A and Series B Common Stock as of May 22, 1998 received an equal number of
Series A or Series B shares on June 5, 1998. All earnings and dividends per
share, weighted average shares outstanding and share trading prices have been
restated to retroactively reflect the stock split.
Total capital expenditures for 1998 were $102,927. The Company's television
stations spent $55,035, primarily on new broadcast equipment, including $23,328
for equipment to be used in the transmission of digital television ("DTV").
Newspaper publishing capital expenditures were $25,847, and included publishing
equipment and amounts for certain system replacements. 1998 capital expenditures
for building and equipment installations necessary to commence operations at
TXCN were approximately $16 million. Capital spending in 1999 is expected to be
approximately $97 million and includes $22.7 million for additional DTV
expenditures and $15.7 million toward the purchase of the new press at TDMN. The
total cost to purchase and install the new press over the next eighteen months
is approximately $36 million. The new press will replace an existing press that,
because of
18
<PAGE> 21
production limitations, is significantly less efficient than TDMN's other
presses. Because the output of the older press can be managed on an interim
basis by the other presses, it has been placed with a broker for sale.
As of December 31, 1998, required future payments for capital projects in
1999 were $31,810. The Company expects to finance future capital expenditures
using cash generated from operations and, when necessary, borrowings under the
revolving credit agreement.
The Company believes its current financial condition and credit
relationships are adequate to fund both its current obligations as well as
near-term growth.
OTHER MATTERS
The Company has announced plans to exchange its ABC affiliate in
Sacramento, California plus up to $55 million in cash for the ABC affiliate in
Austin, Texas. The Company will report a non-cash gain on the transaction. While
the amount of the non-cash gain has not been determined, it is expected to be
significant. The Company anticipates closing the transaction in the second
quarter of 1999 following FCC and other regulatory approvals.
Statement of Position ("SOP") 98-1 requires the capitalization of
internally developed software costs beginning January 1, 1999. The Company's
1999 capital plan includes certain system replacements that will be accounted
for in accordance with this new accounting guidance. As it has been the
Company's practice to capitalize certain system development costs in the past,
the adoption of SOP 98-1 is not expected to have a significant effect on future
results of operations.
YEAR 2000
The Company has performed an enterprise-wide evaluation to assess the
ability of its information technology ("IT") and non-IT systems to function
properly and execute transactions relating to the year 2000. The program
includes the following phases: (1) project identification, (2) estimation of
costs and target end dates, (3) system remediation or replacement, (4) testing,
(5) integration, and (6) vendor compliance assessment. The Company has
substantially completed the first two phases of the program. Active management
of projects in all other phases is ongoing. All phases of the program are
expected to be completed by December 31, 1999 or sooner.
The Company is in the process of replacing systems in the Publishing
Division, including certain systems related to advertising, circulation and
editorial applications. Remediation and replacement of other systems in both the
Publishing and Broadcast Divisions is also underway. The Company expects to
remediate or replace the affected systems in a timely manner.
The Company's program includes testing of systems that have been corrected,
upgraded or replaced and testing of applications and equipment identified as
compliant. Once a system has been fully tested, it is integrated into the
production environment. While testing provides assurance that individual
applications will properly perform required functions in 2000, it is not
possible to completely simulate the effect of Year 2000 requirements.
The vendor compliance assessment phase includes contacting significant
third-party vendors in an effort to determine the state of their Year 2000
readiness. As are all businesses, Belo is dependent upon certain vendors and
suppliers whose delivery of product or service is material to the production and
distribution of the Company's products. Material vendors include, but are not
limited to, utilities providers, telecommunications, news and content providers,
television network and programming suppliers, and newsprint suppliers. The
Company has initiated formal communications with its significant vendors and is
monitoring responses and implementing additional follow-up measures as
necessary. However, there can be no assurances that IT and non-IT systems of
third parties that the Company may rely upon will be Year 2000 compliant in a
timely manner, and therefore the Company could be adversely affected by failure
of a significant third party to become Year 2000 compliant.
The Company believes the Year 2000 issues associated with its IT and non-IT
systems will be mitigated by the implementation of previously planned system
replacements. Costs associated with these system replacements have been included
in the Company's capital plans and have been funded primarily with cash provided
by operations. The
19
<PAGE> 22
Company has expensed $3.1 million in connection with its Year 2000 program
through December 31, 1998, including $2.8 million expensed in 1997, and does not
expect remaining Year 2000 expenses to be significant.
The business risks to the Company for failure to achieve Year 2000
compliance vary, and depend upon the system and the business unit affected.
While the Company believes its Year 2000 projects will be completed on a timely
basis, failure to successfully complete significant portions of its Year 2000
program or failure by significant third parties to be Year 2000 compliant could
have a material adverse effect on various phases of the Company's newspaper and
broadcasting operations, and therefore, on its operating results and financial
condition.
Although the Company has not adopted a formal contingency plan, it is in
the process of reviewing existing contingency plans and assessing alternatives
at the individual project level in the event Year 2000 issues arise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The market risk inherent in the Company's financial instruments represents
the potential loss arising from adverse changes in interest rates. The Company's
strategy in managing its exposure to interest rate changes is to maintain a
balance of fixed and variable-rate debt instruments. See Note 4 to the
Consolidated Financial Statements for information concerning the contractual
interest rates of the Company's debt. At December 31, 1998 and 1997, the fair
value of the Company's fixed-rate debt was estimated to be $1,035,965 and
$1,024,515, respectively, using quoted market prices and yields obtained through
independent pricing sources, taking into consideration the underlying terms of
the debt, such as the coupon rate and term to maturity. Such fair values
exceeded the carrying value of fixed-rate debt at December 31, 1998 and 1997 by
$35,965 and $24,515, respectively.
Various financial instruments issued by the Company are sensitive to
changes in interest rates. Interest rate changes would result in gains or losses
in the market value of the Company's fixed-rate debt due to differences between
the current market interest rates and the rates governing these instruments.
With respect to the Company's fixed-rate debt outstanding at December 31, 1998
and 1997, a 10 percent decline in interest rates would have resulted in no
material effect on the Company's consolidated financial position, results of
operations or cash flows. With respect to the floating-rate debt at December 31,
1998, a 10 percent increase in interest rates would result in a $3,492 annual
change in the Company's pre-tax earnings and cash flows.
In addition to interest rate risk, the Company has exposure to changes in
the price of newsprint. The average price of newsprint is expected to be lower
in 1999 than 1998, although future prices for newsprint cannot be predicted with
certainty. The Company historically has managed the risk of price increases
through a combination of rate increases and expense reductions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, together with the Report of
Independent Auditors, are included elsewhere in this document. Financial
statement schedules have been omitted because the required information is
contained in the Consolidated Financial Statements or related notes, or because
such information is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the headings "Outstanding Capital Stock and
Stock Ownership of Directors, Certain Executive Officers and Principal
Shareholders," "Executive Officers of the Company," "Election of Directors" and
"Executive Compensation and Other Matters" contained in the definitive Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on May 12,
1999, is incorporated herein by reference.
20
<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the heading "Executive Compensation and
Other Matters" contained in the definitive Proxy Statement for the Company's
Annual Meeting of Shareholders to be held on May 12, 1999, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the heading "Outstanding Capital Stock and
Stock Ownership of Directors, Certain Executive Officers and Principal
Shareholders" contained in the definitive Proxy Statement for the Company's
Annual Meeting of Shareholders to be held on May 12, 1999, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the heading "Certain Transactions"
contained in the definitive Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on May 12, 1999, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements listed in the Index to Financial Statements
included in the Table of Contents are filed as part of this report.
(2) The financial schedules required by Regulation S-X are either not
applicable or are included in the information provided in the Notes to
Consolidated Financial Statements, which are filed as part of this
report.
(3) Exhibits
Exhibits marked with an asterisk (*) are incorporated by reference to
documents previously filed by the Company with the Securities and
Exchange Commission, as indicated. Exhibits marked with a tilde (~) are
management contracts or compensatory plan contracts or arrangements
filed pursuant to Item 601 (b)(10)(iii)(A) of Regulation S-K. All other
documents are filed with this report.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1 * Amended and Restated Agreement and Plan of Merger, dated as
of September 26, 1996 (Appendix A of the Joint Proxy
Statement/Prospectus of Belo and Providence Journal Company
included in Belo's Registration Statement on Form S-4
(Registration No. 333-19337) filed with the Commission on
January 8, 1997)
3.1 * Certificate of Incorporation of the Company (Exhibit 3.1 to
the Company's Amended Annual Report on Form 10-K/A dated
April 8, 1996 (the "1995 Form 10-K/A"))
3.2 * Certificate of Correction to Certificate of Incorporation
dated May 13, 1987 (Exhibit 3.2 to the 1995 Form 10-K/A)
3.3 * Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company dated April 16, 1987
(Exhibit 3.3 to the 1995 Form 10-K/A)
3.4 * Certificate of Amendment of Certificate of Incorporation of
the Company dated May 4, 1988 (Exhibit 3.4 to the 1995 Form
10-K/A)
</TABLE>
21
<PAGE> 24
EXHIBIT
NUMBER DESCRIPTION
3.5 * Certificate of Amendment of Certificate of Incorporation of the
Company dated May 3, 1995 (Exhibit 3.5 to the Company's Annual
Report on Form 10-K dated February 28, 1996 (the "1995 Form
10-K"))
3.6 * Certificate of Amendment of Certificate of Incorporation of the
Company dated May 15, 1998 (Exhibit 3.6 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1998 (the "2nd Quarter 1998 Form 10-Q"))
3.7 * Amended Certificate of Designation of Series A Junior
Participating Preferred Stock of the Company dated May 4, 1988
(Exhibit 3.6 to the 1995 Form 10-K/A)
3.8 * Certificate of Designation of Series B Common Stock of the
Company dated May 4, 1988 (Exhibit 3.7 to the 1995 Form 10-K/A)
3.9 * Amended and Restated Bylaws of the Company, effective September
18, 1998 (Exhibit 3.9 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998)
4.1 Certain rights of the holders of the Company's Common Stock are
set forth in Exhibits 3.1-3.9 above.
4.2 * Specimen Form of Certificate representing shares of the
Company's Series A Common Stock (Exhibit 4.2 to the Company's
Annual Report on Form 10-K dated March 18, 1998 (the "1997 Form
10-K"))
4.3 * Specimen Form of Certificate representing shares of the
Company's Series B Common Stock (Exhibit 4.3 to the 1997 Form
10-K)
4.4 * Amended and Restated Form of Rights Agreement as of February
28, 1996 between the Company and Chemical Mellon Shareholder
Services, L.L.C., a New York banking corporation (Exhibit 4.4
to the 1995 Form 10-K)
4.5 * Supplement No. 1 to Amended and Restated Rights Agreement
between the Company and The First National Bank of Boston dated
as of November 11, 1996 (Exhibit 4.5 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 1996)
4.6 Instruments defining rights of debt securities:
(1) * Indenture dated as of June 1, 1997 between the Company
and The Chase Manhattan Bank, as Trustee (Exhibit 4.6(1)
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997 (the "2nd Quarter
1997 Form 10-Q"))
(2) * (a) $200 million 6-7/8% Senior Note due 2002 (Exhibit
4.6(2)(a) to the 2nd Quarter 1997 Form 10-Q) * (b) $50
million 6-7/8% Senior Note due 2002 (Exhibit 4.6(2)(b) to
the 2nd Quarter 1997 Form 10-Q)
(3) * (a) $200 million 7-1/8% Senior Note due 2007 (Exhibit
4.6(3)(a) to the 2nd Quarter 1997 Form 10-Q)
* (b) $100 million 7-1/8% Senior Note due 2007 (Exhibit
4.6(3)(b) to the 2nd Quarter 1997 Form 10-Q)
(4) * $200 million 7-3/4% Senior Debenture due 2027 (Exhibit
4.6(4) to the 2nd Quarter 1997 Form 10-Q)
(5) * Officer's Certificate dated June 13, 1997 establishing
terms of debt securities pursuant to Section 3.1 of the
Indenture (Exhibit 4.6(5) to the 2nd Quarter 1997 Form
10-Q)
22
<PAGE> 25
EXHIBIT
NUMBER DESCRIPTION
(6) * (a) $200 million 7-1/4% Senior Debenture due 2027
(Exhibit 4.6(6)(a) to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended September
30, 1997 (the "3rd Quarter 1997 Form 10-Q"))
* (b) $50 million 7-1/4% Senior Debenture due 2027 (Exhibit
4.6(6)(b) to the 3rd Quarter 1997 Form 10-Q)
(7) * Officer's Certificate dated September 26, 1997
establishing terms of debt securities pursuant to Section
3.1 of the Indenture (Exhibit 4.6(7) to the 3rd Quarter
1997 Form 10-Q)
10.1 Contracts relating to television broadcasting:
(1) * Form of Agreement for Affiliation between WFAA-TV in
Dallas, Texas and ABC (Exhibit 10.1(1) to the 1995 Form
10-K/A)
10.2 Financing agreements:
(1) * Amended and Restated Credit Agreement (Five-year
$1,000,000,000 revolving credit and competitive advance
facility dated as of August 29, 1997 among the Company
and The Chase Manhattan Bank, as Administrative Agent and
Competitive Advance Facility Agent, Bank of America
National Trust and Savings Association and Bank of
Tokyo-Mitsubishi, Ltd., as Co-Syndication Agents, and
NationsBank, as Documentation Agent) (Exhibit 10.2(1) to
the 3rd Quarter 1997 Form 10-Q)
10.3 Compensatory plans:
~(1) The A. H. Belo Corporation Employee Savings and
Investment Plan:
* (a) The A. H. Belo Corporation Employee Savings and
Investment Plan Amended and Restated January 1, 1998
(Exhibit 10.3(1)(a) to the 1997 Form 10-K)
(b) First Amendment to A. H. Belo Corporation Employee
Savings and Investment Plan
(c) Second Amendment to A. H. Belo Corporation Employee
Savings and Investment Plan
* (d) Restated Master Trust Agreement between the Company
and Fidelity Management Trust Company, as restated
and dated March 13, 1998 (Exhibit 10.3(1)(b) to the
1997 Form 10-K)
~(2) The A. H. Belo Corporation 1986 Long-Term Incentive Plan:
* (a) The A. H. Belo Corporation 1986 Long-Term Incentive
Plan (Effective May 3, 1989, as amended by Amendments
1, 2, 3, 4, and 5) (Exhibit 10.3(2) to the Company's
Annual Report on Form 10-K dated March 10, 1997 (the
"1996 Form 10-K"))
* (b) Amendment No. 6 to 1986 Long-Term Incentive Plan
(Exhibit 10.3(2)(b) to the 1997 Form 10-K)
* (c) Amendment No. 7 to 1986 Long-Term Incentive Plan
(Exhibit 10.3(9) to the 1995 Form 10-K)
* (d) Amendment No. 8 to 1986 Long-Term Incentive Plan
(Exhibit 10.3(2)(d) to the 2nd Quarter 1998 Form
10-Q)
~(3) * A. H. Belo Corporation 1995 Executive Compensation Plan,
as restated to incorporate amendments through December 4,
1997 (Exhibit 10.3(3) to the 1997 Form 10-K)
* (a) Amendment to 1995 Executive Compensation Plan, dated
July 21, 1998 (Exhibit 10.3 (3)(a) to the 2nd Quarter
1998 Form 10-Q)
~(4) * Management Security Plan (Exhibit 10.3(1) to the 1996
Form 10-K)
23
<PAGE> 26
EXHIBIT
NUMBER DESCRIPTION
~(5) A. H. Belo Corporation Supplemental Executive Retirement
Plan:
* (a) A. H. Belo Corporation Supplemental Executive
Retirement Plan (Exhibit 10.3(27) to the Company's
Annual Report on Form 10-K dated March 18, 1994 (the
"1993 Form 10-K"))
* (b) Trust Agreement dated February 28, 1994, between the
Company and Mellon Bank, N.A. (Exhibit 10.3(28) to
the 1993 Form 10-K)
10.4 Agreement with Officers:
(1) * Separation Agreement between A. H. Belo Corporation and
Michael D. Perry dated June 30, 1998 (Exhibit 10.4 to the
2nd Quarter 1998 Form 10-Q)
12 Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Company
23 Consent of Ernst & Young LLP
27 Financial Data Schedule (filed electronically with the SEC)
(b) Reports on Form 8-K.
During the last quarter covered by this report, there were no reports
on Form 8-K filed.
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
A. H. BELO CORPORATION
By: /s/
-------------------------------------
Robert W. Decherd
Chairman of the Board, President
& Chief Executive Officer
Dated: March 17, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Chairman of the Board, President March 17, 1999
- ------------------------------------ & Chief Executive Officer
Robert W. Decherd
/s/ Vice Chairman of the March 17, 1999
- ------------------------------------ Board and President/
Ward L. Huey, Jr. Broadcast Division
/s/ Director, President/Publishing March 17, 1999
- ------------------------------------ Division and Publisher/
Burl Osborne The Dallas Morning News
/s/ Director March 17, 1999
- ------------------------------------
John W. Bassett, Jr.
/s/ Director March 17, 1999
- ------------------------------------
Henry P. Becton, Jr.
/s/ Director March 17, 1999
- ------------------------------------
Fanchon M. Burnham
/s/ Director March 17, 1999
- ------------------------------------
Judith L. Craven, M.D., M.P.H.
/s/ Director March 17, 1999
- ------------------------------------
Roger A. Enrico
/s/ Director March 17, 1999
- ------------------------------------
Stephen Hamblett
/s/ Director March 17, 1999
- ------------------------------------
Dealey D. Herndon
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Director March 17, 1999
- ------------------------------------
Arturo Madrid, Ph.D.
/s/ Director and Former March 17, 1999
- ------------------------------------ Chairman of the Board
James M. Moroney, Jr.
/s/ Director March 17, 1999
- ------------------------------------
Hugh G. Robinson
/s/ Director March 17, 1999
- ------------------------------------
William T. Solomon
/s/ Director March 17, 1999
- ------------------------------------
Thomas B. Walker, Jr.
/s/ Director March 17, 1999
- ------------------------------------
J. McDonald Williams
/s/ Senior Vice President/ March 17, 1999
- ------------------------------------ Chief Financial Officer
Dunia A. Shive
</TABLE>
26
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
A. H. Belo Corporation
We have audited the accompanying consolidated balance sheets of A. H. Belo
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of A. H. Belo
Corporation and subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Dallas, Texas
January 27, 1999
27
<PAGE> 30
CONSOLIDATED STATEMENTS OF EARNINGS
A. H. BELO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31,
- -----------------------------------------------------------------------------------------------------------
In thousands, except per share amounts 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET OPERATING REVENUES (Note 3)
Broadcasting $ 609,068 $ 536,737 $ 333,396
Newspaper publishing 787,541 694,495 487,560
Other 10,736 17,149 3,352
- -----------------------------------------------------------------------------------------------------------
Total net operating revenues 1,407,345 1,248,381 824,308
- -----------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Salaries, wages and employee benefits (Notes 6 and 7) 455,526 391,726 231,856
Other production, distribution and operating costs (Note 8) 359,224 328,719 215,295
Newsprint, ink and other supplies 173,911 152,141 146,325
Depreciation 84,578 73,089 45,408
Amortization (Note 3) 74,864 61,904 19,775
Non-recurring charges (Note 2) 26,157 -- --
- -----------------------------------------------------------------------------------------------------------
Total operating costs and expenses 1,174,260 1,007,579 658,659
- -----------------------------------------------------------------------------------------------------------
Earnings from operations 233,085 240,802 165,649
- -----------------------------------------------------------------------------------------------------------
OTHER INCOME AND EXPENSE
Interest expense (Note 4) (107,638) (90,778) (27,643)
Other, net (Note 10) 5,013 4,098 6,034
- -----------------------------------------------------------------------------------------------------------
Total other income and expense (102,625) (86,680) (21,609)
- -----------------------------------------------------------------------------------------------------------
EARNINGS
Earnings before income taxes 130,460 154,122 144,040
Income taxes (Note 5) 65,558 71,150 56,535
- -----------------------------------------------------------------------------------------------------------
Net earnings (Note 12) $ 64,902 $ 82,972 $ 87,505
=======================================
Net earnings per share (Notes 9 and 11):
Basic $ .53 $ .72 $ 1.07
Diluted $ .52 $ .71 $ 1.05
Weighted average shares outstanding (Notes 9 and 11):
Basic 123,508 115,692 81,780
Diluted 124,836 117,122 83,004
Dividends per share $ .24 $ .22 $ .21
- -----------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 31
CONSOLIDATED BALANCE SHEETS
A. H. BELO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
ASSETS December 31,
=============================================================================
In thousands 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 19,451 $ 11,852
Accounts receivable (net of allowance of $7,823
and $8,314 in 1998 and 1997, respectively) 211,428 220,297
Inventories 20,308 20,356
Deferred income taxes (Note 5) 11,742 12,626
Other current assets 12,852 11,865
- -----------------------------------------------------------------------------
Total current assets 275,781 276,996
Property, plant and equipment, at cost:
Land 72,904 70,710
Buildings and improvements 266,426 259,594
Broadcast equipment 263,553 222,523
Newspaper publishing equipment (Note 2) 257,732 278,037
Other 132,971 92,222
Advance payments on plant and equipment
expenditures (Note 8) 61,921 30,146
- -----------------------------------------------------------------------------
Total property, plant and equipment 1,055,507 953,232
Less accumulated depreciation 428,754 344,914
- -----------------------------------------------------------------------------
Property, plant and equipment, net 626,753 608,318
Intangible assets, net (Note 3) 2,543,143 2,626,953
Other assets (Note 6) 93,412 110,687
- -----------------------------------------------------------------------------
Total assets $3,539,089 $3,622,954
- -----------------------------------------------------------------------------
</TABLE>
29
<PAGE> 32
CONSOLIDATED BALANCE SHEETS (CONTINUED)
A. H. BELO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
==========================================================================================================
In thousands, except share and per share data 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 56,044 $ 43,818
Accrued compensation and benefits 58,861 69,643
Other accrued expenses 32,485 41,374
Income taxes payable (Note 5) -- 29,355
Advance subscription payments 21,538 18,327
Accrued interest payable 11,820 11,945
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 180,748 214,462
Long-term debt (Note 4) 1,634,029 1,614,045
Deferred income taxes (Note 5) 439,240 435,695
Other liabilities 36,972 32,748
Commitments and contingent liabilities (Note 8)
Shareholders' equity (Notes 7 and 9):
Preferred stock, $1.00 par value. Authorized 5,000,000 shares; none issued
Common stock, $1.67 par value. Authorized 450,000,000 shares
Series A: Issued 100,028,891 and 52,998,586 shares
at December 31, 1998 and 1997, respectively; 167,048 88,508
Series B: Issued 18,896,263 and 9,283,001 shares
at December 31, 1998 and 1997, respectively 31,557 15,503
Additional paid-in capital 879,856 1,015,345
Retained earnings 169,639 203,276
Accumulated other comprehensive income (Note 12) -- 4,144
- ----------------------------------------------------------------------------------------------------------
Total 1,248,100 1,326,776
Less deferred compensation - restricted shares (Note 7) -- 772
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,248,100 1,326,004
- ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $3,539,089 $3,622,954
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE> 33
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
A. H. BELO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
==================================================================================================================
Dollars in thousands
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCK
Accumulated
Additional Other
Shares Shares Paid-in Retained Comprehensive
Series A Series B Amount Capital Earnings Income
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 28,961,753 9,280,179 $ 63,864 $ 97,930 $230,203 --
Exercise of stock options 498,302 2,360 835 9,098
Restricted shares 7
Tax benefit from long-
term incentive plan 3,589
Employer's matching
contribution to Savings
and Investment Plan 89,389 150 3,214
Sale of stock 5,750,000 9,603 188,899
Purchase of treasury stock
Net earnings 87,505
Cash dividends (16,392)
Conversion of Series B
to Series A 194,795 (194,795)
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 35,404,850 9,177,133 $ 74,452 $ 302,737 $301,316 --
Exercise of stock options 416,446 110,239 880 11,046
Stock issued in acquisition
of PJC 25,394,564 42,409 827,990
Restricted shares 672
Tax benefit from long-
term incentive plan 4,560
Employer's matching
contribution to Savings
and Investment Plan 100,055 167 4,005
Unrealized holding gains
on available-for-sale
securities, net of tax 6,505
Reclassification of unrealized
gains subsequently recognized
in net earnings (2,361)
Retirement of treasury stock (8,321,700) (13,897) (135,665) (156,584)
Net earnings 82,972
Cash dividends (24,428)
Conversion of Series B
to Series A 104,426 (104,426)
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 52,998,586 9,283,001 $104,011 $1,015,345 $203,276 $4,144
Exercise of stock options 298,185 169,557 781 8,173
Change in valuation of
incentive plans 392
Restricted shares (18,540) (31) (528)
Tax benefit from long-
term incentive plan 3,900
Employer's matching
contribution to Savings
and Investment Plan 267,824 447 6,912
Reclassification of unrealized
gains subsequently recognized
in net earnings (4,144)
Purchases and subsequent
retirement of treasury stock (6,727,400) (11,235) (49,706) (68,845)
Two-for-one stock split 53,306,307 9,347,634 104,632 (104,632)
Net earnings 64,902
Cash dividends (29,694)
Conversion of Series B
to Series A 171,753 (171,753)
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 100,028,891 18,896,263 $198,605 $ 879,856 $169,639 $ --
<CAPTION>
======================================================================================
Three years ended December 31, 1998
- --------------------------------------------------------------------------------------
TREASURY STOCK
Deferred
Compensation
Shares Restricted
Series A Amount Shares Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 -- $ -- $(3,533) $ 388,464
Exercise of stock options 9,933
Restricted shares 1,657 1,664
Tax benefit from long-
term incentive plan 3,589
Employer's matching
contribution to Savings
and Investment Plan 3,364
Sale of stock 198,502
Purchase of treasury stock (8,321,700) (306,146) (306,146)
Net earnings 87,505
Cash dividends (16,392)
Conversion of Series B
to Series A --
- --------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 (8,321,700) $(306,146) $(1,876) $ 370,483
Exercise of stock options 11,926
Stock issued in acquisition
of PJC 870,399
Restricted shares 1,104 1,776
Tax benefit from long-
term incentive plan 4,560
Employer's matching
contribution to Savings
and Investment Plan 4,172
Unrealized holding gains
on available-for-sale
securities, net of tax 6,505
Reclassification of unrealized
gains subsequently recognized
in net earnings (2,361)
Retirement of treasury stock 8,321,700 306,146 --
Net earnings 82,972
Cash dividends (24,428)
Conversion of Series B
to Series A --
- --------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 -- $ -- $ (772) $1,326,004
Exercise of stock options 8,954
Change in valuation of
incentive plans 392
Restricted shares 772 213
Tax benefit from long-
term incentive plan 3,900
Employer's matching
contribution to Savings
and Investment Plan 7,359
Reclassification of unrealized
gains subsequently recognized
in net earnings (4,144)
Purchases and subsequent
retirement of treasury stock (129,786)
Two-for-one stock split --
Net earnings 64,902
Cash dividends (29,694)
Conversion of Series B
to Series A --
- --------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 -- $ -- $ -- $1,248,100
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
31
<PAGE> 34
CONSOLIDATED STATEMENTS OF CASH FLOWS
A. H. BELO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CASH PROVIDED (USED) Years ended December 31,
========================================================================================================
In thousands 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net earnings $ 64,902 $ 82,972 $ 87,505
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation and amortization 159,442 134,993 65,183
Deferred income taxes 1,705 (4,198) 6,610
Non-cash portion of non-recurring charges (Note 2) 11,764 -- --
Other non-cash expenses (Note 6) 12,303 7,950 5,569
Other, net (2,037) 493 (3,898)
Net change in current assets and liabilities:
Accounts receivable 9,560 (21,244) (11,867)
Inventories and other current assets 575 (3,859) 3,669
Accounts payable 9,026 8,808 (1,003)
Accrued compensation and benefits (10,782) 9,931 5,207
Other accrued liabilities (4,080) 12,735 785
Income taxes payable (17,506) 27,837 6,661
- --------------------------------------------------------------------------------------------------------
Net cash provided by operations 234,872 256,418 164,421
- --------------------------------------------------------------------------------------------------------
INVESTMENTS
Capital expenditures (102,927) (83,317) (49,800)
Acquisitions -- (946,259) (74,091)
Sale of investments 7,995 3,045 3,750
Other, net (4,999) 1,124 (3,788)
- --------------------------------------------------------------------------------------------------------
Net cash used for investments (99,931) (1,025,407) (123,929)
- --------------------------------------------------------------------------------------------------------
FINANCING
Net proceeds from sale of stock -- -- 198,502
Borrowings for acquisitions -- 1,100,545 75,180
Refinancing of Providence Journal debt -- (200,000) --
Net proceeds from fixed-rate debt offerings -- 989,994 --
Net proceeds from (payments on) revolving debt 23,184 (1,111,025) (586)
Payments of dividends on stock (29,694) (24,428) (16,392)
Net proceeds from exercise of stock options 8,954 11,926 9,933
Purchase of treasury stock (129,786) -- (306,146)
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing (127,342) 767,012 (39,509)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
temporary cash investments 7,599 (1,977) 983
- --------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of year 11,852 13,829 12,846
Cash and temporary cash investments at end of year $ 19,451 $ 11,852 $ 13,829
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES (Note 13)
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
A) Principles of Consolidation The consolidated financial statements
include the accounts of A. H. Belo Corporation (the "Company" or
"Belo") and its wholly-owned subsidiaries after the elimination of all
significant intercompany accounts and transactions.
All dollar amounts are in thousands except per share amounts, unless
otherwise indicated. Certain amounts for prior years have been
reclassified to conform to the current year presentation.
B) Cash and Temporary Cash Investments The Company considers all highly
liquid instruments purchased with a remaining maturity of three months
or less to be temporary cash investments. Such temporary cash
investments are classified as available-for-sale and are carried at
fair value.
C) Accounts Receivable Accounts receivable are net of a valuation reserve
that represents an estimate of amounts considered uncollectible.
Expense for such uncollectible amounts, which is included in other
production, distribution and operating costs, was $6,497, $9,273 and
$5,647 in 1998, 1997 and 1996, respectively. Accounts written off
during these years were $6,988, $9,988 and $4,535, respectively.
D) Inventories Inventories, consisting primarily of newsprint, ink and
other supplies used in printing newspapers, are stated at the lower of
average cost or market value.
E) Property, Plant and Equipment Depreciation of property, plant and
equipment is provided principally on a straight-line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------
ESTIMATED
USEFUL LIVES
--------------------------------------------------------------
<S> <C>
Buildings and improvements 5-30 years
Broadcast equipment 5-15 years
Newspaper publishing equipment 5-20 years
Other 3-10 years
--------------------------------------------------------------
</TABLE>
F) Intangible Assets, Net Intangible assets, net consists of excess cost
over values assigned to tangible assets of purchased subsidiaries and
is amortized primarily on a straight-line basis over 40 years.
Accumulated amortization of intangible assets was $292,931 and $218,067
at December 31, 1998 and 1997, respectively. The carrying values of all
intangible assets are periodically reviewed to determine whether
impairment exists, and adjustments to net realizable value are made as
needed. No such adjustments were required in 1998.
G) Other Assets The Company classifies its investments in equity
securities with readily determinable fair values as available-for-sale.
At December 31, 1997, these equity securities were included in Other
assets and reported at fair value, with unrealized gains and losses
excluded from income and reported as a component of shareholders'
equity, net of tax. All available-for-sale securities were either sold
or donated during 1998. See Notes 10 and 12.
H) Stock Options Stock options granted to employees are accounted for
using the intrinsic value of the options granted. Because it is the
Company's policy to grant stock options at the market price on the date
of the grant, the intrinsic value is zero, and therefore no
compensation expense is recorded.
I) Revenue Recognition The Company's primary sources of revenue are the
sale of air time on its television stations, advertising space in
published issues of its newspapers, and the sale of newspapers to
distributors and individual subscribers. Broadcast revenue is recorded,
net of agency commissions, when commercials are aired. Newspaper
advertising revenue is recorded, net of agency commissions, when the
advertisements are published in the newspaper. Proceeds from
subscriptions are deferred and are included in revenue on a pro-rata
basis over the term of the subscriptions.
33
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
J) Advertising Expense The cost of advertising is expensed as incurred.
The Company incurred $25,858, $25,557 and $14,934 in advertising and
promotion costs during 1998, 1997 and 1996, respectively.
K) Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
NOTE 2: NON-RECURRING CHARGES
- --------------------------------------------------------------------------------
Earnings from operations for 1998 include non-recurring charges of $26,157
comprised primarily of an $11,478 non-cash charge for the write-down of a press
at The Dallas Morning News ("TDMN") and separation costs of $14,229 associated
with 189 employees who accepted a voluntary early retirement offer and 31
employees who were terminated under other employee reduction initiatives. The
workforce reduction initiatives were the result of the Company's on-going review
of its operations and organizational structure.
The press write-down followed a decision by TDMN to replace one of its less
productive presses with a new $36 million WIFAG press that offers improved
production capacity and greater flexibility. The write-down of the press
resulted in a remaining estimated salvage value of $2,000, which is included in
Other current assets in the Company's Balance Sheet as of December 31, 1998. The
salvage value is based upon a third-party estimate of current market rates for
used press equipment. The press has been made available for sale through an
independent broker. The press write-down results in lower annual depreciation
expense of approximately $900.
The $14,229 charge for certain employee related costs includes $12,449 of
cash payments made as of December 31, 1998, $946 made in January 1999 and the
remaining $834 to be paid in monthly installments through December 31, 2001,
under contractual arrangements.
The remaining $450 in non-recurring charges was for severance and asset
retirements associated with terminating the operations of the Company's
programming subsidiary, Belo Productions, Inc., effective December 31, 1998.
- --------------------------------------------------------------------------------
NOTE 3: ACQUISITIONS
On February 28, 1997, Belo completed the acquisition of The Providence
Journal Company ("PJC") by issuing 25,394,564 shares of Series A Common Stock
(on a pre-split basis) and paying $587,096 to former shareholders of PJC. Belo
also incurred approximately $100,000 in employee and transaction costs and
refinanced $200,000 of PJC debt. The acquisition was accounted for as a
purchase. The Company's consolidated financial results for the year ended
December 31, 1997 include the operations of PJC since March 1, 1997 and exclude
the results of the Company's interest in America's Health Network ("AHN"), a
cable network acquired as part of the PJC transaction, but subsequently disposed
of effective July 31, 1997. The results of the Television Food Network ("TVFN"),
also acquired as part of the PJC transaction, are excluded effective July 1,
1997, as a result of the Company's decision in June 1997 to divest its interest
in TVFN.
The cost of the PJC acquisition was allocated on the basis of the estimated
fair market value of the assets acquired and liabilities assumed. Goodwill and
intangibles arising from the purchase of PJC are being amortized on a
straight-line basis over 40 years, except for the value assigned to the
newspaper subscriber list, which is being amortized over 18 years.
As a result of the PJC acquisition, the Company initially owned two
television stations in the Seattle/Tacoma, Washington market (KIRO and KING). To
comply with FCC regulations that required the Company to divest one of these
stations, the Company completed an exchange of assets among multiple parties on
June 2, 1997, whereby KIRO was exchanged for CBS affiliate KMOV in St.
Louis, Missouri. No gain was recorded on this exchange of like-kind assets.
On July 25, 1997, the Company completed the acquisition of The
Press-Enterprise Company ("PE"), publisher of a daily newspaper serving
Riverside County and the inland southern California area. The transaction was
accounted for as a purchase. The purchase price allocation was based upon the
estimated fair market value of the net assets acquired. The Company previously
held a 38.45 percent interest in PE.
34
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
On October 15, 1997, Belo exchanged its partnership interest in TVFN and
$75,000 in cash for CBS affiliate KENS in San Antonio, Texas. The transaction
was accounted for as a purchase. The purchase price allocation was based on the
estimated fair market value of the net assets acquired.
The cash portion of each acquisition was financed through the Company's
revolving credit facility, a portion of which was converted to fixed-rate debt
during 1997. See Note 4.
The pro forma financial results of operations that follow assume the PJC,
PE and KENS acquisitions, the KIRO/KMOV exchange and the disposition of TVFN
were completed as of January 1, 1996 and include adjustments for incremental
interest costs, depreciation, amortization and taxes as they relate to the
purchase price allocations of the transactions for the years ended December 31,
1997 and 1996.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------------------------
<S> <C> <C>
Net operating revenues $ 1,360,233 $ 1,274,738
Net earnings from continuing operations(a) $ 83,910 $ 50,730
Net earnings(b) $ 83,910 $ 48,052
Net earnings per share $ .67 $ .36
-----------------------------------------------------------------------------------------
</TABLE>
(a) Net earnings from continuing operations for the year ended
December 31, 1997 include a pre-tax gain of $10,672 on the
sale of an investment. Net earnings from continuing operations
for the year ended December 31, 1996 include pre-tax charges
for PJC stock-based compensation of $12,394 and PJC newspaper
restructuring of $1,791. All periods exclude the effect of AHN
and TVFN.
(b) Net earnings for the year ended December 31, 1996 include an
after-tax charge of $2,678 representing discontinued
operations attributable to PJC's former cable operations.
NOTE 4: LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt consists of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1998 1997
------------------------------------------------------------------------------
<S> <C> <C>
6-7/8% Senior Notes Due June 1, 2002 $ 250,000 $ 250,000
7-1/8% Senior Notes Due June 1, 2007 300,000 300,000
7-3/4% Senior Debentures Due June 1, 2027 200,000 200,000
7-1/4% Senior Debentures Due September 15, 2027 250,000 250,000
------------------------------------------------------------------------------
Fixed-rate debt 1,000,000 1,000,000
Revolving credit agreement, including
short-term unsecured notes classified
as long-term 611,500 588,000
Other 25,839 26,355
Less: current maturities of long-term debt (3,310) (310)
------------------------------------------------------------------------------
Total $ 1,634,029 $ 1,614,045
------------------------------------------------------------------------------
</TABLE>
The Company's long-term debt maturities for the five years following
December 31, 1998 are $3,310 in 1999, $6,956 in 2000, $291 in 2001, $861,782 in
2002 and $200 in 2003. Of the amount due in 2002, $580,000 represents revolving
debt and $31,500 represents short-term unsecured notes, which could be
converted, at the Company's option, to revolving debt.
During 1997, the Company issued $1 billion in fixed-rate debt. The net
proceeds from these debt offerings were used to retire debt previously
outstanding under the Company's revolving credit facility. At December 31, 1998
and 1997, the weighted average effective interest rate on the fixed-rate debt
was 7.3 percent and the fair value exceeded the carrying value by $35,965 and
$24,515, respectively. The fair value was estimated using quoted market prices
for those instruments publicly traded.
At the end of 1998, the Company had a revolving credit facility for $1
billion. Loans under the revolving credit agreement bear interest at a rate
based, at the option of the Company, on the bank's alternate base rate,
certificate of deposit rate, LIBOR or competitive bid. The rate obtained through
competitive bid is either a Eurodollar rate or a rate agreed to by the Company
and the bank. At December 31, 1998 and 1997, the weighted average interest rates
35
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
for borrowings under the revolving credit agreement, which includes a facility
fee of up to 0.15 percent on the total commitment, were 5.7 percent and 6.1
percent, respectively. Borrowings under the agreement mature upon expiration of
the agreement on August 29, 2002, with one year extensions possible through
August 29, 2004, at the request of the Company and with the consent of the
participating banks. The carrying value of borrowings under the Company's
revolving credit agreement approximates fair value.
The revolving credit agreement contains certain covenants, including a
requirement to maintain, as of the end of each quarter and measured over the
preceding four quarters, (1) a Funded Debt to Pro Forma Operating Cash Flow
ratio not exceeding 5.5 to 1.0, (2) a Funded Debt (excluding subordinated debt)
to Pro Forma Operating Cash Flow ratio not exceeding 5.0 to 1.0, and (3) an
Interest Coverage ratio of not less than 2.5 to 1.0, all as such terms are
defined in the agreement. At December 31, 1998, the Company was in compliance
with these requirements.
During 1998, the Company used various short-term unsecured notes as an
additional source of financing. The weighted average interest rate on this debt
was 5.9 percent and 6.5 percent at December 31, 1998 and 1997, respectively. Due
to the Company's intent to renew the short-term notes and its continued ability
to refinance these borrowings on a long-term basis through its revolving credit
agreement, $31,500 and $18,000 of short-term notes outstanding at December 31,
1998 and 1997, respectively, have been classified as long-term.
In 1998, 1997 and 1996, the Company incurred interest costs of $109,318,
$91,288 and $27,898, respectively, of which $1,680, $510 and $255, respectively,
were capitalized as components of construction cost.
At December 31, 1998, the Company had outstanding letters of credit of
$32,347 issued in the ordinary course of business.
NOTE 5: INCOME TAXES
- --------------------------------------------------------------------------------
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Income tax expense for the years ended December 31, 1998, 1997 and 1996
consists of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 53,812 $ 56,792 $ 42,298
State 10,041 18,556 7,627
- ------------------------------------------------------------------------------
Total current 63,853 75,348 49,925
Deferred
Federal (2,200) 1,587 6,765
State 3,905 (5,785) (155)
- ------------------------------------------------------------------------------
Total deferred 1,705 (4,198) 6,610
Total tax expense $ 65,558 $ 71,150 $ 56,535
- ------------------------------------------------------------------------------
Effective tax rate 50.3% 46.2% 39.2%
- ------------------------------------------------------------------------------
</TABLE>
The variation in both current and deferred state income taxes between 1997
and 1998 is due to the recognition of a gain in 1997 on the disposition of TVFN,
a cable network acquired in connection with PJC and subsequently exchanged for
KENS. See Note 3.
Income tax provisions for the years ended December 31, 1998, 1997 and 1996
differ from amounts computed by applying the applicable U.S. federal income tax
rate as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected income tax expense $ 45,661 $ 53,943 $ 50,414
Amortization of excess cost 11,533 9,645 2,235
State income taxes 9,065 8,301 4,857
Other (701) (739) (971)
- --------------------------------------------------------------------------
$ 65,558 $ 71,150 $ 56,535
- --------------------------------------------------------------------------
</TABLE>
36
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Excess tax depreciation and amortization $458,022 $442,949
Basis differences in investments 20,986 22,769
Deferred compensation -- 10,600
Expenses deductible for tax purposes in a year
different from the year accrued 2,584 4,431
Other 4,277 1,328
- -----------------------------------------------------------------------------
Total deferred tax liabilities 485,869 482,077
- -----------------------------------------------------------------------------
Deferred tax assets:
Deferred compensation 10,176 11,198
State net operating losses 6,938 8,004
State taxes 6,602 6,179
Expenses deductible for tax purposes in a year
different from the year accrued 22,246 21,298
Other 12,409 12,329
- -----------------------------------------------------------------------------
Total deferred tax assets 58,371 59,008
- -----------------------------------------------------------------------------
Net deferred tax liability $427,498 $423,069
- -----------------------------------------------------------------------------
</TABLE>
State net operating loss carryforwards are generally associated with
entities acquired in the PJC acquisition and have expiration dates ranging from
2000 through 2003.
NOTE 6: EMPLOYEE RETIREMENT PLANS
- --------------------------------------------------------------------------------
The Company sponsors a noncontributory defined benefit pension plan
covering the majority of employees. The benefits are based on years of service
and the average of the employee's five consecutive years of highest annual
compensation earned during the most recently completed 10 years of employment.
The funding policy is to contribute annually to the plan an amount at least
equal to the minimum required contribution for a qualified retirement plan, but
not in excess of the maximum tax deductible contribution.
During 1997, the Company acquired PJC, which had a noncontributory defined
benefit pension plan covering substantially all of its employees. Effective
December 31, 1997, the PJC plan was merged into the Company's pension plan. The
following disclosures reflect these combined pension plans at December 31, 1998
and 1997. The following table sets forth the plan's funded status and prepaid
pension costs (included in Other assets on the Consolidated Balance Sheets) at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $(225,337) $(198,500)
Accumulated benefit obligation $(233,963) $(211,052)
Projected benefit obligation $(304,375) $(273,534)
Estimated fair value of plan assets 302,831 274,903
- ------------------------------------------------------------------
Funded status (1,544) 1,369
Unrecognized net loss 12,494 16,593
Unrecognized net transition asset -- (371)
Unrecognized prior service cost 188 (2,114)
- ------------------------------------------------------------------
Prepaid pension cost $ 11,138 $ 15,477
- ------------------------------------------------------------------
</TABLE>
37
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
Changes in plan assets for the years ended December 31, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets at January 1, $ 274,903 $ 108,009
Acquisition of PJC -- 136,083
Actual return on plan assets 39,273 40,678
Benefits paid (11,345) (9,867)
--------- ---------
Fair value of plan assets at December 31, $ 302,831 $ 274,903
========= =========
- -----------------------------------------------------------------------
</TABLE>
Changes in plan benefit obligation for the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Benefit obligation as of January 1, $ 273,534 $ 116,887
Acquisition of PJC -- 130,555
Actuarial losses 11,693 10,553
Service cost 11,089 8,851
Interest cost 19,404 16,555
Benefits paid (11,345) (9,867)
--------- ---------
Benefit obligation as of December 31, $ 304,375 $ 273,534
========= =========
- --------------------------------------------------------------------
</TABLE>
The net periodic pension cost for the years ended December 31, 1998, 1997
and 1996 includes the following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 11,089 $ 8,851 $ 5,462
Interest cost on projected benefit obligation 19,404 16,555 8,290
Expected return on assets (25,875) (21,552) (9,663)
Amortization of:
Net asset (371) (1,233) (1,233)
Unrecognized prior service cost (220) (376) (376)
Unrecognized loss 311 1,723 2,408
- ------------------------------------------------------------------------------------------
Net periodic pension cost $ 4,338 $ 3,968 $ 4,888
- ------------------------------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the defined benefit plan are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate in determining benefit obligation 7.00% 7.25% 7.50%
Discount rate in determining net periodic pension
cost 7.25% 7.50% 7.25%
Expected long-term rate of return on assets 10.25% 10.25% 10.25%
Rate of increase in future compensation 5.50% 5.50% 5.50%
- --------------------------------------------------------------------------------------
</TABLE>
The Company sponsors defined contribution plans that cover substantially
all of its employees. Subject to certain dollar limits, employees may contribute
a percentage of their salaries to these plans, and the Company will match a
portion of the employees' contributions with shares of the Company's Series B
Common Stock. The Company's contributions totaled $7,359, $6,069 and $3,587 in
1998, 1997 and 1996, respectively.
The Company also sponsors non-qualified retirement plans for key employees.
Expense for the plans recognized in 1998, 1997 and 1996 was $1,316, $1,138 and
$1,150, respectively.
38
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
NOTE 7: LONG-TERM INCENTIVE PLAN
- --------------------------------------------------------------------------------
The Company has a long-term incentive plan under which awards may be granted
to employees in the form of incentive stock options, non-qualified stock
options, restricted shares or performance units, the values of which are based
on the long-term performance of the Company. In addition, options may be
accompanied by stock appreciation rights and limited stock appreciation rights.
Rights and limited rights may also be issued without accompanying options.
Cash-based bonus awards are also available under the plan.
The non-qualified options granted to employees under the Company's long-term
incentive plan become exercisable in cumulative installments over periods of
three to seven years and expire after 10 years. Shares of common stock reserved
for grants under the plan were 3,672,024 and 2,697,816 at December 31, 1998 and
1997, respectively.
Stock-based activity in the long-term incentive plan relates to
non-qualified stock options and is summarized in the following table. Amounts
shown in this table have not been retroactively restated to reflect the
June 5, 1998 stock split:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number of Average Number of Average Number of Average
Options Price Options Price Options Price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 4,222,341 $ 34.31 3,819,938 $ 28.43 3,097,777 $ 24.16
Two-for-one stock split 3,951,488 $ 17.16 -- -- -- --
Granted 1,882,027 $ 18.16 947,100 $ 51.58 1,237,850 $ 35.63
Exercised (467,742) $ 11.47 (526,685) $ 22.64 (500,662) $ 19.82
Canceled (182,106) $ 19.77 (18,012) $ 35.01 (15,027) $ 28.69
--------- --------- ----------
Outstanding at December 31, 9,406,008 $ 17.78 4,222,341 $ 34.31 3,819,938 $ 28.43
Exercisable at December 31, 5,388,934 2,191,315 1,984,442
- ----------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of
options granted $ 4.76 $ 12.95 $ 9.68
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about non-qualified stock
options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Number of Weighted Average Weighted Average Number of Weighted Average
Range of Options Remaining Exercise Options Exercise
Exercise Prices Outstanding Life (years) Price Exercisable Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 6-$11 863,784 (a) 3.1 $ 8.88 863,784 $ 8.88
$12-$15 1,544,548 (a) 5.0 $12.97 1,544,548 $12.97
$17-$19 5,212,362 (b) 8.2 $17.75 2,225,902 $17.74
$22-$27 1,785,314 (b) 8.8 $26.36 754,700 $26.38
---------- ---------
$ 6-$27 9,406,008 7.3 $17.78 5,388,934 $16.16
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) Comprised of Series A Shares
(b) Comprised of Series B Shares
Pro forma information regarding net earnings and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method of Statement of Financial Accounting Standards ("SFAS")
No. 123. The fair value for those options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 1998 and 1997, respectively: risk-free interest rates of 4.62
percent and 5.56 percent, dividend yields of 1.33 percent and .91 percent,
volatility factors of the expected market price of the Company's common stock of
.243 and .228, and weighted average expected lives of the options of
approximately 5 years and 4 years.
39
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. Because
options vest over a period of several years and additional awards are generally
made each year, the full effect of applying SFAS No. 123 for providing pro forma
disclosure is first evident in 1998 upon the completion of one full vesting
cycle. The pro forma information presented below is not necessarily indicative
of the effects on reported or pro forma net earnings for future years. The
Company's pro forma information for the three years ended December 31, 1998
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net earnings $ 59,036 $ 79,562 $ 85,731
Pro forma net earnings per share $ .48 $ .68 $ 1.04
- -------------------------------------------------------------------------------------
</TABLE>
The Company's long-term incentive plan also provides for the grant of
restricted shares of Series A Common Stock. These restricted shares generally
vest over a four year period and contain certain performance requirements for a
portion of the shares. Restricted stock activity for the three years ended
December 31, 1998 is summarized in the following table. Amounts shown in this
table have not been retroactively restated to reflect the June 5, 1998 stock
split.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
Price Price Price
Shares Per Share Shares Per Share Shares Per Share
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 85,392 $27-$56 212,309 $15-$35 279,096 $15-$35
Two-for-one stock split 84,332 $13-$28 -- -- -- --
Vested (152,246) $13-$28 (126,917) $15-$56 (66,787) $20-$35
Forfeited (17,478) $13-$28 -- -- -- --
------- ------- -------- ------- ------- -------
Outstanding at December 31, -- -- 85,392 $27-$56 212,309 $15-$35
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
A provision for restricted shares is made ratably over the restriction
period. Expense recognized under the plan for restricted shares was $167, $1,776
and $1,664 in 1998, 1997 and 1996, respectively.
NOTE 8: COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------
The Company is involved in certain claims and litigation related to its
operations. In the opinion of management, liabilities, if any, arising from
these claims and litigation would not have a material adverse effect on the
consolidated financial position, liquidity or results of operations of the
Company.
Commitments for the purchase of broadcast film contract rights totaled
approximately $236,519, at December 31, 1998 for broadcasts scheduled through
August 2005.
Advance payments on plant and equipment expenditures at December 31, 1998
primarily relate to newspaper production equipment, DTV equipment and
construction projects. Required future payments for capital expenditures for
1999, 2000, 2001 and 2002 are $31,810, $24,430, $2,251 and $630, respectively.
Required future payments for 1999 include $15.7 million toward the purchase of
the new press at TDMN. An additional $19.7 million for this press is included in
required future payments for 2000. Required future payments for 1999 also
include $8.7 million for DTV equipment at seven of the Company's television
stations.
40
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
Total lease expense for property and equipment was $8,293, $8,342 and
$3,333 in 1998, 1997 and 1996, respectively. Future minimum rental payments for
operating leases at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------
Operating
Leases
- -------------------------------------------
<S> <C>
1999 $ 8,237
2000 6,848
2001 4,565
2002 3,257
2003 1,229
2004 & beyond 2,951
- -------------------------------------------
Total commitments $27,087
- -------------------------------------------
</TABLE>
NOTE 9: COMMON AND PREFERRED STOCK
- --------------------------------------------------------------------------------
The Company has two series of common stock authorized, issued and
outstanding, Series A and Series B. The shares are identical except that Series
B shares are entitled to 10 votes per share on all matters submitted to a vote
of shareholders, while the Series A shares are entitled to one vote per share.
Transferability of the Series B shares is limited to family members and
affiliated entities of the holder. Series B shares are convertible at any time
on a one-for-one basis into Series A shares.
Each outstanding share of common stock is accompanied by one preferred
share purchase right, which entitles shareholders to purchase 1/200 of a share
of Series A Junior Participating Preferred Stock. The rights will not be
exercisable until a party either acquires beneficial ownership of 30 percent of
the Company's common stock or makes a tender offer for at least 30 percent of
its common stock. At such time, each holder of a right (other than the acquiring
person or group) will have the right to purchase common stock of the Company
with a value equal to two times the exercise price of the right, which is
initially $75 (subject to adjustment). In addition, if the Company is acquired
in a merger or business combination, each right can be used to purchase the
common stock of the surviving company having a market value of twice the
exercise price of each right. Once a person or group has acquired 30 percent of
the common stock but before 50 percent of the voting power of the common stock
has been acquired, the Company may exchange each right (other than those held by
the acquiring person or group) for one share of Company common stock (subject to
adjustment). The Company may reduce the 30 percent threshold or may redeem the
rights. The number of shares of Series A Junior Participating Preferred Stock
reserved for possible conversion of these rights is equivalent to 1/200 of the
number of shares of common stock issued and outstanding plus the number of
shares reserved for options outstanding and for grant under the 1995 Executive
Compensation Plan and for options outstanding under the Company's predecessor
plan. The rights will expire in 2006, unless extended.
On June 5, 1998, the Company completed a two-for-one stock split in the
form of a dividend, issuing one additional share of Series A and Series B Common
Stock for each corresponding share outstanding as of the May 22, 1998 record
date. The effect of the stock split was to double the number of shares
outstanding and reduce per share amounts by one-half. All earnings and dividends
per share, weighted average shares outstanding and share trading prices in this
report have been restated to reflect the stock split.
Prior to the split, the Company's shareholders approved a proposal to amend
the Company's Certificate of Incorporation to increase the total number of
authorized shares of common stock from 150,000,000 to 450,000,000 shares.
As discussed in Note 3, on February 28, 1997, in connection with the
acquisition of PJC, the Company issued 25,394,564 shares of Series A Common
Stock, on a pre-split basis.
The Company has in place a stock repurchase program authorizing the
purchase of up to $2,500 of Company stock annually and, as of December 31, 1998,
the Company has authority to purchase an additional 3,946,344 shares. During
1998, the Company purchased 6,727,400 shares of its Series A Common Stock at an
aggregate cost of $129,786. These shares were retired effective December 31,
1998. No shares of stock were purchased during 1997.
41
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
NOTE 10: OTHER INCOME AND EXPENSE
- --------------------------------------------------------------------------------
In 1998, the Company sold 982,000 shares of Peapod, Inc. ("Peapod") common
stock and donated 827,113 shares of Peapod common stock to The A. H. Belo
Corporation Foundation. These transactions increased 1998 net earnings by $2,042
as the $6,244 charge for the charitable contribution was more than offset by the
net gain on the disposition of shares and the tax benefit from the charitable
contribution.
In 1997, the Company sold 220,000 shares of Gemstar International Group
Limited ("Gemstar") common stock and donated 208,440 shares of Gemstar common
stock to The A. H. Belo Corporation Foundation. These transactions did not have
an effect on 1997 net earnings as the $4,560 charge for the charitable
contribution was offset by a net gain on the disposition of the shares and the
tax benefit from the charitable contribution.
NOTE 11: EARNINGS PER SHARE
- --------------------------------------------------------------------------------
The following table sets forth the reconciliation between weighted average
shares used for calculating basic and diluted earnings per share for the three
years ended December 31, 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average shares for basic earnings per share 123,508 115,692 81,780
Effect of employee stock options 1,328 1,430 1,224
------- ------- ------
Weighted average shares for diluted earnings per share 124,836 117,122 83,004
Options excluded due to exercise price in excess of
average market price
Number outstanding 1,765 1,728 110
Exercise price $ 26.41 $ 26.38 $19.25
- -----------------------------------------------------------------------------------------
</TABLE>
NOTE 12: COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes reporting requirements for
comprehensive income and its components, but has no effect on the Company's net
earnings or total shareholders' equity. SFAS No. 130, among other things,
requires unrealized gains and losses related to available-for-sale securities to
be included in other comprehensive income. Previously, these amounts were
reported as adjustments to retained earnings. For the years ended December 31,
1998, 1997 and 1996, total comprehensive income was comprised as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 64,902 $ 82,972 $87,505
Unrealized holding gains,
net of taxes of $596 in
1998 and $3,503 in
1997 1,107 6,505 --
Less reclassification for
gains included in Net
earnings, net of taxes
of $2,827 in 1998 and
$1,271 in 1997 (5,251) (2,361) --
-------- -------- -------
Accumulated other
comprehensive income (loss) (4,144) 4,144 --
-------- -------- -------
Total comprehensive income $ 60,758 $ 87,116 $87,505
======== ======== =======
- -----------------------------------------------------------------------------
</TABLE>
42
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
NOTE 13: SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------------------------------------------
Supplemental cash flow information and significant non-cash investing and
financing activities for the three years ended December 31, 1998, are as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental cash flow information
Cash paid during the period for:
Interest, net of amounts capitalized $107,763 $ 81,676 $27,201
Income taxes, net of refunds $ 84,407 $ 54,436 $43,344
Supplemental non-cash investing and financing
activities:
Stock issued for PJC acquisition $ -- $870,399 $ --
KIRO/KMOV asset exchange $ -- $152,000 $ --
Non-cash consideration for KENS $ -- $125,000 $ --
- ----------------------------------------------------------------------------------------------
</TABLE>
NOTE 14: INDUSTRY SEGMENT INFORMATION
- --------------------------------------------------------------------------------
The Company operates in two primary industries: television broadcasting and
newspaper publishing. Operations in the broadcast industry involve the sale of
air time for advertising and the broadcast of news, entertainment and other
programming. The Company's television stations are located in Dallas, Houston
and San Antonio, Texas; Seattle and Spokane, Washington; Sacramento, California;
St. Louis, Missouri; Portland, Oregon; Charlotte, North Carolina; Norfolk,
Virginia; New Orleans, Louisiana; Louisville, Kentucky; Albuquerque, New Mexico;
Tulsa, Oklahoma; Honolulu, Hawaii; Tucson, Arizona; and Boise, Idaho. Operations
in the newspaper publishing industry involve the sale of advertising space in
published issues, the sale of newspapers to distributors and individual
subscribers and commercial printing. The Company's major publishing units are
The Dallas Morning News, located in Dallas, Texas; The Providence Journal,
located in Providence, Rhode Island; and The Press-Enterprise, located in
Riverside, California. The Company has other newspaper operations in Owensboro
and Henderson, Kentucky and Bryan-College Station, Texas. The Company's other
industry segment is comprised primarily of cable news operations, which are
located in Seattle, Washington and Dallas, Texas.
43
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
Selected segment data for the years ended December 31, 1998, 1997 and 1996
is as follows. Certain operations have been reclassified to reflect new
requirements for reporting under SFAS No. 131:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997(a) 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating revenues
Broadcasting (b) $ 609,068 $ 536,737 $ 333,396
Newspaper publishing (c) 787,541 694,495 487,560
Other 10,736 17,149 3,352
- --------------------------------------------------------------------------------
$ 1,407,345 $ 1,248,381 $ 824,308
- --------------------------------------------------------------------------------
Earnings from operations
Broadcasting (b)(e) $ 138,679 $ 132,237 $ 83,862
Newspaper publishing (c)(f) 140,584 157,506 102,873
Other (d) (5,212) (9,237) (1,065)
Corporate expenses (40,966) (39,704) (20,021)
- --------------------------------------------------------------------------------
$ 233,085 $ 240,802 $ 165,649
- --------------------------------------------------------------------------------
Depreciation and amortization
Broadcasting (b) $ 100,066 $ 84,417 $ 38,975
Newspaper publishing (c)(g) 67,079 47,392 25,072
Other 1,030 1,565 200
Corporate 2,745 1,619 936
- --------------------------------------------------------------------------------
$ 170,920 $ 134,993 $ 65,183
- --------------------------------------------------------------------------------
Operating cash flow (h)
Broadcasting $ 238,745 $ 216,654 $ 122,837
Newspaper publishing 207,663 204,898 127,945
Other (4,182) (7,672) (865)
Corporate (38,221) (38,085) (19,085)
- --------------------------------------------------------------------------------
$ 404,005 $ 375,795 $ 230,832
- --------------------------------------------------------------------------------
Identifiable assets
Broadcasting $ 2,502,839 $ 2,544,323 $ 709,884
Newspaper publishing 870,675 919,379 372,958
Other 23,922 3,412 6,118
Corporate 141,653 155,840 135,112
- --------------------------------------------------------------------------------
$ 3,539,089 $ 3,622,954 $ 1,224,072
- --------------------------------------------------------------------------------
Capital expenditures
Broadcasting $ 55,035 $ 48,176 $ 22,814
Newspaper publishing 25,847 23,224 18,268
Other (d) 16,898 1,787 1,338
Corporate 5,147 10,130 7,380
- --------------------------------------------------------------------------------
$ 102,927 $ 83,317 $ 49,800
- --------------------------------------------------------------------------------
</TABLE>
(a) Segment results for 1997 include 10 months of operations of PJC, which Belo
acquired on February 28, 1997. See Note 3. PJC operations include nine
television stations, a daily newspaper, a cable news operation and a cable
network. The cable network was subsequently disposed of and its operations
are excluded effective July 1, 1997.
(b) In 1997, the broadcasting segment also includes two-and-one-half months of
operations of KENS, which Belo acquired on October 15, 1997. See Note 3.
(c) In 1997, the newspaper publishing segment includes five months of
operations of PE, due to Belo increasing its ownership interest from 38
percent to 100 percent on July 25, 1997. See Note 3.
(d) In 1998, operations include start-up costs for TXCN, the Company's regional
cable news channel in Dallas, Texas, which began broadcasting January 1,
1999.
(e) Broadcasting earnings from operations for 1998 include a $6,996 charge for
early retirement costs and other employee reduction initiatives.
(f) Newspaper publishing earnings from operations for 1998 include a non-cash
charge for the write-down of a press at TDMN of $11,478 and a charge of
$6,344 for certain early retirement costs.
(g) Newspaper publishing depreciation and amortization expense for 1998
includes the $11,478 non-cash charge for the write-down of a press at TDMN.
(h) Operating cash flow is defined as segment earnings from operations plus
depreciation and amortization. Operating cash flow is used in the
broadcasting and publishing industries to analyze and compare companies on
the basis of operating performance, leverage and liquidity.
44
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
NOTE 15: QUARTERLY RESULTS OF OPERATIONS (unaudited)
- --------------------------------------------------------------------------------
Following is a summary of the unaudited quarterly results of operations for
the years ended December 31, 1998 and 1997. Certain previously reported data has
been reclassified to reflect new requirements under segment reporting standards:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net operating revenues
Broadcasting $ 136,708 $ 163,142 $ 137,885 $ 171,333
Newspaper publishing 190,369 200,790 192,276 204,106
Other 2,383 2,338 2,457 3,558
- --------------------------------------------------------------------------------------------
$ 329,460 $ 366,270 $ 332,618 $ 378,997
- --------------------------------------------------------------------------------------------
Earnings from operations
Broadcasting $ 23,642 $ 47,991 $ 24,732 $ 42,314(a)
Newspaper publishing 39,186 44,043 35,379 21,976(b)
Other (1,097) (763) (1,116) (2,236)
Corporate expenses (10,138) (8,682) (11,229) (10,917)
- --------------------------------------------------------------------------------------------
$ 51,593 $ 82,589 $ 47,766 $ 51,137
- --------------------------------------------------------------------------------------------
Net earnings $ 13,635 $ 29,823 $ 9,707 $ 11,737
- --------------------------------------------------------------------------------------------
Basic earnings per share $ .11 $ .24 $ .08 $ .10
Diluted earnings per share $ .11 $ .24 $ .08 $ .10
- --------------------------------------------------------------------------------------------
1997
Net operating revenues
Broadcasting (c) $ 92,002 $ 152,194 $ 132,957 $ 159,584
Newspaper publishing (d) 137,255 171,651 183,103 202,486
Other (e) 3,445 7,972 2,996 2,736
- --------------------------------------------------------------------------------------------
$ 232,702 $ 331,817 $ 319,056 $ 364,806
- --------------------------------------------------------------------------------------------
Earnings from operations
Broadcasting (c) $ 16,869 $ 44,849 $ 26,063 $ 44,456
Newspaper publishing (d) 38,679 40,500 36,932 41,395
Other (e) (1,336) (5,430) (1,162) (1,309)
Corporate expenses (6,761) (9,205) (9,725) (14,013)
- --------------------------------------------------------------------------------------------
$ 47,451 $ 70,714 $ 52,108 $ 70,529
- --------------------------------------------------------------------------------------------
Net earnings $ 17,627 $ 26,313 $ 14,958 $ 24,074
- --------------------------------------------------------------------------------------------
Basic earnings per share $ .19 $ .21 $ .12 $ .19
Diluted earnings per share $ .19 $ .21 $ .12 $ .19
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Broadcasting earnings from operations in fourth quarter 1998 include a
$6,996 charge for early retirement costs and other employee reduction
initiatives.
(b) Newspaper publishing earnings from operations in fourth quarter 1998
include a non-cash charge for the write-down of a press at TDMN of $11,478
and a charge of $6,344 for certain early retirement costs.
(c) Broadcasting results include the operations of nine new television stations
beginning in March 1997, and KENS beginning in October 1997. See Note 3.
(d) Publishing results include the operations of The Providence Journal
beginning in March 1997, and The Press-Enterprise beginning in August 1997.
See Note 3.
(e) Results for TVFN are included from March through June 1997. See Note 3.
45
<PAGE> 48
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Management of A. H. Belo Corporation is responsible for the preparation of
the Company's consolidated financial statements, as well as for their integrity
and objectivity. Those statements are prepared using generally accepted
accounting principles, they include amounts that are based on our best estimates
and judgments, and we believe they are not misstated due to material fraud or
error. Management has also prepared the other information in the Annual Report
and is responsible for its accuracy and its consistency with the financial
statements.
Management maintains a system of internal control that is designed to provide
reasonable assurance of the integrity and reliability of the financial
statements, the protection of assets from unauthorized use or disposition, and
the prevention and detection of fraudulent financial reporting. This system of
internal control provides for appropriate division of responsibility. Policies
and procedures, as they relate to internal control, are updated as necessary and
communicated to those employees having a significant role in the financial
reporting process. Management continually monitors the system of internal
control for compliance.
Management believes that as of December 31, 1998, the Company's system of
internal control is adequate to accomplish the objectives described above.
Management recognizes, however, that no system of internal control can ensure
the elimination of all errors and irregularities, and it recognizes that the
cost of the internal controls should not exceed the value of the benefits
derived.
Finally, Management recognizes its responsibility for fostering a strong ethical
climate within the Company according to the highest standards of personal and
professional conduct, and this responsibility is delineated in the Company's
written statement of business conduct. This statement of business conduct
addresses, among other things, the necessity for due diligence and integrity,
avoidance of potential conflicts of interest, compliance with all applicable
laws and regulations, and the confidentiality of proprietary information.
/s/
Robert W. Decherd
Chairman of the Board, President & Chief Executive Officer
/s/
Dunia A. Shive
Senior Vice President/Chief Financial Officer
46
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- ----------
<S> <C> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of September
26, 1996 (Appendix A of the Joint Proxy Statement/Prospectus of Belo and
Providence Journal Company included in Belo's Registration Statement on
Form S-4 (Registration No. 333-19337) filed with the Commission on January
8, 1997) N/A
3.1 Certificate of Incorporation of the Company (Exhibit 3.1 to the Company's
Amended Annual Report on Form 10-K/A dated April 8, 1996 (the "1995 Form
10-K/A")) N/A
3.2 Certificate of Correction to Certificate of Incorporation dated May 13,
1987 (Exhibit 3.2 to the 1995 Form 10-K/A) N/A
3.3 Certificate of Designation of Series A Junior Participating Preferred Stock
of the Company dated April 16, 1987 (Exhibit 3.3 to the 1995 Form 10-K/A)
N/A
3.4 Certificate of Amendment of Certificate of Incorporation of the Company
dated May 4, 1988 (Exhibit 3.4 to the 1995 Form 10-K/A) N/A
3.5 Certificate of Amendment of Certificate of Incorporation of the Company
dated May 3, 1995 (Exhibit 3.5 to the Company's Annual Report on Form 10-K
dated February 28, 1996 (the "1995 Form 10-K")) N/A
3.6 Certificate of Amendment of Certificate of Incorporation of the Company
dated May 15, 1998 (Exhibit 3.6 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998 (the "2nd Quarter 1998
Form 10-Q")) N/A
3.7 Amended Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company dated May 4, 1988 (Exhibit 3.6 to the 1995
Form 10-K/A) N/A
3.8 Certificate of Designation of Series B Common Stock of the Company dated
May 4, 1988 (Exhibit 3.7 to the 1995 Form 10-K/A) N/A
3.9 Amended and Restated Bylaws of the Company, effective September 18, 1998
(Exhibit 3.9 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998) N/A
4.1 Certain rights of the holders of the Company's Common Stock are set forth
in Exhibits 3.1- 3.9 above.
4.2 Specimen Form of Certificate representing shares of the Company's Series A
Common Stock (Exhibit 4.2 to the Company's Annual Report on Form 10-K dated
March 18, 1998 (the "1997 Form 10-K")) N/A
4.3 Specimen Form of Certificate representing shares of the Company's Series B
Common Stock (Exhibit 4.3 to the 1997 Form 10-K) N/A
4.4 Amended and Restated Form of Rights Agreement as of February 28, 1996
between the Company and Chemical Mellon Shareholder Services, L.L.C., a New
York banking corporation (Exhibit 4.4 to the 1995 Form 10-K) N/A
</TABLE>
<PAGE> 50
<TABLE>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- ----------
<S> <C> <C>
4.5 Supplement No. 1 to Amended and Restated Rights Agreement between the
Company and The First National Bank of Boston dated as of November 11, 1996
(Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996) N/A
4.6 Instruments defining rights of debt securities:
(1) Indenture dated as of June 1, 1997 between the Company and The Chase
Manhattan Bank, as Trustee (Exhibit 4.6(1) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1997 (the
"2nd Quarter 1997 Form 10-Q")) N/A
(2) (a) $200 million 6-7/8% Senior Note due 2002 (Exhibit 4.6(2)(a) to the
2nd Quarter 1997 Form 10-Q) N/A
(b) $50 million 6-7/8% Senior Note due 2002 (Exhibit 4.6(2)(b) to the
2nd Quarter 1997 Form 10-Q) N/A
(3) (a) $200 million 7-1/8% Senior Note due 2007 (Exhibit 4.6(3)(a) to the
2nd Quarter 1997 Form 10-Q) N/A
(b) $100 million 7-1/8% Senior Note due 2007 (Exhibit 4.6(3)(b) to the
2nd Quarter 1997 Form 10-Q) N/A
(4) $200 million 7-3/4% Senior Debenture due 2027 (Exhibit 4.6(4) to the
2nd Quarter 1997 Form 10-Q) N/A
(5) Officer's Certificate dated June 13, 1997 establishing terms of debt
securities pursuant to Section 3.1 of the Indenture (Exhibit 4.6(5) to
the 2nd Quarter 1997 Form 10-Q) N/A
(6) (a) $200 million 7-1/4% Senior Debenture due 2027 (Exhibit 4.6(6)(a)
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1997 (the "3rd Quarter 1997
Form 10-Q")) N/A
(b) $50 million 7-1/4% Senior Debenture due 2027 (Exhibit 4.6(6)(b)
to the 3rd Quarter 1997 Form 10-Q) N/A
(7) Officer's Certificate dated September 26, 1997 establishing terms of
debt securities pursuant to Section 3.1 of the Indenture (Exhibit
4.6(7) to the 3rd Quarter 1997 Form 10-Q) N/A
10.1 Contracts relating to television broadcasting:
(1) Form of Agreement for Affiliation between WFAA-TV in Dallas, Texas and
ABC (Exhibit 10.1(1) to the 1995 Form 10-K/A) N/A
10.2 Financing agreements:
(1) Amended and Restated Credit Agreement (Five-year $1,000,000,000
revolving credit and competitive advance facility dated as of August
29, 1997 among the Company and The Chase Manhattan Bank, as
Administrative Agent and Competitive Advance Facility Agent, Bank of
America National Trust and Savings Association and Bank of
Tokyo-Mitsubishi, Ltd., as Co-Syndication Agents, and NationsBank, as
Documentation Agent) (Exhibit 10.2(1) to the 3rd Quarter 1997 Form
10-Q) N/A
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C>
10.3 Compensatory plans:
(1) The A. H. Belo Corporation Employee Savings and Investment Plan:
(a) The A. H. Belo Corporation Employee Savings and Investment Plan
Amended and Restated January 1, 1998 (Exhibit 10.3(1)(a) to the
1997 Form 10-K) N/A
(b) First Amendment to A. H. Belo Corporation Employee Savings and
Investment Plan ---
(c) Second Amendment to A. H. Belo Corporation Employee Savings and
Investment Plan ---
(d) Restated Master Trust Agreement between the Company and Fidelity
Management Trust Company, as restated and dated March 13, 1998
(Exhibit 10.3(1)(b) to the 1997 Form 10-K) N/A
(2) The A. H. Belo Corporation 1986 Long-Term Incentive Plan:
(a) The A. H. Belo Corporation 1986 Long-Term Incentive Plan (Effective
May 3, 1989, as amended by Amendments 1, 2, 3, 4, and 5) (Exhibit
10.3(2) to the Company's Annual Report on Form 10-K dated March 10,
1997 (the "1996 Form 10-K")) N/A
(b) Amendment No. 6 to 1986 Long-Term Incentive Plan (Exhibit
10.3(2)(b) to the 1997 Form 10-K) N/A
(c) Amendment No. 7 to 1986 Long-Term Incentive Plan (Exhibit 10.3(9)
to the 1995 Form 10-K) N/A
(d) Amendment No. 8 to 1986 Long-Term Incentive Plan (Exhibit
10.3(2)(d) to the 2nd Quarter 1998 Form 10-Q) N/A
(3) A. H. Belo Corporation 1995 Executive Compensation Plan, as restated
to incorporate amendments through December 4, 1997 (Exhibit 10.3(3) to
the 1997 Form 10-K) N/A
(a) Amendment to 1995 Executive Compensation Plan, dated July 21, 1998
(Exhibit 10.3(3)(a) to the 2nd Quarter 1998 Form 10-Q) N/A
(4) Management Security Plan (Exhibit 10.3(1) to the 1996 Form 10-K) N/A
(5) A. H. Belo Corporation Supplemental Executive Retirement Plan:
(a) A. H. Belo Corporation Supplemental Executive Retirement Plan
(Exhibit 10.3(27) to the Company's Annual Report on Form 10-K dated
March 18, 1994 (the "1993 Form 10-K")) N/A
(b) Trust Agreement dated February 28, 1994, between the Company and
Mellon Bank, N.A. (Exhibit 10.3(28) to the 1993 Form 10-K) N/A
10.4 Agreement with Officers:
(1) Separation Agreement between A. H. Belo Corporation and Michael D.
Perry dated June 30, 1998 (Exhibit 10.4 to the 2nd Quarter 1998 Form
10-Q) N/A
12 Ratio of Earnings to Fixed Charges ---
21 Subsidiaries of the Company ---
23 Consent of Ernst & Young LLP ---
27 Financial Data Schedule (filed electronically with the SEC) N/A
</TABLE>
<PAGE> 1
Exhibit 10.3(1)(b)
FIRST AMENDMENT
TO
A. H. BELO CORPORATION
EMPLOYEE SAVINGS AND INVESTMENT PLAN
(As Restated Effective January 1, 1998)
A. H. Belo Corporation, a Delaware corporation (the "Company"),
pursuant to authority of the Compensation Committee of the Board of Directors,
adopts the following amendments to the A. H. Belo Corporation Employee Savings
and Investment Plan (the "Plan"):
1. The first sentence of Section 3.1(b) of the Plan ("Modification and
Suspension of Deferral Contributions") is amended in its entirety to read as
follows:
A Participant may increase or decrease the amount of his Deferral
Contributions during the Plan Year, provided that only one such
modification may be made during each calendar month of the Plan Year.
2. The first sentence of Section 3.5 of the Plan ("Investment of
Contributions") is amended in its entirety to read as follows:
Participating Employer matching contributions will be invested by the
Trustee pursuant to the Trust Agreement solely in shares of Company
Stock, provided, however, that from and after January 1, 1994, a
Participant who has attained age 55 may direct the Trustee to transfer
all or any portion of his Matching Contribution Account balance to, and
to invest all or any portion of the Participating Employer matching
contributions made on his behalf after his 55th birthday in, any other
investment fund established under the Trust Agreement.
3. Section 6.2 of the Plan is amended in its entirety to read as
follows:
6.2 Withdrawals.
(a) After Age 59-1/2. A Participant who has not terminated
employment may request a distribution from his Accounts if he has
reached age 59-1/2. A Participant who is a director, officer or
principal stockholder of the Company within the meaning of Section 16
of the Securities Exchange Act of 1934 may exercise the foregoing
withdrawal right only in accordance with rules and procedures
established from time to time by the Committee. All other Participants
may exercise their withdrawal rights at any time or times during the
Plan Year.
<PAGE> 2
(b) Former Journal Broadcasting Employees. A Participant
who, on December 31, 1997, was a participant in the Journal
Broadcasting 401(k) Plan may withdraw, in accordance with rules and
procedures established from time to time by the Committee, all or any
portion of his Transfer Account attributable to his after-tax
contributions and rollover contributions that were transferred to the
Plan from the Journal Broadcasting 401(k) Plan effective January 1,
1998.
4. Section 6.3(e) of the Plan ("Source of Hardship Distributions") is
deleted from the Plan.
5. The second sentence of Section 6.4 of the Plan ("Distribution
Procedures") is amended in its entirety to read as follows:
Distributions pursuant to Sections 6.2(a) and 6.3 will be made pro rata
from each of the Participant's Accounts, provided, however, that in the
case of a hardship distribution under Section 6.3, the cumulative
amount distributed to a Participant from his Deferral Contribution
Account will not exceed the amount of his Deferral Contributions that
have not been previously withdrawn (but not the income allocable to his
Deferral Contributions).
6. Section 6.5(f) of the Plan is amended in its entirety to read as
follows:
(f) Source of Loans. All loans will be made pro rata from each of
the Participant's Accounts.
7. The amendment set forth in paragraph 3 above will be effective as of
January 1, 1998. The remaining amendments will be effective as of July 1, 1998.
Executed at Dallas, Texas, this 30 day of July, 1998.
A. H. BELO CORPORATION
By /s/ Marian Spitzberg
---------------------------------
Name: Marian Spitzberg
Title: Secretary
-2-
<PAGE> 1
Exhibit 10.3(1)(c )
SECOND AMENDMENT
TO
A. H. BELO CORPORATION
EMPLOYEE SAVINGS AND INVESTMENT PLAN
(As Restated Effective January 1, 1998)
A. H. Belo Corporation, a Delaware corporation (the "Company"),
pursuant to authority of the Compensation Committee of the Board of Directors,
adopts the following amendment to the A. H. Belo Corporation Employee Savings
and Investment Plan (the "Plan"):
1. Subsection (b)(ii) of Section 6.1 of the Plan ("Form of
Distributions") is amended in its entirety, effective as of January 1, 1998, to
read as follows:
(ii) Optional Forms of Distribution for Journal Plan Participants.
The optional forms of distribution described in this paragraph are
available for distributions other than withdrawals described in Section
6.2 and hardship distributions described in Section 6.3 only to a
Participant whose account balances were transferred to the Plan from
the Journal Qualified Compensation Deferral Plan, the Journal
Broadcasting 401(k) Plan or the Journal Guild Plan, and whose vested
Account balances exceed $3,500 ($5,000 for Plan Years beginning after
December 31, 1997). The optional forms of benefit will be (A) periodic
installment payments over a period of years not to exceed the life
expectancy of the Participant or the joint life expectancy of the
Participant and his Beneficiary and (B) a single life annuity or a
Qualified Joint and Survivor Annuity (as hereinafter defined) purchased
from an insurance company with the amount of the Participant's vested
Account balances, provided, however, that the annuity option will be
available to a former participant in the Journal Broadcasting 401(k)
Plan only if he was a participant in such Plan prior to December 31,
1996. For purposes of this Section, the term "Qualified Joint and
Survivor Annuity" means an annuity payable monthly for the life of the
Participant with a survivor annuity payable monthly for the life of the
Participant's surviving spouse in an amount equal to 50% of the amount
of the monthly payment to the Participant during his life.
2. Subsection (a) of Section 6.8 of the Plan ("Direct Rollovers") is
amended in its entirety, effective upon the adoption of this Second Amendment,
to read as follows:
(a) Distributions after 1992. Notwithstanding any other provision of
the Plan, for distributions made on or after January 1, 1993, a
Distributee (as hereinafter defined) may elect, at any time and in the
manner prescribed by the Committee, to have any portion of an Eligible
Rollover
<PAGE> 2
Distribution (as hereinafter defined) paid directly to an Eligible
Retirement Plan (as hereinafter defined) specified by the Distributee,
except to the extent that the total Eligible Rollover Distributions
with respect to the Distributee in any Plan Year are reasonably
expected to total less than $200.
3. Section 11.4 of the Plan is amended in its entirety, effective as of
January 1, 1998, to read as follows:
11.4 Restrictions on Delay of Distributions. Distribution of a
Participant's entire vested and nonforfeitable interest will be made or
commence not later than April 1 following (i) the calendar year in
which he attains age 70-1/2, or (ii) in which his employment with the
Controlled Group terminates, if later, except that a distribution to a
Participant who is a 5-percent owner (as such term is defined in Code
section 416(i)(1)(B)(i)) with respect to the Plan Year in which he
attains age 70-1/2 will be made pursuant to clause (i).
4. Appendix A to the Plan ("Participating Employers") is amended by the
addition of the following Participating Employer, effective as of the date
indicated:
Texas Cable News, Inc.
(As of June 25, 1998)
Rockwall Success, Inc.
(As of January 1, 1999)
Executed at Dallas, Texas, this 8th day of December , 1998.
A. H. BELO CORPORATION
By /s/ Marian Spitzberg
-------------------------------
Name: Marian Spitzberg
Title: Vice President and
Secretary
<PAGE> 1
A. H. Belo Corporation Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings before income taxes
and the cumulative effect
of accounting changes $107,897 $111,014 $144,040 $154,122 $130,460
Add: Total fixed charges 17,294 32,089 29,009 94,069 112,082
Less: Interest capitalized 138 957 255 510 1,680
-------- -------- -------- -------- --------
Adjusted earnings $125,053 $142,146 $172,794 $247,681 $240,862
======== ======== ======== ======== ========
Fixed Charges:
Interest $ 16,250 $ 30,944 $ 27,898 $ 91,288 $109,318
Portion of rental expense
representative of the
interest factor (1) 1,044 1,145 1,111 2,781 2,764
-------- -------- -------- -------- --------
Total fixed charges $ 17,294 $ 32,089 $ 29,009 $ 94,069 $112,082
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges
7.23x 4.43x 5.96x 2.63x 2.15x
======== ======== ======== ======== ========
</TABLE>
- ----------------------
(1) For purposes of calculating fixed charges, an interest factor of one third
was applied to total rent expense for the period indicated.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
(AS OF DECEMBER 31, 1997)
<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
- ------------------- -------------
<S> <C> <C>
NEWSPAPER PUBLISHING:
The Dallas Morning News, Inc. d/b/a The Dallas Morning News Delaware
The Providence Journal Company d/b/a Providence Journal-Bulletin Delaware
Press-Enterprise Company d/b/a The Press-Enterprise California
Owensboro Messenger-Inquirer, Inc. d/b/a Messenger-Inquirer Delaware
Bryan-College Station Eagle, Inc. d/b/a The Eagle Delaware
Henderson Gleaner, Inc. d/b/a The Gleaner Delaware
DFW Printing Company, Inc. Delaware
DFW Suburban Newspapers, Inc. Delaware
TELEVISION BROADCASTING:
Great Western Broadcasting Corp. d/b/a KXTV, Channel 10 Delaware
KHOU-TV, Inc. d/b/a KHOU, Channel 11 Delaware
KOTV, Inc. d/b/a KOTV, Channel 6 Delaware
WFAA-TV, Inc. d/b/a WFAA, Channel 8 Delaware
WVEC Television, Inc. d/b/a WVEC, Channel 13 Delaware
WWL-TV, Inc. d/b/a WWL, Channel 4 Delaware
KENS-TV, Inc. d/b/a KENS, Channel 5 Delaware
KMOV-TV, Inc. d/b/a KMOV, Channel 4 Delaware
KASA-TV, Inc. d/b/a KASA, Channel 2 New Mexico
KMSB-TV, Inc. d/b/a KMSB, Channel 11 Arizona
WCNC-TV, Inc. d/b/a WCNC, Channel 36 North Carolina
Belo Kentucky, Inc. d/b/a WHAS, Channel 11 Kentucky
King Broadcasting Company d/b/a KING, Channel 5 Washington
d/b/a KHNL, Channel 13
d/b/a KREM, Channel 2
d/b/a KTVB, Channel 7
d/b/a KGW, Channel 8
King News Corporation d/b/a Northwest Cable News Washington
Texas Cable News, Inc. d/b/a TXCN Delaware
Hill Tower, Inc. Texas
Transtower, Inc. California
Tulsa Tower Joint Venture Oklahoma
Texas Tall Tower Texas
</TABLE>
Except as noted below, all of the subsidiaries are wholly owned subsidiaries of
the Company. The Company through wholly owned subsidiaries owns 50% of the
outstanding common stock of Hill Tower, Inc, Tulsa Tower Joint Venture and Texas
Tall Tower, and 33 1/3% of the outstanding common stock of Transtower, Inc.
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-30994, Form S-8 No. 33-32526, Form S-8 No. 33-18771, Form S-8
No. 33-61439, and Form S-3 No. 333-25579) pertaining to the Employee Savings and
Investment Plan, Long-Term Incentive Plan, 1995 Executive Compensation Plan, and
the registration of $1,500,000,000 of debt securities and warrants to purchase
debt securities of A. H. Belo Corporation of our report dated January 27, 1999,
with respect to the consolidated financial statements of A. H. Belo Corporation
included in this Annual Report (Form 10-K) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Dallas, Texas
March 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,451
<SECURITIES> 0
<RECEIVABLES> 219,251
<ALLOWANCES> (7,823)
<INVENTORY> 20,308
<CURRENT-ASSETS> 275,781
<PP&E> 1,055,507
<DEPRECIATION> (428,754)
<TOTAL-ASSETS> 3,539,089
<CURRENT-LIABILITIES> 180,748
<BONDS> 1,634,029
0
0
<COMMON> 198,605
<OTHER-SE> 1,049,495
<TOTAL-LIABILITY-AND-EQUITY> 3,539,089
<SALES> 0
<TOTAL-REVENUES> 1,407,345
<CGS> 0
<TOTAL-COSTS> 1,014,818
<OTHER-EXPENSES> 159,442
<LOSS-PROVISION> 6,497
<INTEREST-EXPENSE> (107,638)
<INCOME-PRETAX> 130,460
<INCOME-TAX> 65,558
<INCOME-CONTINUING> 64,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,902
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.52
</TABLE>
