SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1994
Commission file number 1-8572
TRIBUNE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-1880355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
435 North Michigan Avenue, Chicago, Illinois 60611
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 222-9100
No Changes
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 / /
At October 28, 1994 there were 66,978,015 shares outstanding of the
Company's Common Stock (without par value).
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
---------------------
<TABLE>
<CAPTION> TRIBUNE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share data)
(Unaudited)
Third Quarter Ended Three Quarters Ended
------------------------------ -----------------------------
Sept. 25, 1994 Sept. 26, 1993 Sept. 25, 1994 Sept. 26, 1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating revenues....................................... $ 513,326 $ 486,669 $1,569,897 $1,438,660
Operating expenses
Cost of sales (exclusive of
items shown below)................................... 262,003 260,798 791,049 775,688
Selling, general and administrative ..................... 150,431 121,720 415,630 343,048
Depreciation and amortization
of intangible assets................................. 28,963 25,897 83,902 75,478
--------- --------- ---------- ----------
Total operating expenses................................. 441,397 408,415 1,290,581 1,194,214
--------- --------- ---------- ----------
Operating profit......................................... 71,929 78,254 279,316 244,446
Equity in QUNO net income (loss)......................... 3,923 (5,849) (5,836) (11,317)
Gain on sale of QUNO stock............................... - - 39,381 -
Interest income.......................................... 5,179 4,447 14,968 14,588
Interest expense......................................... (4,706) (4,620) (15,689) (18,613)
--------- --------- --------- ---------
Income before income taxes............................... 76,325 72,232 312,140 229,104
Income taxes............................................. (28,498) (33,637) (139,212) (98,573)
--------- --------- --------- ---------
Net income .............................................. 47,827 38,595 172,928 130,531
Preferred dividends, net of tax.......................... (4,644) (4,672) (13,931) (13,928)
--------- --------- --------- ---------
Net income attributable
to common shares..................................... $ 43,183 $ 33,923 $ 158,997 $ 116,603
========= ========= ========= ==========
Net income per share:
Primary.................................................. $ .64 $ .51 $ 2.36 $ 1.76
========= ========= ========= =========
Fully diluted............................................ $ .60 $ .48 $ 2.18 $ 1.63
========= ========= ========= =========
Dividends per common share............................... $ .26 $ .24 $ .78 $ .72
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2<TABLE>
<CAPTION> TRIBUNE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of dollars)
Sept. 25, 1994 December 26, 1993
-------------- -----------------
(Unaudited)
<S>
ASSETS
Current assets <C> <C>
Cash and short-term investments......................... $ 62,631 $ 18,524
Accounts receivable, net................................ 269,818 284,110
Inventories............................................. 34,674 26,290
Broadcast rights........................................ 178,545 144,233
Prepaid expenses and other.............................. 20,522 18,102
----------- -----------
Total current assets.................................... 566,190 491,259
----------- -----------
Investment in and advances to QUNO...................... 287,493 250,923
Property, plant and equipment........................... 1,291,633 1,201,167
Accumulated depreciation................................ (657,182) (599,552)
----------- -----------
Net properties.......................................... 634,451 601,615
----------- -----------
Broadcast rights........................................ 230,518 217,229
Intangible assets, net.................................. 846,527 719,965
Mortgage notes receivable from affiliates............... 83,589 119,437
Other................................................... 188,025 135,982
----------- -----------
Total assets............................................ $ 2,836,793 $ 2,536,410
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Accounts payable........................................ $ 98,222 $ 85,334
Contracts payable for broadcast rights.................. 152,701 142,686
Accrued expenses and other current liabilities.......... 271,382 277,007
---------- ----------
Total current liabilities............................... 522,305 505,027
---------- ----------
Long-term debt.......................................... 456,401 510,838
Deferred income taxes................................... 158,884 87,605
Contracts payable for broadcast rights.................. 243,951 194,846
Other................................................... 152,027 142,467
---------- ----------
Total liabilities....................................... 1,533,568 1,440,783
---------- ----------
Stockholders' investment
Series B convertible preferred stock.................... 329,286 335,532
Common stock............................................ 1,018 1,018
Additional paid-in capital.............................. 108,252 105,819
Retained earnings....................................... 1,700,930 1,589,695
Treasury stock (at cost)................................ (599,576) (607,332)
Unearned compensation related to ESOP................... (297,479) (298,969)
Cumulative translation adjustment....................... (18,237) (30,136)
Unrealized gain on investments.......................... 79,031 -
----------- -----------
Total stockholders' investment.......................... 1,303,225 1,095,627
----------- -----------
Total liabilities and stockholders' investment.......... $ 2,836,793 $ 2,536,410
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3<TABLE>
<CAPTION> TRIBUNE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Three Quarters Ended
------------------------------
Sept. 25, 1994 Sept. 26, 1993
-------------- --------------
<S> <C> <C>
Operations
Net income................................................... $172,928 $ 130,531
Adjustments to reconcile net income to net cash
provided by operations:
Equity in QUNO net loss.............................. 5,836 11,317
Gain on sale of QUNO stock........................... (39,381) -
Depreciation and amortization of intangible
assets............................................. 83,902 75,478
Other, net........................................... 53,475 2,070
--------- ---------
Net cash provided by operations.............................. 276,760 219,396
--------- ---------
Investments
Capital expenditures......................................... (58,199) (54,414)
Acquisitions................................................. (134,152) (98,484)
Proceeds from sale of QUNO stock............................. 94,936 -
Repayment of note receivable from QUNO....................... - 179,846
Purchase of mortgage note.................................... - (35,500)
Other, net................................................... (22,806) (21,792)
--------- ---------
Net cash used for investments................................ (120,221) (30,344)
--------- ---------
Financing
Proceeds from issuance of long-term debt..................... - 78,100
Repayments of long-term debt................................. (54,682) (242,238)
Sale of common stock to employees, net....................... 13,322 34,453
Purchase of treasury stock................................... (9,379) -
Dividends.................................................... (61,693) (56,761)
Redemption of preferred stock................................ - (3,905)
--------- ---------
Net cash used for financing.................................. (112,432) (190,351)
--------- ---------
Net increase (decrease)in cash and short-term investments.... 44,107 (1,299)
Cash and short-term investments at the beginning of year..... 18,524 16,768
--------- ---------
Cash and short-term investments at the end of quarter........ $ 62,631 $ 15,469
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4 TRIBUNE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1:
- ------
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of Tribune Company and its subsidiaries as of September 25,
1994 and the results of their operations for the quarters and first three
quarters ended September 25, 1994 and September 26, 1993 and cash flows for the
first three quarters ended September 25, 1994 and September 26, 1993. All
adjustments reflected in the accompanying unaudited condensed consolidated
financial statements are of a normal recurring nature. Results of operations
for interim periods are not necessarily indicative of the results to be
expected for the full year. Certain prior year amounts have been reclassified
to conform with the 1994 presentation.
Note 2:
- ------
Primary net income per share has been computed by dividing net income
attributable to common shares by the weighted average number of common shares
outstanding during the periods. Fully diluted net income per share has been
computed based on the assumption that all of the convertible preferred shares
have been converted into common shares. The numbers of common shares used for
computing primary and fully diluted net income per share were as follows (in
thousands):
Third Quarter Ended Three Quarters Ended
1994 1993 1994 1993
------- ------ ------ ------
Primary 67,448 66,590 67,304 66,203
Fully diluted 74,191 73,584 74,166 73,247
5
Note 3:
- ------
On April 14, 1994, Tribune reduced its ownership holdings in QUNO Corporation
("QUNO") by selling 5.5 million shares of QUNO common stock. With this sale,
Tribune reduced its ownership interest in QUNO from 59% to 34%. The sale of
the shares resulted in an after-tax gain of approximately $13 million, or $.19
per share on a primary basis, which was recorded in the second quarter of 1994.
The Company retains 7.5 million shares of QUNO's 22 million common shares
outstanding and also holds a U.S. $138.8 million (face value) subordinated
debenture, convertible into 11.7 million voting common shares of QUNO.
Note 4:
- ------
Tribune acquired The Wright Group on February 18, 1994, for approximately $100
million in cash. The Wright Group is a leading publisher of "whole language"
educational materials for the elementary school market. On April 6, 1994,
Tribune completed the purchase of Boston independent television station WLVI
(Ch. 56) for approximately $25 million in cash. The acquisition increases the
number of Tribune-owned television stations to eight. On June 30, 1994,
Tribune completed the acquisition of Farm Journal Inc. for approximately $17.5
million in cash. Farm Journal Inc. is the publisher of Farm Journal, the
nation's leading farm magazine. These acquisitions are being accounted for by
the purchase method, and accordingly, the results of operations of the
companies have been included in the consolidated financial statements from
their respective dates of acquisition.
6
Note 5:
- ------
The Company adopted Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," in the
first quarter of 1994. This statement generally requires that the Company
record investments in debt securities and publicly traded equity securities at
their market value, except for non-convertible debt securities that the Company
intends to hold to maturity and equity securities that are accounted for using
the equity method. The market value of the Company's long-term investments in
less-than-20% owned publicly traded companies was approximately $47 million in
excess of the investments' $12 million original cost at September 25, 1994.
The Company also holds a $138.8 million (face value) convertible debenture
issued by QUNO Corporation. The market value of this debenture, based on the
quoted market price per share of the underlying QUNO common stock at September
25, 1994, ($25.75 Canadian), was approximately $224 million. FAS 115 requires
that changes in market value from historical cost for these investments be
reported, net of tax, in a separate component of stockholders' investment until
realized. Accordingly, the Company's September 25, 1994, Condensed
Consolidated Statement of Financial Position reflects a net unrealized gain on
investments of approximately $79 million. The adoption of this statement had
no impact on net income, and prior year financial statements are not restated.
Note 6:
- ------
Financial data for each of the Company's business segments is as follows (in
thousands):
<TABLE>
<CAPTION> Third Quarter Ended Three Quarters Ended
------------------------------ ------------------------------
Sept. 25, 1994 Sept. 26, 1993 Sept. 25, 1994 Sept. 26, 1993
-------------- -------------- -------------- --------------
<S>
Operating revenues <C> <C> <C> <C>
Publishing.............................................. $ 334,689 $ 292,363 $1,023,679 $ 888,482
Broadcasting and Entertainment.......................... 179,986 195,352 550,019 553,236
Intercompany............................................ (1,349) (1,046) (3,801) (3,058)
--------- --------- ---------- ----------
Total operating revenues................................ $ 513,326 $ 486,669 $1,569,897 $1,438,660
========= ========= ========== ==========
Operating profit
Publishing.............................................. $ 55,043 $ 52,546 $ 204,566 $ 171,972
Broadcasting and Entertainment.......................... 23,699 32,053 94,321 90,477
Corporate expenses...................................... (6,813) (6,345) (19,571) (18,003)
--------- --------- --------- ----------
Total operating profit.................................. $ 71,929 $ 78,254 $ 279,316 $ 244,446
========= ========= ========= ==========
</TABLE>
7
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
The following discussion compares the results of operations of Tribune
Company and its subsidiaries (the "Company") for the third quarter of 1994
to the third quarter of 1993 and for the first three quarters of 1994 to
the first three quarters of 1993.
SIGNIFICANT EVENTS AND TRENDS
- -----------------------------
The major league baseball players' contract expired on December 31,
1993. During 1994, representatives of the Major League Baseball Players
Association ("MLBPA") and the owners continued to negotiate for a new
players' contract. The MLBPA initiated a strike on August 12, 1994 and on
August 28, 1994, the owners cancelled the remainder of the Major League
Baseball season. The strike impacted the Company's Chicago Cubs baseball
operations, and, to a lesser extent, television and radio operations. In
total, the baseball strike negatively impacted the Company's primary
earnings per share in the 1994 third quarter by approximately $.08. In
the fourth quarter, entertainment revenues and operating profit will be
impacted slightly because of the cancellation of six Cubs' home games
scheduled in late September and early October. The Company cannot predict
the ultimate outcome of the negotiations.
The State of Florida Department of Environmental Protection (DEP) has
issued a preliminary draft report identifying the Company's subsidiary,
Sentinel Communications Company (the Sentinel), as a source of certain
trichloroethene (TCE) groundwater contamination in downtown Orlando,
Florida. Based upon separate environmental reviews performed by the
Company's environmental consultants, management believes that many of the
findings contained in the DEP's preliminary draft report are inaccurate
and that the Sentinel is not the source of the extensive contamination.
Although the Company cannot predict the ultimate resolution of this
matter, based on information currently available to the Company, the
Company believes that the resolution of this matter will not have a
material impact on the Company's financial results.
8
RESULTS OF OPERATIONS
- ---------------------
The Company's results of operations, when examined on a quarterly
basis, reflect the seasonality of advertising, which affects the results
of both publishing and broadcasting and entertainment. Second and fourth
quarter advertising revenues are typically higher than first and third
quarter revenues. Results for the 1994 third quarter reflect this
seasonal pattern.
CONSOLIDATED
The Company's consolidated operating results for 1994 and the
percentage changes from 1993 were as follows:
(Dollars in millions, Third Quarter Three Quarters
except per share amounts) 1994 Change 1994 Change
------ ------- ------- -----
Operating revenues $ 513 + 5% $1,570 + 9%
Operating profit $ 72 - 8% $ 279 +14%
Equity in QUNO net income (loss) $ 4 +167% $ (6) +48%
Gain on sale of QUNO stock $ - - $ 39 *
Net income $ 48 +24% $ 173 +32%
Primary net income per share $ .64 +25% $ 2.36 +34%
* Not Meaningful
On April 14, 1994, the Company reduced its ownership holdings in QUNO
Corporation ("QUNO") by selling 5.5 million shares of QUNO common stock.
With this sale, the Company reduced its ownership interest in QUNO from
59% to 34%. The sale of the shares resulted in a second quarter after-tax
gain of approximately $13 million, or $.19 per share on a primary basis.
The pretax gain on the sale was $39 million. The 34% ownership interest
represents 7.5 million shares.
Net Income Per Share -- Primary net income per share for the 1994 third
quarter rose 25% to $.64 from $.51 in 1993 due to improved operating
results from the Company's newspapers, higher income from QUNO and lower
income taxes, offset partially by the impact of the baseball strike and
losses at Compton's. For the first three quarters of 1994, primary net
income per share rose 34% to $2.36 from $1.76 in 1993. Excluding the $13
million net-of-tax gain on the sale of QUNO common stock, primary net
income per share increased 23% to $2.17 for the first three quarters of
1994. The increase was due to higher operating profit from the media
businesses and lower equity losses from QUNO.
9
Operating Profit and Revenues -- The Company's 1994 consolidated operating
profit by business segment and the percentage changes from 1993 were as
follows:
(Dollars in millions) Third Quarter Three Quarters
1994 Change 1994 Change
------ ------- ----- ------
Publishing $ 55 + 5% $205 +19%
Broadcasting & Entertainment 24 -26% 94 + 4%
Corporate expenses (7) + 7% (20) + 9%
----- -----
Total operating profit $ 72 - 8% $279 +14%
Publishing reported a 5% increase in operating profit for the 1994
third quarter and a 19% increase for the first three quarters. These
results reflect operations of the traditional newspaper group and the
three new media businesses acquired since mid-1993: Contemporary Books,
Compton's Multimedia and The Wright Group. The increases were due
primarily to higher newspaper advertising revenues and contributions from
two of the new media businesses, partially offset by an operating loss of
approximately $11 million in the third quarter of 1994 at Compton's.
Broadcasting and entertainment results were down 26% in the third quarter
due primarily to the baseball strike. Broadcasting and entertainment
results improved 4% in the first three quarters of 1994 due to higher
television profits.
Consolidated operating revenues for the 1994 third quarter rose 5% to
$513 million from $487 million. Publishing operating revenues increased
14% and broadcasting and entertainment revenues decreased 8%.
Consolidated operating revenues rose 9% for the first three quarters of
1994 to $1.57 billion from $1.44 billion. Publishing revenues increased
15% and broadcasting and entertainment revenues decreased 1%.
Operating Expenses -- Consolidated operating expenses increased for both
the third quarter and the first three quarters as follows:
(Dollars in millions) Third Quarter Three Quarters
1994 Change 1994 Change
------ ------- ----- ------
Cost of sales $262 - $ 791 + 2%
Selling, general & administrative 150 +24% 416 +21%
Depreciation & amortization
of intangible assets 29 +12% 84 +11%
------ ------
Total operating expenses $441 + 8% $1,291 + 8%
10
Cost of sales was up $1 million in the 1994 third quarter due to the
new acquisitions and increased newsprint and ink expense, offset by lower
compensation expense due to the baseball strike. The increase in cost of
sales in the first three quarters of 1994 was primarily due to the new
businesses acquired partially offset by lower programming costs. Excluding
businesses acquired since mid-1993, costs of sales decreased 4%, or $12
million, in the third quarter, and 3%, or $20 million, in the first three
quarters of 1994. Excluding the new businesses, compensation expense
decreased $11 million, or 12%, in the third quarter and $8 million, or 3%,
in the first three quarters due to the baseball strike. Newsprint and ink
expense increased $3 million, or 6%, for the quarter and decreased $2
million, or 2%, for the first three quarters. Programming costs decreased
$1 million, or 2%, in the third quarter and declined $17 million, or 9%,
in the first three quarters of 1994.
The increases in selling, general and administrative (SG&A) expenses
in 1994 were primarily attributable to the new businesses acquired, higher
compensation costs, increased sales costs and startup losses for new
projects "The Road" and TV Food Network. Excluding the new businesses,
SG&A expenses increased $11 million, or 10%, in the third quarter and $32
million, or 9%, for the first three quarters. Compensation costs
increased $4 million, or 8%, for the quarter and $15 million, or 10%, for
the first three quarters. Sales expense increased $5 million for the
quarter and $13 million for the first three quarters due to higher sales
levels.
The increases in depreciation and amortization of intangible assets
reflect the acquisitions and capital expenditures made in 1993, primarily
at the Company's Chicago newspaper printing facility.
PUBLISHING
Operating Profit and Revenues -- Publishing operating profit for the 1994
third quarter was up 5% to $55 million from $53 million, and for the first
three quarters was up 19% to $205 million, due principally to higher
advertising revenues and, to a lesser extent, contributions from two of
the recently acquired businesses. These gains were partially offset by an
operating loss of nearly $11 million at Compton's. The loss resulted from
several factors, including unusually high product returns, inventory
write-offs of obsolete third-party products and new product delays.
Operating margins for the 1994 third quarter decreased to 16.4% from 18.0%
in 1993. Excluding the operating results of the three recently acquired
companies, operating profit grew 16% in the quarter and 20% year-to-date.
Operating revenues for the third quarter were up 14% to $335 million
from $292 million in 1993, and for the first three quarters increased 15%
to $1.02 billion from $888 million. Excluding the three recently acquired
companies, revenues increased 8%, in both the 1994 third quarter and first
11
three quarters. The improvements were due to increased newspaper
advertising revenues of 11% in the quarter and 10% in the first three
quarters.
Publishing group revenues by classification for 1994 and the
percentage changes from 1993 were as follows:
Third Quarter Three Quarters
(Dollars in millions) 1994 Change 1994 Change
------ ------ ------ ------
Advertising
Retail $107 + 7% $ 324 + 6%
General 29 + 16% 97 + 13%
Classified 97 + 13% 291 + 13%
------ ------
Total advertising 233 + 11% 712 + 10%
Circulation 59 - 3% 182 - 1%
Other 43 +102% 130 +131%
------ ------
Total revenues $335 + 14% $1,024 + 15%
The advertising climate continued to improve in the third quarter,
with most advertising categories showing gains. Retail advertising
revenues for the 1994 third quarter and first three quarters increased
mainly due to improvements reported in the food and drug store category in
Chicago and Orlando, and the department store category in Fort Lauderdale.
General advertising revenues for both periods increased due principally to
higher transportation and financial advertising in Chicago and Orlando.
Classified advertising revenues for the 1994 periods rose mainly due to
increased help wanted, real estate and auto advertising.
Advertising linage for 1994 reflects increases in all categories for
both the quarter and the three quarter period, led by preprint
advertising. Total linage increased 6% for the quarter and 7% for the
first three quarters, reflecting the generally improved advertising
climate. The following summary presents advertising linage for the third
quarter and first three quarters.
12
Third Quarter Three Quarters
(Inches in thousands) 1994 Change 1994 Change
------ ------- ----- ------
Full run
Retail 1,073 + 3% 3,297 + 5%
General 171 +24% 535 +16%
Classified 1,714 + 4% 5,216 + 6%
------ ------
Total full run 2,958 + 5% 9,048 + 6%
Part run 2,575 + 3% 7,891 + 6%
Preprint 2,483 +10% 7,379 + 9%
------ ------
Total inches 8,016 + 6% 24,318 + 7%
Circulation revenues declined 3% in the 1994 third quarter and 1% in
the first three quarters. Total average daily circulation decreased less
than 1% to 1,324,000 copies in the third quarter, and total average Sunday
circulation also decreased less than 1% to 1,970,000 copies. For the
first three quarters, total average daily circulation decreased less than
1% to 1,364,000 copies from 1,375,000, while total average Sunday
circulation decreased less than 1% to 2,022,000 from 2,032,000.
Other revenues are derived from publishing books and information in
print and digital formats; advertising placement services; the syndication
of columns, features and comics to newspapers; commercial printing
operations; direct mail operations; and other publishing-related
activities. The increase in other revenues for both periods in 1994
resulted mainly from the 1993 acquisitions of Contemporary Books in late
July and Compton's in mid-September and the 1994 acquisition of The Wright
Group in February. Excluding these acquisitions, other revenues increased
22% for the third quarter and 13% in the first three quarters, reflecting
higher revenues from direct mail and advertising placement services.
Operating Expenses -- Publishing operating expenses increased 17%, or $40
million, in the 1994 third quarter and 14%, or $103 million, in the first
three quarters. Excluding the three acquisitions, operating expenses
increased 7% in the 1994 quarter and 5% in the 1994 year-to-date period.
These increases were mainly due to higher compensation costs, increased
circulation costs, startup costs on new ventures, and, in the third
quarter, increased newsprint and ink expense. Excluding the acquisitions,
compensation costs rose 4%, or $4 million, in the 1994 third quarter and
4%, or $10 million, in the first three quarters. Circulation costs rose
6% and 7%, or $2 million and $7 million, for the quarter and three quarter
period, respectively, primarily due to higher postage and delivery expense
for expanding total market coverage volume in Chicago. Newsprint and ink
expense increased $3 million, or 6%, in the 1994 third quarter and
decreased $2 million, or 2%, in the first three quarters. Consumption
increased 9% in the quarter and 8% in the first three quarters. The
average cost of newsprint consumed declined in both the third quarter and
first three quarters due to lower newsprint selling prices. Recent price
increases, however, have resulted in a current selling price that is
approximately 10% higher than the Company's average cost of newsprint
consumed in last year's fourth quarter.
13
BROADCASTING AND ENTERTAINMENT
Operating Profit and Revenues -- Broadcasting and entertainment operating
profit for the third quarter of 1994 was $24 million, down 26% from $32
million in 1993, and was $94 million for the first three quarters of 1994,
up 4% from $90 million in the comparable period of 1993. The third quarter
decrease was due to lower entertainment results, which were impacted by
operating losses at the Chicago Cubs as a result of the Major League
Baseball strike, and by startup losses for new projects "The Road" and TV
Food Network. The baseball strike also negatively impacted television and
radio revenues and, to a lesser extent, television and radio operating
profit. In total, the baseball strike negatively impacted the Company's
primary earnings per share by approximately $.08 in the third quarter.
The increased operating profit in the first three quarters was mainly due
to higher television revenues and lower programming costs, offset by lower
radio and entertainment results.
Operating revenues for the group for 1994 and the percentage changes
from 1993 were as follows:
Third Quarter Three Quarters
(Dollars in millions) 1994 Change 1994 Change
------ ------- ----- ------
Television $135 + 2% $421 + 7%
Radio 19 +20% 46 + 7%
Entertainment 26 -46% 83 -28%
------ -----
Total revenues $180 - 8% $550 - 1%
Television revenues for the third quarter and first three quarters of
1994 increased largely due to the acquisition of WLVI-Boston in April,
1994. Excluding WLVI, television revenues were down 3% in the third
quarter and up 3% in the first three quarters. The third quarter 1994
decline was due to the baseball strike. Radio revenues increased in 1994
due to the acquisition of Farm Journal, Inc. in late June, 1994.
Excluding Farm Journal, radio revenues decreased 3% in the third quarter
and 2% in the first three quarters, due to declines at WGN-AM in Chicago
caused primarily by the baseball strike. Entertainment revenues decreased
$22 million in the third quarter and $32 million in the first three
14
quarters of 1994 due to the baseball strike and, to a lesser extent, fewer
shows in syndication.
Operating Expenses -- Operating expenses for the group decreased 4%, or $7
million, in the third quarter and 2%, or $7 million, in the first three
quarters. The decreases were principally due to a strike-related decrease
in compensation costs and, for the three quarter period, a decrease in
programming costs, offset partially by the addition of WLVI-Boston and
Farm Journal, Inc. and startup losses for "The Road" and TV Food Network.
Excluding WLVI and Farm Journal, third quarter 1994 operating expenses
were down 11%, or $18 million, while the first three quarters expenses
decreased 5%, or $24 million. Excluding the new businesses, programming
costs decreased 2%, or $1 million, for the quarter and 9%, or $17 million,
for the first three quarters due to the airing of lower cost programs at
the television stations and a reduction in production costs due to a
reduced level of original programming at Tribune Entertainment.
Compensation costs decreased 20%, or $12 million, in the third quarter and
5%, or $7 million, in the first three quarters. Startup losses on "The
Road" and TV Food Network were $3 million in the 1994 third quarter and $9
million in the first three quarters.
EQUITY IN QUNO NET INCOME (LOSS)
The Company's equity in QUNO's 1994 third quarter net income was $3.9
million, which contributed $.06 per share to earnings on a primary basis.
The Company's share of QUNO's three quarter net loss was $5.8 million, or
$.09 per share. In 1993, the Company's share of QUNO's third quarter and
three quarter net losses were $5.8 million and $11.3 million, which
reduced primary net income per share by $.09 and $.17, respectively. The
improvement in QUNO's results was due to increased newsprint demand and
lower foreign currency exchange losses.
INTEREST INCOME AND EXPENSE
Interest income increased 16% to $5 million for the third quarter and
3% to $15 million for the first three quarters of 1994. Interest expense
increased 2% to $5 million in the third quarter and decreased 16% to $16
million in the first three quarters due to lower debt levels.
INCOME TAX EXPENSE
The Company's effective income tax rate, excluding equity in QUNO's
net income (loss) and the gain on the sale of QUNO common stock, decreased
to 40.5% in the first three quarters of 1994 from 41.0% in 1993, and in
the 1994 third quarter decreased to 39.4% from 43.1% last year. The 1993
15
third quarter included the retroactive impact, to the first of the year,
of a 1% increase in the federal statutory rate.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Net cash provided by operations for the first three quarters of 1994
was $277 million compared to $219 million in the first three quarters of
1993. The increase was due primarily to higher net income and changes in
working capital. Net cash used for investments was $120 million for the
first three quarters of 1994 compared to $30 million for the corresponding
1993 period. The first three quarters of 1994 period included $95 million
of proceeds received by the Company from the sale of 5.5 million shares of
QUNO common stock, the acquisition of The Wright Group in February 1994
for approximately $100 million in cash, the acquisition of WLVI-Boston
(Ch. 56) in April 1994 for approximately $25 million in cash, the
acquisition of Farm Journal, Inc. in June 1994 for approximately $17.5
million in cash and capital expenditures of $58 million. These
acquisitions were financed with available cash. The 1993 period included
debt repayments of $180 million received from QUNO as a result of its
initial public offering and debt issuances. In March 1994, Tribune
contributed to a partnership in which it had a 50% interest, the $35
million mortgage note it held on an office building owned and operated by
the partnership. This increased the Company's ownership interest in the
partnership to 99%. The partnership's financial statements are
consolidated in Tribune's consolidated financial statements since the date
of the mortgage note contribution. Capital expenditures for fiscal year
1994 are expected to be approximately $90 million, related to a variety of
modernization and normal replacement projects.
Net cash used for financing activities in the first three quarters
was $112 million in 1994 compared to $190 million in 1993. Net cash used
for financing activities in 1994 included debt repayment of $55 million
and dividends of $62 million. Dividends on common stock in the first
three quarters of 1994 increased 8% to $.78 per share from $.72 per share.
In the 1994 third quarter 181,200 shares of common stock were acquired for
$9 million. The Company plans to acquire additional shares in the fourth
quarter. At September 25, 1994, the Company had authorization to
repurchase 718,800 additional shares of its common stock. Net cash used
for financing activities in 1993 included a $242 million reduction in debt
primarily funded from the proceeds received from the QUNO stock offering
and debt financing and $78 million of Medium Term Notes, Series B issued
in September 1993.
The Company expects to fund capital expenditures, dividends and other
operating requirements for the remainder of 1994 primarily with net cash
provided by operations.
16
PART II. OTHER INFORMATION
Item 5. Other Information.
-------------------
The computation of the ratios of earnings to fixed charges, filed
herewith as Exhibit 12, is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
11 - Statements of computation of primary and fully
diluted net income per share.
12 - Computation of ratios of earnings to fixed charges.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
No reports have been filed on Form 8-K during this quarter.
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TRIBUNE COMPANY
(Registrant)
Date: November 8, 1994 R. Mark Mallory
Vice President and Controller
(on behalf of the Registrant
and as Chief Accounting Officer)
18
<TABLE>
<CAPTION> TRIBUNE COMPANY Exhibit 11
STATEMENTS OF COMPUTATION OF PRIMARY AND FULLY DILUTED
NET INCOME PER SHARE
(In thousands, except per share amounts) Third Quarter Ended Three Quarters Ended
Sept. 25, 1994 Sept. 26, 1993 Sept. 25, 1994 Sept. 26, 1993
<S> -------------- -------------- -------------- --------------
PRIMARY
- ------- <C> <C> <C> <C>
Net income $47,827 $38,595 $172,928 $130,531
Preferred dividends, net of tax (4,644) (4,672) (13,931) (13,928)
------------- ------------- ------------ -------------
Net income attributable to common shares $43,183 $33,923 $158,997 $116,603
------------- ------------- ------------ -------------
Weighted average common shares outstanding 67,448 66,590 67,304 66,203
------------- ------------- ------------- -------------
Primary net income per share $ .64 $ .51 $2.36 $1.76
============= ============= ============= =============
FULLY DILUTED
- -------------
Net income $47,827 $38,595 $172,928 $130,531
Additional ESOP contribution required assuming
all preferred shares were converted, net of tax (2,978) (3,012) (8,936) (9,275)
Assumed elimination of tax benefit on certain ESOP
preferred dividends (704) (591) (2,113) (1,686)
------------- ------------- ------------- -------------
Adjusted net income $44,145 $34,992 $161,879 $119,570
------------- ------------- ------------- -------------
Weighted average common shares outstanding 67,448 66,590 67,304 66,203
Assumed conversion of preferred shares into common shares 6,012 6,154 6,012 6,154
Assumed exercise of stock options, net of common
shares assumed repurchased with the proceeds 731 840 850 890
------------- ------------- ------------- -------------
Adjusted weighted average common shares outstanding 74,191 73,584 74,166 73,247
------------- ------------- ------------- -------------
Fully diluted net income per share $ .60 $ .48 $2.18 $1.63
============= ============= ============= =============
See Notes to Consolidated Financial Statements.
</TABLE>
19
<TABLE>
<CAPTION> Exhibit 12
TRIBUNE COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(In thousands of dollars, except ratios)
Three Quarters Full Year
Ended ---------------------------------------------------------
9/25/94 1993 1992 1991 1990 1989
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) before cumulative effects of
accounting changes $172,928 $188,606 $136,625 $141,981 ($63,533) $242,421
Add:
Income tax expense (benefit) 139,212 143,821 96,266 99,894 (30,695) 168,463
Loss on equity investments 13,623 20,212 1,903 1,107 2,285 2,221
---------- --------- --------- --------- --------- ---------
Subtotal 325,763 352,639 234,794 242,982 (91,943) 413,105
---------- --------- --------- --------- --------- ---------
Fixed charge adjustments
Add:
Interest expense 15,689 24,660 49,254 63,083 53,576 47,866
Amortization of capitalized interest 1,793 2,392 5,304 5,258 4,850 4,098
Interest component of rental expense (A) 7,077 8,732 9,329 9,047 14,467 12,333
---------- --------- --------- --------- --------- ---------
Earnings (loss), as adjusted $350,322 $388,423 $298,681 $320,370 ($19,050) $477,402
========== ========= ========= ========= ========= =========
Fixed charges:
Interest expense $15,689 $24,660 $49,254 $63,083 $53,576 $47,866
Interest capitalized - 1,099 3,445 1,976 8,652 13,614
Interest component of rental expense (A) 7,077 8,732 9,329 9,047 14,467 12,333
Interest related to guaranteed ESOP debt (B) 18,472 25,742 27,019 27,500 27,757 20,508
---------- --------- --------- --------- --------- ---------
Total fixed charges $41,238 $60,233 $89,047 $101,606 $104,452 $94,321
========== ========= ========= ========= ========= =========
Ratio of Earnings to Fixed Charges 8.5 6.4 3.4 3.2 (C) 5.1
---------- --------- --------- --------- --------- ---------
(A) Represents a portion of rental expense incurred by the Company, which is a reasonable approximation of the interest cost
component of such expense.
(B) Tribune Company guarantees the debt of its Employee Stock Ownership Plan (ESOP).
(C) The net loss for 1990 reflects an after-tax non-recurring loss of $185 million ($295 million before income taxes) relating
to the sale of the New York Daily News. Excluding this non-recurring item, the ratio for 1990 was 2.6. As a result of the
loss incurred for the full-year 1990, the Company was unable to cover the indicated fixed charges. The Company's loss, as
adjusted, plus the indicated fixed charges for 1990 totaled $124 million.
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the third
quarter 10-Q of Tribune Company and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1994
<PERIOD-START> DEC-27-1993
<PERIOD-END> SEP-25-1994
<CASH> 16,736
<SECURITIES> 45,895
<RECEIVABLES> 305,637
<ALLOWANCES> 35,819
<INVENTORY> 34,674
<CURRENT-ASSETS> 566,190
<PP&E> 1,291,633
<DEPRECIATION> 657,182
<TOTAL-ASSETS> 2,836,793
<CURRENT-LIABILITIES> 522,305
<BONDS> 0
<COMMON> 1,018
0
329,286
<OTHER-SE> 972,921
<TOTAL-LIABILITY-AND-EQUITY> 2,836,793
<SALES> 1,569,897
<TOTAL-REVENUES> 1,569,897
<CGS> 791,049
<TOTAL-COSTS> 1,290,581
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,689
<INCOME-PRETAX> 312,140
<INCOME-TAX> 139,212
<INCOME-CONTINUING> 172,928
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,928
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.18
</TABLE>
