SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
June 10,1997
------------
Date of Report
TRIBUNE COMPANY
---------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
1-8572 36-1880355
------ ----------
(Commission File Number) (IRS Employer 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
<PAGE>
Item 5. Other Events
------------
On March 25, 1997, Tribune Company (the "Company") completed its
acquisition of Renaissance Communications Corp. ("Renaissance") for
approximately $1.1 billion in cash, or $36 per Renaissance common
share. Renaissance was a publicly traded company owning six television
stations -WB affiliates KDAF-Dallas and WDZL-Miami and Fox affiliates
KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg.
The Company financed the acquisition with a combination of available
cash, commercial paper and medium- to long-term debt. The acquisition
was accounted for as a purchase.
The following unaudited pro forma condensed consolidated statement of
income gives pro forma effect to the acquisition of Renaissance by
the Company for the fiscal year ended December 29, 1996.
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Businesses Acquired
The financial statements of Renaissance Communications Corp. for the
year ended December 31, 1996 are included herewith as Exhibit 99.1.
(b) Pro Forma Financial Information
The unaudited pro forma condensed consolidated statement of income for
the fiscal year ended December 29, 1996 is filed as Exhibit 99.2 hereto
and incorporated by reference herein.
(c) Exhibits
23 Consent of Ernst & Young LLP.
99.1 Financial statements of Renaissance Communications Corp. for
the year ended December 31, 1996.
99.2 Unaudited pro forma condensed consolidated statement of income
of Tribune Company for the fiscal year ended December 29,
1996.
1
<PAGE>
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: June 10, 1997 /s/ R. Mark Mallory
---------------
R. Mark Mallory
Vice President and Controller
2
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Description
- ----------- -------------------
23 Consent of Ernst & Young LLP.
99.1 Financial statements of Renaissance Communications
Corp. for the year ended December 31, 1996.
99.2 Unaudited pro forma condensed consolidated statement of
income of Tribune Company for the fiscal year ended
December 29, 1996.
3
Exhibit 23
Consent of Independent Auditors
We hereby consent to the inclusion in Form 8-K (Current Report) of Tribune
Company dated June 10, 1997 and to the incorporation by reference in Forms S-3
(Registration No. 333-02831 and Registration No. 333-18921) of Tribune Company
of our report dated February 21, 1997, except for Note 18 as to which the date
is March 25, 1997, with respect to the consolidated financial statements of
Renaissance Communications Corp. for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
New York, New York
June 10, 1997
1
Exhibit 99.1
Consolidated Financial Statements
Renaissance Communications Corp.
Years ended December 31, 1996, 1995 and 1994
with Report of Independent Auditors
<PAGE>
Renaissance Communications Corp.
Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994
Contents
Report of Independent Auditors............................................. 1
Consolidated Balance Sheets................................................ 2
Consolidated Statements of Income.......................................... 3
Consolidated Statements of Changes in Shareholders' Equity................. 4
Consolidated Statements of Cash Flows...................................... 5
Notes to Consolidated Financial Statements................................. 7
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors of
Renaissance Communications Corp.
We have audited the accompanying consolidated balance sheets of Renaissance
Communications Corp. as of December 31, 1996 and 1995 and the consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1996. 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 Renaissance
Communications Corp. at December 31, 1996 and 1995 and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
February 21, 1997, except for
Note 18 as to which the date
is March 25, 1997
1
<PAGE>
Renaissance Communications Corp.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
-------------------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,501 $ 9,912
Accounts receivable, less allowance for doubtful accounts of $2,259,000 and
$2,128,000 in 1996 and 1995, respectively 43,377 41,258
Notes receivable from related parties 3,609 -
Barter program rights 28,031 29,247
Program rights 31,040 35,451
Taxes receivable 6,011 -
Prepaid expenses and other current assets 3,020 3,464
-------------------------
Total current assets 124,589 119,332
Property, plant and equipment, net of accumulated depreciation 34,643 37,215
Barter program rights 17,249 14,247
Program rights 31,828 45,445
Intangible assets, net of accumulated amortization 151,087 158,858
Deferred financing costs, net of accumulated amortization of $4,845,000
and $2,642,000 in 1996 and 1995, respectively 928 3,131
Note receivable and other assets 4,164 4,331
-------------------------
Total assets $364,488 $382,559
=========================
</TABLE>
<TABLE>
<CAPTION>
December 31
1996 1995
-------------------------
(In thousands)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 2,435 $ 2,464
Accrued expenses 7,032 8,325
Senior secured term loan 6,761 16,209
Barter program payable 28,031 29,247
Program payable 43,645 41,247
-------------------------
Total current liabilities 87,904 97,492
Senior secured term loan and revolving credit facility 8,570 47,546
Barter program payable 17,249 14,247
Program payable 39,752 54,563
Deferred income taxes 9,168 4,263
Other noncurrent liabilities - 301
Shareholders' equity:
Common stock, par value $.01 per share, authorized 37,500,000 shares, issued
and outstanding 30,412,807 and 30,037,206 shares in 1996 and 1995,
respectively 304 300
Additional paid-in capital 171,384 162,273
Notes receivable from warrant/option exercise (2,757) -
Accumulated earnings 32,914 1,574
-------------------------
Total shareholders' equity 201,845 164,147
-------------------------
Total liabilities and shareholders' equity $364,488 $382,559
=========================
</TABLE>
See accompanying notes.
2
<PAGE>
Renaissance Communications Corp.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
-------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net revenue $167,898 $148,062 $133,658
Barter revenue 36,261 31,156 27,564
-------------------------------------------
Total revenue 204,159 179,218 161,222
Operating expenses 15,784 14,628 13,685
Selling, general and administrative expenses 37,684 35,933 46,059
Amortization of program rights 43,996 35,585 30,179
Amortization of barter program rights 35,318 29,937 26,235
Depreciation and amortization 14,933 15,756 17,567
-------------------------------------------
Total operating expenses 147,715 131,839 133,725
-------------------------------------------
Profit from operations 56,444 47,379 27,497
Other income (expense), net (352) 18,964 536
Interest income 1,317 1,356 949
Interest expense (3,152) (7,137) (10,254)
-------------------------------------------
Income before provision for income taxes and
extraordinary item 54,257 60,562 18,728
Provision for income taxes 21,998 11,526 2,547
-------------------------------------------
Income before extraordinary item 32,259 49,036 16,181
Extraordinary item:
Loss on early extinguishment of debt, net of $638,000
of income taxes in 1996 919 - 2,403
-------------------------------------------
Net income $ 31,340 $ 49,036 $ 13,778
===========================================
Income per common and common equivalent share before
extraordinary item (Note 18) $ 1.04 $ 1.60 $ 0.46
Extraordinary item (0.03) - (0.08)
-------------------------------------------
Net income per common and common
equivalent share $ 1.01 $ 1.60 $ 0.38
===========================================
</TABLE>
See accompanying notes.
3
<PAGE>
Renaissance Communications Corp.
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Notes
Additional Receivable from Accumulated
Preferred Preferred Common Paid-in Warrant/Option Unearned Earnings
Series B Series D Stock Capital Exercise Compensation (Deficit) Total
-------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 563 $ 100 $ 46 $ 89,645 $ - $ (500) $(61,240) $ 28,614
Net income - - - - - - 13,778 13,778
Issuance of stock dividends:
Series B 25 - - (25) - - - -
Issuance of Common Stock:
Initial public offering - - 67 116,306 - - - 116,373
Phantom Stock Plan - - 2 3,233 - - - 3,235
Accretion of discount: Series C - - - (35) - - - (35)
Redemption of stock: Series B (588) - - (58,149) - - - (58,737)
Conversion of stock: Series D - (100) 75 25 - - - -
Exercise of warrants - - 8 1,108 - - - 1,116
Noncash compensation - - - 9,418 - 500 - 9,918
-------------------------------------------------------------------------------------------------
Balance at December 31, 1994 - - 198 161,526 - - (47,462) 114,262
Net income - - - - - - 49,036 49,036
Exercise of warrants - - 2 847 - - - 849
3-for-2 stock split - - 100 (100) - - - -
-------------------------------------------------------------------------------------------------
Balance at December 31, 1995 - - 300 162,273 - - 1,574 164,147
Net income - - - - - - 31,340 31,340
Exercise of warrants/options - - 4 9,111 (2,757) - - 6,358
=================================================================================================
Balance at December 31, 1996 $ - $ - $ 304 $171,384 $(2,757) $ - $ 32,914 $201,845
=================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Renaissance Communications Corp.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
-----------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 31,340 $ 49,036 $ 13,778
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,933 15,756 17,567
Amortization of program rights, net of barter 43,996 35,585 30,179
Amortization of discount on senior
subordinated split coupon notes,
subordinated program obligations and
certain contracts payable - 3 1,044
Noncash compensation - - 12,040
Provision for bad debts 722 585 732
Loss on early extinguishment of debt 919 - 2,403
Loss on disposal of fixed assets 352 61 364
Program payments (38,381) (30,519) (28,200)
(Increases) decreases in assets and (decreases)
increases in liabilities, net of effects from
purchases and sales of stations:
Accounts receivable (2,841) (927) (10,587)
Taxes receivable 43 - -
Prepaid expenses, other current assets and
other assets 211 (1,436) 245
Accounts payable (29) (447) 185
Accrued expenses and other liabilities 4,277 5,733 (892)
-----------------------------------------
Total adjustments 24,202 24,394 25,080
-----------------------------------------
Net cash provided by operating activities 55,542 73,430 38,858
-----------------------------------------
Cash flows from investing activities
Capital expenditures (4,623) (4,838) (4,446)
Payment for exchange - (34,500) -
Issuance of notes receivable to related parties (3,609) - -
Proceeds from principal payments on note
receivable 400 400 200
-----------------------------------------
Net cash used in investing activities (7,832) (38,938) (4,246)
-----------------------------------------
</TABLE>
5
<PAGE>
Renaissance Communications Corp.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from senior secured term loan and
revolving credit facility $ - $ 34,500 $ -
Proceeds from initial public offering - - 116,373
Proceeds from exercise of warrants/options 303 849 1,116
Redemption of Series B - - (58,737)
Redemption of Series C - - (2,910)
Principal payments on senior secured term loan and
revolving credit facility (48,424) (69,995) (80,994)
Principal payments on subordinated program
obligations
- - (8,871)
Principal payments on other noncurrent liabilities - (63) (125)
-----------------------------------------
Net cash used in financing activities (48,121) (34,709) (34,148)
-----------------------------------------
Net (decrease) increase in cash and cash
equivalents
(411) (217) 464
Cash and cash equivalents
Balance at the beginning of the period 9,912 10,129 9,665
------------------------------------------
Balance at the end of the period $ 9,501 $ 9,912 $ 10,129
==========================================
Supplemental disclosure of cash flow
information
Cash paid for interest $ 3,171 $ 7,152 $ 9,752
==========================================
Cash paid for income taxes $ 17,233 $ 7,580 $ 2,101
==========================================
</TABLE>
Supplemental schedule of noncash financing activities
During 1996, $2,756,634 in loans were issued to warrant and option holders for
the exercise price of warrants and options.
Supplemental schedule of noncash investing activities
On July 3, 1995, the Company exchanged its television station KDVR, Denver,
Colorado, and approximately $34,500,000 in cash for Fox's television
station KDAF, Dallas, Texas (see Note 3).
See accompanying notes.
6
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements
December 31, 1996
1. Organization and Basis of Presentation
Renaissance Communications Corp. (the "Company") was organized in 1988 to
acquire a portfolio of television stations. The Company owns and operates the
stations through wholly-owned subsidiaries in various markets throughout the
United States. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries during the period owned by the
Company. All significant intercompany items and transactions have been
eliminated in consolidation. Certain prior year items have been restated to
conform with the current period's presentation.
On September 18, 1995, the Company's Board of Directors declared a 3-for-2 stock
split, in the form of a 50% stock dividend of the Company's Common Stock,
payable October 16, 1995 to shareholders of record on October 2, 1995. Share and
per share data included in the consolidated statements of income and notes to
consolidated financial statements have been restated to retroactively reflect
this split.
On February 3, 1994, the Company issued 9,965,221 shares of Common Stock in an
initial public offering. In connection with this offering, the first warrants
that were issued to the Chief Executive Officer of the Company vested. The
holders of the Series D Convertible Preferred Stock ("Series D") converted their
holdings to Common Stock and holders of certain warrants exercised such
warrants. The Company also paid out, in a combination of stock and cash, all
Units of Phantom Stock granted to employees of the Company or its subsidiaries.
In connection with its initial public offering, the Company's Common Stock was
split 75-for-1. The consolidated financial statements have been restated to
retroactively reflect this split.
The net proceeds of this offering of $116,373,000 were used to redeem all
of the Series B Exchangeable Preferred Stock ("Series B") and Series C
Convertible Preferred Stock ("Series C"), and pay down $54,726,000 of the Senior
Secured Term Loan.
7
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
2. Summary of Accounting Policies
Program Rights
Program rights consist of rights to broadcast films and tapes and are generally
amortized based on the greater of amortization computed on a straight-line basis
over the period of the agreement or amortization computed on an accelerated
basis over the number of showings available per the agreement. The current
portion of program rights represents the estimated amount to be amortized in the
next 12 months. Amounts are presented at the lower of unamortized cost or net
realizable value. Program rights and the related program liabilities to
licensors are presented on an undiscounted basis. The program liability to
licensors is classified as current or noncurrent in accordance with the payment
terms of the various agreements. Commitments to purchase program rights are
recorded when the program becomes available for broadcast.
Barter Transactions
Barter transactions represent the exchange of commercial air time for
programming, merchandise or services. The transactions are recorded at the fair
market value of the asset or service received. Revenue is recognized on barter
transactions when the advertisements are broadcast; expenses are recorded when
the asset or service received is utilized. Barter program rights and payables
are recorded for barter programming transactions based upon the availability of
the associated programming.
Property, Plant and Equipment
Depreciation of property, plant and equipment is calculated on the
straight-line method over estimated useful lives of 3 to 40 years. Leasehold
improvements are amortized on the straight-line method over the shorter of the
lease term or estimated useful life of the asset.
Intangible Assets and Deferred Financing Costs
Intangible assets consist principally of covenants not-to-compete, station
licenses, affiliation agreements and the excess of cost over the fair value of
net assets acquired relating to the purchases of the stations. Intangible assets
are amortized on a straight-line basis. Deferred financing costs are amortized
over the terms of the respective financings.
8
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
2. Summary of Accounting Policies (continued)
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with original maturities of three months or less
at the time of purchase to be cash equivalents. The carrying amount of these
items approximates fair value.
Revenue Recognition
The Company recognizes revenue from the sale of advertising at the time the
advertisements are aired. Commercial time is sold and credit is granted to
customers who are predominantly advertising agencies. Collateral is not required
for credit granted.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for the
years ended December 31, 1996, 1995 and 1994 was $3,189,000, $3,349,000 and
$3,002,000, respectively.
Income Taxes
For all periods presented, the Company accounted for income taxes pursuant to
the Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes.
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock Compensation
The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board Statement No. 25, Accounting for
Stock Issued to Employees.
9
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
3. Exchange of Stations
Effective July 3, 1995, the Company exchanged with Fox Television Stations, Inc.
("Fox") its television station KDVR, Denver, Colorado and approximately
$34,500,000 in cash for Fox's television station KDAF, Dallas, Texas. The
Company financed the exchange by borrowing an additional $34,500,000 under its
revolving credit facility. The exchange was accounted for as a nonmonetary
transaction since the cash paid was less than 25% of the fair market value of
KDAF as determined by an independent appraisal.
The following table presents (in thousands, except per share amounts) the
unaudited pro forma results of operations of the Company for the years ended
December 31, 1995 and 1994 as if the exchange of KDVR for KDAF had occurred on
January 1, 1994. The pro forma results are not necessarily indicative of what
would have been reported had such events actually occurred on January 1, 1994,
nor of the Company's future results. In addition, the results of operations of
KDAF include the operations of KDAF for the period owned by Fox as a Fox
affiliate; however, KDAF is not a Fox affiliate under the Company. No pro forma
adjustments have been made with respect to the affiliation switch.
Year ended December 31
1995 1994
------------------------
(Unaudited)
Total revenue $187,284 $178,012
Income before extraordinary item 51,723 29,899
Net income 51,723 27,496
Income per common and common equivalent
share before extraordinary item $1.68 $1.05
4. Outlet Transaction
On June 30, 1995, the Company entered into a merger agreement with Outlet
Communications, Inc. ("Outlet") to acquire all of Outlet's common stock. On July
28, 1995, the National Broadcasting Company ("NBC") made an offer to acquire
Outlet for consideration in excess of the Company's agreement with Outlet. On
August 2, 1995, the Company entered into a settlement agreement with NBC
receiving $20,000,000, which was recorded, net of related expenses, as other
income.
10
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
5. Property, Plant and Equipment
Property, plant and equipment, at cost, at December 31, 1996 and 1995 consist of
the following (in thousands):
1996 1995
--------------------------
Land, buildings and improvements $ 13,859 $ 13,712
Broadcasting equipment 49,443 50,397
Office furniture, equipment and other 8,647 6,167
--------------------------
71,949 70,276
Less accumulated depreciation and amortization (37,306) (33,061)
--------------------------
$ 34,643 $ 37,215
==========================
Depreciation expense for the years ended December 31, 1996, 1995 and 1994 was
$6,837,000, $7,366,000 and $8,821,000, respectively.
6. Intangible Assets
Intangible assets, at cost, at December 31, 1996 and 1995 consist of the
following (in thousands):
Amortization
Period 1996 1995
-----------------------------------------
Acquisition costs 40 years $ 2,940 $ 2,940
Noncompete agreement 5 years 16,006 16,006
Station licenses 40 years 91,836 92,158
Fox affiliation 40 years 26,647 26,647
Other Various 1,467 1,467
Excess of cost over fair value
of net assets acquired 40 years 43,052 43,052
--------------------------
181,948 182,270
Less accumulated amortization (30,861) (23,412)
--------------------------
$ 151,087 $ 158,858
==========================
11
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
7. Senior Secured Term Loan and Revolving Credit Facility
The Company's long-term debt at December 31, 1996 and 1995 is as follows (in
thousands):
1996 1995
------------------------------
Senior secured term loan and
revolving credit facility $15,331 $63,755
Less amount payable in one year 6,761 16,209
------------------------------
$ 8,570 $47,546
==============================
The outstanding balance of the Senior Secured Term Loan was repaid in full in
February 1997. An extraordinary charge to earnings of $522,000, net of income
taxes, will be recorded in the first quarter of 1997 relating to the write-off
of associated deferred financing costs. Interest was payable on the Senior
Secured Term Loan on the outstanding principal balance at either the prime rate
or the LIBOR rate plus various margins of up to 1.25% based upon the ratio of
the total funded debt to the previous 12 months' cash flow, as defined, and the
base rate selected by the Company.
The interest rate on the Senior Secured Term Loan was 6.66% at December 31,
1996. The average interest rate accrued during 1996, 1995 and 1994 was 6.50%,
7.80% and 6.83%, respectively. Each subsidiary had guaranteed repayment of its
applicable portion of principal and interest. The carrying amount of the Senior
Secured Term Loan at December 31, 1996 and 1995 approximated its fair value.
A Revolving Credit Facility of $50,000,000 is available through December 31,
1999. As of December 31, 1996, $49,750,000 was available under this facility.
The interest rate provisions under the Revolving Credit Facility are the same as
those under the Senior Secured Term Loan. A commitment fee of 3/8 of 1% on the
unused balance is due quarterly. Up to $15,000,000 of this Revolving Credit
Facility can be used to issue letters of credit. The Company is required to pay
a fee of 2.50% per annum on the outstanding letters of credit.
The Company has pledged as collateral the stock held in each of its
subsidiaries, including rights to all future dividends and other distributions
on the stock collateral, and all intercompany advances payable which are
secured by the assets of each respective subsidiary.
12
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
7. Senior Secured Term Loan and Revolving Credit Facility (continued)
The credit agreement contains certain restrictive covenants relating to the
maintenance of working capital, current ratio, and debt coverage and certain
covenants that place limitations on additional investments, indebtedness,
guarantees and contingent liabilities, sale of assets and mergers and
acquisitions. The terms of the Company's credit agreement also prohibit the
Company from paying cash dividends on its Common Stock.
8. Program Payable
The Company has obligations to various syndicators and distributors in
accordance with current contracts for the rights to broadcast programs. Payments
scheduled under contracts for programs available for broadcast at December 31,
1996 are as follows (in thousands):
1997 $43,645
1998 25,921
1999 10,923
2000 1,597
2001 and thereafter 1,311
------------
$83,397
============
9. Commitments and Contingencies
The Company has assumed, or has entered into, commitments for future syndicated
and feature movie programming. Future payments associated with these commitments
for the years ending December 31 are as follows (in thousands):
1997 $ 3,545
1998 9,199
1999 12,577
2000 10,900
2001 and thereafter 5,293
------------
$41,514
============
The Company currently and from time to time is involved in litigation incidental
to the conduct of its business. The Company is not a party to any lawsuit or
proceeding which, in the opinion of management, is likely to have a material
adverse effect on the financial condition or results of operations of the
Company.
13
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
10. Preferred Stock
The Company had three series of preferred stock which were redeemed in February
1994. The Series B and Series D were owned by the majority owner. The Series C
was issued to the seller of the television stations acquired in March 1993. In
connection with the initial public offering, all outstanding shares of the
Series B were redeemed for a total of $58,737,000, all of the outstanding shares
of Series C were redeemed for $2,910,000 and all of the outstanding shares of
Series D were converted into 11,250,000 shares of the Company's Common Stock.
11. Common Stock Warrants
Common stock warrants were issued to the Chief Executive Officer of the Company
and to certain key members of management (and a former member of management),
which entitled the Chief Executive Officer and such members (and former member)
of management to purchase from the majority owner of the Company's Common Stock
at an exercise price of $0.89 per share, 675,000 shares of the Company's $0.01
par value Common Stock owned by the majority owner. In addition, the holders
were entitled to purchase from the majority owner the pro rata number of shares
acquired by the majority owner from October 28, 1988 to the expiration of the
common stock warrants to prevent dilution of their interests. The first warrant
fully vested upon completion of the initial public offering. During 1995, all of
these warrants were exercised.
The second warrant entitled the Chief Executive Officer to purchase from the
Company at an exercise price of $0.89 per share, additional shares of the
Company's Common Stock. The second warrant could be exercised upon the
occurrence of certain future events and expires seven years after issuance or
upon the occurrence of certain other events. On March 18, 1993, the second
warrant was exchanged for 22,500 shares of Series B and new warrants. These new
warrants entitled the holders to purchase from the Company through 1999 up to
900,000 shares of the Company's Common Stock at an exercise price of $6.67 per
share. Prior to March 15, 1995, the holders of the new warrants could elect, in
lieu of paying the exercise price, to receive a number of shares of Common Stock
on the date of exercise. Such number is based on the fair market value of the
warrants divided by the fair market value of a share of Common Stock at such
date. Effective March 15, 1995, these warrants were amended to limit the
cashless exercise feature of the warrants so that there will be no additional
noncash compensation. During 1995 and 1994, 93,750 and 56,250, respectively, of
such warrants were
14
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
11. Common Stock Warrants (continued)
exercised. The exercise price was paid in cash. On May 21, 1996, certain family
members of an officer exercised warrants for 300,000 shares of Common Stock. The
exercise price was satisfied through the issuance of $2,000,000 in demand notes
to the Company. The notes bear interest at an annual rate of 6%. As of December
31, 1996, there were 450,000 of these warrants still outstanding.
During 1994, noncash compensation of $9,918,000 was recorded relating to
warrants earned and was reflected as a credit to paid-in capital.
Warrants to purchase 1,687,500 shares of Common Stock (the "Noteholder
Warrants") were issued in 1989. The exercise price of the Noteholder Warrants
was $0.89 per share and was subject to additional adjustment, along with the
number of shares issuable upon exercise of a warrant, upon the occurrence of
certain dilutive events. During 1995 and 1994, 254,250 and 1,256,063 shares of
Common Stock, respectively, were issued upon exercise of these warrants. At
December 31, 1996 and 1995, there were no Noteholder Warrants outstanding.
12. Income Taxes
The Company files a consolidated federal income tax return and separate income
tax returns for state and local purposes.
The 1996, 1995 and 1994 provisions consist of federal, state and local taxes as
follows (in thousands):
1996 1995 1994
-----------------------------------------------
Current:
Federal (AMT in 1994) $16,674 $ 4,261 $ 600
State 3,665 3,002 1,947
-----------------------------------------------
Total current 20,339 7,263 2,547
Deferred:
Federal 1,359 4,263 -
State 300 - -
-----------------------------------------------
Total deferred 1,659 4,263 -
-----------------------------------------------
Total tax provision $21,998 $11,526 $2,547
===============================================
15
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
12. Income Taxes (continued)
The alternative minimum tax arose in 1994 because net operating loss
carryforwards may be used to offset only 90% of a corporation's alternative
minimum taxable income. As of December 31, 1995, the Company has no remaining
net operating loss carryforwards for federal income tax purposes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1996 and 1995 are as follows (in thousands):
1996 1995
---------------------------------
Deferred tax assets:
Noncash compensation $ 2,182 $ 5,428
Amortization of program rights 2,227 2,196
Other 1,025 1,008
---------------------------------
Total deferred tax assets 5,434 8,632
Deferred tax liabilities:
Basis difference in broadcasting
intangibles 10,593 8,969
Accelerated depreciation 3,961 3,878
Other 48 48
---------------------------------
Total deferred tax liabilities 14,602 12,895
---------------------------------
Net deferred taxes $ 9,168 $ 4,263
=================================
Below is a reconciliation of income tax computed at the U.S. federal statutory
rate to the provision for income taxes (in thousands):
1996 1995 1994
---------------------------------------
Income tax expense at statutory
federal rate $ 18,990 $ 21,197 $ 6,555
State and local taxes, net of
federal benefit 2,577 1,951 1,265
Goodwill amortization 380 380 380
Federal AMT - - 600
Reduction of valuation allowance - (11,800) (6,253)
Other 51 (202) -
---------------------------------------
Provision for income taxes $ 21,998 $ 11,526 $ 2,547
=======================================
16
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
13. Leases
Future minimum rental commitments for noncancellable operating leases of
premises and equipment are as follows for the years ending December 31 (in
thousands):
1997 $1,005
1998 945
1999 941
2000 801
2001 and thereafter 4,751
------------
$8,443
============
The rental expense for all operating leases in 1996, 1995 and 1994 amounted to
$1,045,000, $1,059,000 and $1,079,000, respectively.
Certain of the Company's leases are subject to renewal options and escalation
clauses.
14. Employee Savings Plan
The Company has a defined contribution savings and investment plan for
substantially all of its employees. Under the plan, the Company matches one-half
of contributions of eligible employees up to 4% of their eligible salary. For
the years ended December 31, 1996, 1995 and 1994, the Company incurred total
expenses of $333,000, $335,000 and $314,000, respectively, under the plan.
15. Stock Option Plan
The Company has adopted a Stock Option Plan pursuant to which options for shares
of Common Stock or related stock appreciation rights may be granted to
employees. The maximum number of shares of Common Stock reserved for issuance
under the Stock Option Plan is 675,000. The Stock Option Plan provides that
options granted thereunder will vest over five years, commencing one year
following their grant, and will be exercisable for a period of up to ten years.
Stock appreciation rights generally will be exercisable at the same time and
subject to the same conditions as the related option. The exercise price of
options may be paid in cash or shares of Common Stock and the committee may
provide for loans of the option exercise price to the optionee, secured by a
pledge of Common Stock with a fair market value
17
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
15. Stock Option Plan (continued)
at least equal to the loan. On December 31, 1993, options to purchase an
aggregate of 399,000 shares of Common Stock at an exercise price of $12.67 per
share were granted and on November 17, 1995, the remaining options to purchase
an aggregate of 276,000 shares of Common Stock at an exercise price of $19.50
per share were granted.
On December 20, 1996, an officer exercised options for 52,185 shares of Common
Stock. The exercise price was satisfied through the issuance of $757,000 in
demand notes to the Company. The note bears interest at an annual rate of 6%.
The following table summarizes the Stock Option Plan's transactions for the
years ended December 31, 1996 and 1995:
1996 1995
---------------------------
Outstanding options, beginning of year 675,000 399,000
Granted - 276,000
Cancelled or expired - -
Exercised 75,600 -
---------------------------
Outstanding options, end of year 599,400 675,000
===========================
Average price of options exercised $14.03 $ -
Weighted average exercise price, end of year $15.64 $15.46
Options exercisable, end of year 219,000 159,600
Options available for future grant - -
Fair value of options granted during the year - $7.82
The Company applies Accounting Principles Board Statement No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
Stock Option Plan. Accordingly, no compensation expense has been recognized for
its Stock Option Plan. Had compensation cost for the Stock Option Plan been
determined based upon the fair value at the grant date for awards under the
Stock Option Plan consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
the Company's net income and income per share would have been decreased by
approximately $432,000, or $0.01 per share, and $53,000, or $0.00 per share, for
the years ended December 31, 1996 and 1995, respectively, using the
Black-Scholes option-pricing model with the following assumptions: dividend
yield of 0%, volatility of 0.337, risk-free
18
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
15. Stock Option Plan (continued)
interest rate of 6.0% and an expected life of five years. For purposes of FASB
No. 123 pro forma disclosures, the estimated fair value of the options is
amortized to expense over the option's vesting period. Therefore, the impact on
pro forma results of operations in 1996 and 1995 may not be representative of
the impact in future periods should additional options be granted.
16. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is determined by dividing net
income available to common shareholders by the weighted average number of common
shares outstanding. In 1994, the income available to common shareholders is
based on the net income after the dividend requirement on preferred stock of
$3,132,000.
The calculation of weighted average common shares outstanding includes the
following: 1) in 1996, the average number of shares outstanding of 30,221,446
shares plus the net number of shares presumed issued relating to outstanding
options and warrants under the treasury stock method of 776,553 shares; 2) in
1995, the average number of shares outstanding of 29,826,892 shares plus the net
number of shares presumed issued relating to outstanding options and warrants
under the treasury stock method of 875,439 shares; and 3) in 1994, the average
number of shares outstanding of 27,534,444 shares plus the net number of shares
presumed issued relating to outstanding options and warrants under the treasury
stock method of 815,473 shares.
17. Quarterly Financial Data (Unaudited)
The following summarizes the Company's results of operations for each quarter of
1996 and 1995 (in thousands, except per share amounts). The income per common
and common equivalent share computation for each quarter and the year are
separate calculations.
19
<PAGE>
Renaissance Communications Corp.
Notes to Consolidated Financial Statements (continued)
17. Quarterly Financial Data (Unaudited) (continued)
Accordingly, the sum of the quarterly income per common and common equivalent
share amounts may not equal the income per common and common equivalent share
for the year.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Total revenue $ 45,347 $ 55,831 $ 48,206 $ 54,775 $204,159
Profit from operations 9,539 19,667 10,967 16,271 56,444
Income before extraordinary item 4,993 11,388 6,214 9,664 32,259
Net income 4,771 11,388 5,804 9,377 31,340
Net income per common and common
equivalent share before
extraordinary item $ 0.16 $ 0.37 $ 0.20 $ 0.31 $ 1.04
Net income per common and common
equivalent share $ 0.15 $ 0.37 $ 0.19 $ 0.30 $ 1.01
1995
Total revenue $ 37,269 $ 44,386 $ 44,000 $ 53,563 $179,218
Profit from operations 7,694 15,324 10,780 13,581 47,379
Net income 5,213 12,586 23,448 7,789 49,036
Net income per common and common
equivalent share $ 0.17 $ 0.41 $ 0.76 $ 0.25 $ 1.60
</TABLE>
18. Pending Transaction
On July 1, 1996, the Company entered into a definitive agreement to be acquired
by Tribune Company for $36.00 per share in cash for an aggregate purchase price
of $1.13 billion (the "Transaction"). In conjunction with the Transaction, all
outstanding options and warrants will be purchased for $36.00 per share less the
exercise price. The Transaction closed on March 25, 1997.
20
Exhibit 99.2
TRIBUNE COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996
INTRODUCTORY COMMENTS
On March 25, 1997, Tribune Company (the "Company") completed its
acquisition of Renaissance Communications Corp. ("Renaissance") for
approximately $1.1 billion in cash, or $36 per Renaissance common share.
Renaissance was a publicly traded company owning six television stations -WB
affiliates KDAF-Dallas and WDZL-Miami and Fox affiliates KTXL-Sacramento,
WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The Company financed the
acquisition with a combination of available cash, commercial paper and medium-
to long-term debt. The acquisition was accounted for as a purchase.
The Federal Communications Commission ("FCC") order granting the
Company's application to acquire the Renaissance stations contained waivers of
two FCC rules. First, the FCC temporarily waived its duopoly rule relating to
the overlap of WTIC's and WPMT's broadcast signals with those of other Tribune
stations. The temporary waivers were granted subject to the outcome of pending
FCC rulemaking that is expected to make duopoly waivers unnecessary. Second, the
FCC granted a 12-month waiver of its rule prohibiting television/newspaper
cross-ownership in the same market, relating to the Miami television station and
the Fort Lauderdale Sun-Sentinel. The Company has appealed the FCC's ruling on
the cross-ownership issue and a petition requesting a rulemaking procedure has
been filed with the FCC since the FCC issued the order. The Company cannot
predict the outcome of such FCC rulemaking or any such appeal.
The following unaudited pro forma condensed consolidated statement of
income gives pro forma effect to the acquisition of Renaissance by Tribune for
the fiscal year ended December 29, 1996 and includes the results of the Miami
station.
The pro forma condensed consolidated statement of income presented
herein also shows the pro forma effects of the March 1, 1996, sale of the
Company's holdings of QUNO Corporation ("QUNO"), a Canadian newsprint company,
as part of QUNO's merger with Donohue Inc. At the time of the merger, the
Company owned approximately 34% of QUNO's common stock plus $138.8 million in
QUNO convertible debt. Tribune's investment in QUNO was accounted for as a
discontinued operation in the Company's 1996 consolidated financial statements.
The Company's gross proceeds from the sale were approximately $427 million,
consisting of $284 million in cash, $74 million in short-term notes and $69
million in Donohue common stock. Tribune sold the notes and common stock for
cash shortly after the transaction. The proceeds were used to pay down debt and
to fund 1996 acquisitions. The after-tax proceeds from the sale were
approximately $331 million. In 1996, Tribune recorded an after-tax gain on the
sale of the discontinued operations of QUNO of $89.3 million, or $.73 per share
on a primary basis.
The pro forma condensed consolidated statement of income also includes
the pro forma effects of five 1996 acquisitions, one 1997 disposition and one
1997 investment transaction. The 1996 acquisitions include the acquisition of
Houston television station KHTV in January 1996 for approximately $102 million
in cash, the acquisition of the remaining minority interest in Philadelphia
television station WPHL in February 1996 for approximately $23 million in cash,
the acquisition of two education publishers in March 1996-- Educational
Publishing Corporation ("EPC") for approximately $205 million in cash and NTC
Publishing Group ("NTC") for approximately $83 million in cash, and the
acquisition of San Diego television station KSWB in April 1996 for approximately
$72 million in cash. The 1997 disposition related to the Company's
1
<PAGE>
sale of its Farm Journal subsidiary for $17 million in cash at the beginning of
the second quarter. The 1997 investment transaction related to the Company's
March 1997 agreement to exercise an option for $21 million to increase its
equity ownership in The WB Television Network to 21.9% from 12.5%. The
Renaissance acquisition was reflected in the most recent Tribune Company
consolidated balance sheet filed with the Form 10-Q for the first quarter ended
March 30, 1997. Accordingly, this Form 8-K does not include a pro forma
condensed consolidated balance sheet.
The pro forma information is based on historical financial statements
of the Company after adjusting for the transactions and assumptions as set forth
in the accompanying notes to the pro forma statement of income. The pro forma
condensed consolidated statement of income assumes the transactions occurred at
the beginning of 1996 and only includes income from continuing operations. As
QUNO was accounted for as a discontinued operation in Tribune's 1996
consolidated financial statements, the pro forma adjustments for QUNO include
only a pro forma interest expense adjustment for the proceeds received, and the
related tax effect.
The pro forma condensed consolidated statement of income may not be
indicative of the results that would have occurred if the transactions had
occurred at the beginning of 1996 or of results that may be attained in the
future. The purchase accounting for the Renaissance acquisition reflected in the
pro forma condensed consolidated statement of income is preliminary and will
likely change as appraisals are finalized and more facts become known. No
material adjustments are expected. The unaudited pro forma statement of income
does not reflect any synergies anticipated by the Company as a result of the
acquisitions. The pro forma condensed consolidated statement of income should be
read in association with the consolidated financial statements of Tribune
Company as set forth in its Annual Report on Form 10-K for the year ended
December 29, 1996 and its Form 10-Q for the quarter ended March 30, 1997, and of
Renaissance as set forth in Exhibit 99.1 hereto.
2
<PAGE>
TRIBUNE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996
(Unaudited)
<TABLE>
<CAPTION>
Historical (2)
------------------------------------ Pro Forma Tribune
(In thousands, except per share data) Tribune Renaissance Other (1) Adjustments Pro Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Publishing $ 1,336,639 $ $ $ $ 1,336,639
Revenues Broadcasting and Entertainment 876,750 204,159 (22,733) (19,091)(a) 1,039,085
Education 192,316 13,584 205,900
------------------------------------------------------------------------------------------------------------------------
Total operating revenues 2,405,705 204,159 (9,149) (19,091) 2,581,624
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Cost of sales (exclusive of items shown below) 1,172,664 95,098 (7,029) (25,383)(a) 1,235,350
Expenses Selling, general and administrative 600,072 38,036 8,501 6,292 (a) 652,901
Depreciation and amortization of intangible assets 142,893 14,933 (857) 30,214 (b) 187,183
------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,915,629 148,067 615 11,123 2,075,434
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit 490,076 56,092 (9,764) (30,214) 506,190
Interest income 32,116 1,317 (4,017)(c) 29,416
Interest expense (47,779) (3,152) (1,084) (58,239)(d) (110,254)
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations
Before Income Taxes 474,413 54,257 (10,848) (92,470) 425,352
Income taxes (191,663) (21,998) 3,708 30,212 (e) (179,741)
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 282,750 32,259 (7,140) (62,258) 245,611
Preferred dividends, net of tax (18,786) (18,786)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income from Continuing Operations
Attributable to Common Shares $ 263,964 $ 32,259 $ (7,140) $ (62,258) $ 226,825
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income Per Share from Continuing Operations
Primary $ 2.15 $ 1.85
Fully diluted $ 1.97 $ 1.70
Shares Outstanding
Primary 122,842 122,842
Fully diluted 136,653 136,653
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income.
3
<PAGE>
TRIBUNE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996
(1) The amounts in this column represent the historical 1996 results of
operations for Tribune's 1996 acquisitions (KHTV, EPC, NTC and KSWB) from
the beginning of the year until their respective dates of acquisition and
an estimate of the incremental equity losses for the increase in ownership
in The WB Network to 21.9% from 12.5%. This column also includes the
reversal of the 1996 historical results of operations of Farm Journal,
which was sold in 1997.
(2) This column includes the pro forma adjustments to the unaudited condensed
consolidated statement of income for the fiscal year ended December 29,
1996 and reflects the following:
(a) The estimated adjustment to conform Renaissance accounting for barter
broadcast rights and national sales rep commissions consistent with
Tribune's methodology. This adjustment has no impact on operating
profit.
(b) The amortization of the estimated excess of acquisition cost over the
fair value of net tangible assets acquired. The assumed lives for this
excess range from 5 to 40 years with most over 40, including all of the
Renaissance excess. This includes an adjustment for the 1996
acquisitions to reflect twelve months of expense. The allocation of
purchase price for the Renaissance acquisition is preliminary and will
likely change as appraisals are finalized and more facts become known.
(c) The elimination of Renaissance interest income in 1996 as all available
cash is assumed to pay down commercial paper. The adjustment also
reflects the elimination of interest income earned on the amount of
debt prefunded by Tribune in 1996 for the Renaissance acquisition.
(d) The additional interest expense resulting from increased debt levels.
The Renaissance acquisition is assumed to be financed with both
commercial paper and medium- to long-term notes, at an average interest
rate of approximately 5.8%. The 1996 acquisitions and the increased WB
investment are assumed to be financed with commercial paper at an
average rate of 5.4%. This pro forma adjustment also includes the
elimination of $4.2 million of interest expense incurred by the
acquired businesses and included in their historical financial
statements on debt that is assumed to be repaid at the date of
acquisition. Finally, the adjustment also includes $4.8 million of
interest savings from the QUNO and Farm Journal proceeds, assuming they
had been received at the beginning of the year. The QUNO proceeds were
approximately $427 million and Farm Journal proceeds were approximately
$17 million. The interest expense savings from the QUNO and Farm
Journal proceeds was calculated at an average commercial paper rate of
5.4%. The effect on pro forma net income of a 1/8% change in the
variable debt interest rate is $.6 million.
(e) The income tax effect of the pro forma adjustments and a pro forma
amount for income taxes on NTC's and KSWB's earnings. The effective tax
rate on the pro forma adjustments differs from the Company's federal
statutory tax rate of 35% due to non-deductible amortization of
intangible assets and state taxes. NTC was a partnership and as such
recorded no income tax expense in the period in 1996 prior to Tribune's
acquisition. If the Company had acquired NTC at the beginning of the
period, income tax expense would have been recorded. KSWB recorded no
tax benefit related to its 1996 pre-acquisition loss. Tribune would
have realized the benefit of such loss, therefore the tax benefit would
have been recorded.
4
