- --------------------------------------------------------------------------------
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 27, 1998
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 November 6, 1998 there were 118,758,409 shares outstanding of the
Company's Common Stock (without par value).
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
TRIBUNE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
------------------------------- -------------------------------
Sept. 27, 1998 Sept. 28, 1997 Sept. 27, 1998 Sept. 28, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating Revenues...................................... $757,148 $695,286 $2,215,425 $2,008,947
Operating Expenses
Cost of sales (exclusive of items shown below).......... 365,076 333,523 1,049,389 938,594
Selling, general and administrative..................... 175,079 155,942 506,645 472,009
Depreciation and amortization of
intangible assets.................................. 49,429 46,343 145,112 128,056
-------- -------- ---------- ----------
Total operating expenses................................ 589,584 535,808 1,701,146 1,538,659
-------- -------- ---------- ----------
Operating Profit........................................ 167,564 159,478 514,279 470,288
Net loss on equity investments.......................... (7,212) (8,590) (29,077) (25,959)
Sales of subsidiary and investments,
net of write-downs................................... - 41,496 93,099 70,025
Interest income......................................... 1,461 5,934 4,241 21,121
Interest expense........................................ (22,108) (23,360) (64,138) (63,994)
-------- -------- ---------- ----------
Income Before Income Taxes.............................. 139,705 174,958 518,404 471,481
Income taxes............................................ (56,399) (70,180) (217,373) (191,266)
-------- -------- ---------- ----------
Net Income.............................................. 83,306 104,778 301,031 280,215
Preferred dividends, net of tax......................... (4,696) (4,700) (14,087) (14,099)
-------- -------- ---------- ----------
Net Income Attributable to Common Shares................ $ 78,610 $100,078 $ 286,944 $ 266,116
======== ======== ========== ==========
Earnings Per Share:
Basic................................................... $.65 $.81 $2.35 $2.17
==== ==== ===== =====
Diluted................................................. $.60 $.75 $2.17 $2.00
==== ==== ===== =====
Dividends per common share.............................. $.17 $.16 $ .51 $ .48
==== ==== ===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
TRIBUNE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
September 27, 1998 December 28, 1997
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and short-term investments.............................................. $ 30,681 $ 66,618
Accounts receivable, net..................................................... 525,845 442,332
Inventories.................................................................. 103,085 99,491
Broadcast rights............................................................. 222,984 190,339
Prepaid expenses and other................................................... 52,184 48,969
----------- -----------
Total current assets......................................................... 934,779 847,749
Property, plant and equipment................................................ 1,624,915 1,550,897
Accumulated depreciation..................................................... (974,150) (900,450)
----------- -----------
Net properties............................................................... 650,765 650,447
Broadcast rights............................................................. 271,020 162,096
Intangible assets, net....................................................... 2,719,902 2,503,069
Investments.................................................................. 762,042 481,544
Other........................................................................ 142,554 132,649
----------- -----------
Total assets................................................................. $ 5,481,062 $ 4,777,554
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Long-term debt due within one year........................................... $ 31,034 $ 33,348
Contracts payable for broadcast rights....................................... 245,171 210,565
Deferred income.............................................................. 63,117 53,065
Income taxes................................................................. 45,061 31,367
Accounts payable, accrued expenses and other current liabilities............. 452,864 377,875
----------- -----------
Total current liabilities.................................................... 837,247 706,220
Long-term debt............................................................... 1,626,890 1,521,453
Deferred income taxes........................................................ 503,266 363,186
Contracts payable for broadcast rights....................................... 334,468 230,832
Compensation and other obligations........................................... 167,356 129,859
----------- -----------
Total liabilities............................................................ 3,469,227 2,951,550
Shareholders' equity
Series B convertible preferred stock......................................... 293,043 303,864
Common stock and additional paid-in capital.................................. 221,304 202,419
Retained earnings............................................................ 2,735,772 2,506,292
Treasury stock (at cost)..................................................... (1,356,465) (1,159,832)
Shares held by Tribune Stock Compensation Fund (at cost)..................... (47,645) -
Unearned compensation related to ESOP........................................ (186,325) (188,380)
Accumulated other comprehensive income....................................... 352,151 161,641
----------- -----------
Total shareholders' equity................................................... 2,011,835 1,826,004
----------- -----------
Total liabilities and shareholders' equity................................... $ 5,481,062 $ 4,777,554
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
TRIBUNE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended
------------------------------------
Sept. 27, 1998 Sept. 28, 1997
-------------- --------------
<S> <C> <C>
Operations
Net income................................................................... $301,031 $ 280,215
Adjustments to reconcile net income to net cash
provided by operations:
Gain on sales of subsidiary and investments, net of write-downs.......... (93,099) (70,025)
Depreciation and amortization of intangible assets....................... 145,112 128,056
Other, net............................................................... 59,507 (72,925)
-------- ----------
Net cash provided by operations.............................................. 412,551 265,321
-------- ----------
Investments
Capital expenditures......................................................... (85,271) (63,055)
Acquisitions and investments................................................. (177,232) (1,205,623)
Proceeds from sales of investments, subsidiary and assets.................... 14,738 228,455
Other, net................................................................... (26,550) (6,663)
-------- ----------
Net cash used for investments................................................ (274,315) (1,046,886)
-------- ----------
Financing
Proceeds from issuance of long-term debt..................................... 153,513 612,317
Repayments of long-term debt................................................. (20,082) (6,976)
Sales of common stock to employees, net...................................... 35,872 40,127
Purchases of treasury stock.................................................. (202,963) (69,135)
Purchases of stock for Tribune Stock Compensation Fund....................... (68,962) -
Dividends.................................................................... (71,551) (68,339)
-------- ----------
Net cash provided by (used for) financing.................................... (174,173) 507,994
-------- ----------
Net decrease in cash and short-term investments.............................. (35,937) (273,571)
Cash and short-term investments at the beginning of year..................... 66,618 274,170
-------- ----------
Cash and short-term investments at the end of quarter........................ $ 30,681 $ 599
======== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
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 (the
"Company" or "Tribune") as of September 27, 1998 and the results of their
operations for the quarters and first three quarters ended September 27, 1998
and September 28, 1997 and cash flows for the first three quarters ended
September 27, 1998 and September 28, 1997. 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 1998 presentation.
The condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and the related notes included by
reference in the Company's Annual Report on Form 10-K.
Note 2:
- ------
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." The
statement requires companies to report comprehensive income, which includes net
income and certain other items that were formerly reported in a separate
component of shareholders' equity. For the Company, other comprehensive
income includes unrealized gains and losses on marketable securities, net of
the change in current maturity value of the Company's Debt Exchangeable for
Common Stock securities. The Company's comprehensive income was as follows
(in thousands):
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
-------------------------------- ---------------------------------
Sept. 27, 1998 Sept. 28, 1997 Sept. 27, 1998 Sept. 28, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income............................................ $83,306 $104,778 $301,031 $280,215
Net unrealized holding gain on marketable
securities, before tax:
Arising during the period ........................ 18,594 101,206 325,597 141,258
Less: reclassification adjustment for
net gains included in net income................ - (41,496) (12,131) (73,625)
------- -------- -------- --------
Unrealized gain................................... 18,594 59,710 313,466 67,633
Income taxes.......................................... (7,293) (23,421) (122,956) (26,529)
------- -------- -------- --------
Net other comprehensive income........................ 11,301 36,289 190,510 41,104
------- -------- -------- --------
Comprehensive income.................................. $94,607 $141,067 $491,541 $321,319
======= ======== ======== ========
</TABLE>
5
<PAGE>
Note 3:
- ------
In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings Per
Share," which requires presentation on the face of the income statement of both
basic and diluted earnings per share. Basic and diluted earnings per share have
replaced the previously presented primary and fully diluted earnings per share.
Prior years have been restated. Basic earnings per share is computed by dividing
net income attributable to common shares by the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed based on the assumption that all of the convertible preferred shares
held by the Company's Employee Stock Ownership Plan are converted into common
shares.
The computations of basic and diluted earnings per share were as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
-------------------------------- ---------------------------------
Sept. 27, 1998 Sept. 28, 1997 Sept. 27, 1998 Sept. 28, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BASIC
Net income............................................. $83,306 $104,778 $301,031 $280,215
Preferred dividends, net of tax........................ (4,696) (4,700) (14,087) (14,099)
------- -------- -------- --------
Net income attributable to common shares............... $78,610 $100,078 $286,944 $266,116
------- -------- -------- --------
Weighted average common shares
outstanding.......................................... 121,244 123,247 121,986 122,872
------- -------- -------- --------
Basic earnings per share............................... $ .65 $ .81 $ 2.35 $ 2.17
======= ======== ======== ========
DILUTED
Net income............................................. $83,306 $104,778 $301,031 $280,215
Additional ESOP contribution required
assuming all preferred shares were
converted, net of tax................................ (3,184) (3,287) (9,553) (9,863)
------- -------- -------- --------
Adjusted net income.................................... $80,122 $101,491 $291,478 $270,352
------- -------- -------- --------
Weighted average common shares
outstanding.......................................... 121,244 123,247 121,986 122,872
Assumed conversion of preferred shares
into common shares................................... 10,703 11,093 10,703 11,093
Assumed exercise of stock options, net of
common shares assumed repurchased
with the proceeds.................................... 1,466 1,605 1,730 1,407
------- -------- -------- --------
Adjusted weighted average common shares
outstanding.......................................... 133,413 135,945 134,419 135,372
------- -------- -------- --------
Diluted earnings per share............................. $ .60 $ .75 $ 2.17 $ 2.00
======= ======== ======== ========
</TABLE>
6
<PAGE>
Note 4:
- ------
Inventories consist of (in thousands):
Sept. 27, 1998 Dec. 28, 1997
-------------- -------------
Finished goods........................ $ 78,969 $78,058
Newsprint (at LIFO)................... 13,374 11,653
Supplies and other.................... 10,742 9,780
-------- -------
Total inventories..................... $103,085 $99,491
======== =======
Newsprint inventories are valued under the LIFO method and were less than
current cost by approximately $9.6 million at September 27, 1998 and $10.5
million at December 28, 1997. Finished goods primarily include books and
supplemental educational materials.
Note 5:
- ------
The first three quarters of 1998 included several non-recurring items. In
June 1998, the Company completed the exchange of its WQCD radio station in New
York and cash for the assets of television stations KTZZ-Seattle and WXMI-Grand
Rapids, Mich. The divestiture of WQCD was accounted for as a sale and the
acquisition of the television stations was recorded as a purchase. The
transaction resulted in a pretax gain of $85 million, or $.32 per diluted share.
The Company also sold certain investments and recorded certain investment
write-downs during the first two quarters of 1998.
The first three quarters of 1997 also included several non-recurring items.
In September 1997, the Company sold approximately 512,000 shares of America
Online common stock for $38 million in cash and recorded a pretax gain of $37
million or $.17 per diluted share.
In the second quarter of 1997, the Company sold approximately 2 million
additional shares of America Online common stock for $96 million in cash and
recorded a pretax gain of $94 million, or $.43 per diluted share. Also in the
second quarter of 1997, Tribune concluded that the decline in the value of its
$123.5 million investment in The Learning Company common stock was other than
temporary and wrote down the investment to fair market value in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The write-down resulted in a non-cash, pretax loss of $77 million,
or $.35 per diluted share.
In March 1997, the Company sold its Farm Journal subsidiary for
approximately $17 million in cash. The Company had acquired Farm Journal in 1994
for approximately $17 million. In June 1997, the Company completed the sale of a
building in Fort Lauderdale, which is approximately 35% occupied by the
Company's Sun-Sentinel newspaper subsidiary. The Company received proceeds of
approximately $43 million and deferred, under sale and leaseback accounting
rules, the pretax gain of approximately $11 million, which is being amortized
over the Sun-Sentinel's 14 year lease term. The Company also sold certain other
investments and recorded another investment write-down in the first three
quarters of 1997.
In the aggregate, non-recurring items increased 1997 third quarter pretax
income and diluted earnings per share by $41 million and $.19, respectively. For
the first three quarters, non-recurring items increased pretax income and
diluted earnings per share by $93 million and $.35 in 1998 and $70 million and
$.32 in 1997, respectively.
7
<PAGE>
Note 6:
- ------
In September 1998, the Company purchased South Florida Newspaper Network
Inc., which publishes 33 weekly newspapers in South Florida.
In January 1998, the Company acquired ownership of the North American
Sunshine line of educational materials. In June 1998, the Company acquired the
assets of television stations KTZZ-Seattle and WXMI-Grand Rapids, with a fair
value of approximately $179 million, in exchange for its WQCD radio station in
New York and cash.
In March 1997 and 1998, the Company exercised options to increase its
ownership interest in The WB Television Network ("The WB Network") to 22% and
25%, respectively.
On March 25, 1997, the Company acquired Renaissance Communications Corp., a
publicly traded company that owned six television stations, for $1.1 billion in
cash. The stations acquired were KDAF-Dallas, WBZL-Miami (formerly WDZL),
KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. 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 such duopoly waivers unnecessary.
Second, the FCC granted a 12-month waiver of its rule prohibiting
television/newspaper cross-ownership in the same market, which relates to the
Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The FCC
subsequently issued a rule review to consider modifying its cross-ownership
rule. In March 1998, the FCC granted the Company a waiver extension to allow
continued ownership of both the Miami television station and the Sun-Sentinel
newspaper until the rule review has concluded. The Company cannot predict the
outcome of the FCC duopoly rulemaking or cross-ownership rule review.
In September 1997, the Company acquired Shortland Publications Limited for
$32 million in cash. Shortland is a New Zealand-based company that publishes
reading, language arts, science and social studies materials for several
international elementary school markets. In December 1997, the Company acquired
approximately 80% of Landoll, Inc. for $77 million in cash. Landoll publishes
children's books for the mass market.
The 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 since their respective dates of
acquisition.
8
<PAGE>
Unaudited pro forma results of operations of the Company for the first
three quarters of 1998 and 1997 are shown below. The pro forma information was
prepared assuming the 1998 and 1997 acquisitions, investments and dispositions
discussed in Notes 5 and 6 had occurred at the beginning of each year. The pro
forma results may not be indicative of the results that would have been reported
if the transactions had actually occurred at the beginning of each year
presented, or of results that may be attained in the future. The unaudited pro
forma results do not reflect any synergies anticipated by the Company as a
result of the acquisitions.
Three Quarters Ended
----------------------------------
(In thousands, except per share data) Sept. 27, 1998 Sept. 28, 1997
-------------- --------------
Operating revenues ................... $2,245,142 $2,133,322
Net income ........................... $298,167 $266,175
Diluted earnings per share ........... $2.15 $1.90
Note 7:
- ------
In August 1998, the Company reached an agreement with Meredith Corporation
to acquire the assets of television station KCPQ-Seattle, in exchange for the
assets of the Company's WGNX-Atlanta television station. In a three-way
transaction, Meredith has agreed to purchase KCPQ pursuant to a merger with
Kelly Television Co. and then exchange the station for WGNX. The transaction,
pending FCC approval, is expected to close in the first quarter of 1999. Current
FCC regulations preclude the Company from owning both KCPQ and the Company's
KTZZ-Seattle television station. Accordingly, the Company is currently seeking a
waiver from the FCC that would provide the Company with six months to dispose of
the KTZZ station following the consummation of the KCPQ exchange.
Note 8:
- ------
Financial data for each of the Company's business segments is as follows
(in thousands):
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
--------------------------------- --------------------------------
Sept. 27, 1998 Sept. 28, 1997 Sept. 27, 1998 Sept. 28, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating revenues
Publishing............................... $353,614 $341,516 $1,103,433 $1,056,773
Broadcasting and Entertainment........... 291,144 274,020 854,135 775,677
Education................................ 112,390 79,750 257,857 176,497
-------- -------- ---------- ----------
Total operating revenues.................... $757,148 $695,286 $2,215,425 $2,008,947
======== ======== ========== ==========
Operating profit
Publishing............................... $ 78,120 $73,035 $ 277,580 $ 264,548
Broadcasting and Entertainment........... 69,240 70,958 221,526 195,196
Education................................ 28,844 24,098 41,469 35,419
Corporate expenses....................... (8,640) (8,613) (26,296) (24,875)
-------- -------- ---------- ----------
Total operating profit...................... $167,564 $159,478 $ 514,279 $ 470,288
======== ======== ========== ==========
</TABLE>
9
<PAGE>
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 and first
three quarters of 1998 to the third quarter and first three quarters of 1997.
FORWARD-LOOKING STATEMENTS
- --------------------------
This discussion, the information contained in the preceding notes to the
financial statements and the information contained in the quantitative and
qualitative disclosure about market risk contain certain forward-looking
statements that are based largely on the Company's current expectations. Such
forward-looking statements include estimates and statements regarding the
Company's plans to address Year 2000 issues and associated costs and risks.
Forward-looking statements are subject to certain risks, trends and
uncertainties that could cause actual results and performance of achievements to
differ materially from those expressed in the forward-looking statements. Among
such risks, trends and uncertainties are changes in advertising demand;
newsprint prices; interest rates; regulatory rulings and other economic
conditions; the effect of acquisitions, investments and divestitures on the
Company's results of operations and financial condition; and the Company's
reliance on third party vendors for various services. The words "believe,"
"expect," "anticipate," "estimate" and similar expressions generally identify
forward-looking statements. Readers are cautioned not to place undue reliance on
such forward-looking statements, which are as of the date of this filing and in
some instances, beyond the Company's control.
SIGNIFICANT EVENTS
- ------------------
In May 1997, the Company reached an agreement with Emmis Broadcasting
Corporation regarding the sale or exchange of the Company's WQCD radio station
in New York ("WQCD"). Effective July 1, 1997 and in connection with the
agreement, Emmis assumed responsibility for certain operations of the station
for up to three years for an annual fee of approximately $8 million, after which
Emmis had the right to purchase the station. In December 1997, the Company
signed an agreement with Emmis to exchange substantially all of the assets of
WQCD and cash for the assets of television stations KTZZ-Seattle and WXMI-Grand
Rapids. Emmis agreed to acquire these television stations as part of its
acquisition of Dudley Communications Corporation. In June 1998, the Company
completed the exchange of WQCD and cash for the assets of KTZZ and WXMI. The
transaction resulted in a pretax gain of $85 million, or $.32 per diluted share.
On March 25, 1997, the Company acquired Renaissance Communications Corp., a
publicly traded company that owned six television stations, for $1.1 billion in
cash. The stations acquired were KDAF-Dallas, WBZL-Miami (formerly WDZL),
KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. 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 such duopoly waivers unnecessary.
Second, the FCC granted a 12-month waiver of its rule prohibiting
television/newspaper cross-ownership in the same market, which relates to the
Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The FCC
subsequently issued a rule review to consider modifying its cross-ownership
rule. In March 1998, the FCC granted the Company a waiver extension to allow
continued ownership of both the Miami
10
<PAGE>
television station and the Sun-Sentinel newspaper until the rule review has
concluded. The Company cannot predict the outcome of the FCC duopoly rulemaking
or cross-ownership rule review.
In September 1997, the Company acquired Shortland Publications Limited for
$32 million in cash. In December 1997, the Company acquired approximately 80% of
Landoll, Inc. for $77 million in cash.
The 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 since their respective dates of
acquisition.
In August 1998, the Company reached an agreement with Meredith Corporation
to acquire the assets of television station KCPQ-Seattle, in exchange for the
assets of the Company's WGNX-Atlanta television station. In a three-way
transaction, Meredith has agreed to purchase KCPQ pursuant to a merger with
Kelly Television Co. and then exchange the station for WGNX. The transaction,
pending FCC approval, is expected to close in the first quarter of 1999. Current
FCC regulations preclude the Company from owning both KCPQ and the Company's
KTZZ-Seattle television station. Accordingly, the Company is currently seeking a
waiver from the FCC that would provide the Company with six months to dispose of
the KTZZ station following the consummation of the KCPQ exchange.
The first three quarters of 1998 included several non-recurring items. In
addition to the exchange of WQCD for KTZZ and WXMI, the Company also sold
certain investments and recorded certain investment write-downs during the first
two quarters of 1998.
The first three quarters of 1997 also included several non-recurring items.
In September 1997, the Company sold approximately 512,000 shares of America
Online common stock for $38 million in cash and recorded a pretax gain of $37
million, or $.17 per diluted share.
In the second quarter of 1997, the Company sold approximately 2 million
additional shares of America Online common stock for $96 million in cash and
recorded a pretax gain of $94 million, or $.43 per diluted share. Also in the
second quarter of 1997, Tribune concluded that the decline in the value of its
$123.5 million investment in The Learning Company common stock was other than
temporary and wrote down the investment to fair market value in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The write-down resulted in a non-cash, pretax loss of $77 million,
or $.35 per diluted share.
In March 1997, the Company sold its Farm Journal subsidiary for
approximately $17 million in cash. The Company had acquired Farm Journal in 1994
for approximately $17 million. In June 1997, the Company completed the sale of a
building in Fort Lauderdale, which is approximately 35% occupied by the
Company's Sun-Sentinel newspaper subsidiary. The Company received proceeds of
approximately $43 million and deferred, under sale and leaseback accounting
rules, the pretax gain of approximately $11 million, which is being amortized
over the Sun-Sentinel's 14 year lease term. The Company also sold certain other
investments and recorded another investment write-down in the first three
quarters of 1997.
In the aggregate, non-recurring items increased 1997 third quarter pretax
income and diluted earnings per share by $41 million and $.19, respectively. For
the first three quarters, non-recurring items increased pretax income and
diluted earnings per share by $93 million and $.35 in 1998 and $70 million and
$.32 in 1997, respectively.
11
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
The results of operations, when examined on a quarterly basis, reflect the
seasonality of the Company's revenues. In both publishing and broadcasting and
entertainment, second and fourth quarter advertising revenues are typically
higher than first and third quarter revenues. Results for the second quarter
usually reflect spring advertising while the fourth quarter includes advertising
related to the holiday season. In education, second and third quarter revenues
are typically higher than first and fourth quarter revenues. Results for the
second and third quarters generally reflect the timing of sales to educational
institutions for the upcoming school year, which begins in September. Results
for the 1998 and 1997 third quarters reflect these seasonal patterns.
CONSOLIDATED
The Company's consolidated operating results for the third quarter and
first three quarters of 1998 and 1997 and the percentage changes from 1997 were
as follows:
<TABLE>
<CAPTION>
Third Quarter Three Quarters
(Dollars in millions, --------------------------- ------------------------------
except per share amounts) 1998 1997 Change 1998 1997 Change
---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues.................................. $757 $695 + 9% $2,215 $2,009 + 10%
Operating profit.................................... 168 159 + 5% 514 470 + 9%
Net loss on equity investments...................... (7) (9) - 16% (29) (26) + 12%
Sales of subsidiary and investments,
net of write-downs (non-recurring).............. - 41 - 100% 93 70 + 33%
Net income
Before non-recurring items...................... 83 79 + 5% 254 237 + 7%
Non-recurring items............................. - 26 - 100% 47 43 + 10%
Total........................................... 83 105 - 20% 301 280 + 7%
Diluted earnings per share
Before non-recurring items...................... .60 .56 + 7% 1.82 1.68 + 8%
Non-recurring items............................. - .19 - 100% .35 .32 + 9%
Total........................................... .60 .75 - 20% 2.17 2.00 + 9%
</TABLE>
Earnings Per Share -- Diluted earnings per share for the 1998 third quarter rose
to $.60, up 7% from $.56 last year, excluding non-recurring items. For the first
three quarters of 1998, diluted earnings per share increased 8% to $1.82 from
$1.68 in 1997, excluding non-recurring items. The third quarter improvement was
due to operating profit gains in publishing and education and fewer shares
outstanding, partially offset by a slight decline in broadcasting and
entertainment operating profit and higher net interest expense. The improvement
in the first three quarters was due to higher operating profit at all three
business groups and fewer shares outstanding, partially offset by higher net
interest expense. Including non-recurring items, diluted earnings per share
decreased 20% to $.60 in the third quarter of 1998 and increased 9% to $2.17 in
the first three quarters.
12
<PAGE>
Operating Profit and Revenues -- The Company's consolidated operating revenues,
EBITDA (operating profit before depreciation, amortization, equity results and
non-recurring items) and operating profit by business segment for the third
quarter and first three quarters were as follows:
<TABLE>
<CAPTION>
Third Quarter Three Quarters
--------------------------- ------------------------------
(Dollars in millions) 1998 1997 Change 1998 1997 Change
---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
Publishing....................................... $354 $341 + 4% $1,103 $1,057 + 4%
Broadcasting and Entertainment................... 291 274 + 6% 854 776 + 10%
Education........................................ 112 80 + 41% 258 176 + 46%
---- ---- ------ ------
Total operating revenues............................. $757 $695 + 9% $2,215 $2,009 + 10%
EBITDA*
Publishing....................................... $ 98 $ 92 + 6% $ 336 $ 323 + 4%
Broadcasting and Entertainment................... 92 93 - 1% 286 250 + 14%
Education........................................ 35 29 + 23% 61 48 + 27%
Corporate expenses............................... (8) (8) - (24) (23) - 5%
---- ---- ------ ------
Total EBITDA......................................... $217 $206 + 5% $ 659 $ 598 + 10%
Operating profit
Publishing....................................... $ 78 $ 73 + 7% $ 278 $ 265 + 5%
Broadcasting and Entertainment................... 69 71 - 2% 221 195 + 13%
Education........................................ 29 24 + 20% 41 35 + 17%
Corporate expenses............................... (8) (9) - (26) (25) - 6%
---- ---- ------ ------
Total operating profit............................... $168 $159 + 5% $ 514 $ 470 + 9%
</TABLE>
* EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, equity results and non-recurring items. The Company has
presented EBITDA because it is comparable to the data provided by other
companies in the industry and is a common alternative measure of
performance. EBITDA does not represent cash provided by operating activities
as reflected in the Company's consolidated statements of cash flows, is not
a measure of financial performance under generally accepted accounting
principles ("GAAP") and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with GAAP.
Consolidated operating revenues for the 1998 third quarter rose 9% to $757
million from $695 million in 1997 and for the first three quarters increased 10%
to $2.2 billion from $2.0 billion in 1997, mainly due to recent acquisitions and
higher advertising revenues. Excluding acquisitions and divestitures ("on a
comparable basis"), revenues were up 4% for the third quarter and increased 5%
for the first three quarters, mainly due to higher advertising revenues from
newspapers and television stations.
Consolidated operating profit increased 5% in the 1998 third quarter and 9%
in the first three quarters, while EBITDA increased 5% in the third quarter and
10% in the first three quarters. Publishing operating profit increased 7% in the
1998 third quarter and 5% in the first three quarters mainly due to higher
advertising revenues at all newspapers. Broadcasting and entertainment operating
profit declined 2% in the 1998 third quarter and grew 13% in the first three
quarters. In the third quarter, gains in television operating profit were more
than offset by a decline at the Chicago Cubs. For the first three quarters, the
improvement was primarily due to television growth. Education operating profit
increased 20% in the third quarter and 17% in the first three quarters mainly
due to acquisitions and growth at existing
13
<PAGE>
businesses. On a comparable basis,consolidated operating profit was up 3% in the
third quarter and 7% in the first three quarters, and EBITDA increased 3% in the
third quarter and 6% in the first three quarters.
Operating Expenses -- Consolidated operating expenses increased 10% in the third
quarter and 11% in the first three quarters as follows:
<TABLE>
<CAPTION>
Third Quarter Three Quarters
--------------------------- ---------------------------------
(Dollars in millions) 1998 1997 Change 1998 1997 Change
---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Cost of sales....................................... $365 $334 + 9% $1,049 $ 939 + 12%
Selling, general & administrative................... 175 156 + 12% 507 472 + 7%
Depreciation & amortization
of intangible assets............................. 50 46 + 7% 145 128 + 13%
---- ---- ------ ------
Total operating expenses............................ $590 $536 + 10% $1,701 $1,539 + 11%
</TABLE>
Cost of sales increased 9%, or $31 million, in the 1998 third quarter and
increased 12%, or $110 million, in the first three quarters. On a comparable
basis, cost of sales increased 5%, or $16 million, in the third quarter and was
up 7%, or $63 million, in the first three quarters. The growth in both periods
was due to increased compensation expense, higher broadcast rights amortization
and increased newsprint and ink expense. Compensation expense was up 8%, or $10
million, in the third quarter and 6%, or $20 million, in the first three
quarters. Broadcast rights amortization increased 7%, or $4 million, in the
third quarter and was up 7%, or $12 million, in the first three quarters,
largely due to higher production costs at Tribune Entertainment. Newsprint and
ink expense increased 1%, or $1 million, in the third quarter of 1998 and grew
9%, or $14 million, in the first three quarters.
Selling, general and administrative expenses ("SG&A") were up 12%, or $19
million, in the 1998 third quarter and increased 7%, or $35 million, in the
first three quarters. On a comparable basis, SG&A expenses increased 5%, or $9
million, in the third quarter and were up 2%, or $8 million, in the first three
quarters. The growth in both periods was due to higher costs for development
activities and increased compliance expenses related to the Year 2000 issue,
partially offset by lower compensation expenses.
The increase in depreciation and amortization of intangible assets reflects
the acquisitions and capital expenditures made in 1998 and 1997.
14
<PAGE>
PUBLISHING
Operating Profit and Revenues -- The following table presents publishing
operating revenues, EBITDA and operating profit for daily newspapers and other
publications/services/development for the third quarter and first three
quarters. The latter category includes syndication of editorial products,
advertising placement services, niche publications, direct mail operations and
Internet/electronic products.
Third Quarter Three Quarters
------------------- ------------------------
(Dollars in millions) 1998 1997 Change 1998 1997 Change
---- ---- ------ ------ ------ ------
Operating revenues
Daily newspapers.............. $330 $321 + 3% $1,032 $ 999 + 3%
Other publications/
services/development....... 24 20 +19% 71 58 + 23%
---- ---- ------ ------
Total operating revenues........ $354 $341 + 4% $1,103 $1,057 + 4%
EBITDA
Daily newspapers.............. $100 $ 95 + 5% $ 342 $ 325 + 5%
Other publications/
services/development....... (2) (3) +20% (6) (2) -118%
---- ---- ------ ------
Total EBITDA.................... $98 $ 92 + 6% $ 336 $ 323 + 4%
Operating profit
Daily newspapers.............. $ 82 $ 78 + 6% $ 289 $ 273 + 6%
Other publications/
services/development....... (4) (5) +10% (11) (8) - 41%
---- ---- ------ ------
Total operating profit.......... $ 78 $ 73 + 7% $ 278 $ 265 + 5%
Publishing operating revenues for the 1998 third quarter increased 4% to
$354 million, and for the first three quarters were up 4% to $1.1 billion,
mainly due to higher advertising revenues at all of the newspapers. Advertising
revenues increased 3% in the third quarter and 4% in the first three quarters
due to higher linage and rates. Operating profit for the 1998 third quarter was
up 7% to $78 million, and for the first three quarters was up 5% to $278
million, primarily due to the higher advertising revenues, partially offset by
higher newsprint and ink expenses, increased development spending and Year 2000
compliance expenses. In the third quarter of 1998, daily newspaper operating
profit margins increased to 25.0% from 24.2% in 1997 and in the first three
quarters increased to 28.0% from 27.3% in 1997.
Publishing group revenues, by classification, for the third quarter and
first three quarters were as follows:
Third Quarter Three Quarters
--------------------- -----------------------
(Dollars in millions) 1998 1997 Change 1998 1997 Change
---- ---- ------ ------ ------ ------
Advertising
Retail..................... $105 $101 + 4% $ 325 $ 319 + 2%
General.................... 32 32 + 3% 110 107 + 3%
Classified................. 134 130 + 3% 419 392 + 7%
---- ---- ------ ------
Total advertising............ 271 263 + 3% 854 818 + 4%
Circulation.................. 60 61 - 2% 183 188 - 3%
Other........................ 23 17 + 29% 66 51 + 31%
---- ---- ------ ------
Total revenues............... $354 $341 + 4% $1,103 $1,057 + 4%
15
<PAGE>
Classified advertising revenues for the 1998 third quarter rose 3% due to
higher help wanted advertising at Orlando and Fort Lauderdale and increased
automotive advertising at Chicago and Fort Lauderdale. In the first three
quarters, classified advertising rose 7% due to increases in help wanted
advertising at all of the newspapers, higher automotive advertising at Chicago,
Fort Lauderdale and Newport News and increased advertising from
Internet/electronic products.
Total advertising linage increased 6% in the 1998 third quarter and 5% in
the first three quarters. Full run general advertising linage increased 5% in
the third quarter due to an increase at Orlando and rose 2% in the first three
quarters due to increases at Orlando and Fort Lauderdale. Full run classified
advertising linage increased 6% in both the third quarter and first three
quarters primarily due to increases at Fort Lauderdale, Newport News and
Chicago. Part run advertising linage declined 3% in the third quarter mainly due
to decreases at Chicago and Fort Lauderdale in retail and Chicago in classified.
Preprint advertising linage increased 18% in the 1998 third quarter primarily
due to higher part run linage at all of the newspapers; preprint advertising
improved 11% in the first three quarters mainly due to higher part run linage at
Chicago, Newport News and Fort Lauderdale and increased full run linage at
Chicago, Fort Lauderdale and Orlando. The following summary presents advertising
linage for the third quarter and first three quarters.
Third Quarter Three Quarters
-------------------- ----------------------
(Inches in thousands) 1998 1997 Change 1998 1997 Change
----- ----- ------ ------ ------ ------
Full run
Retail......................... 847 835 + 1% 2,631 2,630 -
General........................ 180 172 + 5% 580 569 + 2%
Classified..................... 1,715 1,617 + 6% 5,179 4,897 + 6%
----- ----- ------ ------
Total full run................... 2,742 2,624 + 4% 8,390 8,096 + 4%
Part run......................... 2,382 2,458 - 3% 7,433 7,458 -
Preprint......................... 2,599 2,201 +18% 7,366 6,621 +11%
----- ----- ------ ------
Total inches..................... 7,723 7,283 + 6% 23,189 22,175 + 5%
Circulation revenues declined 2% in the 1998 third quarter and 3% in the
first three quarters. Total average daily circulation was flat at 1,225,000
copies in the 1998 third quarter, and total average Sunday circulation decreased
slightly to 1,851,000 copies. For the first three quarters of 1998, total
average daily circulation improved slightly to 1,270,000 copies, while total
average Sunday circulation was down less than 1% to 1,897,000 copies.
Other revenues are derived from advertising placement services; the
syndication of columns, features, information and comics to newspapers;
commercial printing operations; delivery of other publications; direct mail
operations; revenues from Internet/electronic products; cable news programming;
and other publishing-related activities. The increase in other revenues in the
1998 third quarter and first three quarters resulted primarily from higher
revenues from direct mail operations, commercial printing operations and
Internet/electronic products.
Operating Expenses -- Publishing operating expenses increased 3%, or $7 million,
in the third quarter of 1998 and 4%, or $34 million, in the first three
quarters. In the third quarter of 1998, newsprint and ink expense increased 1%,
or $1 million, as consumption increased 2% while average newsprint prices were
down 1%. Other expenses were up 3%, or $6 million, mainly due to increased Year
2000 compliance expenses and higher development spending, primarily in online
businesses. For the first three quarters, newsprint and ink expense increased
9%, or $14 million, as average newsprint prices were up 5% and
16
<PAGE>
consumption increased 4%. Other expenses were up 3%, or $19 million, in the
first three quarters mainly due to increased development spending, higher
compensation expense and increased Year 2000 compliance expenses.
BROADCASTING AND ENTERTAINMENT
Operating Profit and Revenues -- The following table presents operating
revenues, EBITDA and operating profit for television, radio and
entertainment/other for the third quarter and first three quarters.
Entertainment/other includes Tribune Entertainment and the Chicago Cubs.
Third Quarter Three Quarters
--------------------- ----------------------
(Dollars in millions) 1998 1997 Change 1998 1997 Change
----- ----- ------ ----- ----- ------
Operating revenues
Television.................. $ 225 $ 212 + 6% $ 695 $ 617 + 13%
Radio....................... 13 14 - 10% 41 58 - 30%
Entertainment/other......... 53 48 + 11% 118 101 + 17%
----- ----- ----- -----
Total operating revenues....... $ 291 $ 274 + 6% $ 854 $ 776 + 10%
EBITDA
Television.................. $ 84 $ 78 + 7% $ 270 $ 230 + 17%
Radio....................... 4 6 - 29% 14 17 - 19%
Entertainment/other......... 4 9 - 57% 2 3 - 15%
----- ----- ----- -----
Total EBITDA................... $ 92 $ 93 - 1% $ 286 $ 250 + 14%
Operating profit
Television.................. $ 63 $ 59 + 8% $ 210 $ 181 + 16%
Radio....................... 3 5 - 29% 12 15 - 18%
Entertainment/other......... 3 7 - 63% (1) (1) + 44%
----- ----- ----- -----
Total operating profit......... $ 69 $ 71 - 2% $ 221 $ 195 + 13%
Broadcasting and entertainment operating revenues increased 6% to $291
million in the 1998 third quarter and increased 10% to $854 million in the first
three quarters primarily due to increased television revenues. Television
revenues were up 6%, or $13 million, in the third quarter primarily due to the
addition of KTZZ-Seattle and WXMI-Grand Rapids and gains at WPIX-New York. The
two new television stations were acquired in June 1998 in exchange for the
Company's WQCD radio station and cash. Television revenues were up 13%, or $78
million, in the first three quarters primarily due to the acquisitions of six
Renaissance stations (in March 1997) and KTZZ-Seattle and WXMI-Grand Rapids.
Excluding acquisitions, television revenues were up 3% in the third quarter and
4% in the first three quarters. Radio revenues decreased 10% to $13 million in
the 1998 third quarter and declined 30% to $41 million in the first three
quarters mainly due to the divestitures of WQCD and Farm Journal. Excluding WQCD
from both periods and Farm Journal from the year to date, radio revenues
increased 5% in the quarter and 3% in the first three quarters.
Entertainment/other revenues increased 11%, or $5 million, in the 1998 third
quarter and were up 17%, or $17 million, in the first three quarters primarily
due to improvements at Tribune Entertainment. Tribune Entertainment revenues
increased due to the September 1997 launch of the "Gene Roddenberry's Earth:
Final Conflict" and "NightMan" syndicated programs.
17
<PAGE>
Third quarter 1998 operating profit for broadcasting and entertainment was
down 2% to $69 million from $71 million in 1997. An 8% increase in television
operating profit was more than offset by lower operating profit from the Chicago
Cubs baseball team as a result of higher players' salaries and fewer home games
in this year's quarter. The growth in television was due to the addition of
KTZZ-Seattle and WXMI-Grand Rapids and gains at WPIX-New York. For the first
three quarters, operating profit increased 13% to $221 million from $195 million
in 1997, mainly due to a 16% increase in television. Excluding acquisitions,
television operating profit was up 3% in the third quarter and 10% in the first
three quarters.
Operating Expenses -- Broadcasting and entertainment operating expenses
increased 9%, or $19 million, in the third quarter of 1998, primarily due to
higher players' salaries at the Cubs, the television station acquisitions and
increased broadcast rights amortization, partially resulting from higher
production costs at Tribune Entertainment. Broadcasting and entertainment
operating expenses increased 9%, or $52 million, in the first three quarters of
1998, primarily due to the acquisitions, higher broadcast rights amortization
and increased players' salaries at the Cubs, partially offset by the WQCD and
Farm Journal dispositions. Excluding acquisitions and divestitures, broadcasting
and entertainment operating expenses increased 7%, or $14 million, in the third
quarter and 5%, or $24 million, in the first three quarters. Compensation
expense increased 11%, or $8 million, in the third quarter and 6%, or $11
million, in the first three quarters, mainly due to increased players' salaries
at the Cubs. Broadcast rights amortization increased 7%, or $4 million, in the
third quarter and 7%, or $12 million, in the first three quarters.
EDUCATION
Operating Profit and Revenues -- The following table presents education
operating revenues, EBITDA and operating profit for the third quarter and first
three quarters:
Third Quarter Three Quarters
------------------ -------------------
(Dollars in millions) 1998 1997 Change 1998 1997 Change
---- ---- ------ ---- ---- ------
Operating revenues.................. $112 $80 + 41% $258 $176 + 46%
EBITDA.............................. 35 29 + 23% 61 48 + 27%
Operating profit.................... 29 24 + 20% 41 35 + 17%
Education's third quarter 1998 operating revenues increased 41% to $112
million and were up 46% to $258 million in the first three quarters. The
improvement was primarily due to the acquisitions of Landoll (in December 1997)
and Shortland (in September 1997) and increased sales to both school and
consumer markets at existing businesses. Excluding the acquisitions, education
revenues increased 9% in the 1998 third quarter and 8% in the first three
quarters.
Education's third quarter 1998 operating profit increased 20% to $29
million and was up 17% to $41 million in the first three quarters. The
improvements were primarily due to the acquisitions and growth from existing
businesses. Excluding the acquisitions, education operating profit increased 11%
in the third quarter and 4% in the first three quarters. For the third quarter
and first three quarters, gains at most businesses were partially offset by a
decline at Creative Publications.
Operating Expenses -- Education operating expenses increased 50%, or $28
million, in the 1998 third quarter, and 53%, or $75 million, in the first three
quarters, primarily due to the acquisitions. Excluding
18
<PAGE>
acquisitions, education operating expenses increased 8%, or $4 million, in the
1998 third quarter and 9%, or $13 million, in the first three quarters mainly
due to higher sales volume.
EQUITY RESULTS
Net loss on equity investments totaled $7 million in the third quarter of
1998 compared to $9 million in 1997. While the majority of equity losses in both
years came from the Company's equity interest in the growing WB Network, the
decline in equity losses was primarily attributable to improved results at both
The WB and Qwest Broadcasting. For the first three quarters, net loss on equity
investments totaled $29 million compared to $26 million in 1997. In the first
quarter of 1998, the Company increased its equity position in The WB Network to
25% from 22%.
OTHER
Interest expense for the 1998 third quarter decreased 5% to $22 million,
primarily due to lower average debt levels. For the first three quarters,
interest expense was flat. Interest income declined 75% to $1 million in the
1998 third quarter and decreased 80% to $4 million in the first three quarters,
mainly due to the December 1997 sale of The Learning Company convertible notes.
The effective tax rate, excluding non-recurring items, was 40.4% and 40.7% for
the 1998 and 1997 third quarters, respectively, and 40.4% and 41.0% for the 1998
and 1997 first three quarters, respectively.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow generated from operations is the Company's primary source of
liquidity. Net cash provided by operations in the first three quarters was $413
million in 1998, up from $265 million in 1997 mainly due to higher net income
and changes in working capital. The Company normally expects to fund dividends,
capital expenditures and other operating requirements with net cash provided by
operations. Funding required for common stock repurchases and acquisitions is
financed by available cash flow from operations and, if necessary, by the
issuance of debt.
Net cash used for investments totaled $274 million in the 1998 first three
quarters as the Company spent $177 million for acquisitions and investments.
Net cash used for financing activities in the first three quarters of 1998
was $174 million as proceeds from the issuance of long-term debt and the sales
of common stock to employees were more than offset by repurchases of common
stock, payments of dividends and repayments of debt. As part of the Series E
medium-term note program, the Company issued approximately $128.5 million of
Debt Exchangeable for Common Stock securities ("DECS") in the 1998 third
quarter. In the first three quarters of 1998, the Company repurchased 4.4
million shares of its common stock for $272 million. Of the total 4.4 million
shares repurchased, 1.1 million shares were purchased for $69 million by the
Tribune Stock Compensation Fund ("TSCF"). In July 1998, the Company established
the TSCF to purchase common stock of the Company for the purpose of funding
certain existing stock-based compensation plans. At September 27, 1998, the
Company had authorization to repurchase an additional 2.8 million shares and has
continued to repurchase shares in the 1998 fourth quarter. The 1998 common
dividend increased 6% to $.51 per share for the first three quarters from $.48
per share in 1997.
19
<PAGE>
In August 1998, the Company issued 4.6 million of DECS for proceeds of
approximately $128.5 million. The DECS have a 6 1/4% coupon and mature on August
15, 2001. At maturity, the DECS will be exchanged for shares of common stock of
The Learning Company, Inc. ("TLC") or, at the Company's option, the cash
equivalent thereof. The Company currently owns 5.2 million shares of TLC common
stock, 4.6 million of which are related to the DECS. At September 27, 1998, the
fair market value of TLC common stock was $21.75 per share. The number of TLC
shares deliverable at maturity is determined by reference to the market value of
the TLC common stock adjusted in accordance with a predetermined formula that
allocates a portion of the appreciation, if any, to the Company. Holders of the
DECS bear the full risk of a decline in the value of TLC common stock. Proceeds
from the issuance of the DECS were used for general corporate purposes. Under
current accounting pronouncements, changes in the maturity value of the DECS and
the underlying investment in TLC common stock are included in accumulated other
comprehensive income, a separate component of shareholders' equity, net of
applicable taxes. In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which is effective in fiscal year 2000. The statement will impact the accounting
for the DECS and the underlying investment in TLC common stock. Management is
currently reviewing the impact of this new accounting pronouncement.
In October 1998, the Company issued $241 million of Medium-Term Notes,
Series E. Proceeds from the issuance were used for general corporate purposes.
Also in October, the Company filed a shelf registration statement with the
Securities and Exchange Commissions ("SEC") relating to the offer and sale
from time to time of up to $500 million principal amount of the Company's debt
securities. The shelf registration statement has been declared effective by the
SEC. Proceeds from the sale of such debt securities are expected to be used for
general corporate purposes.
As of November 6, 1998, the Company has repurchased an additional
1.2 million shares of common stock for $57 million in the fourth quarter,
bringing the remaining authorization to 1.6 million shares. In the fourth
quarter, the Board of Directors authorized the Company to repurchase an
additional $500 million of the Company's common stock in the open market.
20
<PAGE>
YEAR 2000 COMPLIANCE
- --------------------
INTRODUCTION
The Company relies on various technologies throughout its business operations
that could be affected by the date change in the Year 2000. The Company is
progressing through a comprehensive program to evaluate and address the impact
of the Year 2000 issue on its operational and financial reporting systems and
equipment with embedded technology and the Year 2000 risks associated with its
vendors and customers. The program has been assigned a high priority in relation
to other business projects. The Company has formed a Project Management Office
to provide company-wide leadership, oversight and coordination of the Year 2000
project. The Company's Chief Technology Officer and Chief Financial Officer head
the Project Management Office. These project heads receive updates on a weekly
basis, or more frequently as needed, from the other members of the Project
Management Office team. In addition, progress reports on the Year 2000 program
are presented periodically to the Company's board of directors and senior
management.
STATE OF READINESS
Both internal and external resources are being utilized throughout the Company
to implement the program, which includes the following overlapping phases:
system and equipment inventory and analysis; remediation, testing and
implementation; contingency planning; vendor management and investment review.
The Company expects that its internal operational and financial reporting
systems and equipment will be Year 2000 compliant by June 30, 1999. None of the
Company's other significant information technology projects have been delayed as
a result of the Company's Year 2000 compliance efforts.
System and Equipment Inventory and Analysis Phase -- The system and equipment
inventory and analysis phase consists of compiling a detailed inventory of all
of the Company's information and non-information technology hardware, software,
systems and equipment to determine which of these items are date-sensitive and
require remediation to become Year 2000 compliant. This analysis involves both
an internal assessment and contact with the systems and equipment manufacturers.
The principal systems and equipment identified by the Company as requiring
remediation are financial systems, human resource systems and newspaper
production systems. This phase is substantially complete.
Remediation, Testing and Implementation Phase -- The remediation, testing and
implementation phase consists of determining and implementing a remediation
method (upgrade, replace or discontinue) for date-sensitive items. The
remediated item is tested and returned to normal operations when compliant.
Testing for significant systems may include functional testing of remedial
measures and regression testing to validate that changes have not altered
existing functionality. A separate Year 2000 mainframe environment has been
created to test all operating system software and program product software. This
Year 2000 environment is designed to accomplish "end to end" testing of the
larger systems applications and to validate interface communications between
systems applications. The Company is also performing its own tests of mission
critical vendor-provided systems and equipment, even if vendor certification of
Year 2000 compliance has been received. The Company is working with the
manufacturers of its affected systems and other outside vendors to implement
required upgrades. The Company has also identified vendors from which the
Company can procure new systems and equipment to replace non-compliant systems
and equipment. The Company is currently in the middle stages of this phase.
21
<PAGE>
Contingency Planning -- Contingency planning consists of developing solutions
and options in the event that the Company experiences a failure in its
production processes or in the operations of certain of the Company's vendors.
Contingency plans and enactment dates for production processes and vendors are
being developed, but have not yet been finalized. The Project Management Office
will continue to develop, review, test and revise contingency plans, as more
information becomes available from internal testing and external vendor
assessment.
Vendor Management -- Vendor management consists of assessing vendor readiness,
and if necessary, identifying alternate channels to receive critical materials
and/or supplies. The Company has initiated formal communications with its
vendors through an assessment survey. For critical vendors, including utilities,
banks, newsprint and ink suppliers and a satellite provider, site visits have
been completed. In the event that satisfactory commitments from key suppliers
are not received, the Company is forming plans for the continuing availability
of critical materials and supplies through alternate channels. In general, the
Company is comfortable with the progress made by critical vendors to date and no
critical issues have been identified. The Company's principal concern is with
the utilities industry as alternative suppliers may not be available.
Investment Review -- Tribune is also assessing Year 2000 compliance of the
companies in its venture investment portfolio. As appropriate, site visits at
these companies will be conducted. Tribune will continue to monitor information
provided by these companies regarding their progress toward remediation of Year
2000 issues.
RISKS
The Company may discover additional Year 2000 problems, including that
remediation or contingency plans are not feasible or that the costs of such
plans exceed current expectations. In many cases the Company is relying on
assurances from vendors that their systems or that new or upgraded systems
acquired by the Company will be Year 2000 compliant. The Company believes that
one of its principal Year 2000 risks is the effect the Year 2000 issue will have
on its vendors, especially the utilities industry. A substantial part of the
Company's day-to-day operations is dependent on power and telecommunications
services, for which alternative sources of service may be limited. The Company
will continue to investigate the readiness of its suppliers, including
utilities, and pursue the availability of alternatives to further analyze and
diminish the extent of any impact Year 2000 issues may have on the Company.
Although there can be no assurance that the Company will be able to complete all
of the modifications in the required timeframe and that unanticipated events
will not occur, it is management's belief that the Company is taking adequate
action to address Year 2000 issues. In the event that either the Company or the
Company's vendors fail to adequately address Year 2000 issues, the Company could
suffer business interruptions. If such interruptions cause the Company to be
unable to fulfill its obligations to third parties, the Company could be exposed
to liability to such third parties.
COSTS
The Company does not currently expect that the costs of addressing the Year 2000
issue will have a material effect on the financial position or the results of
operations of the Company. Year 2000 compliance costs are expensed as incurred
and are funded through operating cash flow. The Company currently estimates
total expenses to range from $20 to $25 million, of which $9 million is expected
to be incurred by the end of 1998, with the balance to be incurred in 1999.
22
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Item 3. Quantitative and Qualitative Disclosure About Market Risk.
---------------------------------------------------------
The following represents an update of the Company's market sensitive
financial information. This information should be read in conjunction with Item
7A of the Company's 1997 Form 10-K.
Equity price risks. The Company has common stock investments in several publicly
traded companies which are subject to market price volatility. These investments
are classified as available-for-sale and are recorded on the balance sheet at
fair value with unrealized gains or losses, net of related tax effects, reported
in the accumulated other comprehensive income component of shareholders' equity.
The following analysis presents the hypothetical change in the fair value
of the Company's common stock investments in publicly traded companies assuming
hypothetical price fluctuations of plus or minus 10%, 20% and 30% in each
stock's price. This analysis excludes 4.6 million shares of The Learning Company
common stock related to the Company's Debt Exchangeable for Common Stock
securities. See Liquidity and Capital Resource section of Item 2 for further
discussion.
<TABLE>
<CAPTION>
Valuation of Investments Valuation of Investments
Assuming Indicated Decrease Assuming Indicated Increase
in Each Stock's Price in Each Stock's Price
------------------------------ Sept. 27, 1998 ------------------------------
(In thousands) -30% -20% -10% Fair Value +10% +20% +30%
-------- -------- -------- -------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock
investments in
public companies $312,034 $356,610 $401,187 $445,763 $490,339 $534,916 $579,492
</TABLE>
During the last 12 quarters, market price movements have caused the fair
value of the Company's common stock investments in publicly traded companies to
change by 10% or more in seven of the quarters, by 20% or more in three of the
quarters and by 30% or more in three of the quarters.
23
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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.
3.2- By-Laws of Tribune Company as Amended and In Effect on
October 20, 1998.
12 - Computation of ratios of earnings to fixed charges.
(b) Reports on Form 8-K.
The Company filed two reports on Form 8-K during the quarter for
which this report is filed.
* The Company filed a Form 8-K Current Report dated July 30,
1998, which reported under Item 5 the offering of
three-year notes in the form of Debt Exchangeable for
Common Stock. No financial statements were filed as part of
the report.
* The Company filed a Form 8-K Current Report dated August
24, 1998, which reported under Item 5 that the Company had
reached an agreement with Meredith Corporation to acquire
the assets of television station KCPQ-Seattle in exchange
for the assets of the Company's WGNX-Atlanta television
station. In a three-way transaction, Meredith has agreed to
purchase KCPQ pursuant to a merger with Kelly Television
Co. and then exchange the station for WGNX. No financial
statements were filed as part of the report.
24
<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: November 10, 1998 /s/ R. Mark Mallory
---------------
R. Mark Mallory
Vice President and Controller
(on behalf of the Registrant
and as Chief Accounting Officer)
25
BY-LAWS
OF
TRIBUNE COMPANY
A Delaware Corporation
As Amended and In Effect on October 20, 1998
ARTICLE I
Registered Office and Agent
Section 1.1 Registered Office and Agent. The registered office of the Company in
the State of Delaware shall be the office of The Corporation Trust Company in
the City of Wilmington, County of New Castle, and the registered agent in charge
thereof shall be The Corporation Trust Company.
ARTICLE II
Meetings of Stockholders
Section 2.1 Place of Meeting. Meetings of stockholders shall be held at such
locations as are designated by the Board of Directors or the officers calling
such meetings.
Section 2.2 Annual Meeting. The annual meeting of the stockholders shall be held
on such date (not a legal holiday) and at such time as is designated by
resolution of the Board of Directors, for the purpose of electing directors and
for the transaction of such other business as may properly be brought before the
meeting.
Section 2.3 Special Meetings. Special meetings of the stockholders may be called
by the Chief Executive Officer of the Company or the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice of the meeting.
Section 2.4 Notice of Meetings. Unless otherwise required by statute, written
notice stating the place, date and hour of each meeting of stockholders and the
purpose or purposes of each such meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting. In the case of a meeting to vote on a merger or
consolidation such notice shall be given not
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less than twenty nor more than sixty days before the date of the meeting. If
given by mail, such notice shall be deemed to be given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Company.
Section 2.5 Notice of Stockholder Business. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Company. To be timely, a stockholder's notice must be
delivered to the Secretary at the principal executive offices of the Company not
later than the close of business on the 90th day nor earlier than the close of
business on the 120th day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 days before or more than 60 days after such anniversary
date, notice by the stockholder to be timely must be so delivered not earlier
than the close of business on the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made. In no event shall the notice or public
disclosure of an adjournment of an annual meeting commence a new time period for
the giving of a stockholder's notice as described above. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
Company's books, of the stockholder proposing such business, (c) the class and
number of shares of the Company which are beneficially owned by the stockholder,
and (d) any material interest of the stockholder in such business.
Notwithstanding anything in these By-Laws to the contrary, no business shall be
conducted at an annual meeting of stockholders except in accordance with the
procedures set forth in this Section. The chairman of an annual meeting shall,
if the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Chief Executive Officer or the Board of Directors.
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<PAGE>
Nothing in this By-law shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Company's proxy statement pursuant to Rule
14a-8 under the Securities Exchange Act.
Section 2.6 List of Stockholders. The officer or agent having charge of the
stock ledger of the Company shall make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 2.7 Inspectors. In advance of any meeting of stockholders the Company,
by its Board of Directors or by its Chairman or President, shall appoint one or
more inspectors of voting who shall receive and count the ballots and make a
written report of the results of the balloting, and who shall perform such other
duties in connection therewith as is provided by law. The Company may also
designate one or more persons as alternate inspectors to replace any inspector
who is unable or fails to act.
Section 2.8 Quorum. The holders of record of shares of capital stock of the
Company having a majority of the votes entitled to be cast at the meeting,
represented in person or by proxy, shall constitute a quorum at all meetings of
stockholders. Where a separate vote by class or classes is to be held, the
holders of stock having a majority of the votes entitled to be cast by such
class or classes, represented in person or by proxy, shall constitute a quorum
at the meeting. Regardless of whether a quorum is present or represented, the
chairman of the meeting, or stockholders represented in person or by proxy at
the meeting voting a majority of the votes cast by such stockholders on the
matter, shall have the power to adjourn the meeting to another time and/or
place. Unless the adjournment is for more than thirty days, or unless a new
record date is set for the adjourned meeting, no notice of the adjourned meeting
need be given to any stockholder; provided that the time and place of the
adjourned meeting were announced at the meeting at which the adjournment was
taken. At the adjourned meeting the Company may transact any business which
might have been transacted at the original meeting.
Section 2.9 Voting of Shares; Proxies. The voting rights of holders of common
stock and preferred stock of the Company shall be as set forth in the Restated
Certificate of Incorporation, as from time to time in effect, and in resolutions
of the Board of Directors providing for series of the preferred stock. A
stockholder may vote either in
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person, by proxy executed in writing by the stockholder or an authorized
officer, director, employee or agent of the stock-holder, or by electronic
transmission as provided by law. No proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy provides for a
longer period. Action on any question or in any election may be by a voice vote
unless the presiding officer shall order that voting be by ballot. The presiding
officer at the meeting shall fix and announce at the meeting the date and time
of the opening and the closing of the polls for each matter upon which the
stockholders will vote at the meeting.
Section 2.10 Required Vote. At any duly constituted meeting of stockholders, the
affirmative vote of holders of a majority of the voting power of all shares
represented at the meeting in person or by proxy and entitled to vote on the
matter shall be necessary for the adoption or approval of any matter properly
brought before the meeting, unless the proposed action is for the election of
directors or is one upon which, by express provision of statute or of the
Restated Certificate of Incorporation, a different affirmative vote is specified
or required, in which case such express provision shall govern and control the
decision of such question. In elections for directors, the nominees receiving
the highest number of votes cast for the number of director positions to be
filled shall be elected. Where a separate vote by class or classes is to be
held, unless otherwise provided by statute or the Restated Certificate of
Incorporation, the affirmative vote of the holders of a majority of the voting
power of all shares of such class or classes represented at the meeting in
person or by proxy shall be the act of such class or classes.
Section 2.11 Action Without a Meeting. Action by the stockholders may be taken
without a meeting as provided in the Restated Certificate of Incorporation.
ARTICLE III
Directors
Section 3.1 Number, Tenure and Qualifications. The business and affairs of the
Company shall be managed by a Board of no less than ten (10) nor more than
fifteen (15) directors, as fixed from time to time by resolution of the Board of
Directors. Individuals shall be eligible to serve as a director of the Company
until the annual meeting next occurring after such person's 72nd birthday.
Officers of the Company shall not be eligible for service as a director
following their retirement or resignation as an officer of the Company. The
Board shall be classified with respect to the time during which they hold office
into three classes, as nearly equal in number as possible based on the then
current membership of the Board, as determined by the Board of Directors, all as
provided in the Restated Certificate of Incorporation. One class of directors
shall be elected at each annual meeting of the stockholders to hold office for
the term of three
-4-
<PAGE>
years or until their respective successors are duly elected and qualified or
until their earlier resignation or removal.
Section 3.2 Nominating Procedures.
Section 3.2.1 Eligibility to Make Nominations. Nominations of candidates for
election as directors at any meeting of stockholders called for that purpose may
be made by the Board of Directors or by any stockholder entitled to vote at such
meeting, in accordance with the following provisions.
Section 3.2.2 Procedure for Nominations by the Board of Directors. Nominations
made by the Board of Directors shall be made at a meeting of the Board of
Directors, or by written consent of the directors in lieu of a meeting, not less
than 30 days prior to the date of the meeting of stockholders at which directors
are to be elected. At the request of the Secretary of the Company, each proposed
nominee shall provide the Company with such information concerning himself or
herself as is necessary for purposes of the Company's proxy statement relating
to the meeting.
Section 3.2.3 Procedure for Nominations by Stockholders. Any stockholder who
intends to make a nomination at a meeting of stockholders at which directors are
to be elected, shall deliver a notice to the Secretary of the Company setting
forth (i) the name, age, business address and residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of each
such nominee, (iii) the number of shares of capital stock of the Company which
are beneficially owned by each such nominee and (iv) such other information
concerning each such nominee as would be required, under the rules of the
Securities and Exchange Commission, in a proxy statement soliciting proxies for
the election of such nominees. Such notice shall be accompanied by a signed
consent of each proposed nominee to serve as a director of the Company if
elected. To be timely, a stockholder's notice must be delivered to the Secretary
at the principal executive offices of the Company not earlier than the close of
business on the 120th day prior to such meeting and not later than the close of
business on the later of the 90th day prior to such meeting or the 10th day
following the day on which such notice of the date of the meeting is mailed to
the stockholders or public announcement thereof is made, whichever occurs first.
In no event shall the notice or public disclosure of an adjournment of a meeting
of stockholders at which directors are to be elected commence a new time period
for the giving of a stockholder's notice as described above.
Section 3.2.4 Substitution of Nominees. In the event that a person is validly
designated as a nominee in accordance with the preceding Sections and shall
thereafter become unable or unwilling to stand for election to the Board of
Directors, the Board of Directors or the stockholder who proposed such nominee,
as the case may be, may designate a substitute nominee. At the request of the
Secretary of the Company, each
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substitute nominee shall provide the Company with such information concerning
himself or herself as would be necessary for purposes of a proxy statement
relating to the meeting.
Section 3.2.5 Determination of Compliance with Procedures. If the chairman of
the meeting of stockholders determines that a nomination for director was not
made in accordance with the foregoing procedures, such nomination shall be void.
Section 3.3 Regular Meetings. A regular meeting of the Board of Directors shall
be held without other notice than this By-Law immediately after, and at the same
address as, the annual meeting of stockholders. The Board of Directors may fix
the time and place for the holding of additional regular meetings. No notice or
call shall be required.
Section 3.4 Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman, the President or any two directors, by notice to the
Secretary of the Company. The person or persons authorized to call special
meetings of the Board of Directors may fix any place as the place for holding
any special meeting of the Board of Directors called by them, provided that any
meeting called at the request of directors shall be held at Tribune Tower,
Chicago, Illinois. Notice of any special meeting shall be given to all directors
at least twenty-four hours in advance thereof (except as set forth below),
either (a) personally or by telephone or (b) by mail or telegram addressed to
the director at his/her address as it appears on the records of the Company.
Such notice shall include the time and place at which the meeting is to be held.
If mailed, such notice must be given at least five days prior to the meeting and
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice is to be given by telegram,
such notice shall be deemed to be delivered when the telegram is delivered to
the telegraph company. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice of such meeting.
Section 3.5 Quorum and Action. A majority of the total number of directors then
in office shall constitute a quorum for the transaction of business at any
meeting, but if less than a quorum is present a majority of the directors
present may adjourn the meeting from time to time without further notice. The
vote of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors, unless the act of a greater
number is required by statute, the Restated Certificate of Incorporation or
these By-Laws.
Section 3.6 Vacancies. Any vacancy occurring in the Board of Directors and any
newly created directorship resulting from an increase in the authorized number
of directors may be filled by a majority of the directors then in office,
although less than a quorum, and the directors so chosen shall hold office for
the unexpired portion of their
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<PAGE>
designated terms of office and until their successors are duly elected and
qualified, or until their earlier resignation or removal.
Section 3.7 Compensation of Directors. The Board of Directors, by the
affirmative vote of the majority of the directors then in office, and
irrespective of any personal interest of any of the directors, shall have
authority to fix the compensation of directors for services to the Company as
Board members, committee members or otherwise.
Section 3.8 Removal of Directors. Any one or more directors may be removed from
office only for cause, and only by the affirmative vote of holders of at least a
majority of the voting power of all of the then outstanding shares of voting
stock of the Company, voting together as a single class.
Section 3.9 Committees.
Section 3.9.1 Executive Committee. The Board of Directors, by resolution of a
majority of the whole Board, shall appoint an Executive Committee to consist of
not less than five members of the Board, one of whom shall be the person
designated as Chief Executive Officer of the Company. The Executive Committee
shall have the right to exercise the full power and authority of the Board of
Directors of the Company to the fullest extent permitted by Section 141(c) of
the General Corporation Law of the State of Delaware; provided, that, in
addition to the restrictions provided in said Section 141(c), such Executive
Committee shall not have the authority of the Board of Directors in reference
to: (a) electing or removing officers of the Company or members of the Executive
Committee; (b) fixing the compensation of any officer or director; (c) amending,
altering or repealing these By-Laws or any resolution of the Board of Directors;
(d) submission to the stockholders of any matter whatsoever; (e) action with
respect to dividends; or (f) any action which either the Chief Executive Officer
or two other members of the Executive Committee shall designate, by written
instrument filed with the Secretary of the Company, as a matter to be considered
by the full Board. All action taken by the Executive Committee between Board
meetings on matters of a nature ordinarily requiring Board action shall be
promptly reported to the Board of Directors.
Section 3.9.2 Audit Committee. The Board of Directors, by resolution of a
majority of the whole Board, shall appoint an Audit Committee to consist of not
less than three directors, none of whom shall be an officer or employee of the
Company or of any subsidiary or affiliated corporation. The Audit Committee (a)
shall recommend to the Board of Directors the appointment of independent public
accountants for each year to audit the books, records and accounts of the
Company and to perform such other duties as the board of Directors or Audit
Committee may from time to time prescribe, (b) shall review the financial
statements submitted by the independent public accountants and shall report to
the Board of Directors the results of such review, (c) shall review all
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<PAGE>
recommendations made by the independent public accountants to the Board of
Directors with respect to the accounting methods used, the organization and
operations of the Company and the system of internal control followed by the
Company and shall advise the Board of Directors with respect thereto and (d)
shall have authority to examine, and to make recommendations to the Board of
Directors with respect to, the audit conducted by the Company's independent
public accountants. The scope and frequency of the Audit Committee's review and
examination shall be determined by the Committee, which shall have all the
powers of the Board of Directors in carrying out its duties.
Section 3.9.3 Finance Committee. The Board of Directors, by resolution of a
majority of the whole Board, shall appoint a Finance Committee to consist of not
less than three directors. The functions of the Finance Committee shall be (a)
to supervise generally the financial affairs of the Company, (b) to review with
management the capital needs of the Company and its subsidiaries, (c) to provide
consultation on major borrowings and proposed issuances of debt and equity
securities and (d) to report to the Board of Directors from time to time with
respect to the foregoing. The Finance Committee shall make recommendations to
the Board concerning the Company's financial strategies, policies and structure,
and shall undertake such additional functions and activities related to the
foregoing as may be requested from time to time by the Board of Directors.
Section 3.9.4 Governance and Compensation Committee. The Board of Directors, by
resolution of a majority of the whole Board, shall appoint a Governance and
Compensation Committee to consist of not less than three directors, none of whom
shall be an officer or employee of the Company or of any subsidiary or
affiliated corporation. The functions of the Governance and Compensation
Committee shall be (a) to identify and make recommendations to the Board of
Directors regarding candidates for election to the Board, (b) to review and make
recommendations to the Board of Directors regarding the renomination of
incumbent directors, (c) to perform other related tasks, such as studying the
size, committee structure or meeting frequency of the Board, making studies or
recommendations regarding management succession, or tasks of similar character
as may be requested from time to time by the Board of Directors or the Chief
Executive Officer, (d) to establish the compensation of the Chief Executive
Officer of the Company, (e) to consult with the Chief Executive Officer with
respect to the compensation of officers and executive employees of the Company
and its subsidiaries, (f) to fix and determine awards to employees of stock or
stock options pursuant to any of the Company's employee stock option or stock
related plans now or from time to time hereafter in effect and to exercise such
other power and authority as may be permitted or required under such plans and
(g) to undertake such additional similar functions and activities as may be
required by other compensation plans maintained by the Company or as may be
requested from time to time by the Board of Directors.
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<PAGE>
The Board of Directors, by resolution of a majority of the whole Board, shall
designate one member of the Governance and Compensation Committee to act as
chairman of the Committee. The Committee member so designated shall (a) chair
all meetings of the Committee, (b) chair meetings involving only non-employee
directors, (c) coordinate an annual performance evaluation of the Company, (d)
coordinate the evaluation of the performance of the Chief Executive Officer, and
(e) perform such other activities as from time-to-time are requested by the
other directors or as circumstances indicate.
Section 3.9.5 Other Committees. In addition to the Committees provided for in
Sections 3.9.1 through 3.9.4 above, the Board of Directors may, by resolution
passed by a majority of the whole Board, designate and appoint one or more other
Board committees, each such committee to consist of two or more directors of the
Company. Any such Board committee, to the extent provided in the resolution
creating it and authorized by statute, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of the
Company, and may authorize the seal of the Company to be affixed to all papers
which may require it. The Board of Directors may also appoint other committees
for the administration of the affairs of the Company, whose members may or may
not be directors. Every committee appointed by the Board of Directors may,
unless the Board provides otherwise, fix its own rules of procedure and hold its
meetings in accordance with such rules. The Board may designate one or more
persons as alternate members of any Board or other committee, as applicable, who
may replace any absent or disqualified member at any meeting of such committee.
Section 3.10 Action By Directors Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 3.11 Meetings By Telephone. Members of the Board of Directors, or any
committee of the Board, may participate in a meeting of the Board or of such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section shall constitute
presence in person at such meeting.
ARTICLE IV
Officers
Section 4.1 Officers of the Company. The officers of the Company shall consist
of a Chairman and/or a President, a Secretary and a Treasurer, elected or
appointed by the
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Board of Directors. The Board may also elect or appoint as officers of the
Company a Controller, a General Counsel and one or more Vice Chairmen, Executive
Vice Presidents, Senior Vice Presidents, Vice Presidents, Deputy General
Counsels, Assistant Controllers, Assistant Secretaries, Assistant Treasurers or
Assistant Vice Presidents, and such other officers, as the Board may from time
to time determine. If the Board of Directors shall at any time elect or appoint
both a Chairman and a President, the Board shall specify which individual is to
serve as the Chief Executive Officer of the Company. Any two or more offices may
be held by the same person except that neither the Chairman nor the President
may also hold the office of Secretary. All officers of the Company shall have
such authority and perform such duties in the management of the property and
affairs of the Company as are provided in these By-Laws or as may be determined
by resolution of the Board of Directors and, to the extent not so provided, as
generally pertain to their respective offices, subject to the control of the
Board.
Section 4.2 Election and Term of Office. The officers of the Company shall be
elected annually by the Board of Directors at the first regular meeting of the
Board of Directors held after the annual meeting of stockholders. Each officer
shall hold office until his successor is duly elected and qualified or until his
earlier resignation or removal.
Section 4.3 Removal. Any officer elected or appointed by the Board of Directors
may be removed at any time by the affirmative vote of a majority of the whole
Board of Directors, with or without cause, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment of an officer shall not of itself create any contract rights.
Section 4.4 Vacancies. A vacancy in any office by reason of death, resignation,
removal, disqualification or otherwise may be filled by the Board of Directors
for the unexpired portion of the term.
Section 4.5 Delegation of Duties of Officers. In case of the absence of any
officer of the Company, or for any other reason that the Board of Directors may
deem sufficient, the Board of Directors may temporarily delegate the power or
duties of an officer to any other officer or to any other person.
Section 4.6 The Chairman; Chief Executive Officer. If the Board of Directors
shall elect a Chairman, that person when present shall preside at all meetings
of the stockholders and of the Board of Directors. The Chairman shall also have
the power to vote shares of stock registered in the name of the Company and
shall exercise such other powers and duties as from time to time may be provided
in these By-Laws or as may be prescribed by the Board of Directors. If the
Chairman shall be designated as Chief Executive Officer of the Company, he or
she shall have the general management and direction, subject to the authority of
the Board of Directors, of the Company's business
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and affairs and its officers and employees, with the power to appoint and to
remove and discharge any and all employees of the Company not elected or
appointed directly by the Board. The Chief Executive Officer shall, upon
consultation with the Governance and Compensation Committee of the Board, fix
the salaries and bonuses (if any) of all officers and executive employees of the
Company and its subsidiaries other than himself.
Section 4.7 The President. If the Board of Directors shall elect a President,
that person when present and in the absence of a Chairman shall preside at all
meetings of the stockholders and of the Board of Directors. If there is no
Chairman, or if the Board of Directors shall designate the President as the
Chief Executive Officer of the Company, the President shall have all of the
powers of the Chief Executive Officer enumerated in the preceding Section. The
President shall also have the power to vote shares of stock registered in the
name of the Company, and shall exercise such other powers and duties as from
time to time may be provided in these By-Laws or as may be prescribed by the
Board of Directors.
Section 4.8 Vice Chairman, Executive Vice President, Senior Vice President, Vice
President. Each Vice Chairman, Executive Vice President, Senior Vice President
or Vice President of the Company shall perform such duties as may from time to
time be assigned by the Chief Executive Officer or the Board of Directors. The
Chief Executive Officer or the Board of Directors may add words signifying the
function or position to the title of any Vice Chairman, Executive Vice
President, Senior Vice President or Vice President appointed by the Board. The
persons holding the foregoing positions shall each have the power to vote shares
of stock registered in the name of the Company where such ownership interest
constitutes less than 20% of the total voting interest of the corporation
issuing the stock.
Section 4.9 The Secretary. The Secretary shall record all of the proceedings of
the meetings of the stockholders and directors in a book to be kept for that
purpose, and shall perform like duties for the standing committees, when
requested; shall have custody and care of the corporate seal, records, minutes
and stock books of the Company; shall keep a suitable record of the addresses of
stockholders and of directors, and shall, except as may be otherwise required by
statute or these By-Laws, issue all notices required for meetings of
stockholders and of the Board of Directors and committees thereof. The Secretary
shall have authority to cause the seal of the Company to be affixed to all
papers requiring the seal, to attest the same, and to attest any instruments
signed by an officer of the Company. The Secretary shall perform such other
duties as from time to time may be assigned by the Chairman, the President or
the Board of Directors.
Section 4.10 The Treasurer. The Treasurer shall have charge of the safekeeping
of the Company's funds, and shall perform such other duties as may from time to
time be
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<PAGE>
assigned by the Chief Executive Officer or the Board of Directors. The Treasurer
may be required to give bond to the Company, at the Company's expense,
for the faithful discharge of his or her duties in such form and in such amount
and with such sureties as shall be determined by the Board of Directors.
Section 4.11 The Controller. The Controller shall have charge of the general
accounting department of the Company, and shall see that correct accounts of the
Company's business are properly kept. He or she shall perform such other duties
as from time to time may be assigned by the Chief Executive Officer or the Board
of Directors. The Controller may be required to give bond to the Company, at the
Company's expense, for the faithful discharge of his or her duties in such form
and in such amount and with such sureties as shall be determined by the Board of
Directors.
Section 4.12 General Counsel. The General Counsel shall be the chief legal
officer of the Company and shall be responsible for the management of the legal
affairs of the Company. The General Counsel shall perform such other duties as
from time to time may be assigned by the Chief Executive Officer or the Board of
Directors.
Section 4.13 Deputy General Counsel, Assistant Controller, Assistant Secretary,
Assistant Treasurer and Assistant Vice President. The Deputy General Counsel
shall assist the General Counsel in such manner and perform such duties as may
be designated from time to time by the General Counsel. Each Assistant Vice
President shall have such duties as may from time to time be assigned by the
Vice President or Vice Presidents to whom he or she reports. Each Assistant
Controller, Assistant Secretary and Assistant Treasurer shall assist the
Controller, the Secretary or the Treasurer, as the case may be, in the
performance of the respective duties of such principal officers. Each Assistant
Secretary shall have the authority to affix the corporate seal to any instrument
requiring it, to attest the same, and to attest any instrument signed by an
officer of the Company. The powers and duties of the Controller, the Secretary,
the Treasurer and the General Counsel, respectively, shall in case of the
absence, disability, death, resignation, or removal from office of such
principal officer, and except as otherwise ordered by the Board of Directors,
temporarily devolve upon the first appointed deputy or assistant who is able to
serve. Deputy or assistant officers shall perform such other duties as may be
assigned to them from time to time. The Chief Executive Officer or the Board of
Directors may add words signifying function or position to the title of any
deputy or assistant officer.
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<PAGE>
ARTICLE V
Capital Stock
Section 5.1 Certificates for Shares. Subject to the provisions of Section 5.2,
every holder of fully paid stock in the Company shall be entitled to have a
certificate or certificates signed in the name of the Company by the Chairman,
the President or any Vice President and by the Secretary or an Assistant
Secretary of the Company, representing and certifying the number of shares of
the Company's capital stock owned by such holder. Any or all of the signatures
on each certificate may be facsimile. In case any officer, transfer agent or
registrar whose signature or facsimile signature appears on a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Company with the same effect as
if such person were such officer, transfer agent or registrar at the date of
issue.
Section 5.2 Certificates for Fractional Shares. The Board of Directors may
provide that, with respect to classes or series of stock as to which the
issuance and ownership of fractional shares are permitted in accordance with the
Restated Certificate of Incorporation, the ownership of fractional interests
shall be evidenced by scrip certificates in lieu of the certificates referred to
in Section 5.1 of these By-Laws. Any or all of the signatures on each scrip
certificate may be facsimile. The Board of Directors may specify from time to
time, with respect to any series or class of stock, particular fractions in
which ownership will be permitted and recognized and as to which certificates
will be issued.
Section 5.3 Registration and Transfer of Shares. The Company will maintain or
cause to be maintained a register for the registration of shares of its capital
stock. Transfers of shares and exchanges of stock certificates shall be recorded
on the books of the Company only at the request of the holder of record thereof
or by his legal representative, who shall furnish proper evidence of authority
to transfer, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Company, and only upon the
surrender for cancellation of the certificate or certificates for such shares.
Section 5.4 Only Holder of Record Entitled to Recognition. The Company shall be
entitled to treat the holder of record of any share or shares as the owner
thereof for all purposes and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
Section 5.5 Fixing Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any
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<PAGE>
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, or for the purpose of any other lawful action, the Board
of Directors may fix a date as the record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which shall not be more than sixty nor less than ten
days (or, in the case of a meeting to vote on a merger or consolidation, not
more than sixty nor less than twenty days) before the date of such meeting, nor
more than sixty days prior to any other action. The record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be as provided by law. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. When a
determination of stockholders entitled to notice of or to vote at any meeting of
stockholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Section 5.6 Lost Certificates. If an outstanding certificate of stock shall be
lost, destroyed or stolen, the holder thereof may have a new certificate issued
to him or her upon producing evidence satisfactory to the Company of such loss,
destruction, or theft, and also upon furnishing to the Company a bond of
indemnity deemed sufficient by the Secretary to protect the Company and any
registrar or transfer agent against claims under the certificate alleged to be
lost, destroyed or stolen; provided, however, that upon good cause shown the
Board of Directors may waive the furnishing of such bond of indemnity.
ARTICLE VI
Miscellaneous
Section 6.1 Execution of Instruments. Contracts and other written documents of
the Company shall be executed as the Board of Directors may from time to time
direct. In the absence of specific directions by the Board, the officers of the
Company shall duly execute all necessary contracts and other written instruments
properly coming within the scope of their respective powers and duties. When the
execution of any contract or other written instrument of the Company has been
authorized by the Board of Directors without specification of the executing
officers, the Chairman, the President, any Vice Chairman or any Vice President
may execute the same in the name and on behalf of the Company and the Secretary
or any Assistant Secretary may attest the same and affix the corporate seal
thereto.
Section 6.2 Loans. No loans (except loans for current expenses) shall be
incurred on behalf of the Company and no evidences of indebtedness shall be
issued in its name unless authorized by a resolution of the Board of Directors
or a duly authorized
-14-
<PAGE>
committee thereof. Such authority may be general or confined to specific
instances. No loans shall be made by the Company to any director or officer
except upon the affirmative vote of a majority of the disinterested directors.
Section 6.3 Bank Deposits and Check Authorization. The funds of the Company
shall be deposited to its credit in such banks, trust companies or other
financial institutions as may be determined from time to time by the Chairman or
President and the Secretary of the Company, evidenced by joint written action.
By such joint written action, filed with the minutes of the Board of Directors,
the Chairman or President together with the Secretary may authorize (a) the
opening of one or more deposit accounts at any such institution and (b) the
designation of, or a change in the designation of, the officers or employees
upon whose signature checks may be written or funds withdrawn on any Company
account at any such institution, provided that the signature of one person other
than the Chairman, President and Secretary shall be required therefor. By the
adoption of this Section 6.3 of these By-Laws the Board of Directors adopts the
form of any resolution or resolutions requested by or acceptable to any
financial institution in connection with the foregoing actions, provided that
the Secretary of the Company (x) believes that the adoption of such resolution
or resolutions is necessary or advisable and (y) files such resolution or
resolutions with the minutes of the Board of Directors.
Section 6.4 Fiscal year. The fiscal year of the Company shall begin on the first
Monday after the last Sunday in December of each year and end on the last Sunday
in the following December.
Section 6.5 Seal. The corporate seal shall be in the form of a circle and shall
have inscribed thereon the name of the Company and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, printed or otherwise reproduced. The Board of Directors may
give general authority to any officer to affix the seal of the Company and to
attest the fixing by his or her signature.
Section 6.6 Waiver of Notice. Whenever any notice whatever is required to be
given by statute, by the Restated Certificate of Incorporation of the Company,
by these By-Laws or otherwise, in connection with any meeting of stockholders,
directors or members of a committee of directors, a written waiver thereof,
signed by the person entitled to such notice, whether before or after the event
as to which such notice is required, shall be deemed equivalent to such required
notice. In addition, attendance by a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of such meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
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<PAGE>
meeting of stockholders, directors or members of a committee of directors need
be specified in any written waiver of notice.
ARTICLE VII
Amendments of By-Laws
Section 7.1 These By-Laws may be altered, amended or repealed and new by-laws
may be made (a) by the stockholders as provided in the Restated Certificate of
Incorporation or (b) by the affirmative vote of a majority of the whole Board of
Directors at any regular or special meeting thereof.
-16-
EXHIBIT 12
TRIBUNE COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios)
<TABLE>
<CAPTION>
Three Quarters Fiscal Year Ended December
Ended ------------------------------------------------------------
9/27/98 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations $301,031 $393,625 $282,750 $245,458 $233,149 $204,646
Add:
Income tax expense 217,373 265,375 191,663 167,076 158,698 142,212
Losses on equity investments 29,077 34,696 13,281 13,209 9,739 1,857
-------- -------- -------- -------- -------- --------
Subtotal 547,481 693,696 487,694 425,743 401,586 348,715
-------- -------- -------- -------- -------- --------
Fixed charge adjustments
Add:
Interest expense 64,138 86,502 47,779 21,814 20,585 24,660
Amortization of capitalized interest 1,554 2,076 2,108 2,253 2,362 2,392
Interest component of rental expense (A) 7,829 10,416 9,362 8,200 8,236 8,732
-------- -------- -------- -------- -------- --------
Earnings, as adjusted $621,002 $792,690 $546,943 $458,010 $432,769 $384,499
======== ======== ======== ======== ======== ========
Fixed charges:
Interest expense $ 64,138 $ 86,502 $ 47,779 $ 21,814 $ 20,585 $ 24,660
Interest capitalized 1,222 224 168 610 - 1,099
Interest component of rental expense (A) 7,829 10,416 9,362 8,200 8,236 8,732
Interest related to guaranteed ESOP debt (B) 11,685 17,901 20,134 22,057 24,017 25,742
-------- -------- -------- -------- -------- --------
Total fixed charges $ 84,874 $115,043 $ 77,443 $ 52,681 $ 52,838 $ 60,233
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 7.3 6.9 7.1 8.7 8.2 6.4
======== ======== ======== ======== ======== ========
</TABLE>
(A) Represents a reasonable approximation of the interest cost component of
rental expense incurred by the Company.
(B) Tribune Company guarantees the debt of its Employee Stock Ownership Plan
(ESOP).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 27, 1998 condensed consolidated statement of income and condensed
consolidated balance sheet and is qualified in its entirety by references to
such financial statments.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> SEP-27-1998
<CASH> 30,681
<SECURITIES> 0
<RECEIVABLES> 569,084
<ALLOWANCES> 43,239
<INVENTORY> 103,085
<CURRENT-ASSETS> 934,779
<PP&E> 1,624,915
<DEPRECIATION> 974,150
<TOTAL-ASSETS> 5,481,062
<CURRENT-LIABILITIES> 837,247
<BONDS> 0
0
293,043
<COMMON> 1,018
<OTHER-SE> 1,717,774
<TOTAL-LIABILITY-AND-EQUITY> 5,481,062
<SALES> 0
<TOTAL-REVENUES> 2,215,425
<CGS> 0
<TOTAL-COSTS> 1,049,389
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,138
<INCOME-PRETAX> 518,404
<INCOME-TAX> 217,373
<INCOME-CONTINUING> 301,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 301,031
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.17
<FN>
The information reported above under "EPS-PRIMARY" represents basic earnings
per share for the quarter ended September 27, 1998.
</FN>
</TABLE>
