- --------------------------------------------------------------------------------
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 26, 1999
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 5, 1999 there were 237,632,327 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. 26, 1999 Sept. 27, 1998 Sept. 26, 1999 Sept. 27, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating Revenues......................................... $836,736 $757,148 $2,393,506 $2,215,425
Operating Expenses.........................................
Cost of sales (exclusive of items shown below)............. 384,595 365,076 1,097,328 1,049,389
Selling, general and administrative........................ 195,492 175,079 560,499 506,645
Depreciation and amortization of
intangible assets..................................... 57,941 49,429 165,961 145,112
-------- -------- ---------- ----------
Total operating expenses................................... 638,028 589,584 1,823,788 1,701,146
-------- -------- ---------- ----------
Operating Profit........................................... 198,708 167,564 569,718 514,279
Net loss on equity investments............................. (5,549) (7,212) (22,652) (29,077)
Interest income............................................ 16,473 1,461 31,057 4,241
Interest expense........................................... (29,537) (22,108) (83,295) (64,138)
Gain on change in fair values of derivatives
and related investments............................... 20,771 - 192,204 -
Gain on reclassification of investments.................... - - 1,095,976 -
Gain on sales of subsidiaries and investments,
net of write-downs.................................... - - 444,927 93,099
-------- -------- ---------- ----------
Income Before Income Taxes................................. 200,866 139,705 2,227,935 518,404
Income taxes............................................... (79,099) (56,399) (874,858) (217,373)
-------- -------- ---------- ----------
Income Before Cumulative Effect of
Change in Accounting Principle........................ 121,767 83,306 1,353,077 301,031
Cumulative effect of change in accounting
principle, net of tax (See Note 5).................... - - (3,060) -
-------- -------- ---------- ----------
Net Income................................................. 121,767 83,306 1,350,017 301,031
Preferred dividends, net of tax............................ (4,660) (4,696) (13,979) (14,087)
-------- -------- ---------- ----------
Net Income Attributable to Common Shares................... $117,107 $ 78,610 $1,336,038 $ 286,944
======== ======== ========== ==========
Earnings Per Share (See Note 2):
Basic:
Before cumulative effect of change in
accounting principle................................ $.49 $ .32 $5.64 $1.18
Cumulative effect of accounting change, net........... - - (.01) -
---- ----- ----- -----
Net income............................................ $.49 $ .32 $5.63 $1.18
==== ===== ===== =====
Diluted:...................................................
Before cumulative effect of change in
accounting principle................................ $.45 $ .30 $5.14 $1.08
Cumulative effect of accounting change, net........... - - (.01) -
---- ----- ----- -----
Net income............................................ $.45 $ .30 $5.13 $1.08
==== ===== ===== =====
Dividends per common share................................. $.09 $.085 $ .27 $.255
==== ===== ===== =====
</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 26, 1999 December 27, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................ $1,099,539 $ 12,433
Investments...................................................................... 73,125 -
Accounts receivable, net......................................................... 590,276 555,229
Inventories...................................................................... 100,225 99,005
Broadcast rights................................................................. 269,595 232,394
Prepaid expenses and other....................................................... 53,948 46,068
---------- ----------
Total current assets............................................................. 2,186,708 945,129
Property, plant and equipment.................................................... 1,750,829 1,664,526
Accumulated depreciation......................................................... (1,054,888) (987,791)
---------- ----------
Net properties................................................................... 695,941 676,735
Broadcast rights................................................................. 223,664 207,757
Intangible assets, net........................................................... 3,046,077 2,703,993
America Online stock related to PHONES debt...................................... 780,000 546,500
Other investments................................................................ 815,455 703,479
Other assets..................................................................... 181,301 151,977
---------- ----------
Total assets..................................................................... $7,929,146 $5,935,570
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Long-term debt due within one year............................................... $ 29,598 $ 29,905
Contracts payable for broadcast rights........................................... 260,035 260,264
Deferred income ................................................................. 50,245 55,097
Income taxes..................................................................... 59,426 59,607
Accounts payable, accrued expenses and other current liabilities................. 451,412 423,257
---------- ----------
Total current liabilities........................................................ 850,716 828,130
PHONES debt related to America Online stock...................................... 842,000 -
Other long-term debt............................................................. 1,433,041 1,616,256
Deferred income taxes............................................................ 1,115,608 701,778
Contracts payable for broadcast rights........................................... 323,927 268,099
Compensation and other obligations............................................... 194,261 164,690
---------- ----------
Total liabilities................................................................ 4,759,553 3,578,953
Shareholders' equity
Series B convertible preferred stock............................................. 281,093 293,203
Common stock and additional paid-in capital...................................... 153,283 210,492
Retained earnings................................................................ 4,096,476 2,819,474
Treasury stock (at cost)......................................................... (1,430,900) (1,414,661)
Treasury stock held by Tribune Stock Compensation Fund (at cost)................. (80,946) (26,602)
Unearned compensation related to ESOP............................................ (156,495) (156,495)
Accumulated other comprehensive income........................................... 307,082 631,206
---------- ----------
Total shareholders' equity....................................................... 3,169,593 2,356,617
---------- ----------
Total liabilities and shareholders' equity....................................... $7,929,146 $5,935,570
========== ==========
</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. 26, 1999 Sept. 27, 1998
-------------- --------------
<S> <C> <C>
Operations
Net income.......................................................................... $1,350,017 $301,031
Adjustments to reconcile net income to net cash
provided by operations:
Gain on reclassification of investments....................................... (1,095,976) -
Gain on change in fair values of derivatives
and related investments.................................................... (192,204) -
Gain on sales of subsidiaries and investments, net of write-downs............. (444,927) (93,099)
Cumulative effect of accounting change, net................................... 3,060 -
Depreciation and amortization of intangible assets............................ 165,961 145,112
Deferred income taxes......................................................... 630,810 17,327
Other, net.................................................................... (14,453) 42,180
---------- --------
Net cash provided by operations..................................................... 402,288 412,551
---------- --------
Investments
Capital expenditures................................................................ (81,941) (85,271)
Acquisitions and investments........................................................ (200,344) (177,232)
Proceeds from sales of investments.................................................. 98,595 14,738
Net (increase) decrease in advances to investee..................................... 49,692 (21,874)
Other, net.......................................................................... (6,210) (4,676)
---------- --------
Net cash used for investments....................................................... (140,208) (274,315)
---------- --------
Financing
Net proceeds from issuance of PHONES debt........................................... 1,230,880 -
Proceeds from issuance of other long-term debt...................................... - 153,513
Repayments of long-term debt........................................................ (183,622) (20,082)
Sales of common stock to employees, net............................................. 45,772 35,872
Purchases of treasury stock......................................................... (37,014) (202,963)
Purchases of treasury stock by Tribune Stock Compensation Fund...................... (157,975) (68,962)
Dividends........................................................................... (73,015) (71,551)
---------- --------
Net cash provided by (used for) financing........................................... 825,026 (174,173)
---------- --------
Net increase (decrease) in cash and cash equivalents................................ 1,087,106 (35,937)
Cash and cash equivalents at the beginning of year.................................. 12,433 66,618
---------- --------
Cash and cash equivalents at the end of quarter..................................... $1,099,539 $ 30,681
========== ========
</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 26, 1999 and the results of their
operations for the quarters and first three quarters ended September 26, 1999
and September 27, 1998 and cash flows for the first three quarters ended
September 26, 1999 and September 27, 1998. 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 1999 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. All share and per share
data has been restated to reflect a two-for-one common stock split, effective
September 9, 1999.
Note 2:
- ------
The computations of basic and diluted earnings per share were as follows:
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
-------------------------------- ---------------------------------
(In thousands, except per share data) Sept. 26, 1999 Sept. 27, 1998 Sept. 26, 1999 Sept. 27, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BASIC
Net income............................................. $121,767 $83,306 $1,350,017 $301,031
Preferred dividends, net of tax........................ (4,660) (4,696) (13,979) (14,087)
-------- ------- ---------- --------
Net income attributable to common shares............... $117,107 $78,610 $1,336,038 $286,944
-------- ------- ---------- --------
Weighted average common shares
outstanding........................................ 237,090 242,488 237,295 243,972
-------- ------- ---------- --------
Basic earnings per share............................... $ .49 $ .32 $ 5.63 $ 1.18
======== ======= ========== ========
DILUTED
Net income............................................ $121,767 $83,306 $1,350,017 $301,031
Additional ESOP contribution required
assuming all preferred shares were
converted, net of tax............................. (3,063) (3,184) (9,188) (9,553)
-------- ------- ---------- --------
Adjusted net income................................... $118,704 $80,122 $1,340,829 $291,478
-------- ------- ---------- --------
Weighted average common shares
outstanding....................................... 237,090 242,488 237,295 243,972
Assumed conversion of preferred shares
into common shares................................ 20,523 21,406 20,523 21,406
Assumed exercise of stock options, net of
common shares assumed repurchased
with the proceeds................................. 4,422 2,932 3,584 3,460
-------- -------- ---------- --------
Adjusted weighted average common shares
outstanding....................................... 262,035 266,826 261,402 268,838
-------- -------- ---------- --------
Diluted earnings per share............................. $ .45 $ .30 $ 5.13 $ 1.08
======== ======== ========== ========
</TABLE>
5
<PAGE>
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.
Note 3:
- ------
Inventories consist of (in thousands):
Sept. 26, 1999 Dec. 27, 1998
-------------- -------------
Finished goods............................ $ 74,787 $74,631
Newsprint (at LIFO)....................... 13,387 12,207
Supplies and other........................ 12,051 12,167
-------- -------
Total inventories......................... $100,225 $99,005
======== =======
Newsprint inventories are valued under the LIFO method and were less than
current cost by approximately $6.1 million at September 26, 1999 and $9.9
million at December 27, 1998. Finished goods primarily include books and
supplemental educational materials.
Note 4:
- ------
In April 1999, the Company issued 8.0 million of its Exchangeable
Subordinated Debentures due 2029 ("PHONES"), for an aggregate principal amount
of over $1.2 billion. The principal amount equaled the value of 8.0 million
shares of America Online ("AOL") common stock at the closing price of $157 per
share on April 7, 1999. The Company will continue to own the AOL stock. At
maturity, the PHONES will be redeemed at the greater of the then market value of
AOL common stock or $157 per PHONES. Interest on the debentures is paid
quarterly at an annual rate of 2%. AOL has announced a two-for-one common stock
split effective November 22, 1999.
During the first quarter of 1999, the Company entered into a one-year hedge
transaction ("AOL collar") with respect to 1.0 million shares of its AOL common
stock investment. The AOL collar locked in the value of these shares within the
price range of $92-$106 per share and was to settle in the first quarter of
2000. The AOL collar was restructured in the third quarter of 1999 for the 1.0
million shares to settle in four equal installments of 250,000 shares in each of
the four quarters of 2000. Since 750,000 shares of this transaction will have
settled through the third quarter of 2000, the value of these shares under the
collar is classified as a current asset in the balance sheet at September 26,
1999.
6
<PAGE>
Note 5:
- ------
The third quarter of 1999 and the first three quarters of both 1999 and
1998 included several non-operating items. Third quarter 1999 non-operating
items resulted in a pretax gain of $21 million, which added $.05 to diluted
earnings per share. For the first three quarters of 1999, non-operating items
and the cumulative effect of the accounting change in the 1999 second quarter
resulted in a net pretax gain of approximately $1.7 billion, or $4.02 per
diluted share. For the first three quarters of 1998, non-operating items
resulted in a net pretax gain of $93 million, or $.17 per diluted share.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company elected early adoption of FAS
133 as of the beginning of the 1999 second quarter. FAS 133 requires that all
derivative instruments be recorded in the balance sheet at fair value. The
provisions of FAS 133 affected the Company's accounting for its 8.0 million
PHONES, its 4.6 million Debt Exchangeable for Common Stock securities ("DECS")
and its AOL collar for 1.0 million shares.
Prior to the adoption of FAS 133, changes in the fair values of the
Company's 8.0 million of AOL shares and 5.5 million of Mattel shares related to
the PHONES and DECS, respectively, had been recorded in the accumulated other
comprehensive income component of shareholders' equity in the Company's balance
sheet, as these securities had been classified as available-for-sale. With the
adoption of FAS 133, the 8.0 million shares of AOL common stock and the 5.5
million shares of Mattel common stock were reclassified to trading securities.
As a result of this change in classification, the Company was required, under
the provisions of FAS 115, "Accounting for Certain Investments in Debt and
Equity Securities," to recognize pretax gains totaling approximately $1.1
billion in its second quarter 1999 statement of income, which added $2.55 to
diluted earnings per share. These gains represented the unrealized market
appreciation on these investments through the end of the 1999 first quarter.
Beginning in the second quarter of 1999, the Company is recording subsequent
changes in the fair values of these investments in the statement of income.
Under the provisions of FAS 133, the initial value of the PHONES and the
DECS were each split into a debt component and a derivative component. Changes
in the fair values of the derivative component of the PHONES and DECS are
recorded in the statement of income. Changes in the fair values of the related
AOL and Mattel shares should at least partially offset changes in the fair
values of the derivative component of the PHONES and the DECS, respectively.
There may be periods with significant non-cash increases or decreases to the
Company's net income pertaining to the PHONES, DECS and the related AOL and
Mattel shares. The 1.0 million shares of AOL common stock related to the AOL
collar are classified as available-for-sale securities, with the unrealized gain
or loss on these shares reported in the accumulated other comprehensive income
component of shareholders' equity. Changes in the AOL collar's time value are
recorded in the Company's statement of income.
During the 1999 third quarter, the change in fair value of the derivative
component of the PHONES resulted in a pretax gain of $67 million, which was
partially offset by a $42 million pretax loss resulting from the change in fair
value of the related AOL trading shares. The net change in the fair values of
the derivative component of the PHONES and the related AOL shares resulted in a
non-cash pretax gain of $25 million, which increased diluted earnings per share
by $.06. The total change in the fair values of all of the Company's
derivatives, net of changes in the fair values of the related investments,
resulted in a non-cash pretax gain of $21 million, which added $.05 to diluted
earnings per share. Through the second and third quarters of 1999, the change in
fair value of the derivative component of the PHONES resulted in a
7
<PAGE>
pretax gain of $417 million, which was partially offset by a $225 million pretax
loss resulting from the change in fair value of the related AOL trading shares.
The net change during the second and third quarters of 1999 in the fair values
of the derivative component of the PHONES and the related AOL shares resulted in
a non-cash pretax gain of $192 million, which increased diluted earnings per
share by $.45. Through the second and third quarters of 1999, the total changes
in the fair values of all of the Company's derivatives, net of changes in the
fair values of the related shares, resulted in a net pretax gain of $192
million, which increased diluted earnings per share by $.45.
The second quarter of 1999 also included a $3 million after-tax loss, or
$.01 per diluted share, representing the cumulative effect of adopting FAS 133
as of the beginning of the second quarter. This cumulative effect resulted from
adjusting the DECS and the AOL collar derivatives to their fair values as of
March 28, 1999.
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 and cash. In March 1999
and in a three-way transaction, Meredith purchased KCPQ from Kelly Television
Co. and then exchanged the station for WGNX. The divestiture of WGNX was
accounted for as a sale, and the acquisition of KCPQ was recorded as a purchase.
The Company recorded the assets of KCPQ at fair market value and recognized a
pretax gain of $348 million, which increased diluted earnings per share by $.81.
Federal Communications Commission ("FCC") regulations in effect at the time the
exchange transaction was consummated precluded the Company from owning both KCPQ
and the Company's KTWB-Seattle (formerly KTZZ) television station. As part of
the transaction, the Company transferred the assets of KTWB into a disposition
trust. Pursuant to the terms of the disposition trust, an independent trustee
was charged with finding a buyer for KTWB. However, on August 5, 1999, the FCC
adopted changes to its rules that permit the Company to own both stations. The
FCC revised its TV duopoly rules to permit common ownership of two television
stations within the same Nielsen Designated Market Area ("DMA"), provided that
eight full-power independent television stations remain in the DMA and one of
the stations is not among the top four-ranked stations in the DMA based on
audience share. Based on the revised TV duopoly rule, the Company intends to
transfer back the assets of KTWB from the disposition trust.
Also in March 1999, the Company sold one million shares of AOL common stock
for $95 million in cash, resulting in a pretax gain of $95 million and
increasing diluted earnings per share by $.22.
In June 1998, the Company completed the exchange of its WQCD radio station
in New York and cash for the assets of television stations KTWB-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 $.16 per diluted share.
The Company also sold certain other investments and recorded certain investment
write-downs in the second quarter of 1998, and sold an investment in the first
quarter of 1998.
Note 6:
- ------
In February 1999, the Company acquired JDTV, a distributor of television
listings information to the cable and satellite television industries. In March
1999, the Company acquired the assets of television station KCPQ-Seattle, with a
fair value of approximately $380 million, in exchange for its WGNX-Atlanta
television station and cash. In September 1999, the Company acquired the assets
of television station WEWB-Albany (formerly WMHQ) for $18.5 million in cash.
8
<PAGE>
In June 1998, the Company acquired the assets of television stations
KTWB-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
September 1998, the Company purchased Sun-Sentinel Community News Group
(formerly South Florida Newspaper Network), a publisher of weekly newspapers in
South Florida.
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.
Note 7:
- ------
In March 1997, the Company acquired Renaissance Communications Corp., a
publicly traded company that owned six television stations. The stations
acquired included WBZL-Miami, WTIC-Hartford and WPMT-Harrisburg. The 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 the August 5, 1999 FCC rulemaking which will now permit the Company
to own both stations. 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 cross-ownership rule review.
Note 8:
- ------
On November 9, 1999, the Company announced an agreement to acquire the
remaining interest in Qwest Broadcasting LLC ("Qwest"), which owns television
stations WATL-Atlanta and WNOL-New Orleans. The Company has owned a 33% equity
interest in Qwest since it was formed in 1995. On August 5, 1999, the FCC
adopted changes to its rules that may permit Tribune to own both WNOL and the
Company's WGNO-New Orleans television station. The transaction, pending FCC and
other regulatory approval, is expected to close in the first quarter of 2000.
9
<PAGE>
Note 9:
- ------
Other comprehensive income includes foreign currency translation
adjustments and unrealized gains and losses on marketable securities classified
as available-for-sale. Approximately three million AOL shares are currently
classified as available-for-sale. Prior to the adoption of FAS 133, changes in
the fair value of the Company's 5.5 million Mattel shares, net of the change in
the current maturity value of the Company's related DECS securities, and all of
the Company's AOL shares were recorded in accumulated other comprehensive
income, as the Mattel and AOL securities had been classified as
available-for-sale. With the adoption of FAS 133 as of the beginning of the 1999
second quarter, 8.0 million of the AOL shares and all of the Mattel shares were
reclassified to trading securities. As a result of this reclassification and the
adoption of FAS 133, beginning in the 1999 second quarter, changes in the fair
value of the 8.0 million AOL shares and 5.5 million Mattel shares, net of the
changes in the fair value of the related derivative components of the PHONES and
DECS, are recorded in the Company's statement of income. The Company's
comprehensive income was as follows (in thousands):
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
-------------------------------- --------------------------------
Sept. 26, 1999 Sept. 27, 1998 Sept. 26, 1999 Sept. 27, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income............................................. $121,767 $83,306 $1,350,017 $301,031
Net foreign currency translation adjustment............ (789) - 356 -
Unrealized holding gain (loss) on marketable securities:
Arising during the period, before tax........... (72,021) 18,594 647,003 325,597
Less: adjustment for gain on sales of
investments included in net income........... - - (94,840) (12,131)
Less: adjustment for gain on
reclassification of investments
included in net income....................... - - (1,095,976) -
-------- ------- ---------- --------
Unrealized gain (loss), before tax.............. (72,021) 18,594 (543,813) 313,466
Income taxes.................................... 27,389 (7,293) 219,333 (122,956)
-------- ------- ---------- --------
Net unrealized gain (loss) on securities........ (44,632) 11,301 (324,480) 190,510
-------- ------- ---------- --------
Net other comprehensive income (loss).................. (45,421) 11,301 (324,124) 190,510
-------- ------- ---------- --------
Comprehensive income................................... $ 76,346 $94,607 $1,025,893 $491,541
======== ======= ========== ========
</TABLE>
10
<PAGE>
Note 10:
- ------
Financial data for each of the Company's business segments is as follows
(in thousands):
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
--------------------------------- ---------------------------------
Sept. 26, 1999 Sept. 27, 1998 Sept. 26, 1999 Sept. 27, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating revenues:
Publishing.............................. $376,237 $353,614 $1,162,958 $1,103,433
Broadcasting and Entertainment.......... 341,155 291,144 953,789 854,135
Education............................... 119,344 112,390 276,759 257,857
-------- -------- ---------- ----------
Total operating revenues.................... $836,736 $757,148 $2,393,506 $2,215,425
======== ======== ========== ==========
Operating profit:
Publishing.............................. $ 82,028 $ 78,120 $ 288,666 $ 277,580
Broadcasting and Entertainment.......... 96,839 69,240 265,672 221,526
Education............................... 31,963 28,844 45,492 41,469
Corporate expenses...................... (12,122) (8,640) (30,112) (26,296)
-------- -------- ---------- ----------
Total operating profit...................... $198,708 $167,564 $ 569,718 $ 514,279
======== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Sept. 26, 1999 Dec. 27, 1998
-------------- -------------
<S> <C> <C>
Assets:
Publishing.............................. $ 860,312 $ 800,853
Broadcasting and Entertainment.......... 3,609,765 3,148,814
Education............................... 833,314 782,438
Corporate............................... 2,625,755 1,203,465
---------- ----------
Total assets................................ $7,929,146 $5,935,570
========== ==========
</TABLE>
The assets of the broadcasting and entertainment segment increased by
approximately $461 million during the first three quarters of 1999, largely due
to the acquisition of KCPQ-Seattle in March 1999. Also, corporate assets rose by
approximately $1.4 billion in the 1999 first three quarters, mainly due to cash
proceeds received from the issuance of the PHONES and increases in the fair
market value of the Company's investment portfolio.
11
<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 1999 to the third quarter and first three quarters of 1998.
All share and per share data has been restated to reflect a two-for-one common
stock split, effective September 9, 1999.
FORWARD-LOOKING STATEMENTS
- --------------------------
This discussion, the information contained in the preceding notes to the
financial statements and the information contained in Item 3, "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 achievements to differ
materially from those expressed in the forward-looking statements. Such risks,
trends and uncertainties, which in some instances are beyond the Company's
control, include changes in advertising demand, newsprint prices, interest
rates, competition, regulatory rulings and other economic conditions; the effect
of professional sports team labor strikes, lock-outs and negotiations; 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.
SIGNIFICANT EVENTS
- ------------------
ACQUISITIONS
In February 1999, the Company acquired JDTV, a distributor of television
listings information to the cable and satellite television industries. In March
1999, the Company acquired the assets of television station KCPQ-Seattle, with a
fair value of approximately $380 million, in exchange for the assets of its
WGNX-Atlanta television station and cash. In September 1999, the Company
acquired the assets of television station WEWB-Albany (formerly WMHQ) for $18.5
million in cash.
In June 1998, the Company acquired the assets of television stations
KTWB-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
September 1998, the Company purchased Sun-Sentinel Community News Group
(formerly South Florida Newspaper Network), a publisher of weekly newspapers in
South Florida.
The operating results of these acquired businesses have been included in
the consolidated financial statements since their respective dates of
acquisition.
On November 9, 1999, the Company announced an agreement to acquire the
remaining interest in Qwest Broadcasting LLC ("Qwest"), which owns television
stations WATL-Atlanta and WNOL-New Orleans. The Company has owned a 33% equity
interest in Qwest since it was formed in 1995. On August 5, 1999, the FCC
adopted changes to its rules that may permit Tribune to own both WNOL and the
Company's WGNO-New Orleans television station. The transaction, pending FCC and
other regulatory approval, is expected to close in the first quarter of 2000.
12
<PAGE>
NON-OPERATING ITEMS
The third quarter of 1999 and the first three quarters of both 1999 and
1998 included several non-operating items. Third quarter 1999 non-operating
items resulted in a pretax gain of $21 million, which added $.05 to diluted
earnings per share. For the first three quarters of 1999, non-operating items
and the cumulative effect of the accounting change in the 1999 second quarter
resulted in a net pretax gain of approximately $1.7 billion, or $4.02 per
diluted share. For the first three quarters of 1998, non-operating items
resulted in a net pretax gain of $93 million, or $.17 per diluted share.
In April 1999, the Company issued 8.0 million of its Exchangeable
Subordinated Debentures due 2029 ("PHONES"), for an aggregate principal amount
of over $1.2 billion. The principal amount equaled the value of 8.0 million
shares of America Online ("AOL") common stock at the closing price of $157 per
share on April 7, 1999.
The Company elected early adoption of Statement of Financial Accounting
Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as of the beginning of the 1999 second quarter. FAS 133 requires
that all derivative instruments be recorded in the balance sheet at fair value.
The provisions of FAS 133 affected the Company's accounting for its 8.0 million
PHONES, its 4.6 million Debt Exchangeable for Common Stock securities ("DECS")
and its AOL collar for 1.0 million shares.
Prior to the adoption of FAS 133, changes in the fair values of the
Company's 8.0 million of AOL shares and 5.5 million of Mattel shares related to
the PHONES and DECS, respectively, had been recorded in the accumulated other
comprehensive income component of shareholders' equity in the Company's balance
sheet, as these securities had been classified as available-for-sale. With the
adoption of FAS 133, the 8.0 million shares of AOL common stock and the 5.5
million shares of Mattel common stock were reclassified to trading securities.
As a result of this change in classification, the Company was required, under
the provisions of FAS 115, "Accounting for Certain Investments in Debt and
Equity Securities," to recognize pretax gains totaling approximately $1.1
billion in its second quarter 1999 statement of income, which added $2.55 to
diluted earnings per share. These gains represented the unrealized market
appreciation on these investments through the end of the 1999 first quarter.
Beginning in the second quarter of 1999, the Company is recording subsequent
changes in the fair values of these investments in the statement of income.
Under the provisions of FAS 133, the initial value of the PHONES and the
DECS were each split into a debt component and a derivative component. Changes
in the fair values of the derivative component of the PHONES and DECS are
recorded in the statement of income. Changes in the fair values of the related
AOL and Mattel shares should at least partially offset changes in the fair
values of the derivative component of the PHONES and the DECS, respectively.
There may be periods with significant non-cash increases or decreases to the
Company's net income pertaining to the PHONES, DECS and the related AOL and
Mattel shares. The 1.0 million shares of AOL common stock related to the AOL
collar are classified as available-for-sale securities, with the unrealized gain
or loss on these shares reported in the accumulated other comprehensive income
component of shareholders' equity. Changes in the AOL collar's time value are
recorded in the Company's statement of income.
During the 1999 third quarter, the change in fair value of the derivative
component of the PHONES resulted in a pretax gain of $67 million, which was
partially offset by a $42 million pretax loss resulting from the change in fair
value of the related AOL trading shares. The net change in the fair values of
the derivative component of the PHONES and the related AOL shares resulted in a
non-cash pretax gain of
13
<PAGE>
$25 million, which increased diluted earnings per share by $.06. The total
change in the fair values of all of the Company's derivatives, net of changes in
fair values of the related investments, resulted in a non-cash pretax gain of
$21 million, which added $.05 to diluted earnings per share. Through the second
and third quarters of 1999, the change in fair value of the derivative component
of the PHONES resulted in a pretax gain of $417 million, which was partially
offset by a $225 million pretax loss resulting from the change in fair value of
the related AOL trading shares. The net change during the second and third
quarters of 1999 in the fair values of the derivative component of the PHONES
and the related AOL shares resulted in a non-cash pretax gain of $192 million,
which increased diluted earnings per share by $.45. Through the second and third
quarters of 1999, the total changes in the fair values of all of the Company's
derivatives, net of changes in the fair values of the related shares, resulted
in a net pretax gain of $192 million, which increased diluted earnings per share
by $.45.
The second quarter of 1999 also included a $3 million after-tax loss, or
$.01 per diluted share, representing the cumulative effect of adopting FAS 133
as of the beginning of the second quarter. This cumulative effect resulted from
adjusting the DECS and the AOL collar derivatives to their fair values as of
March 28, 1999.
In March 1999, the exchange of the Company's WGNX-Atlanta television
station and cash for television station KCPQ-Seattle resulted in a pretax gain
of $348 million, which increased diluted earnings per share by $.81. Also in
March 1999, the Company sold one million shares of AOL common stock for $95
million in cash, resulting in a pretax gain of $95 million, which increased
diluted earnings per share by $.22.
In June 1998, the Company completed the exchange of its WQCD radio station
in New York and cash for the assets of television stations KTWB-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 $.16 per diluted share.
The Company also sold certain other investments and recorded certain investment
write-downs in the second quarter of 1998, and sold an investment in the first
quarter of 1998.
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 1999 and 1998 third quarters reflect these seasonal patterns.
14
<PAGE>
CONSOLIDATED
The Company's consolidated operating results for the third quarter and
first three quarters of 1999 and 1998 and the percentage changes from 1998 were
as follows:
<TABLE>
<CAPTION>
Third Quarter Three Quarters
(Dollars in millions, ----------------------- --------------------------
except per share amounts) 1999 1998 Change 1999 1998 Change
---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues..................................... $837 $757 + 11% $2,394 $2,215 + 8%
Operating profit....................................... 199 168 + 19% 570 514 + 11%
Non-operating items:
Gain on change in fair values of derivatives
and related investments.......................... 21 - * 192 - *
Gain on reclassification of investments............ - - - 1,096 - *
Gain on sales of subsidiaries and
investments, net of write-downs.................. - - - 445 93 *
---- ---- ----- -----
Total.............................................. 21 - * 1,733 93 *
Net income:
Before non-operating items......................... 109 83 + 31% 300 254 + 18%
---- ---- ----- -----
Before accounting change........................... 122 83 + 46% 1,353 301 *
Cumulative effect of accounting change, net........ - - - (3) - *
---- ---- ----- -----
Net income......................................... 122 83 + 46% 1,350 301 *
Diluted earnings per share:
Before non-operating items......................... .40 .30 + 33% 1.11 .91 + 22%
---- ---- ----- -----
Before accounting change........................... .45 .30 + 50% 5.14 1.08 *
Cumulative effect of accounting change, net........ - - - (.01) - *
---- ---- ----- -----
Net income......................................... .45 .30 + 50% 5.13 1.08 *
*Not meaningful
</TABLE>
Earnings Per Share -- Diluted earnings per share for the 1999 third quarter rose
to $.40, up 33% from $.30 last year, excluding non-operating items. For the
first three quarters of 1999, diluted earnings per share increased 22% to $1.11
from $.91 in 1998, excluding non-operating items. The improvements were
primarily due to operating profit gains at all three business segments, reduced
equity losses, higher interest income and fewer shares outstanding. Including
all non-operating items and the cumulative effect of the change in accounting to
FAS 133 in the 1999 second quarter, diluted earnings per share were $.45 in the
third quarter of 1999, compared with $.30 in the third quarter of 1998, and
$5.13 in the first three quarters of 1999, compared with $1.08 in the first
three quarters of 1998.
15
<PAGE>
Operating Revenues and Profit -- The Company's consolidated operating revenues,
EBITDA (operating profit before depreciation, amortization, equity results and
non-operating 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) 1999 1998 Change 1999 1998 Change
---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
Publishing....................................... $376 $354 + 6% $1,163 $1,103 + 5%
Broadcasting and Entertainment................... 341 291 +17% 954 854 +12%
Education........................................ 120 112 + 6% 277 258 + 7%
---- ---- ------ ------
Total operating revenues............................. $837 $757 +11% $2,394 $2,215 + 8%
EBITDA*
Publishing....................................... $106 $ 98 + 8% $ 356 $ 336 + 6%
Broadcasting and Entertainment................... 123 92 +34% 342 286 +19%
Education........................................ 39 35 +10% 66 61 + 9%
Corporate expenses............................... (11) (8) -44% (28) (24) -16%
---- ---- ------ ------
Total EBITDA......................................... $257 $217 +18% $ 736 $ 659 +12%
Operating profit
Publishing....................................... $ 82 $ 78 + 5% $ 289 $ 278 + 4%
Broadcasting and Entertainment................... 97 69 +40% 266 221 +20%
Education........................................ 32 29 +11% 45 41 +10%
Corporate expenses............................... (12) (8) -40% (30) (26) -15%
---- ---- ------ ------
Total operating profit............................... $199 $168 +19% $ 570 $ 514 +11%
</TABLE>
* EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, equity results and non-operating 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 1999 third quarter rose 11% to $837
million from $757 million in 1998 and for the first three quarters increased 8%
to $2.4 billion from $2.2 billion in 1998, mainly due to higher advertising
revenues and recent acquisitions. Excluding acquisitions and divestitures ("on a
comparable basis"), revenues were up 8% in the third quarter and 5% in the first
three quarters.
Consolidated operating profit increased 19% in the 1999 third quarter and
11% in the first three quarters, while EBITDA increased 18% in the third quarter
and 12% in the first three quarters. Publishing operating profit increased 5% in
the 1999 third quarter and 4% in the first three quarters mainly due to lower
newsprint prices, acquisitions and higher general advertising revneues.
Broadcasting and entertainment operating profit grew 40% in the 1999 third
quarter and 20% in the first three quarters due to significant growth in
television. Education operating profit increased 11% in the third quarter and
10% in the first three quarters. On a comparable basis, consolidated operating
profit was up 18% in the third quarter and 11% in the first three quarters, and
EBITDA increased 16% in the third quarter and 10% in the first three quarters.
16
<PAGE>
Operating Expenses -- Consolidated operating expenses increased 8% in the third
quarter and 7% in the first three quarters as follows:
<TABLE>
<CAPTION>
Third Quarter Three Quarters
---------------------- ---------------------------
(Dollars in millions) 1999 1998 Change 1999 1998 Change
---- ---- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Cost of sales....................................... $385 $365 + 5% $1,097 $1,049 + 5%
Selling, general & administrative................... 195 175 +12% 561 507 +11%
Depreciation & amortization
of intangible assets............................ 58 50 +17% 166 145 +14%
---- ---- ------ ------
Total operating expenses............................ $638 $590 + 8% $1,824 $1,701 + 7%
</TABLE>
Cost of sales increased 5%, or $20 million, in the 1999 third quarter and
increased 5%, or $48 million, in the first three quarters. On a comparable
basis, cost of sales increased 3%, or $10 million, in the third quarter and was
up 2%, or $18 million, in the first three quarters. The growth in both periods
was due to increased compensation expense, higher broadcast rights amortization
expense, increased publishing and production costs at the education segment,
higher development spending, and increased costs at KDAF-Dallas from the launch
of a prime-time newscast in 1999, partially offset by lower newsprint expense.
On a comparable basis, compensation expense was up 6%, or $8 million, in the
third quarter and 6%, or $21 million, in the first three quarters. Broadcast
rights amortization increased 6%, or $4 million, in the third quarter and was up
4%, or $9 million, in the first three quarters. Publishing and production costs
at the education segment increased 5%, or $2 million, in the third quarter and
5%, or $4 million in the first three quarters. Newsprint and ink expense
decreased 14%, or $7 million, in the third quarter and fell 13%, or $22 million,
in the first three quarters.
Selling, general and administrative expenses ("SG&A") were up 12%, or $20
million, in the 1999 third quarter and increased 11%, or $54 million, in the
first three quarters. On a comparable basis, SG&A expenses grew 9%, or $16
million, in the third quarter and were up 8%, or $38 million, in the first three
quarters due to higher compensation expense, higher development costs and
increased Year 2000 compliance costs. On a comparable basis, compensation
expense was up 19%, or $15 million, in the third quarter and 12%, or $29
million, in the first three quarters mainly due to increases in incentive
compensation.
The increase in depreciation and amortization of intangible assets reflects
the acquisitions and capital expenditures made in 1999 and 1998.
17
<PAGE>
PUBLISHING
Operating Revenues and Profit -- 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 and weekly publications, direct mail
operations, cable news programming, distribution of entertainment listings and
Internet/electronic products.
<TABLE>
<CAPTION>
Third Quarter Three Quarters
------------------------ ----------------------------
(Dollars in millions) 1999 1998 Change 1999 1998 Change
---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
Daily newspapers................................. $332 $330 + 1% $1,038 $1,032 -
Other publications/
services/development........................... 44 24 +84% 125 71 +77%
---- ---- ------ ------
Total operating revenues............................. $376 $354 + 6% $1,163 $1,103 + 5%
EBITDA
Daily newspapers................................. $106 $100 + 6% $ 353 $ 342 + 3%
Other publications/
services/development........................... - (2) * 3 (6) *
---- ---- ------ ------
Total EBITDA......................................... $106 $ 98 + 8% $ 356 $ 336 + 6%
Operating profit
Daily newspapers................................. $ 86 $ 82 + 4% $ 296 $ 289 + 2%
Other publications/
services/development........................... (4) (4) + 6% (7) (11) +40%
---- ---- ------ ------
Total operating profit............................... $ 82 $ 78 + 5% $ 289 $ 278 + 4%
*Not meaningful
</TABLE>
Publishing operating revenues for the 1999 third quarter increased 6% to
$376 million and for the first three quarters were up 5% to $1.2 billion,
principally due to acquisitions and higher general advertising revenues at
Chicago and Orlando. Excluding acquisitions, publishing revenues were up 2% in
both the third quarter and the first three quarters. Advertising revenues rose
4% in the third quarter and 3% in the first three quarters. Operating profit for
the 1999 third quarter grew 5% to $82 million and for the first three quarters
was up 4% to $289 million, mainly from higher general advertising revenues,
lower newsprint prices and acquisitions, partially offset by higher losses from
Internet activities. In the third quarter of 1999, daily newspaper operating
profit margins rose to 25.9% from 25.0% in 1998 and in the first three quarters
increased to 28.5% from 28.0% in 1998.
18
<PAGE>
Publishing group revenues, by classification, for the third quarter and
first three quarters were as follows:
<TABLE>
<CAPTION>
Third Quarter Three Quarters
---------------------- ---------------------------
(Dollars in millions) 1999 1998 Change 1999 1998 Change
---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Advertising
Retail..................................... $109 $105 + 4% $ 337 $ 325 + 4%
General.................................... 41 32 +25% 130 110 +18%
Classified................................. 133 134 - 413 419 - 1%
---- ---- ------ ------
Total advertising.............................. 283 271 + 4% 880 854 + 3%
Circulation.................................... 59 60 - 2% 181 183 - 1%
Other.......................................... 34 23 +50% 102 66 +53%
---- ---- ------ ------
Total revenues................................. $376 $354 + 6% $1,163 $1,103 + 5%
</TABLE>
Retail advertising revenues grew 4% in both the 1999 third quarter and in
the first three quarters, mainly due to the acquisition of Sun-Sentinel
Community News Group in September 1998. General advertising revenues for the
1999 third quarter were up 25%, primarily due to increases in the high-tech
category in Chicago and Fort Lauderdale, the resorts category in Chicago and
automotive advertising in Fort Lauderdale, Chicago and Orlando. In the first
three quarters, general advertising rose 18% due to increases in Chicago in the
high-tech, financial and resorts categories and gains in automotive advertising
in Chicago, Orlando and Fort Lauderdale. Classified advertising revenues
declined slightly in the third quarter and 1% in the first three quarters,
mainly due to declines in Chicago in the help wanted and real estate advertising
categories, offset by improved automotive advertising.
Total advertising linage declined 2% in the third quarter and fell less
than 1% in the first three quarters. Full run retail advertising linage
decreased 4% in the third quarter and 3% in the first three quarters, due to
declines in Fort Lauderdale and Orlando. Full run general advertising linage
improved 23% in the third quarter and 22% in the first three quarters primarily
due to gains at all of the daily newspapers. Full run classified advertising
linage decreased 2% in both the third quarter and the first three quarters due
to declines in Orlando, Chicago and Fort Lauderdale. Part run advertising linage
was down 1% in the third quarter and 2% in the first three quarters due to
decreases in Chicago and Fort Lauderdale. Preprint advertising linage declined
3% in the third quarter due to decreases in Chicago and Newport News, while
improving 2% in the first three quarters mainly due to gains in Orlando, Chicago
and Fort Lauderdale. The following summary presents advertising linage for the
third quarter and the first three quarters:
<TABLE>
<CAPTION>
Third Quarter Three Quarters
-------------------------- ----------------------------
(Inches in thousands) 1999 1998 Change 1999 1998 Change
----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Full run
Retail................................ 816 847 - 4% 2,564 2,631 - 3%
General............................... 222 180 +23% 707 580 +22%
Classified............................ 1,678 1,715 - 2% 5,092 5,179 - 2%
----- ----- ------ ------
Total full run............................ 2,716 2,742 - 1% 8,363 8,390 -
Part run.................................. 2,357 2,382 - 1% 7,295 7,433 - 2%
Preprint.................................. 2,509 2,599 - 3% 7,497 7,366 + 2%
----- ----- ------ ------
Total inches.............................. 7,582 7,723 - 2% 23,155 23,189 -
</TABLE>
19
<PAGE>
Circulation revenues decreased 2% in the 1999 third quarter and 1% in the
first three quarters. Total average daily circulation was down 2% to 1,196,000
copies in the 1999 third quarter, and total average Sunday circulation declined
1% to 1,825,000 copies. For the first three quarters of 1999, total average
daily circulation fell 2% to 1,239,000 copies, while total average Sunday
circulation was down 1% to 1,878,000 copies. Declines in circulation copies
resulted partially from reduced discounting.
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;
distribution of entertainment listings; and other publishing-related activities.
The increase in other revenues in the 1999 third quarter and first three
quarters resulted primarily from the acquisition of JDTV in February 1999 and
higher revenues from direct mail and commercial printing operations.
Operating Expenses -- Publishing operating expenses increased 7%, or $19
million, in the third quarter and 6%, or $48 million, in the first three
quarters, mainly due to acquisitions and increased Internet spending. On a
comparable basis, expenses grew 2%, or $6 million, in the third quarter and were
up 1%, or $12 million, in the first three quarters. On a comparable basis,
newsprint and ink expense decreased 14%, or $7 million, in the third quarter of
1999, as average newsprint costs declined 15% and consumption rose 1%. For the
first three quarters, newsprint and ink expense decreased 13%, or $22 million,
as average newsprint costs declined 12% and consumption fell 2%. Other expenses,
on a comparable basis, were up 6%, or $13 million, in the 1999 third quarter and
5%, or $33 million, in the first three quarters, mainly due to increases in
compensation expense, development spending, depreciation expense, promotion
expense and Year 2000 compliance costs. Compensation expense increased 5%, or $5
million, in the third quarter and 5%, or $15 million, in the first three
quarters. Spending for development activities grew $5 million and $8 million in
the 1999 third quarter and first three quarters, respectively. Depreciation
expense increased $2 million in the third quarter and $4 million in the first
three quarters. Promotion expenses were up $1 million in the third quarter and
$3 million in the first three quarters. Year 2000 compliance expenses increased
$2 million in the first three quarters.
20
<PAGE>
BROADCASTING AND ENTERTAINMENT
Operating Revenues and Profit -- 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.
<TABLE>
<CAPTION>
Third Quarter Three Quarters
------------------------ ------------------------
(Dollars in millions) 1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
Television................................ $266 $225 + 18% $796 $695 + 14%
Radio..................................... 14 13 + 13% 40 41 - 1%
Entertainment/other....................... 61 53 + 15% 118 118 -
---- ---- ---- ----
Total operating revenues....................... $341 $291 + 17% $954 $854 + 12%
EBITDA
Television................................ $106 $ 84 + 26% $323 $270 + 19%
Radio..................................... 4 4 + 13% 12 14 - 12%
Entertainment/other....................... 13 4 +232% 7 2 +171%
---- ---- ---- ----
Total EBITDA................................... $123 $ 92 + 34% $342 $286 + 19%
Operating profit
Television................................ $ 81 $ 63 + 29% $252 $210 + 20%
Radio..................................... 4 3 + 17% 11 12 - 9%
Entertainment/other....................... 12 3 +316% 3 (1) *
---- ---- ---- ----
Total operating profit......................... $ 97 $ 69 + 40% $266 $221 + 20%
*Not meaningful
</TABLE>
Broadcasting and entertainment operating revenues increased 17% to $341
million in the 1999 third quarter and grew 12% to $954 million in the first
three quarters due to higher television revenues. Television revenues were up
18%, or $41 million, in the third quarter and 14%, or $101 million, in the first
three quarters due to strong performance of the syndicated show "Friends" which
debuted in fall 1998; improvement of The WB primetime; and the acquisitions of
stations in Grand Rapids and Seattle. In addition to KCPQ-Seattle, which was
acquired in exchange for WGNX-Atlanta in March 1999, Tribune acquired
KTWB-Seattle and WXMI-Grand Rapids in June 1998 in exchange for Tribune's WQCD
radio station. On a comparable basis, television revenues increased 17% in the
third quarter and 12% in the first three quarters primarily due to improvements
at WPIX-New York, WGN-Chicago, KTLA-Los Angeles and WLVI-Boston. Radio revenues
decreased 1% in the first three quarters mainly due to the divestiture of WQCD.
On a comparable basis, radio revenues grew 8% in the first three quarters.
Entertainment/other revenues rose 15% in the 1999 third quarter due to higher
revenues at the Chicago Cubs as the result of 12 more home games in the 1999
third quarter. Entertainment/other revenues were flat in the first three
quarters as higher Chicago Cubs revenues from higher attendance, increased
ticket prices and higher television revenues were offset by lower revenues at
Tribune Entertainment due to the absence of "The Geraldo Rivera Show," which
ended after the 1997-1998 season.
Operating profit for broadcasting and entertainment was up 40% to $97
million in the 1999 third quarter and increased 20% to $266 million in the first
three quarters, due to improvements in television. Television operating profit
increased 29% in the 1999 third quarter and 20% in the first three quarters,
mainly from growth at The WB affiliates, led by WPIX-New York, WGN-Chicago,
KTLA-Los Angeles and WLVI-Boston. On a comparable basis, television operating
profit increased 30% in the 1999 third quarter and 21% in the first three
quarters.
21
<PAGE>
Operating Expenses -- Broadcasting and entertainment operating expenses
increased 10%, or $22 million, in the third quarter of 1999 and 9%, or $56
million, in the first three quarters. The increases were in part due to the
television station acquisitions, partially offset by the sale of WGNX-Atlanta.
On a comparable basis, broadcasting and entertainment operating expenses were up
8%, or $18 million, in the third quarter and 6%, or $34 million, in the first
three quarters due to increased compensation costs, higher broadcast rights
amortization, increased depreciation expense and higher costs at KDAF-Dallas
from the launch of a prime-time newscast in 1999. On a comparable basis,
compensation costs grew 16%, or $13 million, in the third quarter and 11%, or
$23 million, in the first three quarters, partially due to higher players'
salaries at the Cubs. Broadcast rights amortization increased 6%, or $4 million,
in the third quarter and 4%, or $9 million, in the first three quarters.
EDUCATION
Operating Revenues and Profit -- 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) 1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
Operating revenues................ $120 $112 + 6% $277 $258 + 7%
EBITDA............................ 39 35 +10% 66 61 + 9%
Operating profit.................. 32 29 +11% 45 41 +10%
Education's third quarter 1999 operating revenues increased 6% to $120
million and were up 7% to $277 million in the first three quarters. The
improvement was primarily due to solid growth in educational product sales
through the school channel, especially in the categories of math and language
arts.
Education operating profit rose 11% to $32 million in the 1999 third
quarter and grew 10% to $45 million in the first three quarters due to revenue
increases.
Operating Expenses -- Education operating expenses increased 5%, or $4 million,
in the 1999 third quarter and 7%, or $15 million, in the first three quarters,
primarily due to increased publishing and production costs due to growth in
sales volume and higher sales and marketing costs. Publishing and production
costs increased 5%, or $2 million, in the 1999 third quarter and 5%, or $4
million, in the first three quarters. Sales and marketing costs grew 7%, or $1
million, in the 1999 third quarter and 13%, or $6 million, in the first three
quarters.
EQUITY RESULTS
Net loss on equity investments in the third quarter of 1999 totaled $6
million, down from a loss of $7 million in 1998, and for the first three
quarters totaled $23 million, down from a loss of $29 million in 1998. Equity
losses relate primarily to the Company's interest in the growing WB Network and
various Internet-related investments.
22
<PAGE>
OTHER
Interest expense for the 1999 third quarter increased 34% to $30 million
from $22 million last year, and for the first three quarters grew 30% to $83
million from $64 million in 1998, primarily due to the April 1999 issuance of
the PHONES. Interest income for the 1999 third quarter was $16 million compared
with $1 million last year, and for the first three quarters was $31 million
compared with $4 million in 1998, due to higher cash balances from the
investment of the PHONES proceeds. The effective tax rate, excluding
non-operating items, was 39.4% for both the 1999 third quarter and first three
quarters and 40.4% for both the 1998 third quarter and first three quarters.
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 $402
million in 1999, down from $413 million in 1998 due to changes in working
capital requirements. The Company normally expects to fund dividends, capital
expenditures and other operating requirements with net cash provided by
operations. Funding required for share 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 $140 million in the first three
quarters of 1999 as the Company spent $200 million for acquisitions and
investments, while receiving $99 million in gross proceeds from the sales of
investments.
Net cash provided by financing activities in the 1999 first three quarters
was $825 million due to the issuance of the PHONES and sales of stock to
employees, partially offset by repayments of debt, purchases of treasury stock
and payments of dividends. In the first three quarters of 1999, the Company
repaid $151 million of commercial paper and repurchased 4.9 million shares of
its common stock for $195 million. Of this total, the Tribune Stock Compensation
Fund ("TSCF") purchased 3.8 million shares from a financial institution for $158
million, or approximately $42 per share. At September 26, 1999, 280,000 shares
were subject to a market price adjustment provision with the financial
institution. The Company established the TSCF in July 1998 to purchase common
stock for the purpose of funding certain existing stock-based compensation
plans. At September 26, 1999, the Company had authorization to repurchase an
additional $414 million of its common stock. The 1999 common dividend increased
6% to $.27 per share for the first three quarters from $.255 per share in 1998.
YEAR 2000 COMPLIANCE
- --------------------
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 frequent updates from
the other members of the Project Management Office team. In addition, progress
reports on the Year 2000 program are presented regularly to the Company's board
of directors and senior management.
<PAGE>
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; and vendors and investments. The Company's
internal operational and financial reporting systems and equipment are
substantially Year 2000 compliant. None of the Company's other significant
information technology projects has been delayed as a result of the Company's
Year 2000 compliance efforts.
System and Equipment Inventory and Analysis -- The system and equipment
inventory and analysis phase consisted 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
required remediation to become Year 2000 compliant. This analysis involved both
an internal assessment and contact with the systems and equipment manufacturers.
The principal systems and equipment identified by the Company as requiring
remediation were financial systems, human resource systems and news production
systems. This phase is complete.
Remediation, Testing and Implementation -- The remediation, testing and
implementation phase consisted of determining and implementing a remediation
method (upgrade, replace or discontinue) for date-sensitive items. The
remediated item was tested and returned to normal operations when compliant.
Testing for certain systems included functional testing of remedial measures and
regression testing to validate that changes did not alter existing
functionality. A separate Year 2000 mainframe environment was created to test
all operating system software and program product software. This Year 2000
environment was designed to accomplish "end to end" testing of the larger
systems applications and to validate interface communications between systems
applications. The Company also performed its own tests of mission critical
vendor-provided systems and equipment, even if vendor certification of Year 2000
compliance was received. The Company worked with the manufacturers of its
affected systems and other outside vendors to implement required upgrades. The
Company also identified vendors from whom the Company can procure new systems
and equipment to replace non-compliant systems and equipment. This phase is
complete.
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 have
been developed. The Company will continue to review, test and revise contingency
plans throughout the remainder of 1999.
Vendors and Investments -- 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 were not received, the Company has formed 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, except for a general
concern with the utilities industry as alternative suppliers may not be
available. Tribune is also assessing Year 2000 compliance of the companies in
its venture investment portfolio. Tribune will continue to monitor information
provided by these companies regarding their progress toward remediation of Year
2000 issues.
24
<PAGE>
Risks
- -----
The Company may discover additional Year 2000 problems, including remediation or
contingency plans that are not feasible. 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 consolidated financial position or
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 $17 to $20 million, of which $13.9
million was incurred through September 26, 1999.
25
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
---------------------------------------------------------
The following represents an update of the Company's market sensitive
financial information. This information contains forward-looking statements and
should be read in conjunction with Item 7A of the Company's 1998 Form 10-K.
EQUITY PRICE RISKS
Available-for-sale securities. The Company has common stock investments in
several publicly traded companies that are subject to market price volatility.
Except for 8.0 million shares of AOL common stock and 5.5 million shares of
Mattel common stock (see discussion below), these investments are classified as
available-for-sale securities 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 that are
classified as available-for-sale, assuming hypothetical stock price fluctuations
of plus or minus 10%, 20% and 30% in each stock's price. This analysis excludes
one million shares of AOL common stock related to a one-year hedge transaction.
The AOL collar locked in the value of these shares within the price range of $92
- - $106 per share. See Note 4 to the Company's Condensed Consolidated Financial
Statements in this Form 10-Q 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. 26, 1999 ----------------------------
(In thousands) -30% -20% -10% Fair Value +10% +20% +30%
-------- -------- -------- -------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock
investments in
public companies $250,600 $286,400 $322,200 $358,000(1) $393,800 $429,600 $465,400
</TABLE>
(1) Includes approximately two million shares of AOL common stock valued at
$193,700. Excludes 8.0 million shares of AOL common stock and 5.5 million
shares of Mattel common stock, see discussion below.
During the last 12 quarters, market price movements caused the fair value
of the Company's common stock investments in publicly traded companies to change
by 10% or more in ten of the quarters, by 20% or more in six of the quarters and
by 30% or more in five of the quarters.
Derivatives and related trading securities. The Company has issued 8.0 million
PHONES related to its investment in 8.0 million shares of AOL common stock and
4.6 million DECS related to its investment in 5.5 million shares of Mattel
common stock. See Note 4 to the Company's Condensed Consolidated Financial
Statements in this Form 10-Q for further discussion of the PHONES and Note 6 to
the Company's Consolidated Financial Statements in the 1998 Annual Report for
further discussion of the DECS. Beginning in the second quarter of 1999, these
investments in AOL and Mattel stock are classified as trading securities, and
changes in their fair values, net of the changes in the fair values of the
related derivative components of the PHONES and the DECS, are recorded in the
statement of income.
26
<PAGE>
At maturity, the PHONES will be redeemed at the greater of the then market
value of AOL common stock or $157 per PHONES. At September 26, 1999, the PHONES
fair value was $842 million. Since the issuance of the PHONES in April 1999,
changes in the fair value of the PHONES have partially offset changes in the
fair value of the related AOL shares.
At maturity, the DECS will be repaid using shares of Mattel common stock
or, at the Company's option, the cash equivalent thereof. The number of Mattel
shares due at maturity, or the cash equivalent thereof, is based on the fair
market value of the Mattel common stock, adjusted using 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 Mattel common stock.
The fair value of the DECS was $118 million at September 26, 1999. Since the
issuance of the DECS in August 1998, changes in the fair value of the DECS have
partially offset changes in the fair value of the related Mattel shares. There
may be periods with significant non-cash increases or decreases to the Company's
net income pertaining to the DECS and the related Mattel shares.
The following analysis presents the hypothetical change in the fair value
of the Company's 8.0 million shares of AOL common stock related to the PHONES
and 5.5 million shares of Mattel common stock related to the DECS assuming
hypothetical stock price fluctuations of plus or minus 10%, 20% and 30% in each
stock's price.
<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. 26, 1999 ------------------------------
(In thousands) -30% -20% -10% Fair Value +10% +20% +30%
-------- -------- -------- -------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
AOL common stock $546,000 $624,000 $702,000 $780,000 $858,000 $936,000 $1,014,000
Mattel common stock 84,000 96,000 108,000 120,000 132,000 144,000 156,000
</TABLE>
During the last 12 quarters, market price movements have caused the fair
value of the Company's 8.0 million shares in AOL common stock to change by 10%
or more in nine of the quarters, by 20% or more in eight of the quarters and by
30% or more in five of the quarters. For the Company's 5.5 million shares in
Mattel common stock, market price movements have caused the fair value to change
by 10% or more in ten of the quarters, by 20% or more in five of the quarters
and by 30% or more in three of the quarters.
27
<PAGE>
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.
12 - Computation of ratios of earnings to fixed charges.
(b) Reports on Form 8-K.
The Company filed one report on Form 8-K during the quarter for
which this report is filed.
o The Company filed a Form 8-K Current Report dated July 28, 1999,
which reported under Item 5 a 2-for-1 common stock split
effected by a 100% stock dividend distributed on September 9,
1999, to holders of record on August 19, 1999. No financial
statements were filed as part of the report.
28
<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 9, 1999 /s/ R. Mark Mallory
-------------------
R. Mark Mallory
Vice President and Controller
(on behalf of the Registrant
and as Chief Accounting Officer)
29
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 ----------------------------------------------------
9/26/99 1998 1997 1996 1995 1994
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations, before
cumulative effect of accounting change (A) $1,353,077 $414,272 $393,625 $282,750 $245,458 $233,149
Add:
Income tax expense 874,858 290,817 265,375 191,663 167,076 158,698
Losses on equity investments 22,652 33,980 34,696 13,281 13,209 9,739
---------- -------- -------- -------- -------- --------
Subtotal 2,250,587 739,069 693,696 487,694 425,743 401,586
---------- -------- -------- -------- -------- --------
Fixed charge adjustments
Add:
Interest expense 83,295 88,451 86,502 47,779 21,814 20,585
Amortization of capitalized interest 1,548 2,068 2,076 2,108 2,253 2,362
Interest component of rental expense (B) 8,731 10,671 10,416 9,362 8,200 8,236
---------- -------- -------- -------- -------- --------
Earnings, as adjusted $2,344,161 $840,259 $792,690 $546,943 $458,010 $432,769
========== ======== ======== ======== ======== ========
Fixed charges:
Interest expense $ 83,295 $ 88,451 $ 86,502 $ 47,779 $ 21,814 $ 20,585
Interest capitalized 904 1,897 224 168 610 -
Interest component of rental expense (B) 8,731 10,671 10,416 9,362 8,200 8,236
Interest related to guaranteed ESOP debt (C) 9,859 15,578 17,901 20,134 22,057 24,017
---------- -------- -------- -------- -------- --------
Total fixed charges $ 102,789 $116,597 $115,043 $ 77,443 $ 52,681 $ 52,838
========== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges (A) 22.8 7.2 6.9 7.1 8.7 8.2
========== ======== ======== ======== ======== ========
</TABLE>
(A) Income from continuing operations, before cumulative effect of accounting
change included non-operating net gains of $1,053.2 million in the 1999
first three quarters, $63.5 million in fiscal year 1998, $68.9 million in
1997, $6.0 million in 1996 and $8.7 million in 1995. Excluding these
non-operating items, the ratio of earnings to fixed charges was 5.9 in the
1999 first three quarters, 6.2 in fiscal year 1998, 5.9 in 1997, 7.1 in
1996 and 8.4 in 1995. See Note 5 to the Company's Condensed Consolidated
Financial Statements in this Form 10-Q and the Eleven Year Financial Summary
in the Company's 1998 Annual Report to Shareholders for further discussion
of these non-operating items.
(B) Represents a reasonable approximation of the interest cost component of
rental expense incurred by the Company.
(C) 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 26, 1999 condensed consolidated statement of income and condensed
consolidated balance sheet and is qualified in its entirety by references to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> SEP-26-1999
<CASH> 23,041
<SECURITIES> 1,076,498
<RECEIVABLES> 641,060
<ALLOWANCES> 50,784
<INVENTORY> 100,225
<CURRENT-ASSETS> 2,186,708
<PP&E> 1,750,829
<DEPRECIATION> 1,054,888
<TOTAL-ASSETS> 7,929,146
<CURRENT-LIABILITIES> 850,716
<BONDS> 0
0
281,093
<COMMON> 1,018
<OTHER-SE> 2,887,482
<TOTAL-LIABILITY-AND-EQUITY> 7,929,146
<SALES> 0
<TOTAL-REVENUES> 2,393,506
<CGS> 0
<TOTAL-COSTS> 1,097,328
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,295
<INCOME-PRETAX> 2,227,935
<INCOME-TAX> 874,858
<INCOME-CONTINUING> 1,353,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (3,060)
<NET-INCOME> 1,350,017
<EPS-BASIC> 5.63
<EPS-DILUTED> 5.13
<FN>
The information reported above under "EPS-PRIMARY" represents basic earnings
per share for the first three quarters ended September 26, 1999.
Excluding non-operating items, basic earnings per share was $1.20 and diluted
earnings per share was $1.11 for the first three quarters ended
September 26, 1999.
Per share data reflects a two-for-one common stock split effective
September 9, 1999 to holders of record on August 19, 1999. Prior financial
data schedules have not been restated.
</FN>
</TABLE>
