|
/X/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 24, 2000
Commission file number 1-8572
Delaware |
36-1880355 |
435 North Michigan Avenue,
Chicago, Illinois | 60611 |
Registrant's telephone number, including area code: (312) 222-9100
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 3, 2000 there were 302,297,653 shares outstanding of the Companys Common Stock ($.01 par value per share), excluding 45,594,660 shares held by subsidiaries of the Registrant; 10,002,668 shares held by TMCT, LLC representing 80% of the shares held by TMCT, LLC; 31,082,433 shares held by TMCT II, LLC, representing 80% of the shares held by TMCT II, LLC; 23,272,657 shares held by Eagle New Media Investments, LLC; and 17,302,407 shares held by Eagle Publishing Investments, LLC.
Third Quarter Ended |
Three Quarters Ended |
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Sept. 24, 2000 |
Sept. 26, 1999 |
Sept. 24, 2000 |
Sept. 26, 1999 | ||||||
Operating Revenues | $1,359,406 | $ 717,392 | $3,408,468 | $2,116,747 | |||||
Operating Expenses | |||||||||
Cost of sales (exclusive of items shown below) | 596,623 | 340,191 | 1,494,204 | 988,759 | |||||
Selling, general and administrative | 411,607 | 160,163 | 947,863 | 460,585 | |||||
Depreciation | 54,705 | 32,264 | 137,485 | 92,176 | |||||
Amortization of intangible assets | 59,803 | 18,788 | 118,747 | 53,274 | |||||
Total operating expenses | 1,122,738 | 551,406 | 2,698,299 | 1,594,794 | |||||
Operating Profit | 236,668 | 165,986 | 710,169 | 521,953 | |||||
Net loss on equity investments (Note 2) | (26,349 | ) | (10,818 | ) | (62,513 | ) | (35,314 | ) | |
Interest income | 3,492 | 16,473 | 22,635 | 31,057 | |||||
Interest expense | (78,543 | ) | (29,537 | ) | (169,580 | ) | (83,295 | ) | |
Gain (loss) on change in fair values of derivatives | |||||||||
and related investments | 11,139 | 20,771 | (55,164 | ) | 192,204 | ||||
Gain on reclassification of investments | | | | 1,095,976 | |||||
Gain (loss) on sales of investments and subsidiary, | |||||||||
net of write-downs | (8,025 | ) | | 44,629 | 444,927 | ||||
Income from Continuing Operations | |||||||||
Before Income Taxes, Minority Interest and | |||||||||
Cumulative Effect of Change in Accounting | |||||||||
Principle | 138,382 | 162,875 | 490,176 | 2,167,508 | |||||
Income taxes | (59,161 | ) | (63,279 | ) | (203,158 | ) | (849,810 | ) | |
Minority interest expense, net of tax (Note 2) | | | (16,335 | ) | | ||||
Income from Continuing Operations Before | |||||||||
Cumulative Effect of Change in Accounting | |||||||||
Principle | 79,221 | 99,596 | 270,683 | 1,317,698 | |||||
Income (Loss) from | |||||||||
Discontinued Operations, net of tax (Note 3) | | 18,978 | (86,015 | ) | 27,703 | ||||
Income Before Cumulative Effect of Change in | |||||||||
Accounting Principle | 79,221 | 118,574 | 184,668 | 1,345,401 | |||||
Cumulative effect of change in accounting | |||||||||
principle, net of tax (Note 8) | | | | (3,060 | ) | ||||
Net Income | 79,221 | 118,574 | 184,668 | 1,342,341 | |||||
Preferred dividends, net of tax | (5,558 | ) | (4,660 | ) | (16,172 | ) | (13,979 | ) | |
Net Income Attributable to Common Shares | $ 73,663 | $ 113,914 | $ 168,496 | $1,328,362 | |||||
Third Quarter Ended |
Three Quarters Ended |
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Sept. 24, 2000 |
Sept. 26, 1999 |
Sept. 24, 2000 |
Sept. 26, 1999 | |||||||||
Earnings Per Share (Note 6): | ||||||||||||
Basic: | ||||||||||||
Continuing operations before cumulative effect | ||||||||||||
of change in accounting principle | $ | .24 | $ | .40 | $ | .97 | $ 5 | .49 | ||||
Discontinued operations | | .08 | ( | .32) | .12 | |||||||
Cumulative effect of accounting change, net | | | | ( | .01) | |||||||
Net income | $ | .24 | $ | .48 | $ | .65 | $ 5 | .60 | ||||
Diluted: | ||||||||||||
Continuing operations before cumulative effect | ||||||||||||
of change in accounting principle | $ | .22 | $ | .37 | $ | .91 | $ 5 | .01 | ||||
Discontinued operations | | .07 | ( | .30) | .10 | |||||||
Cumulative effect of accounting change, net | | | | ( | .01) | |||||||
Net income | $ | .22 | $ | .44 | $ | .61 | $ 5 | .10 | ||||
Dividends per common share | $ | .10 | $ | .09 | $ | .30 | $ | .27 | ||||
See Notes to Condensed Consolidated Financial Statements.
Sept. 24, 2000 |
Dec. 26, 1999 | ||||
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(Unaudited) | |||||
ASSETS | |||||
Current assets | |||||
Cash and cash equivalents | $ 106,765 | $ 631,018 | |||
Short-term investments | 85,585 | 435,770 | |||
Accounts receivable, net | 840,563 | 524,443 | |||
Inventories | 53,246 | 23,530 | |||
Broadcast rights | 261,409 | 253,129 | |||
Prepaid expenses and other | 295,525 | 16,275 | |||
Total current assets | 1,643,093 | 1,884,165 | |||
Property, plant and equipment | 2,776,923 | 1,734,672 | |||
Accumulated depreciation | (1,159,772 | ) | (1,055,300 | ) | |
Net properties | 1,617,151 | 679,372 | |||
Broadcast rights | 265,617 | 192,070 | |||
Net assets of discontinued operations and assets held for | |||||
sale (Notes 2 and 3) | 1,366,467 | 690,941 | |||
Intangible assets, net | 8,157,764 | 2,616,688 | |||
America Online stock related to PHONES debt | 884,000 | 1,304,000 | |||
Other investments | 1,214,800 | 1,154,969 | |||
Prepaid pension costs | 780,241 | 48,108 | |||
Other assets | 249,337 | 96,369 | |||
Total assets | $ 16,178,470 | $ 8,666,682 | |||
See Notes to Condensed Consolidated Financial Statements.
Sept. 24, 2000 |
Dec. 26, 1999 | ||||
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(Unaudited) | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
Current liabilities | |||||
Long-term debt due within one year | $ 134,372 | $ 30,446 | |||
Contracts payable for broadcast rights | 269,261 | 276,307 | |||
Deferred income | 83,971 | 62,737 | |||
Accounts payable, accrued expenses and other current liabilities | 870,590 | 452,927 | |||
Total current liabilities | 1,358,194 | 822,417 | |||
PHONES debt related to America Online stock | 977,200 | 1,328,480 | |||
Other long-term debt | 4,725,935 | 1,365,593 | |||
Deferred income taxes | 1,744,358 | 1,179,015 | |||
Contracts payable for broadcast rights | 357,618 | 269,698 | |||
Compensation and other obligations | 862,981 | 242,862 | |||
Total liabilities | 10,026,286 | 5,208,065 | |||
Shareholders' equity | |||||
Series B convertible preferred stock | 265,791 | 281,093 | |||
Series C convertible preferred stock, net of treasury stock | 44,284 | | |||
Series D-1 convertible preferred stock, net of treasury stock | 38,097 | | |||
Series D-2 convertible preferred stock, net of treasury stock | 24,510 | | |||
Common stock and additional paid-in capital | 8,221,148 | 137,126 | |||
Treasury common stock (at cost) | (6,736,872 | ) | (1,430,900 | ) | |
Treasury common shares held by Tribune Stock Compensation | |||||
Fund (at cost) | (46,865 | ) | (61,909 | ) | |
Retained earnings | 4,271,745 | 4,184,037 | |||
Unearned compensation related to ESOP | (127,595 | ) | (127,595 | ) | |
Accumulated other comprehensive income | 197,941 | 476,765 | |||
Total shareholders' equity | 6,152,184 | 3,458,617 | |||
Total liabilities and shareholders' equity | $16,178,470 | $ 8,666,682 | |||
See Notes to Condensed Consolidated Financial Statements.
Three Quarters Ended | |||||
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Sept. 24, 2000 |
Sept. 26, 1999 | ||||
Operations | |||||
Income from continuing operations, net of cumulative effect of | |||||
change in accounting principle | $ 270,683 | $ 1,314,638 | |||
Adjustments to reconcile income from continuing operations to net cash | |||||
provided by continuing operations: | |||||
Loss (gain) on change in fair values of derivatives | |||||
and related investments | 55,164 | (192,204 | ) | ||
Gain on reclassification of investments | | (1,095,976 | ) | ||
Gain on sales of investments and subsidiary, net of write-downs | (44,629 | ) | (444,927 | ) | |
Cumulative effect of change in accounting principle, net | | 3,060 | |||
Depreciation and amortization of intangible assets | 256,232 | 145,450 | |||
Minority interest expense, net of tax | 16,335 | | |||
Deferred income taxes | 11,727 | 624,864 | |||
Other, net | 155,878 | 12,995 | |||
Net cash provided by continuing operations | 721,390 | 367,900 | |||
Net cash provided by discontinued operations and assets held for sale | 12,000 | 34,388 | |||
Net cash provided by operations | 733,390 | 402,288 | |||
Investments | |||||
Capital expenditures | (165,225 | ) | (75,797 | ) | |
Acquisition of Times Mirror, net of cash acquired (excluding stock issued) | (2,883,104 | ) | | ||
Other acquisitions and investments | (321,748 | ) | (188,920 | ) | |
Proceeds from sales of investments | 152,263 | 98,595 | |||
Proceeds from sale of discontinued operations (Note 3) | 642,253 | | |||
Maturities of marketable securities | 334,541 | | |||
Net decrease in advances to investee | 53 | 49,692 | |||
Other, net | 797 | (8,955 | ) | ||
Net cash used for investments of continuing operations | (2,240,170 | ) | (125,385 | ) | |
Net cash used for investments of discontinued operations and assets held | |||||
for sale | (60,270 | ) | (15,509 | ) | |
Net cash used for investments | (2,300,440 | ) | (140,894 | ) | |
Financing | |||||
Net proceeds from issuance of PHONES debt | | 1,230,880 | |||
Proceeds from issuance of other long-term debt | 1,901,294 | | |||
Repayments of long-term debt | (172,641 | ) | (182,936 | ) | |
Sales of common stock to employees, net | 95,462 | 45,772 | |||
Purchases of treasury common stock | (621,632 | ) | (37,014 | ) | |
Purchases of treasury common stock by Tribune Stock Compensation Fund | (52,453 | ) | (157,975 | ) | |
Dividends | (107,233 | ) | (73,015 | ) | |
Net cash provided by financing of continuing operations | 1,042,797 | 825,712 | |||
Net increase (decrease) in cash and cash equivalents | (524,253 | ) | 1,087,106 | ||
Cash and cash equivalents, beginning of year | 631,018 | 12,433 | |||
Cash and cash equivalents, end of quarter | $ 106,765 | $ 1,099,539 | |||
See Notes to Condensed Consolidated Financial Statements.
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 Sept. 24, 2000, and the results of their operations for the quarters and first three quarters ended Sept. 24, 2000 and Sept. 26, 1999, and cash flows for the first three quarters ended Sept. 24, 2000 and Sept. 26, 1999. 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 2000 presentation.
On June 12, 2000, the merger of Tribune and The Times Mirror Company (Times Mirror) was completed, resulting in Tribune owning 100% of Times Mirror. Tribune owned 39.4% of Times Mirror from April 17, 2000, when the cash tender offer closed, until June 11. Tribune has consolidated Times Mirrors results since April 17, 2000. Tribune recorded minority interest expense for the 60.6% of Times Mirror not owned by Tribune from April 17 through June 11. Because of Tribunes decision to sell Times Mirrors Jeppesen, Magazines and AchieveGlobal operations, these businesses are considered assets held for sale, and their operating results are excluded from the statements of income. See Note 2 for further discussion.
Due to the merger with Times Mirror, Tribunes ownership interests in Classified Ventures and CareerPath.com increased to 34% and 38%, respectively, as Times Mirror also had interests in these companies. As a result, these investments are now accounted for under the equity method, and 1999 results and 2000 first quarter results have been restated to record equity losses based on the Companys pre-merger ownership interests of 17% in Classified Ventures and 18% in CareerPath.com. See Note 2 for further discussion.
On Sept. 5, 2000, the Company sold its education segment to The McGraw-Hill Companies. The accompanying condensed consolidated financial statements reflect the education segment as a discontinued operation for all periods presented. See Note 3 for further discussion.
Beginning in 2000, operating results for the interactive segment are reported separately from publishing. Prior years operating results have been restated for the formation of the new segment and to conform to the revised financial statement presentation. This restatement had no effect on net income.
All Company share and per share data have been restated to reflect the two-for-one common stock split effective Sept. 9, 1999.
The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included by reference in the Companys Annual Report on Form 10-K. Financial information in the accompanying notes to the condensed consolidated financial statements exclude discontinued operations, except where noted.
On March 13, 2000, Tribune and Times Mirror announced the signing of a definitive agreement for a merger of the two companies in a cash and stock transaction. Times Mirror publishes the Los Angeles Times, Newsday, The Baltimore Sun, The Hartford Courant, The Morning Call, The (Stamford) Advocate, Greenwich Time and several smaller newspapers. The merger was effected through a two-step transaction for a total purchase price of approximately $8.3 billion, including assumption of debt.
In the first step of the transaction, Tribune made a cash tender offer, for up to 28 million Times Mirror shares at a price of $95 per share, which expired on April 17, 2000. Through the tender offer, Tribune acquired 23.1 million Times Mirror shares for $2.2 billion, representing 39.4% of the outstanding Times Mirror common shares. Following the tender offer, Tribune gained effective control of Times Mirror and named 13 Tribune designees to Times Mirrors 27 member board of directors. Tribune began to consolidate Times Mirrors operating results starting April 17.
Tribune completed the second step of the acquisition on June 12, 2000, following Tribune and Times Mirror shareholder approvals, through a merger of the two companies. In the merger, each remaining Times Mirror common share was converted, at the election of the shareholder, into 2.5 shares of Tribune common stock or, to the extent available, $95 in cash. The election to receive cash in the merger was available up to the balance of 28 million shares, after Tribunes purchase of 23.1 million Times Mirror shares in the tender offer, combined with Tribunes purchase of 0.2 million Times Mirror shares in the open market following the tender offer. In the merger, Tribune became obligated to pay cash of $447 million for 4.7 million Times Mirror common shares at $95 per share; through Nov. 3, 2000, $424 million of this amount has been paid. Also, each remaining Times Mirror common share was converted into 2.5 shares of Tribune common stock. On June 12, 2000, Tribune issued 83 million common shares in exchange for 33.2 million Times Mirror common shares. In the third quarter of 2000, Tribune settled 7.1 million Times Mirror stock options for $302 million in cash. In addition, approximately 6.4 million Times Mirror options were converted into 15.9 million Tribune options. Shares of Times Mirror preferred stock were converted in the merger into shares of Tribune preferred stock with similar terms.
This transaction was accounted for as a step acquisition purchase, and the effects of both steps of the merger are included in the Sept. 24, 2000 condensed consolidated financial statements. Consolidated results of operations include 39.4% of Times Mirrors operating results for the period April 17 through June 11, 2000 and 100% after June 12. Minority interest expense of $16 million, net of tax, was recorded for the remaining 60.6% of Times Mirror that Tribune did not own during the period of April 17 through June 11, 2000.
The total purchase price for Times Mirror was approximately $8.3 billion, which includes direct costs as well as debt and preferred stock assumed in connection with the merger. Direct costs include fees and expenses associated with the merger. The components of the total purchase price are as follows (in billions):
Cash | $ 3 | .1 | |
Issuance of common stock and replacement options | 3 | .4 | |
Assumption of debt and preferred stock | 1 | .8 | |
Total purchase price | $ 8 | .3 | |
The total acquisition cost of $8.3 billion has been allocated to the assets acquired and liabilities assumed based on preliminary estimates of their respective values. A total of $5.5 billion, representing the excess of acquisition cost over the fair value of Times Mirrors net tangible assets, has been allocated to
intangible assets. Identifiable intangible assets are being amortized over periods ranging from five to 25 years. Goodwill is being amortized over 40 years. The estimated fair value of the assets acquired and liabilities assumed of Times Mirror are as follows (in billions):
Current assets | $ 0 | .5 |
Property, plant and equipment | 0 | .9 |
Assets held for sale | 1 | .3 |
Identifiable intangible assets and goodwill | 5 | .5 |
Other assets | 1 | .5 |
Liabilities | (1 | .4) |
Total purchase price | $ 8 | .3 |
The purchase accounting for the Times Mirror acquisition reflected in the accompanying condensed consolidated financial statements is preliminary and will likely change as appraisals are finalized and as more facts are known. No material adjustments are expected.
During the second quarter, Tribune announced its intention to sell Jeppesen, a former Times Mirror subsidiary that provides flight information services for airlines, and Times Mirror Magazines, a publisher of special interest and leisure-oriented magazines. Times Mirror had previously accounted for its AchieveGlobal subsidiary as a discontinued operation, and Tribune also announced an intention to divest this business. Accordingly, Jeppesen, Magazines and AchieveGlobal are classified as assets held for sale on the condensed consolidated balance sheet at their estimated net realizable values and their operating results are excluded from the condensed consolidated statements of income. During the third quarter and first three quarters, the Company allocated $22 million and $28 million, respectively, of interest expense to assets held for sale. On Oct. 4, Jeppesen was sold to The Boeing Company for $1.5 billion in cash. On Oct. 31, AchieveGlobal was sold to the Institute for International Research for approximately $100 million in cash. The Company has announced an agreement to sell Times Mirror Magazines to Time, Inc. for $475 million in cash. This sale is expected to close by the end of the year.
Due to the merger with Times Mirror, Tribunes ownership interests in Classified Ventures and CareerPath.com increased to 34% and 38%, respectively, as Times Mirror also had interests in these companies. As a result, these investments are now accounted for under the equity method, and 1999 results and 2000 first quarter results have been restated to record equity losses based on the Companys pre-merger ownership interests of 17% in Classified Ventures and 18% in CareerPath.com. The restatement resulted in the Company recording additional pretax equity losses of $0.4 million for the first quarter of 1999, $7.0 million ($.02 per diluted share) for the second quarter of 1999, $5.3 million ($.01 per diluted share) for the third quarter of 1999 and $5.7 million ($.01 per diluted share) for the first quarter of 2000.
Because the Times Mirror merger transaction did not involve the transfer of any broadcast station licenses, approval of the Federal Communications Commission (FCC) was not required to complete the merger. Under the FCCs current television/newspaper cross-ownership rule, companies are generally prohibited from owning both a newspaper and a broadcast license in the same market. The FCCs policy provides, however, that newly created television/newspaper combinations may be held until the next license renewal. License renewals for Tribune television properties affected by the merger are in years 2006 (KTLA-Los Angeles and WTIC-Hartford) and 2007 (WPIX-New York). The FCC has issued a rule review to consider modifying its cross-ownership rule. If the cross-ownership rule is not modified by the time the licenses are due for renewal, a waiver will be needed to allow continued ownership of both newspapers and broadcast licenses in the Los Angeles, Hartford and New York markets. The Company cannot predict the outcome of the FCC cross-ownership rule review.
On Sept. 5, 2000, the Company sold its education segment to The McGraw-Hill Companies for approximately $680 million in cash, including estimated adjustments for working capital, taxes and sharing of income. In the 2000 third quarter, the Company received $642 million in cash. In the second quarter of 2000, Tribune recorded a one-time, after-tax loss on the sale of the education segment of approximately $96 million. The accompanying condensed consolidated financial statements reflect the education segment as a discontinued operation for all periods presented. Discontinued operations are summarized as follows (in thousands):
Third Quarter Ended |
Three Quarters Ended |
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Sept. 24, 2000 |
Sept. 26, 1999 |
Sept. 24, 2000 |
Sept. 26, 1999 | ||||||
Income from operations, net of tax | $ | $18,978 | $ 9,743 | $27,703 | |||||
Loss on disposal, net of tax benefit of $23 million | |||||||||
and income during the holding period | | | (95,758 | ) | | ||||
Income (loss) from discontinued operations, | |||||||||
net of tax | $ | $18,978 | $(86,015 | ) | $27,703 | ||||
Education reported operating revenues of $170 million for the first half ended June 25, 2000, $119 million for the third quarter ended Sept. 26, 1999 and $277 million for the three quarters ended Sept. 26, 1999.
On Feb. 3, 2000, the Company acquired the remaining interest in Qwest, which owns television stations WATL-Atlanta and WNOL-New Orleans, for $107 million in cash and the conversion of notes and debt. The Company had owned a 33% equity interest and convertible debt in Qwest since it was formed in 1995. The FCCs rule changes in August 1999 permit Tribune to own both WNOL and the Companys WGNO-New Orleans television station.
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. In November 1999, the Company acquired the assets of television station WBDC-Washington, D.C., for $125 million in cash.
The acquisitions are being accounted for by the purchase method, and accordingly, the operating results of these acquired businesses have been included in the consolidated financial statements since their respective dates of acquisition.
The following table presents the unaudited pro forma results of operations of the Company for the third quarters and first three quarters of 2000 and 1999 as if the Times Mirror acquisition, the sale of the education segment and the other acquisitions and disposition discussed in Notes 2, 3 and 4 had occurred at the beginning of each year presented. 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.
Third Quarter Ended |
Three Quarters Ended |
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(In thousands, except per share data) | Sept. 24, 2000 |
Sept. 26, 1999 |
Sept. 24, 2000 |
Sept. 26, 1999 | |||||
Operating revenues | $1,359,406 | $1,344,650 | $4,178,206 | $3,993,799 | |||||
Income from continuing operations before | |||||||||
cumulative effect of change in | |||||||||
accounting principle | 84,559 | 102,143 | 293,176 | 1,314,892 | |||||
Net income | 84,559 | 102,143 | 293,176 | 1,311,832 | |||||
Diluted net income per share | $ .24 | $ .29 | $ .84 | $ 3.76 |
On Sept. 3, 1999, Times Mirror completed a recapitalization involving agreements with the Chandler Trusts. The recapitalization resulted in the formation of a new limited liability company, TMCT II, LLC. The pro forma effect of this transaction on net interest expense, equity income, income taxes, preferred dividends and weighted average shares outstanding is included above.
The computations of basic and diluted earnings per share are as follows (in thousands, except per share data):
Third Quarter Ended |
Three Quarters Ended |
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Sept. 24, 2000 |
Sept. 26, 1999 |
Sept. 24, 2000 |
Sept. 26, 1999 | ||||||
BASIC | |||||||||
Net income | $ 79,221 | $ 118,574 | $ 184,668 | $1,342,341 | |||||
Dividends on preferred stock, net of tax | (5,558 | ) | (4,660 | ) | (16,172 | ) | (13,979 | ) | |
Net income attributable to common shares | $ 73,663 | $ 113,914 | $ 168,496 | $1,328,362 | |||||
Weighted average common shares | |||||||||
outstanding | 307,883 | 237,090 | 261,191 | 237,295 | |||||
Basic earnings per share | $ .24 | $ .48 | $ .65 | $ 5.60 | |||||
DILUTED | |||||||||
Net income | $ 79,221 | $ 118,574 | $ 184,668 | $1,342,341 | |||||
Additional ESOP contribution required | |||||||||
assuming Series B preferred shares were | |||||||||
converted, net of tax | (2,730 | ) | (3,063 | ) | (8,281 | ) | (9,188 | ) | |
Dividends on Series C, D-1 and D-2 | |||||||||
preferred stock | (2,014 | ) | | (2,807 | ) | | |||
LYONs interest expense, net of tax | 1,520 | | 1,766 | | |||||
Minority interest adjustment, net of tax | | | (318 | ) | | ||||
Adjusted net income | $ 75,997 | $ 115,511 | $ 175,028 | $1,333,153 | |||||
Weighted average common shares | |||||||||
outstanding | 307,883 | 237,090 | 261,191 | 237,295 | |||||
Assumed conversion of Series B preferred shares | |||||||||
into common shares | 19,405 | 20,523 | 19,405 | 20,523 | |||||
Assumed exercise of stock options, net of | |||||||||
common shares assumed repurchased | |||||||||
with the proceeds | 5,369 | 4,422 | 3,799 | 3,584 | |||||
Assumed conversion of LYONs debt securities | 6,838 | | 2,673 | | |||||
Adjusted weighted average common shares | |||||||||
outstanding | 339,495 | 262,035 | 287,068 | 261,402 | |||||
Diluted earnings per share | $ .22 | $ .44 | $ .61 | $ 5.10 | |||||
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 the Series B convertible preferred shares held by the Companys Employee Stock Ownership Plan and the LYONs debt securities are converted into common shares. The LYONs debt securities were assumed in the Times Mirror acquisition and are included in the calculation beginning on June 12. Weighted average common shares outstanding is adjusted for the dilutive effect of stock options. The Company has certain other convertible securities which are not included in the calculation of diluted earnings per share because their effects are antidilutive.
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 16.0 million shares of America Online (AOL) common stock at the closing price of $78.50 per share on April 7, 1999. The Company continues to own the AOL stock. At maturity, the PHONES will be redeemed at the greater of the then market value of two shares of AOL common stock or $157 per PHONES. Interest on the debentures is paid quarterly at an annual rate of 2%.
In the first quarter of 1999, the Company entered into a one-year hedge transaction (AOL collar) with respect to 2.0 million shares of its AOL common stock investment. The AOL collar was restructured in the third quarter of 1999 and locks in the value of these shares within the price range of $46-$53 per share and settles in equal installments in each quarter of 2000. Since these transactions are settling in 2000, the market value of the 500,000 shares remaining under the collar is classified as a short-term investment in the balance sheet at Sept. 24, 2000.
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 affect the Companys accounting for its 8.0 million PHONES, its 4.6 million Debt Exchangeable for Common Stock securities (DECS) and its AOL collar for 0.5 million shares.
Prior to the adoption of FAS 133, changes in the fair values of the Companys 16.0 million AOL shares and 5.5 million Mattel shares related to the PHONES and DECS, respectively, had been recorded in the accumulated other comprehensive income component of shareholders equity in the Companys balance sheet, as these securities had been classified as available-for-sale. With the adoption of FAS 133, the 16.0 million shares of AOL common stock and the 5.5 million shares of Mattel common stock were reclassified to trading securities. The Company records 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 offset changes in the fair values of the derivative component of the PHONES and the DECS, respectively. However, there have been and may continue to be periods with significant non-cash increases or decreases to the Companys net income pertaining to the PHONES, DECS and the related AOL and Mattel shares. The 500,000 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 collars time value are recorded in the Companys statement of income.
In connection with the Times Mirror acquisition, the Company assumed Times Mirrors Premium Equity Participating Securities (PEPS) and the related investment in 0.7 million AOL shares. The Company accounts for the PEPS and the related AOL shares under the provisions of FAS 133. The 0.7 million AOL shares are classified as trading securities, and changes in their fair value, net of the changes in the fair value of the related derivative component of the PEPS, are recorded in the statement of income.
Also in connection with the Times Mirror acquisition, the Company assumed several interest rate swap agreements. The Company uses these agreements to manage exposure to market risk associated with changes in interest rates. The change in the fair value of these swap agreements is recorded in the accumulated other comprehensive income component of shareholders equity (See Note 11).
The third quarter and first three quarters of 2000 included several non-operating items, summarized as follows (in thousands, except per share amounts):
Third Quarter Ended |
Three Quarters Ended |
||||||||
---|---|---|---|---|---|---|---|---|---|
Sept. 24, 2000 |
Sept. 24, 2000 |
||||||||
Pretax Gain (Loss) |
Diluted EPS |
Pretax Gain (Loss) |
Diluted EPS |
||||||
Gain (loss) on change in fair values of derivatives | |||||||||
and related investments | $11,139 | $ .02 | $(55,164 | ) | $ (.12 | ) | |||
Gain (loss) on sales of investments, net of | |||||||||
investment write-downs | (8,025 | ) | (.02 | ) | 31,618 | .06 | |||
Gain on sale of AOL common stock | | | 13,011 | .03 | |||||
Total non-operating items | $ 3,114 | $ | $(10,535 | ) | $ (.03 | ) | |||
In the 2000 third quarter, the $11 million gain on the change in fair values of derivatives and related investments resulted primarily from a $28 million increase in the fair value of 16.0 million shares of AOL common stock, which was substantially offset by a $19 million increase in the fair value of the derivative component of the PHONES. In the first three quarters of 2000, the $55 million loss resulted mainly from a $420 million decrease in the fair value of 16.0 million shares of AOL common stock, which was substantially offset by a $357 million decrease in the fair value of the derivative component of the PHONES.
In the 2000 second quarter, Tribune sold its Digital City investment to AOL for $64 million in cash. The Company recorded a pretax gain of approximately $48 million on the sale. The Company also sold another investment in the second quarter and recorded certain investment write-downs in both the second and third quarters of 2000.
The third quarter and first three quarters of 1999 included several non-operating items, summarized as follows (in thousands, except per share amounts):
Third Quarter Ended |
Three Quarters Ended |
||||||||
---|---|---|---|---|---|---|---|---|---|
Sept. 26, 1999 |
Sept. 26, 1999 |
||||||||
Pretax Gain |
Diluted EPS |
Pretax Gain |
Diluted EPS |
||||||
Gain on change in fair values of derivatives | |||||||||
and related investments | $ 20,771 | $ .05 | $ 192,204 | $ .45 | |||||
Gain on reclassification of investments | | | 1,095,976 | 2.55 | |||||
Gain on sale of WGNX subsidiary | | | 348,041 | .80 | |||||
Gain on sale of AOL common stock | | | 94,840 | .23 | |||||
Gain on sale of other investment | | | 2,046 | | |||||
Total non-operating items | $ 20,771 | $ .05 | $1,733,107 | $ 4.03 | |||||
In the 1999 third quarter, the $21 million gain on the change in fair values of derivatives and related investments resulted primarily from a $67 million decrease in the fair value of the derivative component of the PHONES, which was partially offset by a $42 million decrease in the fair value of the related 16.0
million shares of AOL common stock. Through the third quarter, the $192 million gain in the change in fair values and related investments resulted primarily from a $417 million decrease in the fair value of the derivative component of the PHONES, which was partially offset by a $225 million decrease in the fair value of the related 16.0 million shares of AOL common stock.
With the adoption of FAS 133, the 16.0 million shares of AOL common stock and the 5.5 million shares of Mattel common stock were reclassified from available-for-sale 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. These gains represented the unrealized market appreciation on these investments through the end of the 1999 first quarter. 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 AOL collar derivatives to their fair values as of March 28, 1999.
In March 1999, Tribune completed the exchange of its CBS-affiliated television station, WGNX-Atlanta, and cash for Fox affiliate KCPQ-Seattle, resulting in a pretax gain of $348 million. Also in March 1999, Tribune sold two million shares of AOL common stock for $95 million in cash, resulting in a pretax gain of $95 million.
Inventories consist of (in thousands):
Sept. 24, 2000 |
Dec. 26, 1999 | ||||
---|---|---|---|---|---|
Newsprint (at LIFO) | $44,172 | $17,465 | |||
Supplies and other | 9,074 | 6,065 | |||
Total inventories | $53,246 | $23,530 | |||
Newsprint inventories are valued under the LIFO method and were less than current cost by approximately $7.2 million at Sept. 24, 2000, and $7.5 million at Dec. 26, 1999.
Long-term debt consists of the following (in thousands):
Sept. 24, 2000 |
Dec. 26, 1999 | ||||
---|---|---|---|---|---|
Promissory notes, weighted average interest rate of 6.6% | $ 1,901,294 | $ | |||
Medium-term notes, weighted average | |||||
interest rate of 6.2%, due 2000-2008 | 1,036,615 | 1,086,115 | |||
6.25% notes due 2026, putable to the Company at par in 2001 | 100,000 | 100,000 | |||
6.25% DECS, due 2001 | 61,525 | 81,075 | |||
4.25% PEPS, due 2001 | 32,542 | | |||
6.65% notes due 2001, net of unamortized discount of $716 | 199,284 | | |||
8.4% guaranteed ESOP notes, due 2000-2003 | 127,595 | 127,595 | |||
Property financing obligation, effective interest rate of | |||||
7.7%, expiring 2009 | 123,621 | | |||
7.45% notes due 2009, net of unamortized discount of $6,531 | 393,469 | | |||
7.25% debentures due 2013, net of unamortized discount of $7,667 | 140,548 | | |||
LYONs due 2017, net of unamortized discount of $219,954 | 279,146 | | |||
7.5% debentures due 2023, net of unamortized discount of $5,430 | 93,320 | | |||
6.61% debentures due 2027, net of unamortized discount of $8,392 | 241,608 | | |||
7.25% debentures due 2096, net of unamortized discount of $19,289 | 128,711 | | |||
Other notes and obligations | 1,029 | 1,254 | |||
Total debt excluding PHONES | 4,860,307 | 1,396,039 | |||
Less portions due within one year | (134,372 | ) | (30,446 | ) | |
Long-term debt excluding PHONES | 4,725,935 | 1,365,593 | |||
2% PHONES debt related to AOL stock, due 2029 | 977,200 | 1,328,480 | |||
Total long-term debt | $ 5,703,135 | $ 2,694,073 | |||
The Company intends to refinance $1.9 billion of commercial paper scheduled to mature by Sept. 24, 2001, and has the ability to do so on a long-term basis through existing revolving credit agreements. Accordingly, commercial paper was classified as long-term and treated as maturing Dec. 31, 2001. At Sept. 24, 2000, the Company had revolving credit agreements with a number of financial institutions providing for borrowings in an aggregate amount of up to $2.7 billion, and no amounts were borrowed under these credit agreements.
Long-term debt due within one year includes the DECS, PEPS and the current portion of the ESOP note. The DECS are scheduled to mature on Aug. 15, 2001; the Company intends to repay the DECS using shares of Mattel common stock. The number of Mattel shares due at maturity 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.
The PEPS are redeemable in cash at the option of the Company, in whole or in part, at any time after Dec. 15, 2000. The redemption value of each PEPS is the product of (a) the redemption ratio, as defined below, (b) 1.8 and (c) the average market price of one share of AOL common stock for the ten trading days ending on the second business day prior to the redemption date, plus cash in an amount equal to all unpaid interest, whether or not accrued, that would have been payable on the PEPS through the maturity date. The redemption ratio will equal (a) 1.0, if the market value of one share of AOL common stock is less than $21.81, or (b) a fraction, the numerator of which is $21.81 and the denominator of which is the market value of AOL common stock, if such market value is equal to or exceeds $21.81 but less than or equal to $25.08, or (c) .8696, if the market value of AOL common stock exceeds $25.08.
Other comprehensive income includes foreign currency translation adjustments and unrealized gains and losses on interest rate swaps and marketable securities classified as available-for-sale. Approximately 5.7 million AOL shares are currently classified as available-for-sale. Prior to the adoption of FAS 133, changes in the fair value of the Companys 5.5 million Mattel shares, net of the change in the current maturity value of the Companys related DECS securities, and all of the Companys 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, 16.0 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 values of the 16.0 million AOL shares and 5.5 million Mattel shares, net of the changes in the fair values of the related derivative components of the PHONES and DECS, are recorded in the Companys statement of income. The Companys comprehensive income is as follows (in thousands):
Third Quarter Ended |
Three Quarters Ended |
||||||||
---|---|---|---|---|---|---|---|---|---|
Sept. 24, 2000 |
Sept. 26, 1999 |
Sept. 24, 2000 |
Sept. 26, 1999 | ||||||
Net income | $ 79,221 | $ 118,574 | $ 184,668 | $ 1,342,341 | |||||
Foreign currency translation adjustments: | |||||||||
Adjustments arising during the period, net | | (789 | ) | (2,560 | ) | 356 | |||
Add: reclassification adjustment for | |||||||||
loss included in net income | | | 8,664 | | |||||
Change in foreign currency translation | | (789 | ) | 6,104 | 356 | ||||
Unrealized gain on interest rate swaps, net | 4,596 | | 3,821 | | |||||
Unrealized holding gain (loss) on marketable | |||||||||
securities: | |||||||||
Unrealized holding gain (loss) arising during | |||||||||
the period, before tax | (40,803 | ) | (72,021 | ) | (443,656 | ) | 647,003 | ||
Less: adjustment for gain on sales of | |||||||||
investments included in net income | | | (13,011 | ) | (94,840 | ) | |||
Less: adjustment for gain on | |||||||||
reclassification of investments | |||||||||
included in net income | | | | (1,095,976 | ) | ||||
Income taxes | 15,831 | 27,389 | 171,187 | 219,333 | |||||
Change in net unrealized gain on | |||||||||
securities | (24,972 | ) | (44,632 | ) | (285,480 | ) | (324,480 | ) | |
Net other comprehensive loss | (20,376 | ) | (45,421 | ) | (275,555 | ) | (324,124 | ) | |
Comprehensive income (loss) | $ 58,845 | $ 73,153 | $ (90,887 | ) | $ 1,018,217 | ||||
In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company which owned six television stations, including WBZL-Miami. The FCC order granting the Companys application to acquire the Renaissance stations contained 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.
In November 1999, the Company announced an agreement to acquire, for approximately $24 million, the remaining interest in Tiberius Broadcasting, Inc. (Tiberius), the current licensee of television station WTXX-Hartford. Since December 1997, Tribune has owned a 28.5% equity interest in Tiberius and has operated WTXX under a local management agreement. The Company is currently evaluating the FCCs television/newspaper cross-ownership rule and the effect of the acquisition of Times Mirror, which included The Hartford Courant newspaper, on the acquisition of WTXX.
On Jan. 28, 2000, the assets of television station KTWB-Seattle were transferred back to the Company from a disposition trust after the FCC approved the Companys application. The Company had transferred KTWBs assets into a trust as part of the March 1999 television station exchange of WGNX-Atlanta for KCPQ-Seattle. FCC regulations in effect at the time of the exchange precluded the Company from owning both KCPQ and KTWB. However, on Aug. 5, 1999, the FCC adopted changes to its rules that now permit Tribune to own both stations. The operating results of KTWB have been included in the consolidated financial statements since its acquisition in June 1998.
Financial data for each of the Companys business segments are as follows (in thousands):
Third Quarter Ended |
Three Quarters Ended |
||||||||
---|---|---|---|---|---|---|---|---|---|
Sept. 24, 2000 |
Sept. 26, 1999 |
Sept. 24, 2000 |
Sept. 26, 1999 | ||||||
Operating revenues: | |||||||||
Publishing | $ 981,766 | $ 370,294 | $ 2,285,176 | $ 1,146,826 | |||||
Broadcasting and Entertainment | 365,054 | 341,155 | 1,094,945 | 953,789 | |||||
Interactive | 12,586 | 5,943 | 28,347 | 16,132 | |||||
Total operating revenues | $ 1,359,406 | $ 717,392 | $ 3,408,468 | $ 2,116,747 | |||||
Operating profit: | |||||||||
Publishing | $ 163,561 | $ 89,939 | $ 467,342 | $ 307,008 | |||||
Broadcasting and Entertainment | 100,744 | 96,649 | 326,521 | 265,100 | |||||
Interactive | (11,279 | ) | (8,470 | ) | (35,730 | ) | (20,013 | ) | |
Corporate expenses | (16,358 | ) | (12,132 | ) | (47,964 | ) | (30,142 | ) | |
Total operating profit | $ 236,668 | $ 165,986 | $ 710,169 | $ 521,953 | |||||
Sept. 24, 2000 |
Dec. 26, 1999 | ||||
---|---|---|---|---|---|
Assets: | |||||
Publishing | $ 8,636,929 | $ 899,295 | |||
Broadcasting and Entertainment | 3,861,176 | 3,724,621 | |||
Interactive | 272,015 | 108,096 | |||
Corporate | 2,041,883 | 3,243,729 | |||
Subtotal | 14,812,003 | 7,975,741 | |||
Net assets of discontinued operations and | |||||
assets held for sale | 1,366,467 | 690,941 | |||
Total assets | $16,178,470 | $8,666,682 | |||
The assets of the publishing and interactive segments have increased as a result of the Times Mirror acquisition. Assets of discontinued operations represent the net assets of the Companys education segment, which was sold on Sept. 5, 2000. Assets held for sale include the Companys Jeppesen, Magazines and AchieveGlobal operations. See Notes 2 and 3 for further discussion.
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 2000 to the third quarter and first three quarters of 1999. Certain prior year amounts have been reclassified to conform with the 2000 presentation. All Company share and per share data have been restated to reflect the two-for-one common stock split effective Sept. 9, 1999.
This discussion, the information contained in the preceding notes to the financial statements and the information contained in Item 3, Quantitative and Qualitative Disclosures About Market Risk, contain certain forward-looking statements that are based largely on the Companys current expectations. 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 Companys 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, divestitures and derivative transactions on the Companys results of operations and financial condition; and the Companys reliance on third-party vendors for various services. The words believe, expect, anticipate, estimate, intend 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.
On March 13, 2000, Tribune and The Times Mirror Company (Times Mirror) announced the signing of a definitive agreement for a merger of the two companies in a cash and stock transaction. Times Mirror publishes the Los Angeles Times, Newsday, The Baltimore Sun, The Hartford Courant, The Morning Call, The (Stamford) Advocate, Greenwich Time and several smaller newspapers. The merger was effected through a two-step transaction for a total purchase price of approximately $8.3 billion, including assumption of debt.
In the first step of the transaction, Tribune made a cash tender offer, for up to 28 million Times Mirror shares at a price of $95 per share, which expired on April 17, 2000. Through the tender offer, Tribune acquired 23.1 million Times Mirror shares for $2.2 billion, representing 39.4% of the outstanding Times Mirror common shares. Following the tender offer, Tribune gained effective control of Times Mirror and named 13 Tribune designees to Times Mirrors 27 member board of directors. Tribune began to consolidate Times Mirrors operating results starting April 17.
Tribune completed the second step of the acquisition on June 12, 2000, following Tribune and Times Mirror shareholder approvals, through a merger of the two companies. In the merger, each remaining Times Mirror common share was converted, at the election of the shareholder, into 2.5 shares of Tribune common stock or, to the extent available, $95 in cash. The election to receive cash in the merger was available up to the balance of 28 million shares, after Tribunes purchase of 23.1 million Times Mirror shares in the tender offer, combined with Tribunes purchase of 0.2 million Times Mirror shares in the open market following the tender offer. In the merger, Tribune became obligated to pay cash of $447 million in the third quarter for 4.7 million Times Mirror common shares at $95 per share. Also, each remaining
Times Mirror common share was converted into 2.5 shares of Tribune common stock. On June 12, 2000, Tribune issued 83 million common shares in exchange for 33.2 million Times Mirror common shares. In the third quarter of 2000, Tribune settled 7.1 million Times Mirror stock options for $302 million in cash. In addition, approximately 6.4 million Times Mirror options were converted into 15.9 million Tribune options. Shares of Times Mirror preferred stock were converted in the merger into shares of Tribune preferred stock with similar terms.
This transaction was accounted for as a step acquisition purchase, and the effects of both steps of the merger are included in the Sept. 24, 2000 condensed consolidated financial statements. Consolidated results of operations include 39.4% of Times Mirrors operating results for the period April 17 through June 11, 2000 and 100% after June 12. Minority interest expense of $16 million, net of tax, was recorded for the remaining 60.6% of Times Mirror that Tribune did not own during the period of April 17 through June 11, 2000.
The total purchase price for Times Mirror was approximately $8.3 billion, which includes direct costs as well as debt and preferred stock assumed in connection with the merger. Direct costs include fees and expenses associated with the merger. The components of the total purchase price are as follows (in billions):
Cash | $ 3 | .1 | |
Issuance of common stock and replacement options | 3 | .4 | |
Assumption of debt and preferred stock | 1 | .8 | |
Total purchase price | $ 8 | .3 | |
The total acquisition cost of $8.3 billion has been allocated to the assets acquired and liabilities assumed based on preliminary estimates of their respective values. A total of $5.5 billion, representing the excess of acquisition cost over the fair value of Times Mirrors net tangible assets, has been allocated to intangible assets. Identifiable intangible assets are being amortized over periods ranging from five to 25 years. Goodwill is being amortized over 40 years. The estimated fair value of the assets acquired and liabilities assumed of Times Mirror are as follows (in billions):
Current assets | $ 0 | .5 |
Property, plant and equipment | 0 | .9 |
Assets held for sale | 1 | .3 |
Identifiable intangible assets and goodwill | 5 | .5 |
Other assets | 1 | .5 |
Liabilities | (1 | .4) |
Total purchase price | $ 8 | .3 |
The purchase accounting for the Times Mirror acquisition reflected in the accompanying condensed consolidated financial statements is preliminary and will likely change as appraisals are finalized and as more facts are known. No material adjustments are expected.
During the second quarter, Tribune announced its intention to sell Jeppesen, a former Times Mirror subsidiary that provides flight information services for airlines, and Times Mirror Magazines, a publisher of special interest and leisure-oriented magazines. Times Mirror had previously accounted for its AchieveGlobal subsidiary as a discontinued operation, and Tribune also announced an intention to divest this business. Accordingly, Jeppesen, Magazines and AchieveGlobal are classified as assets held for sale on the condensed consolidated balance sheet at their estimated net realizable values and their operating results are excluded from the condensed consolidated statements of income. During the third quarter and
first three quarters, the Company allocated $22 million and $28 million, respectively, of interest expense to assets held for sale. On Oct. 4, Jeppesen was sold to The Boeing Company for $1.5 billion in cash. On Oct. 31, AchieveGlobal was sold to the Institute for International Research for approximately $100 million in cash. The Company has announced an agreement to sell Times Mirror Magazines to Time, Inc. for $475 million in cash. This sale is expected to close by the end of the year.
Because the Times Mirror merger transaction did not involve the transfer of any broadcast station licenses, approval of the Federal Communications Commission (FCC) was not required to complete the merger. Under the FCCs current television/newspaper cross-ownership rule, companies are generally prohibited from owning both a newspaper and a broadcast license in the same market. The FCCs policy provides, however, that newly created television/newspaper combinations may be held until the next license renewal. License renewals for Tribune television properties affected by the merger are in years 2006 (KTLA-Los Angeles and WTIC-Hartford) and 2007 (WPIX-New York). The FCC has issued a rule review to consider modifying its cross-ownership rule. If the cross-ownership rule is not modified by the time the licenses are due for renewal, a waiver will be needed to allow continued ownership of both newspapers and broadcast licenses in the Los Angeles, Hartford and New York markets. The Company cannot predict the outcome of the FCC cross-ownership rule review.
On Feb. 3, 2000, the Company acquired the remaining interest in Qwest, which owns television stations WATL-Atlanta and WNOL-New Orleans, for $107 million in cash and the conversion of notes and debt. The Company had owned a 33% equity interest and convertible debt in Qwest since it was formed in 1995. The FCCs rule changes in August 1999 permit Tribune to own both WNOL and the Companys WGNO-New Orleans television station.
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. In November 1999, the Company acquired the assets of television station WBDC-Washington, D.C., for $125 million in cash.
The operating results of these acquired businesses have been included in the consolidated financial statements since their respective dates of acquisition.
On Sept. 5, 2000, the Company sold its education segment to The McGraw-Hill Companies for approximately $680 million in cash, including estimated adjustments for working capital, taxes and sharing of income. In the 2000 third quarter, the Company received $642 million in cash. In the second quarter of 2000, Tribune recorded a one-time, after-tax loss on the sale of approximately $96 million. The accompanying condensed consolidated financial statements reflect the education segment as a discontinued operation for all periods presented. Discontinued operations are summarized as follows (in millions):
Third Quarter Ended |
Three Quarters Ended |
||||||||
---|---|---|---|---|---|---|---|---|---|
Sept. 24, 2000 |
Sept. 26, 1999 |
Sept. 24, 2000 |
Sept. 26, 1999 | ||||||
Income from operations, net of tax | $ | $ 19 | $ 10 | $ 28 | |||||
Loss on disposal, net of tax benefit of $23 million | |||||||||
and income during the holding period | | | (96 | ) | | ||||
Income (loss) from discontinued operations, | |||||||||
net of tax | $ | $ 19 | $ (86 | ) | $ 28 | ||||
Education reported operating revenues of $170 million for the first half ended June 25, 2000, $119 million for the third quarter ended Sept. 26, 1999 and $277 million for the three quarters ended Sept. 26, 1999.
The third quarters and first three quarters of both 2000 and 1999 included several non-operating items. In connection with the PHONES transaction in April 1999, the Company elected early adoption of Statement of Financial Accounting Standards (FAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which covers derivative securities. Under the provisions of FAS 133, changes in the fair values of certain derivatives are recorded in the income statement. The provisions of FAS 133 affected the Companys accounting for its 8.0 million PHONES, its 4.6 million Debt Exchangeable for Common Stock securities (DECS) and its America Online (AOL) collar for 0.5 million shares.
Prior to the adoption of FAS 133, changes in the fair values of the Companys 16.0 million AOL shares and 5.5 million Mattel shares related to the PHONES and DECS, respectively, had been recorded in the accumulated other comprehensive income component of shareholders equity in the Companys balance sheet, as these securities had been classified as available-for-sale. With the adoption of FAS 133, the 16.0 million shares of AOL common stock and the 5.5 million shares of Mattel common stock were reclassified to trading securities. The Company records 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 offset changes in the fair values of the derivative component of the PHONES and the DECS, respectively. However, there have been and may continue to be periods with significant non-cash increases or decreases to the Companys net income pertaining to the PHONES, DECS and the related AOL and Mattel shares. The 500,000 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 collars time value are recorded in the Companys statement of income.
In connection with the Times Mirror acquisition, the Company assumed Times Mirrors Premium Equity Participating Securities (PEPS) and the related investment in 0.7 million AOL shares. The Company accounts for the PEPS and the related AOL shares under the provisions of FAS 133. The 0.7 million AOL shares are classified as trading securities, and changes in their fair value, net of the changes in the fair value of the related derivative component of the PEPS, are recorded in the statement of income.
The third quarter and first three quarters of 2000 included several non-operating items, summarized as follows (in millions, except per share amounts):
Third Quarter Ended |
Three Quarters Ended |
||||||||
---|---|---|---|---|---|---|---|---|---|
Sept. 24, 2000 |
Sept. 24, 2000 |
||||||||
Pretax Gain (Loss) |
Diluted EPS |
Pretax Gain (Loss) |
Diluted EPS |
||||||
Gain (loss) on change in fair values of derivatives | |||||||||
and related investments | $ 11 | $ .02 | $ (55 | ) | $ (.12 | ) | |||
Gain (loss) on sales of investments, net of | |||||||||
investment write-downs | (8 | ) | (.02 | ) | 32 | .06 | |||
Gain on sale of AOL common stock | | | 13 | .03 | |||||
Total non-operating items | $ 3 | $ | $ (10 | ) | $ (.03 | ) | |||
In the 2000 third quarter, the $11 million loss on the change in fair values of derivatives and related investments resulted primarily from a $28 million increase in the fair value of 16.0 million shares of AOL common stock, which was substantially offset by a $19 million increase in the fair value of the derivative component of the PHONES. In the first three quarters of 2000, the $55 million loss resulted mainly from a $420 million decrease in the fair value of 16.0 million shares of AOL common stock, which was substantially offset by a $357 million decrease in the fair value of the derivative component of the PHONES.
In the 2000 second quarter, Tribune sold its Digital City investment to AOL for $64 million in cash. The Company recorded a pretax gain of approximately $48 million on the sale. The Company also sold another investment in the second quarter and recorded certain investment write-downs in both the second and third quarters of 2000.
The third quarter and first three quarters of 1999 included several non-operating items, summarized as follows (in millions, except per share amounts):
Third Quarter Ended |
Three Quarters Ended |
||||||||
---|---|---|---|---|---|---|---|---|---|
Sept. 26, 1999 |
Sept. 26, 1999 |
||||||||
Pretax Gain |
Diluted EPS |
Pretax Gain |
Diluted EPS |
||||||
Gain on change in fair values of derivatives | |||||||||
and related investments | $ 21 | $ .05 | $ 192 | $ .45 | |||||
Gain on reclassification of investments | | | 1,096 | 2.55 | |||||
Gain on sale of WGNX subsidiary | | | 348 | .80 | |||||
Gain on sale of AOL common stock | | | 95 | .23 | |||||
Gain on sale of other investment | | | 2 | | |||||
Total non-operating items | $ 21 | $ .05 | $ 1,733 | $ 4.03 | |||||
In the 1999 third quarter, the $21 million gain on the change in fair values of derivatives and related investments resulted primarily from a $67 million decrease in the fair value of the derivative component of
the PHONES, which was partially offset by a $42 million decrease in the fair value of the related 16.0 million shares of AOL common stock. Through the third quarter, the $192 million gain in the change in fair values and related investments resulted primarily from a $417 million decrease in the fair value of the derivative component of the PHONES, which was partially offset by a $225 million decrease in the fair value of the related 16.0 million shares of AOL common stock.
With the adoption of FAS 133, the 16.0 million shares of AOL common stock and the 5.5 million shares of Mattel common stock were reclassified from available-for-sale 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. These gains represented the unrealized market appreciation on these investments through the end of the 1999 first quarter. 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 AOL collar derivatives to their fair values as of March 28, 1999.
In March 1999, Tribune completed the exchange of its CBS-affiliated television station, WGNX-Atlanta, and cash for Fox affiliate KCPQ-Seattle, resulting in a pretax gain of $348 million. Also in March 1999, Tribune sold two million shares of AOL common stock for $95 million in cash, resulting in a pretax gain of $95 million.
In November 1999, the Company announced an agreement to acquire, for approximately $24 million, the remaining interest in Tiberius Broadcasting, Inc. (Tiberius), the current licensee of television station WTXX-Hartford. Since December 1997, Tribune has owned a 28.5% equity interest in Tiberius and has operated WTXX under a local management agreement. The Company is currently evaluating the FCCs television/newspaper cross-ownership rule and the effect of the acquisition of Times Mirror, which included The Hartford Courant newspaper, on the acquisition of WTXX.
Tribune has consolidated Times Mirrors results since the cash tender offer closed on April 17, 2000. Tribune owned 39.4% of Times Mirror from April 17 until June 11. On June 12, the merger of the two companies was completed, resulting in Tribune owning 100% of Times Mirror. Minority interest expense reflects the 60.6% of Times Mirror not owned by Tribune from April 17 through June 11. Because of Tribunes decision to sell Times Mirrors Jeppesen, magazine and AchieveGlobal operations, these businesses are considered assets held for sale, and their operating results are excluded from the statements of income.
As a result of the merger with Times Mirror, Tribunes ownership interests in Classified Ventures and CareerPath.com have increased to 34% and 38%, respectively, as Times Mirror also had interests in these companies. As a result, these investments are now accounted for under the equity method, and 1999 results and 2000 first quarter results have been restated to record equity losses based on the Companys pre-merger ownership interests of 17% in Classified Ventures and 18% in CareerPath.com. The restatement resulted in the Company recording additional pretax equity losses of $0.4 million for the first quarter of 1999, $7.0 million ($.02 per diluted share) for the second quarter of 1999, $5.3 million ($.01 per diluted share) for the third quarter of 1999 and $5.7 million ($.01 per diluted share) for the first quarter of 2000.
Beginning in 2000, operating results for the interactive segment are reported separately from publishing. Prior years operating results have been restated for the formation of the new segment and to conform to the revised financial statement presentation. This restatement had no effect on net income.
On Sept. 5, 2000, the Company sold its education segment to The McGraw-Hill Companies. The accompanying condensed consolidated financial statements reflect the education segment as a discontinued operation for all periods presented. The following discussion presents results from continuing operations.
The results of operations, when examined on a quarterly basis, reflect the seasonality of the Companys revenues. 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. Results for the 2000 and 1999 third quarters reflect these seasonal patterns.
The Companys consolidated operating results for the third quarters and first three quarters of 2000 and 1999 and the percentage changes from 1999 are shown in the table below. Times Mirror operating results are included beginning April 17, 2000.
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions, except per share amounts) |
2000 |
1999 |
Change |
2000 |
1999 |
Change | |||||||
Operating revenues | $1,359 | $ 717 | +89% | $3,408 | $2,117 | +61% | |||||||
Operating profit | 237 | 166 | +43% | 710 | 522 | +36% | |||||||
Non-operating items, net of tax and | |||||||||||||
minority interest | 2 | 13 | -85% | (8 | ) | 1,054 | * | ||||||
Net income: | |||||||||||||
Continuing operations before cumulative | |||||||||||||
effect of accounting change: | |||||||||||||
Excluding non-operating items | 77 | 87 | -11% | 279 | 264 | +6% | |||||||
Including non-operating items | 79 | 100 | -20% | 271 | 1,318 | -79% | |||||||
Discontinued operations | | 19 | -100% | (86 | ) | 27 | * | ||||||
Cumulative effect of accounting change, net | | | * | | (3 | ) | -100% | ||||||
Net income | 79 | 119 | -33% | 185 | 1,342 | -86% | |||||||
Diluted earnings per share: | |||||||||||||
Continuing operations before cumulative | |||||||||||||
effect of accounting change: | |||||||||||||
Excluding non-operating items | .22 | .32 | -31% | .94 | .98 | -4% | |||||||
Including non-operating items | .22 | .37 | -41% | .91 | 5.01 | -82% | |||||||
Discontinued operations | | .07 | -100% | (.30 | ) | .10 | * | ||||||
Cumulative effect of accounting change, net | | | * | | (.01 | ) | -100% | ||||||
Net income | .22 | .44 | -50% | .61 | 5.10 | -88% |
* Not meaningful
Earnings Per Share (EPS) Diluted EPS from continuing operations for the 2000 third quarter decreased to $.22, down 31% from $.32 last year, excluding non-operating items in both years and the cumulative effect of accounting change in 1999. On the same basis, diluted EPS for the first three quarters of 2000 decreased 4% to $.94 from $.98 in 1999. These decreases resulted from dilution of $.12 per share in the 2000 third quarter and $.18 per share in the first three quarters for the acquisition of Times Mirror. Including non-operating items in both years, diluted EPS from continuing operations before the cumulative effect of the accounting change in 1999 was $.22 in the third quarter of 2000, compared with $.37 in the third quarter of 1999, and $.91 in the first three quarters of 2000, compared with $5.01 in the first three quarters of 1999.
Operating Revenues and Profit The Companys consolidated operating revenues, EBITDA (operating profit before depreciation, amortization, equity results, non-operating items and minority
interest) and operating profit by business segment for the third quarter and first three quarters were as follows (in millions):
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 |
1999 |
Change |
2000 |
1999 |
Change | ||||||||
Operating revenues | |||||||||||||
Publishing | $ 982 | $370 | +165% | $2,285 | $1,147 | +99% | |||||||
Broadcasting and Entertainment | 365 | 341 | +7% | 1,095 | 954 | +15% | |||||||
Interactive | 12 | 6 | +112% | 28 | 16 | +76% | |||||||
Total operating revenues | $1,359 | $ 717 | +89% | $3,408 | $2,117 | +61% | |||||||
EBITDA* | |||||||||||||
Publishing | $ 245 | $ 113 | +116% | $ 628 | $ 371 | +69% | |||||||
Broadcasting and Entertainment | 129 | 122 | +5% | 412 | 341 | +21% | |||||||
Interactive | (8 | ) | (7 | ) | -10% | (30 | ) | (17 | ) | -76% | |||
Corporate expenses | (15 | ) | (11 | ) | -29% | (44 | ) | (28 | ) | -58% | |||
Total EBITDA | $ 351 | $ 217 | +62% | $ 966 | $ 667 | +45% | |||||||
Operating profit | |||||||||||||
Publishing | $ 163 | $ 90 | +82% | $ 467 | $ 307 | +52% | |||||||
Broadcasting and Entertainment | 101 | 96 | +4% | 327 | 265 | +23% | |||||||
Interactive | (11 | ) | (8 | ) | -33% | (36 | ) | (20 | ) | -79% | |||
Corporate expenses | (16 | ) | (12 | ) | -35% | (48 | ) | (30 | ) | -59% | |||
Total operating profit | $ 237 | $ 166 | +43% | $ 710 | $ 522 | +36% |
* | EBITDA is defined as earnings before interest, taxes, depreciation, amortization, equity results, non-operating items and minority interest. 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. Although comparable, the Company's definition of EBITDA may not be consistent with that of other companies. 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 third quarter of 2000 rose 89% to $1.4 billion from $717 million in 1999 and for the first three quarters increased 61% to $3.4 billion from $2.1 billion in 1999, mainly due to the Times Mirror merger and other recent acquisitions. Excluding Times Mirror, revenues increased 4% in the quarter and 8% in the first three quarters. Excluding all acquisitions and divestitures (on a comparable basis), revenues were up 1% in the third quarter and 5% in the first three quarters.
Consolidated operating profit increased 43% in the 2000 third quarter and 36% in the first three quarters, while EBITDA rose 62% in the third quarter and 45% in the first three quarters. Publishing operating profit increased 82% in the 2000 third quarter and 52% in the first three quarters, mainly due to the Times Mirror acquisition. Excluding Times Mirror, publishing operating profit increased 3% for the third quarter and 2% for the first three quarters. Broadcasting and entertainment operating profit grew 4% in the 2000 third quarter and 23% in the first three quarters, mainly due to growth in television. Interactive reported an operating loss of $11 million in the 2000 third quarter, compared with $8 million last year, and $36 million for the first three quarters, compared with $20 million in
1999. Interactives higher loss in the 2000 third quarter was due to the Times Mirror acquisition, and in the first three quarters resulted from the Times Mirror acquisition and increased development spending. On a comparable basis, consolidated operating profit was up 2% in the third quarter and 9% in the first three quarters, and EBITDA was flat in the third quarter and increased 7% in the first three quarters.
Operating Expenses Consolidated operating expenses increased 104% in the third quarter and 69% in the first three quarters as follows (in millions):
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 |
1999 |
Change |
2000 |
1999 |
Change | ||||||||
Cost of sales | $ 597 | $340 | +75% | $1,494 | $ 989 | +51% | |||||||
Selling, general & administrative | 412 | 160 | +157% | 948 | 461 | +106% | |||||||
Depreciation | 54 | 32 | +70% | 137 | 92 | +49% | |||||||
Amortization of intangible assets | 60 | 19 | +218% | 119 | 53 | +123% | |||||||
Total operating expenses | $1,123 | $551 | +104% | $2,698 | $1,595 | +69% |
On a comparable basis, consolidated operating expenses increased 1% in the third quarter and 4% in the first three quarters.
Cost of sales increased 75%, or $257 million, in the 2000 third quarter and increased 51%, or $505 million, in the first three quarters, primarily due to acquisitions. On a comparable basis, cost of sales increased 3%, or $10 million, in the third quarter and was up 4%, or $40 million, in the first three quarters. The growth in both periods was due to higher newsprint expense, increased compensation expense, higher broadcast rights amortization expense and increased news production costs at the Companys television stations. Excluding Times Mirror, newsprint expense increased 14%, or $6 million, in the third quarter and 4%, or $6 million, in the first three quarters of 2000. On a comparable basis, compensation expense was up 4%, or $6 million, in the third quarter and 3%, or $12 million, in the first three quarters. Broadcast rights amortization increased 2%, or $2 million, in the third quarter and was up 3%, or $8 million, in the first three quarters.
Selling, general and administrative expenses (SG&A) were up 157%, or $252 million, in the 2000 third quarter and increased 106%, or $487 million, in the first three quarters. On a comparable basis, SG&A expenses were flat in the third quarter and were up 4%, or $17 million, in the first three quarters. SG&A expenses were flat in the third quarter primarily due to lower compensation expense and the absence of Year 2000 compliance expenses, offset by slight increases in sales and promotion costs at the television stations. SG&A expenses were up in the first three quarters due to higher expenses for development spending at the interactive segment, and increased compensation, sales and promotion expenses, partially offset by lower Year 2000 compliance expenses. On a comparable basis, interactive development spending grew $7 million, and sales and promotion expenses at the television stations and newspapers increased $6 million in the first three quarters. On a comparable basis, compensation expense decreased $2 million in the third quarter, and grew $5 million in the first three quarters. Year 2000 compliance expenses declined $1 million in the third quarter and $6 million in the first three quarters.
The increase in depreciation and amortization of intangible assets reflects the acquisitions and capital expenditures made in 2000 and 1999.
Operating Revenues and Profit The following table presents publishing operating revenues, EBITDA and operating profit for daily newspapers and other publications/services 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 television news programming, distribution of entertainment listings and other publishing-related activities. Times Mirror operating results are included beginning April 17, 2000.
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2000 |
1999 |
Change |
2000 |
1999 |
Change | |||||||
Operating revenues | |||||||||||||
Daily newspapers | $885 | $332 | +166% | $2,060 | $1,038 | + 98% | |||||||
Other publications/services | 97 | 38 | +155% | 225 | 109 | +107% | |||||||
Total | $982 | $370 | +165% | $2,285 | $1,147 | + 99% | |||||||
Revenues excluding Times Mirror | |||||||||||||
Daily newspapers | $337 | $332 | +2% | $1,059 | $1,038 | +2% | |||||||
Other publications/services | 39 | 38 | +1% | 117 | 109 | +7% | |||||||
Total | $376 | $370 | +2% | $1,176 | $1,147 | +3% | |||||||
EBITDA | |||||||||||||
Daily newspapers | $226 | $106 | +112% | $ 586 | $352 | + 66% | |||||||
Other publications/services | 19 | 7 | +180% | 42 | 19 | +119% | |||||||
Total | $245 | $113 | +116% | $628 | $371 | + 69% | |||||||
EBITDA excluding Times Mirror | |||||||||||||
Daily newspapers | $106 | $106 | - 1% | $ 359 | $ 352 | + 2% | |||||||
Other publications/services | 8 | 7 | +16% | 19 | 19 | +4% | |||||||
Total | $114 | $113 | | $ 378 | $ 371 | + 2% | |||||||
Operating profit | |||||||||||||
Daily newspapers | $152 | $ 86 | +77% | $ 444 | $ 296 | + 50% | |||||||
Other publications/services | 11 | 4 | +191% | 23 | 11 | +106% | |||||||
Total | $163 | $ 90 | +82% | $ 467 | $ 307 | + 52% | |||||||
Operating profit excluding Times Mirror | |||||||||||||
Daily newspapers | $ 87 | $ 86 | +1% | $ 302 | $ 296 | +2% | |||||||
Other publications/services | 5 | 4 | +41% | 12 | 11 | +7% | |||||||
Total | $ 92 | $ 90 | +3% | $ 314 | $ 307 | +2% |
Publishing operating revenues for the 2000 third quarter increased 165% to $982 million, and for the first three quarters were up 99% to $2.3 billion, principally due to Times Mirror and higher advertising revenues in Chicago, Fort Lauderdale, Orlando and Newport News. Excluding Times Mirror, publishing revenues were up 2% in the third quarter and 3% in the first three quarters; advertising revenues improved 2% in the third quarter and 3% in the first three quarters. Operating profit for the 2000 third quarter grew 82% to $163 million, and for the first three quarters was up 52% to $467 million, due to the acquisition of Times Mirror. Excluding Times Mirror, operating profit
grew 3% to $92 million and for the first three quarters rose 2% to $314 million. In the third quarter of 2000, operating profit margins at Tribunes four daily newspapers declined slightly to 25.8%, from 26.0% in 1999; in the first three quarters, daily newspaper operating profit margins were 28.5% in both 2000 and 1999.
Publishing group revenues excluding Times Mirror, by classification, for the third quarter and first three quarters were as follows:
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2000 |
1999 |
Change |
2000 |
1999 |
Change | |||||||
Advertising | |||||||||||||
Retail | $108 | $108 | | $ 338 | $ 335 | +1% | |||||||
General | 47 | 40 | +15% | 151 | 129 | +17% | |||||||
Classified | 130 | 131 | | 406 | 404 | | |||||||
Total advertising | 285 | 279 | +2% | 895 | 868 | +3% | |||||||
Circulation | 56 | 58 | -3% | 175 | 181 | -3% | |||||||
Other | 35 | 33 | +6% | 106 | 98 | +8% | |||||||
Total revenues | $376 | $370 | +2% | $1,176 | $1,147 | +3% |
Excluding Times Mirror, general advertising revenues were up 15% in the third quarter and 17% in the first three quarters. The growth in the 2000 third quarter resulted from increased high-tech advertising in Chicago, Fort Lauderdale and Orlando. For the first three quarters of 2000, the growth was due to increased high-tech and financial advertising in Chicago, Fort Lauderdale and Orlando and resorts and media advertising in Chicago.
Excluding Times Mirror, advertising linage improved 1% in both the third quarter and the first three quarters. Full run retail advertising linage decreased 6% in the third quarter and 5% in the first three quarters due to declines at all four daily newspapers. Full run general advertising linage improved 23% in the third quarter and 17% in the first three quarters, primarily due to gains in Fort Lauderdale and Chicago. Full run classified advertising linage decreased 1% in both the third quarter and first three quarters, due to declines in Fort Lauderdale and Chicago. Part run advertising linage was up 2% in the third quarter and 3% in the first three quarters, due to increases in Chicago and Orlando. Preprint advertising pieces rose 12% in the third quarter and 9% in the first three quarters, due to improvements at all four daily newspapers. The following summary presents advertising volume, excluding Times Mirror, for the third quarter and the first three quarters:
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Inches in thousands) | 2000 |
1999 |
Change |
2000 |
1999 |
Change | |||||||
Full run | |||||||||||||
Retail | 769 | 816 | -6% | 2,425 | 2,564 | -5% | |||||||
General | 273 | 222 | +23% | 827 | 707 | +17% | |||||||
Classified | 1,656 | 1,678 | -1% | 5,032 | 5,092 | -1% | |||||||
Total full run | 2,698 | 2,716 | -1% | 8,284 | 8,363 | -1% | |||||||
Part run | 2,402 | 2,357 | +2% | 7,478 | 7,295 | +3% | |||||||
Total inches | 5,100 | 5,073 | +1% | 15,762 | 15,658 | +1% | |||||||
Preprint pieces* (in millions) | 1,058 | 945 | +12% | 3,192 | 2,939 | +9% |
* Preprint amounts have been restated to reflect pieces, rather than inches, for all periods presented beginning in the third quarter of 2000.
Excluding Times Mirror, circulation revenues declined 3% in both the 2000 third quarter and the first three quarters, mainly from increased discounting in Chicago. Total average daily circulation was down 1% to 1,187,000 copies in the 2000 third quarter, and total average Sunday circulation was flat at 1,822,000 copies. For the first three quarters of 2000, total average daily circulation was flat at 1,235,000 copies and total average Sunday circulation was flat at 1,886,000 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; cable television news programming; distribution of entertainment listings; and other publishing-related activities. Excluding Times Mirror, the increase in other revenues in the third quarter and first three quarters of 2000 resulted primarily from higher revenues from direct mail and commercial printing operations.
Operating Expenses Publishing operating expenses increased 192%, or $538 million, in the third quarter and 116%, or $978 million, in the first three quarters, mainly due to the acquisition of Times Mirror.
Excluding Times Mirror, expenses grew 1%, or $3 million, in the third quarter and were up 3%, or $22 million, in the first three quarters. For the 2000 third quarter, excluding Times Mirror, newsprint and ink expense grew 14%, or $6 million, and compensation expense increased 2%, or $3 million, while depreciation and amortization expenses decreased by $2 million and Year 2000 compliance expenses declined by $1 million. For the first three quarters of 2000, excluding Times Mirror, newsprint and ink expense grew 4%, or $6 million, compensation expense increased 3%, or $10 million, circulation and promotion expenses rose $5 million, while Year 2000 compliance expenses declined by $4 million.
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.
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2000 |
1999 |
Change |
2000 |
1999 |
Change | |||||||
Operating revenues | |||||||||||||
Television | $293 | $266 | +10% | $ 926 | $ 796 | +16% | |||||||
Radio | 15 | 14 | +2% | 45 | 40 | +12% | |||||||
Entertainment/other | 57 | 61 | -5% | 124 | 118 | +5% | |||||||
Total operating revenues | $365 | $341 | +7% | $1,095 | $ 954 | +15% | |||||||
EBITDA | |||||||||||||
Television | $117 | $105 | +11% | $ 390 | $ 323 | +21% | |||||||
Radio | 6 | 4 | +35% | 16 | 12 | +35% | |||||||
Entertainment/other | 6 | 13 | -53% | 6 | 6 | -13% | |||||||
Total EBITDA | $129 | $122 | +5% | $ 412 | $ 341 | +21% | |||||||
Operating profit | |||||||||||||
Television | $ 90 | $ 81 | +11% | $ 308 | $ 251 | +23% | |||||||
Radio | 6 | 4 | +40% | 16 | 11 | +41% | |||||||
Entertainment/other | 5 | 11 | -54% | 3 | 3 | -3% | |||||||
Total operating profit | $101 | $ 96 | +4% | $ 327 | $ 265 | +23% |
Broadcasting and entertainment operating revenues increased 7% to $365 million in the 2000 third quarter and grew 15% to $1.1 billion in the first three quarters due mainly to higher television revenues. Television revenues were up 10%, or $27 million, in the third quarter, and 16%, or $131 million, in the first three quarters, primarily due to the acquisition of stations in Atlanta and New Orleans (February 2000), Washington, D.C. (November 1999), Albany (September 1999) and KCPQ-Seattle (acquired in exchange for WGNX-Atlanta in March 1999); and improved performances at the WB affiliated stations and at WGN Superstation. Television revenues also increased due to copyright royalties of $12 million in the first three quarters, compared with $5 million in 1999. These royalties resulted from payments by cable systems and satellite carriers for television signals they deliver to subscribers outside the stations local markets. On a comparable basis, television revenues increased 2% in the third quarter primarily due to improvements at the Companys WB-affiliates, led by the stations in Dallas, Philadelphia, Los Angeles and San Diego, the WGN Superstation and also from higher revenues in Seattle, where Tribune owns two stations. On a comparable basis, television revenues increased 9% in the first three quarters due to improvements at the Companys WB affiliates, led by stations in New York, Los Angeles, Dallas, Philadelphia and the WGN Superstation. Radio revenues increased 2% in the 2000 third quarter and 12% in the first three quarters, due to gains at the stations in Chicago and Denver. Entertainment/other revenues declined 5% in the 2000 third quarter due primarily to 11 fewer home Cubs games in the 2000 third quarter. Entertainment/other revenues rose 5% in the first three quarters, due to higher Cubs revenues and advertising revenues for certain syndicated shows.
Operating profit for broadcasting and entertainment was up 4% to $101 million in the 2000 third quarter and increased 23% to $327 million in the first three quarters, primarily due to gains in television. Television operating profit increased 11% in the 2000 third quarter, mainly from the
acquisitions noted above, and improvements at WB affiliates, led by stations in Dallas, Chicago and Los Angeles. Television operating profit increased 23% in the first three quarters due to the acquisitions and gains at WB affiliates, led by stations in Los Angeles, New York, Dallas and Chicago and the WGN Superstation. On a comparable basis, television operating profit increased 3% in the 2000 third quarter and 18% in the first three quarters.
Operating Expenses Broadcasting and entertainment operating expenses increased 8%, or $20 million, in the 2000 third quarter and 12%, or $80 million, in the first three quarters. The increase was mainly 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 2%, or $6 million, in the third quarter and 4%, or $28 million, in the first three quarters, due to increased compensation costs, higher broadcast rights amortization and higher news, sales and promotion costs from the launch of one prime-time and four morning news programs. On a comparable basis, compensation costs grew 3%, or $3 million, in the third quarter and 4%, or $9 million, in the first three quarters. Broadcast rights amortization increased 2%, or $2 million, in the third quarter and 4%, or $8 million, in the first three quarters. News, sales and promotion costs increased 15%, or $2 million, in the third quarter and 23%, or $9 million, in the first three quarters of 2000.
Operating Revenues and Profit The following table presents interactive operating revenues, EBITDA and operating loss for the third quarter and first three quarters. Times Mirror operating results are included beginning April 17, 2000.
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2000 |
1999 |
Change |
2000 |
1999 |
Change | |||||||
Operating revenues | $ 12 | $ 6 | + 112% | $ 28 | $ 16 | +76% | |||||||
EBITDA | (8 | ) | (7 | ) | -10% | (30 | ) | (17 | ) | -76% | |||
Operating loss | (11 | ) | (8 | ) | -33% | (36 | ) | (20 | ) | -79% |
The interactive segments revenues are derived primarily from advertising sales. Banner and sponsorship advertising is sold to local and national customers. Classified advertising revenues are mainly derived from two sources: bundling print and online classified advertising with the Companys daily newspapers and selling online-only classified products.
Interactives operating revenues increased 112% to $12 million in the 2000 third quarter, and 76% to $28 million in the first three quarters. Excluding Times Mirror and 1999 revenues related to AOL/Digital City royalties and thepavement.com, 2000 third quarter revenues increased 46%, and for the first three quarters increased 39% due to higher advertising revenues. As of the fourth quarter 1999, interactive stopped recording AOL/Digital City royalties as a result of Tribunes changing relationship with Digital City. Thepavement.com was sold to BrassRing in September 1999.
Interactives third quarter 2000 operating loss grew to $11 million from $8 million in 1999 and for the first three quarters its operating loss increased to $36 million from $20 million in 1999. The higher loss in the 2000 third quarter resulted from the Times Mirror acquisition. In the first three quarters of 2000, the operating loss increased because of the Times Mirror acquisition and increased development spending.
Operating Expenses Interactives operating expenses increased 66%, or $9 million, in the 2000 third quarter, due to the Times Mirror acquisition and 77%, or $28 million, in the first three quarters, primarily due to the Times Mirror acquisition and higher development spending. For the 2000 third quarter, compensation expense increased $5 million and promotion expenses and affiliate fees each grew by $1 million from 1999. For the first three quarters of 2000, compensation expense increased $11 million, promotion expenses grew $5 million and affiliate fees rose by $3 million from 1999.
The following table presents corporate expenses for the third quarter and first three quarters. Times Mirror corporate expenses are included beginning April 17, 2000.
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | 2000 |
1999 |
Change |
2000 |
1999 |
Change | |||||||
Corporate expenses | $(16 | ) | $(12 | ) | +35% | $(48 | ) | $(30 | ) | +59% |
Corporate expenses increased in both the 2000 third quarter and first three quarters primarily due to the Times Mirror acquisition.
Net loss on equity investments totaled $26 million in the 2000 third quarter, up from a loss of $11 million in 1999, and for the first three quarters totaled $63 million, compared with a loss of $35 million in 1999. Due to the merger with Times Mirror, Tribunes ownership interests in Classified Ventures and CareerPath.com increased to 34% and 38%, respectively, as Times Mirror also had interests in these companies. As a result, these investments are now accounted for under the equity method, and 1999 results and 2000 first quarter results have been restated to record equity losses based on the Companys pre-merger ownership interests of 17% in Classified Ventures and 18% in CareerPath.com. The restatement resulted in the Company recording additional pretax equity losses of $0.4 million for the 1999 first quarter, $7.0 million for the 1999 second quarter, $5.3 million for the 1999 third quarter and $5.7 million for the 2000 first quarter. In September 2000, Career Holdings, a new joint venture of which Tribune owns 46%, absorbed the operations of CareerPath.com. Tribune had owned a 33% equity interest in Qwest, which owns WB affiliate television stations in Atlanta and New Orleans, until February 3, 2000, when the Company acquired the remaining interest in Qwest. Equity results also include losses related to Tribunes investments in The WB Television Network, BrassRing, Inc. (formed in September 1999) and iBlast (formed in March 2000). The increase in equity losses from last year was due to one-time shutdown costs of approximately $9 million for CareerPath.com; increased ownership interests in Classified Ventures and CareerPath.com; the new investments in BrassRing, iBlast and Career Holdings; and the absence of equity income from Qwest.
Interest expense for the 2000 third quarter increased to $79 million from $30 million last year, and for the first three quarters grew to $170 million from $83 million in 1999, primarily due to interest on debt used to fund the Times Mirror acquisition and interest on existing Times Mirror debt assumed by Tribune. Interest expense in the 2000 third quarter and first three quarters was reduced by $22 million and $28 million, respectively, for interest expense allocated to assets held for sale. Interest income for the 2000 third quarter was $3 million compared with $16 million last year, and for the first three quarters declined to $23 million from $31 million in 1999, as excess cash was used to fund the Times Mirror acquisition.
The effective tax rate, excluding non-operating items, was 42.8% and 38.8% for the 2000 and 1999 third quarters, respectively, and 41.4% and 39.1% for the first three quarters of 2000 and 1999, respectively. The higher effective tax rate for 2000 was mainly due to non-deductible amortization related to the Times Mirror acquisition.
Cash flow generated from operations is the Companys primary source of liquidity. Net cash provided by continuing operations in the first three quarters was $721 million in 2000, compared with $368 million in 1999. 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 and stock.
Net cash used for investments of continuing operations totaled $2.2 billion in the first three quarters of 2000 as the Company spent $2.9 billion in cash for Times Mirror and $322 million for other acquisitions and investments. The Company received cash proceeds of $145 million from the sales of its investments in Digital City, AOL common stock and Target Media, a former Times Mirror investment. On Sept. 5, the Company received cash proceeds of $642 million from the sale of its Education segment. In 1999, the Company invested a portion of the PHONES proceeds in short-term and long-term marketable securities. Through Sept. 24, 2000, $335 million of these securities matured and were used to fund the Times Mirror acquisition.
Net cash provided by financing activities in the first three quarters of 2000 was $1.0 billion due to the issuance of commercial paper and sales of stock to employees, offset by purchases of treasury stock, repayments of long-term debt and payments of dividends. In the first three quarters of 2000, the Company issued $1.9 billion of commercial paper, and repurchased 18 million shares of its common stock for $674 million. At Sept. 24, 2000, the Company had authorization to repurchase an additional $2.1 billion of its common stock. The 2000 common dividend increased 11% to $.30 per share for the first three quarters from $.27 per share in 1999. The dividends in the first three quarters of 2000 were $107 million and included $10 million paid by Times Mirror in June 2000.
In connection with the Times Mirror acquisition, the Company has purchased 28 million shares of Times Mirror common stock for $95 per share, which has been funded through existing cash and the issuance of commercial paper. As of the end of the 2000 third quarter, the Company has 0.3 million outstanding Times Mirror shares to purchase for $23 million. In connection with the merger, the Company has increased its authority to issue commercial paper and increased its existing revolving credit agreements from $1.2 billion to $2.7 billion. As of Sept. 24, 2000, no amounts were borrowed under the credit agreements.
In July 2000, the Company settled 7.1 million Times Mirror stock options for $302 million in cash and converted the remaining 6.4 million Times Mirror stock options into 15.9 million Tribune stock options.
The Company intends to use the cash proceeds from the sales of Jeppesen, Times Mirror Magazines and AchieveGlobal to pay down commercial paper balances.
The Company has experienced no significant operational effects from the Year 2000 transition. Year 2000 compliance expenses were $1.0 million in the first quarter of 2000 and totaled $17 million through March 26, 2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The following represents an update of the Companys market-sensitive financial information. This information contains forward-looking statements and should be read in conjunction with the Companys Annual Report on Form 10-K.
Available-for-sale securities. The Company has common stock investments in several publicly traded companies that are subject to market price volatility. Except for 16.7 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 Companys 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 stocks price. This analysis excludes 500,000 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 $46-$53 per share. See Note 7 to the Companys Condensed Consolidated Financial Statements in this Form 10-Q for further discussion.
Valuation of Investments Assuming Indicated Decrease in Each Stock's Price |
Sept. 24, 2000 | Valuation of Investments Assuming Indicated Increase in Each Stock's Price |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | -30% |
-20% |
-10% |
Fair Value |
+10% |
+20% |
+30% | ||||||||
Common stock | |||||||||||||||
investments in | |||||||||||||||
public companies | $277 | $317 | $356 | $396 (1) | $436 | $475 | $515 |
(1) | Includes approximately 5.2 million shares of AOL common stock valued at $286 million. Excludes 16.7 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 Companys common stock investments in publicly traded companies to change by 10% or more in nine 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 16.0 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 Notes 1 and 6 to the Companys Consolidated Financial Statements in the 1999 Annual Report for further discussion of the PHONES and the DECS. Beginning in the second quarter of 1999, these investments in AOL and Mattel stock have been classified as trading securities, and changes in their fair value, net of the changes in the fair value of the related derivative components of the PHONES and the DECS, are recorded in the statement of income.
At maturity, the PHONES will be redeemed at the greater of the then market value of two shares of AOL common stock or $157 per PHONES. At Sept. 24, 2000, the PHONES fair value was $977 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. There have been and may continue to be periods with significant non-cash increases or decreases to the Companys net income pertaining to the PHONES and the related AOL shares.
At maturity, the DECS will be repaid using shares of Mattel common stock or, at the Companys 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 DECS mature Aug. 15, 2001. The fair value of the DECS was approximately $62 million at Sept. 24, 2000. Since the issuance of the DECS in August 1998, changes in the fair value of the DECS have substantially offset changes in the fair value of the related Mattel shares. However, there may be periods with significant non-cash increases or decreases to the Companys net income pertaining to the DECS and the related Mattel shares.
In connection with the Times Mirror acquisition, the Company assumed Times Mirrors obligations under the Premium Equity Participating Securities (PEPS), which are related to an investment in 0.7 million AOL shares. The Company accounts for the PEPS and the related AOL shares under the provisions of FAS 133. The 0.7 million AOL shares are classified as trading securities, and changes in their fair value, net of the changes in the fair value of the derivative component of the PEPS, are recorded in the statement of income. The fair value of the PEPS was approximately $33 million at Sept. 24, 2000. The PEPS mature March 15, 2001. The amount payable at maturity is based on the fair market value of AOL common stock, adjusted using a predetermined formula. Holders of the PEPS bear the full risk of a decline in the value of AOL common stock.
The following analysis presents the hypothetical change in the fair value of the Companys 16.0 million and 0.7 million shares of AOL common stock related to the PHONES and the PEPS, respectively, and the 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 stocks price.
Valuation of Investments Assuming Indicated Decrease in Each Stock's Price |
Sept. 24, 2000 | Valuation of Investments Assuming Indicated Increase in Each Stock's Price |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | -30% |
-20% |
-10% |
Fair Value |
+10% |
+20% |
+30% | ||||||||
AOL common stock | $645 | $737 | $829 | $921 | $1,013 | $1,105 | $1,197 | ||||||||
Mattel common stock | 41 | 46 | 52 | 58 | 64 | 70 | 75 |
During the last 12 quarters, market price movements have caused the fair value of the Companys 16.7 million shares in AOL common stock to change by 10% or more in nine of the quarters, by 20% or more in six of the quarters and by 30% or more in four of the quarters. For the Companys 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 four of the quarters and by 30% or more in two of the quarters.
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. |
10.4a - Amendment effective July 18, 2000 to the Tribune Company Bonus Deferral Plan, dated as of December 14, 1993 (Exhibit 10.8 to Annual Report on Form 10-K for 1993). |
10.10a - Amendment effective July 18, 2000 to the Tribune Company Employee Stock Purchase Plan as amended and restated effective July 27, 1999 (Exhibit 10.10 to Annual Report on Form 10-K for 1999). |
12 - Computation of ratios of earnings to fixed charges. |
(b) Reports on Form 8-K. |
The Company filed no reports on Form 8-K during the quarter for which this report is filed. |
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 |
Date: November 7, 2000 |
/s/ R. Mark Mallory |
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