<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-13492
----------------
THE TIMES MIRROR COMPANY
<TABLE>
<S> <C>
STATE OF INCORPORATION: DELAWARE I.R.S. EMPLOYER ID. NO. 95-4481525
</TABLE>
----------------
TIMES MIRROR SQUARE
Los Angeles, California 90053
Telephone: (213) 237-3700
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 [_]
Number of shares of Series A Common Stock outstanding at July 31, 1997:
69,841,271
Number of shares of Series C Common Stock outstanding at July 31, 1997:
25,948,711
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<PAGE>
THE TIMES MIRROR COMPANY
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial information herein, and management's discussion thereof, include
consolidated data for The Times Mirror Company ("Registrant" or "Times
Mirror") and its subsidiaries. Registrant and its subsidiaries are sometimes
herein referred to collectively as the "Company."
2
<PAGE>
THE TIMES MIRROR COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SECOND QUARTER
ENDED YEAR TO DATE ENDED
JUNE 30 JUNE 30
------------------ ----------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES........................... $811,813 $837,295 $1,585,695 $1,644,054
COSTS AND EXPENSES
Cost of sales.................... 408,139 434,746 806,547 881,022
Selling, general and
administrative expenses......... 282,892 318,260 570,826 628,515
-------- -------- ---------- ----------
691,031 753,006 1,377,373 1,509,537
OPERATING PROFIT................... 120,782 84,289 208,322 134,517
Interest expense................... (10,256) (8,583) (20,268) (15,990)
Interest income.................... 454 1,175 1,418 3,131
Equity income (loss)............... 1,602 (245) 2,368 381
Other, net......................... 1,204 2,839 1,311 5,507
-------- -------- ---------- ----------
Income before income tax provision. 113,786 79,475 193,151 127,546
Income tax provision............... 47,800 33,452 81,932 55,486
-------- -------- ---------- ----------
NET INCOME......................... $ 65,986 $ 46,023 $ 111,219 $ 72,060
======== ======== ========== ==========
Preferred dividend requirements.... $ 8,266 $ 10,911 $ 19,177 $ 21,822
======== ======== ========== ==========
Earnings applicable to common
shareholders:
Primary.......................... $ 57,720 $ 35,112 $ 92,042 $ 50,238
======== ======== ========== ==========
Fully diluted.................... $ 58,896 $ 37,787 $ 95,893 $ 55,588
======== ======== ========== ==========
Earnings per common share:
Primary.......................... $ .58 $ .33 $ .94 $ .47
======== ======== ========== ==========
Fully diluted.................... $ .58 $ * $ * $ *
======== ======== ========== ==========
</TABLE>
- --------
* Per share amount on a fully diluted basis has been omitted as the amount is
antidilutive in relation to the primary per share amount.
See notes to condensed consolidated financial statements
3
<PAGE>
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................ $ 50,769 $ 145,105
Marketable securities................................ 31,740
Accounts receivable, less allowance for doubtful
accounts and returns of $59,284 and $79,540......... 433,167 488,572
Inventories.......................................... 81,897 103,648
Deferred income taxes................................ 45,334 49,248
Other current assets................................. 63,512 52,159
---------- ----------
Total current assets................................ 674,679 870,472
Property, plant and equipment, at cost less
accumulated depreciation of $983,323 and $941,803.... 1,160,549 1,177,077
Goodwill.............................................. 507,632 530,142
Other intangibles..................................... 46,513 46,039
Deferred charges...................................... 147,778 153,454
Other assets.......................................... 718,084 752,678
---------- ----------
Total assets........................................ $3,255,235 $3,529,862
========== ==========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable...................................... $ 262,419 $ 304,983
Short-term debt....................................... 5,512 15
Employees' compensation............................... 96,295 112,570
Unearned income....................................... 214,679 233,021
Other current liabilities............................. 124,844 158,558
---------- ----------
Total current liabilities............................ 703,749 809,147
Long-term debt......................................... 633,740 459,007
Deferred income taxes.................................. 100,631 129,491
Other liabilities...................................... 557,279 595,235
---------- ----------
Total liabilities.................................... 1,995,399 1,992,880
Common stock subject to put options.................... 39,273 38,172
Commitments and contingencies
Shareholders' equity
Series A preferred stock, $1 par value; 900,000 shares
authorized; 824,000 shares issued and outstanding;
stated at liquidation value.......................... 411,784 411,784
Series B preferred stock, $1 par value; 25,000,000
shares authorized; 7,789,000 shares issued and
outstanding; stated at liquidation value;
converted to Series A common stock in 1997........... 164,595
Preferred stock, $1 par value; 7,100,000 shares
authorized; no shares issued or outstanding
Common stock
Series A, $1 par value; 500,000,000 shares
authorized; 69,770,000 and 69,757,000 shares issued
and outstanding..................................... 69,770 69,757
Series B, $1 par value; 100,000,000 shares
authorized; no shares issued or outstanding
Series C, convertible, $1 par value; 300,000,000
shares authorized; 25,967,000 and 26,973,000 shares
issued and outstanding.............................. 25,967 26,973
Additional paid-in capital............................ 396,133 225,934
Retained earnings..................................... 288,443 533,131
Net unrealized gain on securities..................... 28,466 66,636
---------- ----------
Total shareholders' equity........................... 1,220,563 1,498,810
---------- ----------
Total liabilities and shareholders' equity........... $3,255,235 $3,529,862
========== ==========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
THE TIMES MIRROR COMPANY
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR TO DATE ENDED
JUNE 30
--------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by continuing operating activities..... $ 97,368 $ 130,617
Net cash used in discontinued operating activities....... (12,671)
--------- ---------
Net cash provided by operating activities............... 97,368 117,946
CASH FLOWS FROM INVESTING ACTIVITIES
Changes in marketable and long-term securities........... 69,248
Capital expenditures..................................... (53,489) (56,698)
Capitalization of product costs.......................... (13,079) (36,544)
Acquisitions, net of cash acquired....................... (7,850) (5,913)
Other, net............................................... 40,994 (1,806)
--------- ---------
Net cash used in investing activities................... (33,424) (31,713)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock............................... (331,440) (182,796)
Net proceeds from issuance of long-term debt............. 190,532 51,221
Dividends paid........................................... (43,199) (38,517)
Proceeds from exercise of stock options.................. 19,438 22,547
Net proceeds from issuance of commercial paper........... 5,497 33,000
Repurchase of Series B preferred stock................... (90,622)
Other, net............................................... 892 606
--------- ---------
Net cash used in financing activities................... (158,280) (204,561)
--------- ---------
Decrease in cash and cash equivalents..................... (94,336) (118,328)
Cash and cash equivalents at beginning of year............ 145,105 182,901
--------- ---------
Cash and cash equivalents at end of period................ $ 50,769 $ 64,573
========= =========
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PREPARATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the fiscal year. For
further information, refer to the consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
Certain amounts in previously issued financial statements have been
reclassified to conform to the 1997 presentation.
NOTE 2 -- RESTRUCTURING
The balance sheet classification of restructuring liabilities is as follows
(in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Other current liabilities:
1995 Restructuring....................................... $ 71,267 $ 69,111
1996 Restructuring....................................... 5,502 7,341
Other liabilities:
1995 Restructuring....................................... 49,915 79,409
1996 Restructuring....................................... 2,318 2,864
-------- --------
$129,002 $158,725
======== ========
</TABLE>
The restructuring liabilities relate primarily to severance costs and lease
payments. During the year to date ended June 30, 1997, cash spent on severance
payments related to 1995 restructuring efforts totaled $3,922,000. At June 30,
1997, the remaining liability for 1995 severance costs aggregated $14,308,000.
NOTE 3 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments during the year to date ended June 30, 1997 and 1996 included
interest of $13,290,000 and $11,569,000 and income taxes of $95,760,000 and
$22,243,000, respectively.
7
<PAGE>
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 -- DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swaps and forward interest rate swaps are used to manage
exposure to market risk associated with changes in interest rates. Interest
rate swaps are accounted for on the accrual basis. Payments made or received
are recognized as an adjustment to interest expense. Amounts received in
connection with forward swaps and terminated swaps are amortized on a
straight-line basis as a reduction in interest expense over the term of the
swaps.
The Company's exposure to market risk associated with fluctuations in the
value of foreign currencies relative to the U.S. dollar may be managed with
foreign currency forward contracts, currency options, currency swaps or other
risk management instruments permitted by the Company's internal policy
guidelines. The Company enters into forward contracts from time to time.
Forward contracts that do not qualify as accounting hedges are marked to
market.
NOTE 5 -- DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Short-term debt:
Commercial paper at a weighted average interest rate
of 5.7%.............................................. $ 5,497
Current maturities of long-term debt.................. 15 $ 15
--------- --------
Total short-term debt................................ $ 5,512 $ 15
========= ========
Long-term debt:
4 1/4% PEPS due March 15, 2001; 1,305,000 securities
stated at current maturity value..................... $ 41,842 $ 64,543
7 1/4% Debentures due March 1, 2013................... 148,215 148,215
4.75% Liquid Yield Option Notes due 2017.............. 500,000
7 1/2% Debentures due July 1, 2023.................... 98,750 98,750
7 1/4% Debentures due November 15, 2096............... 148,000 148,000
Others at various interest rates, maturing through
2001................................................. 77 84
--------- --------
936,884 459,592
Less:
Current maturities.................................... (15) (15)
Unamortized discount.................................. (303,129) (570)
--------- --------
Total long-term debt................................. $ 633,740 $459,007
========= ========
</TABLE>
Interest rate swaps outstanding at June 30, 1997 converted the weighted
average interest rate on the Company's fixed rate debt due in 2013, 2023 and
the Liquid Yield Option Notes (LYONs) from 6.2% to 5.2% for the year to date
ended June 30, 1997. The unamortized discount at June 30, 1997 relates
primarily to the LYONs.
The 4 1/4% Premium Equity Participating Securities (PEPS) hedge a
significant portion of the Company's investment in the common stock of
Netscape Communications Corporation (Netscape). The amount payable at maturity
is determined by reference to the fair market value of the Netscape stock.
Changes in the current maturity value of the PEPS are included as a separate
component of shareholders' equity, net of applicable income taxes. At June 30,
1997 and December 31, 1996, the fair market value of Netscape common stock was
$32.0625 and $56.875 per share, respectively.
Effective March 31, 1997, the Company's $400 million revolving line of
credit was amended to replace the consolidated minimum net worth requirement
with a financial ratio measuring coverage of interest expense. The Company's
earnings before interest expense, income taxes, depreciation and amortization,
divided by interest expense, must be greater than or equal to 5.0.
8
<PAGE>
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In April 1997, the Company received gross proceeds of $195,530,000 from the
issuance of Liquid Yield Option Notes (LYON(TM)). The LYONs are zero coupon
subordinated notes with an aggregate face value of $500 million and a yield to
maturity of 4.75%. Each LYON has a $1,000 face value and is convertible at the
option of the holder any time prior to maturity. If conversion is elected, the
Company will, at its option, deliver (a) 5.828 shares of Series A common stock
per each LYON or (b) cash equal to the market value of such shares. On or
after April 15, 2002, the LYONs may be redeemed at any time by the Company for
cash equal to the issuance price plus accrued original discount through the
date of redemption. In addition, each LYON may be redeemed for cash at the
option of the holder on April 15, 2002, 2007 or 2012. The cash payable for
each LYON at these redemption dates is approximately $495, $625 and $791,
respectively, which is equal to the issuance price plus accrued original
discount through the date of redemption. The Company also entered into an
interest rate swap agreement for a notional amount of $170,111,000, expiring
April 15, 2002, to exchange a fixed interest rate of 4.75% for a variable rate
based on six-month LIBOR less 2.458%.
NOTE 6 -- EARNINGS AND DIVIDENDS PER SHARE
Primary earnings per share is computed by dividing net income, less
preferred dividend requirements, by the weighted average number of shares of
common stock and common stock equivalents outstanding during the period. The
weighted average number of shares used for primary earnings per share totaled
98,981,000 and 107,415,000 for the quarters ended June 30, 1997 and 1996,
respectively, and 97,754,000 and 107,561,000 for the year to date ended June
30, 1997 and 1996, respectively.
Fully diluted earnings per share is computed by dividing net income, less
preferred dividend requirements for Series A preferred stock and, in 1997,
adding the after tax interest expense on the LYONs, by the weighted average
number of shares of common stock and common stock equivalents outstanding,
assuming the conversion of Series B preferred stock and convertible debt
securities in the applicable periods. The weighted average number of shares
for fully diluted earnings per share is 101,496,000 and 115,343,000 for the
quarters ended June 30, 1997 and 1996, respectively, and 101,329,000 and
115,994,000 for the year to date ended June 30, 1997 and 1996, respectively.
Cash dividends of $.15 and $.10 per share of common stock were declared in
the quarters ended June 30, 1997 and 1996, respectively.
NOTE 7 -- CAPITAL STOCK AND STOCK REPURCHASE PROGRAM
The Company's stock repurchase program, which includes the issuance of put
options from time to time, is described in Note 12 to the Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996. The Company repurchased 6,475,000 shares of common
stock during the year to date ended June 30, 1997 for an aggregate cost of
$331,440,000, of which $219,910,000 was on the open market and $111,530,000
was the result of forward purchase contracts described below.
Pursuant to the original terms of the Series B preferred stock (PERCs), the
Company called the PERCs for redemption and issued 4,446,000 shares of Series
A common stock in exchange for all of the outstanding PERCs on April 2, 1997.
In addition, in early May 1997, the Company exercised its early termination
right on forward purchase contracts for 3,900,000 shares of its PERCs
resulting in the purchase of approximately 2,226,000 Series A common shares
for an aggregate cost of $111,530,000.
At June 30, 1997, the Company had 720,000 put options outstanding with an
average strike price of approximately $54.55. The cash received from the sale
of these put options was not significant. The put options, which have various
expiration dates in the second half of 1997, entitle the holder to sell shares
of Times Mirror common stock to the Company at the strike price on the
expiration date of the put option. The potential obligation under these put
options has been transferred from shareholders' equity to "Common stock
subject to put options."
9
<PAGE>
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8 -- STOCK OPTIONS
During the year to date ended June 30, 1997, the Company issued 922,000
shares of its common stock as a result of the exercise of stock options.
The Company granted each eligible employee 100 stock options on February 6,
1997. This grant is expected to result in the issuance of approximately
1,362,000 stock options at an option price of $46.5625 which was equal to fair
value at the date of grant. These options will be fully vested on February 6,
2000 for employees still employed by the Company at that date.
NOTE 9 -- USE OF ESTIMATES AND OTHER UNCERTAINTIES
Financial statements prepared in accordance with generally accepted
accounting principles require management to make estimates and judgments that
affect amounts and disclosures reported in the financial statements. Actual
results could differ from those estimates, although management does not
believe that any differences would materially affect its financial position or
reported results.
The Company's future results could be adversely affected by a number of
factors, including (a) an increase in paper, printing and distribution costs
over the levels anticipated; (b) increased consolidation among major retailers
or other events depressing the level of display advertising; (c) an economic
downturn in the Company's principal newspaper markets or other occurrences
leading to decreased circulation and diminished revenues from both display and
classified advertising; (d) competitive pressures arising from increased
consolidation in the legal information industry; (e) an increase in expenses
related to new initiatives and product improvement efforts in the legal
information, flight information and health information operating units; (f)
unfavorable foreign currency fluctuations; and (g) a general economic downturn
resulting in decreased professional or corporate spending on discretionary
items such as information or training and in decreased consumer spending on
discretionary items such as magazines or newspapers.
NOTE 10 -- CONTINGENT LIABILITIES
The Company and its subsidiaries are defendants in various actions for libel
and other matters arising out of their business operations. In addition, from
time to time, the Company and its subsidiaries are involved as parties in
various governmental and administrative proceedings, including environmental
matters. The Company does not believe that any such proceedings currently
pending will have a material adverse effect on its consolidated financial
position, although an adverse resolution in any reporting period of one or
more of these matters could have a material impact on results of operations
for that period.
10
<PAGE>
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 11 -- FUTURE ACCOUNTING REQUIREMENTS
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
(SFAS 128) was issued in February 1997 and must be adopted by the Company on
December 31, 1997. Early adoption is not permitted; however, all prior year
earnings per share data must be restated upon adoption to conform to the new
standard. SFAS 128 simplifies the calculation of earnings per share data by
replacing primary and fully diluted earnings per share with basic and diluted
earnings per share, respectively. Basic earnings per share excludes dilutive
securities, including stock options, and is calculated using the weighted
average common shares outstanding for the period. Diluted earnings per share,
which is generally consistent with the fully diluted calculation under present
accounting rules, reflects the dilution to earnings that would occur if
securities, stock options and other dilutive securities resulted in the
issuance of common stock. The Company anticipates that prior year earnings per
share, when restated for SFAS 128, will remain unchanged or will be slightly
higher. Under SFAS 128, the Company would have reported earnings per common
share in 1997 as follows:
<TABLE>
<CAPTION>
FIRST SECOND YEAR
QUARTER QUARTER TO DATE
------- ------- -------
<S> <C> <C> <C>
Basic................................................... $.37 $.60 $.97
Diluted................................................. * * *
</TABLE>
- --------
*Antidilutive
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131) were issued in June 1997. The disclosures required by these statements
must be reported by the Company in 1998. The Company is reviewing SFAS 130 and
SFAS 131 and will adopt them by the required dates.
NOTE 12 -- SUBSEQUENT EVENT
On August 5, 1997, the Company entered into a short-term line of credit for
$235 million. This line of credit has the same credit terms as the Company's
existing $400 million long-term revolving line of credit.
11
<PAGE>
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's year over year operating results in 1997 continued to improve
during the second quarter of 1997 led by the performance of Newspaper
Publishing, the largest business segment. Despite the anticipated decline in
overall revenues, reflecting the divestiture late last year of the college and
scientific publishing businesses, earnings applicable to common shareholders
increased by over 55% for the second quarter and 70% for the year to date
ended June 30, 1997, as operating profit margins expanded in all three of the
Company's business segments. Looking ahead to the second half of 1997, the
Company expects the rate of earnings growth to slow somewhat due to an
anticipated rise in newsprint prices and continued consolidation expenses in
the Professional Information segment.
CONSOLIDATED RESULTS OF OPERATIONS
The following table summarizes the Company's consolidated financial results
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
SECOND QUARTER YEAR TO DATE
------------------ ----------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues.......................... $811,813 $837,295 $1,585,695 $1,644,054
Operating profit.................. 120,782 84,289 208,322 134,517
Interest expense, net............. (9,802) (7,408) (18,850) (12,859)
Net income........................ 65,986 46,023 111,219 72,060
Preferred dividend requirements... 8,266 10,911 19,177 21,822
Earnings applicable to common
shareholders:
Primary.......................... 57,720 35,112 92,042 50,238
Fully diluted.................... 58,896 37,787 95,893 55,588
Primary earnings per common share. $ .58 $ .33 $ .94 $ .47
Fully diluted earnings per common
share............................ $ .58 $ * $ * $ *
</TABLE>
- --------
* Antidilutive
Consolidated operating profit for the second quarter and the year to date
ended June 30, 1997 increased 43% and 55%, respectively. The improvement
primarily reflects strong operating performance in the Newspaper Publishing
segment, which reported advertising revenue growth at all newspapers and
benefited from lower newsprint prices.
For the 1997 periods, the Company's consolidated revenues declined due to
divestitures in the Professional Information segment. Excluding the revenues
of divested businesses, revenues would have increased 4% in the 1997 second
quarter, and 3% for the year to date ended June 30, 1997 compared to the same
prior year periods.
Earnings per share increased more than 75% to $.58 per share for the second
quarter of 1997 compared to the same quarter of last year. For the year to
date ended June 30, 1997, earnings per share doubled to $.94 per share from
$.47 per share for the same period in 1996.
Net interest expense for the second quarter and the year to date ended June
30, 1997 increased compared to the same prior year periods due to higher debt
levels and a reduction in interest earning investments.
12
<PAGE>
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ANALYSIS BY SEGMENT
The following sections discuss the revenues and operating results of the
Company's principal lines of business. All comments, except as noted, apply to
both the second quarter and the year to date ended June 30, 1997 compared to
the same prior year periods.
NEWSPAPER PUBLISHING
Newspaper Publishing revenues and operating profit were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
SECOND QUARTER YEAR TO DATE
------------------------ ----------------------------
1997 1996 CHANGE 1997 1996 CHANGE
-------- -------- ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Advertising........... $419,875 $391,346 7.3% $ 811,078 $ 761,270 6.5%
Circulation........... 109,536 113,235 (3.3) 218,001 226,486 (3.7)
Other................. 18,609 12,519 48.6 33,606 24,280 38.4
-------- -------- ---------- ----------
$548,020 $517,100 6.0% $1,062,685 $1,012,036 5.0%
======== ======== ========== ==========
Operating profit....... $112,407 $ 75,965 48.0% $ 204,864 $ 126,960 61.4%
======== ======== ========== ==========
Strong gains in Newspaper Publishing results reflect the current economic
environment in Southern California and Long Island, New York, the Company's two
largest newspaper markets. Revenue growth combined with lower newsprint expense
contributed to strong profit margin expansion. Advertising revenues were up in
every category, with particular strength in national, classified and part-run
advertising. The newspapers' marketing strategies of lower pricing and
discounts achieved higher circulation but resulted in lower overall circulation
revenues.
Segment operating profit increased significantly due to higher revenues as
well as a substantial year over year decline in newsprint expense and continued
focus on lowering operating expenses. For the second quarter of 1997, newsprint
expense, which accounts for more than 17% of this segment's operating costs,
declined more than 16% compared to the second quarter of 1996. For the year to
date ended June 30, 1997, newsprint expense declined over 23% compared to the
same prior year period. These declines were due to lower newsprint prices which
more than offset higher consumption costs as a result of circulation and
advertising volume growth. Other operating expenses for the second quarter rose
4% compared to the same prior year period.
PROFESSIONAL INFORMATION
Professional Information revenues and operating profit were as follows
(dollars in thousands):
<CAPTION>
SECOND QUARTER YEAR TO DATE
------------------------ ----------------------------
1997 1996 CHANGE 1997 1996 CHANGE
-------- -------- ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues............... $197,228 $256,949 (23.2)% $ 388,090 $ 494,023 (21.4)%
======== ======== ========== ==========
Operating profit....... $ 24,374 $ 27,244 (10.5)% $ 41,901 $ 40,405 3.7 %
======== ======== ========== ==========
</TABLE>
Comparisons of results in the Professional Information segment are heavily
influenced by the change in business mix resulting from the sale of the
college and scientific publishing businesses and the addition of the Shepard's
50/50 joint venture, which is accounted for on the equity method. The
segment's revenues for the 1997 second quarter declined largely due to these
divestitures which occurred near year end 1996. Excluding
13
<PAGE>
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
divested businesses, segment revenues would have decreased only slightly
reflecting changes in the distribution channels and buying patterns in health
science publishing as well as weakness in legal publishing revenues.
Operating profit for the Professional Information segment declined in the
second quarter of 1997 compared to the same prior year quarter primarily
reflecting additional expenses incurred with the consolidation at Mosby-Year
Book and Matthew Bender. For the year to date ended June 30, 1997, operating
profit improvement at Jeppesen Sanderson and the absence of losses from
divested businesses resulted in margin expansion and a modest increase in
profitability.
Professional Information's operating profit does not include the Company's
$2.6 million share of equity income for the Shepard's joint venture, which was
partially offset by an equity loss for MD Consult, an investment in a startup
medical online joint venture. Equity income and losses are recorded in "Other,
net."
MAGAZINE PUBLISHING
Magazine Publishing revenues and operating profit (loss) were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
SECOND QUARTER YEAR TO DATE
-------------------------- --------------------------
1997 1996 CHANGE 1997 1996 CHANGE
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 59,511 $ 52,169 14.1% $117,387 $115,289 1.8%
======== ======== ======== ========
Operating profit (loss). $ 5,268 $ (147) 100+% $ 7,859 $ 2,816 100+%
======== ======== ======== ========
Magazine Publishing revenues and operating profit achieved significant
improvement primarily due to higher advertising revenues at the Company's
largest publications, notably Golf and Field & Stream. The startup of Verge and
the acquisition of Skateboarding and Warp in April 1997 contributed to higher
newsstand sales.
CORPORATE AND OTHER
Corporate and Other revenues and operating loss were as follows (dollars in
thousands):
<CAPTION>
SECOND QUARTER YEAR TO DATE
-------------------------- --------------------------
1997 1996 CHANGE 1997 1996 CHANGE
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 7,117 $ 11,198 (36.4)% $ 17,799 $ 22,835 (22.1)%
======== ======== ======== ========
Operating loss.......... $(21,267) $(18,773) (13.3)% $(46,302) $(35,664) (29.8)%
======== ======== ======== ========
</TABLE>
The Corporate and Other operating loss increased primarily due to
information system conversion costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating cash requirements are funded by its operations. For
the year to date ended June 30, 1997, cash generated from operating activities
and proceeds from borrowings were used primarily for common share repurchases.
At June 30, 1997, the Company had a $400 million long-term revolving line of
credit through a group of domestic and international banks. This line of
credit is used to support a commercial paper
14
<PAGE>
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
program which is available for short-term cash requirements. The Company had
approximately $5.5 million of commercial paper outstanding at June 30, 1997
under this credit facility. In addition, on August 5, 1997, the Company
entered into a short-term line of credit for $235 million with the same terms
as the Company's $400 million long-term revolving line of credit. In July
1997, the Company filed a shelf registration statement for $250 million of
securities.
In April 1997, the Company issued Liquid Yield Option Notes (LYONs) due in
2017 and received gross proceeds of $195.5 million. The LYONs are zero coupon
subordinated notes with an aggregate face value of $500 million and a yield to
maturity of 4.75%. Each LYON has a $1,000 face value and is convertible at the
option of the holder any time prior to maturity. If conversion is elected, the
Company will, at its option, deliver (a) 5.828 shares of Series A common stock
per each LYON or (b) cash equal to the market value of such shares. On or
after April 15, 2002, the LYONs may be redeemed at any time by the Company for
cash equal to the issuance price plus accrued original discount through the
date of redemption. In addition, each LYON may be redeemed for cash at the
option of the holder on April 15, 2002, 2007 or 2012. The cash payable for
each LYON at these redemption dates is approximately $495, $625 and $791,
respectively, which is equal to the issuance price plus accrued original
discount through the date of redemption. The Company also entered into an
interest rate swap agreement for a notional amount of $170.1 million, expiring
April 15, 2002, to exchange a fixed interest rate of 4.75% for a variable rate
based on six-month LIBOR less 2.458%. After giving effect to the interest rate
swap, the average effective interest rate on the LYONs was 3.7% for the second
quarter of 1997.
Pursuant to the original terms of the Series B preferred stock (PERCs), the
Company issued 4.4 million shares of Series A common stock in exchange for all
of the outstanding PERCs on April 2, 1997. In addition, in early May 1997, the
Company exercised its early termination right on forward purchase contracts
for 3.9 million shares of its PERCs resulting in the purchase of approximately
2.2 million Series A common shares for an aggregate cost of $111.5 million.
The following table sets forth certain items from the Statements of
Condensed Consolidated Cash Flows (in millions):
<TABLE>
<CAPTION>
YEAR TO DATE
----------------
1997 1996
------- -------
<S> <C> <C>
Net cash provided by continuing operating activities.......... $ 97.4 $ 130.6
Capital expenditures.......................................... (53.5) (56.7)
Repurchase of common stock.................................... (331.4) (182.8)
Issuance of long-term debt and commercial paper............... 196.0 84.2
</TABLE>
Cash generated by continuing operating activities for the year to date ended
June 30, 1997 was lower compared to the same period in 1996 as higher
operating profit in 1997 and reduced restructuring expenditures were more than
offset by higher income tax payments and the absence of cash generated by
operations from the Company's college and scientific publishing businesses
which were sold near year end 1996.
Capital expenditures for the year to date ended June 30, 1997 decreased
compared to the same period in 1996 due to fewer office relocations and
consolidations. Capital expenditures for 1997 are expected to decrease
somewhat from 1996 levels as capital costs associated with real estate
relocations are expected to decline.
Total debt at June 30, 1997 rose to $639.3 million from $459.0 million at
December 31, 1996 primarily due to the issuance of the LYONs. The Company
repurchased approximately 6.5 million and 4.6 million shares of its common
stock during the year to date ended June 30, 1997 and 1996, respectively. In
addition, during the year to date ended June 30, 1996, the Company spent
$90.6 million to acquire its Series B preferred stock.
15
<PAGE>
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Common share repurchases are intended to enhance shareholder value as well
as to offset dilution from the shares of common stock issued under the
Company's stock-based employee compensation and benefit programs. Repurchases
are expected to be made in the open market or in private transactions,
depending on market conditions, and may be discontinued at any time. In
connection with this program, the Company from time to time sells put options
on its common stock.
DIVIDENDS
Cash dividends of $.15 and $.10 per share of common stock were declared for
the second quarters of 1997 and 1996, respectively.
FORWARD-LOOKING STATEMENTS
The forward-looking statements set forth above and elsewhere in this
Quarterly Report on Form 10-Q are subject to uncertainty and could be
adversely affected by a number of factors. Some of these factors are described
in Note 9 to the Condensed Consolidated Financial Statements.
16
<PAGE>
THE TIMES MIRROR COMPANY
BUSINESS SEGMENT INFORMATION
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SECOND QUARTER
ENDED YEAR TO DATE ENDED
JUNE 30 JUNE 30
------------------ ----------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Newspaper Publishing............... $548,020 $517,100 $1,062,685 $1,012,036
Professional Information........... 197,228 256,949 388,090 494,023
Magazine Publishing................ 59,511 52,169 117,387 115,289
Corporate and Other................ 7,117 11,198 17,799 22,835
Intersegment Revenues.............. (63) (121) (266) (129)
-------- -------- ---------- ----------
$811,813 $837,295 $1,585,695 $1,644,054
======== ======== ========== ==========
OPERATING PROFIT (LOSS)
Newspaper Publishing............... $112,407 $ 75,965 $ 204,864 $ 126,960
Professional Information........... 24,374 27,244 41,901 40,405
Magazine Publishing................ 5,268 (147) 7,859 2,816
Corporate and Other................ (21,267) (18,773) (46,302) (35,664)
-------- -------- ---------- ----------
$120,782 $ 84,289 $ 208,322 $ 134,517
======== ======== ========== ==========
DEPRECIATION AND AMORTIZATION
Newspaper Publishing............... $ 27,847 $ 27,202 $ 54,877 $ 53,837
Professional Information........... 8,699 11,570 18,002 23,704
Magazine Publishing................ 1,775 1,540 3,395 3,170
Corporate and Other................ 703 629 1,470 1,094
-------- -------- ---------- ----------
$ 39,024 $ 40,941 $ 77,744 $ 81,805
======== ======== ========== ==========
CAPITAL EXPENDITURES
Newspaper Publishing............... $ 21,791 $ 12,269 $ 32,946 $ 26,906
Professional Information........... 5,997 11,853 12,444 23,294
Magazine Publishing................ 361 4,440 923 4,727
Corporate and Other................ 3,324 1,225 7,176 1,771
-------- -------- ---------- ----------
$ 31,473 $ 29,787 $ 53,489 $ 56,698
======== ======== ========== ==========
</TABLE>
17
<PAGE>
THE TIMES MIRROR COMPANY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material legal proceedings are pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The Company's Annual Meeting of Shareholders was held on May 8, 1997.
(c) At the Annual Meeting of Shareholders, the following matters were voted
upon: the election of five persons to Class II of the Board of Directors of
the Company, the approval of The Times Mirror Company 1997 Directors Stock
Option Plan and the ratification of the appointment of Ernst & Young LLP, as
independent auditors for the Company and its subsidiaries for the year ending
December 31, 1997.
The results of the voting on matters presented at the Company's Annual
Meeting of Shareholders were as follows:
<TABLE>
<CAPTION>
VOTES
DESCRIPTION VOTES FOR WITHHELD
- ----------- ----------- ---------
<S> <C> <C>
Election of Directors
John E. Bryson........................................... 323,952,765 4,247,056
Bruce Chandler........................................... 323,702,268 4,497,553
Dr. Alfred E. Osborne, Jr................................ 323,950,170 4,249,651
William Stinehart, Jr.................................... 323,941,195 4,258,626
Dr. Edward Zapanta....................................... 323,951,318 4,248,503
</TABLE>
There were no abstentions or broker non-votes on the election of Directors.
<TABLE>
<CAPTION>
VOTES BROKER
DESCRIPTION VOTES FOR AGAINST ABSTENTIONS NON-VOTES
- ----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Approval of The Times Mirror
Company 1997 Directors Stock
Option Plan...................... 309,583,415 14,081,089 4,535,317 0
Ratification of the appointment of
Ernst & Young LLP................ 324,241,370 331,158 3,627,293 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings Per Share.
27. Financial Data Schedule.
(b) During the second quarter of 1997, the Company filed a report on Form 8-
K dated April 17, 1997 which announced that the Company had entered into a
Purchase Agreement and a Pricing Agreement on April 9, 1997 with Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (Purchaser) relating
to the issuance and sale of the Company's Liquid Yield Option Notes (LYON(TM))
due April 15, 2017. The Company also announced the completion of the issuance
and sale of the LYONs on April 15, 1997, and the issuance of the LYONs
pursuant to an Indenture dated as of April 15, 1997 between the Company and
Citibank, N.A., as trustee. In addition, the Company announced that it had
entered into a Registration Rights Agreement dated as of April 15, 1997 with
the Purchaser relating to the filing of a shelf registration statement by the
Company to register the LYONs and the common stock of the Company issuable
upon conversion of the LYONs. Copies of related documents were included in
such filing.
18
<PAGE>
THE TIMES MIRROR COMPANY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Times Mirror Company
By /s/ Thomas Unterman
-----------------------------------
Thomas Unterman
Senior Vice President and
Chief Financial Officer
Date: August 7, 1997
19
<PAGE>
EXHIBIT 11
THE TIMES MIRROR COMPANY
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED YEAR TO DATE ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY
Average shares
outstanding............ 96,469,193 103,925,394 95,212,741 104,575,697
Dilutive stock options
based on the treasury
stock method using
average market price... 2,512,129 3,489,907 2,541,685 2,985,507
------------ ------------ ------------ ------------
Total................. 98,981,322 107,415,301 97,754,426 107,561,204
============ ============ ============ ============
Net income.............. $ 65,986 $ 46,023 $ 111,219 $ 72,060
============ ============ ============ ============
Preferred dividend
requirements........... $ (8,266) $ (10,911) $ (19,177) $ (21,822)
============ ============ ============ ============
Earnings applicable to
common shareholders.... $ 57,720 $ 35,112 $ 92,042 $ 50,238
============ ============ ============ ============
Primary earnings per
common share........... $ .58 $ .33 $ .94 $ .47
============ ============ ============ ============
FULLY DILUTED
Average shares
outstanding............ 96,469,193 103,925,394 95,212,741 104,575,697
Common shares assumed
issued upon conversion
of Series B preferred
stock.................. 48,853 7,789,276 2,235,078 7,789,276
Common shares assumed
issued upon conversion
of LYONs............... 2,465,692 1,239,657
Dilutive stock options
based on the treasury
stock method using
market price at the
close of the period, if
higher than average
market price........... 2,512,129 3,628,698 2,641,680 3,628,698
------------ ------------ ------------ ------------
Total................. 101,495,867 115,343,368 101,329,156 115,993,671
============ ============ ============ ============
Net income.............. $ 65,986 $ 46,023 $ 111,219 $ 72,060
============ ============ ============ ============
Preferred dividend
requirements........... $ (8,236) $ (8,236) $ (16,472) $ (16,472)
============ ============ ============ ============
Interest expense on
LYONs, net of tax...... $ 1,146 $ 1,146
============ ============
Earnings applicable to
common shareholders.... $ 58,896 $ 37,787 $ 95,893 $ 55,588
============ ============ ============ ============
Fully diluted earnings
per common share....... $ .58 $ * $ * $ *
============ ============ ============ ============
</TABLE>
- --------
* Antidilutive
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1997 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 50,769
<SECURITIES> 0
<RECEIVABLES> 492,451
<ALLOWANCES> 59,284
<INVENTORY> 81,897
<CURRENT-ASSETS> 674,679
<PP&E> 2,143,872
<DEPRECIATION> 983,323
<TOTAL-ASSETS> 3,255,235
<CURRENT-LIABILITIES> 703,749
<BONDS> 633,740
0
411,784
<COMMON> 95,737
<OTHER-SE> 713,042
<TOTAL-LIABILITY-AND-EQUITY> 3,255,235
<SALES> 1,585,695
<TOTAL-REVENUES> 1,585,695
<CGS> 806,547
<TOTAL-COSTS> 806,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,823
<INTEREST-EXPENSE> 20,268
<INCOME-PRETAX> 193,151
<INCOME-TAX> 81,932
<INCOME-CONTINUING> 111,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,219
<EPS-PRIMARY> .94
<EPS-DILUTED> 0<F1>
<FN>
<F1>PER SHARE AMOUNT ON A FULLY DILUTED BASIS HAS BEEN OMITTED AS THE AMOUNT IS
ANTIDILUTIVE IN RELATION TO THE PRIMARY PER SHARE AMOUNT.
</FN>
</TABLE>
