<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
------------------------
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 3, 1999
------------------------
THE TIMES MIRROR COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 1-13492 95-4481525
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION) NUMBER)
TIMES MIRROR SQUARE 90053
LOS ANGELES, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 237-3700
- --------------------------------------------------------------------------------
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<PAGE> 2
ITEM 5. OTHER EVENTS
As reported in the current report on Form 8-K filed with the Securities and
Exchange Commission on September 7, 1999 (the "Prior 8-K"), in September 1999,
The Times Mirror Company ("Times Mirror" or the "Company") announced its
decision to sell AchieveGlobal, Inc., Allen Communication and The StayWell
Company (the "Discontinued Businesses"), as well as The Sporting News, in order
to concentrate on its core strengths in newspaper publishing, flight
information, and magazine publishing. This current report on Form 8-K is being
provided to restate the Company's financial statements and related disclosures
in connection with these proposed sales. This current report on Form 8-K should
be read in conjunction with the Prior 8-K. In particular, the accompanying
consolidated balance sheets of the Company and its subsidiaries and the related
consolidated statements of income, shareholders' equity and cash flows,
including the notes thereto, as well as the financial statement schedule,
selected financial data and management's discussions and analysis of financial
condition and results of operations have been restated to reflect the Company's
Discontinued Businesses as discontinued operations. These financial statements
and other information are restatements of those items originally contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998
and the Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1999 and June 30, 1999. Pursuant to applicable accounting practices, The
Sporting News has not been treated for financial reporting purposes as a
discontinued operation.
Management's discussion and analysis of financial condition and results of
operations included in this current report on Form 8-K are presented as of the
respective dates of the annual and quarterly reports referred to above, and have
not been updated to reflect any changes or subsequent events, except for (1) the
reclassification of the Discontinued Businesses as discontinued operations, (2)
additional disclosure relating to the subsequent events described in the notes
to the financial statements, and (3) certain conforming changes.
2
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE, SELECTED
FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements and Other Information for the year
ended December 31, 1998
Report of Ernst & Young LLP, Independent Auditors......... 4
Consolidated Statements of Income -- Years Ended December
31, 1998, 1997 and 1996................................ 5
Consolidated Balance Sheets -- December 31, 1998 and
December 31, 1997...................................... 6
Consolidated Statements of Shareholders' Equity -- Years
Ended December 31, 1998, 1997 and 1996................. 8
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1998, 1997 and 1996....................... 10
Notes to Consolidated Financial Statements................ 11
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts and
Reserves.............................................. 41
Selected Financial Data................................... 42
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 45
Financial Statements and Other Information for the Quarter
Ended March 31, 1999
Condensed Consolidated Statements of Income -- Quarters
Ended March 31, 1999 and 1998.......................... 63
Condensed Consolidated Balance Sheets -- March 31, 1999
and December 31, 1998.................................. 64
Condensed Consolidated Statements of Cash
Flows -- Quarters Ended March 31, 1999 and 1998........ 66
Notes to Condensed Consolidated Financial Statements...... 67
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 77
Financial Statements and Other Information for the Quarter
Ended June 30, 1999
Condensed Consolidated Statements of Income -- Quarters
and Year to Date Periods Ended June 30, 1999, and
1998................................................... 85
Condensed Consolidated Balance Sheets -- June 30, 1999 and
December 31, 1998...................................... 86
Condensed Consolidated Statements of Cash Flows -- Year to
Date Periods Ended June 30, 1999 and 1998.............. 88
Notes to Condensed Consolidated Financial Statements...... 89
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 99
</TABLE>
3
<PAGE> 4
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
The Times Mirror Company
We have audited the accompanying consolidated balance sheets of The Times
Mirror Company as of December 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also include the
financial statement schedule listed in the Index to Financial Statements,
Financial Statement Schedule, Selected Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Times
Mirror Company at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
February 8, 1999, except for
Notes 3 and 21 as to which
the date is September 27, 1999
4
<PAGE> 5
THE TIMES MIRROR COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES............................................... $2,783,988 $2,645,135 $2,551,002
COSTS AND EXPENSES:
Cost of sales........................................ 1,444,523 1,395,660 1,408,904
Selling, general and administrative expenses......... 935,986 858,197 831,413
Restructuring and one-time charges................... 155,681 -- --
---------- ---------- ----------
Total costs and expenses..................... 2,536,190 2,253,857 2,240,317
---------- ---------- ----------
OPERATING PROFIT....................................... 247,798 391,278 310,685
Interest expense....................................... (68,275) (35,628) (19,362)
Interest income........................................ 39,680 2,351 5,423
Equity income (loss)................................... (8,191) (1,878) 1,455
Other, net............................................. 33,992 40,376 2,053
---------- ---------- ----------
Income from continuing operations before income
taxes................................................ 245,004 396,499 300,254
Income tax provision................................... 110,945 161,844 117,996
---------- ---------- ----------
Income from continuing operations...................... 134,059 234,655 182,258
Discontinued operations:
Income (loss) from operations, net of income taxes... (33,407) 15,657 (7,861)
Net gain on disposal, net of income taxes............ 1,316,686 -- 32,047
---------- ---------- ----------
NET INCOME............................................. $1,417,338 $ 250,312 $ 206,444
========== ========== ==========
Preferred dividend requirements........................ $ 21,697 $ 32,481 $ 43,645
========== ========== ==========
Earnings applicable to common shareholders............. $1,395,641 $ 217,831 $ 162,799
========== ========== ==========
Basic earnings per share:
Continuing operations................................ $ 1.32 $ 2.18 $ 1.36
Discontinued operations.............................. 15.14 .17 .23
---------- ---------- ----------
Basic earnings per share............................... $ 16.46 $ 2.35 $ 1.59
========== ========== ==========
Diluted earnings per share:
Continuing operations................................ $ 1.29 $ 2.12 $ 1.32
Discontinued operations.............................. 14.77 .17 .22
---------- ---------- ----------
Diluted earnings per share............................. $ 16.06 $ 2.29 $ 1.54
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
THE TIMES MIRROR COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $1,052,999 $ 44,794
Marketable securities..................................... 49,438 --
Accounts receivable, less allowances for doubtful accounts
and returns of $37,389 and $38,839..................... 311,913 299,404
Inventories............................................... 28,438 31,547
Deferred income taxes..................................... 32,279 48,443
Prepaid expenses.......................................... 30,141 19,970
Net assets of discontinued operations..................... 189,628 672,671
Other current assets...................................... 38,278 30,675
---------- ----------
Total current assets.............................. 1,733,114 1,147,504
Property, plant and equipment, net.......................... 903,483 920,995
Goodwill, net............................................... 501,463 407,060
Other intangibles, net...................................... 100,373 33,086
Deferred charges............................................ 113,244 105,306
Equity investments.......................................... 141,454 101,448
Prepaid pension costs....................................... 419,471 366,807
Investments and other assets................................ 245,327 89,622
---------- ----------
Total assets...................................... $4,157,929 $3,171,828
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
THE TIMES MIRROR COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 179,415 $ 200,959
Short-term debt........................................... 312,610 139,067
Employees' compensation................................... 93,145 92,832
Unearned income........................................... 146,323 140,007
Restructuring............................................. 91,903 17,476
Other current liabilities................................. 98,106 83,629
----------- -----------
Total current liabilities......................... 921,502 673,970
Long-term debt.............................................. 941,423 925,404
Deferred income taxes....................................... 373,623 179,509
Postretirement benefits..................................... 226,018 234,375
Unearned income............................................. 72,457 65,816
Other liabilities........................................... 257,893 203,155
----------- -----------
Total liabilities................................. 2,792,916 2,282,229
Common stock subject to put options......................... 22,560 13,600
Commitments and contingencies
Shareholders' equity
Preferred stock, $1 par value; stated at liquidation
value; convertible to Series A common stock:
Series A: 900,000 shares authorized; 824,000 shares
issued and outstanding.............................. 411,784 411,784
Series C-1: 381,000 shares authorized, issued and
outstanding......................................... 190,486 190,486
Series C-2: 245,000 shares authorized, issued and
outstanding......................................... 122,550 122,550
Preferred stock, $1 par value; 23,035,000 shares
authorized, no shares issued or outstanding
Common stock, $1 par value:
Series A: 500,000,000 shares authorized; 86,831,000
and 86,552,000 shares issued and outstanding........ 86,831 86,552
Series B: 100,000,000 shares authorized; no shares
issued or outstanding
Series C: Convertible to Series A common stock;
300,000,000 shares authorized, 25,258,000 and
25,503,000 shares issued and outstanding............ 25,258 25,503
Additional paid-in capital................................ 1,278,916 1,253,142
Retained earnings......................................... 1,653,736 384,503
Accumulated other comprehensive income.................... 26,491 12,804
----------- -----------
3,796,052 2,487,324
Less treasury stock, at cost:
Series A common stock, 38,708,000 and 24,151,000
shares; and Series A preferred stock, 735,000
shares................................................ (2,453,599) (1,611,325)
----------- -----------
Total shareholders' equity........................ 1,342,453 875,999
----------- -----------
Total liabilities and shareholders' equity........ $ 4,157,929 $ 3,171,828
=========== ===========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
THE TIMES MIRROR COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------------------------------- -------------------
SERIES A SERIES B SERIES C-1 SERIES C-2 SERIES A SERIES C
--------- --------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995.............................. $ 411,784 $ 164,595 -- -- $ 77,765 $ 27,933
Conversion of Series C common to Series A common........ -- -- -- -- 871 (871)
Common stock issuances related to:
Stock options and restricted stock.................... -- -- -- -- 2,190 37
Acquisition........................................... -- -- -- -- 212 --
Purchases of common stock............................... -- -- -- -- (11,236) (126)
Put options:
Sale.................................................. -- -- -- -- -- --
Exercise.............................................. -- -- -- -- (45) --
Change in redemption value............................ -- -- -- -- -- --
Dividends declared:
Common stock; $.30 per share.......................... -- -- -- -- -- --
Preferred stock....................................... -- -- -- -- -- --
Comprehensive income:
Net income............................................ -- -- -- -- -- --
Other comprehensive income, net of income taxes:
Minimum pension liability adjustment................ -- -- -- -- -- --
Change in net unrealized gains on securities........ -- -- -- -- -- --
Foreign currency translation adjustments............ -- -- -- -- -- --
Comprehensive income.................................... -- -- -- -- -- --
--------- --------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996.............................. 411,784 164,595 -- -- 69,757 26,973
Conversion to Series A common related to:
Series C common....................................... -- -- -- -- 11,127 (11,127)
Series B preferred.................................... -- (164,595) -- -- 4,446 --
Common stock issuances related to:
Stock options and restricted stock.................... -- -- -- -- 1,070 1
Acquisition........................................... -- -- -- -- 45 --
Merger with Chandis Securities.......................... -- -- $190,486 $122,550 6,582 9,656
Purchases of stock:
Stock purchase program................................ -- -- -- -- (6,475) --
LLC contributed shares................................ -- -- -- -- -- --
Put options:
Sale.................................................. -- -- -- -- -- --
Exercise.............................................. -- -- -- -- -- --
Change in redemption value............................ -- -- -- -- -- --
Dividends declared:
Common stock; $.55 per share.......................... -- -- -- -- -- --
Preferred stock....................................... -- -- -- -- -- --
Comprehensive income:
Net income............................................ -- -- -- -- -- --
Other comprehensive income, net of income taxes:
Minimum pension liability adjustment................ -- -- -- -- -- --
Change in net unrealized losses on securities....... -- -- -- -- -- --
Foreign currency translation adjustments............ -- -- -- -- -- --
Comprehensive income.................................... -- -- -- -- -- --
--------- --------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997.............................. 411,784 -- 190,486 122,550 86,552 25,503
Conversion of Series C common to Series A common........ -- -- -- -- 245 (245)
Common stock issuances related to stock options and
restricted stock...................................... -- -- -- -- 34 --
Purchases of common stock............................... -- -- -- -- -- --
Put options:
Sale.................................................. -- -- -- -- -- --
Exercise.............................................. -- -- -- -- -- --
Change in redemption value............................ -- -- -- -- -- --
Dividends declared:
Common stock; $.72 per share.......................... -- -- -- -- -- --
Preferred stock....................................... -- -- -- -- -- --
Comprehensive income:
Net income............................................ -- -- -- -- -- --
Other comprehensive income, net of income taxes:
Minimum pension liability adjustment................ -- -- -- -- -- --
Change in net unrealized gains on securities........ -- -- -- -- -- --
Foreign currency translation adjustments............ -- -- -- -- -- --
Comprehensive income.................................... -- -- -- -- -- --
--------- --------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1998.............................. $ 411,784 $ -- $190,486 $122,550 $ 86,831 $ 25,258
========= ========= ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE> 9
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN RETAINED COMPREHENSIVE TREASURY
CAPITAL EARNINGS INCOME STOCK TOTAL
- ---------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
$ 192,266 $ 889,817 $42,076 -- $1,806,236
-- -- -- -- --
61,325 -- -- $ 872 64,424
6,900 -- -- -- 7,112
-- (484,700) -- (872) (496,934)
3,645 -- -- -- 3,645
(30) (1,879) -- -- (1,954)
(38,172) -- -- -- (38,172)
-- (30,067) -- -- (30,067)
-- (32,734) -- -- (32,734)
-- 206,444 -- -- 206,444
-- -- 898 -- 898
-- -- 10,724 -- 10,724
-- -- (812) -- (812)
----------
-- -- -- -- 217,254
- ---------- ---------- ------- ----------- ----------
225,934 546,881 52,886 -- 1,498,810
-- -- -- -- --
160,119 (8) -- -- (38)
45,711 (17,509) -- 32,741 62,014
2,354 -- -- -- 2,399
807,834 -- -- (1,125,064) 12,044
(16,190) (309,734) -- (132,382) (464,781)
-- -- -- (380,093) (380,093)
3,227 -- -- -- 3,227
(419) -- -- (6,527) (6,946)
24,572 -- -- -- 24,572
-- (50,885) -- -- (50,885)
-- (34,554) -- -- (34,554)
-- 250,312 -- -- 250,312
-- -- 1,902 -- 1,902
-- -- (38,170) -- (38,170)
-- -- (3,814) -- (3,814)
----------
-- -- -- -- 210,230
- ---------- ---------- ------- ----------- ----------
1,253,142 384,503 12,804 (1,611,325) 875,999
-- -- -- -- --
31,906 (65,952) -- 125,229 91,217
-- -- -- (947,203) (947,203)
2,891 -- -- -- 2,891
(63) -- -- (20,300) (20,363)
(8,960) -- -- -- (8,960)
-- (60,456) -- -- (60,456)
-- (21,697) -- -- (21,697)
-- 1,417,338 -- -- 1,417,338
-- -- (1,169) -- (1,169)
-- -- 16,106 -- 16,106
-- -- (1,250) -- (1,250)
----------
-- -- -- -- 1,431,025
- ---------- ---------- ------- ----------- ----------
$1,278,916 $1,653,736 $26,491 $(2,453,599) $1,342,453
========== ========== ======= =========== ==========
</TABLE>
9
<PAGE> 10
THE TIMES MIRROR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations......................... $ 134,059 $ 234,655 $ 182,258
Adjustments to derive cash flows from continuing operating
activities:
Depreciation and amortization........................... 135,175 124,064 120,458
Restructuring and other charges:
Impairments and other asset write-offs................ 52,783 -- --
Net change in restructuring liability................. 69,849 (15,764) (63,607)
Amortization of debt discount......................... 16,998 9,299 --
Gain on asset sales and writedowns, net............... (31,564) (36,302) --
Provision for doubtful accounts....................... 19,240 22,307 23,293
Provision for deferred income taxes................... 11,417 41,587 60,710
Changes in assets and liabilities:
Accounts receivable................................. (23,302) (36,625) (13,423)
Inventories......................................... 2,755 (740) 5,939
Prepaid pension costs............................... (52,664) (39,872) (30,443)
Accounts payable.................................... (21,557) 18,172 8,721
Income taxes........................................ (18,285) (31,826) (12,858)
Other, net............................................ (26,249) 66,098 (24,725)
---------- --------- ---------
Net cash provided by continuing operating activities...... 268,655 355,053 256,323
Net cash provided by (used in) discontinued operating
activities.............................................. 72,906 (1,702) 106,981
---------- --------- ---------
Net cash provided by operating activities............... 341,561 353,351 363,304
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from reorganization as described in Notes 3 and
4....................................................... 2,022,224 -- --
Acquisitions, net of cash acquired........................ (200,786) (37,580) (13,020)
Capital expenditures...................................... (131,548) (113,081) (87,326)
Increase in notes receivable.............................. (69,120) -- --
Sale (purchase) of marketable securities, net............. (49,438) -- 79,845
Investment in equity affiliates........................... (51,761) (5,811) (885)
Purchases of investments.................................. (25,957) (5,000) (10,312)
Proceeds from sales of other assets....................... 24,836 72,523 193,035
Proceeds from sales of investments........................ 13,637 48,251 --
Other, net................................................ 10,211 8,520 (3,304)
---------- --------- ---------
Net cash provided by (used in) investing activities of
continuing operations................................... 1,542,298 (32,178) 158,033
Net cash used in investing activities of discontinued
operations.............................................. (29,697) (153,335) (135,534)
---------- --------- ---------
Net cash provided by (used in) investing activities..... 1,512,601 (185,513) 22,499
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of Times Mirror common stock.................... (947,203) (464,781) (496,934)
Net proceeds of commercial paper and short-term
borrowings.............................................. 212,983 92,187 --
Dividends paid............................................ (82,153) (85,439) (80,001)
Proceeds from exercise of stock options................... 59,277 36,431 51,178
Principal repayments of debt.............................. (71,550) (5,769) (363)
Exercise of put options, net of premiums received......... (17,472) (3,719) 1,691
Proceeds from issuance of long-term debt.................. -- 445,429 198,651
Contribution to TMCT, LLC................................. -- (249,266) --
Repurchase of Series B preferred stock.................... -- -- (91,182)
Other, net................................................ 161 (17,098) (3,824)
---------- --------- ---------
Net cash used in financing activities................... (845,957) (252,025) (420,784)
---------- --------- ---------
Increase (decrease) in cash and cash equivalents.......... 1,008,205 (84,187) (34,981)
Cash and cash equivalents at beginning of year............ 44,794 128,981 163,962
---------- --------- ---------
Cash and cash equivalents at end of year.................. $1,052,999 $ 44,794 $ 128,981
========== ========= =========
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 11
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries as well as affiliates that are
controlled by the Company, as described in Note 4, after elimination of all
significant intercompany transactions and balances. Other affiliated companies
in which the Company owns a 20% to 50% interest are accounted for by the equity
method.
Presentation. Certain amounts in previously issued financial statements
have been reclassified to conform to the 1998 presentation. Financial
information presented in the Notes to Consolidated Financial Statements excludes
discontinued operations except where noted.
Changes in Accounting Principles. Effective December 31, 1998, the Company
adopted Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (SFAS 132).
Pension plans and postretirement benefit information for all prior periods has
been restated to conform with the revised disclosures under SFAS 132 (see Note
15).
Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which establishes standards under which companies report
information about operating segments in financial statements (see Note 17).
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS
130 requires unrealized gains or losses on the Company's available-for-sale
securities, minimum pension liability adjustments and foreign currency
translation adjustments to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130.
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128
simplified the calculation of earnings per share by replacing primary and fully
diluted earnings per share with basic and diluted earnings per share,
respectively.
Cash and Cash Equivalents. Cash equivalents consist of investments that are
readily convertible into cash and have original maturities of three months or
less. Cash equivalents of $997,670,000 and $9,911,000 at December 31, 1998 and
1997, respectively, consist of commercial paper, money market funds, auction
rate securities or certificates of deposit. The Company has an investment policy
for short-term investments covering eligible types of instruments, maximum
investment terms, credit quality and individual issuer limits.
Under the Company's cash management system, the bank notifies the Company
daily of checks presented for payment against its primary disbursement account.
The Company transfers funds from other sources such as short-term investments or
commercial paper issuance to cover the checks presented for payment. This
program results in a book cash overdraft in the primary disbursing accounts as a
result of checks outstanding. The book overdraft, which was reclassified to
accounts payable, was $41,348,000 and $30,397,000 at December 31, 1998 and 1997,
respectively.
Marketable Securities. Marketable securities consist of investments in
commercial paper with original maturities over three months but less than one
year.
Inventories. Inventories are stated at the lower of cost or market.
Newsprint is valued under the last-in, first-out (LIFO) method and paper and
certain finished products are valued primarily under the weighted average cost
method.
Property, Plant and Equipment. Property, plant and equipment are carried on
the basis of cost. Maintenance and repairs are charged to expense as incurred.
Additions, improvements and replacements are capitalized.
11
<PAGE> 12
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Depreciation is provided on a straight-line basis over the estimated useful
lives as follows:
<TABLE>
<S> <C>
Buildings............................ 10 - 45 years
Machinery and equipment.............. 3 - 20 years
Leasehold improvements............... Lesser of useful life or lease term
</TABLE>
Goodwill and Other Intangibles. Goodwill recognized in business
combinations accounted for as purchases ($491,756,000 and $397,353,000 at
December 31, 1998 and 1997, respectively, net of accumulated amortization of
$105,976,000 and $131,442,000, respectively) is being amortized on a
straight-line basis primarily over periods of 15 to 40 years, with a weighted
average amortization period of 36 years. Goodwill amortization expense was
$18,011,000, $13,949,000 and $13,056,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
Other intangibles arising in connection with acquisitions are being
amortized on a straight-line basis over their estimated useful lives ranging
primarily from 4 to 30 years, with a weighted average life of 25 years.
Amortization expense was $9,923,000, $7,623,000 and $7,693,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Accumulated amortization
was $61,657,000 and $60,802,000 at December 31, 1998 and 1997, respectively.
The Company assesses on an ongoing basis the recoverability of goodwill
based on estimates of future undiscounted cash flows for the applicable business
compared to net book value. If the future undiscounted cash flows estimate were
less than net book value, net book value would then be reduced to fair value
based on an estimate of discounted cash flows. The Company also evaluates the
amortization periods of assets, including goodwill and other intangible assets,
to determine whether events or circumstances warrant revised estimates of useful
lives.
Deferred Charges. Magazine subscription procurement costs are charged to
expense over the same period as the related revenue is earned.
Derivative Financial Instruments. Interest rate swaps (see Note 8) 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 initiating or terminating swaps are amortized on a
straight-line basis as a reduction in interest expense over the term of the
swaps.
Premium equity participating debt securities (see Note 12) are used to
manage the Company's exposure to market risk associated with changes in the fair
values of the Company's investment in the common stock of Netscape
Communications Corporation (Netscape).
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. During 1998, 1997 and 1996, the Company's forward contracts and
other risk management instruments were not significant.
Commodity price hedging contracts (see Note 8) are used to manage the
Company's exposure to market risk associated with fluctuations in newsprint
prices. These contracts are accounted for on the accrual basis. Periodic
settlement payments made or received are recognized as an adjustment to the cost
basis of newsprint inventory. Amounts paid in connection with initiating these
contracts are amortized on a straight-line basis as an adjustment to the cost
basis of newsprint inventory over the term of the contracts.
Put options are used in conjunction with the Company's common stock
purchase program. These contracts are entered into based on market conditions as
well as other factors. The costs or benefits derived from these equity-based
financial instruments are recorded in shareholders' equity on the date of the
12
<PAGE> 13
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
transaction. The potential obligation under these put options outstanding at
December 31, 1998 and 1997 has been transferred from shareholders' equity to
"Common stock subject to put options."
Revenue Recognition. Revenues from certain products sold with the right of
return, are recognized net of a provision for estimated returns. Revenues from
newspaper and magazine subscriptions and professional service fee annual
subscriptions are deferred as unearned income at the time of the sale. A pro
rata share of the newspaper and magazine subscription price is included in
revenue as products are delivered to subscribers. Professional service fee
annual subscription revenues are recognized on a straight-line basis over the
life of the subscription service.
Advertising and Promotion Costs. Advertising and promotion costs, which are
expensed as incurred, amounted to $59,916,000, $64,822,000 and $68,855,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
Earnings Per Share. The following table sets forth the calculation of basic
and diluted earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Earnings:
Income from continuing operations.................. $134,059 $234,655 $182,258
Preferred stock dividends........................ (21,697) (32,481) (43,645)
-------- -------- --------
Earnings applicable to common shareholders for
basic earnings per share...................... 112,362 202,174 138,613
Effect of dilutive securities:
LYONs interest expense, net of tax............ -- 3,925 --
-------- -------- --------
Earnings applicable to common shareholders for
diluted earnings per share.................... $112,362 $206,099 $138,613
======== ======== ========
Shares:
Weighted average shares for basic earnings per
share......................................... 84,814 92,572 102,113
Effect of dilutive securities:
Stock options................................. 2,114 2,358 3,259
LYONs convertible debt........................ -- 2,083 --
-------- -------- --------
2,114 4,441 3,259
-------- -------- --------
Adjusted weighted average shares and assumed
conversions for diluted earnings per share.... 86,928 97,013 105,372
======== ======== ========
Basic earnings per share from continuing
operations.................................... $ 1.32 $ 2.18 $ 1.36
======== ======== ========
Diluted earnings per share from continuing
operations.................................... $ 1.29 $ 2.12 $ 1.32
======== ======== ========
</TABLE>
The Company has convertible preferred stock and certain stock options
outstanding which are not included in the calculation of diluted earnings per
share because the effects are antidilutive. The convertible preferred stock,
stock options and the Liquid Yield Option Notes (LYONs(TM)) are described in
Note 13, Note 14 and Note 12, respectively.
13
<PAGE> 14
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other Comprehensive Income. Other comprehensive income primarily consists
of unrealized gains (losses) on securities for the years ended December 31,
1998, 1997 and 1996 as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during
period, net of taxes of $17,712, $(12,929) and
$7,428, respectively............................... $25,753 $(18,850) $10,724
Reclassification adjustments for gains realized in
net income, net of taxes of $6,703, $13,398 and $0,
respectively....................................... (9,647) (19,320) --
------- -------- -------
Change in net unrealized gains (losses) on
securities......................................... $16,106 $(38,170) $10,724
======= ======== =======
</TABLE>
Accumulated other comprehensive income for each classification is as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Minimum pension liability adjustment........................ $ (4,396) $ (3,227)
Net unrealized gains on securities, net of the change in
PEPS fair value (See Note 12)............................. 44,572 28,466
Foreign currency translation adjustments.................... (13,685) (12,435)
-------- --------
$ 26,491 $ 12,804
======== ========
</TABLE>
Stock Options. Employee stock options (see Note 14) are accounted for under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," which requires the recognition of expense when the option price is
less than the fair value of the stock at the date of grant. The Company awards
options for a fixed number of shares at an option price equal to the fair value
at the date of grant. Accordingly, the financial statements do not include any
expense related to employee stock option awards. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123).
NOTE 2 -- 1997 RECAPITALIZATION
During the third quarter of 1997, the Company completed a transaction (1997
Transaction) involving agreements with its largest shareholders, Chandler Trust
No. 1 and Chandler Trust No. 2 (Chandler Trusts). The 1997 Transaction consisted
of two components: (a) the merger of Chandis Securities Company (Chandis), a
holding company owned by Chandler Trust No. 2 and affiliated minority investors,
into Chandis Acquisition Corporation (CAC), a Delaware corporation and
wholly-owned subsidiary of the Company (Merger) and (b) the formation of a new
limited liability company by the Chandler Trusts and the Company.
On August 8, 1997, Chandis merged with and into CAC. Pursuant to the Merger
Agreement, the Chandis shareholders received 6,582,000 shares of Series A common
stock, 9,656,000 shares of Series C common stock, 381,000 shares of new Series
C-1 preferred stock, and 245,000 shares of new Series C-2 preferred stock. At
the time of the Merger, Chandis owned 8,582,000 shares of Series A common stock,
9,656,000 shares of Series C common stock, and 381,000 shares of Series A
preferred stock as well as an interest in undeveloped real estate and certain
other assets and liabilities. CAC is not a "permitted transferee" as defined in
the Company's Certificate of Incorporation, therefore, the Series C common stock
was converted to Series A common stock as a result of the Merger. The Company's
shares owned by CAC are reported as treasury stock for financial reporting
purposes. The Merger was a tax-free transaction.
14
<PAGE> 15
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Concurrent with the consummation of the Merger, the Company (including
certain of its subsidiaries) and the Chandler Trusts formed TMCT, LLC (TMCT), a
Delaware limited liability company, and the following capital contributions were
made to TMCT:
1. the Company contributed $249,266,000 in cash and 8 real properties (Real
Properties) with an aggregate market value of $225,850,000;
2. the Chandler Trusts contributed 5,001,000 shares of Series A common
stock and 443,000 shares of Series A preferred stock (Contributed
Shares).
The cash contributed by the Company was used by TMCT to purchase a
portfolio of securities (Portfolio). The Company has leased the Real Properties
from TMCT under a lease with minimum lease payments equal to the fair values and
with an initial term of 12 years. During 1998 and 1997, the Company made lease
payments to TMCT of $24,166,000 and $9,599,000. The lease is accounted for as a
financing arrangement and, accordingly, the Real Properties' book value remains
on the Company's consolidated balance sheet and continues to be depreciated at
the rates in effect prior to the contribution of the Real Properties to TMCT.
The depreciation, along with a reduction of property, plant and equipment of
$168,021,000, which represents the estimated net book value of the Real
Properties at the end of the lease term, will result in a net book value of zero
for the Real Properties at August 8, 2009. At that time, the Company has the
option to purchase all the Real Properties for their fair market value. If the
Real Properties are not purchased by the Company, they will remain the assets of
TMCT and may be leased by the Company at a fair value rent as provided for under
the terms of the lease agreement. The lease provides for two additional 12-year
lease terms with fair value purchase options at the end of each lease term. The
lease is included as a property financing in the Company's outstanding debt
obligations (see Note 12).
The Company and the Chandler Trusts share in the cash flow, profits and
losses of the various assets held by TMCT. The cash flow from the Real
Properties and the Portfolio is largely allocated to the Chandler Trusts and the
cash flow from the Contributed Shares is largely allocated to the Company. Due
to the allocations of the economic benefits in the TMCT, 80% of the Contributed
Shares are included in treasury stock for financial reporting purposes and 80%
of the preferred dividends on the Series A preferred stock are excluded from the
preferred dividend requirements. The Company accounts for the investment in TMCT
under the equity method. This net investment was $96,416,000 and $95,487,000 at
December 31, 1998 and 1997, respectively, and is included in "Equity
investments" in the Consolidated Balance Sheets. During 1998 and 1997, the
Company recognized $3,739,000 and $1,268,000 of equity income on this
investment.
As a result of the 1997 Transaction, for financial reporting purposes and
earnings per share calculations, the number of shares of Series A common stock
outstanding was reduced by 6,001,000, the number of shares of Series A preferred
stock outstanding was reduced by 735,000 and the annual preferred dividend
requirements were reduced to $21,697,000 beginning in 1998. Preferred dividend
requirements for 1997 were reduced by $3,168,000.
NOTE 3 -- DISCONTINUED OPERATIONS
On September 3, 1999, Times Mirror announced its decision to sell
AchieveGlobal, Inc., a professional training company; Allen Communication, an
interactive software and training courseware developer and The StayWell Company,
a health improvement information company. The Company decided to sell these
businesses in order to concentrate on its core strengths in newspaper
publishing, flight information and magazine publishing. The Company has retained
investment banking firms to advise it on the sale of these businesses. These
dispositions are anticipated to be completed by the first quarter of 2000. The
accompanying financial statements have been restated for all periods presented
to reflect these businesses as discontinued operations.
15
<PAGE> 16
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the second quarter of 1998, the Company reached agreements to divest
Matthew Bender & Company, Incorporated (Matthew Bender), the Company's legal
publisher, in a tax-free reorganization (see Note 4) and its 50% ownership
interest in legal citation provider Shepard's. The two transactions were valued
at $1,649,650,000 in the aggregate and were completed in the third quarter of
1998. The disposition of the Company's 50% interest in Shepard's was consummated
by a transfer of the respective partnership interests owned by two subsidiaries
of the Company to affiliates of Reed Elsevier plc for a cash consideration of
$274,650,000. The Company recorded a net gain on these two transactions in the
amount of $1,108,452,000, net of expenses and $163,585,000 of income taxes,
primarily consisting of tax reserves as disclosed in Note 11. Also during the
second quarter of 1998, the Company reached agreements to divest Mosby, Inc.
(Mosby), the Company's health science/medical publisher, in a tax-free
reorganization (see Note 4). The transaction was valued at $415,000,000 and was
completed in the fourth quarter of 1998. The Company recorded a net gain on this
transaction in the amount of $239,023,000, net of expenses and $55,635,000 of
income taxes, primarily consisting of tax reserves as disclosed in Note 11.
While the Company believes that the Matthew Bender and Mosby transactions were
completed on a tax-free basis, this position may be subject to review by the
Internal Revenue Service. These divestitures represent the final dispositions of
the Company's professional and higher education publishing businesses and, as
such, have been reflected as discontinued operations in the accompanying
financial statements for all periods presented. The Company's Consolidated
Statements of Income have been restated to reflect the operations and the
related gains and losses associated with these and certain other previous
dispositions as discontinued operations.
During the third quarter of 1998, the Company decided to discontinue
Apartment Search, Inc., its apartment location business. The Company anticipated
selling the business in the first half of 1999 and has recorded an estimated
loss on disposal including a provision for operating losses of $3,420,000 during
the phase-out period. The total estimated loss of $47,623,000, or $28,217,000
after applicable tax benefit, is included in discontinued operations in "Net
gain on disposal, net of income taxes" in the Consolidated Statements of Income.
The Company subsequently completed the sale of Apartment Search, Inc. on March
31, 1999.
During 1996, the Company recognized a gain of $121,649,000 on the exchange
of its college publishing businesses and the sale of its Spanish-language
medical book publisher, Doyma Libros, and recorded a writedown of $16,728,000
for the January 1997 disposal of certain net assets of CRC Press, Inc. The net
gain on disposal of $104,921,000, or $32,047,000 after applicable taxes, which
is primarily related to differences in the book and tax bases of the assets, is
reflected in the Consolidated Statements of Income as discontinued during 1996.
A summary of the combined results of operations and net gain on disposal
for all discontinued entities for the years ended December 31, 1998, 1997 and
1996, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Revenues.......................................... $ 507,475 $673,393 $849,982
========== ======== ========
Income (loss) before income taxes(1).............. $ (25,521) $ 20,808 $ (1,186)
Income tax provision.............................. 7,886 5,151 6,675
---------- -------- --------
Income (loss) from discontinued operations........ (33,407) 15,657 (7,861)
Net gain on disposal, net of income taxes(2)...... 1,316,686 -- 32,047
---------- -------- --------
Total discontinued operations........... $1,283,279 $ 15,657 $ 24,186
========== ======== ========
</TABLE>
- ---------------
(1) It is the Company's policy to allocate interest expense among operating
segments including discontinued operations. The allocation to discontinued
operations is based on the ratio of net assets of discontinued operations
plus consolidated debt, other than debt of the discontinued operations that
will be assumed by the buyer and debt that can be directly attributed to the
discontinued operations. Income (loss) before
16
<PAGE> 17
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
income taxes includes a charge for interest expense of $18,097,000,
$16,967,000 and $6,913,000 for the years ended December 31, 1998, 1997 and
1996, respectively. The results of discontinued operations include pre-tax
restructuring, one-time and other charges of $59,121,000, $12,790,000 and
$50,924,000 for the years ended December 31, 1998, 1997 and 1996,
respectively
(2) Net of income taxes of $198,045,000 and $72,874,000 in 1998 and 1996,
respectively.
The assets and liabilities of discontinued operations have been classified
in the Consolidated Balance Sheets as net assets of discontinued operations and
consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Accounts receivable, net.................................... $ 58,256 $200,238
Other current assets........................................ 49,310 86,832
Property, plant and equipment, net.......................... 14,838 76,435
Goodwill, net............................................... 62,861 147,794
Other intangibles, net...................................... 68,256 85,591
Equity investments.......................................... -- 249,123
Other assets................................................ 21,986 100,371
-------- --------
Total assets...................................... 275,507 946,384
-------- --------
Current liabilities......................................... 77,164 247,813
Non-current liabilities..................................... 8,715 25,900
-------- --------
Total liabilities................................. 85,879 273,713
-------- --------
Net assets of discontinued operations....................... $189,628 $672,671
======== ========
</TABLE>
The major components of cash flow for discontinued operations for the years
ended December 31, 1998, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Income (loss) from discontinued operations....... $(33,407) $ 15,657 $ (7,861)
Depreciation and amortization.................... 25,572 31,319 41,205
Amortization of product costs.................... 16,550 22,655 49,245
Other, net....................................... 64,191 (71,333) 24,392
-------- --------- ---------
Net cash provided by (used in) discontinued
operating activities........................... $ 72,906 $ (1,702) $ 106,981
======== ========= =========
Capitalization of product costs.................. $(16,852) $ (21,490) $ (74,740)
Acquisitions, net of cash acquired............... -- (96,213) (4,440)
Capital expenditures............................. (11,485) (16,836) (59,593)
Other, net....................................... (1,360) (18,796) 3,239
-------- --------- ---------
Net cash used in investing activities of
discontinued operations........................ $(29,697) $(153,335) $(135,534)
======== ========= =========
</TABLE>
NOTE 4 -- REORGANIZATION
During the third quarter of 1998, the Company completed the disposition of
Matthew Bender in a tax-free reorganization with Reed Elsevier plc. The
disposition of Matthew Bender was accomplished through the merger of an
affiliate of Reed Elsevier with and into Matthew Bender with Matthew Bender as
the surviving corporation in the merger. As a result of the merger, TMD, Inc., a
wholly-owned subsidiary of Times Mirror, received all of the issued and
outstanding common stock of CBM Acquisition Parent Co. (MB Parent). MB Parent is
a holding company that owns controlling voting preferred stock of Matthew Bender
with a stated
17
<PAGE> 18
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
value of $61,616,000 and participating stock of Matthew Bender. MB Parent is
also the sole member of Eagle New Media Investments, LLC (Eagle New Media).
Affiliates of Reed Elsevier own voting preferred stock of MB Parent with a
stated value of $68,750,000 which affords them voting control over MB Parent,
subject to certain rights held by Times Mirror with respect to Eagle New Media.
Concurrently, with the closing of the merger, the Company became the sole
manager of Eagle New Media and controls its operations and assets. At December
31, 1998, the assets of Eagle New Media were $605,786,000 of cash and cash
equivalents, $752,956,000 (13,262,000 shares) of Series A common stock of Times
Mirror, $14,952,000 of marketable securities and $22,270,000 of other assets.
The consolidated financial statements of the Company include the accounts of
Eagle New Media.
During the fourth quarter of 1998, the Company completed the disposition of
Mosby in a tax-free reorganization with Harcourt General, Inc. The disposition
of Mosby was accomplished through the merger of an affiliate of Harcourt
General, Inc. with and into Mosby, with Mosby as the surviving corporation in
the merger. As a result of the merger, the Company received all of the issued
and outstanding common stock of Mosby Parent Corp. (Mosby Parent). Mosby Parent
is also the sole member of Eagle Publishing Investments, LLC (Eagle Publishing).
An affiliate of Harcourt General, Inc. owns voting preferred stock of Mosby
Parent with a stated value of $50,000,000 which affords it voting control over
Mosby Parent, subject to certain rights held by the Company with respect to
Eagle Publishing. Concurrently with the closing of the merger, the Company
became the sole manager of Eagle Publishing and controls its operations and
assets. At December 31, 1998, the assets of Eagle Publishing were $377,152,000
of cash and cash equivalents, $34,486,000 of marketable securities and
$20,129,000 of other assets. The consolidated financial statements of the
Company include the accounts of Eagle Publishing.
The Company intends to deploy the assets of both LLCs to finance
acquisitions and investments, including purchases of the Company's common stock,
and does not intend to use those funds for the Company's general working capital
purposes.
NOTE 5 -- ACQUISITIONS, DISPOSITIONS AND WRITEDOWNS
On April 30, 1998, the Company acquired the Los Angeles area business of EZ
Buy & EZ Sell Recycler Corporation (Recycler), consisting primarily of the
Recycler publications in the Los Angeles, Orange, Riverside, San Bernardino and
Ventura counties and a portion of Santa Barbara county for $188,696,000. This
acquisition resulted in goodwill of $119,242,000 and other intangible assets of
$69,430,000, which are being amortized primarily over 30 years. The Company also
invested in preferred stock and provided a term loan to Target Media Partners, a
new entity which owns all of the non-Los Angeles area assets of Recycler, for a
total amount of $34,800,000. The Company also had several other small
acquisitions during 1998. Goodwill of $13,776,000 related to these small
acquisitions is being amortized primarily over 15 years.
During the third and fourth quarters of 1997, the Company acquired Patuxent
Publishing Company, a publisher of 13 community weeklies in Maryland and This
Week Publications, Inc., a free weekly shopper distributed in Queens and Long
Island, New York. These and several other small acquisitions resulted in
goodwill of $69,467,000, which is being amortized over periods of 15 to 30
years. During 1996, the Company had several small acquisitions which resulted in
goodwill of $8,402,000, which is being amortized over periods of 8 to 15 years.
These acquisitions were accounted for by the purchase method with the
results of operations included in the Company's financial statements from the
dates of acquisition. Pro forma results for 1998 and 1997, assuming these
acquisitions occurred on January 1 of the respective year, are not materially
different from the results reported.
During 1998, the Company sold 441,900 shares of its holdings in Netscape
common stock and purchased an equal proportion of its 4 1/4% Premium Equity
Participating Securities (PEPS) obligation in the open
18
<PAGE> 19
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
market. The PEPS hedge the Company's investment in Netscape. The sales resulted
in a gain of $16,025,000, or $9,495,000 after applicable income taxes. Also, the
Company disposed of various excess real estate and other assets for an aggregate
gain of $16,110,000 or $9,554,000 after applicable income taxes. The total
aggregate gain of $32,135,000 is included in "Other, net" in the Consolidated
Statements of Income.
During 1997, the Company sold certain equity investments, including Tejon
Ranch Co.; WebTV Network, Inc.; Netscape Communications Corporation; Speedvision
Network, LLC and Outdoor Life Network, LLC, for an aggregate gain of
$75,584,000, or $47,689,000 after applicable income taxes. This gain was offset
by $39,282,000, or $29,799,000 after applicable income taxes, for writedowns and
expenses related to non-operating items as well as losses on the sale of Harry
N. Abrams, Inc.; National Journal, Inc. and other assets. The aggregate gain of
$36,302,000 is included in "Other, net" in the Consolidated Statements of
Income.
NOTE 6 -- RESTRUCTURING, ONE-TIME AND OTHER CHARGES
In 1998, the Company undertook a comprehensive review of its business
operations to determine areas where operational efficiencies could be achieved
through either product and/or facility consolidation, headcount reductions,
product abandonments, contract terminations or through other measures. The
Company began this review in anticipation of the impact of its significant 1998
divestitures and to better align its overall cost structure and business
configurations. The Company's review led to a major restructuring program that
resulted in the recording of $34,850,000, $46,262,000 and $74,569,000 of charges
in the second, third and fourth quarters of 1998, respectively. A summary of the
significant components of the 1998 restructuring program is as follows (in
thousands):
<TABLE>
<CAPTION>
NEWSPAPER PROFESSIONAL MAGAZINE CORPORATE
PUBLISHING INFORMATION PUBLISHING AND OTHER TOTAL
---------- ------------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Termination benefits........ $ 43,406 $2,021 $ 156 $10,270 $ 55,853
Contract terminations....... 51,386 -- 4,330 -- 55,716
Goodwill impairments........ 324 -- 19,715 -- 20,039
Lease termination costs..... 2,307 2,764 1,500 3,045 9,616
Technology asset
write-offs................ 4,772 1,378 100 1,504 7,754
Other costs................. 310 2,011 3,271 1,111 6,703
-------- ------ ------- ------- --------
$102,505 $8,174 $29,072 $15,930 $155,681
======== ====== ======= ======= ========
</TABLE>
A discussion of the specific restructuring activities follows:
Termination Benefits. Staff reductions were implemented at substantially
all operating units with the majority of these actions performed within the
Newspaper Publishing segment. The Los Angeles Times recorded severance charges
related to 358 full-time and 534 part-time employees through either voluntary or
involuntary programs, primarily occurring in the fourth quarter of 1998. The
Baltimore Sun's termination charges included 81 full-time employees and Newsday
determined that 23 full-time and 26 part-time employees would be released. The
staff reductions within the Newspaper Publishing segment were the result of
identified efficiencies from outsourcing opportunities, elimination of duplicate
functions and technological improvements to the Company's processes. In total,
termination benefits, which were largely severance costs, covered 576 full-time
and 578 part-time employees company-wide of which 189 employees had been
released by the end of 1998 with the majority of employees expected to be
released by the second quarter of 1999. As of December 31, 1998, $4,780,000 has
been paid out under this program with the remaining liability expected to be
substantially paid by the end of 1999. Certain employees will, however, receive
payments over a longer period of time.
19
<PAGE> 20
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Contract Terminations. In reviewing the Company's processes, supply
contracts and strategic alliances, the Company identified certain long-term
contracts and relationships which were no longer providing benefits to the
Company's current operations. As a result, the Company recorded charges for
contract terminations which included (i) the termination of a long-term contract
related to Newsday's pre-print distribution business for $34,250,000; (ii) the
termination of The Hartford Courant's long-standing bonus arrangement for
$12,000,000 and (iii) the termination of 56 distribution contracts with outside
agents at the Los Angeles Times for $4,904,000.
Goodwill Impairments. In accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," impairment charges were taken related to
goodwill associated with two of the Company's magazine titles. These charges
were taken as the result of disappointing market penetration and operating
results and were based on discounted estimated cash flows from future
operations.
Lease Termination Costs. In connection with the Company's downsizing and/or
relocation of offices primarily at the Los Angeles Times and at Jeppesen
Sanderson's German operation, the Company recorded charges for future operating
lease payments and write-offs of leasehold improvements related to facilities it
will vacate. The total lease payment accrual for periods through 2010 is net of
estimated sublease income of $3,445,000. No amounts have been included for any
period in which the operating units will continue to occupy the premises.
Technology Asset Write-offs. During mid-1998, the Company determined that
its long standing policy of allowing each operating unit to independently
determine its technology requirements and make related equipment and software
purchases was both inefficient as well as expensive in terms of maintenance,
helpdesk, networking and other support costs. In connection with this decision,
the Company established common hardware and software configurations to provide
consistency across all business units. As a result, many operating units were
required to dispose of a significant amount of technology resources to conform
to the common platform. Total asset write-offs of technology-related equipment
were taken in the quarter in which the equipment was replaced.
Other Costs. In performing a review of its businesses and product
offerings, expenses were recognized for the termination of an Internet venture
in the Magazine Publishing segment, in addition to costs for the abandonment of
certain projects at Jeppesen Sanderson, Inc.
Other Program Charges. In addition to the charges listed above, the Company
also recorded $18,689,000 for certain asset write-offs that did not meet the
accounting criteria for classification as "restructuring and one-time charges."
These charges, which principally included other operating asset write-offs, have
been classified within "Selling, general and administrative expenses" in the
Consolidated Statements of Income.
20
<PAGE> 21
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the activity in the restructuring liabilities for the three
years ended December 31, 1998, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1995
RESTRUCTURING RESTRUCTURING TOTAL
------------- ------------- --------
<S> <C> <C> <C>
Balance at December 31, 1995.................... -- $122,426 $122,426
Cash payments................................. -- (68,827) (68,827)
Other(1)...................................... -- 5,220 5,220
-------- -------- --------
Balance at December 31, 1996.................... -- 58,819 58,819
Cash payments................................. -- (24,483) (24,483)
Other(2)...................................... -- 8,719 8,719
-------- -------- --------
Balance at December 31, 1997.................... -- 43,055 43,055
Charged to costs and expenses................. $155,681 -- 155,681
Cash payments................................. (31,654) (19,321) (50,975)
Asset write-offs.............................. (35,204) -- (35,204)
Other......................................... 1,176 (829) 347
-------- -------- --------
Balance at December 31, 1998.................... $ 89,999 $ 22,905 $112,904
======== ======== ========
</TABLE>
- ---------------
(1) Primarily includes transfers from discontinued operations.
(2) Primarily includes transfers from discontinued operations for restructuring
liabilities not assumed by purchasers of discontinued operations.
The balance sheet classification of restructuring liabilities is as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- -------
<S> <C> <C>
Restructuring -- current liabilities
1995 Restructuring........................................ $ 15,722 $17,476
1998 Restructuring........................................ 76,181 --
Other liabilities
1995 Restructuring........................................ 7,183 25,579
1998 Restructuring........................................ 13,818 --
-------- -------
$112,904 $43,055
======== =======
</TABLE>
The current portion of restructuring liabilities relates primarily to
severance and contract termination payments while the non-current portion
principally relates to lease payments which will be paid over lease periods
extending to 2010. The Company made severance payments under all programs which
totaled $7,518,000, $5,593,000 and $37,054,000 during 1998, 1997 and 1996,
respectively. At December 31, 1998, the remaining liability for severance costs
aggregated $52,856,000.
The Company periodically assesses the adequacy of its remaining
restructuring liabilities and makes adjustments if required. During 1998 and
1997, these adjustments resulted in recoveries of prior year's restructuring
reserves which were largely offset by restructuring requirements in those years.
The net change in the restructuring liabilities as a result of these reviews was
not significant.
21
<PAGE> 22
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ---------- -------
<S> <C> <C> <C>
Interest paid....................................... $68,571 $ 33,545 $24,055
Income taxes paid................................... 47,406 138,567 69,927
Merger with Chandis
Times Mirror stock received....................... -- 1,116,058 --
Other assets received............................. -- 21,050 --
Times Mirror stock issued......................... -- 1,137,108 --
Fair value of properties contributed to TMCT........ -- 225,850 --
Property financing obligation, net of original issue
discount.......................................... -- 57,829 --
Liabilities assumed in connection with
acquisitions...................................... 9,910 17,194 13,921
Notes issued in connection with an acquisition...... -- 39,209 --
</TABLE>
NOTE 8 -- FINANCIAL INSTRUMENTS
Financial instruments consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1998 1997
------------------------ --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Short-term assets..................... $1,414,350 $1,414,350 $344,198 $344,198
Long-term investments................. 129,364 129,364 47,738 47,738
Notes receivable...................... 73,067 73,067 5,349 5,349
Short-term liabilities................ 492,025 492,025 340,026 340,026
Long-term debt........................ 941,423 1,017,245 925,404 982,647
Unrealized net gain on interest rate
swaps............................... -- 43,246 -- 27,583
</TABLE>
Short-Term Assets and Liabilities. The fair values of cash and cash
equivalents, marketable securities, accounts receivable, accounts payable and
short-term debt approximate their carrying values due to the short-term nature
of these financial instruments.
Long-Term Investments. Investments are primarily stated at fair value based
on quoted market prices and are classified as available-for-sale securities. The
investments are included in "Investments and other assets" in the Consolidated
Balance Sheets. The cost of the investments was $55,764,000 and $18,865,000 at
December 31, 1998 and 1997, respectively. The unrealized gain is included in
accumulated other comprehensive income in the Consolidated Statements of
Shareholders' Equity, net of applicable income taxes.
Notes Receivable. The carrying value of notes receivable is estimated to
approximate fair values. Although there are no quoted market prices available
for these instruments, the fair value estimates were based on the changes in
interest rates and risk related interest rate spreads since the notes
origination dates.
Long-Term Debt. The fair value of long-term debt is based primarily on the
Company's current refinancing rates for publicly issued fixed rate debt with
comparable maturities, except for the PEPS securities whose fair value is the
current maturity value determined by a formula based on quoted market prices of
the underlying common stock whose market risk it modifies.
Interest Rate Swaps. Interest rate swap agreements outstanding at December
31, 1998 were for notional amounts of $148,000,000, $250,000,000, $170,111,000
and $100,000,000 expiring in 1999, 1999, 2002 and 2023, respectively, with the
$170,111,000 and $100,000,000 notional amounts also outstanding at
22
<PAGE> 23
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997. These swaps effectively convert a portion of the Company's
long-term fixed rate debt to a variable rate obligation based on LIBOR or the
Commercial Paper rate. The fair values of the interest rate swaps are the
amounts at which they could be settled based on estimates of market rates.
Commodity Price Hedging Contracts. The Company enters into various
commodity hedging contracts to manage the Company's exposures to fluctuations in
newsprint prices. As of December 31, 1998, the Company had newsprint swap
agreements for a total notional amount of 261,000 metric tons per year expiring
in 2002 and 2003 at a weighted average contract price of $609 per metric ton.
Also, the Company has a newsprint option contract for a total notional amount of
30,000 metric tons per year expiring in 2001 at a contract price of $585 per
metric ton. At December 31, 1998, the index rate used for these contracts was
$585 per metric ton. This option contract limits the maximum payment to $115 per
metric ton above the contract price on an annual basis. In addition to the
newsprint hedging contracts, the Company has a swap contract for coated paper
used in its Magazine Publishing activities for a total notional amount of 5,000
short tons per year expiring in 2000 at a contract price of $1,047 per short
ton. As no liquid forward market for newsprint or coated paper exists, it was
not practicable to estimate the fair value of the commodity hedging contracts.
New Accounting Pronouncement. In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133),
which the Company is required to adopt effective January 1, 2000. Subsequently,
the FASB issued Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133"
which deferred the effective date of SFAS 133 for one year. This standard is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. SFAS 133 will require the Company to record all derivatives as assets or
liabilities at fair value. Changes in derivative fair values will either be
recognized in earnings, offset against changes in the fair value of the related
hedged assets, liabilities and firm commitments or, for forecasted transactions,
recorded as a component of other comprehensive income in shareholders' equity
until the hedged transactions occur and are recognized in earnings. The
ineffective portion of a hedging derivative's change in fair value will be
recognized in earnings immediately. The impact of SFAS 133 on the Company's
financial statements will depend on a variety of factors, including, the extent
of the Company's hedging activities, the types of hedging instruments used and
the effectiveness of such instruments. The effect of adopting the Statement is
currently being evaluated, however, the Company does not believe the effects of
adoption will be material to its financial position or results of operations.
NOTE 9 -- INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Newsprint, paper and other raw materials.................... $23,404 $27,561
Finished products........................................... 4,051 3,260
Work-in-progress............................................ 983 726
------- -------
$28,438 $31,547
======= =======
</TABLE>
Inventories determined by the last-in, first-out method were $13,669,000
and $17,053,000 at December 31, 1998 and 1997, respectively, and would have been
higher by $16,100,000 in 1998 and $17,271,000 in 1997 had the first-in,
first-out method (which approximates current cost) been used.
23
<PAGE> 24
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Land........................................................ $ 45,065 $ 46,459
Buildings................................................... 433,860 425,683
Machinery and equipment..................................... 1,321,501 1,316,935
Leasehold improvements...................................... 27,848 26,404
Construction-in-progress.................................... 41,362 36,084
---------- ----------
1,869,636 1,851,565
Less accumulated depreciation and amortization.............. (966,153) (930,570)
---------- ----------
$ 903,483 $ 920,995
========== ==========
</TABLE>
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 will
require the capitalization of certain costs incurred after the date of adoption
in connection with developing or obtaining software for internal use. The
Company adopted SOP 98-1 on January 1, 1999 and does not believe the effects of
adoption will be material to its financial position or results of operations.
NOTE 11 -- INCOME TAXES
Income tax expense from continuing operations consists of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 77,412 $ 94,422 $ 27,168
State............................................ 9,515 13,099 16,235
Foreign.......................................... 12,601 12,736 13,883
Deferred:
Federal.......................................... (716) 29,898 51,140
State............................................ 12,133 11,689 9,570
-------- -------- --------
$110,945 $161,844 $117,996
======== ======== ========
</TABLE>
24
<PAGE> 25
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The difference between actual income tax expense and the U.S. Federal
statutory income tax expense for continuing operations is reconciled as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income from continuing operations before income
taxes:
United States..................................... $220,235 $369,596 $271,919
Foreign........................................... 24,769 26,903 28,335
-------- -------- --------
$245,004 $396,499 $300,254
======== ======== ========
Federal statutory income tax rate................... 35% 35% 35%
Federal statutory income tax expense................ $ 85,751 $138,775 $105,089
Increase (decrease) in income taxes resulting from:
State and local income tax expense, net of Federal
effect......................................... 14,071 16,112 16,773
Basis difference in asset sales................... (2,193) 5,249 --
Goodwill amortization not deductible for tax
purposes....................................... 5,979 4,424 5,281
Writedown of assets............................... 6,900 -- --
Foreign tax differentials......................... (1,474) 1,439 1,266
Other............................................. 1,911 (4,155) (10,413)
-------- -------- --------
$110,945 $161,844 $117,996
======== ======== ========
</TABLE>
The tax effect of temporary differences results in deferred income tax
assets (liabilities) and balance sheet classifications as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
TEMPORARY DIFFERENCES
Depreciation and other property, plant and equipment
differences............................................... $(158,950) $(171,851)
Retirement and health benefits.............................. (153,572) (141,524)
Postretirement benefits..................................... 86,534 105,823
Valuation and other reserves................................ 6,092 520
Other employee benefits..................................... 54,872 48,430
Unrealized investment gains................................. (33,055) (21,168)
State and local income taxes................................ 25,801 24,404
Restructuring and one-time charges.......................... 26,374 14,631
Intangible asset differences................................ (2,378) 2,551
Transaction tax reserve..................................... (176,585) --
Other deferred tax assets................................... 5,782 12,318
Other deferred tax liabilities.............................. (22,259) (5,200)
--------- ---------
$(341,344) $(131,066)
========= =========
BALANCE SHEET CLASSIFICATIONS
Current deferred tax assets................................. $ 32,279 $ 48,443
Noncurrent deferred tax liabilities......................... (373,623) (179,509)
--------- ---------
$(341,344) $(131,066)
========= =========
</TABLE>
In connection with the disposition of Matthew Bender and Mosby as discussed
in Notes 3 and 4, the Company has recorded a tax reserve of $176,585,000. While
the Company believes that these transactions were completed on a tax-free basis,
this position may be subject to review by the Internal Revenue Service.
25
<PAGE> 26
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The results of such a review are unpredictable and could result in a tax
liability that is significantly higher or lower than that which has been
provided by the Company.
NOTE 12 -- DEBT
Debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Commercial paper at weighted average interest rates of 5.3%
and 5.9%.................................................. $298,603 $ 86,448
Notes payable at 6.125% due January 2, 1998................. -- 39,209
Current maturities of long-term debt........................ 7,440 7,671
Other notes payable at interest rates of 5.42% and 6.04%.... 6,567 5,739
-------- --------
Total short-term debt.................................. $312,610 $139,067
======== ========
</TABLE>
Long-term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
6.61% Debentures due September 15, 2027, net of unamortized
discount of $98 and $101.................................. $249,902 $249,899
4.75% Liquid Yield Option Notes due April 15, 2017, net of
unamortized discount of $288,129 and $297,845............. 211,871 202,155
7 1/4% Debentures due March 1, 2013......................... 148,215 148,215
7 1/4% Debentures due November 15, 2096, net of unamortized
discount of $559 and $565................................. 147,441 147,435
7 1/2% Debentures due July 1, 2023.......................... 98,750 98,750
Property financing obligation expiring on August 8, 2009,
net of unamortized discount of $158,080 and $165,353, with
an effective interest rate of 4.3%........................ 47,088 54,743
4 1/4% PEPS due March 15, 2001; 863,100 and 1,305,000
securities stated at fair value........................... 45,596 31,809
Others at various interest rates, maturing through 2001..... -- 69
-------- --------
948,863 933,075
Less current maturities..................................... (7,440) (7,671)
-------- --------
Total long-term debt................................... $941,423 $925,404
======== ========
</TABLE>
Interest rate swaps outstanding at December 31, 1998 converted the weighted
average interest rate on the 7 1/4% Debentures due November 15, 2096, the 6.61%
Debentures, the 7 1/2% Debentures and the Liquid Yield Option Notes (LYONs) from
6.32% to 5.62% for the year ended December 31, 1998.
In September 1997, the Company issued $250,000,000 of 6.61% Debentures due
September 15, 2027 (Debentures) with interest payable semiannually commencing
March 15, 1998. The Debentures are redeemable at the option of the Company, in
whole or in part, at any time after September 15, 2004 at a redemption price
equal to the greater of (a) 100% of the principal amount or (b) the sum of the
present values of the remaining scheduled payments of principal and interest
discounted to the redemption date. The Debentures may be put to the Company on
September 15, 2004 at 100% of face value plus accrued interest.
In April 1997, the Company received gross proceeds of $195,530,000 from the
issuance of the LYONs. The LYONs are zero coupon subordinated notes with an
aggregate face value of $500,000,000 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
26
<PAGE> 27
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 has 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%.
The 4 1/4% PEPS hedge the Company's investment in the common stock of
Netscape. The amount payable at maturity with respect to each PEPS will equal
the average market price of one share of Netscape common stock for ten trading
days ending on the second business day prior to the maturity date, subject to
adjustment as a result of certain dilution events involving Netscape. Holders of
the PEPS bear the full risk of a decline in the value of Netscape. The Company
is not obligated to hold the Netscape stock for any period or sell the Netscape
stock prior to the PEPS maturity or redemption date.
The PEPS are redeemable at the option of the Company, in whole or in part,
at any time after December 15, 2000. The redemption value is the product of the
redemption ratio, as defined below, and the average market price of one share of
Netscape common stock for the ten trading days ending on the second business day
prior to the redemption date. The redemption ratio will equal (a) 100%, if the
market value of one share of Netscape common stock is less than $39.25, or (b) a
fraction, the numerator of which is $39.25 and the denominator of which is the
market value of Netscape common stock, if such market value is equal to or
exceeds $39.25 but less than or equal to $45.13, or (c) 86.96%, if the market
value of Netscape common stock exceeds $45.13.
The PEPS are recorded at fair market value as determined in the open market
and will generally move in tandem with changes in the fair market value of
Netscape common stock. The net unrealized (loss) gain on the PEPS at December
31, 1998 and 1997 is ($6,928,000) and $11,444,000, respectively, net of
applicable income taxes, and is included in accumulated other comprehensive
income. During 1998, the Company sold 441,900 shares of Netscape stock and
purchased an equal proportion of its PEPS in the open market (see Note 5).
The Company has an agreement with several domestic and foreign banks for
unsecured long-term revolving lines of credit that expire in September 2000.
This agreement provides for borrowings up to $400,000,000 at interest rates
based on, at the Company's option, the banks' base rates, Eurodollar rates or
competitive bid rates. The commitment fee is approximately 0.065% per annum. The
lines of credit are used to support a commercial paper program. The Company's
revolving lines of credit contain restrictive provisions relating primarily to
interest expense coverage. 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. The weighted average interest rates and
weighted average commercial paper borrowings were 5.3% and 5.6% and $243,095,000
and $72,561,000 during 1998 and 1997, respectively.
At December 31, 1998, the Company had an uncommitted bank line of credit
which provides for unsecured borrowings up to $250,000,000 of which there were
no amounts outstanding. In February 1999, the Company borrowed $60,000,000 under
this line of credit.
The Company has $20,820,000 of undrawn standby letters of credit at
December 31, 1998.
27
<PAGE> 28
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1998, the aggregate principal maturities of the Company's
debt are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 7,440
2000........................................................ 7,150
2001........................................................ 52,367
2002........................................................ 6,292
2003........................................................ 5,699
Thereafter.................................................. 869,915
--------
$948,863
========
</TABLE>
NOTE 13 -- CAPITAL STOCK AND STOCK PURCHASE PROGRAM
Preferred Stocks. Series A, Series C-1 and Series C-2 preferred stocks are
cumulative, non-voting stocks with annual dividends of 8%, 5.8% and 5.8%,
respectively, based on liquidation value. Series A was entitled to dividends
effective March 1, 1995. Dividends on Series C-1 and Series C-2 may increase
commencing in 2001 to a maximum annual dividend of 8.4%, based on the percentage
increases, if any, in the dividends paid by the Company on its common stock.
Series A, Series C-1 and Series C-2 are convertible into Series A common stock
in 2025 at the earliest. The conversion factor is calculated by dividing $500
plus accrued and unpaid dividends by the average closing prices of Series A
common stock for the 20 trading days immediately preceding the conversion date.
The maximum number of shares of Series A common stock into which Series C-2 can
be converted is limited to 2,957,000 shares.
On February 28, 1997, the Series B preferred stock was called for
redemption and was redeemed on April 2, 1997 for 4,446,000 shares of Series A
common stock. The conversion ratio, determined pursuant to the original terms of
the Series B, was .57083 of a share of Series A common stock. At the redemption
date, the Company had forward purchase contracts for 3,900,000 shares of Series
B preferred stock with a weighted average forward price of $28.475 per share.
These contracts provided for early termination and, in May 1997, the termination
of the contract resulted in the purchase by the Company of 2,226,000 shares of
Series A common stock for an aggregate cost of $111,530,000.
Preferred stock is issuable in series under such terms and conditions as
the Board of Directors may determine.
Common Stocks. Shares of Series A and Series C common stock are identical,
except with respect to voting rights, restrictions on transfer of Series C
shares and the right to convert Series C shares into Series A shares. Series A
shares are entitled to one vote per share and Series C shares are entitled to
ten votes per share. Series C shares are subject to mandatory conversion into
Series A shares upon transfer to any person other than a "Permitted Transferee"
as defined in the Company's Certificate of Incorporation or upon the occurrence
of certain regulatory events. Series B common stock is entitled to one-tenth
vote per share and is available for common stock issuance transactions, such as
underwritten public offerings and acquisitions.
Cash dividends of $.72 and $.55 per share of common stock were declared for
the years ended December 31, 1998 and 1997, respectively. In February 1999, the
Board of Directors approved an increase in the quarterly dividend on its common
stock to $.20 per share, from $.18 per share, beginning with the March 10, 1999
payment date.
Treasury Stock. Treasury stock includes shares of Series A common stock and
Series A preferred stock owned by affiliates as well as Series A common stock
purchased by the Company as part of the stock purchase program. Approximately
13,262,000, 4,001,000 and 18,238,000 shares of Series A common stock included in
treasury stock are owned by Eagle New Media, TMCT and CAC, respectively, and
$177,039,000 and
28
<PAGE> 29
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$192,023,000 stated value of Series A preferred stock, which are owned by TMCT
and CAC, respectively, are included in treasury stock at December 31, 1998.
Stock Purchases. During 1998, the Company and Eagle New Media purchased
16,355,000 common shares for a total cost of $947,203,000. An additional 350,000
common shares were purchased for $17,472,000, net of premiums received, as a
result of the exercise of put options. At December 31, 1998, the Company had
400,000 put options outstanding with a weighted average strike price of $56.40
per common share. The cash received from the issuance of put options during 1998
and 1997 was not significant. The put options entitle the holder to sell shares
of Times Mirror Series A common stock to the Company at the strike price on the
expiration date of the put option. The unexpired put options are at strike
prices ranging from $55.81 to $58.00. These put options expire on various dates
through April 1999.
Included in the 1998 share purchases were 4,000,000 shares that were
purchased in the fourth quarter of 1998 as part of an accelerated purchase
agreement. The shares were purchased at the closing price on the date of the
agreement for $54.69 per share. The agreement provides for a purchase price
adjustment based on a pro-rata settlement over a one-year period. The agreement,
which is due to mature in the fourth quarter of 1999, provides for settlement of
the purchase price adjustment on a net share basis.
In August 1998, the Company entered into a forward purchase agreement to
acquire 1,000,000 shares of Series A common stock. The Company settled this
agreement in February 1999 at a price of $63.35 per share in cash.
During 1997, the Company purchased 8,882,000 shares of Series A common
stock for a total cost of $464,781,000. An additional 120,000 shares of Series A
common stock were purchased for $3,719,000, net of premiums received, as a
result of the exercise of put options.
In connection with the Company's ongoing stock purchase program, in October
1998, the Company's Board of Directors authorized the purchase over the next two
years of an additional 6,000,000 shares of common stock. The aggregate remaining
shares authorized for purchase at December 31, 1998 was approximately 1,100,000
shares. The Company believes that the purchase of shares of its common stock is
an attractive investment for Eagle New Media which will enhance Times Mirror
shareholder value as well as offset dilution from shares of common stock issued
under the Company's stock-based employee compensation and benefit program. In
February 1999, the Board of Directors authorized the purchase of an additional
amount of up to 6,000,000 shares of its Series A common stock.
NOTE 14 -- STOCK OPTION AND AWARD PLANS
The Company has various stock option plans under which options may be
granted to purchase shares of Series A common stock at a price equal to the fair
market value at the date of grant. Options that are not exercised expire ten
years from the date of grant. Options granted to key employees generally vest
over a four-year period. Grants made under a broad-based stock option plan, for
employees not eligible for other stock option grants, are fully vested three
years after the date of grant. Restricted stock is also awarded to key
employees. The number of restricted stock awards, including matching awards in
connection with the annual incentive bonus program, is not material.
29
<PAGE> 30
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options granted, exercised and forfeited were as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Options Outstanding December 31, 1995....................... 8,651,657 $23.29
Granted................................................... 1,613,851 33.22
Exercised................................................. (1,911,082) 18.86
Forfeited................................................. (582,937) 26.61
---------- ------
Options Outstanding December 31, 1996....................... 7,771,489 26.12
Granted................................................... 4,686,643 47.85
Exercised................................................. (1,617,045) 22.47
Forfeited................................................. (571,732) 34.03
---------- ------
Options Outstanding December 31, 1997....................... 10,269,355 36.17
Granted................................................... 4,370,240 59.58
Exercised................................................. (2,145,260) 27.58
Forfeited................................................. (1,084,989) 50.00
---------- ------
Options Outstanding December 31, 1998....................... 11,409,346 $45.44
========== ======
</TABLE>
Information regarding stock options outstanding and exercisable as of
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
PRICE RANGE
---------------------------------------------------
$11.43 $18.06 $30.06 $46.56
TO $17.29 TO $23.94 TO $44.94 TO $64.22
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Options Outstanding:
Number............................ 45,979 1,170,163 2,452,916 7,740,288
Weighted average exercise price... $16.75 $18.57 $33.59 $53.43
Weighted average remaining
contractual life............... 3 years 5 years 7 years 9 years
Options Exercisable:
Number............................ 45,979 798,192 1,160,230 697,755
Weighted average exercise price... $16.75 $18.79 $34.67 $48.69
</TABLE>
At December 31, 1998 and 1997 shares reserved for future grants and awards
were 9,707,503 and 13,057,372, respectively.
If the Company recognized employee stock option-related compensation
expense in accordance with SFAS 123 and used the Black-Scholes option valuation
model for determining the weighted average fair value of options granted after
December 31, 1994, its net income and earnings per share would have been as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Net income -- as reported......................... $1,417,338 $250,312 $206,444
Pro forma stock compensation expense, net......... (18,709) (13,000) (4,959)
---------- -------- --------
Pro forma net income.............................. $1,398,629 $237,312 $201,485
========== ======== ========
Pro forma basic earnings per share................ $ 15.86 $ 2.18 $ 1.54
========== ======== ========
Pro forma diluted earnings per share.............. $ 15.48 $ 2.11 $ 1.49
========== ======== ========
</TABLE>
For purposes of the pro forma expense, the weighted average fair value of
the options is amortized over the vesting period. The pro forma effect on net
income for 1996 through 1998 may not be representative of
30
<PAGE> 31
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
future years' impact because options granted prior to 1995 are excluded from the
pro forma calculations. Options are granted every year and the pro forma expense
in future years will grow due to the added layers of amortization for succeeding
grants. By 1999, however, the pro forma results will include a full four years'
worth of option grants.
The weighted average fair value of stock options on the date of grant, and
the assumptions used to estimate the fair value using the Black-Scholes option
valuation model, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Weighted average fair value of stock options
granted............................................ $12.78 $11.90 $8.87
Risk-free interest rate.............................. 5.5% 6.2% 5.4%
Expected life........................................ 5 years 5 years 5 years
Expected volatility.................................. .20 .22 .26
Expected dividend yield.............................. 2.33% 2.33% 2.00%
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's employee stock
options have characteristics significantly different from those of traded
options such as vesting restrictions and lack of transferability. In addition,
the assumptions used in option valuation models are highly subjective,
particularly with respect to the expected stock price volatility for the
underlying stock. Because changes in these subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not provide a reliable single measure of the fair value of its
employee stock options.
NOTE 15 -- PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company has defined benefit pension plans and various other
contributory and noncontributory retirement plans covering substantially all
employees. In general, benefits under the defined benefit plans are based on
years of service and the employee's compensation during the last five years of
employment. The majority of the Company's employees are covered by one defined
benefit plan. Funding for this plan is not expected to be required in the near
future as the plan is overfunded.
Postretirement health care benefits provided by the Company are unfunded
and cover certain employees hired before January 1, 1993. The various plans have
significantly different provisions for lifetime maximums, retiree cost-sharing,
health care providers, prescription drug coverage and other benefits.
Postretirement life insurance benefits are generally insured by life insurance
policies and cover employees who retired on or before December 31, 1993. Life
insurance benefits vary by plan, ranging from $1,000 to $250,000. Certain
employees become eligible for the postretirement health care benefits if they
meet minimum age and service requirements and retire from full-time, active
service.
31
<PAGE> 32
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following sets forth the changes in benefit obligations and in plan
assets and the funded status of the plans (in thousands):
<TABLE>
<CAPTION>
PENSION PLANS POSTRETIREMENT BENEFITS
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CHANGE IN PROJECTED BENEFIT
OBLIGATIONS
Benefit obligations at January 1... $ 662,385 $ 600,577 $ 132,601 $ 129,292
Service cost....................... 37,377 33,164 3,052 2,732
Interest cost...................... 49,367 47,287 7,909 8,204
Plan amendments.................... 2,813 957 -- --
Participant contributions.......... -- -- 2,073 1,998
Actuarial losses (gains)(1)........ 86,647 23,856 4,996 (879)
Curtailment gains.................. (8,898) -- (327) --
Benefits paid...................... (42,600) (43,456) (8,626) (8,746)
---------- ---------- --------- ---------
Benefit obligations at December
31............................... $ 787,091 $ 662,385 $ 141,678 $ 132,601
========== ========== ========= =========
CHANGE IN PLAN ASSETS
Fair value of plan assets at
January 1........................ $1,080,160 $ 975,384 $ -- $ --
Actual return on plan assets....... 102,355 148,056 -- --
Acquisitions....................... 3,310 -- -- --
Dispositions....................... -- (3,328) -- --
Company contributions.............. 2,943 3,504 6,553 6,748
Participant contributions.......... -- --........ 2,073 1,998
Benefits paid...................... (42,600) (43,456) (8,626) (8,746)
---------- ---------- --------- ---------
Fair value of plan assets at
December 31...................... $1,146,168 $1,080,160 $ -- $ --
========== ========== ========= =========
FUNDED STATUS
Funded status (underfunded) at
December 31...................... $ 359,077 $ 417,775 $(141,678) $(132,601)
Unrecognized net actuarial losses
(gains)(1)....................... 40,896 (41,551) (49,356) (45,426)
Unrecognized prior service cost.... (4,309) (8,677) (34,984) (56,348)
Unrecognized net transition
asset............................ (3,656) (25,216) -- --
---------- ---------- --------- ---------
Net amount recognized.............. $ 392,008 $ 342,331 $(226,018) $(234,375)
========== ========== ========= =========
</TABLE>
- ---------------
(1) The increases in actuarial losses relate primarily to changes in the assumed
discount rate.
Amounts applicable to the Company's pension plans with accumulated benefit
obligations in excess of plan assets are (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Projected benefit obligations............................ $61,044 $49,267
Accumulated benefit obligations.......................... 51,134 43,232
Fair value of plan assets................................ 13,348 12,031
</TABLE>
32
<PAGE> 33
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following sets forth the amounts recognized in the Consolidated Balance
Sheets (in thousands):
<TABLE>
<CAPTION>
PENSION PLANS POSTRETIREMENT BENEFITS
-------------------- ------------------------
DECEMBER 31, DECEMBER 31,
-------------------- ------------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Prepaid pension cost.................. $419,471 $366,807 $ -- $ --
Accrued benefit liability............. (40,319) (29,923) (226,018) (234,375)
Intangible asset...................... 5,545 -- -- --
Deferred income taxes................. 2,915 2,220 -- --
Accumulated other comprehensive
income.............................. 4,396 3,227 -- --
-------- -------- --------- ---------
Net amount recognized................. $392,008 $342,331 $(226,018) $(234,375)
======== ======== ========= =========
</TABLE>
Net periodic benefit cost (income) is as follows (in thousands):
<TABLE>
<CAPTION>
PENSION PLANS POSTRETIREMENT BENEFITS
------------------------------- ---------------------------
1998 1997 1996 1998 1997 1996
--------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost...................... $ 37,377 $ 33,164 $ 36,866 $ 3,052 $ 2,732 $ 3,190
Interest cost..................... 49,367 47,287 47,552 7,909 8,204 9,361
Expected return on plan assets.... (103,857) (93,753) (88,731) -- -- --
Amortization of transition
asset........................... (21,560) (21,560) (21,560) -- -- --
Amortization of prior service
cost............................ 620 (44) 152 (6,992) (6,992) (7,368)
Recognized net actuarial loss
(gain).......................... 241 (47) 1,413 (5,446) (3,218) (1,028)
--------- -------- -------- ------- ------- -------
Benefit cost (income)............. (37,812) (34,953) (24,308) (1,477) 726 4,155
Curtailment gains................. (8,898) -- -- (327) -- --
--------- -------- -------- ------- ------- -------
Benefit cost (income) after
curtailments.................... $ (46,710) $(34,953) $(24,308) $(1,804) $ 726 $ 4,155
========= ======== ======== ======= ======= =======
</TABLE>
Assumptions used in the actuarial computations were as follows:
<TABLE>
<CAPTION>
PENSION PLANS POSTRETIREMENT BENEFITS
-------------------- -----------------------
DECEMBER 31, DECEMBER 31,
-------------------- -----------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Discount rate............................ 6.75% 7.50% 8.00% 6.75% 7.50% 8.00%
Expected return on plan assets........... 9.75% 9.75% 9.75% N/A N/A N/A
Rate of compensation increase............ 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
</TABLE>
At December 31, 1998, the health care trend rate of 8.5% was assumed to
ratably decline to 4.25% by 2011 and remain at that level. The assumed health
care cost trend rate can significantly affect postretirement expense and
liabilities. A change of 1% in the health care cost trend rate would have the
following effects (in thousands):
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total service and interest cost component...... $ 1,307 $ (1,319)
Effect on postretirement benefit obligation.............. 13,579 (11,454)
</TABLE>
Benefits provided by the Employee Stock Option Plan (ESOP) are coordinated
with certain pension benefits and, as a result, the defined benefit plan
obligations are net of the actuarially equivalent value of the benefits earned
under the ESOP, with the maximum offset equal to the value of the benefits
earned under the defined benefit plan. The fair value of the ESOP assets was
$264,715,000 and $307,188,000 as of December 31, 1998 and 1997, respectively. At
December 31, 1998, the ESOP held 3,148,000 shares of Series A common stock, and
1,507,000 shares of Series C common stock. The final contribution to the ESOP
33
<PAGE> 34
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
was in 1994 and the ESOP has been amended to discontinue contributions by the
Company. There are no unallocated shares in the ESOP at December 31, 1998.
Substantially all employees over age 21 with one year of service are
eligible to participate in the Company's Savings Plus Plan. Eligible employees
may contribute from 1% to 15% of their basic compensation. The Company makes
matching contributions equal to 50% of employee before-tax contributions from 1%
to 6%. Employees may choose among eight investment options, including a Company
common stock fund, for investing their contributions and the Company's matching
contribution. Defined contribution plan expense, primarily related to the
Savings Plus Plan, was $15,088,000, $15,487,000, and $15,185,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
A Voluntary Employee Beneficiary Association (VEBA) trust funds certain
health care benefits. Funding of the VEBA is generally made on a
pay-as-you-go-basis, which leaves minimal cash in the VEBA trust.
NOTE 16 -- LEASES
Rental expense under operating leases was $34,181,000, $36,930,000 and
$37,910,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Capital leases, contingent rentals and sublease income are not significant. The
future net minimum lease payments as of December 31, 1998 for all noncancelable
operating leases, excluding future obligations included in the restructuring
liabilities on the Consolidated Balance Sheets, are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 26,112
2000........................................................ 22,596
2001........................................................ 21,752
2002........................................................ 20,177
2003........................................................ 17,503
Thereafter.................................................. 72,353
--------
Total............................................. $180,493
========
</TABLE>
NOTE 17 -- SEGMENT INFORMATION
The Company has three reportable operating segments, Newspaper Publishing,
Professional Information and Magazine Publishing. The Newspaper Publishing
segment publishes daily metropolitan newspapers in the east coast and west coast
regions of the United States, as well as several weekly newspapers. The
Professional Information segment publishes aeronautical charts and flight
information. The Magazine Publishing segment publishes special interest and
trade magazines.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on several factors, of which the primary financial measure is
segment operating profit. Total revenue by industry segment includes sales to
unaffiliated customers and intersegment sales, which are accounted at market
price. Revenues are attributed to geographic areas based on the location of the
assets producing the revenues.
Corporate and Other includes operations not directly related to the
operating segments and general corporate activities including corporate overhead
expenses, corporate investment income, interest expense on corporate debt and
the activities of the Company's affiliates, Eagle New Media and Eagle
Publishing. The Corporate and Other assets are principally comprised of cash and
cash equivalents, marketable securities and other investments. Substantially all
of the Company's investments accounted for under the equity method are in
Corporate and Other.
34
<PAGE> 35
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial data for the Company's segments is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Newspaper Publishing.............................. $2,308,178 $2,179,244 $2,074,692
Professional Information.......................... 211,929 195,339 185,207
Magazine Publishing............................... 262,683 248,712 234,192
---------- ---------- ----------
Total reportable segments....................... 2,782,790 2,623,295 2,494,091
Corporate and Other............................... 1,198 21,845 56,938
Intersegment Revenues............................. -- (5) (27)
---------- ---------- ----------
$2,783,988 $2,645,135 $2,551,002
========== ========== ==========
OPERATING PROFIT (LOSS)(1)
Newspaper Publishing.............................. $ 297,433 $ 402,207 $ 307,512
Professional Information.......................... 43,858 55,659 55,517
Magazine Publishing............................... (14,232) 18,309 8,753
---------- ---------- ----------
Total reportable segments....................... 327,059 476,175 371,782
Corporate and Other............................... (79,261) (84,897) (61,097)
---------- ---------- ----------
$ 247,798 $ 391,278 $ 310,685
========== ========== ==========
IDENTIFIABLE ASSETS
Newspaper Publishing.............................. $1,999,880 $1,792,286 $1,836,158
Professional Information.......................... 96,765 87,354 85,866
Magazine Publishing............................... 271,457 263,521 244,254
---------- ---------- ----------
Total reportable segments....................... 2,368,102 2,143,161 2,166,278
Corporate and Other............................... 1,600,199 355,996 444,845
Discontinued Operations........................... 189,628 672,671 568,272
---------- ---------- ----------
$4,157,929 $3,171,828 $3,179,395
========== ========== ==========
DEPRECIATION AND AMORTIZATION
Newspaper Publishing.............................. $ 116,116 $ 106,919 $ 104,743
Professional Information.......................... 6,852 6,648 6,675
Magazine Publishing............................... 7,740 7,040 6,050
---------- ---------- ----------
Total reportable segments....................... 130,708 120,607 117,468
Corporate and Other............................... 4,467 3,457 2,990
---------- ---------- ----------
$ 135,175 $ 124,064 $ 120,458
========== ========== ==========
CAPITAL EXPENDITURES
Newspaper Publishing.............................. $ 107,479 $ 78,760 $ 63,698
Professional Information.......................... 15,825 9,535 7,790
Magazine Publishing............................... 1,651 2,243 10,849
---------- ---------- ----------
Total reportable segments....................... 124,955 90,538 82,337
Corporate and Other............................... 6,593 22,543 4,989
---------- ---------- ----------
$ 131,548 $ 113,081 $ 87,326
========== ========== ==========
</TABLE>
- ---------------
(1) Includes restructuring, one-time and other charges as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C> <C>
Newspaper Publishing................................ $ 116,388 $ 18,000
Professional Information............................ 11,889 --
Magazine Publishing................................. 29,072 --
---------- ----------
Total reportable segments......................... 157,349 18,000
Corporate and Other................................. 17,021 --
---------- ----------
$ 174,370 $ 18,000
========== ==========
</TABLE>
The pre-tax charges in 1998 are comprised of restructuring and one-time
charges of $155,681 and other charges that did not qualify for accounting
classification as restructuring charges of $18,689.
35
<PAGE> 36
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Substantially all revenue and assets of the Company's reportable segments
are attributed to or located in the United States. Non-U.S. revenues represent
less than 3% of total revenues and are principally related to the Company's
flight information business in Germany.
Significant non-cash items excluding depreciation and amortization, were
non-cash restructuring, one time and other charges in 1998 as follows (in
thousands):
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Newspaper Publishing....................................... $19,043
Professional Information................................... 6,967
Magazine Publishing........................................ 20,718
-------
Total reportable segments................................ 46,728
Corporate and Other........................................ 6,055
-------
$52,783
=======
</TABLE>
A reconciliation of operating profit to income from continuing operations
before income taxes is set forth in the Company's Consolidated Statements of
Income on page 5.
The Company does not have a single external customer who represents 10% or
more of its revenue.
NOTE 18 -- 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 the Company's 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) an increase in the use of alternate media such as
the Internet for classified and other advertising; (e) an increase in expenses
related to new initiatives and product improvement efforts in the flight
information operating units; (f) unfavorable foreign currency fluctuations; and
(g) a general economic downturn resulting in decreased consumer and corporate
spending on discretionary items such as magazines or newspapers.
36
<PAGE> 37
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the unaudited quarterly results of operations restated for
discontinued operations (see Note 3) follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1998 QUARTERS ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues............................. $658,767 $698,007 $ 677,128 $750,086
Costs and expenses:
Cost of sales...................... 366,130 369,804 368,140 340,449
Selling, general and administrative
expenses........................ 206,812 206,789 216,303 306,082
Restructuring and one-time
charges......................... -- 34,850 46,262 74,569
-------- -------- ---------- --------
Operating profit..................... 85,825 86,564 46,423 28,986
Interest expense, net................ (8,001) (13,831) (5,008) (1,755)
Equity income (loss)................. (4,884) (2,204) 1,223 (2,326)
Other, net........................... 4,397 10,015 7,950 11,630
-------- -------- ---------- --------
Income from continuing operations
before income taxes................ 77,337 80,544 50,588 36,535
Income tax provision................. 31,915 31,928 31,293 15,809
-------- -------- ---------- --------
Income from continuing operations.... 45,422 48,616 19,295 20,726
Discontinued operations, net......... (161) 585 1,057,254 225,601
-------- -------- ---------- --------
Net income........................... $ 45,261 $ 49,201 $1,076,549 $246,327
======== ======== ========== ========
Basic earnings per share:
Continuing operations.............. $ .45 $ .49 $ .16 $ .19
Discontinued operations............ -- .01 12.55 2.86
-------- -------- ---------- --------
Basic earnings per share............. $ .45 $ .50 $ 12.71 $ 3.05
======== ======== ========== ========
Diluted earnings per share:
Continuing operations.............. $ .44 $ .48 $ .16 $ .19
Discontinued operations............ -- .01 12.26 2.80
-------- -------- ---------- --------
Diluted earnings per share........... $ .44 $ .49 $ 12.42 $ 2.99
======== ======== ========== ========
</TABLE>
37
<PAGE> 38
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 QUARTERS ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues............................ $627,368 $658,771 $643,514 $715,482
Costs and expenses:
Cost of sales..................... 334,756 338,811 350,113 371,980
Selling, general and
administrative expenses........ 206,806 206,667 200,985 243,739
-------- -------- -------- --------
Operating profit.................... 85,806 113,293 92,416 99,763
Interest expense, net............... (5,791) (6,641) (9,164) (11,681)
Equity income (loss)................ (974) (160) 336 (1,080)
Other, net.......................... 3,247 19,260 8,053 9,816
-------- -------- -------- --------
Income from continuing operations
before income taxes............... 82,288 125,752 91,641 96,818
Income tax provision................ 36,513 56,275 35,361 33,695
-------- -------- -------- --------
Income from continuing operations... 45,775 69,477 56,280 63,123
Discontinued operations, net........ (542) (3,491) 10,644 9,046
-------- -------- -------- --------
Net income.......................... $ 45,233 $ 65,986 $ 66,924 $ 72,169
======== ======== ======== ========
Basic earnings (loss) per share:
Continuing operations............. $ .37 $ .63 $ .53 $ .65
Discontinued operations........... -- (.03) .11 .11
-------- -------- -------- --------
Basic earnings per share............ $ .37 $ .60 $ .64 $ .76
======== ======== ======== ========
Diluted earnings (loss) per share:
Continuing operations............. $ .36 $ .61 $ .51 $ .63
Discontinued operations........... -- (.03) .11 .10
-------- -------- -------- --------
Diluted earnings per share.......... $ .36 $ .58 $ .62 $ .73
======== ======== ======== ========
</TABLE>
NOTE 20 -- COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are defendants in actions for 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. 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.
To assure a long-term supply of newsprint for the Los Angeles Times, the
Company has an agreement with a supplier to purchase specified quantities of
newsprint at prevailing market prices. The specified quantities represent a
majority of The Times' newsprint requirements.
NOTE 21 -- SUBSEQUENT EVENTS
In February 1999, Eagle New Media Investments, Inc. LLC, an investment
affiliate of the Company, acquired Newport Media, Inc., a publisher of shopper
publications in the Long Island and New Jersey areas, for approximately
$132,000,000.
The Company completed an agreement in May 1999, to merge Hollywood Online,
Inc., and its Web site, hollywood.com, into Big Entertainment, Inc., in exchange
for newly-issued restricted stock of Big Entertainment, Inc. and a note with a
then combined current value of approximately $31,500,000.
38
<PAGE> 39
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In September 1999, the Company completed a transaction (1999 Transaction)
involving agreements with its largest shareholders, the Chandler Trusts. The
1999 Transaction resulted in the formation of a new limited liability company,
TMCT II, LLC (TMCT II), by the Chandler Trusts, the Company and the Company's
affiliates, Eagle New Media Investments, LLC and Eagle Publishing Investments,
LLC (Eagle Companies).
Pursuant to the TMCT II contribution agreement, the Company, the Eagle
Companies and the Chandler Trusts made the following capital contributions to
TMCT II:
1. the Company contributed preferred units issued by the operating
partnerships of 8 unrelated real estate investment trusts (OP REIT
Interests) with an aggregate purchase price of $600,000,000 and
$2,000,000 in cash;
2. the Eagle Companies contributed a total of $633,252,000 in cash or cash
equivalents;
3. the Chandler Trusts contributed 9,306,000 shares of the Company's Series
A common stock, 6,236,000 shares of the Company's Series C common stock,
381,000 shares of the Company's Series C-1 preferred stock and 245,000
shares of the Company's Series C-2 preferred stock (TMCT II Contributed
Shares).
The Company's purchase of the OP REIT Interests was funded with the
proceeds of a $550,000,000 short-term bank line of credit provided by Citibank
and its commercial paper line. The Company is considering various alternatives
with respect to refinancing the line of credit which matures on November 30,
1999. The cash contributed by the Company and the Eagle Companies was used by
TMCT II to purchase a portfolio of securities (TMCT II Portfolio).
The Company, the Eagle Companies and the Chandler Trusts share in the cash
flow, profits and losses of the various assets held by TMCT II. The cash flow
from the OP REIT Interests and the TMCT II Portfolio is largely allocated to the
Chandler Trusts with the remaining portion of the cash flow from the OP REIT
Interests and the TMCT II Portfolio primarily allocated to the Eagle Companies.
The cash flow from the TMCT II Contributed Shares is largely allocated to the
Company with the remaining portion of that cash flow primarily allocated to the
Chandler Trusts. Due to the allocations of the economic benefits in TMCT II, for
financial reporting purposes, 80% of the TMCT II Contributed Shares will be
included in treasury stock, 80% of the preferred dividends on the Series C-1 and
C-2 preferred stock will be excluded from the preferred dividend requirements
and 80% of the dividends on the common stock will be effectively eliminated. The
Company and the Eagle Companies will account for their investment in TMCT II
under the equity method.
In connection with the 1999 Transaction, the Company agreed to use its
reasonable best efforts to replace the outstanding Series C-1 and C-2 preferred
stocks (which are now owned by TMCT II) with new Series D-1 and D-2 preferred
stocks. The new Series D-1 and D-2 preferred stocks will be identical to the
existing Series C-1 and C-2 preferred stocks except that the increases in the
dividend rate on the new Series D-1 and D-2 preferred stocks will be pursuant to
a fixed and certain schedule.
As a result of the 1999 Transaction, for financial reporting purposes, the
following number of shares will be included as treasury stock and excluded from
earnings per share calculations:
1. the number of shares of Series A and C common stocks was reduced by
12,433,000;
2. the number of shares of Series C-1 preferred stock was reduced by
305,000;
3. the number of shares of Series C-2 preferred stock was reduced by
196,000;
The annual preferred dividend requirements will be reduced to $8,055,000
beginning in 2000, assuming the replacement of the Series C-1 and C-2 preferred
stocks with the new Series D-1 and D-2 preferred stocks is completed.
39
<PAGE> 40
THE TIMES MIRROR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In September 1999, the Company also announced its decision to sell the
properties of The Sporting News, a sports related magazine, including
sportingnews.com. The Company has retained an investment banking firm to advise
it on the sale, which is anticipated to be completed by the first quarter of
2000. Additionally, the Company announced its decision to sell certain other
businesses as further described in Note 3 to the Consolidated Financial
Statements.
40
<PAGE> 41
THE TIMES MIRROR COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
COSTS AND CHARGED
BALANCE AT EXPENSES TO DEDUCTIONS BALANCE AT
BEGINNING OR OTHER FROM END OF
OF PERIOD REVENUES ACCOUNTS RESERVES PERIOD
---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful accounts... $27,708 $19,240 $1,610 $(22,602) $25,956
Allowance for returns............. 11,131 59,191 (15) (58,874) 11,433
------- ------- ------ -------- -------
$38,839 $78,431 $1,595(A) $(81,476) $37,389
======= ======= ====== ======== =======
Year ended December 31, 1997
Allowance for doubtful accounts... $25,659 $22,307 $ 836 $(21,094) $27,708
Allowance for returns............. 13,699 53,905 (1,506) (54,967) 11,131
------- ------- ------ -------- -------
$39,358 $76,212 $ (670)(A) $(76,061) $38,839
======= ======= ====== ======== =======
Year ended December 31, 1996
Allowance for doubtful accounts... $23,366 $23,293 $ 60 $(21,060) $25,659
Allowance for returns............. 12,125 58,822 -- (57,248) 13,699
------- ------- ------ -------- -------
$35,491 $82,115 $ 60 $(78,308) $39,358
======= ======= ====== ======== =======
</TABLE>
- ---------------
(A) Primarily allowances of businesses acquired and sold.
Note: A detailed schedule of restructuring liabilities has been provided in Note
6 of the notes to consolidated financial statements.
41
<PAGE> 42
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the
Consolidated Financial Statements that have been audited by Ernst & Young LLP,
independent auditors. The information set forth below is not necessarily
indicative of results of future operations, and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes thereto
included elsewhere in this current report on Form 8-K.
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS EXCEPT PER COMMON SHARE, FINANCIAL RATIOS AND OTHER)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues........................ $2,783,988 $2,645,135 $ 2,551,002 $ 2,528,673 $ 2,498,565
Restructuring and one-time
charges....................... 155,681 -- -- 412,778 --
Operating profit (loss)......... 247,798 391,278 310,685 (268,208) 181,632
Interest income (expense),
net........................... (28,595) (33,277) (13,939) 6,473 (48,334)
Income (loss) from continuing
operations before income
taxes......................... 245,004 396,499 300,254 (253,421) 132,241
Income (loss) from continuing
operations.................... 134,059 234,655 182,258 (209,367) 72,074
Net income(1)................... 1,417,338 250,312 206,444 1,226,751 173,117
PER COMMON SHARE
Basic earnings (loss) from
continuing operations......... $ 1.32 $ 2.18 $ 1.36 $ (2.61) $ .56
Basic earnings.................. 16.46 2.35 1.59 10.02 1.35
Diluted earnings (loss) from
continuing operations(2)...... 1.29 2.12 1.32 (2.61) .56
Diluted earnings................ 16.06 2.29 1.54 10.02 1.34
Dividends declared(3)........... .72 .55 .30 .24 1.08
Dividends paid.................. .72 .55 .36 .45 1.08
FINANCIAL DATA
Current assets(4)(5)............ $1,543,486 $ 474,833 $ 544,335 $ 745,314 $ 464,403
Property, plant and equipment,
net........................... 903,483 920,995 1,080,642 1,085,341 1,196,900
Total assets(5)................. 4,157,929 3,171,828 3,179,395 3,444,641 3,972,885
Long-term debt.................. 941,423 925,404 459,007 247,062 245,522
Shareholders' equity............ 1,342,453 875,999 1,498,810 1,806,236 1,957,043
Capital expenditures(6)......... 131,548 113,081 87,326 90,819 96,242
Operating profit margin(7)...... 15.2% 15.5% 12.2% 7.5% 7.3%
Total debt as a % of adjusted
capitalization................ 48.3% 54.9% 23.5% 12.1% 31.3%
Shareholders' equity per common
share(8)...................... $ 13.45 $ 5.90 $ 9.54 $ 11.64 $ 15.06
OTHER
Adjusted price range of
common........................ $65 13/16 to $61 3/4 to $ 56 to $ 35 1/4 to $26 11/16 to
stock(9).................... 48 15/16 46 1/8 30 5/8 17 1/4 18 5/16
Number of employees at end of
year.......................... 20,619 21,567 20,803 21,877 26,902
Weighted average shares:
Basic......................... 84,813,581 92,571,618 102,113,298 113,797,192 128,611,404
Diluted....................... 86,927,815 97,013,301 105,372,495 113,797,192 128,810,745
Common shares outstanding at end
of year(10)................... 73,381,279 87,903,444 96,729,785 105,698,043 128,617,570
</TABLE>
- ---------------
This summary should be read in conjunction with the consolidated financial
statements and notes thereto.
42
<PAGE> 43
(1) Includes the following after-tax gains (charges) related to discontinued
operations (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996 1995
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
Restructuring, one-time and other
charges........................... $ (47,206) $(7,842) $(30,305) $ (210,381)
Net gain on disposal................ 1,316,686 -- 32,047 1,634,294
---------- ------- -------- ----------
$1,269,480 $(7,842) $ 1,742 $1,423,913
========== ======= ======== ==========
</TABLE>
(2) Includes the $.38 per share impact of the cash paid in excess of
liquidation value on Series B preferred stock repurchases in 1995.
(3) During 1996, the Company began declaring and paying common stock dividends
in the same quarter; previously, dividends were declared in the quarter
prior to payment. As a result, in the third quarter of 1996, no dividends
were declared in order to change to the new procedure.
(4) Excludes net assets of discontinued operations.
(5) Includes proceeds from reorganization in 1998 as described in Notes 3 and 4
to the consolidated financial statements.
(6) Excludes capital expenditures related to discontinued operations.
(7) Excludes restructuring, one-time and other charges as follows (in
thousands): 1998 -- $174,370; 1997 -- $18,000; 1995 -- $458,607.
(8) Based on the common shares outstanding as described in (10) below.
(9) On February 1, 1995, Times Mirror common shareholders received
distributions having a value of $10.45 per Times Mirror common share. The
trading prices prior to February 1, 1995 have been adjusted to reflect
these distributions.
(10) Excludes treasury shares of 38,707,883, 24,151,014 and 1,345,075 at
December 31, 1998, 1997 and 1994, respectively.
43
<PAGE> 44
FIVE-YEAR SUMMARY OF BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
REVENUES
Newspaper Publishing........... $2,308,178 $2,179,244 $2,074,692 $2,057,596 $2,062,954
Professional Information....... 211,929 195,339 185,207 170,849 147,965
Magazine Publishing............ 262,683 248,712 234,192 242,864 236,183
Corporate and Other............ 1,198 21,845 56,938 57,928 51,961
Intersegment Revenues.......... -- (5) (27) (564) (498)
---------- ---------- ---------- ---------- ----------
$2,783,988 $2,645,135 $2,551,002 $2,528,673 $2,498,565
========== ========== ========== ========== ==========
OPERATING PROFIT (LOSS)(1)
Newspaper Publishing........... $ 297,433 $ 402,207 $ 307,512 $ (109,483) $ 194,772
Professional Information....... 43,858 55,659 55,517 55,742 53,075
Magazine Publishing............ (14,232) 18,309 8,753 (73,904) 3,884
Corporate and Other............ (79,261) (84,897) (61,097) (140,563) (70,099)
---------- ---------- ---------- ---------- ----------
$ 247,798 $ 391,278 $ 310,685 $ (268,208) $ 181,632
========== ========== ========== ========== ==========
IDENTIFIABLE ASSETS
Newspaper Publishing........... $1,999,880 $1,792,286 $1,836,158 $1,840,058 $1,987,752
Professional Information....... 96,765 87,354 85,866 77,524 21,748
Magazine Publishing............ 271,457 263,521 244,254 255,358 279,884
Corporate and Other............ 1,600,199 355,996 444,845 606,428 353,915
Discontinued Operations........ 189,628 672,671 568,272 665,273 1,329,586
---------- ---------- ---------- ---------- ----------
$4,157,929 $3,171,828 $3,179,395 $3,444,641 $3,972,885
========== ========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION
Newspaper Publishing........... $ 116,116 $ 106,919 $ 104,743 $ 110,299 $ 114,115
Professional Information....... 6,852 6,648 6,675 5,307 4,845
Magazine Publishing............ 7,740 7,040 6,050 8,112 8,140
Corporate and Other............ 4,467 3,457 2,990 2,824 2,305
---------- ---------- ---------- ---------- ----------
$ 135,175 $ 124,064 $ 120,458 $ 126,542 $ 129,405
========== ========== ========== ========== ==========
CAPITAL EXPENDITURES
Newspaper Publishing........... $ 107,479 $ 78,760 $ 63,698 $ 63,014 $ 79,922
Professional Information....... 15,825 9,535 7,790 10,568 11,428
Magazine Publishing............ 1,651 2,243 10,849 1,060 800
Corporate and Other............ 6,593 22,543 4,989 16,177 4,092
---------- ---------- ---------- ---------- ----------
$ 131,548 $ 113,081 $ 87,326 $ 90,819 $ 96,242
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) Includes restructuring, one-time and other charges as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1995
---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Newspaper Publishing......... $ 116,388 $ 18,000 $ 316,216
Professional Information..... 11,889 -- 1,913
Magazine Publishing.......... 29,072 -- 71,672
Corporate and Other.......... 17,021 -- 68,806
---------- ---------- ----------
$ 174,370 $ 18,000 $ 458,607
========== ========== ==========
</TABLE>
The pre-tax charges in 1998 are comprised of restructuring and one-time
charges of $155,681 and other charges that did not qualify for accounting
classification as restructuring charges of $18,689.
The pre-tax charges in 1995 are comprised of restructuring and one-time
charges of $412,778 and other charges that did not qualify for accounting
classification as restructuring charges of $45,829.
44
<PAGE> 45
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company achieved record earnings in 1998 with net income of $1.42
billion, or $16.06 per share on a diluted basis, compared with 1997 net income
of $250.3 million, or $2.29 per share. The 1998 results reflect:
- An after-tax gain of $1.35 billion, or $15.50 per share, on the
disposition of Matthew Bender/Shepard's and Mosby and $30.8 million, or
$.35 per share, of after-tax losses associated with discontinuance of
certain other businesses.
- Completion of the Company's business operations review which resulted in
pre-tax charges of $155.7 million, or $1.17 per share, and additional
pre-tax charges of $18.7 million, or $.13 per share, that did not qualify
for accounting classification as restructuring charges.
- Income from continuing operations for 1998 of $246.5 million, or $2.59
per share, excluding these charges. Including the charges, income from
continuing operations was $134.1 million, or $1.29 per share.
- Growth in revenues at all three of the Company's business segments
contributing to an increase in revenues of 5.2% to $2.78 billion in 1998
compared with $2.65 billion in the prior year.
- Loss from discontinued operations for 1998, net of taxes, of $33.4
million, or $.38 per share, compared to income from discontinued
operations for 1997, net of taxes, of $15.7 million, or $.17 per share.
- Share purchases in 1998 which reduced the number of shares of common
stock outstanding for financial reporting purposes to 73.4 million at
December 31, 1998 compared with 87.9 million at December 31, 1997.
The Company's operating performance improved modestly in 1998, with growth
in both revenues and operating profit, excluding restructuring, one-time and
other charges. The Company's performance reflects an increasing focus on its
core Newspaper Publishing segment, which represents more than 80% of the
Company's revenues and operating profit, following the restatement for
discontinued operations described below. In 1998, revenues and operating profit
at the Company's Eastern Newspapers, excluding restructuring, one-time and other
charges, reached record highs and offset slow revenue growth and a decline in
operating earnings at the Los Angeles Times, the Company's largest newspaper. To
address these issues at The Times, significant changes were initiated in the
second half of 1998 to improve operating performance.
For 1998, income from continuing operations rose to $246.5 million, or
$2.59 per share, excluding restructuring, one-time and other charges. In 1997,
the Company reported income from continuing operations of $234.7 million, or
$2.12 per share, including fourth-quarter pre-tax charges of $18.0 million, or
$.11 per share, for specifically identified cost reduction programs that were
not classified as restructuring charges. Excluding these charges, income from
continuing operations for 1997 was $245.3 million, or $2.23 per share. The
increase in earnings per share was due largely to share purchases in 1998 that
reduced the number of average shares outstanding for financial reporting
purposes, as well as a reduction in preferred dividend requirements due to a
recapitalization in the third quarter of 1997 and the Company's redemption of
its Series B preferred stock.
DISCONTINUED OPERATIONS
On September 3, 1999, Times Mirror announced its decision to sell
AchieveGlobal, Inc., a professional training company; Allen Communication, an
interactive software and training courseware developer and The StayWell Company,
a health improvement information company. The Company decided to sell these
businesses in order to concentrate on its core strengths in newspaper
publishing, flight information and magazine publishing. The Company has retained
investment banking firms to advise it on the sale of these
45
<PAGE> 46
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
businesses. These dispositions are anticipated to be completed by the first
quarter of 2000. The accompanying financial statements have been restated for
all periods presented to reflect these businesses as discontinued operations.
On July 31, 1998, the Company completed the divestiture of Matthew Bender &
Company, Incorporated and its 50% ownership in legal citation provider Shepard's
to an affiliate of Reed Elsevier, Inc. in a transaction valued at $1.65 billion.
Additionally, on October 9, 1998, the Company completed the divestiture of
Mosby, Inc., its health science and medical publisher, to Harcourt General, Inc.
in a transaction valued at $415.0 million.
On August 26, 1998, the Company determined that Apartment Search, Inc., its
apartment location business, would be discontinued and recorded an estimated
loss on disposal of $28.2 million, including a provision for operating losses
through the expected date of disposal. The total estimated loss is included in
discontinued operations within "Net gain on disposal, net of income taxes." The
Company subsequently sold Apartment Search in March 1999. Results of
discontinued operations primarily include AchieveGlobal, Allen Communication,
StayWell, Matthew Bender, Mosby, the Shepard's joint venture and Apartment
Search (See Note 3 to the Consolidated Financial Statements for further
information).
SHARE PURCHASES
Share purchases continued in 1998 through open market transactions,
accelerated purchases and purchases by an affiliated limited liability company.
A total of 16.7 million Series A common shares were acquired during 1998 which
more than offset 2.1 million shares issued as a result of the exercise of stock
options.
46
<PAGE> 47
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS
The following table summarizes the Company's financial results (in
millions, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................. $2,784.0 $2,645.1 $2,551.0
Restructuring and one-time charges................... 155.7 -- --
Operating profit..................................... 247.8 391.3 310.7
Interest expense, net................................ (28.6) (33.3) (13.9)
Other, net........................................... 25.8 38.5 3.5
Income from continuing operations, net of income
taxes.............................................. 134.1 234.7 182.3
Discontinued operations:
Income (loss) from operations, net of income
taxes........................................... (33.4) 15.7 (7.9)
Net gain on disposal, net of income taxes.......... 1,316.7 -- 32.0
Net income........................................... 1,417.3 250.3 206.4
Preferred dividend requirements...................... 21.7 32.5 43.6
Earnings applicable to common shareholders........... 1,395.6 217.8 162.8
Basic earnings per share:
Continuing operations.............................. $ 1.32 $ 2.18 $ 1.36
Discontinued operations............................ 15.14 .17 .23
-------- -------- --------
Basic earnings per share............................. $ 16.46 $ 2.35 $ 1.59
======== ======== ========
Diluted earnings per share:
Continuing operations.............................. $ 1.29 $ 2.12 $ 1.32
Discontinued operations............................ 14.77 .17 .22
-------- -------- --------
Diluted earnings per share........................... $ 16.06 $ 2.29 $ 1.54
======== ======== ========
Weighted average shares (in thousands):
Basic.............................................. 84,814 92,572 102,113
======== ======== ========
Diluted............................................ 86,928 97,013 105,372
======== ======== ========
</TABLE>
1998 COMPARED WITH 1997
Revenues in 1998 reached record highs, increasing 5.2% over the prior year
due to higher revenues in all of the Company's business segments (See further
discussion of segment results under the caption "Analysis by Segment"). The rate
of growth slowed in the second half, reflecting some weakening in certain
markets and advertising categories.
Operating profit totaled $422.2 million in 1998 compared to $409.3 million
in 1997, excluding restructuring, one-time and other charges. The increase in
1998 operating profit was primarily due to reduced expense levels in Corporate
and Other, which was partially offset by decreases in operating profit in the
Newspaper and Magazine Publishing segments (See further discussion of segment
results under the caption "Analysis by Segment"). Including restructuring,
one-time and other charges, operating profit decreased to $247.8 million in
1998.
Earnings per share for 1998 benefited principally from the net gain on
divestitures, as well as a reduction in the average number of common shares
outstanding and lower preferred dividend requirements. Preferred dividend
requirements in 1998 declined due to the 1997 recapitalization and the Company's
redemption of its Series B preferred stock.
47
<PAGE> 48
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net interest expense declined in 1998 due to an increase in interest income
resulting from investment activity of the affiliated limited liability companies
created as part of the Matthew Bender and Mosby transactions. Higher interest
income more than offset a rise in interest expense primarily due to increased
debt levels attributable to common stock purchases, the 1997 third quarter
recapitalization and new acquisitions.
1997 COMPARED WITH 1996
The Company's revenues grew 3.7% in 1997 due to revenue growth in all of
the Company's business segments (See further discussion of segment results under
the caption "Analysis by Segment").
Operating profit increased 31.7% in 1997, excluding 1997 charges for
specifically identified cost reduction programs, reflecting improvements
primarily in the Newspaper and Magazine Publishing segments (See further
discussion of segment results under the caption "Analysis by Segment").
Including these charges, operating profit increased 25.9% in 1997 compared to
the prior year.
Net income in 1997 rose $43.9 million, or 21.2%, from 1996. The 1996 net
income included a $32.0 million net gain on the sale of the college publishing
businesses and certain other professional information companies. The results of
the Company's college publishing businesses are included as discontinued
operations for 1996.
Earnings per share in 1997 benefited from higher earnings and lower
preferred dividend requirements, as well as a reduction in average number of
common shares outstanding due to share repurchases and the 1997
recapitalization.
Net interest expense rose to $33.3 million in 1997, an increase of $19.3
million, primarily due to the issuance of commercial paper and long-term debt
which generated proceeds of $537.6 million in 1997 as well as lower interest
income compared to 1996.
ANALYSIS BY SEGMENT
The following sections discuss the segment results of the Company's
principal lines of business excluding restructuring, one-time and other charges
of $174.4 million and $18.0 million for 1998 and 1997, respectively, unless
specifically stated otherwise.
NEWSPAPER PUBLISHING
Newspaper Publishing revenues and operating profit were as follows (dollars
in millions):
<TABLE>
<CAPTION>
1998 CHANGE 1997 CHANGE 1996
-------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Revenues
Advertising................. $1,787.3 6.2% $1,682.8 6.9% $1,574.4
Circulation................. 434.4 (.2) 435.3 (2.7) 447.6
Other....................... 86.5 41.6 61.1 16.0 52.7
-------- -------- --------
$2,308.2 5.9% $2,179.2 5.0% $2,074.7
======== ======== ========
Operating profit.............. $ 297.4 (26.0)% $ 402.2 30.8% $ 307.5
======== ======== ========
Operating profit excluding
restructuring, one-time and
other charges............... $ 413.8 (1.5)% $ 420.2 36.6% $ 307.5
======== ======== ========
</TABLE>
48
<PAGE> 49
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1998 Results
In 1998, the Eastern Newspapers, including Newsday and The Baltimore Sun,
achieved record high revenues and operating profit results, but the Newspaper
Publishing segment's operating profit overall was reduced by sluggish
advertising revenues and higher expense levels at the Los Angeles Times related
to ongoing growth initiatives. Accordingly, the Newspaper Publishing's operating
profit margin decreased to 17.9% in 1998 from 19.3% in 1997.
Newspaper Publishing revenues rose to a record high in 1998 due primarily
to classified advertising revenue growth at the Eastern Newspapers as well as
incremental revenues from acquisitions. Excluding incremental revenues related
to the acquisitions of This Week in October 1997 and The Recycler in May 1998,
advertising revenues rose 3.9%.
For 1998, newsprint expense rose 15.1%, as the average price per ton
increased by 8.1%. In addition, daily circulation gains at the Company's largest
newspapers and acquisitions contributed to an increase in newsprint consumption
of 6.5%. Non-newsprint expense rose 2.4% for 1998, excluding acquisitions as
well as restructuring, one-time and other charges.
Total circulation averages for the Newspaper Publishing segment for the
six-month period ended September 30, 1998, as reported by the Company to the
Audit Bureau of Circulations, were 2,335,767 daily, an increase of 22,235, or
1.0%, and 3,043,004 Sunday, an increase of 3,550, or 0.1%. At The Times, average
daily circulation for the six-month period ended September 30, 1998 was
1,067,540, an increase of 17,364, or 1.7%, and Sunday, 1,361,201, basically even
with the level reported for the six-month period ended September 30, 1997. At
Newsday, average daily circulation was 572,444, an increase of 3,603, or 0.6%,
and Sunday was 671,214, an increase of 6,226, or 0.9%. Circulation revenues for
1998 were slightly lower compared to 1997 as marketing strategies involving
pricing and promotional discounts reduced circulation revenues but resulted in
circulation volume gains.
In 1998, the Newspaper Publishing segment recorded $102.5 million of
restructuring and one-time charges and $13.9 million of additional charges that
did not qualify for accounting classification as restructuring charges. These
charges consisted primarily of termination benefits, contract termination costs
and asset write-offs.
1997 Results
The Newspaper Publishing segment achieved steady growth in 1997 with gains
in total revenues and operating profit led by strong advertising revenues. In
addition, average circulation increases were achieved at The Times, Newsday, The
Baltimore Sun, The Hartford Courant, The (Stamford) Advocate and Greenwich Time
for the six-month period ended September 30, 1997, as reported by the Company to
the Audit Bureau of Circulations. The operating profit margin for 1997 expanded
to 19.3%, up from 14.8% in the prior year.
Newspaper Publishing segment revenues in 1997 rose on the strength of
higher advertising revenues. Advertising revenues were up in every category,
with particular strength in national and classified advertising. Higher
advertising revenues in 1997 were partly offset by a modest decline in
circulation revenue as the marketing strategies involving pricing and
promotional discounts helped stimulate circulation volume gains but resulted in
lower overall circulation revenues.
Newsprint expense declined 9.7% in 1997 compared to 1996, as lower average
newsprint prices were partly offset by increased consumption resulting from
gains in circulation and advertising volume.
In 1997, the Newspaper Publishing segment's operating profit was impacted
by $18.0 million of charges that were not classified as restructuring charges.
These charges primarily related to the reorganization of the
49
<PAGE> 50
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
circulation department and the absorption of the corporate human resources and
information systems functions at The Times.
PROFESSIONAL INFORMATION
Professional Information revenues and operating profit were as follows
(dollars in millions):
<TABLE>
<CAPTION>
1998 CHANGE 1997 CHANGE 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues............................... $211.9 8.5% $195.3 5.5% $185.2
====== ====== ======
Operating profit....................... $ 43.9 (21.2)% $ 55.7 .3% $ 55.5
====== ====== ======
Operating profit excluding
restructuring, one-time and other
charges.............................. $ 55.7 .2% $ 55.7 .3% $ 55.5
====== ====== ======
</TABLE>
1998 Results
The Professional Information segment's results reflect the discontinuation
of AchieveGlobal, Allen Communication, StayWell, Matthew Bender/Shepard's and
Mosby, which are included in discontinued operations. Results have been restated
accordingly. The Professional Information segment represents the operating
results of Jeppesen Sanderson, the Company's flight information provider.
Revenue for 1998 increased primarily due to higher revenues for navigation and
standard airway manual services. Operating profit was essentially even with the
prior year due to continued higher expenses related to revision activity and
technology initiatives.
In 1998, the Company recorded $8.2 million of restructuring and one-time
charges which consisted primarily of termination benefits, lease termination and
other costs. The Company recorded additional charges of $3.7 million that did
not qualify for accounting classification as restructuring charges. These
charges were primarily to write-off capitalized software costs related to an
abandoned project.
1997 Results
Revenues increased largely due to improvements from Jeppesen Sanderson's
charting and data services. Operating profit was essentially even with the prior
year due to higher expenses for revision activity and technology initiatives.
MAGAZINE PUBLISHING
Magazine Publishing revenues and operating profit (loss) were as follows
(dollars in millions):
<TABLE>
<CAPTION>
1998 CHANGE 1997 CHANGE 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues
Advertising............................ $171.9 7.6% $159.7 11.0% $143.9
Circulation............................ 76.2 1.1 75.4 (3.0) 77.7
Other.................................. 14.6 7.3 13.6 7.8 12.6
------ ------ ------
$262.7 5.6% $248.7 6.2% $234.2
====== ====== ======
Operating profit (loss).................. $(14.2) (100+)% $ 18.3 100+% $ 8.8
====== ====== ======
Operating profit excluding restructuring,
one-time and other charges............. $ 14.8 (18.9)% $ 18.3 100+% $ 8.8
====== ====== ======
</TABLE>
50
<PAGE> 51
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1998 Results
Revenues increased in 1998 due to higher advertising revenues at most of
the magazines. The acquisitions of TransWorld SKATEboarding and Warp in April
1997, Ride BMX and SNAP in January 1998, InterZine Productions, Inc. in February
1998 and Senior Golfer in October 1998 also contributed to higher advertising
revenues. Excluding incremental revenues related to acquisitions, revenues rose
4.2%. Magazine Publishing segment's 1998 operating profit decreased from 1997
due to ongoing investment in the relaunch of The Sporting News, higher paper
costs, as well as the acquisitions of InterZine and Senior Golfer.
Magazine Publishing segment's 1998 restructuring and one-time charges
totaled $29.1 million which consisted primarily of goodwill impairment related
to two titles acquired in 1977 and 1987.
1997 Results
For 1997, Magazine Publishing segment's operating profit more than doubled
due to strong advertising revenues at nearly all magazines as well as operating
improvements at Outdoor Life and The Skiing Company. The acquisitions of
TransWorld SKATEboarding and Warp in April 1997 also contributed to higher
revenues.
CORPORATE AND OTHER
Corporate and Other revenues and operating loss were as follows (dollars in
millions):
<TABLE>
<CAPTION>
1998 CHANGE 1997 CHANGE 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues............................... $ 1.2 (94.5)% $ 21.8 (61.6)% $ 56.9
====== ====== ======
Operating loss......................... $(79.3) (6.6)% $(84.9) 39.0% $(61.1)
====== ====== ======
Operating loss excluding restructuring,
one-time and other charges........... $(62.2) (26.7)% $(84.9) 39.0% $(61.1)
====== ====== ======
</TABLE>
1998 Results
For 1998, revenues declined due to the disposition of Harry N. Abrams,
Incorporated and National Journal, Inc. in the second and third quarters of
1997, respectively. Operating loss decreased in 1998 from 1997 primarily due to
lower employee benefit costs. Additionally, information systems costs were lower
in 1998 due to substantial completion of the Company's conversion to common
financial systems in 1997.
Corporate and Other's 1998 restructuring and one-time charges totaled $15.9
million and $1.1 million for other charges that did not qualify for accounting
classification as restructuring charges. These charges consisted primarily of
termination benefits and lease termination costs.
1997 Results
Revenues for 1997 are lower compared to the prior year due to the
divestitures of Harry N. Abrams, Incorporated and National Journal, Inc. For
1997, Corporate and Other operating loss increased primarily due to higher
severance, employee benefits and information systems conversion costs.
OTHER, NET
1998 Results
In the second half of 1998, the Company sold 441,900 shares of its holdings
in Netscape Communications Corporation (Netscape) stock and purchased an equal
proportion of its 4 1/4% Premium Equity Participating Securities (PEPS)
obligation in the open market. The PEPS hedge the Company's investment
51
<PAGE> 52
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
in Netscape. A $16.0 million pre-tax gain, previously included as a separate
component of shareholders' equity, was recognized on these transactions. Such
transactions may continue from time to time in the future.
For 1998, the Company recorded gains on the disposition of excess real
estate and other assets which were partially offset by equity losses related to
new media and other partnership investments.
1997 Results
During 1997, the Company sold certain equity investments, including Tejon
Ranch Co.; WebTV Network, Inc.; Netscape Communications Corporation; Speedvision
Network, LLC and Outdoor Life Network, LLC, which were partially offset by
writedowns and expenses related to non-operating items as well as losses on the
sale of Harry N. Abrams Inc.; National Journal, Inc. and other assets.
RESTRUCTURING, ONE-TIME AND OTHER CHARGES
In 1998, the Company undertook a comprehensive review of its business
operations to determine areas where operational efficiencies could be achieved
through either product and/or facility consolidation, headcount reductions,
product abandonments, contract terminations or through other measures. The
Company began this review in anticipation of the impact of its significant 1998
divestitures and to better align its overall cost structure and business
configurations. The Company's review led to a major restructuring program that
resulted in the recording of $34.8 million, $46.3 million, and $74.6 million of
charges in the second, third and fourth quarters of 1998, respectively. A
summary of the significant components of the 1998 restructuring program is as
follows (dollars in millions):
<TABLE>
<CAPTION>
NEWSPAPER PROFESSIONAL MAGAZINE CORPORATE
PUBLISHING INFORMATION PUBLISHING AND OTHER TOTAL
---------- ------------ ---------- --------- ------
<S> <C> <C> <C> <C> <C>
Termination benefits.............. $ 43.4 $2.0 $ .2 $10.2 $ 55.8
Contract terminations............. 51.4 -- 4.3 -- 55.7
Goodwill impairments.............. .3 -- 19.7 -- 20.0
Lease termination costs........... 2.3 2.8 1.5 3.1 9.7
Technology asset write-offs....... 4.8 1.4 .1 1.5 7.8
Other costs....................... .3 2.0 3.3 1.1 6.7
------ ---- ----- ----- ------
Total................... $102.5 $8.2 $29.1 $15.9 $155.7
====== ==== ===== ===== ======
</TABLE>
The Company anticipates that the restructuring and one-time charges will
result in future annual expense reductions of at least $25.0 million, beginning
in 1999. These savings are predominately due to reductions in wage-related and
contract payment costs, carrying costs of property and equipment, rent charges,
and a decrease in goodwill amortization. Cost savings may be partially offset by
costs of outsourcing. However, the Company does not believe that the
restructuring plan will result in a significant increase in other expenses or a
reduction in revenues. There are no significant costs that have not been
recognized related to the Company's plans. A discussion of the specific
restructuring activities follows:
TERMINATION BENEFITS
Staff reductions were implemented at substantially all operating units with
the majority of these actions performed within the Newspaper Publishing segment.
The Times recorded severance charges related to 358 full-time and 534 part-time
employees through either voluntary or involuntary programs, primarily occurring
in the fourth quarter of 1998. The Baltimore Sun's termination charges included
81 full-time employees and Newsday determined that 23 full-time and 26 part-time
employees would be released. The staff reductions within the Newspaper
Publishing segment were the result of identified efficiencies from outsourc-
52
<PAGE> 53
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ing opportunities, elimination of duplicate functions and technological
improvements to the Company's processes. In total, termination benefits, which
were largely severance costs, covered 576 full-time and 578 part-time employees
company-wide, of which 189 employees had been released by the end of 1998 with
the majority of employees expected to be released by the second quarter of 1999.
As of December 31, 1998, $4.8 million has been paid out under this program with
the remaining liability (shown below) expected to be substantially paid by the
end of 1999. Certain employees will, however, receive payments over a longer
period of time.
CONTRACT TERMINATIONS
In reviewing the Company's processes, supply contracts and strategic
alliances, the Company identified certain long-term contracts and relationships
which were no longer providing benefits to the Company's current operations. As
a result, the Company recorded charges for contract terminations which included
(i) the termination of a long-term contract related to Newsday's pre-print
distribution business for $34.3 million, (ii) the termination of The Hartford
Courant's long-standing bonus arrangement for $12.0 million and (iii) the
termination of 56 distribution contracts with outside agents at The Times for
$4.9 million.
GOODWILL IMPAIRMENTS
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," impairment charges were taken related to goodwill associated
with two of the Company's magazine titles. These charges were taken as the
result of disappointing market penetration and operating results and were based
on discounted estimated cash flows from future operations.
LEASE TERMINATION COSTS
In connection with the Company's downsizing and/or relocation of offices
primarily at The Times and at Jeppesen Sanderson's German operation, the Company
recorded charges for future operating lease payments and write-offs of leasehold
improvements related to facilities it will vacate. The total lease payment
accrual for periods through 2010 is net of estimated sublease income of $3.4
million. No amounts have been included for any period in which the operating
units will continue to occupy the premises.
TECHNOLOGY ASSET WRITE-OFFS
During mid-1998, the Company determined that its long standing policy of
allowing each operating unit to independently determine its technology
requirements and make related equipment and software purchases was both
inefficient as well as expensive in terms of maintenance, helpdesk, networking
and other support costs. In connection with this decision, the Company
established common hardware and software configurations to provide consistency
across all business units. As a result, many operating units were required to
dispose of a significant amount of technology resources to conform to the common
platform. Total asset write-offs of technology-related equipment were taken in
the quarter in which the equipment was replaced.
OTHER COSTS
In performing a review of its businesses and product offerings, expenses
were recognized for the termination of an Internet venture in the Magazine
Publishing segment, in addition to costs for the abandonment of certain projects
at Jeppesen Sanderson.
53
<PAGE> 54
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table summarizes the restructuring charges by cash versus
non-cash charges and provides information as to 1998 activity in the
restructuring liability account as well as estimated cash flows for the
following years (dollars in millions):
<TABLE>
<CAPTION>
ESTIMATED CASH FLOWS
-------------------------
CASH 1998 1998 BALANCE 2001 AND
DESCRIPTION NON-CASH CHARGE ACTIVITY 12/31/98 1999 2000 THEREAFTER
----------- -------- ------ -------- -------- ----- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Termination benefits........ Cash $ 55.8 $ (4.6) $51.2 $47.2 $ .4 $3.6
Contract terminations....... Cash 55.7 (24.4) 31.3 22.8 3.7 4.8
Goodwill impairments........ Non-cash 20.0 (20.0) -- -- -- --
Lease termination costs..... Cash 6.2 -- 6.2 5.0 .4 .8
Non-cash 3.5 (3.5) -- -- -- --
Technology asset
write-offs................ Cash .8 (.2) .6 .6 -- --
Non-cash 7.0 (7.0) -- -- -- --
Other costs................. Cash 2.8 (2.1) .7 .7 -- --
Non-cash 3.9 (3.9) -- -- -- --
------ ------ ----- ----- ---- ----
Total............. $155.7 $(65.7) $90.0 $76.3 $4.5 $9.2
====== ====== ===== ===== ==== ====
</TABLE>
The Company believes that cash flows from operations will be adequate to
cover future cash outflows under the restructuring program.
OTHER PROGRAM CHARGES
In addition to the charges listed above, the Company also recorded $18.7
million for certain asset write-offs that did not meet the accounting criteria
for classification as "restructuring and one-time charges." These charges, which
principally included other operating asset write-offs, have been classified
within "Selling, general and administrative expenses" in the Consolidated
Statements of Income.
PRIOR YEAR RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1997, the Company recorded pre-tax charges of
$18.0 million for specifically identified cost reduction programs that were not
classified as restructuring charges. As of December 31, 1998, these efforts were
substantially complete.
In 1995, the Company recorded restructuring, impairment and one-time
charges. A summary of the activity with respect to the 1995 restructuring
liability is as follows (dollars in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1998 DECEMBER 31,
1997 CASH PAYMENTS OTHER(1) 1998
------------ ------------- -------- ------------
<S> <C> <C> <C> <C>
1995 Restructuring.................... $43.1 $(19.3) $ (.9) $22.9
</TABLE>
- ---------------
(1) Represents transfers to 1998 restructuring liability.
The remaining 1995 restructuring liability relates primarily to lease
payments on unoccupied properties which will be paid over lease periods
extending to 2010.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating cash requirements are funded primarily by its
operations. Cash generated from operating activities and proceeds from
borrowings have been used primarily to fund acquisitions and capital
expenditures.
54
<PAGE> 55
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
At December 31, 1998, the Company had a $400.0 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 program which is available for
short-term cash requirements. The Company had $298.6 million of commercial paper
outstanding at December 31, 1998 under this credit facility. At March 10, 1999,
the Company had $321.0 million of commercial paper outstanding under this credit
facility. Additionally, the Company has a shelf registration statement for
$300.0 million of securities which has not been utilized. There is no assurance
that the Company will be able to utilize the shelf registration on terms
acceptable to the Company.
During the second quarter of 1998, the Company entered into an uncommitted
bank line of credit which provides for unsecured borrowings up to $250.0 million
of which there were no amounts outstanding at December 31, 1998. At March 10,
1999, the Company had $60.0 million of borrowings outstanding under this line of
credit.
ACQUISITIONS
In February 1999, Eagle New Media acquired Newport Media, Inc., a publisher
of shopper publications in the Long Island and New Jersey areas, for
approximately $132.0 million.
On April 30, 1998, the Company acquired the Los Angeles area business of EZ
Buy & EZ Sell Recycler Corporation (Recycler), consisting primarily of the
Recycler publications in the Los Angeles, Orange, Riverside, San Bernardino and
Ventura counties and a portion of Santa Barbara County for $188.7 million. The
Company also invested in preferred stock and provided a term loan to Target
Media Partners, a new entity that owns all of the non-Los Angeles area assets of
Recycler for a total amount of $34.8 million.
DISPOSITIONS
On September 3, 1999, Times Mirror announced its decision to sell
AchieveGlobal, Inc., a professional training company; Allen Communication, an
interactive software and training courseware developer and The StayWell Company,
a health improvement information company. The Company decided to sell these
businesses in order to concentrate on its core strengths in newspaper
publishing, flight information and magazine publishing. The Company has retained
investment banking firms to advise it on the sale of these businesses. These
dispositions are anticipated to be completed by the first quarter of 2000. The
accompanying financial statements have been restated for all periods presented
to report these businesses as discontinued operations.
On September 3, 1999, the Company also announced its decision to sell the
properties of The Sporting News, a sports related magazine, including
sportingnews.com. The Company has retained an investment banking firm to advise
it on the sale, which is anticipated to be completed by the first quarter of
2000.
The Company signed a definitive agreement on January 10, 1999, to merge
Hollywood Online, Inc., and its Web site, hollywood.com, into Big Entertainment,
Inc., in exchange for newly-issued restricted stock of Big Entertainment, Inc.
at a value to be determined as of the closing date of the merger. This merger
was completed in May 1999 at a then combined current value of approximately
$31.5 million. Additionally, the Company completed the sale of Apartment Search,
Inc. on March 31, 1999.
On July 31, 1998, the Company completed the divestiture of Matthew Bender
in a tax-free reorganization and the sale of the Company's 50% ownership
interest in Shepard's to Reed Elsevier plc. The two transactions were valued at
$1.65 billion in the aggregate. Proceeds from the sale of Shepard's were used to
pay down commercial paper and short-term borrowings of $222.4 million.
Concurrently with the closing of the Matthew Bender transaction, the Company
became the sole manager of Eagle New Media Investments, LLC (Eagle New Media).
At December 31, 1998, the assets of Eagle New Media were $605.8 million of cash
and cash equivalents, $753.0 million of Times Mirror stock, $15.0 million of
marketable securities and $22.3 million of
55
<PAGE> 56
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
other assets. On October 9, 1998, the Company completed the divestiture of
Mosby, Inc. to Harcourt General, Inc. in a transaction valued at $415.0 million.
Concurrently with the closing of the Mosby, Inc. transaction, the Company became
the sole manager of Eagle Publishing Investments, LLC (Eagle Publishing). At
December 31, 1998, the assets of Eagle Publishing were $377.2 million of cash
and cash equivalents, $34.5 million of marketable securities and $20.1 million
of other assets. While the Company believes that the Matthew Bender and Mosby
transactions were completed on a tax-free basis, this position may be subject to
review by the Internal Revenue Service. The Company intends to deploy the assets
of both LLCs to finance acquisitions and investments, including purchases of the
Company's common stock, and does not intend to use those funds for the Company's
general working capital purposes. For financial reporting purposes, Eagle New
Media and Eagle Publishing are consolidated with the financial results of the
Company.
During the 1996 fourth quarter, the Company completed the exchange of its
college publishing businesses for Shepard's, a primary legal citation service.
The Company recognized a gain of $121.6 million on the exchange of its college
publishing businesses and the sale of its Spanish-language medical book
publisher, Doyma Libros, and recorded a writedown of $16.7 million for the
January 1997 disposal of certain net assets of CRC Press, Inc. The pre-tax net
gain on disposal of $104.9 million amounted to $32.0 million after applicable
taxes, primarily related to differences in the book and tax bases of the assets,
and is included within "Net gain on disposal, net of income taxes."
COMMON SHARE PURCHASES
Share purchases of the Company's Series A common shares continued in 1998
through a combination of open market transactions, accelerated purchases and
purchases by Eagle New Media. The Company and Eagle New Media purchased 16.7
million shares of its Series A common stock during 1998. In 1997, the Company
purchased 9.0 million shares of its Series A common stock.
Included in the 1998 purchases are 13.3 million shares of Series A common
stock acquired by Eagle New Media. The 1998 share purchases also include 4.0
million shares that were purchased by Eagle New Media in the fourth quarter of
1998 as part of an accelerated purchase agreement. The shares were purchased at
the closing price on the date of the agreement for $54.69 per share. The
agreement provides for a purchase price adjustment based on a pro-rata
settlement over a one-year period. The agreement, which is due to mature in the
fourth quarter of 1999, provides for settlement of the purchase price adjustment
on a net share basis. Additionally, in February 1999, the Company purchased 1.0
million Series A common stock at a price of $63.35 per share in connection with
a forward purchase agreement entered into in 1998.
The Company believes that the purchase of shares of its common stock is an
attractive investment for Eagle New Media which will also enhance Times Mirror
shareholder value as well as offset dilution from shares of common stock issued
under the Company's stock-based employee compensation and benefit programs. In
October 1998, the Board of Directors authorized the purchase of an additional
amount of up to 6.0 million shares of its Series A common stock either directly
or in the Company's capacity as manager of affiliated limited liability
companies. In February 1999, the Board of Directors authorized the purchase of
an additional amount of up to 6.0 million shares of its Series A common stock.
As of March 10, 1999, the Company and its affiliates are authorized to purchase
5.8 million shares of Series A common stock. The purchases by the Company and
its affiliates are expected to be made during the next two years 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. At December 31, 1998, on a
consolidated basis for financial reporting purposes, the number of shares of
common stock outstanding totaled 73.4 million compared with 87.9 million at
December 31, 1997.
56
<PAGE> 57
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1999 RECAPITALIZATION
In September 1999, the Company completed a recapitalization transaction
with its largest shareholders, the Chandler Trusts. The 1999 recapitalization
resulted in a net effective reduction, for financial reporting purposes, in the
number of shares of the Series A and C common stocks by 12.4 million shares and
in Series C-1 and C-2 preferred stocks by .5 million shares. Also, in connection
with the 1999 recapitalization, the Company agreed to use its reasonable best
efforts to replace the outstanding Series C-1 and C-2 preferred stocks with new
Series D-1 and D-2 preferred stocks. The new Series D-1 and D-2 preferred stocks
will be identical to the existing Series C-1 and C-2 preferred stocks except
that the increases in the dividend rate on the new Series D-1 and D-2 preferred
stocks will be pursuant to a fixed and certain schedule. As a result of the
effective reduction of preferred stock and the intended replacement of the
preferred stock, the preferred dividend requirements will be reduced to $8.1
million annually. Additionally, the Company entered into an agreement with
Citibank for a $550.0 million bank line of credit maturing on November 30, 1999.
Currently, the Company expects to refinance this line of credit in October 1999.
(See Note 21 to the Consolidated Financial Statements for further information).
1997 RECAPITALIZATION
In August 1997, the Company completed a recapitalization transaction with
its largest shareholders, the Chandler Trusts. The 1997 transaction resulted in
a net effective reduction in the number of shares of Series A common stock by
6.0 million shares and in the stated value of Series A preferred stock by $367.5
million, as well as the issuance of two new series of preferred stock, Series
C-1 and Series C-2. The changes in preferred stock resulted in a reduction of
preferred dividend requirements to $21.7 million annually. In connection with
the 1997 recapitalization transaction, the Company entered into a property
financing arrangement, which added net debt of $57.8 million, and issued $250.0
million of 6.61% Debentures due September 15, 2027 (See Note 2 to the
Consolidated Financial Statements for further information).
CASH FLOW
The following table sets forth certain items from the Consolidated
Statements of Cash Flows (dollars in millions):
<TABLE>
<CAPTION>
1998 1997
-------- ------
<S> <C> <C>
Net cash provided by operating activities of continuing
operations................................................ $ 268.7 $355.1
Proceeds from reorganization as described in Notes 3 and
4......................................................... 2,022.2 --
Acquisitions, net of cash acquired.......................... (200.8) (37.6)
Capital expenditures........................................ (131.5) (113.1)
Purchase of Times Mirror's common stock, including exercise
of put options, net of premiums received.................. (964.7) (468.5)
Net issuance of commercial paper, short-term borrowings and
long-term debt............................................ 213.0 537.6
</TABLE>
Cash generated by operating activities of continuing operations for 1998
was lower compared to 1997 due primarily to restructuring expenditures as well
as lower operating profit.
Capital expenditures for 1998 were higher compared to 1997 largely
reflecting building renovations in the Newspaper Publishing segment and costs
related to Year 2000 requirements. Capital expenditures for 1999 are expected to
be $190.0 million due to the Company's continuing investments for future growth,
particularly in the Newspaper Publishing segment, which includes facility
renovations and conversion to a 50-inch web at The Times. In addition, the
Company expects to increase spending related to information technology projects,
including Year 2000 requirements.
57
<PAGE> 58
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Total debt at December 31, 1998 rose to $1.25 billion from $1.06 billion at
December 31, 1997 primarily due to the issuance of commercial paper.
DIVIDENDS
Cash dividends of $.72 and $.55 per share of common stock were declared for
the years ended December 31, 1998 and 1997, respectively. In February 1999, the
Board of Directors approved an increase in the quarterly dividend on its common
stock to $.20 per share, from $.18 per share, beginning with the March 10, 1999
payment date.
MARKET RISK
The Company enters into contractual agreements in the ordinary course of
business to hedge its exposure to changes in interest rates, the value of
foreign currencies relative to the U.S. dollar and newsprint prices.
Counterparties to these agreements are major institutions. Such agreements are
not entered into for trading purposes.
The Company's debt portfolio is managed to maintain a balance of fixed and
variable rate obligations. The Company utilizes interest rate swap agreements to
help maintain the overall interest rate parameters set by management. During
1998, the Company entered into interest rate swap agreements on the 6.61%
Debentures and 7 1/4% Debentures for notional amounts of $250.0 million and
$148.0 million, respectively, to match potential exposure related to over $1.0
billion of variable rate investments held by Eagle New Media and Eagle
Publishing. As a result of this interest rate mix, a hypothetical 10% change in
interest rates would not have a material impact on the Company's results of
operations or the fair values of its market risk sensitive financial instruments
for the years ended December 31, 1998 and 1997.
The Company periodically enters into foreign exchange forward contracts or
uses other hedging strategies to substantially limit its exposure to changes in
foreign currency rates. As such, changes in currency rates would not have a
material impact on the Company's results of operations for the years ended
December 31, 1998 and 1997.
The Company periodically enters into newsprint hedging contracts not
exceeding five years to manage the Company's exposure to newsprint price
fluctuations. A hypothetical 10% change in newsprint prices would not have a
material impact on the Company's results of operations, financial position or
cash flows for the years ended December 31, 1998 and 1997.
IMPACT OF YEAR 2000
The Company is preparing for the impact of the arrival of the Year 2000 on
its business, as well as on the businesses of its customers, suppliers and
business partners. The "Year 2000 Issue" is the result of computer programs
written using two digits rather than four to define the applicable year. The
Company's computer equipment and software and devices with embedded technology
that are time-sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000 or process dates prior to or after the year 2000 in error.
This could result in a system failure or miscalculations causing disruptions of
operations including, among other things, a temporary inability to receive and
process advertising orders, prepare editorial content, operate press facilities,
package and deliver products, issue invoices, or engage in similar normal
business activities.
58
<PAGE> 59
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
STATE OF READINESS
The Company has instituted a comprehensive program to address potential
Year 2000 impacts for information technology and non-information technology
systems. This program involves the following phases:
Inventory -- This phase entails a comprehensive inventory of all items that
may be affected by the Year 2000 issue. These items include hardware and
software (e.g., business and operational applications, operating systems and
third-party products), production facilities that may be at risk, and key
third-party services whose Year 2000 failures may significantly impact the
Company. The Inventory phase is substantially complete.
Assessment/Planning -- Items identified in the inventory phase are assessed
based on criticality to the Company's business operations and potential impact
of failure. This phase is targeted to be substantially complete by March 31,
1999.
Remediation -- This phase involves reprogramming or replacing inventoried
items to ensure they are Year 2000 ready in accordance with the plans identified
during the Assessment/Planning phase. For those systems that are not expected to
be operational after January 1, 2000, detailed manual workaround plans will be
developed. Remediation is targeted to be substantially complete by June 30,
1999.
Testing -- This phase includes defining test plans, establishing a test
environment, developing test cases, performing testing (with third parties if
necessary), and certifying and documenting the results. The certification
process entails having subject matter experts (users) review test results,
including computer screens and printouts against pre-established criteria to
ensure system compliance. Testing and production implementation is targeted to
be substantially complete by September 30, 1999.
Contingency Planning -- This phase focuses on reducing the risk of Year
2000-induced business disruptions to help ensure the Company's ability to
produce a minimum acceptable level of outputs and services in the event of
internal or external critical systems failures. The Company has begun to develop
contingency plans aimed at ensuring the continuity of critical business
functions before and after December 31, 1999. The plans include increasing
levels of consumable inventory, such as newsprint, ink and printing plates.
Furthermore, the Company has begun to develop reasonably likely failure
scenarios for its critical information technology systems, external
relationships and the embedded systems in its critical facilities. Once these
scenarios are identified, the Company will develop plans that are designed to
reduce the impact on the Company, and provide methods of returning to normal
operations, if one or more of those scenarios occur. Contingency Planning is
targeted to be substantially complete by September 30, 1999.
The Company believes that its Year 2000 project is on schedule. The table
below lists the percentage complete for each project phase as of December 31,
1998. The project has been designated as the highest priority of the Company's
information technology departments.
<TABLE>
<CAPTION>
PERCENT COMPLETE AS OF TARGETED DATE FOR
PROJECT PHASE DECEMBER 31, 1998 SUBSTANTIAL COMPLETION
------------- ---------------------- ----------------------
<S> <C> <C>
Inventory........................................ 99% March 1999
Assessment/Planning.............................. 95% March 1999
Remediation...................................... 66% June 1999
Testing.......................................... 43% September 1999
Contingency Planning............................. 14% September 1999
</TABLE>
EXTERNAL RELATIONSHIPS
The Company also faces the risk that one or more of its significant
suppliers or other third-party businesses ("external relationships") will not be
able to interact with the Company due to the third party's inability to resolve
its own Year 2000 issues. The Company has completed its inventory of external
59
<PAGE> 60
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
relationships and is evaluating each relationship based upon the potential
business impact, available alternatives and cost of substitution. The Company is
also attempting to determine the overall Year 2000 readiness of its external
relationships. In the case of mission critical suppliers such as newsprint,
banks, telecommunications providers and other utilities and information
technology vendors, the Company is engaged in discussions with such third
parties and is attempting to obtain detailed information as to their Year 2000
plans and state of readiness. The Company is pursuing written assurances from
its significant suppliers and significant other third-party businesses that they
will be Year 2000 compliant. However, the Company has no means of ensuring that
such suppliers or third parties will be Year 2000 ready. The inability of these
third parties to complete their Year 2000 resolution process in a timely fashion
could have a material adverse effect on the Company. Risk assessment, readiness
evaluation and action plans related to these third parties are expected to be
completed in the second quarter of 1999.
YEAR 2000 COSTS
Internal and external resources have been utilized to perform all phases of
the Year 2000 project. Total capital costs are estimated at $32.8 million for
the purchase of systems and total expenses, excluding internal costs of
employees listed below, are estimated at $9.7 million. These estimates include
information technology and non-information technology systems including costs
associated with planned replacements that have been accelerated due to the Year
2000 issue. Through December 31, 1998, the Company had capitalized $15.8 million
for the replacement of mainframe computers, editorial and advertising systems,
and expensed $3.8 million for project management, contract programming, and
consulting services. An average of 70 employees worked on Year 2000 efforts
during 1998. This represents estimated internal costs of $4.8 million. During
1999, the Company expects an average of 85 employees will work on the project
with related costs expected to approximate $6.4 million. Year 2000 costs are
funded through operating cash flows. Although priorities have been realigned,
the Company has not deferred significant systems enhancements to become Year
2000 ready.
YEAR 2000 RISKS
Management believes that it has an effective program in place to address
its Year 2000 issues in a timely manner and anticipates the necessary
modifications, replacement and testing of critical systems to be substantially
complete in the third quarter of 1999, subject to uncertainties as discussed
below. As a result, the Year 2000 issue is not expected to pose significant
operational or financial issues for the Company. The Company's expectations
regarding its Year 2000 efforts are subject to various uncertainties that could
cause the actual results to differ materially from the discussion above. These
uncertainties include the success of the Company in identifying systems that are
not Year 2000 ready; the nature and amount of programming required to upgrade or
replace each of the affected systems; the availability, rate and magnitude of
related labor and consulting costs; and the success of vendors, suppliers and
other third parties with which the Company interacts in addressing the Year 2000
issue. If the Company, its vendors, suppliers or such other parties are unable
to resolve the Year 2000 issue on schedule, the Company may not be able to
prepare and distribute its publications in a timely manner, which may have a
material adverse effect on the Company's results of operations.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
In 1998, the Company divested Matthew Bender & Company, Incorporated and
Mosby, Inc. While the Company believes that these divestitures were completed on
a tax-free basis, this position may be subject to review by the Internal Revenue
Service. The Company estimated deferred taxes of $176.6 million based on its
assessment of the risks inherent in a contested challenge by the Internal
Revenue Service. To the extent that the estimate of such deferred taxes is
adjusted in the course of resolving such a challenge, the adjustment will
60
<PAGE> 61
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
be recorded within discontinued operations. If it is ultimately determined that
these transactions were not completed on a tax-free basis, the Company's results
of operations, financial position and cash flow may be materially adversely
affected.
Certain statements set forth above and elsewhere in this current report on
Form 8-K are forward-looking in nature and related to trends and events that may
affect the Company's future financial position and operating results. Such
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The term "expect," "anticipate," and
"intend" and similar words or expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
report. These statements are based on current expectations, are inherently
uncertain, are subject to risks, and should be viewed with caution. For example,
there can be no assurances that the statements contained herein with respect to
the Company's Year 2000 efforts and the satisfactory resolution of contingent
liabilities will be achieved. Actual results and experience may differ
materially from the forward-looking statements and could be adversely affected
by a number of factors. Some of these factors are described in Note 18 to the
Consolidated Financial Statements. It is not possible to foresee or identify all
such factors. The Company makes no commitment to update any forward-looking
statement or to disclose any facts, events, or circumstances after the date
hereof that may affect the accuracy of any forward-looking statements.
DISCUSSIONS EXCLUDING RESTRUCTURING, ONE-TIME AND OTHER CHARGES
Management's discussion and analysis of its results of operations presents
information regarding operating profit as well as operating profit excluding the
impact of restructuring, one-time and other charges. The Company believes that
the financial information which excludes restructuring, one-time and other
charges is necessary to an understanding of its operations and provides for a
more comparable analysis of historical results as well as indications of future
financial performance.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations under the caption "Liquidity and
Capital Resources -- Market Risk."
61
<PAGE> 62
(This page intentionally left blank)
62
<PAGE> 63
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES.................................................... $699,207 $658,767
COSTS AND EXPENSES:
Cost of sales............................................. 391,037 366,130
Selling, general and administrative expenses.............. 215,869 206,812
-------- --------
606,906 572,942
OPERATING PROFIT............................................ 92,301 85,825
Interest expense............................................ (19,804) (13,141)
Interest income............................................. 13,503 5,140
Other, net.................................................. 1,035 (487)
-------- --------
Income from continuing operations before income tax
provision................................................. 87,035 77,337
Income tax provision........................................ 36,986 31,915
-------- --------
Income from continuing operations........................... 50,049 45,422
Loss from discontinued operations, net of income tax
benefit................................................... (1,236) (161)
-------- --------
NET INCOME.................................................. 48,813 45,261
Preferred dividend requirements............................. 5,424 5,424
-------- --------
Earnings applicable to common shareholders.................. $ 43,389 $ 39,837
======== ========
Basic earnings (loss) per share:
Continuing operations..................................... $ .61 $ .45
Discontinued operations................................... (.02) --
-------- --------
Basic earnings per share.................................... $ .59 $ .45
======== ========
Diluted earnings (loss) per share:
Continuing operations..................................... $ .60 $ .44
Discontinued operations................................... (.02) --
-------- --------
Diluted earnings per share.................................. $ .58 $ .44
======== ========
Weighted average shares:
Basic..................................................... 73,076 88,335
======== ========
Diluted................................................... 77,434 90,740
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
63
<PAGE> 64
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 880,607 $1,052,999
Marketable securities..................................... 34,540 49,438
Accounts receivable, less allowance for doubtful accounts
and returns of $41,466 and $37,389..................... 317,192 311,913
Inventories............................................... 35,269 28,438
Deferred income taxes..................................... 31,970 32,279
Prepaid expenses.......................................... 44,786 30,141
Net assets of discontinued operations..................... 201,643 189,628
Other current assets...................................... 20,455 38,278
---------- ----------
Total current assets.............................. 1,566,462 1,733,114
Property, plant and equipment, net.......................... 918,340 903,483
Goodwill, net............................................... 531,790 501,463
Other intangibles, net...................................... 187,830 100,373
Deferred charges............................................ 116,136 113,244
Equity investments.......................................... 150,391 141,454
Prepaid pension costs....................................... 425,330 419,471
Investments and other assets................................ 300,307 245,327
---------- ----------
Total assets...................................... $4,196,586 $4,157,929
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
64
<PAGE> 65
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 176,289 $ 179,415
Short-term debt........................................... 432,027 312,610
Employees' compensation................................... 76,716 93,145
Unearned income........................................... 149,508 146,323
Restructuring............................................. 46,977 91,903
Other current liabilities................................. 128,283 98,106
----------- -----------
Total current liabilities......................... 1,009,800 921,502
Long-term debt.............................................. 991,269 941,423
Deferred income taxes....................................... 344,198 373,623
Postretirement benefits..................................... 224,966 226,018
Unearned income............................................. 73,134 72,457
Other liabilities........................................... 253,495 257,893
----------- -----------
Total liabilities................................. 2,896,862 2,792,916
Common stock subject to put options......................... 39,740 22,560
Commitments and contingencies
Shareholders' equity
Preferred stock, $1 par value; stated at liquidation
value; convertible to
Series A common stock:
Series A: 900,000 shares authorized; 824,000 shares
issued and outstanding.............................. 411,784 411,784
Series C-1: 381,000 shares authorized, issued and
outstanding......................................... 190,486 190,486
Series C-2: 245,000 shares authorized, issued and
outstanding......................................... 122,550 122,550
Preferred stock, $1 par value; 23,035,000 shares
authorized; no shares issued or outstanding
Common stock, $1 par value:
Series A: 500,000,000 shares authorized; 86,943,000 and
86,831,000 shares issued and outstanding.............. 86,943 86,831
Series B: 100,000,000 shares authorized; no shares
issued or outstanding
Series C: Convertible to Series A common stock;
300,000,000 shares authorized; 25,176,000 and
25,258,000 shares issued and outstanding.............. 25,176 25,258
Additional paid-in capital................................ 1,263,988 1,278,916
Retained earnings......................................... 1,661,445 1,653,736
Accumulated other comprehensive income.................... 17,673 26,491
----------- -----------
3,780,045 3,796,052
Less treasury stock at cost:
Series A common stock: 39,822,000 and 38,708,000 shares
and Series A preferred stock: 735,000 shares.......... (2,520,061) (2,453,599)
----------- -----------
Total shareholders' equity........................ 1,259,984 1,342,453
----------- -----------
Total liabilities and shareholders' equity........ $ 4,196,586 $ 4,157,929
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
65
<PAGE> 66
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
----------------------
1999 1998
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities of continuing
operations............................................. $ 8,010 $ 36,176
Net cash provided by (used in) operating activities of
discontinued operations................................ (5,188) 11,618
---------- --------
Net cash provided by operating activities......... 2,822 47,794
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired........................ (138,710) (12,487)
Capital expenditures...................................... (35,593) (22,774)
Purchases of investments.................................. (25,420) (3,400)
Sale of marketable securities, net........................ 14,898 --
Proceeds from sales of assets............................. 9,139 5,253
Notes receivable.......................................... -- (47,600)
Other, net................................................ -- (10,769)
---------- --------
Net cash used in investing activities of continuing
operations............................................ (175,686) (91,777)
Net cash used in investing activities of discontinued
operations............................................ (2,074) (7,247)
---------- --------
Net cash used in investing activities............. (177,760) (99,024)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of commercial paper and short-term
borrowings............................................. 119,482 82,684
Proceeds from exercise of stock options................... 19,795 20,669
Purchases of Times Mirror common stock.................... (94,639) (320)
Dividends paid............................................ (19,928) (21,338)
Exercise of put options, net of premiums received......... (11,361) 627
Principal repayments of other debt........................ (10,847) (39,621)
Other, net................................................ 44 (30)
---------- --------
Net cash provided by financing activities......... 2,546 42,671
---------- --------
Decreases in cash and cash equivalents...................... (172,392) (8,559)
Cash and cash equivalents at beginning of year.............. 1,052,999 44,794
---------- --------
Cash and cash equivalents at end of period.................. $ 880,607 $ 36,235
========== ========
</TABLE>
See notes to condensed consolidated financial statements.
66
<PAGE> 67
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PREPARATION
The accompanying unaudited 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 Article
10 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. The balance
sheet at December 31, 1998 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and accompanying notes included in this current report on
Form 8-K which restates certain information for the year ended December 31,
1998.
Certain amounts in previously issued financial statements have been
reclassified to conform to the 1999 presentation. Financial information in the
accompanying notes to Condensed Consolidated Financial Statements exclude
discontinued operations, except where noted.
NOTE 2 -- COMPREHENSIVE INCOME
During the first quarters of 1999 and 1998, total comprehensive income
amounted to $39,995,000 and $45,380,000, respectively. Comprehensive income for
the 1999 first quarter differs from net income primarily due to reclassification
adjustments for realized gains that are recognized in net income, which were
previously included as part of comprehensive income.
NOTE 3 -- DISCONTINUED OPERATIONS
On September 3, 1999, Times Mirror announced its decision to sell
AchieveGlobal, Inc., a professional training company; Allen Communication, an
interactive software and training courseware developer and The StayWell Company,
a health improvement information company. The Company decided to sell these
businesses in order to concentrate on its core strengths in newspaper
publishing, flight information and magazine publishing. The Company has retained
investment banking firms to advise it on the sale of these businesses. These
dispositions are anticipated to be completed by the first quarter of 2000. The
accompanying financial statements have been restated for all periods presented
to reflect these businesses as discontinued operations.
During 1998, the Company completed the divestitures of Matthew Bender &
Company, Incorporated, its 50% interest in the Shepard's joint venture and
Mosby, Inc. Additionally, the Company determined that Apartment Search, Inc.
would be treated as discontinued operations in 1998 and subsequently sold the
business on March 31, 1999. Results for discontinued operations include
AchieveGlobal, Allen Communica-
67
<PAGE> 68
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
tion, StayWell, Apartment Search, Inc., as well as, Matthew Bender, Mosby, and
the Shepard's joint venture which were 1998 divestitures. Income from
discontinued operations is summarized as follows (in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
-------------------------
1999 1998
--------- ------------
<S> <C> <C>
Revenues.................................................... $ 49,731 $145,133
-------- --------
Income (loss) before income taxes........................... (1,082) 393
Income taxes................................................ 154 554
-------- --------
Loss from discontinued operations........................... $ (1,236) $ (161)
======== ========
</TABLE>
The assets and liabilities of discontinued operations have been classified
in the Condensed Consolidated Balance Sheets as net assets of discontinued
operations and consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Accounts receivable, net.................................... $ 45,452 $ 58,256
Other current assets........................................ 30,597 49,310
Goodwill, net............................................... 62,228 62,861
Other intangibles, net...................................... 67,455 68,256
Other assets................................................ 33,253 36,824
-------- --------
Total assets...................................... 238,985 275,507
Current liabilities......................................... 30,717 77,164
Non-current liabilities..................................... 6,625 8,715
-------- --------
Total liabilities................................. 37,342 85,879
-------- --------
Net assets of discontinued operations............. $201,643 $189,628
======== ========
</TABLE>
The major components of cash flow for discontinued operations are as
follows (in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
-------------------------
1999 1998
--------- ------------
<S> <C> <C>
Loss from discontinued operations........................... $ (1,236) $ (161)
Depreciation and amortization............................... 2,429 8,246
Provision for deferred income taxes......................... (116) 26,511
Other, net.................................................. (6,265) (22,978)
-------- --------
Net cash provided by (used in) operating activities of
discontinued operations................................ $ (5,188) $ 11,618
======== ========
Capitalization of product costs............................. $ (1,280) $ (3,926)
Capital expenditures........................................ (799) (2,819)
Other, net.................................................. 5 (502)
-------- --------
Net cash used in investing activities of discontinued
operations............................................. $ (2,074) $ (7,247)
======== ========
</TABLE>
68
<PAGE> 69
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 -- RESTRUCTURING LIABILITY
A summary of the activity in the restructuring liabilities is as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1995
RESTRUCTURING RESTRUCTURING TOTAL
------------- ------------- --------
<S> <C> <C> <C>
Balance at December 31, 1998.................... $89,999 $22,905 $112,904
Cash payments................................. (44,761) (2,834) (47,595)
------- ------- --------
Balance at March 31, 1999....................... $45,238 $20,071 $ 65,309
======= ======= ========
</TABLE>
During the quarter ended March 31, 1999, cash spent on restructuring
efforts was primarily for severance payments of $25,976,000, contract
termination costs of $17,010,000, and lease payments of $4,093,000. At March 31,
1999, the remaining liability for severance costs aggregated $26,880,000.
The balance sheet classification of restructuring liabilities is as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Restructuring -- current liabilities:
1995 Restructuring........................................ $14,821 $ 15,722
1998 Restructuring........................................ 32,156 76,181
Other liabilities:
1995 Restructuring........................................ 5,250 7,183
1998 Restructuring........................................ 13,082 13,818
------- --------
$65,309 $112,904
======= ========
</TABLE>
The current portion of restructuring is comprised primarily of severance
and lease payments while the non-current portion is comprised primarily of
contract termination and extended payout of severance arrangements, as well as
lease payments which will be paid over lease periods extending to 2010. The
Company periodically assesses the adequacy of its remaining restructuring
liabilities and makes adjustments, if required. The net change in the
restructuring liabilities as a result of these reviews was not significant.
69
<PAGE> 70
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 -- DEBT
Debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Short-term debt:
Commercial paper at weighted average interest rates of
4.9% and 5.3%.......................................... $292,940 $298,603
Short-term borrowings at a weighted average interest rate
of 5.0%................................................ 125,000 --
Current maturities of long-term debt...................... 7,375 7,440
Other notes payable at interest rates of 5.1% and 5.4%.... 6,712 6,567
-------- --------
Total short-term debt............................. $432,027 $312,610
======== ========
Long-term debt:
6.61% Debentures due September 15, 2027, net of
unamortized discount of $97 and $98.................... $249,903 $249,902
4.75% Liquid Yield Option Notes due April 15, 2017, net of
unamortized discount of $285,638 and $288,129.......... 214,362 211,871
7 1/4% Debentures due March 1, 2013....................... 148,215 148,215
7 1/4% Debentures due November 15, 2096, net of
unamortized discount of $558 and $559.................. 147,442 147,441
7 1/2% Debentures due July 1, 2023........................ 98,750 98,750
Property financing obligation expiring on August 8, 2009,
net of unamortized discount of $156,128 and $158,080,
with an effective interest rate of 4.3%................ 45,206 47,088
4 1/4% PEPS due March 15, 2001; 803,100 and 863,100
securities stated at fair value........................ 94,766 45,596
-------- --------
998,644 948,863
Less current maturities................................... (7,375) (7,440)
-------- --------
Total long-term debt.............................. $991,269 $941,423
======== ========
</TABLE>
Interest rate swaps outstanding at March 31, 1999 converted the weighted
average interest rate on the 7 1/4% Debentures due November 15, 2096, the 6.61%
Debentures, the 7 1/2% Debentures and the Liquid Yield Option Notes (LYONs(TM))
from 6.3% to 5.3% for the quarter ended March 31, 1999.
The 4 1/4% Premium Equity Participating Securities (PEPS) hedge the
Company's investment in the common stock of America Online, Inc. (AOL) which
acquired Netscape Communications Corporation (Netscape) in the first quarter of
1999. As a result of that acquisition, each share of Netscape common stock was
converted into 0.9 of a share of AOL common stock. The amount payable at
maturity with respect to each PEPS will equal 90% of 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 maturity date, subject to adjustment as a result of
certain dilution events involving AOL. Holders of the PEPS bear the full risk of
a decline in the value of AOL. The Company is not obligated to hold the AOL
stock for any period or sell the AOL stock prior to the PEPS maturity or
redemption date.
The PEPS are redeemable at the option of the Company, in whole or in part,
at any time after December 15, 2000. The redemption value of each PEPS is the
product of (a) the redemption ratio, as defined below, (b) 90% 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
70
<PAGE> 71
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
date. The redemption ratio will equal (a) 100%, if the market value of one share
of AOL common stock is less than $43.61, or (b) a fraction, the numerator of
which is $43.61 and the denominator of which is the market value of AOL common
stock, if such market value is equal to or exceeds $43.61 but less than or equal
to $50.16, or (c) 86.96%, if the market value of AOL common stock exceeds
$50.16.
The PEPS are recorded at fair market value as determined in the open market
and will generally move in tandem with changes in the fair market value of AOL
common stock. The net unrealized loss on the PEPS at March 31, 1999 and December
31, 1998 is $37,472,000 and $6,928,000, respectively, net of applicable income
taxes, and is included in accumulated other comprehensive income. During the
1999 first quarter, the Company sold 54,000 shares of AOL stock and purchased a
proportionate share of its PEPS in the open market for a total pre-tax gain of
$3,110,000.
NOTE 6 -- EARNINGS AND DIVIDENDS PER SHARE
The following table sets forth the calculation of basic and diluted
earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Earnings:
Income from continuing operations......................... $50,049 $45,422
Preferred stock dividends................................. (5,424) (5,424)
------- -------
Earnings applicable to common shareholders for basic
earnings per share..................................... 44,625 39,998
LYONs interest expense, net of tax........................ 1,476 --
------- -------
Earnings applicable to common shareholders for diluted
earnings per share..................................... $46,101 $39,998
======= =======
Shares:
Weighted average shares for basic earnings per share...... 73,076 88,335
Effect of convertible securities:
Stock options.......................................... 1,444 2,405
LYONs convertible debt................................. 2,914 --
------- -------
4,358 2,405
------- -------
Adjusted weighted average shares and assumed conversions
for diluted earnings per share......................... 77,434 90,740
======= =======
Basic earnings per share from continuing operations....... $ .61 $ .45
======= =======
Diluted earnings per share from continuing operations..... $ .60 $ .44
======= =======
</TABLE>
The Company has convertible securities that are not included in the
calculation of diluted earnings per share because the effects are antidilutive.
Cash dividends of $.20 and $.18 per share of common stock were declared for
the quarters ended March 31, 1999 and 1998, respectively.
NOTE 7 -- CAPITAL STOCK AND STOCK PURCHASE PROGRAM
The Company's stock purchase program, which includes the issuance of put
options from time to time, is described in Note 13 to the Consolidated Financial
Statements in this current report on Form 8-K which restate certain information
for the year ended December 31, 1998. Share purchases of the Company's Series A
71
<PAGE> 72
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
common shares continued in the first quarter of 1999 through a combination of a
forward purchase agreement, put options and open market purchases by Eagle New
Media Investments, LLC (Eagle New Media), an investment affiliate of the
Company. The Company and Eagle New Media purchased 1,784,000 shares of its
Series A common stock during the quarter ended March 31, 1999, which more than
offset shares issued as a result of the exercise of stock options.
At March 31, 1999, the Company had 700,000 put options outstanding with an
average strike price of approximately $56.65. The put options, which have
various expiration dates primarily in the second quarter of 1999, 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."
NOTE 8 -- STOCK OPTIONS
During the quarter ended March 31, 1999, the Company issued 666,000 shares
of its common stock as a result of the exercise of stock options.
The Company has various stock option plans under which options may be
granted to key employees to purchase shares of Series A common stock at a price
equal to the fair market value at the date of grant. During the 1999 first
quarter, the Company granted 2,276,000 options under these plans. The Company
also granted each eligible employee 100 stock options on March 1, 1999. This
grant resulted in the issuance of approximately 1,700,000 stock options at an
option price of $56.3125, which was equal to fair value at the date of grant.
These options will be fully vested on March 1, 2002 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 the Company's 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) an increase in the use of alternate media such as
the Internet for classified and other advertising; (e) an increase in expenses
related to new initiatives and product improvement efforts in the flight
information operating unit; (f) unfavorable foreign currency fluctuations; (g)
material changes in tax liability due to unfavorable reviews by taxing
authorities; (h) the inability of the Company, its vendors, suppliers or other
third parties with which the Company interacts to resolve the Year 2000 issue in
a timely manner; and (i) a general economic downturn resulting in decreased
consumer and corporate spending on discretionary items such as magazines or
newspapers.
NOTE 10 -- CONTINGENT LIABILITIES
The Company and its subsidiaries are defendants in actions for 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. 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
72
<PAGE> 73
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
resolution in any reporting period of one or more of these matters could have a
material impact on results of operations for that period.
NOTE 11 -- ACQUISITION AND DISPOSITIONS
On February 12, 1999, Eagle New Media acquired Newport Media, Inc., a
publisher of shopper publications in the Long Island and New Jersey areas, for
approximately $132,000,000. The acquisition was accounted for by the purchase
method with the results of operations included in the Company's financial
statements from the date of acquisition. The purchase price has been allocated
primarily to goodwill and other intangible assets based on a preliminary
valuation of Newport Media. Pro forma results for the quarters ended March 31,
1999 and 1998, assuming the acquisition occurred on January 1 of the respective
year, would not be materially different from the results reported.
The Company signed a definitive agreement on January 10, 1999, to merge
Hollywood Online, Inc., and its Web site, hollywood.com, into Big Entertainment,
Inc., in exchange for newly-issued restricted stock of Big Entertainment, Inc.
at a value to be determined as of the closing date of the merger. This merger
was completed in May 1999 at a then combined current value of approximately
$31.5 million. Additionally, the Company completed the sale of Apartment Search,
Inc. in March 1999. The estimated loss on sale of Apartment Search, including a
provision for operating losses through the date of disposal was recorded in the
third quarter of 1998.
73
<PAGE> 74
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 12 -- SEGMENT INFORMATION
Financial data for the Company's segments is as follows (in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES
Newspaper Publishing...................................... $573,546 $542,921
Professional Information.................................. 56,297 50,000
Magazine Publishing....................................... 68,839 65,645
-------- --------
Total Reportable Segments......................... 698,682 658,566
Corporate and Other....................................... 525 201
-------- --------
$699,207 $658,767
======== ========
OPERATING PROFIT (LOSS)
Newspaper Publishing...................................... $ 91,672 $ 90,154
Professional Information.................................. 15,733 12,836
Magazine Publishing....................................... 3 (223)
-------- --------
Total Reportable Segments......................... 107,408 102,767
Corporate and Other....................................... (15,107) (16,942)
-------- --------
$ 92,301 $ 85,825
======== ========
DEPRECIATION AND AMORTIZATION
Newspaper Publishing...................................... $ 31,632 $ 28,965
Professional Information.................................. 1,717 1,722
Magazine Publishing....................................... 1,992 1,945
-------- --------
Total Reportable Segments......................... 35,341 32,632
Corporate and Other....................................... 1,161 1,054
-------- --------
$ 36,502 $ 33,686
======== ========
CAPITAL EXPENDITURES
Newspaper Publishing...................................... $ 30,046 $ 17,232
Professional Information.................................. 2,863 3,168
Magazine Publishing....................................... 846 433
-------- --------
Total Reportable Segments......................... 33,755 20,833
Corporate and Other....................................... 1,838 1,941
-------- --------
$ 35,593 $ 22,774
======== ========
</TABLE>
A reconciliation of operating profit to income from continuing operations
before income taxes is set forth in the Company's Condensed Consolidated
Statements of Income on page 63.
74
<PAGE> 75
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Identifiable assets of the Company's segments are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Newspaper Publishing....................................... $2,162,265 $1,999,880
Professional Information................................... 93,751 96,765
Magazine Publishing........................................ 278,511 271,457
---------- ----------
Total Reportable Segments........................ 2,534,527 2,368,102
Corporate and Other........................................ 1,460,416 1,600,199
Discontinued Operations.................................... 201,643 189,628
---------- ----------
$4,196,586 $4,157,929
========== ==========
</TABLE>
NOTE 13 -- SUBSEQUENT EVENTS
In September 1999, the Company completed a transaction (1999 Transaction)
involving agreements with its largest shareholders, Chandler Trust No. 1 and
Chandler Trust No. 2 (Chandler Trusts). The 1999 Transaction resulted in the
formation of a new limited liability company, TMCT II, LLC (TMCT II), by the
Chandler Trusts, the Company and the Company's affiliates, Eagle New Media
Investments, LLC and Eagle Publishing Investments, LLC (Eagle Companies).
Pursuant to the TMCT II contribution agreement, the Company, the Eagle
Companies and the Chandler Trusts made the following capital contributions to
TMCT II:
1. the Company contributed preferred units issued by the operating
partnerships of 8 unrelated real estate investment trusts (OP REIT
Interests) with an aggregate purchase price of $600,000,000 and
$2,000,000 in cash;
2. the Eagle Companies contributed a total of $633,252,000 in cash or cash
equivalents;
3. the Chandler Trusts contributed 9,306,000 shares of the Company's Series
A common stock, 6,236,000 shares of the Company's Series C common stock,
381,000 shares of the Company's Series C-1 preferred stock and 245,000
shares of the Company's Series C-2 preferred stock (TMCT II Contributed
Shares).
The Company's purchase of the OP REIT Interests was funded with the
proceeds of a $550,000,000 short-term bank line of credit provided by Citibank
and its commercial paper line. The Company is considering various alternatives
with respect to refinancing the line of credit which matures on November 30,
1999. The cash contributed by the Company and the Eagle Companies was used by
TMCT II to purchase a portfolio of securities (TMCT II Portfolio).
The Company, the Eagle Companies and the Chandler Trusts share in the cash
flow, profits and losses of the various assets held by TMCT II. The cash flow
from the OP REIT Interests and the TMCT II Portfolio is largely allocated to the
Chandler Trusts with the remaining portion of the cash flow from the OP REIT
Interests and the TMCT II Portfolio primarily allocated to the Eagle Companies.
The cash flow from the TMCT II Contributed Shares is largely allocated to the
Company with the remaining portion of that cash flow primarily allocated to the
Chandler Trusts. Due to the allocations of the economic benefits in TMCT II, for
financial reporting purposes, 80% of the TMCT II Contributed Shares will be
included in treasury stock, 80% of the preferred dividends on the Series C-1 and
C-2 preferred stock will be excluded from the preferred dividend requirements
and 80% of the dividends on the common stock will be effectively eliminated. The
Company and the Eagle Companies will account for their investment in TMCT II
under the equity method.
75
<PAGE> 76
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In connection with the 1999 Transaction, the Company agreed to use its
reasonable best efforts to replace the outstanding Series C-1 and C-2 preferred
stocks (which are now owned by TMCT II) with new Series D-1 and D-2 preferred
stocks. The new Series D-1 and D-2 preferred stocks will be identical to the
existing Series C-1 and C-2 preferred stocks except that the increases in the
dividend rate on the new Series D-1 and D-2 preferred stocks will be pursuant to
a fixed and certain schedule.
As a result of the 1999 Transaction, for financial reporting purposes, the
following number of shares will be included as treasury stock and excluded from
earnings per share calculations:
1. the number of shares of Series A and C common stocks was reduced by
12,433,000;
2. the number of shares of Series C-1 preferred stock was reduced by
305,000;
3. the number of shares of Series C-2 preferred stock was reduced by
196,000;
The annual preferred dividend requirements will be reduced to $8,055,000
beginning in 2000 assuming the replacement of the Series C-1 and C-2 preferred
stocks with the new Series D-1 and D-2 preferred stocks is completed.
In September 1999, the Company also announced its decision to sell the
properties of The Sporting News, a sports related magazine, including
sportingnews.com. The Company has retained an investment banking firm to advise
it on the sale, which is anticipated to be completed by the first quarter of
2000. Additionally, the Company announced its decision to sell certain other
businesses as further described in Note 3 to the Condensed Consolidated
Financial Statements.
76
<PAGE> 77
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
The following table summarizes the Company's consolidated financial results
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED MARCH 31,
------------------------------
1999 1998 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Revenues............................................. $699,207 $658,767 6.1%
Operating profit..................................... 92,301 85,825 7.5
Interest expense, net................................ 6,301 8,001 (21.2)
Other, net........................................... 1,035 (487) (100.0)+
Income from continuing operations.................... 50,049 45,422 10.2
Loss from discontinued operations, net of income tax
benefit............................................ (1,236) (161) 100.0+
Net income........................................... 48,813 45,261 7.8
Preferred dividend requirements...................... 5,424 5,424 --
Earnings applicable to common shareholders........... 43,389 39,837 8.9
Basic earnings (loss) per share:
Continuing operations.............................. $ .61 $ .45 35.6
Discontinued operations............................ (.02) -- (100.0)+
-------- --------
Basic earnings per share............................. $ .59 $ .45 31.1
======== ========
Diluted earnings (loss) per share:
Continuing operations.............................. $ .60 $ .44 36.4
Discontinued operations............................ (.02) -- (100.0)+
-------- --------
Diluted earnings per share........................... $ .58 $ .44 31.8
======== ========
Weighted average shares:
Basic.............................................. 73,076 88,335 (17.3)
======== ========
Diluted............................................ 77,434 90,740 (14.7)
======== ========
</TABLE>
Revenues for the 1999 first quarter rose compared to the prior year first
quarter due to higher revenues in all of the Company's business segments,
including the effects of acquisitions (See further discussion of segment results
under the caption "Analysis by Segment").
Operating profit for the 1999 first quarter was higher compared to the 1998
first quarter, reflecting increases in the Newspaper Publishing and Professional
Information segments and lower Corporate and Other expenses (See further
discussion of segment results under the caption "Analysis by Segment"). The 1999
first quarter operating profit was affected by lower pension income as a result
of a $4.0 million reduction in the amortization of the transition asset.
Earnings per share for the first quarter of 1999 increased compared to the
first quarter of 1998 due to a reduction in the weighted average number of
shares outstanding, higher operating profit and lower net interest expense.
Net interest expense declined for the first quarter of 1999 compared to the
prior year first quarter due to an increase in interest income resulting from
investment activity of the Company's affiliated limited liability companies.
Higher interest income more than offset a rise in interest expense primarily due
to higher debt levels for share purchases and prior year acquisitions.
77
<PAGE> 78
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ANALYSIS BY SEGMENT
NEWSPAPER PUBLISHING
Newspaper Publishing revenues and operating profit were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED MARCH 31,
------------------------------
1999 1998 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Revenues:
Advertising......................................... $455,851 $424,353 7.4%
Circulation......................................... 105,505 106,853 (1.3)
Other............................................... 12,190 11,715 4.1
-------- --------
$573,546 $542,921 5.6%
======== ========
Operating profit...................................... $ 91,672 $ 90,154 1.7%
======== ========
</TABLE>
Newspaper Publishing operating profit increased in the 1999 first quarter
compared to the prior year first quarter due largely to strong gains at the
Company's Eastern newspapers, including the effects of acquisitions.
Double-digit operating profit gains at Newsday and The Baltimore Sun more than
offset a small expected decline in operating profit at the Los Angeles Times,
where all the expected annual expense reductions contemplated in the 1998
restructuring program have not yet been realized.
Newspaper Publishing revenues rose in the 1999 first quarter compared to
the 1998 first quarter reflecting the additions of the Recycler, acquired in
April 1998; Newport Media, Inc., acquired in February 1999; and ValuMail,
acquired in March 1999. Excluding acquisitions, revenues in the 1999 first
quarter rose 2.0%, with Eastern newspapers up 2.8% and The Times up 1.1% from
the prior year's quarter. Advertising revenues increased in the 1999 first
quarter compared to the prior year first quarter, led by the Eastern newspapers.
Excluding acquisitions, 1999 first quarter advertising revenues rose 3.3%, with
Eastern newspapers up 4.3% and The Times up 2.3%. For The Times, growth in
national advertising as well as real estate and automotive classified
advertising helped offset continued weakness in the classified help-wanted
category.
The Newspaper Publishing segment achieved steady improvements in both
average daily and Sunday circulations at the Company's largest newspapers,
according to the six-month period ended March 31, 1999 publisher's statements to
the Audit Bureau of Circulations. Circulation revenue, however, declined
slightly as marketing strategies involving pricing and promotional discounts,
largely at The Times, helped stimulate circulation volume gains but resulted in
lower overall circulation revenues. Excluding acquisitions, circulation revenues
declined 3.2% for the first quarter of 1999 compared to the first quarter of
1998.
Newsprint expense for the 1999 first quarter remained level with the prior
year first quarter as price declines offset consumption increases due to higher
circulation and advertising volume. Additionally, newsprint expense was only
partially affected by newsprint price declines due to the Company's use of
newsprint hedging contracts. For the remainder of 1999, increases in newsprint
consumption from higher circulation and advertising volume are expected to be
modestly offset by less consumption due to the conversion of The Times printing
presses from a 54-inch newsprint web to a 50-inch newsprint web. The Times will
convert its printing presses throughout the year, which is expected to reduce
its newsprint consumption by as much as 7.0% on an annual basis. Including the
effects of acquisitions, other expenses for the segment were up 8.1%. Excluding
newsprint and acquisitions, other expenses for the segment rose 3.1%, due in
part to higher benefit costs and increased information technology expense.
78
<PAGE> 79
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
PROFESSIONAL INFORMATION
Professional Information revenues and operating profit were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED MARCH 31,
-------------------------------
1999 1998 CHANGE
-------- -------- -------
<S> <C> <C> <C>
Revenues................................................ $56,297 $50,000 12.6%
======= ======= ====
Operating profit........................................ $15,733 $12,836 22.6%
======= ======= ====
</TABLE>
The Professional Information segment's results reflect the discontinuation
of AchieveGlobal, Allen Communication, StayWell, Matthew Bender/Shepard's and
Mosby, which are included in discontinued operations. Results have been restated
accordingly. The Professional Information segment represents the operating
results of Jeppesen Sanderson, the Company's flight information provider.
Revenues and operating profit at Jeppesen Sanderson rose primarily due to higher
revenues for charting and data services.
MAGAZINE PUBLISHING
Magazine Publishing revenues and operating profit (loss) were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED MARCH 31,
-----------------------------
1999 1998 CHANGE
------- ------- -------
<S> <C> <C> <C>
Revenues:
Advertising......................................... $45,316 $42,835 5.8%
Circulation......................................... 20,040 19,601 2.2%
Other............................................... 3,483 3,209 8.5%
------- ------- -------
$68,839 $65,645 4.9%
======= ======= =======
Operating profit (loss)............................... $ 3 $ (223) (100.0+)%
======= ======= =======
</TABLE>
Magazine Publishing achieved advertising revenue gains at most of the
magazines in the first quarter of 1999. The acquisition of Senior Golfer in
October 1998 and the special publication of The Best Things in Golf, also
contributed to higher revenues. The Magazine Publishing segment's first quarter
operating profit improved slightly to break-even compared to the prior year's
modest first quarter operating loss. In the 1999 first quarter, the segment
incurred expenses related to two new publications, Outdoor Explorer and
TransWorld SURF, in addition to ongoing investments in the relaunch of The
Sporting News and Today's Homeowner.
CORPORATE AND OTHER
Corporate and Other revenues and operating loss were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED MARCH 31,
------------------------------
1999 1998 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Revenues.............................................. $ 525 $ 201 100.0+%
======== ======== =====
Operating loss........................................ $(15,107) $(16,942) (10.8)%
======== ======== =====
</TABLE>
Operating loss for the 1999 first quarter decreased from the 1998 first
quarter due primarily to lower employee related costs.
79
<PAGE> 80
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESTRUCTURING LIABILITY
A summary of the activity in restructuring liabilities is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 CASH MARCH 31,
DESCRIPTION 1998 PAYMENTS 1999
----------- ------------ --------- ---------
<S> <C> <C> <C>
1998 Restructuring:
Termination benefits............................ $51,169 $(25,850) $25,319
Contract terminations........................... 31,264 (17,010) 14,254
Lease termination costs......................... 6,203 (1,617) 4,586
Technology asset costs.......................... 640 (251) 389
Other costs..................................... 723 (33) 690
------- -------- -------
Total................................... $89,999 $(44,761) $45,238
======= ======== =======
1995 Restructuring................................ $22,905 $ (2,834) $20,071
======= ======== =======
</TABLE>
The remaining 1998 restructuring liability is expected to be substantially
paid by the end of 1999. Annual expense reductions resulting from the 1998
restructuring program are in line with management's expectations. The 1995
restructuring liability relates primarily to lease payments on unoccupied
properties. The Company believes that cash flows from operations will be
adequate to cover future cash outflows under the restructuring programs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating cash requirements are funded primarily by its
operations. Proceeds from borrowings have been used primarily to fund capital
expenditures and share purchases. At March 31, 1999, the Company had a $400.0
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
program that is available for short-term cash requirements. The Company had
$292.9 million and $278.5 million of commercial paper outstanding at March 31,
1999 and May 7, 1999, respectively. Additionally, the Company has a shelf
registration statement for $300.0 million of securities which has not been
utilized. There is no assurance that the Company will be able to utilize the
shelf registration on terms acceptable to the Company.
The Company also has an uncommitted bank line of credit, which provides for
unsecured borrowings up to $250.0 million, of which $125.0 million was
outstanding at March 31, 1999. At May 7, 1999, borrowings outstanding under this
line of credit remained unchanged from March 31, 1999.
ACQUISITION AND DISPOSITIONS
In February 1999, Eagle New Media Investments, LLC (Eagle New Media), an
investment affiliate of the Company, acquired Newport Media, Inc., a publisher
of shopper publications in the Long Island and New Jersey areas for
approximately $132.0 million.
The Company signed a definitive agreement on January 10, 1999, to merge
Hollywood Online, Inc., and its Web site, hollywood.com, into Big Entertainment,
Inc., in exchange for newly-issued restricted stock of Big Entertainment, Inc.
at a value to be determined as of the closing date of the merger. This merger
was completed in May 1999 at a then combined current value of approximately
$31.5 million. Additionally, the Company completed the sale of Apartment Search,
Inc. in March 1999. The estimated loss on sale of Apartment Search, including a
provision for operating losses through the date of disposal was recorded in the
third quarter of 1998.
80
<PAGE> 81
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On September 3, 1999, Times Mirror announced its decision to sell
AchieveGlobal, Inc., a professional training company; Allen Communication, an
interactive software and training courseware developer and The StayWell Company,
a health improvement information company. The Company decided to sell these
businesses in order to concentrate on its core strengths in newspaper
publishing, flight information and magazine publishing. The Company has retained
investment banking firms to advise it on the sale of these businesses. These
dispositions are anticipated to be completed by the first quarter of 2000. The
accompanying financial statements have been restated for all periods presented
to reflect these businesses as discontinued operations.
On September 3, 1999, the Company also announced its decision to sell the
properties of The Sporting News, a sports related magazine, including
sportingnews.com. The Company has retained an investment banking firm to advise
it on the sale, which is anticipated to be completed by the first quarter of
2000.
COMMON SHARE PURCHASES
Share purchases of the Company's Series A common shares continued in the
first quarter of 1999 through a combination of a forward purchase agreement, put
options and open market purchases by Eagle New Media. The Company and Eagle New
Media purchased 1.8 million shares of its Series A common stock during the
quarter ended March 31, 1999, which more than offset 0.7 million shares issued
as a result of the exercise of stock options.
The Company believes that the purchase of shares of its common stock is an
attractive investment for Eagle New Media which will also enhance Times Mirror
shareholder value as well as offset dilution from shares of common stock issued
under the Company's stock-based employee compensation and benefit programs.
Purchases by the Company and its affiliates are expected to be made during the
next two years 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. As
of March 31, 1999, the Company and its affiliates are authorized to purchase 5.3
million shares of Series A common stock. On a consolidated basis for financial
reporting purposes, the number of shares of common stock outstanding totaled
72.3 million at March 31, 1999 compared with 88.7 million at March 31, 1998.
1999 RECAPITALIZATION
In September 1999, the Company completed a recapitalization transaction
with its largest shareholders, the Chandler Trusts. The 1999 recapitalization
resulted in a net effective reduction, for financial reporting purposes, in the
number of shares of the Series A and C common stocks by 12.4 million shares and
in Series C-1 and C-2 preferred stocks by .5 million shares. Also, in connection
with the 1999 recapitalization, the Company agreed to use its reasonable best
efforts to replace the outstanding Series C-1 and C-2 preferred stocks with new
Series D-1 and D-2 preferred stocks. The new Series D-1 and D-2 preferred stocks
will be identical to the existing Series C-1 and C-2 preferred stocks except
that the increases in the dividend rate on the new Series D-1 and D-2 preferred
stocks will be pursuant to a fixed and certain schedule. As a result of the
effective reduction of preferred stock and the intended replacement of the
preferred stock, the preferred dividend requirements will be reduced to $8.1
million annually. Additionally, the Company entered into an agreement with
Citibank for a $550.0 million bank line of credit maturing on November 30, 1999.
Currently, the Company expects to refinance this line of credit in October 1999
(See Note 13 to the Condensed Consolidated Financial Statements for further
information).
81
<PAGE> 82
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CASH FLOW
The following table sets forth certain items from the Condensed
Consolidated Statements of Cash Flows (in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
---------------------
1999 1998
--------- --------
<S> <C> <C>
Net cash provided by operating activities of continuing
operations................................................ $ 8,010 $ 36,176
Acquisitions, net of cash acquired.......................... (138,710) (12,487)
Capital expenditures........................................ (35,593) (22,774)
Purchase of Times Mirror common stock, including exercise of
put options, net of premiums received..................... (106,000) 307
Net issuance of commercial paper and short-term
borrowings................................................ 119,482 82,684
</TABLE>
Cash generated by operating activities of continuing operations for the
first quarter of 1999 was lower compared to the first quarter of 1998 due
primarily to restructuring payments which were accrued in 1998.
On February 12, 1999, Eagle New Media acquired Newport Media, Inc. for
approximately $132.0 million.
Capital expenditures for the first quarter of 1999 were higher compared to
the same period in 1998 due primarily to the Company's continuing investments
for future growth which included facility renovations within the Newspaper
Publishing segment and commencement of a conversion project to a 50-inch web at
The Times. Additionally, the Company increased capital spending related to
information technology projects, including Year 2000 requirements. Capital
expenditures are currently expected to be $190.0 million for 1999.
Total debt at March 31, 1999 rose to $1.42 billion from $1.25 billion at
December 31, 1998 due primarily to short-term borrowings.
IMPACT OF YEAR 2000
As more fully described in this current report on Form 8-K which restates
certain information for the year ended December 31, 1998, the Company is
modifying or replacing significant portions of its software as well as certain
hardware to enable continued operations beyond December 31, 1999. As of March
31, 1999, the Company estimates its progress toward completion of its Year 2000
remediation plan as follows:
<TABLE>
<CAPTION>
PERCENT COMPLETE AS OF TARGETED DATE FOR
PROJECT PHASE MARCH 31, 1999 SUBSTANTIAL COMPLETION
------------- ---------------------- ----------------------
<S> <C> <C>
Inventory............................................ 99% March 1999
Assessment/Planning.................................. 97% March 1999
Remediation.......................................... 88% June 1999
Testing.............................................. 62% September 1999
Contingency Planning................................. 61% September 1999
</TABLE>
The Company also faces the risk that one or more of its significant
suppliers or other third-party businesses ("external relationships") will not be
able to interact with the Company due to the third party's inability to resolve
its own Year 2000 issues. The Company has completed its inventory of external
relationships and is evaluating each relationship based upon the potential
business impact, available alternatives and cost of substitution. The Company is
also attempting to determine the overall Year 2000 readiness of its external
relationships. In the case of mission critical suppliers such as newsprint,
banks, telecommunications providers and other utilities and information
technology vendors, the Company is engaged in discussions with such third
parties and is attempting to obtain detailed information as to their Year 2000
82
<PAGE> 83
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
plans and state of readiness. The Company is pursuing written assurances from
its significant suppliers and significant other third-party businesses that they
will be Year 2000 compliant. However, the Company has no means of ensuring that
such suppliers or third parties will be Year 2000 ready. The inability of these
third parties to complete their Year 2000 resolution process in a timely fashion
could have a material adverse effect on the Company. Risk assessment, readiness
evaluation and action plans related to these third parties are expected to be
completed in the second quarter of 1999.
To date, the Company has incurred costs of $22.4 million for the Year 2000
project, of which $17.4 million was capitalized and $5.0 million was expensed.
These costs include 1999 first quarter capital expenditures of $1.6 million and
expenses of $1.1 million. Total project costs are estimated to be $42.5 million,
excluding internal costs for employees working on the project. Except as noted
above, management's assessment of the status of the Year 2000 project and its
contingency plans are unchanged from that described in this current report on
Form 8-K which restates certain information for the year ended December 31,
1998.
The Company's plans to address the Year 2000 issue are based on
management's current estimates and are subject to various uncertainties that
could cause the actual results to differ materially from these plans. These
uncertainties include, but are not limited to, the success of the Company in
identifying systems that are not Year 2000 ready; the nature and amount of
programming required to upgrade or replace each of the affected systems; the
availability, rate and magnitude of related labor and consulting costs; and the
success of vendors, suppliers and other third parties with which the Company
interacts in addressing the Year 2000 issue. If the Company, its vendors,
suppliers or such other parties are unable to resolve the Year 2000 issue on
schedule, the Company may not be able to prepare and distribute its publications
or provide its services in a timely manner, which may have a material adverse
effect on the Company's results of operations.
DIVIDENDS
Cash dividends of $.20 and $.18 per share of common stock were declared for
the quarters ended March 31, 1999 and 1998, respectively. In February 1999, the
Board of Directors approved an increase in quarterly cash dividends to $.20 per
share for an annualized rate of $.80 per share, representing the fourth
consecutive year of dividend increases for common shareholders.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
In 1998, the Company divested Matthew Bender & Company, Incorporated and
Mosby, Inc. While the Company believes that these divestitures were completed on
a tax-free basis, this position may be subject to review by the Internal Revenue
Service. The Company estimated deferred taxes of $176.6 million based on its
assessment of the risks inherent in a contested challenge by the Internal
Revenue Service. To the extent that the estimate of such deferred taxes is
adjusted in the course of resolving such a challenge, the adjustment will be
recorded within discontinued operations. If it is ultimately determined that
these transactions were not completed on a tax-free basis, the Company's results
of operations, financial position and cash flows may be materially adversely
affected.
Certain statements set forth above and elsewhere in this current report on
Form 8-K are forward-looking in nature and related to trends and events that may
affect the Company's future financial position and operating results. Such
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The term "expect," "anticipate," and
"intend" and similar words or expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
report. These statements are based on current expectations, are inherently
uncertain, are subject to risks, and should be viewed with caution. For example,
there can be no assurances that the statements contained herein with respect to
the Company's Year 2000 efforts and the satisfactory resolution of contingent
liabilities will be achieved. Actual results and experience may differ
materially from the forward-looking statements and
83
<PAGE> 84
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
could be adversely affected by a number of factors. Some of these factors are
described above and in Note 9 to the Condensed Consolidated Financial
Statements. It is not possible to foresee or identify all such factors. The
Company makes no commitment to update any forward-looking statement or to
disclose any facts, events, or circumstances after the date hereof that may
affect the accuracy of any forward-looking statement.
84
<PAGE> 85
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED YEAR TO DATE ENDED
JUNE 30, JUNE 30,
-------------------- ------------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES..................................... $753,751 $698,007 $1,452,958 $1,356,774
COSTS AND EXPENSES:
Cost of sales.............................. 417,759 369,804 808,796 735,934
Selling, general and administrative
expenses................................ 202,483 206,789 418,352 413,601
Restructuring and one-time charges......... -- 34,850 -- 34,850
-------- -------- ---------- ----------
620,242 611,443 1,227,148 1,184,385
-------- -------- ---------- ----------
OPERATING PROFIT............................. 133,509 86,564 225,810 172,389
Interest expense............................. (20,734) (16,260) (40,538) (29,401)
Interest income.............................. 10,306 2,429 23,809 7,569
Other, net................................... 20,983 7,811 22,018 7,324
-------- -------- ---------- ----------
Income from continuing operations before
income tax provision....................... 144,064 80,544 231,099 157,881
Income tax provision......................... 59,505 31,928 96,491 63,843
-------- -------- ---------- ----------
Income from continuing operations............ 84,559 48,616 134,608 94,038
Income (loss) from discontinued operations,
net of income taxes........................ 755 585 (481) 424
-------- -------- ---------- ----------
NET INCOME................................... 85,314 49,201 134,127 94,462
Preferred dividend requirements.............. 5,424 5,424 10,848 10,848
-------- -------- ---------- ----------
Earnings applicable to common shareholders... $ 79,890 $ 43,777 $ 123,279 $ 83,614
======== ======== ========== ==========
Basic earnings (loss) per common share:
Continuing operations...................... $ 1.10 $ .49 $ 1.71 $ .94
Discontinued operations.................... .01 .01 (.01) .01
-------- -------- ---------- ----------
Basic earnings per share..................... $ 1.11 $ .50 $ 1.70 $ .95
======== ======== ========== ==========
Diluted earnings (loss) per common share:
Continuing operations...................... $ 1.04 $ .48 $ 1.65 $ .92
Discontinued operations.................... .01 .01 (.01) --
-------- -------- ---------- ----------
Diluted earnings per share................... $ 1.05 $ .49 $ 1.64 $ .92
======== ======== ========== ==========
Weighted average shares:
Basic...................................... 71,970 87,844 72,520 88,088
======== ======== ========== ==========
Diluted.................................... 82,128 90,277 82,505 90,507
======== ======== ========== ==========
Dividends declared per common share.......... $ .20 $ .18 $ .40 $ .36
======== ======== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
85
<PAGE> 86
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 810,765 $1,052,999
Marketable securities..................................... 34,540 49,438
Accounts receivable, less allowance for doubtful accounts
and returns of $39,264 and $37,389..................... 325,369 311,913
Inventories............................................... 40,789 28,438
Deferred income taxes..................................... 33,267 32,279
Prepaid expenses.......................................... 38,065 30,141
Net assets of discontinued operations..................... 189,356 189,628
Other current assets...................................... 16,481 38,278
---------- ----------
Total current assets.............................. 1,488,632 1,733,114
Property, plant and equipment, net of accumulated
depreciation and amortization of $1,016,120 and
$966,153.................................................. 922,567 903,483
Goodwill, net of accumulated amortization of $114,928 and
$105,976.................................................. 606,855 501,463
Other intangibles, net of accumulated amortization of
$68,633 and $61,657....................................... 187,305 100,373
Investments................................................. 306,501 270,818
Prepaid pension costs....................................... 431,959 419,471
Other assets................................................ 248,129 229,207
---------- ----------
Total assets...................................... $4,191,948 $4,157,929
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
86
<PAGE> 87
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 161,358 $ 179,415
Short-term debt........................................... 372,877 312,610
Other current liabilities................................. 377,506 429,477
----------- -----------
Total current liabilities......................... 911,741 921,502
Long-term debt.............................................. 956,108 941,423
Deferred income taxes....................................... 418,002 373,623
Postretirement benefits..................................... 223,825 226,018
Other liabilities........................................... 364,895 330,350
----------- -----------
Total liabilities................................. 2,874,571 2,792,916
Common stock subject to put options......................... 8,455 22,560
Commitments and contingencies
Shareholders' equity
Preferred stock, $1 par value; stated at liquidation
value; convertible to Series A common stock:
Series A: 900,000 shares authorized; 824,000 shares
issued and outstanding.............................. 411,784 411,784
Series C-1: 381,000 shares authorized, issued and
outstanding......................................... 190,486 190,486
Series C-2: 245,000 shares authorized, issued and
outstanding......................................... 122,550 122,550
Preferred stock, $1 par value; 23,035,000 shares
authorized; no shares issued or outstanding
Common stock, $1 par value:
Series A: 500,000,000 shares authorized; 87,033,000 and
86,831,000 shares issued and outstanding.............. 87,033 86,831
Series B: 100,000,000 shares authorized; no shares
issued or outstanding
Series C: Convertible to Series A common stock;
300,000,000 shares authorized; 25,087,000 and
25,258,000 shares issued and outstanding.............. 25,087 25,258
Additional paid-in capital................................ 1,295,657 1,278,916
Retained earnings......................................... 1,709,217 1,653,736
Accumulated other comprehensive income.................... 9,662 26,491
Less treasury stock at cost:
Series A common stock: 40,242,000 and 38,708,000 shares
and Series A preferred stock: 735,000 shares.......... (2,542,554) (2,453,599)
----------- -----------
Total shareholders' equity........................ 1,308,922 1,342,453
----------- -----------
Total liabilities and shareholders' equity........ $ 4,191,948 $ 4,157,929
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
87
<PAGE> 88
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR TO DATE ENDED
JUNE 30,
-----------------------
1999 1998
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities of continuing
operations............................................. $ 122,757 $ 91,173
Net cash provided by operating activities of discontinued
operations............................................. 9,962 27,472
---------- ---------
Net cash provided by operating activities......... 132,719 118,645
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired........................ (154,610) (196,850)
Capital expenditures...................................... (79,038) (54,017)
Purchases of investments.................................. (50,996) (24,679)
Proceeds from sales of assets............................. 20,930 19,259
Sale of marketable securities, net........................ 14,898 --
Decreases (increases) in notes receivable................. 12,500 (67,858)
Other, net................................................ -- (11,270)
---------- ---------
Net cash used in investing activities of continuing
operations............................................ (236,316) (335,415)
Net cash used in investing activities of discontinued
operations............................................ (5,081) (16,502)
---------- ---------
Net cash used in investing activities............. (241,397) (351,917)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of Times Mirror common stock.................... (152,689) (130,565)
Dividends paid............................................ (39,717) (42,389)
Principal repayments of debt.............................. (27,950) (46,654)
Exercise of put options, net of premiums received......... (16,839) 1,347
Net proceeds of commercial paper and short-term
borrowings............................................. 60,402 434,055
Proceeds from exercise of stock options................... 43,197 27,412
Other, net................................................ 40 (87)
---------- ---------
Net cash provided by (used in) financing
activities...................................... (133,556) 243,119
---------- ---------
Increase (decrease) in cash and cash equivalents............ (242,234) 9,847
Cash and cash equivalents at beginning of year.............. 1,052,999 44,794
---------- ---------
Cash and cash equivalents at end of period.................. $ 810,765 $ 54,641
========== =========
NONCASH INVESTING ACTIVITIES
Liabilities assumed in connection with acquisitions....... $ 49,310 $ 11,431
Stock and notes receivable received from divestiture...... $ 31,503 $ --
</TABLE>
See notes to condensed consolidated financial statements.
88
<PAGE> 89
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PREPARATION
The accompanying unaudited 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 Article
10 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. For financial reporting purposes, the condensed
consolidated financial statements include the accounts of the Company's
affiliated limited liability companies, Eagle New Media Investments, LLC (Eagle
New Media) and Eagle Publishing Investments, LLC (Eagle Publishing).
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. The balance
sheet at December 31, 1998 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and accompanying notes included in this current report on
Form 8-K which restates certain information for the year ended December 31,
1998.
Certain amounts in previously issued financial statements have been
reclassified to conform to the 1999 presentation. Financial information in the
accompanying notes to the Condensed Consolidated Financial Statements exclude
discontinued operations, except where noted.
NOTE 2 -- COMPREHENSIVE INCOME
Total comprehensive income amounted to $77,303,000 and $47,977,000 for the
second quarters of 1999 and 1998, respectively, and $117,298,000 and $93,357,000
for the year to date periods ended June 30, 1999 and 1998, respectively.
Comprehensive income differs from net income primarily due to the timing of
recognizing realized and unrealized gains or losses.
NOTE 3 -- DISCONTINUED OPERATIONS
On September 3, 1999, Times Mirror announced its decision to sell
AchieveGlobal, Inc., a professional training company; Allen Communication, an
interactive software and training courseware developer and The StayWell Company,
a health improvement information company. The Company decided to sell these
businesses in order to concentrate on its core strengths in newspaper
publishing, flight information and magazine publishing. The Company has retained
investment banking firms to advise it on the sale of these businesses. These
dispositions are anticipated to be completed by the first quarter of 2000. The
accompanying financial statements have been restated for all periods presented
to reflect these businesses as discontinued operations.
During 1998, the Company completed the divestitures of Matthew Bender &
Company, Incorporated, its 50% interest in the Shepard's joint venture and
Mosby, Inc. Additionally, the Company determined that Apartment Search, Inc.
would be treated as discontinued operations in 1998 and subsequently sold the
business on March 31, 1999. Results for discontinued operations include
AchieveGlobal, Allen Communica-
89
<PAGE> 90
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
tion, StayWell, Apartment Search, Inc., as well as Matthew Bender, Mosby, and
the Shepard's joint venture which were 1998 divestitures. Income from
discontinued operations is summarized as follows (in thousands):
<TABLE>
<CAPTION>
SECOND QUARTER ENDED YEAR TO DATE ENDED
JUNE 30, JUNE 30,
--------------------- -----------------------
1999 1998 1999 1998
-------- --------- ------- ------------
<S> <C> <C> <C> <C>
Revenues................................. $44,626 $157,854 $94,357 $302,987
------- -------- ------- --------
Income (loss) before income taxes........ 391 4,483 (691) 4,876
Income taxes............................. (364) 3,898 (210) 4,452
------- -------- ------- --------
Income (loss) from discontinued
operations............................. $ 755 $ 585 $ (481) $ 424
======= ======== ======= ========
</TABLE>
The assets and liabilities of discontinued operations have been classified
in the Condensed Consolidated Balance Sheets as net assets of discontinued
operations and consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Accounts receivable, net.................................... $ 36,708 $ 58,256
Other current assets........................................ 27,478 49,310
Goodwill, net............................................... 58,521 62,861
Other intangibles, net...................................... 66,654 68,256
Other assets................................................ 34,348 36,824
-------- --------
Total assets...................................... 223,709 275,507
Current liabilities......................................... 28,045 77,164
Non-current liabilities..................................... 6,308 8,715
-------- --------
Total liabilities................................. 34,353 85,879
-------- --------
Net assets of discontinued operations............. $189,356 $189,628
======== ========
</TABLE>
The major components of cash flow for discontinued operations are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR TO DATE ENDED
JUNE 30,
-----------------------
1999 1998
------- ------------
<S> <C> <C>
Income (loss) from discontinued operations.................. $ (481) $ 424
Depreciation and amortization............................... 4,830 16,804
Provision for deferred income taxes......................... (274) 18,066
Other, net.................................................. 5,887 (7,822)
------- --------
Net cash provided by operating activities of discontinued
operations............................................. $ 9,962 $ 27,472
======= ========
Capitalization of product costs............................. $(3,455) $ (8,989)
Capital expenditures........................................ (1,641) (5,479)
Other, net.................................................. 15 (2,034)
------- --------
Net cash used in investing activities of discontinued
operations............................................. $(5,081) $(16,502)
======= ========
</TABLE>
90
<PAGE> 91
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 -- RESTRUCTURING LIABILITY
A summary of the activity in the restructuring liabilities is as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1995
RESTRUCTURING RESTRUCTURING TOTAL
------------- ------------- --------
<S> <C> <C> <C>
Balance at December 31, 1998........................ $89,999 $22,905 $112,904
Cash payments..................................... (55,130) (5,839) (60,969)
------- ------- --------
Balance at June 30, 1999............................ $34,869 $17,066 $ 51,935
======= ======= ========
</TABLE>
During the year to date period ended June 30, 1999, cash spent on
restructuring efforts included severance payments of $32,917,000, contract
termination costs of $19,802,000, and lease payments of $7,356,000. At June 30,
1999, the remaining liability for severance costs aggregated $19,939,000.
The balance sheet classification of restructuring liabilities is as follows
(in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Other current liabilities:
1995 Restructuring........................................ $10,939 $ 15,722
1998 Restructuring........................................ 22,587 76,181
Other liabilities:
1995 Restructuring........................................ 6,127 7,183
1998 Restructuring........................................ 12,282 13,818
------- --------
$51,935 $112,904
======= ========
</TABLE>
The current portion of restructuring is comprised primarily of severance
and lease payments while the non-current portion is comprised primarily of
contract termination and extended payout of severance arrangements, as well as
lease payments which will be paid over lease periods extending to 2010. The
Company periodically assesses the adequacy of its remaining restructuring
liabilities and makes adjustments, if required. The net change in the
restructuring liabilities as a result of these reviews was not significant.
91
<PAGE> 92
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 -- DEBT
Debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Short-term debt:
Commercial paper at a weighted average interest rate of
5.0% and 5.3%.......................................... $319,087 $298,603
Short-term borrowings at a weighted average interest rate
of 5.1%................................................ 40,000 --
Current maturities of long-term debt...................... 7,305 7,440
Other notes payable at interest rates of 5.5% and 5.4%.... 6,485 6,567
-------- --------
Total short-term debt............................. $372,877 $312,610
======== ========
Long-term debt:
6.61% Debentures due September 15, 2027, net of
unamortized discount of $96 and $98.................... $249,904 $249,902
4.75% Liquid Yield Option Notes due April 15, 2017, net of
unamortized discount of $283,097 and $288,129.......... 216,903 211,871
7 1/4% Debentures due March 1, 2013....................... 148,215 148,215
7 1/4% Debentures due November 15, 2096, net of
unamortized discount of $557 and $559.................. 147,443 147,441
7 1/2% Debentures due July 1, 2023........................ 98,750 98,750
Property financing obligation expiring on August 8, 2009,
net of unamortized discount of $154,121 and $158,080,
with an effective interest rate of 4.3%................ 43,337 47,088
4 1/4% PEPS due March 15, 2001; 653,100 and 863,100
securities stated at fair value........................ 58,861 45,596
-------- --------
963,413 948,863
Less current maturities................................... (7,305) (7,440)
-------- --------
Total long-term debt.............................. $956,108 $941,423
======== ========
</TABLE>
Interest rate swaps outstanding at June 30, 1999 converted the weighted
average interest rate on the 7 1/4% Debentures due November 15, 2096, the 6.61%
Debentures, the 7 1/2% Debentures and the Liquid Yield Option Notes (LYONs(TM))
from 6.3% to 5.3% for the year to date period ended June 30, 1999.
The 4 1/4% Premium Equity Participating Securities (PEPS) hedge the
Company's investment in the common stock of America Online, Inc. (AOL) which
acquired Netscape Communications Corporation (Netscape) in the first quarter of
1999. As a result of that acquisition, each share of Netscape common stock was
converted into 0.9 of a share of AOL common stock. The amount payable at
maturity with respect to each PEPS will equal 90% of 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 maturity date, subject to adjustment as a result of
certain dilution events involving AOL. Holders of the PEPS bear the full risk of
a decline in the value of AOL. The Company is not obligated to hold the AOL
stock for any period or sell the AOL stock prior to the PEPS maturity or
redemption date.
The PEPS are redeemable at the option of the Company, in whole or in part,
at any time after December 15, 2000. The redemption value of each PEPS is the
product of (a) the redemption ratio, as defined below, (b) 90% 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) 100%, if the market value of one share of AOL common stock is less
92
<PAGE> 93
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
than $43.61, or (b) a fraction, the numerator of which is $43.61 and the
denominator of which is the market value of AOL common stock, if such market
value is equal to or exceeds $43.61 but less than or equal to $50.16, or (c)
86.96%, if the market value of AOL common stock exceeds $50.16.
The PEPS are recorded at fair market value as determined in the open market
and will generally move in tandem with changes in the fair market value of AOL
common stock. The net unrealized loss on the PEPS at June 30, 1999 and December
31, 1998 is $19,687,000 and $6,928,000, respectively, net of applicable income
taxes, and is included in accumulated other comprehensive income. During the
year to date period ended June 30, 1999, the Company sold 189,000 shares of AOL
stock and purchased a proportionate share of its PEPS in the open market for a
total pre-tax gain of $10,323,000.
NOTE 6 -- EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted
earnings per share from continuing operations (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
SECOND QUARTER ENDED YEAR TO DATE ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings:
Income from continuing operations........... $84,559 $48,616 $134,608 $ 94,038
Preferred dividends......................... (5,424) (5,424) (10,848) (10,848)
------- ------- -------- --------
Earnings applicable to common shareholders
for basic earnings per share............. 79,135 43,192 123,760 83,190
LYONs interest expense, net of tax.......... 1,506 -- 2,982 --
Series C-1, preferred dividends............. 2,762 -- 5,524 --
Series C-2, preferred dividends............. 1,777 -- 3,554 --
------- ------- -------- --------
Earnings applicable to common shareholders
for diluted earnings per share........... $85,180 $43,192 $135,820 $ 83,190
======= ======= ======== ========
Shares:
Weighted average shares for basic earnings
per share................................ 71,970 87,844 72,520 88,088
Effect of dilutive securities:
Stock options............................ 1,633 2,433 1,538 2,419
LYONs convertible debt................... 2,914 -- 2,914 --
Series C-1, convertible preferred
stock.................................. 3,414 -- 3,367 --
Series C-2, convertible preferred
stock.................................. 2,197 -- 2,166 --
------- ------- -------- --------
Adjusted weighted average shares for diluted
earnings per share....................... 82,128 90,277 82,505 90,507
======= ======= ======== ========
Basic earnings per share from continuing
operations............................... $ 1.10 $ .49 $ 1.71 $ .94
======= ======= ======== ========
Diluted earnings per share from continuing
operations............................... $ 1.04 $ .48 $ 1.65 $ .92
======= ======= ======== ========
</TABLE>
The Company has certain convertible securities, which are not included in
the calculation of diluted earnings per share, because the effects are
antidilutive.
93
<PAGE> 94
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 -- ISSUANCE AND PURCHASE OF SHARES
The Company's stock purchase program, which includes the issuance of put
options from time to time, is described in Note 13 to the Consolidated Financial
Statements in this current report on Form 8-K which restates certain information
for the year ended December 31, 1998. Share purchases of the Company's Series A
common shares continued in the first half of 1999 through a combination of a
forward purchase agreement, put options and open market purchases by Eagle New
Media. The Company and Eagle New Media purchased 2,877,000 shares of its Series
A common stock during the year to date period ended June 30, 1999, which more
than offset 1,338,000 shares issued as a result of the exercise of stock
options.
At June 30, 1999, the Company had 152,000 put options outstanding with an
average strike price of approximately $55.63. The put options, which have
expiration dates in the third quarter of 1999, 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."
NOTE 8 -- 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) an increase in the use of alternate media such as
the Internet for classified and other advertising; (e) an increase in expenses
related to new initiatives and product improvement efforts in the flight
information operating unit; (f) unfavorable foreign currency fluctuations; (g)
material changes in tax liability due to unfavorable reviews by taxing
authorities; (h) the inability of the Company, its vendors, suppliers or other
third parties with which the Company interacts to resolve the Year 2000 issue in
a timely manner; and (i) a general economic downturn resulting in decreased
consumer and corporate spending on discretionary items such as magazines or
newspapers.
NOTE 9 -- 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.
NOTE 10 -- FUTURE ACCOUNTING REQUIREMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," (SFAS 133). Subsequently, the FASB issued Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133" which deferred the effective date of
SFAS 133 for one year. This standard is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. Management does
94
<PAGE> 95
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
not anticipate that the adoption of this standard will have a significant effect
on earnings or the financial position of the Company.
NOTE 11 -- ACQUISITIONS AND DISPOSITIONS
In February 1999, Eagle New Media acquired Newport Media, Inc., a publisher
of shopper publications in the Long Island and New Jersey areas, for
approximately $132,000,000. In April 1999, the Company acquired New Mass Media,
Inc., a publisher of five alternative weekly newspapers in Connecticut,
Massachusetts and New York, for approximately $17,500,000. These acquisitions
were accounted for by the purchase method with the results of operations
included in the Company's financial statements from the dates of acquisition.
The purchase price of these acquisitions has been allocated primarily to
goodwill and other intangible assets based on preliminary valuations. Pro forma
results for the year to date periods ended June 30, 1999 and 1998, assuming the
acquisitions occurred on January 1 of the respective year, would not be
materially different from the results reported.
The Company completed an agreement in May 1999, to merge Hollywood Online,
Inc., and its Web site, hollywood.com, into Big Entertainment, Inc., in exchange
for newly issued restricted stock of Big Entertainment, Inc. and a note at a
then combined current value of approximately $31,500,000. The Company recorded a
pre-tax gain of $17,200,000 ($10,700,000 after applicable taxes), related to
this disposition. Additionally, the Company completed the sale of Apartment
Search, Inc. on March 31, 1999. The estimated loss on sale of Apartment Search,
including a provision for operating losses through the date of disposal, was
recorded in the third quarter of 1998.
95
<PAGE> 96
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 12 -- SEGMENT INFORMATION
Financial data for the Company's segments is as follows (in thousands):
<TABLE>
<CAPTION>
SECOND QUARTER ENDED YEAR TO DATE ENDED
JUNE 30, JUNE 30,
-------------------- ------------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Newspaper Publishing....................... $633,069 $585,731 $1,206,615 $1,128,652
Professional Information................... 56,358 52,443 112,655 102,443
Magazine Publishing........................ 64,221 59,623 133,060 125,268
-------- -------- ---------- ----------
Total Reportable Segments.......... 753,648 697,797 1,452,330 1,356,363
Corporate and Other........................ 103 210 628 411
-------- -------- ---------- ----------
$753,751 $698,007 $1,452,958 $1,356,774
======== ======== ========== ==========
OPERATING PROFIT (LOSS)
Newspaper Publishing(1).................... $126,541 $ 85,259 $ 218,213 $ 175,413
Professional Information................... 16,175 13,616 31,908 26,452
Magazine Publishing........................ 2,480 1,953 2,483 1,730
-------- -------- ---------- ----------
Total Reportable Segments.......... 145,196 100,828 252,604 203,595
Corporate and Other........................ (11,687) (14,264) (26,794) (31,206)
-------- -------- ---------- ----------
$133,509 $ 86,564 $ 225,810 $ 172,389
======== ======== ========== ==========
DEPRECIATION AND AMORTIZATION
Newspaper Publishing....................... $ 33,967 $ 29,617 $ 65,599 $ 58,582
Professional Information................... 1,723 1,772 3,440 3,494
Magazine Publishing........................ 2,104 2,018 4,096 3,963
-------- -------- ---------- ----------
Total Reportable Segments.......... 37,794 33,407 73,135 66,039
Corporate and Other........................ 1,002 1,247 2,163 2,301
-------- -------- ---------- ----------
$ 38,796 $ 34,654 $ 75,298 $ 68,340
======== ======== ========== ==========
CAPITAL EXPENDITURES
Newspaper Publishing....................... $ 36,934 $ 25,873 $ 66,980 $ 43,105
Professional Information................... 2,572 3,587 5,435 6,755
Magazine Publishing........................ 1,764 413 2,610 846
-------- -------- ---------- ----------
Total Reportable Segments.......... 41,270 29,873 75,025 50,706
Corporate and Other........................ 2,175 1,370 4,013 3,311
-------- -------- ---------- ----------
$ 43,445 $ 31,243 $ 79,038 $ 54,017
======== ======== ========== ==========
</TABLE>
- ---------------
(1) Includes 1998 second quarter restructuring and one-time charges of $34,850.
A reconciliation of operating profit to income from continuing operations
before income taxes is set forth in the Company's Condensed Consolidated
Statements of Income on page 85.
96
<PAGE> 97
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Identifiable assets of the Company's segments are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Newspaper Publishing....................................... $2,278,387 $1,999,880
Professional Information................................... 92,033 96,765
Magazine Publishing........................................ 277,700 271,457
---------- ----------
Total Reportable Segments........................ 2,648,120 2,368,102
Corporate and Other........................................ 1,354,472 1,600,199
Discontinued Operations.................................... 189,356 189,628
---------- ----------
$4,191,948 $4,157,929
========== ==========
</TABLE>
NOTE 13 -- SUBSEQUENT EVENTS
In September 1999, the Company completed a transaction (1999 Transaction)
involving agreements with its largest shareholders, Chandler Trust No. 1 and
Chandler Trust No. 2 (Chandler Trusts). The 1999 Transaction resulted in the
formation of a new limited liability company, TMCT II, LLC (TMCT II), by the
Chandler Trusts, the Company and the Company's affiliates, Eagle New Media
Investments, LLC and Eagle Publishing Investments, LLC (Eagle Companies).
Pursuant to the TMCT II contribution agreement, the Company, the Eagle
Companies and the Chandler Trusts made the following capital contributions to
TMCT II:
1. the Company contributed preferred units issued by the operating
partnerships of 8 unrelated real estate investment trusts (OP REIT
Interests) with an aggregate purchase price of $600,000,000 and
$2,000,000 in cash;
2. the Eagle Companies contributed a total of $633,252,000 in cash or cash
equivalents;
3. the Chandler Trusts contributed 9,306,000 shares of the Company's Series
A common stock, 6,236,000 shares of the Company's Series C common stock,
381,000 shares of the Company's Series C-1 preferred stock and 245,000
shares of the Company's Series C-2 preferred stock (TMCT II Contributed
Shares).
The Company's purchase of the OP REIT Interests was funded with the
proceeds of a $550,000,000 short-term bank line of credit provided by Citibank
and its commercial paper line. The Company is considering various alternatives
with respect to refinancing the line of credit which matures on November 30,
1999. The cash contributed by the Company and the Eagle Companies was used by
TMCT II to purchase a portfolio of securities (TMCT II Portfolio).
The Company, the Eagle Companies and the Chandler Trusts share in the cash
flow, profits and losses of the various assets held by TMCT II. The cash flow
from the OP REIT Interests and the TMCT II Portfolio is largely allocated to the
Chandler Trusts with the remaining portion of the cash flow from the OP REIT
Interests and the TMCT II Portfolio primarily allocated to the Eagle Companies.
The cash flow from the TMCT II Contributed Shares is largely allocated to the
Company with the remaining portion of that cash flow primarily allocated to the
Chandler Trusts. Due to the allocations of the economic benefits in TMCT II, for
financial reporting purposes, 80% of the TMCT II Contributed Shares will be
included in treasury stock, 80% of the preferred dividends on the Series C-1 and
C-2 preferred stock will be excluded from the preferred dividend requirements
and 80% of the dividends on the common stock will be effectively eliminated. The
Company and the Eagle Companies will account for their investment in TMCT II
under the equity method.
97
<PAGE> 98
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In connection with the 1999 Transaction, the Company agreed to use its
reasonable best efforts to replace the outstanding Series C-1 and C-2 preferred
stocks (which are now owned by TMCT II) with new Series D-1 and D-2 preferred
stocks. The new Series D-1 and D-2 preferred stocks will be identical to the
existing Series C-1 and C-2 preferred stocks except that the increases in the
dividend rate on the new Series D-1 and D-2 preferred stocks will be pursuant to
a fixed and certain schedule.
As a result of the 1999 Transaction, for financial reporting purposes, the
following number of shares will be included as treasury stock and excluded from
earnings per share calculations:
1. the number of shares of Series A and C common stocks was reduced by
12,433,000;
2. the number of shares of Series C-1 preferred stock was reduced by
305,000;
3. the number of shares of Series C-2 preferred stock was reduced by
196,000;
The annual preferred dividend requirements will be reduced to $8,055,000
beginning in 2000 assuming the replacement of the Series C-1 and C-2 preferred
stocks with the new Series D-1 and D-2 preferred stocks is completed.
In September 1999, the Company also announced its decision to sell the
properties of The Sporting News, a sports related magazine, including
sportingnews.com. The Company has retained an investment banking firm to advise
it on the sale, which is anticipated to be completed by the first quarter of
2000. Additionally, the Company announced its decision to sell certain other
businesses as further described in Note 3 to the Condensed Consolidated
Financial Statements.
98
<PAGE> 99
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
The following table summarizes the Company's consolidated financial results
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
SECOND QUARTER ENDED YEAR TO DATE ENDED
JUNE 30, JUNE 30,
-------------------- ------------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues............................... $753,751 $698,007 $1,452,958 $1,356,774
Restructuring and one-time charges..... -- 34,850 -- 34,850
Operating profit....................... 133,509 86,564 225,810 172,389
Interest expense, net.................. (10,428) (13,831) (16,729) (21,832)
Other, net............................. 20,983 7,811 22,018 7,324
Income from continuing operations...... 84,559 48,616 134,608 94,038
Income (loss) from discontinued
operations, net of income taxes...... 755 585 (481) 424
Net income............................. 85,314 49,201 134,127 94,462
Preferred dividend requirements........ 5,424 5,424 10,848 10,848
Earnings applicable to common
shareholders......................... 79,890 43,777 123,279 83,614
Basic earnings (loss) per common share:
Continuing operations................ $ 1.10 $ .49 $ 1.71 $ .94
Discontinued operations.............. .01 .01 (.01) .01
-------- -------- ---------- ----------
Basic earnings per share............... $ 1.11 $ .50 $ 1.70 $ .95
======== ======== ========== ==========
Diluted earnings (loss) per common
share:
Continuing operations................ $ 1.04 $ .48 $ 1.65 $ .92
Discontinued operations.............. .01 .01 (.01) --
-------- -------- ---------- ----------
Diluted earnings per share............. $ 1.05 $ .49 $ 1.64 $ .92
======== ======== ========== ==========
Weighted average shares:
Basic................................ 71,970 87,844 72,520 88,088
======== ======== ========== ==========
Diluted.............................. 82,128 90,277 82,505 90,507
======== ======== ========== ==========
</TABLE>
Revenues for the 1999 second quarter and year to date periods ended June
30, 1999 rose 8.0% and 7.1%, respectively, compared to the prior year periods
due to higher revenues in all of the Company's business segments, including the
effects of acquisitions (See further discussion of segment results under the
caption "Analysis by Segment").
Operating profit for the 1999 second quarter and year to date periods ended
June 30, 1999 increased 10.0% and 9.0%, respectively, compared to the prior year
periods, excluding the 1998 pre-tax restructuring and one-time charges of $34.8
million ($21.8 million after applicable taxes). The increases were due to
improvements in the Newspaper Publishing and Professional Information segments
as well as lower Corporate and Other expenses (See further discussion of segment
results under the caption "Analysis by Segment"). Operating profit in 1999 was
affected by lower pension income as a result of a $8.0 million reduction in
amortization of the transition asset.
The 1999 second quarter income from continuing operations includes a
pre-tax gain on the sale of Hollywood Online, Inc. of $17.2 million ($10.7
million after applicable taxes), or $.13 per share on a diluted basis. Excluding
this gain as well as the 1998 restructuring and one-time charges, income from
continuing operations for the 1999 and 1998 second quarters was $73.9 million,
or $.91 per share, compared to
99
<PAGE> 100
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
$70.4 million, or $.72 per share, respectively. For the year to date period
ended June 30, 1999, income from continuing operations was $123.9 million, or
$1.52 per share, compared with $115.8 million, or $1.16 per share, in the prior
year, excluding the gain as well as the restructuring and one-time charges.
Earnings per share for 1999 increased compared to 1998 due to, among other
items, a significant reduction in the weighted average number of shares
outstanding and higher earnings.
Net interest expense for the second quarter and the year to date periods
ended June 30, 1999 declined compared to the prior year periods primarily due to
an increase in interest income resulting from investment activity of the
Company's affiliated limited liability companies.
ANALYSIS BY SEGMENT
The following sections discuss the revenues and operating profit of the
Company's principal lines of businesses, excluding the 1998 restructuring and
one-time charges of $34.8 million, unless specifically stated otherwise. All
comments, except where noted, apply to both the second quarter and the year to
date periods ended June 30, 1999 compared to the prior year periods.
NEWSPAPER PUBLISHING
Newspaper Publishing revenues and operating profit were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
SECOND QUARTER ENDED JUNE 30, YEAR TO DATE ENDED JUNE 30,
------------------------------ ----------------------------------
1999 1998 CHANGE 1999 1998 CHANGE
-------- -------- ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Advertising......... $512,040 $462,928 10.6% $ 967,891 $ 887,281 9.1%
Circulation......... 107,548 109,992 (2.2) 213,053 216,845 (1.7)
Other............... 13,481 12,811 5.2 25,671 24,526 4.7
-------- -------- ---------- ----------
$633,069 $585,731 8.1% $1,206,615 $1,128,652 6.9%
======== ======== ========== ==========
Operating profit...... $126,541 $ 85,259 48.4% $ 218,213 $ 175,413 24.4%
======== ======== ========== ==========
Operating profit
excluding
restructuring and
one-time charges.... $126,541 $120,109 5.4% $ 218,213 $ 210,263 3.8%
======== ======== ========== ==========
</TABLE>
Newspaper Publishing revenues rose in 1999 compared to the prior year, in
part, due to the addition of the Recycler, acquired on April 30, 1998, and
Newport Media, Inc., acquired on February 12, 1999. Excluding these
acquisitions, revenues in the 1999 second quarter rose 4.4%, with the Los
Angeles Times up 2.9% and the Eastern newspapers up 5.7% compared to the prior
year quarter. Advertising revenue gains were achieved at each of the Company's
newspapers, with particular strength at the Eastern newspapers. Excluding the
acquisitions, advertising revenues in the 1999 second quarter rose 6.1%, with
The Times up 4.8% and the Eastern newspapers up 7.4% compared to the prior year
quarter. For the year to date period ended June 30, 1999, Newspaper Publishing
revenues, excluding the acquisitions, rose 3.3%, with The Times up 2.1% and the
Eastern newspapers up 4.4% compared to the prior year. Excluding the
acquisitions, advertising revenues for the year to date period ended June 30,
1999 rose 4.8%, with The Times up 3.6% and the Eastern newspapers up 6.0%
compared to the prior year period.
Circulation revenues declined slightly as marketing strategies, largely at
The Times, involving pricing and promotional discounts to stimulate circulation
volume resulted in lower overall circulation revenues. Excluding the
acquisitions, circulation revenues declined 3.0% and 3.1% for the second quarter
and year to date periods ended June 30, 1999, respectively, compared to the
prior year.
100
<PAGE> 101
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Segment operating profit for 1999 increased largely due to strong gains in
national advertising and declines in newsprint expense. The Company's Eastern
newspapers continued to show strong performance and The Times achieved its first
year-over-year increase in quarterly operating profit after five consecutive
quarters of year-over-year declines. The 1999 second quarter improvement in
operating profit was aided by a reduction in newsprint expense of 11.4% on an
8.7% decline in average newsprint prices. Newsprint expense was only partially
affected by newsprint price declines due to the Company's use of newsprint
hedging contracts. Excluding newsprint and the impact of acquisitions, other
expenses rose 8.1% in the 1999 second quarter compared to the prior year,
primarily due to ongoing growth initiatives. Newsprint expense for the year to
date period ended June 30, 1999 decreased 6.2% on a 5.6% decline in average
newsprint prices. Non-newsprint costs rose 5.7% for the year to date period
ended June 30, 1999 compared to the prior year, excluding the effects of
acquisitions.
Newspaper Publishing segment's restructuring and one-time charges totaled
$34.8 million in the second quarter of 1998 for charges related primarily to
contract buyout costs.
PROFESSIONAL INFORMATION
Professional Information revenues and operating profit were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
SECOND QUARTER ENDED JUNE 30, YEAR TO DATE ENDED JUNE 30,
------------------------------- ------------------------------
1999 1998 CHANGE 1999 1998 CHANGE
-------- -------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $56,358 $52,443 7.5% $112,655 $102,443 10.0%
======= ======= ======== ========
Operating profit........... $16,175 $13,616 18.8% $ 31,908 $ 26,452 20.6%
======= ======= ======== ========
</TABLE>
The Professional Information segment's results reflect the discontinuation
of AchieveGlobal, Allen Communication, StayWell, Matthew Bender/Shepard's and
Mosby, which are included in discontinued operations. Results have been restated
accordingly. The Professional Information segment represents the operating
results of Jeppesen Sanderson, the Company's flight information provider.
Revenues and operating profit increased primarily due to higher revenues for
charting and data services.
MAGAZINE PUBLISHING
Magazine Publishing revenues and operating profit were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
SECOND QUARTER ENDED JUNE 30, YEAR TO DATE ENDED JUNE 30,
------------------------------- ------------------------------
1999 1998 CHANGE 1999 1998 CHANGE
-------- -------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Advertising.............. $42,593 $38,964 9.3% $ 87,909 $ 81,799 7.5%
Circulation.............. 17,564 17,836 (1.5) 37,604 37,437 .4
Other.................... 4,064 2,823 44.0 7,547 6,032 25.1
------- ------- -------- --------
$64,221 $59,623 7.7% $133,060 $125,268 6.2%
======= ======= ======== ========
Operating profit........... $ 2,480 $ 1,953 27.0% $ 2,483 $ 1,730 43.5%
======= ======= ======== ========
</TABLE>
Magazine Publishing achieved advertising revenue gains at most of the
magazines in 1999 compared to the prior year. The acquisition of Senior Golfer
in October 1998 and the special publication of The Best Things in Golf also
contributed to higher revenues. Circulation revenues remained essentially even
with the prior year periods. Operating profit rose compared to the prior year as
a reduction in accumulated reserves to fund certain employee benefits increased
operating profit by $1.1 million.
101
<PAGE> 102
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CORPORATE AND OTHER
Corporate and Other revenues and operating loss were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
SECOND QUARTER ENDED JUNE 30, YEAR TO DATE ENDED JUNE 30,
------------------------------ ------------------------------
1999 1998 CHANGE 1999 1998 CHANGE
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $ 103 $ 210 (51.0)% $ 628 $ 411 52.8%
======== ======== ===== ======== ======== =====
Operating loss........... $(11,687) $(14,264) (18.1)% $(26,794) $(31,206) (14.1)%
======== ======== ===== ======== ======== =====
</TABLE>
Operating loss decreased in 1999 compared to the prior year due primarily
to a reduction in accumulated reserves to fund certain employee benefits, which
reduced operating losses by $3.1 million.
OTHER INCOME
In the 1999 second quarter, the Company recorded a pre-tax gain on the sale
of Hollywood Online, Inc. of $17.2 million ($10.7 million after applicable
taxes), or $.13 per share on a diluted basis. Additionally, the 1999 second
quarter results included a pre-tax gain on the sale of America Online (AOL)
shares, along with the purchase of a proportionate share of its PEPS, of $7.2
million ($4.3 million after applicable taxes), or $.05 per share. For the year
to date period ended June 30, 1999, the pre-tax gain on the sale of AOL shares
was $10.3 million ($6.1 million after applicable taxes), or $.07 per share.
RESTRUCTURING LIABILITY
A summary of the activity in restructuring liabilities is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 CASH JUNE 30,
DESCRIPTION 1998 PAYMENTS 1999
----------- ------------ --------- --------
<S> <C> <C> <C>
1998 Restructuring:
Termination benefits............................ $51,169 $(32,792) $18,377
Contract terminations........................... 31,264 (19,802) 11,462
Lease termination costs......................... 6,203 (2,067) 4,136
Technology asset costs.......................... 640 (411) 229
Other costs..................................... 723 (58) 665
------- -------- -------
Total................................... $89,999 $(55,130) $34,869
======= ======== =======
1995 Restructuring................................ $22,905 $ (5,839) $17,066
======= ======== =======
</TABLE>
The remaining 1998 restructuring liability is expected to be substantially
paid by the end of 1999. Annual expense reductions resulting from the 1998
restructuring program are in line with management's expectations. The 1995
restructuring liability relates primarily to lease payments on unoccupied
properties. The Company believes that cash flows from operations will be
adequate to cover future cash outflows under the restructuring programs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating cash requirements are funded primarily by its
operations. Proceeds from borrowings have been used primarily to fund capital
expenditures and share purchases.
At June 30, 1999, the Company had a $400.0 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 program that is available for
short-term cash requirements. The Company had $319.1 million and $311.1 million
of commercial paper outstanding at June 30, 1999 and July 30, 1999,
respectively. Additionally, the Company
102
<PAGE> 103
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
has a shelf registration statement for $300.0 million of securities, which has
not been utilized. There is no assurance that the Company will be able to
utilize the shelf registration on terms acceptable to the Company.
The Company also has an uncommitted bank line of credit, which provides for
unsecured borrowings up to $250.0 million, of which $40.0 million was
outstanding at June 30, 1999. At July 30, 1999, no borrowings were outstanding
under this line of credit.
The Company is the sole manager of Eagle New Media Investments, LLC (Eagle
New Media) and Eagle Publishing Investments, LLC (Eagle Publishing). At June 30,
1999, Eagle New Media and Eagle Publishing had cash and cash equivalents of
$740.3 million, marketable securities of $34.5 million and Times Mirror stock of
$842.3 million. The Company intends to deploy the cash and cash equivalents, as
well as marketable securities of these companies to finance acquisitions and
investments, including purchases of the Company's common stock, and does not
intend to use these funds for the Company's general working capital purposes.
For financial reporting purposes, Eagle New Media and Eagle Publishing are
consolidated with the financial results of the Company.
ACQUISITIONS AND DISPOSITIONS
In February 1999, Eagle New Media acquired Newport Media, Inc., a publisher
of shopper publications in the Long Island and New Jersey areas for
approximately $132.0 million. In April 1999, the Company acquired New Mass
Media, Inc., a publisher of five alternative weekly newspapers in Connecticut,
Massachusetts and New York, for approximately $17.5 million.
The Company completed an agreement in May 1999, to merge Hollywood Online,
Inc., and its Web site, hollywood.com, into Big Entertainment, Inc., in exchange
for newly-issued restricted stock of Big Entertainment, Inc. and a note with a
then combined current value of approximately $31.5 million. Additionally, the
Company completed the sale of Apartment Search, Inc. on March 31, 1999. The
estimated loss on sale of Apartment Search, including a provision for operating
losses through the date of disposal, was recorded in the third quarter of 1998.
On September 3, 1999, Times Mirror announced its decision to sell
AchieveGlobal, Inc., a professional training company; Allen Communication, an
interactive software and training courseware developer and The StayWell Company,
a health improvement information company. The Company decided to sell these
businesses in order to concentrate on its core strengths in newspaper
publishing, flight information and magazine publishing. The Company has retained
investment banking firms to advise it on the sale of these businesses. These
dispositions are anticipated to be completed by the first quarter of 2000. The
accompanying financial statements have been restated for all periods presented
to reflect these businesses as discontinued operations.
On September 3, 1999, the Company also announced its decision to sell the
properties of The Sporting News, a sports related magazine, including
sportingnews.com. The Company has retained an investment banking firm to advise
it on the sale, which is anticipated to be completed by the first quarter of
2000.
COMMON SHARE PURCHASES
Share purchases of the Company's Series A common shares continued during
the year to date period ended June 30, 1999 through a combination of a forward
purchase agreement, put options and open market purchases by Eagle New Media.
The Company and Eagle New Media purchased 2.9 million shares of its Series A
common stock during the year to date period ended June 30, 1999, which more than
offset 1.3 million shares issued as a result of the exercise of stock options.
103
<PAGE> 104
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company believes that the purchase of shares of its common stock is an
attractive investment for Eagle New Media which will also enhance Times Mirror
shareholder value as well as offset dilution from shares of common stock issued
under the Company's stock-based employee compensation and benefit programs.
Purchases by the Company and its affiliates are expected to be made during the
next two years 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. As
of June 30, 1999, the Company and its affiliates are authorized to purchase 4.2
million shares of Series A common stock.
1999 RECAPITALIZATION
In September 1999, the Company completed a recapitalization transaction
with its largest shareholders, the Chandler Trusts. The 1999 recapitalization
resulted in a net effective reduction by, for financial reporting purposes, in
the number of shares of the Series A and C common stocks by 12.4 million shares
and in Series C-1 and C-2 preferred stocks by .5 million shares. Also, in
connection with the 1999 recapitalization, the Company agreed to use its
reasonable best efforts to replace the outstanding Series C-1 and C-2 preferred
stocks with new Series D-1 and D-2 preferred stocks. The new Series D-1 and D-2
preferred stocks will be identical to the existing Series C-1 and C-2 preferred
stocks except that the increases in the dividend rate on the new Series D-1 and
D-2 preferred stocks will be pursuant to a fixed and certain schedule. As a
result of the effective reduction of preferred stock and the intended
replacement of the preferred stock, the preferred dividend requirements will be
reduced to $8.1 million annually. Additionally, the Company entered into an
agreement with Citibank for a $550.0 million bank line of credit maturing on
November 30, 1999. Currently, the Company expects to refinance this line of
credit in October 1999. (See Note 13 to the Condensed Consolidated Financial
Statements for further information).
CASH FLOW
The following table sets forth certain items from the Condensed
Consolidated Statements of Cash Flows (in thousands):
<TABLE>
<CAPTION>
YEAR TO DATE ENDED
JUNE 30,
---------------------
1999 1998
-------- ---------
<S> <C> <C>
Net cash provided by operating activities of continuing
operations................................................ $122,757 $ 91,173
Acquisitions, net of cash acquired.......................... (154,610) (196,850)
Capital expenditures........................................ (79,038) (54,017)
Purchase of Times Mirror common stock, including exercise of
put options, net of premiums received..................... (169,528) (129,218)
Net issuance of commercial paper and short-term
borrowings................................................ 60,402 434,055
</TABLE>
Cash generated by operating activities of continuing operations for the
year to date period ended June 30, 1999 was higher compared to the prior year
primarily due to higher earnings.
In the first half of 1999, Eagle New Media and the Company acquired Newport
Media, Inc. and New Mass Media, Inc., respectively, for approximately $149.5
million.
Capital expenditures for the year to date period ended June 30, 1999 were
higher compared to the same period in 1998 primarily due to the Company's
continuing investments for future growth which included facility renovations
within the Newspaper Publishing segment and the ongoing conversion to a 50-inch
web at The Times. Additionally, the Company increased capital spending related
to information technology projects, including Year 2000 requirements. Capital
expenditures are currently expected to be $190.0 million for 1999.
104
<PAGE> 105
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Total debt at June 30, 1999 rose to $1.33 billion from $1.25 billion at
December 31, 1998 primarily due to short-term borrowings.
IMPACT OF YEAR 2000
The Company is preparing for the impact of the arrival of the Year 2000 on
its business, as well as on the businesses of its customers, suppliers and
business partners. The "Year 2000 Issue" is the result of computer programs
written using two digits rather than four to define the applicable year. The
Company's computer equipment and software and devices with embedded technology
that are time-sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000 or process dates prior to or after the year 2000 in error.
This could result in a system failure or miscalculations causing disruptions of
operations including, among other things, a temporary inability to receive and
process advertising orders, prepare editorial content, operate press facilities,
prepare and distribute products, issue invoices, or engage in similar normal
business activities.
STATE OF READINESS
The Company has instituted a comprehensive program to address potential
Year 2000 impacts for information technology and non-information technology
systems. This program involves the following phases:
Inventory -- This phase entails a comprehensive inventory of all items that
may be affected by the Year 2000 issue. These items include hardware and
software (e.g., business and operational applications, operating systems and
third-party products), production facilities that may be at risk, and key
third-party services whose Year 2000 failures may significantly impact the
Company. This phase was substantially complete in March 1999.
Assessment/Planning -- Items identified in the inventory phase are assessed
based on criticality to the Company's business operations and potential impact
of failure. This phase was substantially complete in March 1999.
Remediation -- This phase involves reprogramming or replacing inventoried
items to ensure they are Year 2000 ready in accordance with the plans identified
during the Assessment/Planning phase. This phase was substantially complete in
June 1999.
Testing -- This phase includes defining test plans, establishing a test
environment, developing test cases, performing testing (with third parties if
necessary), and certifying and documenting the results. The certification
process entails having subject matter experts (users) review test results,
including computer screens and printouts against pre-established criteria to
ensure system compliance. Testing and production implementation is targeted to
be substantially complete by September 30, 1999.
Contingency Planning -- This phase focuses on reducing the risk of Year
2000-induced business disruptions to help ensure the Company's ability to
produce a minimum acceptable level of products and services in the event of
internal or external critical systems failures. The Company is developing and
refining contingency plans aimed at ensuring the continuity of critical business
functions before and after December 31, 1999. The plans include increasing
levels of consumable inventory, such as newsprint, ink and printing plates, as
well as preparing alternate procedures for critical internal processes and
identifying alternate external resources. Except as discussed below, contingency
planning is targeted to be substantially complete by September 30, 1999.
To minimize the impact of disruptions in electrical power that may occur
around midnight December 31, 1999, the Company is planning to print most
sections of its newspapers prior to midnight. In addition, the Company's four
largest newspapers either have or will have electrical generators available to
print sections with late-breaking news. Testing of electrical generators used to
operate the presses will be completed in
105
<PAGE> 106
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
November 1999. The Company's other newspaper properties, having a combined daily
circulation of less than 250,000, will rely on reciprocal printing agreements.
If there is a disruption in electrical power and the Company is unable to
successfully use these arrangements, these properties may not be able to produce
a daily newspaper until electrical power is restored. The Company's Professional
Information and Magazine Publishing business segments currently have electrical
generators to support critical systems and the Company does not expect these
businesses to be materially impacted by a temporary disruption in electrical
power.
The Company believes that its Year 2000 project is on schedule. The table
below lists the percentage complete for each project phase as of June 30, 1999.
The project has been designated as the highest priority of the Company's
information technology departments.
<TABLE>
<CAPTION>
PERCENT COMPLETE AS OF TARGETED DATE FOR
PROJECT PHASE JUNE 30, 1999 SUBSTANTIAL COMPLETION
------------- ---------------------- ----------------------
<S> <C> <C>
Inventory...................................... 99% March 1999
Assessment/Planning............................ 99% March 1999
Remediation.................................... 92% June 1999
Testing........................................ 71% September 1999
Contingency Planning*.......................... 84% September 1999
</TABLE>
- ---------------
* Except for testing of electrical generators described above.
EXTERNAL RELATIONSHIPS
The Company also faces the risk that one or more of its significant
suppliers or other third-party businesses ("external relationships") will not be
able to interact with the Company due to the third party's inability to resolve
its own Year 2000 issues. Beginning in October 1998, compliance questionnaires
were sent to all significant suppliers and other significant third parties such
as financial institutions, utility companies and content providers. As of June
30, 1999, 74% of significant suppliers have responded consisting of 38%
responding that they are compliant and 36% are in the process of becoming Year
2000 compliant. Further follow-up efforts are being made for the 26% that have
not replied and alternative Year 2000 compliant suppliers are being identified.
The Company has received written statements from its major newsprint suppliers
that they expect to be Year 2000 ready.
Jeppesen Sanderson, Inc. has relationships with a large number of
government regulatory agencies that supply the data Jeppesen uses to build its
charts and navigation aids. Jeppesen has received limited information from these
agencies with respect to their Year 2000 efforts. The Company believes that
Jeppesen will be able to continue its operations even if these agencies are not
Year 2000 compliant. As a result, the Company does not believe the inability of
these agencies to become Year 2000 compliant will have a material adverse effect
on the Company.
Excluding these agencies and the Company's significant suppliers, 76% of
significant third parties have responded to the Company's questionnaires
consisting of 19% responding that they are compliant and 57% are in the process
of becoming Year 2000 compliant. Additional follow-up efforts are being made for
the 24% that have not replied and, where appropriate, contingency plans are
being developed. However, the Company has no means of ensuring that such
significant suppliers or significant third parties will be Year 2000 ready. The
inability of these third parties to complete their Year 2000 resolution process
in a timely fashion could have a material adverse effect on the Company.
106
<PAGE> 107
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 COSTS
Internal and external resources have been utilized to perform all phases of
the Year 2000 project. Excluding costs for employees working on the project, the
Company has incurred costs of $28.2 million for the Year 2000 project, of which
$22.2 million was capitalized and $6.0 million was expensed. These costs include
first and second quarter 1999 capital expenditures of $6.4 million and expenses
of $2.1 million. Total project costs are estimated to be $44.1 million,
excluding costs for employees working on the project. During 1999, approximately
95 employees will work on the project with related costs estimated at $7.4
million. These estimates include both information technology and non-information
technology systems, including capital costs associated with planned replacements
previously budgeted for business reasons, which incidentally, include Year 2000
compliance. Year 2000 costs are funded through operating cash flows. Although
priorities have been realigned, the Company has not deferred significant systems
enhancements to become Year 2000 ready.
YEAR 2000 RISKS
Management believes that it has an effective program in place to address
its Year 2000 issues in a timely manner and anticipates the necessary
modifications, replacement and testing of critical systems to be substantially
complete in the third quarter of 1999, subject to uncertainties as discussed
below. As a result, the Year 2000 issue is not expected to pose significant
operational or financial issues for the Company. The Company's expectations
regarding its Year 2000 efforts are subject to various uncertainties that could
cause the actual results to differ materially from the discussion above. These
uncertainties include the success of the Company in identifying systems that are
not Year 2000 ready; the nature and amount of programming required to upgrade or
replace each of the affected systems; the availability, rate and magnitude of
related labor and consulting costs; and the success of vendors, suppliers and
other third parties with which the Company interacts in addressing the Year 2000
issue. If the Company, its vendors, suppliers or such other parties are unable
to resolve the Year 2000 issue on schedule, the Company may not be able to
prepare and distribute its publications and products as well as provide its
services in a timely manner, which may have a material adverse effect on the
Company's results of operations.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
In 1998, the Company divested Matthew Bender & Company, Incorporated and
Mosby, Inc. While the Company believes that these divestitures were completed on
a tax-free basis, this position may be subject to review by the Internal Revenue
Service. The Company estimated deferred taxes of $176.6 million based on its
assessment of the risks inherent in a contested challenge by the Internal
Revenue Service. To the extent that the estimate of such deferred taxes is
adjusted in the course of resolving such a challenge, the adjustment will be
recorded within discontinued operations. If it is ultimately determined that
these transactions were not completed on a tax-free basis, the Company's results
of operations, financial position and cash flows may be materially adversely
affected.
Certain statements set forth above and elsewhere in this current report on
Form 8-K are forward-looking in nature and related to trends and events that may
affect the Company's future financial position and operating results. Such
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The term "expect," "anticipate," and
"intend" and similar words or expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
report. These statements are based on current expectations, are inherently
uncertain, are subject to risks, and should be viewed with caution. For example,
there can be no assurances that the statements contained herein with respect to
the Company's Year 2000 efforts and the satisfactory resolution of contingent
liabilities will be achieved. Actual results and experience may differ
materially from the forward-looking statements and
107
<PAGE> 108
THE TIMES MIRROR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
could be adversely affected by a number of factors. Some of these factors are
described above and in Note 8 to the Condensed Consolidated Financial
Statements. It is not possible to foresee or identify all such factors. The
Company makes no commitment to update any forward-looking statement or to
disclose any facts, events, or circumstances after the date hereof that may
affect the accuracy of any forward-looking statement.
DISCUSSIONS EXCLUDING RESTRUCTURING AND ONE-TIME CHARGES
Management's discussion and analysis of its results of operations presents
information regarding operating profit as well as operating profit excluding the
impact of restructuring and one-time charges. The Company believes that the
financial information which excludes restructuring and one-time charges is
necessary to an understanding of its operations and provides for a more
comparable analysis of historical results as well as indications of future
financial performance.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company enters into contractual agreements in the ordinary course of
business to hedge its exposure to changes in interest rates, the value of
foreign currencies relative to the U.S. dollar and newsprint prices.
Counterparties to these agreements are major institutions. Such agreements are
not entered into for trading purposes.
The Company's debt portfolio is managed to maintain a balance of fixed and
variable rate obligations. The Company utilizes interest rate swap agreements to
help maintain the overall interest rate parameters set by management. As such, a
hypothetical 10% change in interest rates would not have a material impact on
the Company's results of operations or the fair values of its market risk
sensitive financial instruments.
The Company periodically enters into foreign exchange forward contracts or
uses other hedging strategies to substantially limit its exposure to changes in
foreign currency rates. As such, changes in currency rates would not have a
material impact on the Company's results of operations.
Newsprint expense represents a significant portion of the Company's
operating costs. To manage the Company's exposure to newsprint price
fluctuations, the Company periodically enters into newsprint hedging contracts
not to exceed five years. These hedging arrangements have the effect of locking
in for specified periods, the newsprint prices the Company will pay for the
hedged volumes. As a result, while these hedging arrangements are structured to
reduce the Company's exposure to increases in newsprint prices, they also limit
the benefit the Company might otherwise have received from any newsprint price
decreases. The Company's operating results could be adversely affected to the
extent that such historically volatile newsprint prices increase materially.
108
<PAGE> 109
ITEM 7. EXHIBITS
The following exhibits are filed with this report on Form 8-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
11 Computation of Earnings Per Share
12 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Fixed Charges and Preferred Dividends
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedules
</TABLE>
109
<PAGE> 110
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 hereunto duly authorized.
THE TIMES MIRROR COMPANY
By: /s/ THOMAS UNTERMAN
------------------------------------
Thomas Unterman
Executive Vice President and
Chief Financial Officer
Date: September 29, 1999
110
<PAGE> 1
EXHIBIT 11
THE TIMES MIRROR COMPANY
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOURTH QUARTER
ENDED DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
BASIC
Average shares outstanding.................................. 78,922,823 88,106,246
=========== ===========
Income from continuing operations........................... $ 20,726 $ 63,123
Preferred dividend requirements............................. (5,425) (5,424)
----------- -----------
Earnings applicable to common shareholders from continuing
operations................................................ 15,301 57,699
Income from discontinued operations......................... 225,601 9,046
----------- -----------
Total earnings applicable to common shareholders............ $ 240,902 $ 66,745
=========== ===========
Basic earnings per common share:
Continuing operations..................................... $ .19 $ .65
Discontinued operations................................... 2.86 .11
----------- -----------
Basic earnings per common share............................. $ 3.05 $ .76
=========== ===========
DILUTED
Average shares outstanding.................................. 78,922,823 88,106,246
Common shares assumed issued upon conversion of LYONs....... -- 2,914,000
Dilutive stock options based on the treasury stock method
using average market price................................ 1,649,256 2,350,629
----------- -----------
Total............................................. 80,572,079 93,370,875
=========== ===========
Income from continuing operations........................... $ 20,726 $ 63,123
Preferred dividend requirements............................. (5,425) (5,424)
Interest expense on LYONs, net of tax....................... -- 1,403
----------- -----------
Earnings applicable to common shareholders from continuing
operations................................................ 15,301 59,102
Income from discontinued operations......................... 225,601 9,046
----------- -----------
Total earnings applicable to common
shareholders................................... $ 240,902 $ 68,148
=========== ===========
Diluted earnings per common share:
Continuing operations..................................... $ .19 $ .63
Discontinued operations................................... 2.80 .10
----------- -----------
Diluted earnings per common share........................... $ 2.99 $ .73
=========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 12
THE TIMES MIRROR COMPANY
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR TO
DATE ENDED
JUNE 30, 1999 1998 1997 1996 1995 1994
------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense................ $ 40,587 $ 68,473 $ 35,713 $ 19,362 $ 20,216 $ 50,392
Interest related to ESOP(a)..... -- -- -- -- -- 1,376
Capitalized interest............ -- -- -- -- 485 1,042
Portion of rents deemed to be
interest..................... 5,873 11,533 12,406 12,637 14,205 13,723
Amortization of debt expense.... 976 2,151 1,417 529 411 335
-------- -------- -------- -------- --------- --------
Total fixed charges..... 47,436 82,157 49,536 32,528 35,317 $ 66,868
========
Preferred stock dividend
requirements.................... 18,624 39,653 54,883 71,901 74,581
-------- -------- -------- -------- ---------
Fixed charges and preferred stock
dividends requirements.......... $ 66,060 $121,810 $104,419 $104,429 $ 109,898
======== ======== ======== ======== =========
Earnings (loss):
Income (loss) from continuing
operations before income
taxes........................ $231,099 $245,004 $396,499 $300,254 $(253,421) $132,241
Fixed charges, less capitalized
interest and interest related
to ESOP(a)................... 47,436 82,157 49,536 32,528 34,832 64,450
Amortization of capitalized
interest..................... 1,873 3,902 3,966 4,094 4,475 4,227
Distributed income from less
than 50% owned unconsolidated
affiliates................... -- -- 92 191 191 191
Equity loss (income) from less
than 50% owned unconsolidated
affiliates................... 1,956 13,146 4,690 (115) (1,917) 1,329
-------- -------- -------- -------- --------- --------
Total earnings (loss)... $282,364 $344,209 $454,783 $336,952 $(215,840) $202,438
======== ======== ======== ======== ========= ========
Ratio of earnings to fixed
charges......................... 6.0x 4.2x 9.2x 10.4x (b) 3.0x
Ratio of earnings to fixed charges
and preferred stock dividends... 4.3x 2.8x 4.4x 3.2x (c) N/A
</TABLE>
- ---------------
(a) The Company guaranteed repayment of debt of the Employee Stock Ownership
Plan (ESOP) and, accordingly, included the related interest in fixed
charges. This debt was repaid on December 15, 1994.
(b) Earnings are approximately $251 million lower than the amount needed to
cover fixed charges in this year, as earnings were impacted by approximately
$502 million in restructuring charges.
(c) Earnings are approximately $326 million lower than the amount needed to
cover fixed charges and preferred stock dividends in this year, as earnings
in 1995 were impacted by approximately $502 million in restructuring
charges.
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 333-38605, 333-34691, 333-30773 and 333-86807) and in the
Registration Statements (Form S-8 Nos. 333-32773 and 33-65259) of our report
dated February 8, 1999, except for Notes 3 and 21 as to which the date is
September 27, 1999, with respect to the consolidated financial statements and
schedule of The Times Mirror Company included in this Form 8-K dated September
3, 1999.
ERNST & YOUNG LLP
Los Angeles, California
September 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 810,765
<SECURITIES> 34,540
<RECEIVABLES> 364,633
<ALLOWANCES> 39,264
<INVENTORY> 40,789
<CURRENT-ASSETS> 1,488,632
<PP&E> 1,938,687
<DEPRECIATION> 1,016,120
<TOTAL-ASSETS> 4,191,948
<CURRENT-LIABILITIES> 911,741
<BONDS> 956,108
0
724,820
<COMMON> 112,120
<OTHER-SE> 471,982
<TOTAL-LIABILITY-AND-EQUITY> 4,191,948
<SALES> 1,452,958
<TOTAL-REVENUES> 1,452,958
<CGS> 808,796
<TOTAL-COSTS> 808,796
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,879
<INTEREST-EXPENSE> 40,538
<INCOME-PRETAX> 231,099
<INCOME-TAX> 96,491
<INCOME-CONTINUING> 134,608
<DISCONTINUED> (481)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,127
<EPS-BASIC> 1.70
<EPS-DILUTED> 1.64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 880,607
<SECURITIES> 34,540
<RECEIVABLES> 358,658
<ALLOWANCES> 41,466
<INVENTORY> 35,269
<CURRENT-ASSETS> 1,566,462
<PP&E> 1,910,463
<DEPRECIATION> 992,123
<TOTAL-ASSETS> 4,196,586
<CURRENT-LIABILITIES> 1,009,800
<BONDS> 991,269
0
724,820
<COMMON> 112,119
<OTHER-SE> 423,045
<TOTAL-LIABILITY-AND-EQUITY> 4,196,586
<SALES> 699,207
<TOTAL-REVENUES> 699,207
<CGS> 391,037
<TOTAL-COSTS> 391,037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,840
<INTEREST-EXPENSE> 19,804
<INCOME-PRETAX> 87,035
<INCOME-TAX> 36,986
<INCOME-CONTINUING> 50,049
<DISCONTINUED> (1,236)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,813
<EPS-BASIC> .59
<EPS-DILUTED> .58
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,052,999
<SECURITIES> 49,438
<RECEIVABLES> 349,302
<ALLOWANCES> 37,389
<INVENTORY> 28,438
<CURRENT-ASSETS> 1,733,114
<PP&E> 1,869,636
<DEPRECIATION> 966,153
<TOTAL-ASSETS> 4,157,929
<CURRENT-LIABILITIES> 921,502
<BONDS> 941,423
0
724,820
<COMMON> 112,089
<OTHER-SE> 505,544
<TOTAL-LIABILITY-AND-EQUITY> 4,157,929
<SALES> 2,783,988
<TOTAL-REVENUES> 2,783,988
<CGS> 1,444,523
<TOTAL-COSTS> 1,444,523
<OTHER-EXPENSES> 155,681
<LOSS-PROVISION> 19,240
<INTEREST-EXPENSE> 68,275
<INCOME-PRETAX> 245,004
<INCOME-TAX> 110,945
<INCOME-CONTINUING> 134,059
<DISCONTINUED> 1,283,279
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,417,338
<EPS-BASIC> 16.46
<EPS-DILUTED> 16.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 991,817
<SECURITIES> 49,509
<RECEIVABLES> 329,967
<ALLOWANCES> 39,122
<INVENTORY> 50,592
<CURRENT-ASSETS> 1,809,329
<PP&E> 1,906,188
<DEPRECIATION> 990,446
<TOTAL-ASSETS> 4,092,962
<CURRENT-LIABILITIES> 785,451
<BONDS> 919,022
0
724,820
<COMMON> 112,090
<OTHER-SE> 654,137
<TOTAL-LIABILITY-AND-EQUITY> 4,092,962
<SALES> 2,033,902
<TOTAL-REVENUES> 2,033,902
<CGS> 1,104,074
<TOTAL-COSTS> 1,104,074
<OTHER-EXPENSES> 81,112
<LOSS-PROVISION> 12,975
<INTEREST-EXPENSE> 48,193
<INCOME-PRETAX> 208,469
<INCOME-TAX> 95,136
<INCOME-CONTINUING> 113,333
<DISCONTINUED> 1,057,678
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,171,011
<EPS-BASIC> 13.30
<EPS-DILUTED> 12.96
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 54,641
<SECURITIES> 0
<RECEIVABLES> 344,281
<ALLOWANCES> 39,387
<INVENTORY> 37,247
<CURRENT-ASSETS> 1,156,193
<PP&E> 1,890,870
<DEPRECIATION> 974,131
<TOTAL-ASSETS> 3,455,522
<CURRENT-LIABILITIES> 1,021,783
<BONDS> 929,958
0
724,820
<COMMON> 112,090
<OTHER-SE> (31,274)
<TOTAL-LIABILITY-AND-EQUITY> 3,455,522
<SALES> 1,356,774
<TOTAL-REVENUES> 1,356,774
<CGS> 735,934
<TOTAL-COSTS> 735,934
<OTHER-EXPENSES> 34,850
<LOSS-PROVISION> 11,327
<INTEREST-EXPENSE> 29,401
<INCOME-PRETAX> 157,881
<INCOME-TAX> 63,843
<INCOME-CONTINUING> 94,038
<DISCONTINUED> 424
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,462
<EPS-BASIC> 0.95
<EPS-DILUTED> 0.92
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 36,235
<SECURITIES> 0
<RECEIVABLES> 335,170
<ALLOWANCES> 40,338
<INVENTORY> 32,813
<CURRENT-ASSETS> 1,117,655
<PP&E> 1,863,427
<DEPRECIATION> 949,789
<TOTAL-ASSETS> 3,192,700
<CURRENT-LIABILITIES> 662,520
<BONDS> 917,822
0
724,820
<COMMON> 112,089
<OTHER-SE> 72,749
<TOTAL-LIABILITY-AND-EQUITY> 3,192,700
<SALES> 658,767
<TOTAL-REVENUES> 658,767
<CGS> 366,130
<TOTAL-COSTS> 366,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,439
<INTEREST-EXPENSE> 13,141
<INCOME-PRETAX> 77,337
<INCOME-TAX> 31,915
<INCOME-CONTINUING> 45,422
<DISCONTINUED> (161)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,261
<EPS-BASIC> .45
<EPS-DILUTED> .44
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 44,794
<SECURITIES> 0
<RECEIVABLES> 338,243
<ALLOWANCES> 38,839
<INVENTORY> 31,547
<CURRENT-ASSETS> 1,147,504
<PP&E> 1,851,565
<DEPRECIATION> 930,570
<TOTAL-ASSETS> 3,171,828
<CURRENT-LIABILITIES> 673,970
<BONDS> 925,404
0
724,820
<COMMON> 112,055
<OTHER-SE> 39,124
<TOTAL-LIABILITY-AND-EQUITY> 3,171,828
<SALES> 2,645,135
<TOTAL-REVENUES> 2,645,135
<CGS> 1,395,660
<TOTAL-COSTS> 1,395,660
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22,307
<INTEREST-EXPENSE> 35,628
<INCOME-PRETAX> 396,499
<INCOME-TAX> 161,844
<INCOME-CONTINUING> 234,655
<DISCONTINUED> 15,657
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 250,312
<EPS-BASIC> 2.35
<EPS-DILUTED> 2.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 43,989
<SECURITIES> 0
<RECEIVABLES> 324,653
<ALLOWANCES> 38,465
<INVENTORY> 26,730
<CURRENT-ASSETS> 1,099,942
<PP&E> 1,828,061
<DEPRECIATION> 922,422
<TOTAL-ASSETS> 3,083,301
<CURRENT-LIABILITIES> 633,103
<BONDS> 940,132
0
724,820
<COMMON> 112,054
<OTHER-SE> (1,896)
<TOTAL-LIABILITY-AND-EQUITY> 3,083,301
<SALES> 1,929,653
<TOTAL-REVENUES> 1,929,653
<CGS> 1,023,680
<TOTAL-COSTS> 1,023,680
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,320
<INTEREST-EXPENSE> 23,332
<INCOME-PRETAX> 299,681
<INCOME-TAX> 128,149
<INCOME-CONTINUING> 171,532
<DISCONTINUED> 6,611
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178,143
<EPS-BASIC> 1.61
<EPS-DILUTED> 1.56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<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> 34,509
<SECURITIES> 0
<RECEIVABLES> 309,263
<ALLOWANCES> 35,129
<INVENTORY> 30,249
<CURRENT-ASSETS> 1,024,965
<PP&E> 1,965,103
<DEPRECIATION> 898,332
<TOTAL-ASSETS> 3,039,843
<CURRENT-LIABILITIES> 489,810
<BONDS> 633,740
0
411,784
<COMMON> 95,737
<OTHER-SE> 713,042
<TOTAL-LIABILITY-AND-EQUITY> 3,039,843
<SALES> 1,286,139
<TOTAL-REVENUES> 1,286,139
<CGS> 673,567
<TOTAL-COSTS> 673,567
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,078
<INTEREST-EXPENSE> 13,810
<INCOME-PRETAX> 208,040
<INCOME-TAX> 92,788
<INCOME-CONTINUING> 115,252
<DISCONTINUED> (4,033)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,219
<EPS-BASIC> 0.97
<EPS-DILUTED> 0.94
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 38,425
<SECURITIES> 14,213
<RECEIVABLES> 310,594
<ALLOWANCES> 38,954
<INVENTORY> 46,702
<CURRENT-ASSETS> 1,066,569
<PP&E> 1,947,297
<DEPRECIATION> 878,758
<TOTAL-ASSETS> 3,081,594
<CURRENT-LIABILITIES> 610,638
<BONDS> 433,693
0
576,379
<COMMON> 93,620
<OTHER-SE> 668,873
<TOTAL-LIABILITY-AND-EQUITY> 3,081,594
<SALES> 627,368
<TOTAL-REVENUES> 627,368
<CGS> 334,756
<TOTAL-COSTS> 334,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,943
<INTEREST-EXPENSE> 6,744
<INCOME-PRETAX> 82,288
<INCOME-TAX> 36,513
<INCOME-CONTINUING> 45,775
<DISCONTINUED> (542)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,233
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 8-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 128,981
<SECURITIES> 0
<RECEIVABLES> 335,700
<ALLOWANCES> 39,358
<INVENTORY> 48,460
<CURRENT-ASSETS> 1,112,607
<PP&E> 1,941,297
<DEPRECIATION> 860,655
<TOTAL-ASSETS> 3,179,395
<CURRENT-LIABILITIES> 490,746
<BONDS> 459,007
0
576,379
<COMMON> 96,730
<OTHER-SE> 825,701
<TOTAL-LIABILITY-AND-EQUITY> 3,179,395
<SALES> 2,551,002
<TOTAL-REVENUES> 2,551,002
<CGS> 1,408,904
<TOTAL-COSTS> 1,408,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23,293
<INTEREST-EXPENSE> 19,362
<INCOME-PRETAX> 300,254
<INCOME-TAX> 117,996
<INCOME-CONTINUING> 182,258
<DISCONTINUED> 24,186
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206,444
<EPS-BASIC> 1.59
<EPS-DILUTED> 1.54
</TABLE>
