<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 1-13492
------------------------
THE TIMES MIRROR COMPANY
<TABLE>
<S> <C>
DELAWARE 95-4481525
STATE OF INCORPORATION I.R.S. EMPLOYER I.D. NO.
</TABLE>
TIMES MIRROR SQUARE
LOS ANGELES, CALIFORNIA 90053
TELEPHONE: (213) 237-3700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of Series A Common Stock outstanding at July 30, 1999:
46,844,505, excluding 18,237,864 shares held by subsidiaries of the Registrant
and 4,001,067 shares held by TMCT, LLC, representing 80% of the shares held by
TMCT, LLC 14,813,426 shares held by Eagle New Media Investments, LLC and
3,148,705 shares held as treasury shares.
Number of shares of Series C Common Stock outstanding at July 30, 1999:
25,074,794.
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<PAGE> 2
THE TIMES MIRROR COMPANY
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial information herein, and management's discussion thereof, include
consolidated data for The Times Mirror Company ("Registrant" or "Times Mirror")
and its subsidiaries. Registrant and its subsidiaries are sometimes herein
referred to collectively as the "Company."
2
<PAGE> 3
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(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..................................... $801,272 $755,818 $1,547,315 $1,469,948
COSTS AND EXPENSES:
Cost of sales.............................. 435,860 388,770 844,815 772,373
Selling, general and administrative
expenses................................ 230,063 242,199 474,413 482,779
Restructuring and one-time charges......... -- 39,697 -- 39,697
-------- -------- ---------- ----------
665,923 670,666 1,319,228 1,294,849
-------- -------- ---------- ----------
OPERATING PROFIT............................. 135,349 85,152 228,087 175,099
Interest expense............................. (22,346) (18,839) (43,710) (34,360)
Interest income.............................. 10,535 2,451 24,117 7,677
Other, net................................... 20,917 7,822 21,914 7,338
-------- -------- ---------- ----------
Income from continuing operations before
income tax provision....................... 144,455 76,586 230,408 155,754
Income tax provision......................... 59,141 30,751 96,281 63,952
-------- -------- ---------- ----------
Income from continuing operations............ 85,314 45,835 134,127 91,802
Income from discontinued operations, net of
income taxes............................... -- 3,366 -- 2,660
-------- -------- ---------- ----------
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 per common share:
Continuing operations...................... $ 1.11 $ .46 $ 1.70 $ .92
Discontinued operations.................... -- .04 -- .03
-------- -------- ---------- ----------
Basic earnings per share..................... $ 1.11 $ .50 $ 1.70 $ .95
======== ======== ========== ==========
Diluted earnings per common share:
Continuing operations...................... $ 1.05 $ .45 $ 1.64 $ .89
Discontinued operations.................... -- .04 -- .03
-------- -------- ---------- ----------
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 76,972 90,507
======== ======== ========== ==========
Dividends declared per common share.......... $ .20 $ .18 $ .40 $ .36
======== ======== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 812,697 $1,056,341
Marketable securities..................................... 34,540 49,438
Accounts receivable, less allowance for doubtful accounts
and returns of $46,118 and $44,988..................... 362,077 368,740
Inventories............................................... 49,234 39,282
Deferred income taxes..................................... 44,958 44,012
Prepaid expenses.......................................... 40,439 32,763
Other current assets...................................... 17,780 38,683
---------- ----------
Total current assets.............................. 1,361,725 1,629,259
Property, plant and equipment, net of accumulated
depreciation and amortization of $1,027,170 and
$976,175.................................................. 934,553 915,992
Goodwill, net of accumulated amortization of $139,847 and
$131,170.................................................. 665,376 564,324
Other intangibles, net of accumulated amortization of
$74,824 and $66,246....................................... 253,959 168,629
Investments................................................. 306,501 270,818
Prepaid pension costs....................................... 431,959 419,471
Other assets................................................ 269,070 249,813
---------- ----------
Total assets...................................... $4,223,143 $4,218,306
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
THE TIMES MIRROR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 171,323 $ 194,224
Short-term debt........................................... 372,877 312,610
Other current liabilities................................. 391,688 466,658
----------- -----------
Total current liabilities......................... 935,888 973,492
Long-term debt.............................................. 956,108 941,423
Deferred income taxes....................................... 418,742 374,679
Postretirement benefits..................................... 223,825 226,018
Other liabilities........................................... 371,203 337,681
----------- -----------
Total liabilities................................. 2,905,766 2,853,293
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........ $ 4,223,143 $ 4,218,306
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
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............................................. $ 133,665 $ 88,658
Net cash provided by (used in) operating activities of
discontinued operations................................ (2,356) 35,600
---------- ---------
Net cash provided by operating activities......... 131,309 124,258
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired........................ (154,610) (192,850)
Capital expenditures...................................... (80,679) (56,295)
Purchases of investments.................................. (50,996) (24,679)
Proceeds from sales of assets............................. 20,945 19,259
Sale of marketable securities, net........................ 14,898 --
Decreases (increases) in notes receivable................. 12,500 (67,858)
Other, net................................................ (3,455) (14,172)
---------- ---------
Net cash used in investing activities of continuing
operations............................................ (241,397) (336,595)
Net cash used in investing activities of discontinued
operations............................................ -- (15,322)
---------- ---------
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............ (243,644) 15,460
Cash and cash equivalents at beginning of year.............. 1,056,341 48,659
---------- ---------
Cash and cash equivalents at end of period.................. $ 812,697 $ 64,119
========== =========
NONCASH INVESTING ACTIVITIES
Liabilities assumed in connection with acquisitions....... $ 49,310 $ 8,087
Stock and notes receivable received from divestiture...... $ 31,502 $ --
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
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 the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
Certain amounts in previously issued financial statements have been
reclassified to conform to the 1999 presentation.
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
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. Prior year results for discontinued operations
primarily include Matthew Bender & Company, Incorporated, the Shepard's joint
venture, Mosby, Inc. and Apartment Search, Inc. 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 from discontinued operations......................... $ -- $ 2,660
Depreciation and amortization............................... -- 10,196
Amortization of product costs............................... -- 6,222
Other, net.................................................. (2,356) 16,522
------- --------
Net cash provided by (used in) operating activities of
discontinued operations................................ $(2,356) $ 35,600
======= ========
Capitalization of product costs............................. $ -- $ (5,984)
Capital expenditures........................................ -- (3,201)
Other, net.................................................. -- (6,137)
------- --------
Net cash used in investing activities of discontinued
operations............................................. $ -- $(15,322)
======= ========
</TABLE>
7
<PAGE> 8
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 1996 1995
RESTRUCTURING RESTRUCTURING RESTRUCTURING TOTAL
------------- ------------- ------------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1998............ $ 97,264 $ 19 $24,404 $121,687
Cash payments......................... (55,851) (19) (6,071) (61,941)
Asset write-offs(1)................... (3,671) -- -- (3,671)
-------- ---- ------- --------
Balance at June 30, 1999................ $ 37,742 $ -- $18,333 $ 56,075
======== ==== ======= ========
</TABLE>
- ---------------
(1) During the 1999 second quarter, the Company wrote-off previously identified
assets and paid certain transaction costs related to the sale and conversion
of AchieveGlobal's Canadian operations to a franchise arrangement.
During the year to date period ended June 30, 1999, cash spent on
restructuring efforts included severance payments of $33,564,000, contract
termination costs of $19,802,000, and lease payments of $7,640,000. At June 30,
1999, the remaining liability for severance costs aggregated $20,267,000.
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........................................ $11,675 $ 16,464
1996 Restructuring........................................ -- 19
1998 Restructuring........................................ 24,320 82,306
Other liabilities:
1995 Restructuring........................................ 6,658 7,940
1998 Restructuring........................................ 13,422 14,958
------- --------
$56,075 $121,687
======= ========
</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.
8
<PAGE> 9
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
9
<PAGE> 10
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 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 pretax gain of $10,323,000.
NOTE 6 -- EARNINGS AND DIVIDENDS 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....... $85,314 $45,835 $134,127 $ 91,802
Preferred dividends..................... (5,424) (5,424) (10,848) (10,848)
------- ------- -------- --------
Earnings applicable to common
shareholders for basic earnings per
share................................ 79,890 40,411 123,279 80,954
LYONs interest expense, net of tax...... 1,506 -- 2,982 --
Series C-1, preferred dividends......... 2,762 -- -- --
Series C-2, preferred dividends......... 1,777 -- -- --
------- ------- -------- --------
Earnings applicable to common
shareholders for diluted earnings per
share................................ $85,935 $40,411 $126,261 $ 80,954
======= ======= ======== ========
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 -- -- --
Series C-2, convertible preferred
stock.............................. 2,197 -- -- --
------- ------- -------- --------
Adjusted weighted average shares for
diluted earnings per share........... 82,128 90,277 76,972 90,507
======= ======= ======== ========
Basic earnings per share from continuing
operations........................... $ 1.11 $ .46 $ 1.70 $ .92
======= ======= ======== ========
Diluted earnings per share from
continuing operations................ $ 1.05 $ .45 $ 1.64 $ .89
======= ======= ======== ========
</TABLE>
The Company has certain convertible securities, which are not included in
the calculation of diluted earnings per share, because the effects are
antidilutive.
10
<PAGE> 11
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 the Company's Annual Report on Form 10-K 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 and health information operating units; (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 professional or corporate spending on discretionary items
such as information or training and in decreased consumer spending on
discretionary items such as magazines or newspapers.
NOTE 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
11
<PAGE> 12
THE TIMES MIRROR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
standard is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. Management does 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.
12
<PAGE> 13
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........... 103,900 110,049 207,111 215,783
Magazine Publishing................ 64,221 59,623 133,060 125,268
-------- -------- ---------- ----------
Total Reportable
Segments................. 801,190 755,403 1,546,786 1,469,703
Corporate and Other................ 103 210 628 411
Intersegment Revenues.............. (21) 205 (99) (166)
-------- -------- ---------- ----------
$801,272 $755,818 $1,547,315 $1,469,948
======== ======== ========== ==========
OPERATING PROFIT (LOSS)(1)
Newspaper Publishing............... $126,541 $ 85,259 $ 218,213 $ 175,413
Professional Information........... 18,015 12,204 34,185 29,162
Magazine Publishing................ 2,480 1,953 2,483 1,730
-------- -------- ---------- ----------
Total Reportable
Segments................. 147,036 99,416 254,881 206,305
Corporate and Other................ (11,687) (14,264) (26,794) (31,206)
-------- -------- ---------- ----------
$135,349 $ 85,152 $ 228,087 $ 175,099
======== ======== ========== ==========
DEPRECIATION AND AMORTIZATION
Newspaper Publishing............... $ 33,967 $ 29,617 $ 65,599 $ 58,582
Professional Information........... 4,124 5,083 8,270 10,102
Magazine Publishing................ 2,104 2,018 4,096 3,963
-------- -------- ---------- ----------
Total Reportable
Segments................. 40,195 36,718 77,965 72,647
Corporate and Other................ 1,002 1,247 2,163 2,301
-------- -------- ---------- ----------
$ 41,197 $ 37,965 $ 80,128 $ 74,948
======== ======== ========== ==========
CAPITAL EXPENDITURES
Newspaper Publishing............... $ 36,934 $ 25,873 $ 66,980 $ 43,105
Professional Information........... 3,414 5,051 7,076 9,033
Magazine Publishing................ 1,764 413 2,610 846
-------- -------- ---------- ----------
Total Reportable
Segments................. 42,112 31,337 76,666 52,984
Corporate and Other................ 2,175 1,370 4,013 3,311
-------- -------- ---------- ----------
$ 44,287 $ 32,707 $ 80,679 $ 56,295
======== ======== ========== ==========
</TABLE>
- ---------------
(1) Includes 1998 restructuring and one-time charges as follows:
<TABLE>
<S> <C> <C> <C> <C>
Newspaper Publishing............. -- $ 34,850 -- $ 34,850
Professional Information......... -- 4,847 -- 4,847
-------- -------- ---------- ----------
-- $ 39,697 -- $ 39,697
======== ======== ========== ==========
</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 3.
13
<PAGE> 14
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................................... 313,458 344,636
Magazine Publishing........................................ 277,700 271,457
---------- ----------
Total Reportable Segments........................ 2,869,545 2,615,973
Corporate and Other........................................ 1,353,598 1,602,333
---------- ----------
$4,223,143 $4,218,306
========== ==========
</TABLE>
14
<PAGE> 15
THE TIMES MIRROR COMPANY
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
The following table summarizes the Company's consolidated financial results
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
SECOND QUARTER ENDED YEAR TO DATE ENDED
JUNE 30, JUNE 30,
-------------------- ------------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues............................. $801,272 $755,818 $1,547,315 $1,469,948
Restructuring and one-time charges... -- 39,697 -- 39,697
Operating profit..................... 135,349 85,152 228,087 175,099
Interest expense, net................ (11,811) (16,388) (19,593) (26,683)
Other, net........................... 20,917 7,822 21,914 7,338
Income from continuing operations.... 85,314 45,835 134,127 91,802
Income from discontinued operations,
net of income taxes................ -- 3,366 -- 2,660
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 per common share:
Continuing operations.............. $ 1.11 $ .46 $ 1.70 $ .92
Discontinued operations............ -- .04 -- .03
-------- -------- ---------- ----------
Basic earnings per share............. $ 1.11 $ .50 $ 1.70 $ .95
======== ======== ========== ==========
Diluted earnings per common share:
Continuing operations.............. $ 1.05 $ .45 $ 1.64 $ .89
Discontinued operations............ -- .04 -- .03
-------- -------- ---------- ----------
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 76,972 90,507
======== ======== ========== ==========
</TABLE>
Revenues for the 1999 second quarter and year to date periods ended June
30, 1999 rose 6.0% and 5.3%, respectively, compared to the prior year periods
due primarily to higher advertising revenues in the Newspaper Publishing
segment, including the effects of acquisitions.
Operating profit for the 1999 second quarter and year to date periods ended
June 30, 1999 increased 8.4% and 6.2%, respectively, compared to the prior year
periods, excluding the 1998 pretax restructuring and one-time charges of $39.7
million ($24.7 million after applicable taxes). The increases were due to a
modest improvement in the Newspaper Publishing segment 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 $9.0 million reduction in amortization of
the transition asset.
The 1999 second quarter income from continuing operations includes a pretax
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 $74.7 million, or $.92 per
share, compared to $70.5 million, or $.72 per share, respectively. For the year
to date period ended June 30, 1999, income from
15
<PAGE> 16
THE TIMES MIRROR COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
continuing operations was $123.5 million, or $1.50 per share, compared with
$116.5 million, or $1.17 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 $39.7 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.
16
<PAGE> 17
THE TIMES MIRROR COMPANY
MANAGEMENT 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
$34.9 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............. $103,900 $110,049 (5.6)% $207,111 $215,783 (4.0)%
======== ======== ======== ========
Operating profit..... $ 18,015 $ 12,204 47.6% $ 34,185 $ 29,162 17.2%
======== ======== ======== ========
Operating profit
excluding
restructuring and
one-time charges... $ 18,015 $ 17,051 5.7% $ 34,185 $ 34,009 0.5%
======== ======== ======== ========
</TABLE>
The Professional Information segment achieved higher operating profit in
1999 due primarily to outstanding performance at Jeppesen Sanderson, the
Company's flight information provider, which experienced double-digit increases,
partially offset by reduced profitability at AchieveGlobal, the Company's
training company. Professional Information segment's revenue declined in 1999
primarily due to reduced revenues at AchieveGlobal. The decline was partially
offset by higher revenues at Jeppesen Sanderson.
Professional Information segment's restructuring and one-time charges
totaled $4.8 million in the second quarter of 1998 to write-off assets related
to the termination of its direct sales business line at AchieveGlobal.
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 0.4
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>
17
<PAGE> 18
THE TIMES MIRROR COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
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 pretax 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 pretax 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 pretax gain on the sale of AOL shares
was $10.3 million ($6.1 million after applicable taxes), or $.08 per share.
RESTRUCTURING LIABILITY
A summary of the activity in restructuring liabilities is as follows (in
thousands):
<TABLE>
<CAPTION>
BALANCE 1999 CASH 1999 ASSET BALANCE
DESCRIPTION 12/31/98 PAYMENTS WRITE-OFFS 6/30/99
----------- -------- --------- ---------- -------
<S> <C> <C> <C> <C>
1998 Restructuring:
Termination benefits.................... $52,114 $(33,414) -- $18,700
Contract terminations................... 31,264 (19,802) -- 11,462
Lease termination costs................. 8,192 (2,224) -- 5,968
Technology asset costs.................. 671 (311) -- 360
Business exit and other costs........... 5,023 (100) $(3,671) 1,252
------- -------- ------- -------
Total........................... $97,264 $(55,851) $(3,671) $37,742
======= ======== ======= =======
1995 Restructuring........................ $24,404 $ (6,071) $ -- $18,333
======= ======== ======= =======
</TABLE>
During the 1999 second quarter, the Company wrote-off previously identified
assets and paid certain transaction costs related to the sale and conversion of
AchieveGlobal's Canadian operations to a franchise arrangement. 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.
18
<PAGE> 19
THE TIMES MIRROR COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
jLIQUIDITY 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 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 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.
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 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. 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.
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.
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
19
<PAGE> 20
THE TIMES MIRROR COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
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................................................ $ 133,665 $ 88,658
Acquisitions, net of cash acquired.......................... (154,610) (192,850)
Capital expenditures........................................ (80,679) (56,295)
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 reach approximately $200.0 million for
1999.
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,
20
<PAGE> 21
THE TIMES MIRROR COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 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.
21
<PAGE> 22
THE TIMES MIRROR COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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...................................... 70% 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 39%
responding that they are compliant and 35% 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 27% responding that they are compliant and 49% 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.
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 $30.3 million for the Year 2000 project, of which
$23.5 million was capitalized and $6.8 million was expensed. These costs include
first and second quarter 1999 capital expenditures of $6.6 million and expenses
of $2.5 million. Total project costs are estimated to be $47.6 million,
excluding costs for employees working on the project. During 1999, approximately
100 employees will work on the project with related costs estimated at $7.6
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,
22
<PAGE> 23
THE TIMES MIRROR COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 Quarterly Report
on Form 10-Q 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 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
23
<PAGE> 24
THE TIMES MIRROR COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
ITEM 3. 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.
24
<PAGE> 25
THE TIMES MIRROR COMPANY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material legal proceedings are pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The Company's Annual Meeting of Shareholders was held on May 6, 1999.
(c) At the Annual Meeting of Shareholders, the following matters were voted
upon: the election of five persons to Class I of the Board of Directors of the
Company and the ratification of the appointment of Ernst & Young LLP, as
independent auditors for the Company and its subsidiaries for the year ending
December 31, 1999.
The results of the voting on matters presented at the Company's Annual
Meeting of Shareholders were as follows:
<TABLE>
<CAPTION>
VOTES
DESCRIPTION VOTES FOR WITHHELD
----------- ----------- --------
<S> <C> <C>
Election of Directors:
Donald R. Beall........................................... 274,741,057 243,774
Sherry L. Lansing......................................... 274,714,211 270,620
Dawn Gould Lepore......................................... 274,742,315 242,516
Robert W. Schult.......................................... 274,633,093 351,739
Warren B. Williamson...................................... 274,633,048 351,783
</TABLE>
There were no abstentions or broker non-votes on the election of Directors.
<TABLE>
<CAPTION>
VOTES BROKER
DESCRIPTION VOTES FOR AGAINST ABSTENTIONS NON-VOTES
----------- ----------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Ratification of the appointment of
Ernst & Young LLP.......................... 274,546,008 21,987 416,836 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12. Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed
Charges and Preferred Dividends.
27. Financial Data Schedule.
(b) No reports on Form 8-K were filed for the quarter ended June 30, 1999.
25
<PAGE> 26
THE TIMES MIRROR COMPANY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TIMES MIRROR COMPANY
By: /S/ THOMAS UNTERMAN
------------------------------------
Thomas Unterman
Executive Vice President and
Chief Financial Officer
Date: August 6, 1999
26
<PAGE> 1
EXHIBIT 12
THE TIMES MIRROR COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
YEAR TO DATE ENDED
JUNE 30, 1999
------------------
<S> <C>
Fixed charges:
Interest expense.......................................... $ 43,759
Portion of rents deemed to be interest.................... 6,774
Amortization of debt expense.............................. 976
--------
Total fixed charges............................... 51,509
Preferred dividends......................................... 18,635
--------
Fixed charges and preferred dividends..................... $ 70,144
========
Earnings:
Income from continuing operations before income tax
provision.............................................. $230,408
Fixed charges............................................. 51,509
Amortization of capitalized interest...................... 1,873
Add: Equity loss from less than 50% owned unconsolidated
affiliates............................................. 1,956
--------
Total earnings.................................... $285,746
========
Ratio of earnings to fixed charges.......................... 5.5x
Ratio of earnings to fixed charges and preferred
dividends................................................. 4.1x
</TABLE>
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1999 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 812,697
<SECURITIES> 34,540
<RECEIVABLES> 408,195
<ALLOWANCES> 46,118
<INVENTORY> 49,234
<CURRENT-ASSETS> 1,361,725
<PP&E> 1,961,723
<DEPRECIATION> 1,027,170
<TOTAL-ASSETS> 4,223,143
<CURRENT-LIABILITIES> 935,888
<BONDS> 956,108
0
724,820
<COMMON> 112,120
<OTHER-SE> 471,982
<TOTAL-LIABILITY-AND-EQUITY> 4,223,143
<SALES> 1,547,315
<TOTAL-REVENUES> 1,547,315
<CGS> 844,815
<TOTAL-COSTS> 844,815
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,984
<INTEREST-EXPENSE> 43,710
<INCOME-PRETAX> 230,408
<INCOME-TAX> 96,281
<INCOME-CONTINUING> 134,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,127
<EPS-BASIC> 1.70
<EPS-DILUTED> 1.64
</TABLE>
