<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 30, 1994
THE TIMES MIRROR COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1-4914 95-1298980
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYEE
OF INCORPORATION) IDENTIFICATION NO.)
</TABLE>
TIMES MIRROR SQUARE
LOS ANGELES, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
90053
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 237-3700
NONE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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<PAGE> 2
ITEM 5. OTHER EVENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Times Mirror Cable Television, Inc. encompasses all of the cable television
systems (Times Mirror Cable) owned by The Times Mirror Company (the Company).
Historically, Times Mirror Cable's revenue growth has been primarily achieved by
internal subscriber growth, acquisitions and increases in rates for services
provided. Recent federal laws and regulations, including the decision to
reregulate the cable television industry, will impact Times Mirror Cable's
ability to increase rates for certain subscriber services or restructure its
rates for certain services. The reregulation activities, which are further
discussed under "Recent Legislation" herein, are designed to reduce subscriber
rates and limit future basic and cable programming service rate increases.
Substantially all of Times Mirror Cable's revenues are earned from
subscriber fees for basic, cable programming and premium television services,
the rental of converters and remote control devices, and installation fees.
Additional revenues are generated by pay-per-view programming fees, the sale of
advertising, and payments received as a result of revenue sharing agreements for
products sold through home shopping networks.
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. The results of operations
for Times Mirror Cable represent the combined operations of all of the cable
television systems owned by the Company. These historical financial results do
not necessarily reflect the results of operations which would have existed had
Times Mirror Cable been an independent company.
The following table sets forth certain items for comparison purposes:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
FOR PERCENTAGE CHANGE FROM
YEAR ENDED DECEMBER 31, COMPARABLE PRIOR YEAR
------------------------- -----------------------
1991 1992 1993 1991 1992 1993
----- ----- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues..................................... 100.0% 100.0% 100.0% 8.6% 7.4% 11.2%
Operating, selling, general and
administrative expenses.................... 61.8 61.0 57.9 9.2 6.0 5.5
Depreciation and amortization................ 19.4 18.5 20.3 8.7 2.4 21.7
Operating profit*............................ 18.8 20.5 21.8 6.4 16.9 18.6
Income before cumulative effect of change in
accounting principle....................... 14.4 12.5 23.7 24.9 (6.4) 110.3
</TABLE>
- - ---------------
* Excludes $3.7 million for a sublease charge in 1992 and the reversal of the
charge in 1993.
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The following tables summarize Times Mirror Cable's financial results (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- -----------------------
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $394,133 $423,134 $470,409 $231,481 $247,161
Operating expenses................ 172,505 180,868 193,816 94,654 106,051
Selling, general and
administrative expenses......... 70,986 77,282 78,470 36,232 41,066
Depreciation and amortization..... 76,499 78,314 95,336 46,366 48,526
Operating profit.................. 74,143 82,970 106,487 54,229 51,518
Gain on disposal of assets........ 14,111 8,673 86,799 15,839
Income before change in accounting
principle, net of tax........... 56,711 53,097 111,642 40,457 29,339
Cumulative effect of change in
accounting principle............ (4,635)
Net income........................ 56,711 48,462 111,642 40,457 29,339
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1993 1993 1993 1993 1994 1994
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 113,234 $118,247 $ 117,071 $121,857 $ 122,968 $124,193
Operating profit................... 26,042 28,187 24,157 28,101 27,059 24,459
</TABLE>
FIRST HALF 1994 COMPARED WITH FIRST HALF 1993
Revenues rose 6.8 percent in the first half of 1994 compared with the same
period in 1993 reflecting higher basic subscriber levels. The highest growth in
basic subscribers was in the Phoenix, Arizona system. Basic subscribers,
excluding approximately 12,600 subscribers from a cable system sold in mid-1993,
were up 4 percent in the half to 1,228,000. Monthly revenue per average basic
subscriber was $33.82 in 1994's first half compared with $32.48 in the
comparable period of 1993. Revenue growth was tempered by a Federal
Communications Commission (FCC)-mandated rate freeze, which extended through
July 14, 1994, and the impact of last year's 10% basic and cable programming
rate rollback. First half advertising revenues were $11.3 million, a 20.2
percent increase over the prior year. Pay-per-view revenue increased 96 percent
over 1993, primarily from the addition of the Phoenix Suns games to pay-per-view
programming. Pay subscriber revenue declined by 4.7 percent due to promotional
pricing, although pay subscribers increased from 716,000 at the end of the first
half of 1993 to 721,000 in 1994. The 721,000 pay subscribers represent a 2.6
percent increase from the December 31, 1993 level, as new promotional programs
attracted more subscribers. The pay-to-basic percentage decreased from 56.9
percent to 55.7 percent over the same periods. Monthly pay revenue per average
pay unit was $7.79 in last year's first half compared with $7.95 in 1994's first
half.
First half operating, selling, general and administrative expenses in 1994,
excluding depreciation and amortization, rose 12.4 percent. Higher programming
costs, administrative costs related to increased basic subscriber levels and
maintenance and property tax expenses related to expanding cable plant
facilities contributed to the overall increase in expenses. Depreciation and
amortization expense increased 4.7 percent over the prior year's first half,
reflecting higher capital expenditures in the past year.
Operating profit declined 5.0 percent, due to the effects of the regulated
rate freeze and higher operating expenses. Net income for the first half of 1993
includes a $9.7 million after tax gain on the sale of assets. Excluding this
gain, net income for the first half of 1994 was slightly lower than the same
period in 1993, primarily due to lower operating profit and an effective tax
rate which increased from 40.6% in 1993 to 44.0% in 1994.
1993 COMPARED WITH 1992
Revenues rose 11.2 percent over the prior year as basic subscribers
advanced 2.1 percent to 1,208,000, and monthly revenue per average basic
subscriber improved to $32.79 from $30.69 in 1992. Strong basic subscriber
growth, particularly the addition of more than 20,000 subscribers in the
Phoenix, Arizona system,
2
<PAGE> 4
contributed to the revenue improvement. Revenues gained from the full-year
inclusion of Community Cablevision Company, which was acquired in October 1992,
were mostly offset by the absence of revenue from a small cable system sold in
mid-1993. Advertising revenues continued to grow, improving by 29.3 percent to
reach $20.7 million in 1993. Higher pay-per-view revenue, reflecting higher buy
rates and a greater number of addressable converters in the field, was mostly
offset by revenue declines from a lower level of pay subscribers. Pay
subscribers decreased from 743,000 in 1992 to 703,000 in 1993. This decline was
largely in line with an industry-wide trend. The pay-to-basic percentage
decreased from 62.8 percent to 58.2 percent between years. Monthly pay revenue
per average pay unit declined from $8.53 to $7.89.
Operating and selling, general and administrative expenses in 1993,
excluding depreciation and amortization, were only 5.5 percent higher than 1992
despite a 16.3 percent rise in cable programming service rights costs, from
$37.2 million to $43.2 million, and increased expenses associated with the
implementation of the September 1, 1993 rate reregulation. Significantly higher
depreciation and amortization expense, which rose 21.7 percent in 1993,
reflected increased capital spending levels in 1992 and 1993 and a full year of
acquisition-related amortization from the Community Cablevision Company
acquisition.
Operating profit improved 28.3 percent in 1993, due largely to revenue
growth and operating cost efficiencies implemented in late 1992. The increase in
operating profit between years included the 1993 reversal of a $3.7 million
charge made in 1992 related to an expected loss on a sublease for facilities in
Orange County, California. Excluding the $3.7 million in both years, operating
profit would have risen 18.6 percent from $86.7 million in 1992 to $102.8
million in 1993.
Fourth-quarter 1993 financial results were impacted by the September 1,
1993 implementation of the FCC's rate regulations. Times Mirror Cable's revenue
and operating profit growth are expected to be more adversely affected in 1994
by the full year effect of the FCC's ongoing reregulation activities.
Net income in 1993 more than doubled as a result of a $50.4 million
after-tax gain from the disposal of assets. Asset sales in 1992 contributed $5.0
million to 1992 net income. Times Mirror Cable's 1993 asset dispositions
included its investment in QVC Network, Inc. common stock and a small cable
system, while asset sales in 1992 consisted of two of its Texas cable systems.
Prior year net income also included a $4.6 million cumulative charge from the
adoption of the new accounting standard for income taxes.
1992 COMPARED WITH 1991
Revenues increased 7.4 percent in 1992 as basic subscribers advanced 6.1
percent to 1,183,000 and monthly revenue per average basic subscriber improved
to $30.69 from $29.94 in 1991. The acquisition of Community Cablevision Company
on October 1, 1992 added 42,000 basic subscribers. Advertising revenues of $16.0
million improved 19.4 percent, while pay-per-view revenue also rose slightly.
Pay subscribers grew 10.7 percent to 743,000. This turnaround was the result of
competitive pricing/packaging programs and, to a lesser extent, the acquisition
of Community Cablevision Company. The pay-to-basic percentage was 62.8 percent
in 1992 and 60.2 percent in 1991. Monthly pay revenue per average pay unit
declined from $9.02 to $8.53.
Operating and selling, general and administrative expenses, excluding
depreciation and amortization, grew 6.0 percent in 1992 compared with 1991,
reflecting continued operating efficiencies. Depreciation and amortization grew
slightly in 1992, largely as a result of the Community Cablevision Company
acquisition in October 1992.
Times Mirror Cable's operating profit improved 11.9 percent between years
despite a $3.7 million charge related to an expected loss on an anticipated
sublease for facilities in Orange County, California. Excluding the sublease
charge, 1992 operating profit would have increased by 16.9 percent, primarily on
the higher revenues.
Net income in 1992 declined 14.6 percent from the prior year. This
reduction reflects a higher effective tax rate, lower gains from the sales of
assets, and a $4.6 million cumulative adjustment for the adoption of the new
accounting standard for income taxes.
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LIQUIDITY AND CAPITAL RESOURCES
Times Mirror Cable's cash requirements are funded primarily by its
operating activities. Cash in excess of day-to-day operating requirements is
transferred to the Company as part of a centralized cash management system. If
funds are needed, Times Mirror Cable obtains them from the Company through an
intercompany advance. Times Mirror Cable had intercompany advances due from the
Company of $21.6 million and $10.6 million at December 31, 1993 and June 30,
1994, respectively.
Net cash from operations in 1993 declined $28.5 million from the prior year
primarily as a result of a fluctuation in income taxes payable. Net cash from
operations in the first half of 1994 decreased by $1.8 million compared to the
same period in 1993.
Times Mirror Cable invests heavily in its cable plant, continually
replacing and modernizing its technology by rebuilding and upgrading its systems
with fiber optic cable. Capital expenditures increased more than 40 percent in
1993, continuing a substantial upward trend that began in 1992 when capital
expenditures rose 36.3 percent from the prior year. Times Mirror Cable is
obligated to spend approximately $118 million in capital expenditures in 1994
for upgrades, line extensions and new equipment and has spent approximately
$62.6 million in the first half of 1994. During 1992, Times Mirror Cable spent
$110.9 million on acquisitions of cable television systems. In 1993, Times
Mirror Cable disposed of its investment in QVC Network, Inc. and sold a small
cable system in Texas, generating $91.7 million in net proceeds.
The following table sets forth certain items from the Consolidated
Statements of Cash Flows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- -----------------------
1992 1993 1993 1994
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided by operating activities... $ 143,791 $ 115,255 $ 69,730 $ 67,938
Proceeds from disposal of assets transferred
to parent................................. 14,952 91,665 4,822 --
Acquisitions of cable television systems.... (110,910) (1,413) (1,413) --
Capital expenditures........................ (82,333) (116,914) (50,268) (62,637)
Dividends and other, net.................... 4,721 (7,868) (7,397) (3,283)
--------- --------- -------- --------
Cash to (from) parent....................... $ (29,779) $ 80,725 $ 15,474 $ 2,018
========= ========= ======== ========
</TABLE>
EBITDA
Based on its experience in the cable television industry, Times Mirror
Cable believes that EBITDA, defined as operating profit plus depreciation and
amortization, is an important measure of financial performance. EBITDA and the
EBITDA Margin (EBITDA to Revenues) for the last three years and the last six
quarters were as follows:
<TABLE>
<CAPTION>
EBITDA % EBITDA
(000'S) INCREASE MARGIN
-------- -------- ------
<S> <C> <C> <C>
1991.......................................... $150,642 7.5% 38.2%
1992.......................................... 164,984* 9.5% 39.0%
1993.......................................... 198,123* 20.1% 42.1%
First Quarter 1993............................ 49,058 43.3%
Second Quarter 1993........................... 51,537 43.6%
Third Quarter 1993............................ 47,736 40.8%
Fourth Quarter 1993........................... 49,792* 40.9%
First Quarter 1994............................ 51,391 41.8%
Second Quarter 1994........................... 48,653 39.2%
</TABLE>
- - ---------------
* Excludes $3.7 million for a sublease charge in 1992 and the reversal of the
charge in the fourth quarter 1993.
4
<PAGE> 6
EBITDA has advanced every year since 1988, with double-digit growth in 1988
and 1989 tempering to a 7.5 percent increase in 1990. EBITDA's substantial
increase in 1993 was aided by the acquisition of Community Cablevision Company
in October 1992. EBITDA should not be considered by the reader as an alternative
to net income as an indicator of Times Mirror Cable's performance or as an
alternative to cash flows as a measure of liquidity.
EFFECTS OF INFLATION
The net effect of inflation on operations has not been material in the last
few years because of the relatively low rate of inflation during this period and
because of efforts by Times Mirror Cable to lessen the effect of rising costs
through a strategy of improving productivity, controlling costs and, where
regulatory and competitive conditions permit, increasing rates.
RECENT LEGISLATION
In October 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (1992 Cable Act). This legislation made significant
changes to the legislative and regulatory environment in which the cable
industry operates, particularly in the areas of rate regulation and the
retransmission of broadcast television signals.
The FCC was authorized to establish rulemakings to implement various
provisions of the 1992 Cable Act, including rate regulation. An FCC-mandated
basic and cable programming service rate freeze, which became effective in April
1993 and was scheduled to expire in mid-February 1994, was extended to May 15,
1994. The April 1993 rate regulations also adopted a benchmark price cap system
for measuring the reasonableness of existing basic and cable programming service
tier rates (other than per-event or per-channel service rates), and a formula
for evaluating future rate increases. Alternatively, cost-of-service
measurements to justify rates above the applicable benchmarks are also
permitted. In general, under the April 1993 rules, the reduction for existing
basic and cable programming service tier rates would be to the greater of the
applicable benchmark level or the rates in force as of September 30, 1992, minus
10 percent adjusted forward for inflation. Future rate increases may not exceed
an inflation-indexed amount, plus increases in certain costs such as taxes,
franchise fees and programming costs that exceed the inflation index.
The April 1993 rate regulations became effective September 1, 1993. In
accordance with these regulations, Times Mirror Cable repackaged certain
existing cable services and introduced a new method of offering certain cable
services. Basic and cable programming service rates, related equipment and
installation charges, and additional outlet charges were also adjusted so as to
bring these rates and charges into compliance with the applicable benchmark or
cost levels. In connection with the September 1993 rate regulations, Times
Mirror Cable adopted an a la carte pricing strategy for certain cable services.
In January 1994, Times Mirror Cable answered FCC inquiries about the a la carte
pricing, and has not yet received a final determination on those inquiries from
the FCC. Recently, six franchising authorities governing certain Times Mirror
Cable operations have either issued decisions or have expressed an intention to
do so, which declare that those Times Mirror Cable operations' a la carte
offerings described in the preceding sentence should be treated as regulated
services. In addition, one state has inquired as to whether the Times Mirror
Cable subsidiary with operations in that state violated that state's unfair
trade practices act in the marketing of the September 1993 a la carte offering.
The franchising authorities who have reviewed the a la carte offerings from a
rate regulation perspective have, or have stated that they intend to, issue
refund orders which would require those affected Times Mirror Cable operations
to refund to their subscribers the difference between the rates actually charged
versus the rates that would have been charged had those services been regulated
beginning September 1, 1993. The affected Times Mirror Cable operations will
appeal each of said orders to the FCC, and request the FCC to stay the effective
date of said orders pending FCC determination of the issues, as consistent with
similar stay orders recently issued by the FCC. Management believes that it has
meritorious arguments to support the decision that Times Mirror Cable's revenue
neutral a la carte offerings should not be treated as regulated services. The
revised additional outlet charge, despite being lower than additional outlet
charges established prior to regulation, has drawn complaints from a few
franchise authorities, which remain unresolved by the FCC. Because the
additional outlet charge recovers allocable
5
<PAGE> 7
non-basic cable programming costs, Times Mirror Cable does not believe that the
franchise authorities are authorized to regulate these charges.
The FCC's September 1993 guidelines were significantly modified on February
11, 1994. Among other things, the FCC ordered a further reduction of 7 percent
in basic and cable programming service rates in effect on September 30, 1992, if
those rates exceed a new per-channel benchmark to be recomputed by the FCC. This
would result in an overall reduction of 17 percent in basic and cable
programming service rates in effect on September 30, 1992. The guidelines to
implement this most recent modification were released on March 30, 1994.
Management estimates that these recent modifications by the FCC will reduce
revenues for the last half of 1994 by approximately $5 million. In addition, it
is possible that pursuant to further review by the franchising authorities and
the FCC, certain additional rate reductions may be required. Various cable
operators have pending litigation challenging certain aspects of the 1992 Cable
Act. The outcome of this litigation cannot be predicted.
6
<PAGE> 8
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ 8
Consolidated Balance Sheets, December 31, 1992 and 1993 and (Unaudited) June 30,
1994................................................................................ 9
Consolidated Statements of Income, Years Ended December 31, 1991, 1992 and 1993 and
(Unaudited) Six Months Ended June 30, 1993 and 1994................................. 10
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1991, 1992
and 1993 and (Unaudited) Six Months Ended June 30, 1994............................. 11
Consolidated Statements of Cash Flows, Years Ended December 31, 1991, 1992 and 1993
and (Unaudited) Six Months Ended June 30, 1993 and 1994............................. 12
Notes to Consolidated Financial Statements............................................ 13
</TABLE>
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
Times Mirror Cable Television, Inc.
We have audited the accompanying consolidated balance sheets of Times
Mirror Cable Television, Inc. as of December 31, 1992 and 1993 and the related
consolidated statements of income, shareholder's equity and cash flows for each
of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Times Mirror
Cable Television, Inc. at December 31, 1992 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in Note H to the consolidated financial statements, in 1992
the Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Los Angeles, California
February 3, 1994, except for
paragraphs 9 and 10
of Note I, as to which
the date is August 11, 1994
8
<PAGE> 10
TIMES MIRROR CABLE TELEVISION, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30
1992 1993 1994
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash.................................................. $ 3,615 $ 3,123 $ 4,439
Accounts receivable, less allowance for doubtful
accounts of $732, $1,753 and $1,847................. 35,451 37,548 35,787
Notes receivable...................................... 4,079 3,445 3,445
Net plant and equipment............................... 411,520 447,659 469,258
Amounts due from The Times Mirror Company, net........ 24,352
Intangible assets, net................................ 264,947 240,523 233,296
Other assets.......................................... 22,491 25,774 43,048
-------- -------- ---------
$742,103 $782,424 $ 789,273
======== ======== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable...................................... $ 35,568 $ 34,631 $ 32,385
Unearned income....................................... 19,588 21,312 20,909
Accrued liabilities................................... 14,329 18,542 18,505
Deferred income taxes................................. 83,983 76,763 78,594
Other liabilities..................................... 25,755 24,498 22,998
Amounts due to The Times Mirror Company, net.......... 67,844 3,060
-------- -------- ---------
247,067 175,746 176,451
-------- -------- ---------
Commitments and contingencies (Note I)
Shareholder's equity:
Common stock, $1.00 par value, 1,000 shares
authorized and outstanding....................... 1 1 1
Additional paid-in capital.......................... 319,993 319,993 319,993
Retained earnings................................... 175,042 286,684 290,023
Net unrealized gain on securities................... 2,805
-------- -------- ---------
Total shareholder's equity.................. 495,036 606,678 612,822
-------- -------- ---------
$742,103 $782,424 $ 789,273
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
9
<PAGE> 11
TIMES MIRROR CABLE TELEVISION, INC.
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------ -------------------
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $394,133 $423,134 $470,409 $231,481 $247,161
Costs and Expenses:
Operating................................. 172,505 180,868 193,816 94,654 106,051
Selling, general and administrative....... 70,986 77,282 78,470 36,232 41,066
Depreciation and amortization............. 76,499 78,314 95,336 46,366 48,526
Sublease charge (reversal)................ 3,700 (3,700)
-------- -------- -------- -------- --------
319,990 340,164 363,922 177,252 195,643
-------- -------- -------- -------- --------
Operating Profit............................ 74,143 82,970 106,487 54,229 51,518
Intercompany interest income.............. 3,077 1,065 1,094 835
Intercompany interest expense............. (1,654) (1,896) (1,896)
Gain on disposal of assets................ 14,111 8,673 86,799 15,839
Other, net................................ 284 1,256 (1,354) (64)
-------- -------- -------- -------- --------
17,472 9,340 84,643 13,879 835
-------- -------- -------- -------- --------
Income before income taxes and cumulative
effect of change in accounting
principle................................. 91,615 92,310 191,130 68,108 52,353
Provision for income taxes.................. 34,904 39,213 79,488 27,651 23,014
-------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle...................... 56,711 53,097 111,642 40,457 29,339
Cumulative effect of change in accounting
for income taxes.......................... (4,635)
-------- -------- -------- -------- --------
Net income.................................. $ 56,711 $ 48,462 $111,642 $ 40,457 $ 29,339
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 12
TIMES MIRROR CABLE TELEVISION, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET
COMMON STOCK ADDITIONAL UNREALIZED
--------------- PAID IN RETAINED GAIN ON
SHARES AMOUNT CAPITAL EARNINGS SECURITIES TOTAL
------ ------ ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1991................... 1,000 $1 $ 319,993 $164,617 $484,611
Dividends to The Times Mirror Company...... (31,380) (31,380)
Net income................................. 56,711 56,711
------ ---------- -------- --------
Balance at December 31, 1991................. 1,000 1 319,993 189,948 509,942
Dividends to The Times Mirror Company...... (63,368) (63,368)
Net income................................. 48,462 48,462
------ ---------- -------- --------
Balance at December 31, 1992................. 1,000 1 319,993 175,042 495,036
Net income................................. 111,642 111,642
------ ---------- -------- --------
Balance at December 31, 1993................. 1,000 1 319,993 286,684 606,678
------ ---------- -------- --------
Dividends to The Times Mirror Company
(unaudited)............................. (26,000) (26,000)
Net income (unaudited)..................... 29,339 29,339
Effect of adoption of SFAS No. 115
(unaudited)............................. $ 7,013 7,013
Change in unrealized gain on securities
(unaudited)............................. (4,208) (4,208)
------ ------ ---------- -------- ---------- --------
Balance at June 30, 1994 (unaudited)......... 1,000 $1 $ 319,993 $290,023 $ 2,805 $612,822
===== ====== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
11
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TIMES MIRROR CABLE TELEVISION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
-------------------------------- -------------------
1991 1992 1993 1993 1994
-------- --------- --------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $ 56,711 $ 48,462 $ 111,642 $40,457 $29,339
Items not requiring cash:
Depreciation and amortization..................... 76,499 78,314 95,336 46,366 48,526
Gain on disposal of assets........................ (14,111) (8,673) (86,799) (15,839)
Cumulative effect of change in accounting
principle...................................... 4,635
Provision (benefit) for deferred income taxes..... (2,977) 4,192 2,216 128 2,219
Changes in assets and liabilities:
Accounts receivable............................ 134 (5,300) (2,097) (437) 1,761
Accounts payable............................... (6,433) 4,218 2,052 (7,789) (7,834)
Income taxes payable........................... 3,568 8,207 (10,579) 5,555 (1,959)
Other, net........................................ 8,570 9,736 3,484 1,289 (4,114)
-------- --------- --------- ------- -------
Net cash provided by operating activities........... 121,961 143,791 115,255 69,730 67,938
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................ (60,426) (82,333) (116,914) (50,268) (62,637)
Acquisitions, net of cash acquired.................. (16,531) (110,910) (1,413) (1,413)
Proceeds from disposal of assets.................... 20,224 14,952 91,665 19,454
Other, net.......................................... (842) (566) (5,371) (5,323) (7,555)
-------- --------- --------- ------- -------
Net cash used in investing activities............... (57,575) (178,857) (32,033) (37,550) (70,192)
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in advance to/from The Times Mirror
Company........................................... (26,400) 93,147 (80,725) (15,474) 10,982
Repayment of debt................................... (8,810)
Cash dividends to The Times Mirror Company.......... (31,380) (63,368) (13,000)
Increase (decrease) in book overdrafts.............. 3,766 3,439 (2,989) 574 5,588
-------- --------- --------- ------- -------
Net cash provided by (used in) financing
activities........................................ (62,824) 33,218 (83,714) (14,900) 3,570
-------- --------- --------- ------- -------
Increase (decrease) in cash......................... 1,562 (1,848) (492) 17,282 1,316
Cash at beginning of period......................... 3,901 5,463 3,615 3,615 3,123
-------- --------- --------- ------- -------
Cash at end of period............................... $ 5,463 $ 3,615 $ 3,123 $20,897 $ 4,439
======== ========= ========= ======= =======
Cash paid during the period for:
Interest.......................................... $ 679 $ 1,874 $ 3,079 $ 2,190 $ 308
======== ========= ========= ======= =======
Income taxes...................................... $ 28,539 $ 31,992 $ 79,393 $26,243 $25,931
======== ========= ========= ======= =======
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 14
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1993 AND SUBSEQUENT TO DECEMBER 31, 1993 IS
UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of Times Mirror Cable Television,
Inc. (TMCT) represent the combined operations of all of the cable television
systems (Times Mirror Cable) owned by The Times Mirror Company (the Company)
during the three years ended December 31, 1993. On December 22, 1993, ownership
of certain cable television subsidiaries was transferred from the Company to
TMCT. As a result, at December 31, 1993, TMCT was the sole owner of all cable
television systems for the Company. Shares, common stock and additional paid-in
capital amounts listed in the consolidated statements of shareholder's equity
are for TMCT, while the retained earnings, net income and cash flows are for
Times Mirror Cable. All significant intercompany accounts and transactions have
been eliminated in consolidation. Investments in which the ownership interest is
20 percent to 50 percent are accounted for by the equity method.
The Company's historical basis in assets and liabilities of the transferred
cable systems has been carried over. The historical consolidated financial
statements do not necessarily reflect the results of operations or financial
position that would have existed had Times Mirror Cable been an independent
company. The Company provides certain legal services, tax compliance and
planning reviews, risk management and various other corporate services to Times
Mirror Cable. The cost of these services is not material and is not included in
the consolidated financial statements of Times Mirror Cable.
Changes in Accounting Principles
Effective January 1, 1992, Times Mirror Cable adopted the new accounting
principle for income taxes. This change in accounting is described in Note H.
Effective January 1, 1994, Times Mirror Cable adopted the new accounting
principle for investments in securities. This change in accounting is described
in Note G.
Plant and Equipment
Plant and equipment, including initial cable television connections, is
recorded at cost. Construction costs, including direct and allocable indirect
operating expenses incurred prior to the first subscriber revenue on a system or
incurred during the construction of transmission and distribution systems, are
capitalized. Maintenance and repairs are charged to expense as incurred.
Additions, improvements and replacements are capitalized.
Depreciation is provided on a straight-line basis over the estimated useful
lives as follows:
<TABLE>
<S> <C>
Cable television transmission and distribution systems........... 3-12 years
Buildings........................................................ 20 years
Miscellaneous property, plant and equipment...................... 3-5 years
</TABLE>
Revenue Recognition
Times Mirror Cable bills its customers in advance and recognizes revenue as
cable television services are provided. Receivables are generally collected
within 30 days. Credit risk is managed by disabling services to subscribers
delinquent greater than 60 days. Revenues from the connection of customers to
the cable television system are less than direct selling costs and are
recognized on the date of hookup. Other revenues are recognized as services are
provided.
13
<PAGE> 15
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1993 AND SUBSEQUENT TO DECEMBER 31, 1993 IS
UNAUDITED)
Franchise Costs
Franchise costs, primarily the estimated fair value of franchise rights
obtained through the acquisition of cable television systems, are amortized on a
straight-line basis over the lives of the related franchise agreements,
generally 10 to 15 years. Accumulated amortization was $13,121,000 and
$20,155,000 at December 31, 1992 and 1993, respectively. Amortization expense
amounted to $2,451,000 for 1991, $3,536,000 for 1992 and $7,197,000 for 1993.
Covenants-Not-to-Compete
The cost of covenants-not-to-compete is amortized on a straight-line basis
over the contractual lives of the covenants, generally from 5 to 10 years.
Accumulated amortization was $7,448,000 and $8,888,000 at December 31, 1992 and
1993, respectively. Amortization expense amounted to $1,891,000 for 1991,
$2,327,000 for 1992 and $3,819,000 for 1993.
Goodwill
Goodwill recognized in business combinations is amortized on a
straight-line basis over 40 years. Accumulated amortization was $45,576,000 and
$50,117,000 at December 31, 1992 and 1993, respectively. Amortization expense
amounted to $5,457,000 for 1991, $5,122,000 for 1992 and $5,406,000 for 1993.
Recoverability of Assets
On an ongoing basis management evaluates the recoverability of assets,
including capitalized plant assets and goodwill, based on judgments as to future
cash flows and/or the market value of comparable cable systems.
Retirement Plan
Times Mirror Cable generally provides defined pension benefits to all
employees based on years of service and the employee's compensation during the
last five years of employment. Prior to December 31, 1992, these benefits were
primarily provided under the Times Mirror Cable Television, Inc. Pension Plan
(the Times Mirror Cable Plan) in conjunction with The Times Mirror Employee
Stock Ownership Plan. On December 31, 1992, the Times Mirror Cable Plan was
merged with The Times Mirror Pension Plan. Benefits were not changed and funding
is not expected to be required in the near future.
Net periodic pension expense for 1993 was estimated by an actuary under the
assumption that the Times Mirror Cable Plan continued to be a stand-alone plan.
Unaudited Interim Financial Statements
The consolidated financial statements as of June 30, 1994 and for the six
months ended June 30, 1993 and 1994 include all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation of
the financial position and results of operations for these periods. The results
of operations for interim periods are not necessarily indicative of the results
that may be expected for the entire year.
NOTE B -- CASH MANAGEMENT SYSTEM
Times Mirror Cable participates in the Company's cash management system,
where the bank sends daily notification of checks presented for payment. The
Company transfers funds from other sources to cover the checks presented for
payment. This program generally results in a book overdraft as a result of
checks
14
<PAGE> 16
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1993 AND SUBSEQUENT TO DECEMBER 31, 1993 IS
UNAUDITED)
outstanding. At December 31, 1992 and 1993, these book overdrafts of $7,788,000
and $5,042,000, respectively, have been reclassified to accounts payable.
NOTE C -- ACQUISITIONS
In mid-1992, the Company acquired 20 percent of Community Cablevision
Company, which operates systems serving approximately 42,000 subscribers in
Orange County, California. The remaining 80 percent was acquired on October 1,
1992, bringing the total purchase price to $108,500,000. This acquisition was
accounted for by the purchase method. The operations of this company are
reflected in the consolidated financial statements from October 1, 1992. This
acquisition resulted in goodwill of $6,233,000, which is being amortized over 40
years. Pro forma results for 1992, assuming this acquisition occurred on January
1, are not materially different from the results reported.
Various other small acquisitions were made during 1991 and 1992, totaling
$16,531,000 and $2,910,000, respectively. These acquisitions were not
significant to Times Mirror Cable's consolidated financial results or
consolidated balance sheet.
NOTE D -- DISPOSITIONS
During 1993, Times Mirror Cable disposed of its investment in QVC Network,
Inc. common stock for a gain of $75,740,000 and sold a small cable system for a
gain of $11,059,000.
During 1992, Times Mirror Cable sold two of its Texas cable television
systems for a gain of $8,673,000.
During 1991, Times Mirror Cable sold its investment in Turner Broadcasting
System, Inc. and certain assets in Arizona for a gain of $14,111,000.
NOTE E -- PLANT AND EQUIPMENT
Plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1992 1993
--------- ---------
<S> <C> <C>
Land................................................. $ 2,640 $ 2,690
Buildings............................................ 8,619 8,739
Cable television transmission and distribution
systems............................................ 761,696 832,891
Miscellaneous property, plant and equipment.......... 22,201 22,786
--------- ---------
795,156 867,106
Less accumulated depreciation and amortization....... (383,636) (419,447)
--------- ---------
$ 411,520 $ 447,659
========= =========
</TABLE>
15
<PAGE> 17
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1993 AND SUBSEQUENT TO DECEMBER 31, 1993 IS
UNAUDITED)
NOTE F -- INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1992 1993
-------- --------
<S> <C> <C>
Goodwill............................................... $214,227 $203,776
Franchise costs........................................ 83,771 84,595
Covenants-not-to-compete............................... 33,094 31,312
-------- --------
331,092 319,683
Less accumulated amortization.......................... (66,145) (79,160)
-------- --------
$264,947 $240,523
======== ========
</TABLE>
NOTE G -- FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET OBLIGATIONS
At December 31, 1993, Times Mirror Cable had outstanding letters of credit
aggregating $1,623,000. These letters of credit are guaranteed by the Company.
The fair value of marketable equity securities is based on quoted market
prices. The fair value of nonmarketable equity securities is based on quoted
market prices, although the sale of nearly all of these securities is restricted
until 1994. The carrying amounts and fair market value of these financial
instruments is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1992 1993
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Marketable equity securities............................. $3,795 $48,502 $2,500 $ 5,843
Nonmarketable equity securities.......................... 6,071 14,567
</TABLE>
In addition, Times Mirror Cable is a partner or shareholder in certain
investments for which the determination of fair value is not practicable due to
the lack of a readily available market price and the difficulty in estimating
fair value without incurring excessive costs. The carrying value of these
investments was $619,000 at December 31, 1992 and $536,000 at December 31, 1993.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," (SFAS 115) was adopted by
Cable on January 1, 1994. SFAS 115 requires that certain investments be stated
at fair market value in the balance sheet. Changes in fair market value are
either included in earnings, or reported as a separate component of
shareholder's equity, depending on various criteria. Upon adoption of SFAS 115,
Times Mirror Cable recorded an unrealized net gain of $7,013,000 as an increase
to shareholder's equity.
NOTE H -- INCOME TAXES
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting
for Income Taxes," was adopted in 1992. A cumulative adjustment decreasing
income by $4,635,000 was recorded as of January 1, 1992. There was no other
significant effect on 1992 earnings. Prior year financial statements have not
been restated.
Times Mirror Cable is included in several of the Company's consolidated tax
returns, primarily the consolidated Federal income tax return, the combined
California franchise tax return and the combined state
16
<PAGE> 18
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1993 AND SUBSEQUENT TO DECEMBER 31, 1993 IS
UNAUDITED)
income tax returns in Illinois and Connecticut. The consolidated Federal income
tax returns for 1988 through 1990, and the combined California franchise tax
return for 1987, are presently under audit. The Company intends to indemnify
Times Mirror Cable through year-end 1993 for tax shortfalls, if any, arising
from current or subsequent tax-related audits.
Income tax expense (benefit), which is computed as if Times Mirror Cable
filed separate income tax returns, consists of the following (in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Current
Federal............................................. $30,353 $26,281 $60,638
State............................................... 7,528 8,740 16,634
Deferred:
Federal............................................. (3,052) 4,578 1,274
State............................................... 75 (386) 942
------- ------- -------
$34,904 $39,213 $79,488
======= ======= =======
</TABLE>
The tax effect of temporary differences results in deferred income tax
assets (liabilities) as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1992 1993
-------- --------
<S> <C> <C>
Accelerated depreciation............................... $(86,736) $(88,830)
Franchise costs........................................ (9,225) (1,852)
Retirement and employee benefits....................... (3,809) (1,713)
State income taxes..................................... 7,234 8,481
Other deferred tax assets.............................. 8,953 7,291
Other deferred tax liabilities......................... (400) (140)
-------- --------
$(83,983) $(76,763)
======== ========
</TABLE>
Prior to January 1, 1992, deferred income taxes were provided on timing
differences between book and taxable income. A deferred income tax benefit of
$2,977,000 for 1991 resulted primarily from accelerated depreciation.
The difference between actual income tax expense and the federal statutory
income tax expense for income before income taxes is reconciled as follows (in
thousands):
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Federal statutory income tax rate............. 34% 34% 35%
Federal statutory income tax expense.......... $31,149 $31,385 $66,896
State income tax, net of Federal effect....... 5,018 5,514 11,424
Goodwill amortization not deductible for tax
purposes.................................... 1,855 1,742 1,892
Other......................................... (3,118) 572 (724)
------- ------- -------
$34,904 $39,213 $79,488
======= ======= =======
</TABLE>
17
<PAGE> 19
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1993 AND SUBSEQUENT TO DECEMBER 31, 1993 IS
UNAUDITED)
NOTE I -- COMMITMENTS AND CONTINGENCIES
As of December 31, 1993, Times Mirror Cable had contractual commitments to
construct or acquire cable distribution systems in the normal course of business
totaling $19,912,000.
Times Mirror Cable is largely self-insured for workers compensation, group
health benefits and certain other loss contingencies. The consolidated financial
statements reflect liabilities for these contingencies, including incurred but
not reported losses, of $2,821,000 and $4,260,000 at December 31, 1992 and 1993,
respectively.
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (1992 Cable Act), which substantially
amends the provisions of the Cable Communications Policy Act of 1984 (1984 Cable
Act) and greatly expands federal and local regulation of the cable
communications industry. Among other matters, the 1992 Cable Act provides for
the regulation of basic and cable programming services (other than per-event and
per-channel services), allows broadcast television stations to choose either
"must carry" rights or retransmission consent rights, regulates the sale of
cable programming and implements other operational requirements.
The 1992 Cable Act is in the process of being implemented by the Federal
Communications Commission (FCC) through various rulemaking proceedings. In April
1993, the FCC adopted regulations governing rates for basic and cable
programming services which became effective on September 1, 1993. Times Mirror
Cable implemented the FCC's requirements that became effective on September 1,
1993 in a manner management believes is consistent with the regulations
promulgated by the FCC and which somewhat mitigated the impact on revenues to
the extent legally permitted.
On February 22, 1994 the FCC significantly modified the September 1993 rate
regulations. The reregulation activities are designed to reduce subscriber rates
and most annual basic and cable programming service rate increases (other than
per-event and per-channel services). In addition, an FCC-mandated basic and
cable programming service rate freeze, which became effective in April 1993 and
was scheduled to expire in mid-February 1994, had been extended to May 15, 1994.
The FCC released the text of its February 22, 1994 decision on March 30, 1994.
Management estimates that these recent modifications by the FCC will reduce
revenues for the last half of 1994 by approximately $5,000,000. This reduction
is in addition to the impact of the regulations adopted in 1993.
American Cable Television, Inc. (ACT), a subsidiary of TMCT, has exclusive
rights to televise twenty of the Phoenix Suns' basketball games each season. ACT
will pay at least $17,500,000, but no more than $20,540,000, over a ten-year
period beginning October 1993. A previous agreement between ACT and the Phoenix
Suns, which was superseded in October 1993, resulted in payments aggregating
$9,750,000 between January 1991 and September 1993.
A complaint was filed on December 9, 1993 claiming that the above described
agreement between the Phoenix Suns (Suns) and ACT violates antitrust laws.
CableAmerica Corporation and Insight Communications Company filed and served the
complaint in United States District Court for the District of Arizona against
TMCT and the Suns alleging that TMCT and the Suns acting in concert, and TMCT
independently, violated the antitrust laws of the United States and Arizona.
Plaintiffs seek the award of actual, unspecified damages, trebled, injunctive
relief, and their costs and attorneys fees. Under an indemnification provision
in the contract between ACT and the Suns, ACT has assumed the defense of the
claims against the Suns. The Suns have retained separate counsel. TMCT believes
that it has meritorious defenses. Answers have been filed and discovery has
commenced. Although TMCT cannot predict the ultimate legal liability that may
arise from this claim, an adverse resolution should not have a material adverse
effect on Times Mirror Cable's consolidated financial position or results of
operations.
18
<PAGE> 20
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1993 AND SUBSEQUENT TO DECEMBER 31, 1993 IS
UNAUDITED)
Times Mirror Cable Television of San Diego County, Inc. (TMCT/SD) was
served by the office of the District Attorney of the County of San Diego with a
subpoena to produce documents and answer interrogatories relating to an
investigation of the cable television industry in the San Diego County,
California area. This investigation is apparently being conducted industry-wide
and generally relates to the manner in which cable television services are
provided to customers in the San Diego area. TMCT/SD was recently informed that
the District Attorney may file a civil action alleging purported violations of
the California Business and Professions Code, unless the parties are able to
resolve the matter before then. Although the ultimate resolution of this
investigation cannot be predicted, the resolution is not expected to have a
material adverse effect on Times Mirror Cable's consolidated financial position.
An adverse resolution in any reporting period could have a material impact on
results of operations for that period.
A class action lawsuit was filed on August 5, 1994 in the Superior Court of
San Diego, California alleging that TMCT, among others, has been charging late
fees in excess of amounts allowed by law for at least the last four years.
Plaintiffs seek the award of actual, contractual and punitive damages,
restitution, declaratory and injunctive relief, and their costs and attorneys
fees. TMCT believes it has meritorious defenses but has not yet filed a response
to these allegations. Although the ultimate resolution of this litigation cannot
be predicted, the resolution is not expected to have a material adverse effect
on Times Mirror Cable's consolidated financial position. An adverse resolution
in any reporting period could have a material impact on results of operations
for that period.
Certain franchising authorities have issued refund orders, or stated their
intention to do so, to some of Times Mirror Cable's cable systems in various
states. The refund orders relate to a la carte pricing, which these authorities
believe should be treated as regulated services in accordance with FCC rate
regulations effective September 1, 1993. Refunds to subscribers are being
required for the difference between the rates actually charged versus the rates
that would have been charged had those services been regulated beginning
September 1, 1993. Times Mirror Cable will appeal these decisions. Although the
ultimate resolution of these refund orders cannot be predicted, the resolution
is not expected to have a material adverse effect on Times Mirror Cable's
consolidated financial position. An adverse resolution in any reporting period
could have a material impact on results of operations for that period.
Various other lawsuits and claims arising in the ordinary course of
business are pending against Times Mirror Cable, none of which are expected to
have a material adverse effect on Times Mirror Cable's 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 J -- RETIREMENT PLANS
Retirement plan expense of $951,000 for 1991, $1,824,000 for 1992 and
$3,305,000 for 1993 includes net periodic pension (income) expense as follows
(in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during period..... $ 1,856 $ 2,635 $ 3,404
Interest cost on projected benefit obligation..... 1,282 1,616 2,022
Return on plan assets............................. (2,658) (3,130) (3,294)
Net amortization and deferral..................... (560) (479) (106)
------- ------- -------
Net periodic pension (income) expense............. $ (80) $ 642 $ 2,026
======= ======= =======
</TABLE>
19
<PAGE> 21
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1993 AND SUBSEQUENT TO DECEMBER 31, 1993 IS
UNAUDITED)
Assumptions used in the actuarial computations were:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1991 1992 1993
----- ----- -----
<S> <C> <C> <C>
Discount rate...................................... 7.5% 7.0% 7.5%
Rate of increase in compensation levels............ 6.25% 6.25% 6.25%
Expected long-term rate of return on assets........ 10.0% 10.0% 9.75%
</TABLE>
The following table sets forth the amounts recognized in the consolidated
balance sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1992 1993
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested................................................. $15,077 $16,017
Nonvested.............................................. 719 664
------- -------
Accumulated benefit obligations.......................... $15,796 $16,681
======= =======
Projected benefit obligations............................ $28,889 $30,160
Pension assets at fair value............................. 32,574 37,604
------- -------
Excess of assets over projected benefit obligations...... 3,685 7,444
Unrecognized net loss from past experience different
from that assumed...................................... 11,634 6,783
Prior service cost not yet recognized.................... (149) (112)
Unrecognized net asset being amortized over 15 years..... (6,335) (5,543)
------- -------
Prepaid pension cost..................................... $ 8,835 $ 8,572
======= =======
</TABLE>
Projected benefit obligations decreased by $3,660,000 at December 31, 1993
as a result of the change in the discount rate. Pension assets of $32,574,000
and $37,604,000 at December 31, 1992 and 1993, respectively, are not segregated
or restricted for Times Mirror Cable's pension obligations, except to the extent
that such assets represent allocated shares of The Times Mirror Employee Stock
Ownership Plan (ESOP). ESOP benefits are coordinated with the defined benefits.
If ESOP benefits are greater than the defined benefit, participants receive the
larger benefit. The fair market value of ESOP shares included in the above
pension assets was approximately $6,350,000 and $8,453,000 at December 31, 1992
and 1993, respectively. The remaining pension assets of $26,224,000 and
$29,151,000 at December 31, 1992 and 1993, respectively, are unrestricted
pension assets of The Times Mirror Pension Plan.
Substantially all of the Company's employees over age 21 with one year of
service are eligible to participate in the Savings Plus Plan of the Company.
Eligible employees may contribute from 1 percent to 13 percent of their basic
compensation. Times Mirror Cable makes matching contributions equal to 50
percent of the employee before-tax contributions from 1 percent to 6 percent.
Employees may choose among five investment options for investing their
contributions and Times Mirror Cable's matching contribution.
20
<PAGE> 22
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1993 AND SUBSEQUENT TO DECEMBER 31, 1993 IS
UNAUDITED)
NOTE K -- LEASES
Rental expense under operating leases amounted to $11,418,000, $12,201,000
and $12,214,000 in 1991, 1992 and 1993, respectively. Future minimum lease
payments as of December 31, 1993 for all noncancelable operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
1994............................... $ 4,480
1995............................... 4,031
1996............................... 3,412
1997............................... 2,735
1998............................... 2,390
Thereafter......................... 10,578
-------
$27,626
=======
</TABLE>
NOTE L -- RELATED PARTY TRANSACTIONS
Amounts Due To (From) The Times Mirror Company
The amounts due to (from) The Times Mirror Company are generally due on
demand and represent the net of various transactions as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- JUNE 30
1992 1993 1994
------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Advances due to (from) The Times Mirror
Company.................................. $59,149 $(21,576) $(10,594)
Dividend payable........................... 13,000
Other intercompany due from The Times
Mirror Company........................... (1,671) (2,563) (1,859)
Income taxes payable (receivable).......... 10,366 (213) 2,513
------- -------- ------------
$67,844 $(24,352) $ 3,060
======= ======== =========
</TABLE>
Advances due to (from) the Company bear interest at the Company's estimated
ten-year financing rate. These interest rates are established at the beginning
of each quarter and are as follows:
<TABLE>
<CAPTION>
QUARTER 1991 1992 1993
-------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
First................................................... 9% 8% 7%
Second.................................................. 9% 8% 7%
Third................................................... 9% 8% 6%
Fourth.................................................. 8% 7% 6%
</TABLE>
Agreement With The Los Angeles Times
Times Mirror Cable has various agreements with the Los Angeles Times, a
division of the Company, to market newspaper subscriptions to cable subscribers
in Southern California and exchange advertising on the cable systems for
advertising in The Los Angeles Times' Sunday edition television guide. The
aggregate amounts related to these transactions are not material.
21
<PAGE> 23
SIGNATURES
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/ O. JEAN WILLIAMS
--------------------------------
O. Jean Williams
Secretary and Associate
General Counsel
August 15, 1994
22
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
23 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements
(Form S-3 Nos. 33-47766 and 33-50145) pertaining to various notes of The Times
Mirror Company and in the Registration Statements (Form S-8 Nos. 33-24080,
2-77412, 2-91347, 2-92163, 33-13423 and 33-51990) pertaining to certain employee
benefit plans of The Times Mirror Company of our report dated February 3, 1994,
except for paragraphs 9 and 10 of Note I, as to which the date is August 11,
1994, with respect to the consolidated financial statements of Times Mirror
Cable Television, Inc. included in the Form 8-K of The Times Mirror Company
dated June 30, 1994.
ERNST & YOUNG LLP
Los Angeles, California
August 15, 1994
