<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): SEPTEMBER 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>
<TABLE>
<S> <C>
TIMES MIRROR SQUARE 90053
LOS ANGELES, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 237-3700
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.
1
<PAGE> 3
The following tables summarize Times Mirror Cable's financial results (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $394,133 $423,134 $470,409 $348,552 $368,929
Operating expenses................ 172,505 180,868 193,816 143,558 157,242
Selling, general and
administrative expenses......... 70,986 77,282 78,470 56,663 62,705
Depreciation and amortization..... 76,499 78,314 95,336 69,945 73,054
Operating profit.................. 74,143 82,970 106,487 78,386 75,928
Gain on disposal of assets........ 14,111 8,673 86,799 86,799
Income before change in accounting
principle, net of tax........... 56,711 53,097 111,642 91,997 42,119
Cumulative effect of change in
accounting principle............ (4,635)
Net income........................ 56,711 48,462 111,642 91,997 42,119
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1993 1993 1993 1993 1994 1994 1994
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $113,234 $118,247 $117,071 $121,857 $122,968 $124,193 $121,768
Operating profit......... 26,042 28,187 24,157 28,101 27,059 24,459 24,410
</TABLE>
FIRST NINE MONTHS OF 1994 COMPARED WITH FIRST NINE MONTHS OF 1993
Revenues rose 5.9 percent in the first nine months 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 5 percent in the first nine months to 1,248,000. Monthly
revenue per average basic subscriber was $33.38 in 1994's first nine months
compared with $32.48 in the comparable period of 1993. Revenue growth was
tempered by a Federal Communications Commission (FCC)-mandated rate freeze which
expired May 15, 1994, but in effect extended through July 14, 1994, a 7% rate
rollback as of July 14, 1994, the impact of last year's 10% basic and cable
programming rate rollback. Nine month advertising revenues were $16.7 million,
an 18.8 percent increase over the prior year. Pay-per-view revenue increased
67.0 percent versus the same 1993 period, primarily from the addition of the
Phoenix Suns games to pay-per-view programming. Pay subscriber revenue declined
by 2.9 percent due to promotional pricing, although pay subscribers increased
from 723,000 in September of 1993 to 731,000 in September of 1994. The 731,000
pay subscribers represent a 4.0 percent increase from the December 31, 1993
level, as new promotional programs attracted more subscribers. The pay-to-basic
percentage increased from 59.6 percent to 62.2 percent over the same periods.
Monthly pay revenue per average pay unit was $7.95 in last year's first nine
months compared with $7.71 in 1994's first nine months.
For the first nine months of 1994, operating, selling, general and
administrative expenses, excluding depreciation and amortization, rose 9.9
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 4.4 percent over the
prior year's first nine months, reflecting higher capital expenditures in the
past year.
Operating profit declined 3.1 percent, due to the effects of the regulated
rate freeze and higher operating expenses. Net income for the first nine months
of 1993 includes a $50.4 million after tax gain on the disposition of an
investment in QVC Network, Inc. common stock and the sale of a small cable
system. Excluding this gain, net income for the first nine months of 1994 was
essentially level with the same period in 1993.
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
2
<PAGE> 4
subscriber growth, particularly the addition of more than 20,000 subscribers in
the Phoenix, Arizona system, 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.
3
<PAGE> 5
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 $11.3 million at December 31, 1993 and September
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 nine months of 1994 increased by $13.0 million compared
to the same period in 1993, also primarily as a result of a fluctuation in
income taxes payable.
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
$95.4 million in the first nine months 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1991 1992 1993 1993 1994
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities.......................... $121,961 $ 143,791 $ 115,255 $ 95,716 $108,765
Proceeds from disposal of assets
transferred to parent............... 20,224 14,952 91,665 89,556 --
Acquisitions of cable television
systems............................. (16,531) (110,910) (1,413) (1,413) --
Capital expenditures.................. (60,426) (82,333) (116,914) (84,207) (95,387)
Dividends and other, net.............. (7,448) 4,721 (7,868) (5,479) (4,168)
-------- --------- --------- -------- --------
Cash to (from) parent................. $ 57,780 $ (29,779) $ 80,725 $ 94,173 $ 9,210
======== ========= ========= ======== ========
</TABLE>
This presentation of EBITDA is part of the presentation of liquidity and
capital resources. EBITDA is defined as operating profit plus depreciation and
amortization. Based on its experience in the cable television industry, Times
Mirror Cable believes that EBITDA and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage. 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. EBITDA and the EBITDA Margin (EBITDA to
Revenues) for the last three years and the nine months ended September 30, 1993
and 1994 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%
Nine months ended September 30, 1993.......................... 148,331 42.6%
Nine months ended September 30, 1994.......................... 148,982 40.4%
</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, eight franchising authorities governing certain Times Mirror
Cable operations have issued decisions 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 issued
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 have
appealed each of said orders to the FCC, and requested 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 certain franchise authorities, four of which have issued refund
orders which would require those affected Times Mirror Cable operations to
refund to their subscribers the total amount of additional outlet charges
collected from them since September 1, 1993. The affected Times Mirror Cable
operations have appealed each of said
5
<PAGE> 7
orders to the FCC, and requested the FCC to stay the effective date of said
orders pending FCC determination of the issues. Because the additional outlet
charge recovers allocable 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) September 30,
1994................................................................................ 9
Consolidated Statements of Income, Years Ended December 31, 1991, 1992 and 1993 and
(Unaudited) Nine Months Ended September 30, 1993 and 1994........................... 10
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1991, 1992
and 1993 and (Unaudited) Nine Months Ended September 30, 1994....................... 11
Consolidated Statements of Cash Flows, Years Ended December 31, 1991, 1992 and 1993
and (Unaudited) Nine Months Ended September 30, 1993 and 1994....................... 12
Notes to Consolidated Financial Statements............................................ 13
</TABLE>
7
<PAGE> 9
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 consolidated financial position of
Times Mirror Cable Television, Inc. at December 31, 1992 and 1993, and the
consolidated results of its operations and its 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
8
<PAGE> 10
TIMES MIRROR CABLE TELEVISION, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- SEPTEMBER 30
1992 1993 1994
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash.................................................. $ 3,615 $ 3,123 $ 4,569
Accounts receivable, less allowance for doubtful
accounts of $732, $1,753 and $1,861................. 35,451 37,548 36,340
Notes receivable...................................... 4,079 3,445 3,445
Net plant and equipment............................... 411,520 447,659 482,793
Amounts due from The Times Mirror Company, net........ 24,352 20,676
Intangible assets, net................................ 264,947 240,523 230,743
Other assets.......................................... 22,491 25,774 44,654
-------- -------- --------
$742,103 $782,424 $823,220
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable...................................... $ 35,568 $ 34,631 $ 31,153
Unearned income....................................... 19,588 21,312 21,077
Accrued liabilities................................... 14,329 18,542 20,342
Deferred income taxes................................. 83,983 76,763 101,365
Other liabilities..................................... 25,755 24,498 23,192
Amounts due to The Times Mirror Company, net.......... 67,844
-------- -------- --------
247,067 175,746 197,129
-------- -------- --------
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................................... 175,042 286,684 302,803
Net unrealized gain on securities................... 3,294
-------- -------- --------
Total shareholder's equity.................. 495,036 606,678 626,091
-------- -------- --------
$742,103 $782,424 $823,220
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
9
<PAGE> 11
TIMES MIRROR CABLE TELEVISION, INC.
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------------ -------------------
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $394,133 $423,134 $470,409 $348,552 $368,929
Costs and Expenses:
Operating................................. 172,505 180,868 193,816 143,558 157,242
Selling, general and administrative....... 70,986 77,282 78,470 56,663 62,705
Depreciation and amortization............. 76,499 78,314 95,336 69,945 73,054
Sublease charge (reversal)................ 3,700 (3,700)
-------- -------- -------- -------- --------
319,990 340,164 363,922 270,166 293,001
-------- -------- -------- -------- --------
Operating Profit............................ 74,143 82,970 106,487 78,386 75,928
Intercompany interest income.............. 3,077 1,065 1,094 474 1,110
Intercompany interest expense............. (1,654) (1,896) (1,896)
Gain on disposal of assets................ 14,111 8,673 86,799 86,799
Other, net................................ 284 1,256 (1,354) (599) (304)
-------- -------- -------- -------- --------
17,472 9,340 84,643 84,778 806
-------- -------- -------- -------- --------
Income before income taxes and cumulative
effect of change in accounting
principle................................. 91,615 92,310 191,130 163,164 76,734
Provision for income taxes.................. 34,904 39,213 79,488 71,167 34,615
-------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle...................... 56,711 53,097 111,642 91,997 42,119
Cumulative effect of change in accounting
for income taxes.......................... (4,635)
-------- -------- -------- -------- --------
Net income.................................. $ 56,711 $ 48,462 $111,642 $ 91,997 $ 42,119
======== ======== ======== ======== ========
</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)..................... 42,119 42,119
Effect of adoption of SFAS No. 115
(unaudited)............................. $ 7,013 7,013
Change in unrealized gain on securities
(unaudited)............................. (3,719) (3,719)
----- -- -------- -------- ------- --------
Balance at September 30, 1994 (unaudited).... 1,000 $1 $319,993 $302,803 $ 3,294 $626,091
===== == ======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 13
TIMES MIRROR CABLE TELEVISION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 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 $91,997 $ 42,119
Items not requiring cash:
Depreciation and amortization................... 76,499 78,314 95,336 69,945 73,054
Gain on disposal of assets...................... (14,111) (8,673) (86,799) (86,799)
Cumulative effect of change in accounting
principle.................................... 4,635
Provision (benefit) for deferred income taxes... (2,977) 4,192 2,216 607 3,491
Changes in assets and liabilities:
Accounts receivable.......................... 134 (5,300) (2,097) (3,169) 1,208
Accounts payable............................. (6,433) 4,218 2,052 (5,533) (8,995)
Income taxes payable......................... 3,568 8,207 (10,579) 29,013 (436)
Other, net...................................... 8,570 9,736 3,484 (345) (1,676)
-------- --------- --------- ------- ---------
Net cash provided by operating activities......... 121,961 143,791 115,255 95,716 108,765
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.............................. (60,426) (82,333) (116,914) (84,207) (95,387)
Acquisitions, net of cash acquired................ (16,531) (110,910) (1,413) (1,413)
Proceeds from disposal of assets.................. 20,224 14,952 91,665 89,556
Other, net........................................ (842) (566) (5,371) (6,492) (8,239)
-------- --------- --------- ------- ---------
Net cash used in investing activities............. (57,575) (178,857) (32,033) (2,556) (103,626)
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in advance to/from The Times Mirror
Company......................................... (26,400) 93,147 (80,725) (94,173) 10,290
Repayment of debt................................. (8,810)
Cash dividends to The Times Mirror Company........ (31,380) (63,368) (19,500)
Increase (decrease) in book overdrafts............ 3,766 3,439 (2,989) 1,964 5,517
-------- --------- --------- ------- ---------
Net cash provided by (used in) financing
activities...................................... (62,824) 33,218 (83,714) (92,209) (3,693)
-------- --------- --------- ------- ---------
Increase (decrease) in cash....................... 1,562 (1,848) (492) 951 1,446
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 $ 4,566 $ 4,569
======== ========= ========= ======= =========
Cash paid during the period for:
Interest........................................ $ 679 $ 1,874 $ 3,079 $ 2,833 $ 476
======== ========= ========= ======= =========
Income taxes.................................... $ 28,539 $ 31,992 $ 79,393 $40,009 $ 23,803
======== ========= ========= ======= =========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 14
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 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. TMCT accounts for other investments under the
cost or equity method based on its ability to influence operating decisions of
the investee.
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 SEPTEMBER 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
Times Mirror Cable assesses on an ongoing basis the recoverability of
intangible assets, including goodwill, and capitalized plant assets based on
estimates of future undiscounted cash flows for the applicable business compared
to net book value. If the future undiscounted cash flow estimate were less than
net book value, net book value would then be reduced to the undiscounted cash
flow estimate. Times Mirror Cable also evaluates the amortization periods of
assets, including goodwill and other intangible assets, to determine whether
events or circumstances warrant revised estimates of useful lives.
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 September 30, 1994 and for the
nine months ended September 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 SEPTEMBER 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 SEPTEMBER 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 SEPTEMBER 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 1985 through 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 SEPTEMBER 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
expired May 15, 1994, but in effect extended through July 14, 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.
CableAmerica Corporation has been dismissed from the lawsuit with prejudice. The
remaining plaintiff, Insight Communications Company, seeks the award of actual,
unspecified damages, trebled, injunctive relief, and its 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
18
<PAGE> 20
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1993 AND SUBSEQUENT
TO DECEMBER 31, 1993 IS UNAUDITED)
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.
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
within the County 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 putative 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. In addition, four franchising authorities have ordered
certain Times Mirror Cable operators to refund additional outlet charges
collected from subscribers since September 1, 1993. Times Mirror Cable has
appealed 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.
19
<PAGE> 21
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1993 AND SUBSEQUENT
TO DECEMBER 31, 1993 IS UNAUDITED)
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>
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
20
<PAGE> 22
TIMES MIRROR CABLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1993 AND SUBSEQUENT
TO DECEMBER 31, 1993 IS UNAUDITED)
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.
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
-------------------- SEPTEMBER 30
1992 1993 1994
------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Advances due to (from) The Times Mirror
Company................................. $59,149 $(21,576) $(11,286)
Dividend payable.......................... 6,500
Other intercompany due from The Times
Mirror Company.......................... (1,671) (2,563) (16,230)
Income taxes payable (receivable)......... 10,366 (213) 340
------- -------- --------
$67,844 $(24,352) $(20,676)
======= ======== ========
</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/ THOMAS UNTERMAN
---------------------------------
Thomas Unterman
Vice President and General Counsel
November 10, 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. 33-39046, 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, 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 September 30, 1994.
ERNST & YOUNG LLP
Los Angeles, California
November 7, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TIMES MIRROR
CABLE TELEVISION UNAUDITED SEPTEMBER 30, 1994 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH TIMES MIRROR 8-K DATED SEPTEMBER
30, 1994.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 4,569
<SECURITIES> 0
<RECEIVABLES> 38,201
<ALLOWANCES> 1,861
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 953,001
<DEPRECIATION> 470,208
<TOTAL-ASSETS> 823,220
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 626,090
<TOTAL-LIABILITY-AND-EQUITY> 823,220
<SALES> 368,929
<TOTAL-REVENUES> 368,929
<CGS> 0
<TOTAL-COSTS> 293,001
<OTHER-EXPENSES> (304)
<LOSS-PROVISION> 4,355
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 76,734
<INCOME-TAX> 34,615
<INCOME-CONTINUING> 42,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,119
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
