-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ESWqDCiCkUBLfBxeTc52Bjmtv8zBH+eUaZC3R7jEg6gwpGYmuywJcNmgs7KjpbNG RQjfDHB/+SyMNb8GwSm56g== 0000950150-99-000322.txt : 19990326 0000950150-99-000322.hdr.sgml : 19990326 ACCESSION NUMBER: 0000950150-99-000322 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMES MIRROR CO /NEW/ CENTRAL INDEX KEY: 0000925260 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 954481525 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13492 FILM NUMBER: 99572626 BUSINESS ADDRESS: STREET 1: TIMES MIRROR SQUARE STREET 2: 220 WEST FIRST STREET CITY: LOS ANGELES STATE: CA ZIP: 90053 BUSINESS PHONE: 2132373700 MAIL ADDRESS: STREET 1: TIMES MIRROR SQUARE STREET 2: 202 WEST 1ST ST CITY: LOS ANGELES STATE: CA ZIP: 90053 FORMER COMPANY: FORMER CONFORMED NAME: NEW TMC INC DATE OF NAME CHANGE: 19940613 10-K405 1 FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1998 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 1-13492 ------------------------ THE TIMES MIRROR COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4481525 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) TIMES MIRROR SQUARE LOS ANGELES, CALIFORNIA 90053 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 237-3700 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ---------------------------------------- --------------------------------------------------- Series A Common Stock New York Stock Exchange and Pacific Stock Exchange Premium Equity Participating Securities New York Stock Exchange
------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Series C Common Stock (Title of Class) ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant on March 10, 1999 was approximately $2.4 billion. (For purposes of this calculation, the market value of a share of Series C Common Stock was assumed to be the same as a share of Series A Common Stock, into which it is convertible.) Number of shares of Series A Common Stock outstanding at March 10, 1999: 47,515,394, excluding 18,237,864 shares held by subsidiaries of the Registrant, 4,001,067 common shares held by TMCT, LLC, representing 80% of the common shares held by TMCT, LLC; 13,400,200 shares held by Eagle New Media Investments, LLC and 3,787,613 shares held as treasury shares. Number of shares of Series C Common Stock outstanding at March 10, 1999: 25,176,553. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference: In Part III, portions of the Registrant's definitive Proxy Statement for the Company's 1999 Annual Meeting of Shareholders to be filed by the Company within 120 days after the end of the Company's fiscal year. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS. GENERAL The Times Mirror Company ("Times Mirror" or the "Company") is engaged principally in the newspaper publishing, professional information and magazine publishing businesses. The Company publishes the Los Angeles Times, Newsday, The Baltimore Sun, The Hartford Courant, The Morning Call, The (Stamford) Advocate, Greenwich Time and several smaller newspapers. Through its subsidiaries, the Company also provides professional information to the aviation and health improvement markets, publishes magazines and also provides training information and services. During 1998, Times Mirror engaged in several strategic transactions including the divestiture of Matthew Bender & Company, Incorporated, a publisher of legal information, the Company's 50% interest in Shepard's, a legal citation provider, and Mosby, Inc., a publisher of health science information. The Company retained the consumer health information businesses of Mosby and combined such businesses in a subsidiary, The StayWell Company. The Company also acquired the Los Angeles area publications of E Z Buy & E Z Sell Recycler Corporation and invested in a new company, Target Media Partners, which is jointly owned with former Recycler management and others. In February 1999, an investment affiliate of the Company acquired Newport Media, Inc., a publisher of shopper publications in the Long Island and New Jersey areas. The Company continued to have an active share purchase program with a total of 16.7 million shares of Series A Common Stock acquired by the Company or its affiliates during 1998, which more than offset the 2.1 million shares of Series A Common Stock issued as a result of the exercise of stock options. In 1998, the Company, in anticipation of the expected impact of divestitures, also began a comprehensive review of its business configurations, operating systems and other investments to determine economic actions it could take to prepare for future growth. This review produced pretax restructuring and one-time charges of $200.8 million and additional pretax charges of $32.7 million that did not meet the accounting criteria for classification as restructuring and one-time charges. NEWSPAPER PUBLISHING SEGMENT Times Mirror publishes the Los Angeles Times, Newsday, The Baltimore Sun, The Hartford Courant, The Morning Call, The (Stamford) Advocate, Greenwich Time and several other daily and weekly newspapers. Local management operates each daily newspaper substantially independently in order to meet most effectively the needs of the area each newspaper serves. Editorial policies are also established by local management. The Company continues to move toward centralizing the back-office operations of its eastern newspapers and certain of its other business units. Each daily newspaper is a member of Associated Press. The Los Angeles Times and Newsday also subscribe to other supplementary news services. Production of Times Mirror's newspapers is performed on presses owned by Times Mirror. LOS ANGELES TIMES The Los Angeles Times has been published continuously since 1881. It is published every morning and, for the six-month period ended September 30, 1998, as reported by the Company to the Audit Bureau of Circulations, ranked as the largest metropolitan newspaper in the United States in weekday circulation based on five-day averages, and the second largest in Sunday circulation. In 1998, its annual average unaudited circulation was 1,097,079 for Monday through Friday, 1,017,321 for Saturday and 1,384,933 for Sunday, compared with 1,069,968, 1,003,939 and 1,373,389, respectively, in 1997. Approximately 75%, 79% and 78% of the Monday through Friday, Saturday and Sunday circulation, respectively, was home-delivered in 1998, compared with 76%, 80% and 77% of the circulation, respectively, in 1997. In 1998, the Los Angeles Times recorded full-run billed advertising volume of 3,212,104 standard advertising unit inches (hereinafter "inches"), part-run volume of 4,037,737 inches, and preprinted inserts of 1,155.2 million pieces, compared with 3,138,624 inches, 3,918,910 inches and 1,098.5 million pieces, 1 3 respectively, in 1997. In addition, the Los Angeles Times derived revenue from advertising supplements distributed to non-subscribers equivalent to 1,138.5 million pieces in 1998, compared with 1,048.6 million pieces in 1997. The Los Angeles Times serves a five-county region in Southern California that includes Los Angeles, Orange, Riverside, San Bernardino and Ventura counties. In addition to the daily edition covering the Los Angeles metropolitan area, the Los Angeles Times publishes daily Orange County, San Fernando Valley and Ventura County editions. In October 1998, the Los Angeles Times started publishing a daily national edition that is distributed primarily in Northern California, New York and Washington, D.C. In conjunction with the Washington Post, the Los Angeles Times operates a supplementary news service sold to newspapers in the United States and foreign countries. The Los Angeles Times also syndicates material to other newspapers throughout the world. The Los Angeles Times and La Opinion, the largest Spanish- language daily newspaper in Southern California in which the Company owns a 50% equity interest, publish a Spanish-language weekly paper, Para Ti, targeted at Latino households in Southern California. Times Mirror also owns California Community News Corporation, which publishes daily newspapers including the Newport Beach/Costa Mesa Daily Pilot and the Huntington Beach/Fountain Valley Independent, which are distributed in Orange County, the Glendale News-Press, which is distributed in Los Angeles County, and the Foothill Leader and the Burbank Leader, which are semiweekly newspapers distributed in Los Angeles County. The Los Angeles Times won two Pulitzer Prizes in 1998. As part of a strategy of supplementing its newspapers with strategic acquisitions and internal growth, in the second quarter of 1998, the Company acquired the Los Angeles area publications of E Z Buy & E Z Sell Recycler Corporation, a collection of 24 alternative classified papers in Southern California. Titles include The Recycler, AutoBuys, CycleBuys, BoatBuys, RV Buys, EZ Ads, Auto Pix, Trade Express, Auto Seller and the Renter. In addition, in 1998, California Community News Corporation launched eight daily and weekly community newspaper sections for distribution with the Los Angeles Times under the banner Our Times. Net revenues for the Los Angeles Times, including California Community News Corporation and E Z Buy & E Z Sell Recycler Corporation, were $1,137,324,000 in 1998, $1,088,539,000 in 1997 and $1,053,813,000 in 1996, representing 37.8%, 37.8% and 38.0% of the Company's consolidated revenues from continuing operations for such years. In its primary markets of Los Angeles, Orange, Ventura, San Bernardino and Riverside counties, the Los Angeles Times competes with 21 local daily newspapers, with the largest having approximately 360,000 total average daily circulation, and three daily regional editions of national newspapers. In addition, there are more than several hundred weekly, semiweekly and free distribution newspapers. NEWSDAY Newsday, which is published seven days a week, circulates primarily in Nassau and Suffolk counties on Long Island, New York and the borough of Queens in New York City. In 1998, Newsday ranked as the sixth largest metropolitan daily newspaper in the country for Monday through Friday circulation, and as the twelfth largest for Sunday circulation. In 1998, Newsday's annual average unaudited circulation was 567,227 for Monday through Friday, 459,732 for Saturday, and 658,351 for Sunday, compared with 563,994, 485,126 and 655,269, respectively, in 1997. Newsday also publishes Distinction, a bimonthly magazine designed to serve Long Island's upscale community, which is supported by advertising revenues and paid subscriptions, and This Week, a free distribution shopper with 80 editions. Newsday has won sixteen Pulitzer Prizes. In 1998, Newsday recorded full-run billed advertising volume of 1,644,283 inches, part-run volume of 1,495,782 inches, and preprinted inserts of 796.5 million pieces, compared with 1,576,392 inches, 1,399,538 inches, and 671.3 million pieces, respectively, in 1997. In addition, Newsday, together with its alternate distribution company, Distribution Systems of America, derived revenue from advertising supplements distributed to non-subscribers equivalent to 1,197.2 million pieces in 1998, compared with 1,028.8 million pieces in 1997. 2 4 In 1999, an investment affiliate of the Company acquired Newport Media, Inc., a publisher of shopper publications in the Long Island and New Jersey areas. Newsday competes with three major metropolitan newspapers and daily regional editions of national newspapers. In addition, there are numerous daily, weekly and semiweekly local newspapers in its distribution area. THE BALTIMORE SUN The Baltimore Sun primarily serves the Baltimore-Annapolis metropolitan area, including Anne Arundel, Baltimore, Carroll, Harford and Howard counties. The Baltimore Sun publishes a morning newspaper seven days a week. In 1998, The Sun had an annual average unaudited circulation of 320,138 for Monday through Saturday, compared with 319,899 for 1997. Annual average unaudited circulation for Sunday was 475,644 in 1998 compared with 477,439 in 1997. In 1998, The Baltimore Sun newspapers recorded full-run billed advertising volume of 1,761,972 inches, part-run volume of 456,434 inches, and preprinted inserts of 671.9 million pieces, compared with 1,684,631 inches, 416,292 inches and 643.6 million pieces, respectively, in 1997. In addition, The Baltimore Sun newspapers derived revenues from advertising supplements delivered to non-subscribers equivalent to 110.9 million pieces in 1998, compared with 104.3 million pieces in 1997. The Baltimore Sun publishes a variety of weekly newspapers throughout Anne Arundel, Baltimore, Carroll, Harford and Howard counties. The Baltimore Sun competes with the Washington Post in Anne Arundel and Howard counties, with The Annapolis Capital in Anne Arundel County and with The Carroll County Times in Carroll County, as well as with daily regional editions of national newspapers. In addition, there are other daily and weekly local newspapers in the distribution area. THE HARTFORD COURANT The Hartford Courant, a morning daily and Sunday newspaper that was first published in 1764, is the oldest continuously published newspaper in the United States. It is published in Hartford, Connecticut, and serves the state's northern and central regions. The Hartford Courant publishes twelve regional editions on a daily basis, which provide local news and advertising. In 1998, the annual average unaudited circulation was 212,606 for Monday through Saturday, and 302,493 for Sunday, compared with 213,783 and 301,865, respectively, in 1997. In 1998, The Hartford Courant recorded full-run billed advertising volume of 1,435,662 inches, part-run volume of 610,391 inches, and preprinted inserts of 446.2 million pieces, compared with 1,526,022 inches, 650,027 inches and 420.3 million pieces, respectively, in 1997. In addition, The Hartford Courant derived revenues from advertising supplements distributed to non-subscribers equivalent to 80.5 million pieces in 1998, compared with 73.4 million pieces in 1997. The Hartford Courant competes with a number of daily newspapers, especially in metropolitan areas on the periphery of its trade area, as well as daily regional editions of national newspapers. In addition, there are other weekly and local daily newspapers in the distribution area. THE MORNING CALL The Morning Call in Allentown, Pennsylvania, is published daily and primarily services Lehigh and Northampton counties in eastern Pennsylvania. In 1998, annual average unaudited circulation was 127,561 for Monday through Friday, 142,182 for Saturday, and 175,722 for Sunday, compared with 126,807, 141,936 and 177,138, respectively, in 1997. In 1998, The Morning Call recorded full-run billed advertising volume of 1,421,851 inches, part-run volume of 242,775 inches, and preprinted inserts of 264.2 million pieces, compared with 1,385,293 inches, 245,350 inches and 232.2 million pieces, respectively, in 1997. In addition, The Morning Call derived revenues 3 5 from advertising supplements distributed to non-subscribers equivalent to 19.4 million pieces in 1998, compared with 19.8 million pieces in 1997. The Morning Call competes with a few smaller daily and weekly newspapers, with its principal competitor being the Express Times in Easton, Pennsylvania. THE (STAMFORD) ADVOCATE AND GREENWICH TIME The (Stamford) Advocate and Greenwich Time are published every morning and serve the southern part of Fairfield County, Connecticut. The Advocate circulates primarily in Stamford, Connecticut and Greenwich Time circulates in Greenwich, Connecticut. In 1998, The Advocate had an annual average unaudited circulation of 28,408 for Monday through Friday, 26,647 for Saturday and 39,047 for Sunday, compared with 28,530, 27,099 and 39,506, respectively, in 1997. In 1998, Greenwich Time had an annual average unaudited circulation of 12,872 for Monday through Friday, 11,834 for Saturday and 14,097 for Sunday, compared with 12,863, 11,847 and 14,059, respectively, in 1997. In 1998, The Advocate recorded full-run billed advertising volume of 801,666 inches, and preprinted inserts of 43.5 million pieces, compared with 792,599 inches and 39.2 million pieces, respectively, in 1997. In 1998, Greenwich Time recorded full-run billed advertising volume of 801,636 inches and preprinted inserts of 14.5 million pieces, compared with 791,201 inches and 13.4 million pieces, respectively, in 1997. In addition, the newspapers derived revenues from advertising supplements distributed to non-subscribers equivalent to 23.0 million pieces in 1998, compared with 20.0 million pieces in 1997. Both The Advocate and Greenwich Time compete with a number of larger daily newspapers which serve the New York City metropolitan area and outlying regions. ELECTRONIC PUBLISHING Times Mirror offers, through its operating companies, over 25 Web sites. The Los Angeles Times operates the Web site latimes.com, a leading online news and advertising service. Newsday (newsday.com), The Hartford Courant (courant.com), The Baltimore Sun (sunspot.net) and The Morning Call (mcall.com) each maintain Web sites that provide news and other information on a daily basis. The Advocate and Greenwich Time maintain an arts and entertainment Web site, goodtogo.com. During 1998, Times Mirror continued to support CareerPath.com, a national employment online service with an extensive listing of jobs on the Internet. CareerPath.com, founded by Times Mirror and five other leading newspaper companies, now has over 80 affiliate newspapers, including all of Times Mirror's newspapers. The Los Angeles Times, through Recycler, also provides extensive alternative classified listings on recycler.com. In 1998, the Company sold its ownership interests in ListingLink, LLC, an operator of interactive real estate listing databases on the Internet, and Auction Universe, a software company with technology that allows real-time Internet auctions, to Classified Ventures, LLC. The Company retained the printed weekly real estate listing business of ListingLink and combined that business with the Company's Recycler publications. During 1998, the Company continued to invest in Classified Ventures, a company that seeks to use the Internet to expand the founding companies' positions as leading suppliers of classified advertising. Classified Ventures operates business units in the apartment (apartments.com), auto (cars.com), new home (newhomenetwork.com) and resale real estate (homehunter.com) categories. The companies participating in Classified Ventures include Central Newspapers, Inc., Gannett Co., Inc., Knight-Ridder, Inc., The McClatchy Company, The New York Times Company, Times Mirror, Tribune Company and The Washington Post Company. During 1998, the Company determined that Apartment Search, Inc., its apartment location business, would be discontinued. The Company expects to sell the business in the first half of 1999. In 1999, Times Mirror agreed to sell Hollywood Online Inc., an online provider of movie-related information for consumers, to Big Entertainment, Inc. 4 6 OTHER COMPETITION Besides competing vigorously with similar media in their respective markets, the Company's newspapers compete for advertising revenues with other local and national sales promotion media such as radio, broadcast television, cable television, magazines, direct mail and the Internet. RAW MATERIALS The primary raw material used by the newspapers is newsprint. Times Mirror centrally purchases newsprint for all of its newspapers in order to achieve advantageous terms from its vendors. The newsprint requirements for all Times Mirror newspapers are obtained from United States, Canadian and overseas sources unaffiliated with Times Mirror. The average price of newsprint for 1998 increased by approximately 8.0% from 1997, which in turn increased Times Mirror's 1998 newsprint costs. SEASONALITY Quarterly revenues of the Company's Newspaper Publishing segment vary slightly due to industry seasonality, with first and third quarters' results generally being minimally lower than those of the second and fourth quarters. In 1998, the quarterly revenues expressed as a percentage of total annual revenues for the Company's Newspaper Publishing segment were 23.5% for the first quarter, 25.4% for the second quarter, 24.1% for the third quarter and 27.0% for the fourth quarter. PROFESSIONAL INFORMATION SEGMENT Times Mirror produces a variety of information products in the areas of aeronautical charts and flight information, consumer health information products and services and professional training. During 1998, Times Mirror completed the divestiture of Matthew Bender & Company, Incorporated and its 50% ownership interest in Shepard's to an affiliate of Reed Elsevier, plc and the divestiture of Mosby, Inc. to Harcourt General, Inc. The results of Matthew Bender, Shepard's and Mosby are included in discontinued operations. JEPPESEN Through Jeppesen Sanderson, Inc. and its European sister company, Jeppesen & Co. GmbH, Times Mirror publishes aeronautical charts, flight information, pilot training materials and other navigational and operational information worldwide. Jeppesen DataPlan, Inc., a subsidiary of Jeppesen Sanderson, also provides computerized flight plans, weather information and other flight services. Jeppesen Sanderson offers a service called OnSight, a sophisticated operations control workstation combining its flight planning, weather and flight tracking display software. Jeppesen also delivers electronic aircraft maintenance information to air carriers. The Jeppesen companies serve all U.S. domestic airlines and the majority of airlines worldwide. The Jeppesen companies compete with various airline consortiums and governmental entities, as well as numerous vendors of training, maintenance, weather and flight planning information. ACHIEVEGLOBAL Times Mirror provides sales, customer service and management training programs for professionals in business and industry throughout the world through AchieveGlobal, formerly known as Times Mirror Training. In 1998, AchieveGlobal substantially completed the consolidation of the three separate companies that formerly comprised Times Mirror Training: Zenger Miller, Learning International and Kaset International. During 1998, AchieveGlobal introduced new services and products and discontinued its multimedia product line. Times Mirror, however, continues to provide multimedia training services through Allen Communication, a division of AchieveGlobal. Generally, quarterly revenues for AchieveGlobal vary only slightly; fourth quarter revenues may tend to be stronger when customers finish the year by spending the balance of their budgets on more discretionary items such as training. 5 7 AchieveGlobal competes with many organizations worldwide, including such enterprises as Development Dimensions International, Forum Corporation, Provant, Wilson Learning Corporation and a myriad of smaller local and national businesses. THE STAYWELL COMPANY Times Mirror is a provider of integrated health promotion, behavior change and training programs for organizations through its subsidiary, The StayWell Company. During 1998, the operations of Krames Communications Incorporated, Madison Publishing Corporation, StayWell Health Management Systems, Inc. and the Consumer Health Division of Mosby, Inc. were combined to form StayWell. StayWell's products and services include health and safety education and training materials, newsletters, health risk assessments, health fairs, seminars and screenings and telephonic health counseling. StayWell provides such products and services to a wide variety of organizations, including managed care organizations, employers, health care organizations, governmental entities, health care professionals and pharmaceutical companies. StayWell also has a publishing arrangement with the American Red Cross to produce materials for its training programs. During 1998, programs designed and delivered by StayWell to DaimlerChrysler employees, with the support of the United Auto Workers, received 23 Gold Awards from the Wellness Councils of America. StayWell competes with several large companies providing health information and services, including Johnson & Johnson Health Care Systems, Coffey Communications, Vitality, Channing L. Bete and Wellsource, as well as numerous smaller publishers, professional associations, advertising agencies and nonprofit organizations. MAGAZINE PUBLISHING SEGMENT Times Mirror publishes a number of special interest and trade magazines through its subsidiary, Times Mirror Magazines, Inc. The approximate six-month average paid circulation figures per issue for the magazines for 1998 were 1,550,000 for Popular Science (a consumer-oriented magazine about science and related issues); 1,750,000 for Field & Stream (a magazine about fishing and outdoor recreation); 1,350,000 for Outdoor Life (a magazine about hunting and outdoor recreation that is published 10 times a year); 950,000 for Today's Homeowner (a magazine for homeowners about all aspects of maintaining and improving a home that is published 10 times a year); 1,400,000 for Golf Magazine (a magazine for golf enthusiasts); 400,000 for Ski Magazine (a magazine about skiing targeted at families that is published 8 times a year); 400,000 for Skiing (a magazine about skiing targeted at younger skiers that is published 7 times a year); 144,000 for TransWorld SNOWboarding (a magazine about snowboarding targeted at the 15 to 18 year old market that is published 8 times a year); 100,000 for TransWorld SKATEboarding (a magazine about skateboarding targeted at the 15 to 18 year old market); 40,000 for Warp (a magazine about skateboarding, snowboarding and music targeted at the 15 to 18 year old market that is published 6 times a year); 35,000 for Snap BMX (a magazine about competitive racing for bike motor-cross that is published 9 times a year); 37,000 for Ride BMX (a magazine about tricks and stunts for bike motor-cross that is published 6 times a year); 133,000 for Yachting (a magazine about yachting and boating); 150,000 for Saltwater Sportsman (a magazine about salt-water fishing); and 75,000 for Snowboard Life (a magazine about snowboarding targeted at the 19 to 25 year old market that is published 6 times a year). Each of these magazines is published monthly unless otherwise noted. In addition, Times Mirror Magazines publishes The Sporting News, a national sports weekly which was relaunched in December 1997 with a new format and more extensive research and coverage. The approximate six-month average paid circulation figure per issue for The Sporting News in 1998 was 540,000. Times Mirror Magazines also publishes Skiing Trade News, TransWorld SNOWboarding Business, TransWorld SKATEboarding Business and BMX Business News, controlled-circulation business magazines, and other related publications. These magazines are primarily intended for specialized markets. In the first half of 1998, Times Mirror Magazines discontinued publishing Verge, a quarterly men's magazine that was started in 1997. Also during 1998, Times Mirror Magazines acquired Senior Golfer, a consumer-oriented magazine aimed at baby boomers, and InterZine Productions, a company operating Web sites affiliated with Times Mirror Magazines' titles. 6 8 The primary raw material used by Times Mirror Magazines is coated paper. For 1998, the prices for the grades of papers used by its magazines increased moderately. In 1998, Times Mirror Magazines centrally purchased coated paper for all of its magazines to obtain more favorable terms and reduced inventory levels due to the improved availability of coated paper. Times Mirror Magazines competes nationally with numerous special interest and trade magazines. While Times Mirror Magazines not only competes with similar national media, it must also compete for advertising revenues with other local and national sales promotion media such as radio, broadcast television, direct mail and the Internet. INTELLECTUAL PROPERTY In recognition of the fact that intellectual property (e.g., trademarks, copyrights, licenses and the like) is an important asset, the Company has dedicated internal resources to protect its intellectual property and develop these rights. The Company expects that these resources will support its ongoing efforts to grow its businesses internally, especially in the realm of electronic and online publishing activities. EMPLOYEES At December 31, 1998, Times Mirror's businesses had 20,619 employees, 14,787 of whom were full-time employees. Approximately 9,790 employees were represented by collective bargaining agents. The Company believes that its employee relations are good. Employees receive supplemental benefits ranging from various forms of group insurance coverage to retirement income programs. ADDITIONAL INFORMATION Prior to February 1, 1995, the Company also engaged in the ownership and operation of cable television systems, which business was divested by the merger of the Company's corporate predecessor ("Old Times Mirror") with and into Cox Communications, Inc. ("Cox"), resulting in the acquisition of Old Times Mirror's cable business by Cox (the "Cox Merger"). The Company was incorporated in the State of Delaware in June 1994 for the purpose of owning and operating Times Mirror's publishing and information businesses after the Cox Merger was completed on February 1, 1995. Old Times Mirror was incorporated in 1884 in the State of California and was reincorporated in the State of Delaware in 1986. All references to "Times Mirror" shall include the Company and the Company's subsidiaries, collectively, unless the context suggests otherwise. See Selected Financial Data -- Five-Year Summary of Business Segment Information and the Consolidated Financial Statements and notes thereto for financial information about industry segments. CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS Certain plans, objectives, projections and other information regarding future performance and outcomes discussed in this Form 10-K are forward-looking statements that are subject to risks and uncertainties. There can be no assurances that these future results will be achieved. Potential risks and uncertainties which could adversely affect the Company's ability to obtain these results include, without limitation, the following factors: (a) an increase in paper, printing and distribution costs over the levels anticipated; (b) increased consolidation among major retailers or other events depressing the level of display advertising; (c) an economic downturn in the Company's principal newspaper markets or other occurrences leading to decreased circulation and diminished revenues from both display and classified advertising; (d) an increase in the use of alternate media such as the Internet for classified and other advertising; (e) an increase in expenses related to new initiatives and product improvement efforts in the flight information and health information operating units; (f) unfavorable foreign currency fluctuations; and (g) a general economic downturn resulting in decreased professional or corporate spending on discretionary items such as information or training and in decreased consumer spending on discretionary items such as magazines or newspapers. 7 9 ITEM 2. PROPERTIES. The general character, location, terms of occupancy and approximate size of Times Mirror's principal plants and other materially important physical properties at December 31, 1998 are listed below.
APPROXIMATE AREA IN SQUARE FEET ------------------------- GENERAL CHARACTER OF PROPERTY OWNED LEASED(1)(2) ----------------------------- --------- ------------ NEWSPAPER PUBLISHING Printing plants, business and editorial offices, garages and warehouse space located in: Los Angeles, California........................ 1,714,724 2,066,598 Hartford, Connecticut.......................... 161,872 383,782 Baltimore, Maryland............................ 10,000 1,223,753 Melville, New York............................. -- 1,132,741 Other locations................................ 603,789 108,984 PROFESSIONAL INFORMATION Business offices and warehouses in California, Colorado, New York and other locations......... 235,208 598,518 MAGAZINE PUBLISHING Business and editorial offices in Connecticut, New York, Missouri and other locations............. -- 223,993 CORPORATE Corporate offices and garages located in California and New York........................ -- 496,262
- --------------- (1) Excludes 74,523 square feet of undeveloped land, 455,497 square feet of space sublet to unrelated third parties and 158,731 square feet of vacant space which is available for subleasing. Also excludes 99,440 square feet of space used by Apartment Search, Inc., the Company's apartment location business, which has been discontinued in anticipation of its sale in the first half of 1999. (2) The Company's material lease agreements expire at various dates through 2011. In August 1997, the Company completed a transaction with its largest stockholders, the Chandler Trusts, pursuant to which, among other things, the Company contributed eight real properties with an aggregate market value of $225,850,000, constituting 3,030,000 square feet, to a limited liability company formed by the Company and the Chandler Trusts. The Company is leasing such properties from the limited liability company under a lease with an initial term of 12 years. ITEM 3. LEGAL PROCEEDINGS. Times Mirror and its subsidiaries are defendants in actions for various matters arising out of their business operations. In addition, from time to time, Times Mirror and its subsidiaries are involved as parties in various governmental and administrative proceedings. Times Mirror does not believe that any such proceedings currently pending will have a material adverse effect on its business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of 1998. 8 10 EXECUTIVE AND KEY OFFICERS OF THE REGISTRANT The executive and key officers of the Company as of March 10, 1999 are listed below. Executive and key officers are elected to serve until they resign or are removed, or are otherwise disqualified to serve, or until their successors are elected and qualified. Except as indicated below, all such officers were employed by the Company and its predecessor company, Old Times Mirror, for five years or more.
OFFICER NAME AGE POSITIONS AND OFFICES WITH TIMES MIRROR SINCE(1) ---- --- --------------------------------------- -------- Mark H. Willes......... 57 Chairman of the Board, President and Chief 1995(2) Executive Officer, and Publisher, Los Angeles Times Horst A. Bergmann...... 60 Executive Vice President, and Chairman, 1996(3) President and Chief Executive Officer, Jeppesen Sanderson and AchieveGlobal Kathryn M. Downing..... 45 Executive Vice President, and President and 1996(4) Chief Executive Officer, Los Angeles Times Mary E. Junck.......... 51 Executive Vice President, and President, 1996(5) Eastern Newspapers Thomas Unterman........ 54 Executive Vice President and Chief Financial 1992(6) Officer Raymond A. Jansen...... 59 Executive Vice President, and Publisher, 1996(7) President and Chief Executive Officer, Newsday Efrem Zimbalist, III... 51 Executive Vice President, and President and 1993(8) Chief Executive Officer, Times Mirror Magazines James R. Simpson....... 58 Senior Vice President, Human Resources 1983(9) John S. Carroll........ 57 Vice President, and Editor and Senior Vice 1998(10) President, The Baltimore Sun Janet Clayton.......... 43 Vice President, and Editor of the Editorial 1998(11) Pages and Vice President, Los Angeles Times Robert G. Magnuson..... 47 Vice President, and Senior Vice President, 1998(12) Regions, Los Angeles Times Anthony Marro.......... 57 Vice President, and Editor of Newsday 1998(13) John C. McKeon......... 42 Vice President, and Senior Vice President of 1999(14) Advertising, Los Angeles Times Michael Parks.......... 55 Vice President, and Editor and Executive Vice 1998(15) President, Los Angeles Times Marty Petty............ 46 Vice President, and Publisher and Chief 1998(16) Executive Officer, The Hartford Courant William J. Rowe........ 63 Vice President, and Publisher and Chief 1998(17) Executive Officer, The (Stamford) Advocate and Greenwich Time Gary K. Shorts......... 48 Vice President, and Publisher and Chief 1998(18) Executive Officer, The Morning Call Nancy Walker........... 39 Vice President, and President and Chief 1999(19) Executive Officer, The StayWell Company Michael E. Waller...... 57 Vice President, and Publisher and Chief 1996(20) Executive Officer, The Baltimore Sun Edward L. Blood........ 53 Vice President, Strategic Planning 1997(21) Debra A. Gastler....... 46 Vice President, Taxes 1994(22) Bonnie Guiton Hill..... 57 Vice President, and President and Chief 1997(23) Executive Officer, The Times Mirror Foundation and Senior Vice President, Community Relations, Los Angeles Times Stephen C. Meier....... 48 Vice President, Public and Government Affairs, 1989(24) and Corporate Secretary Roger H. Molvar........ 43 Vice President and Controller 1996(25) William A. Niese....... 62 Vice President, General Counsel and Assistant 1990(26) Secretary
9 11 - --------------- (1) The date indicated relates to the year in which such person first became an officer of Old Times Mirror unless the context suggests otherwise. (2) Mark H. Willes was elected as President and Chief Executive Officer of the Company effective June 1995 and Chairman of the Board effective January 1996. In September 1997, he became Publisher of the Los Angeles Times. Prior to joining the Company, Mr. Willes was an executive of General Mills, Inc. from 1980 to 1995, serving as Vice Chairman upon his departure. (3) Horst A. Bergmann was elected as an executive officer of the Company effective May 1996. After joining Jeppesen Sanderson in 1963, he was named Flight Information Services Director in 1974 and Managing Director, Jeppesen & Co. GmbH in 1977. In 1987, he was appointed Chairman, President and Chief Executive Officer of Jeppesen Sanderson, and was also named Chief Executive Officer of Times Mirror Training, Inc., now known as AchieveGlobal, in 1996. (4) Kathryn M. Downing was elected as an executive officer of the Company effective May 1996. She was named President and Chief Executive Officer of Matthew Bender in 1995. Prior to that time, Ms. Downing was President and Chief Executive Officer of Lawyers Cooperative Publishing, a division of Thomson Legal Publishing, beginning in 1993. From 1990 to 1993, she was President and Chief Operating Officer of Electronic Publishing, a division of Thomson Professional Publishing. (5) Mary E. Junck was elected as an executive officer of the Company effective May 1996. She was named Publisher and Chief Executive Officer of The Baltimore Sun in 1993. Prior to that time, she joined the St. Paul Pioneer Press in 1985 and was named Publisher and President of the newspaper in 1990. Ms. Junck is resigning from her positions with the Company in April 1999. (6) Thomas Unterman was elected as an executive officer of Old Times Mirror effective October 1992. Prior to that time, he had been a partner at the law firm of Morrison & Foerster since 1986. (7) Raymond A. Jansen was elected as an officer of the Company effective May 1996. He was named Publisher, President and Chief Executive Officer of Newsday in November 1994. Prior to that time, he was Publisher and Chief Executive Officer of The Hartford Courant since 1990. (8) Efrem Zimbalist III was elected as an officer of Old Times Mirror effective March 1993. Mr. Zimbalist was Chairman and Chief Executive Officer of Correia Art Glass, Inc. from 1978 until he joined Old Times Mirror in July 1992. (9) James R. Simpson was elected as an executive officer of the Company effective January 1995 and had served as an executive officer of Old Times Mirror prior to that time. (10) John S. Carroll was elected as an officer of the Company effective July 1998. He has been Editor and Senior Vice President of The Baltimore Sun since 1991. (11) Janet Clayton was elected as an officer of the Company effective July 1998. She has been Editor of the Editorial Pages of the Los Angeles Times since 1995 and a Vice President of the Los Angeles Times since 1997. From 1990 to 1995, she was Assistant Editor, Editorial Pages, of the Los Angeles Times. (12) Robert G. Magnuson was elected as an officer of the Company effective July 1998. He has been Senior Vice President, Regional Editions, of the Los Angeles Times since 1997. From 1990 to 1997, he was Vice President of the Los Angeles Times and President of the Orange County Edition of the Los Angeles Times. (13) Anthony Marro was elected as an officer of the Company effective July 1998. He has been Editor of Newsday since 1987. (14) John C. McKeon was elected as an officer of the Company effective February 1999. He has been Senior Vice President of Advertising of the Los Angeles Times since November 1998. From 1994 to November 1998, he served as Senior Vice President of Advertising and Chief Innovation Officer at Newsday. From 1992 to 1994, he was Vice President of Advertising at Newsday. (15) Michael Parks was elected as an officer of the Company in February 1998. He was named editor of the Los Angeles Times in October 1997. Prior to that time, he had been managing editor since 1996 after serving as deputy foreign editor and as a correspondent for the Los Angeles Times. 10 12 (16) Marty Petty was elected as an officer of the Company in February 1998. She was named Chief Executive Officer and Publisher, The Hartford Courant, in September 1997. She had previously served as Senior Vice President and General Manager of that paper since 1994. From 1992 to 1994, she was Vice President, Sales and Marketing of The Hartford Courant. (17) William J. Rowe was elected as an officer of the Company effective July 1998. He has been Publisher and Chief Executive Officer of The (Stamford) Advocate and Greenwich Time since 1986. (18) Gary K. Shorts was elected as an officer of the Company effective July 1998. He has been Publisher and Chief Executive Officer of The Morning Call since 1987. (19) Nancy Walker was elected as an officer of the Company effective February 1999. She has been President and Chief Executive Officer of The StayWell Company, the Company's health improvement unit, since February 1998. From 1997 until February 1998, she was Vice President and General Manager of Mosby Consumer Health. From 1995 to 1997, she held a variety of positions at Times Mirror Magazines. From 1990 to 1994, she served as crisis manager at Argus Management Corporation. (20) Michael E. Waller was elected as an officer of the Company effective May 1996. Mr. Waller was named Publisher and Chief Executive Officer of The Baltimore Sun in May 1996. He previously served as Editor and Vice President of The Hartford Courant since 1990, joining the newspaper in 1986 as Executive Editor and Vice President. (21) Edward L. Blood was elected as an executive officer of the Company in July 1997. Prior to that time, he was Senior Vice President, Investor Relations and Strategic Planning at Darden Restaurants since 1995. Prior to that time, he had been Vice President, Strategic Planning and Analysis at General Mills. (22) Debra A. Gastler was elected as an executive officer of Old Times Mirror effective January 1994. Prior to that time, she had been Vice President, Taxes of Pacific Enterprises since 1990 and Director of Taxes of Pacific Enterprises since 1987. (23) Bonnie Guiton Hill was elected as an officer of the Company effective January 1997. From 1992 to 1996, she served as dean and professor of commerce at the McIntyre School of Commerce at the University of Virginia. (24) Stephen C. Meier was elected as an officer of the Company effective January 1995 and served as an officer of Old Times Mirror prior to that time. (25) Roger H. Molvar was elected as an executive officer of the Company effective May 1996. Prior to that time, he served as Senior Vice President and Comptroller of First Interstate Bank of California since 1989. (26) William A. Niese was elected as an executive officer of the Company in July 1997. Prior to August 1998, he had been Senior Vice President and General Counsel of the Los Angeles Times since 1990. 11 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Series A Common Stock is traded principally on the New York Stock Exchange ("NYSE") and is also listed on the Pacific Stock Exchange. Times Mirror Series C Common Stock is not traded in an established public trading market but is convertible into Times Mirror Series A Common Stock. At March 10, 1999, there were approximately 3,032 record holders of the Company's Series A Common Stock and 1,204 record holders of Series C Common Stock. The price ranges for the Company's Series A Common Stock and the quarterly cash dividends declared and paid on all Company Common Stock in 1998 and 1997 are listed below.
STOCK PRICE CASH DIVIDEND ------------- ------------------ HIGH LOW DECLARED PAID ---- --- -------- ---- 1998 First Quarter......................... $64 9/16 $56 15/16 $.18 $.18 Second Quarter........................ 65 13/16 58 1/16 .18 .18 Third Quarter......................... 63 11/16 52 5/16 .18 .18 Fourth Quarter........................ 61 7/16 48 15/16 .18 .18 1997 First Quarter......................... $59 3/8 $46 1/8 $.10 $.10 Second Quarter........................ 58 7/8 52 7/8 .15 .15 Third Quarter......................... 58 13/16 49 1/16 .15 .15 Fourth Quarter........................ 61 3/4 52 1/8 .15 .15
On October 10, 1994 as part of the settlement of certain shareholders' litigation with respect to the Cox Merger, the Company agreed to pay an annual dividend to Series A and Series C Common shareholders of no less than 24 cents per share, beginning in June 1995 and continuing for a period of three years, subject to the fiduciary duties of its Board of Directors. As that period expired in June 1998, the payment of future dividends on common stock will depend on future earnings, capital requirements, financial condition and other factors. 12 14 ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data has been derived from the Consolidated Financial Statements that have been audited by Ernst & Young LLP, independent auditors. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto included elsewhere in this Form 10-K. SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
(IN THOUSANDS OF DOLLARS EXCEPT PER COMMON SHARE, FINANCIAL RATIOS AND OTHER) 1998 1997 1996 1995 1994 - ----------------------------------------- ----------- ----------- ------------ ------------ ------------ OPERATING RESULTS Revenues.............................. $3,009,085 $2,882,017 $2,775,820 $2,728,497 $2,667,302 Restructuring and one-time charges.... 200,806 -- 17,348 445,180 -- Operating profit (loss)............... 212,563 399,187 290,932 (302,082) 192,783 Interest income (expense), net........ (36,001) (39,207) (14,498) 4,653 (51,645) Income (loss) from continuing operations before income taxes...... 200,852 365,865 280,167 (288,638) 140,166 Income (loss) from continuing operations.......................... 93,414 220,900 169,203 (233,792) 79,266 Net income(1)......................... 1,417,338 250,312 206,444 1,226,751 173,117 PER COMMON SHARE Basic earnings (loss) from continuing operations.......................... $ .85 $2.03 $1.23 $(2.82) $ .62 Basic earnings........................ 16.46 2.35 1.59 10.02 1.35 Diluted earnings (loss) from continuing operations(2)....................... .83 1.98 1.19 (2.82) .62 Diluted earnings...................... 16.06 2.29 1.54 10.02 1.34 Dividends declared(3)................. .72 .55 .30 .24 1.08 Dividends paid........................ .72 .55 .36 .45 1.08 FINANCIAL DATA Current assets(4)(5).................. $1,629,259 $573,504 $642,871 $836,502 $534,001 Property, plant and equipment, net.... 915,992 934,700 1,101,862 1,097,288 1,206,699 Total assets(5)....................... 4,218,306 3,238,620 3,227,004 3,496,296 3,992,389 Long-term debt........................ 941,423 925,404 459,007 247,062 245,522 Shareholders' equity.................. 1,342,453 875,999 1,498,810 1,806,236 1,957,043 Capital expenditures(6)............... 138,358 116,984 108,456 100,187 100,294 Operating profit margin(7)............ 14.8% 14.8% 11.1% 7.2% 7.2% Total debt as a % of adjusted capitalization...................... 48.3% 54.9% 23.5% 12.1% 31.3% Shareholders' equity per common share(8)............................ $13.45 $5.90 $9.54 $11.64 $15.06 OTHER Adjusted price range of common $65 13/16 stock(9)............................ to $61 3/4 to $56 to $35 1/4 to $26 11/16 to 48 15/16 46 1/8 30 5/8 17 1/4 18 5/16 Number of employees at end of year.... 20,619 21,567 20,803 21,877 26,902 Weighted average shares: Basic............................... 84,813,581 92,571,618 102,113,298 113,797,192 128,611,404 Diluted............................. 86,927,815 97,013,301 105,372,495 113,797,192 128,810,745 Common shares outstanding at end of year(10)............................ 73,381,279 87,903,444 96,729,785 105,698,043 128,617,570
13 15 - --------------- This summary should be read in conjunction with the consolidated financial statements and notes thereto. (1) Includes the following after-tax gains (charges) related to discontinued operations (in thousands):
1998 1996 1995 ---------- -------- ---------- Restructuring, one-time and other charges............................... -- $(19,969) $ (186,307) Net gain on disposal.................... $1,316,686 32,047 1,634,294 ---------- -------- ---------- $1,316,686 $ 12,078 $1,447,987 ========== ======== ==========
(2) Includes the $.38 per share impact of the cash paid in excess of liquidation value on Series B preferred stock repurchases in 1995. (3) During 1996, the Company began declaring and paying common stock dividends in the same quarter; previously, dividends were declared in the quarter prior to payment. As a result, in the third quarter of 1996, no dividends were declared in order to change to the new procedure. (4) Excludes net assets of discontinued operations. (5) Includes proceeds from reorganization in 1998 as described in Notes 3 and 4 to the consolidated financial statements. (6) Excludes capital expenditures related to discontinued operations. (7) Excludes restructuring, one-time and other charges as follows (in thousands): 1998 -- $231,991; 1997 -- $26,656; 1996 -- $17,348; 1995 -- $498,409. (8) Based on the common shares outstanding as described in (10) below. (9) On February 1, 1995, Times Mirror common shareholders received distributions having a value of $10.45 per Times Mirror common share. The trading prices prior to February 1, 1995 have been adjusted to reflect these distributions. (10) Excludes treasury shares of 38,707,883, 24,151,014 and 1,345,075 at December 31, 1998, 1997 and 1994, respectively. 14 16 FIVE-YEAR SUMMARY OF BUSINESS SEGMENT INFORMATION
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1995 1994 ------------------------- ---------- ---------- ---------- ---------- ---------- REVENUES Newspaper Publishing........... $2,308,178 $2,179,244 $2,074,692 $2,057,596 $2,062,954 Professional Information....... 437,729 432,866 410,398 371,416 317,134 Magazine Publishing............ 262,683 248,712 234,192 242,864 236,183 Corporate and Other............ 1,198 21,845 56,938 57,928 51,961 Intersegment Revenues.......... (703) (650) (400) (1,307) (930) ---------- ---------- ---------- ---------- ---------- $3,009,085 $2,882,017 $2,775,820 $2,728,497 $2,667,302 ========== ========== ========== ========== ========== OPERATING PROFIT (LOSS)(1) Newspaper Publishing........... $ 297,433 $ 402,207 $ 307,512 $ (109,483) $ 194,772 Professional Information....... 8,623 63,568 35,764 21,868 64,226 Magazine Publishing............ (14,232) 18,309 8,753 (73,904) 3,884 Corporate and Other............ (79,261) (84,897) (61,097) (140,563) (70,099) ---------- ---------- ---------- ---------- ---------- $ 212,563 $ 399,187 $ 290,932 $ (302,082) $ 192,783 ========== ========== ========== ========== ========== IDENTIFIABLE ASSETS Newspaper Publishing........... $1,999,880 $1,792,286 $1,836,158 $1,840,058 $1,987,752 Professional Information....... 344,636 392,852 328,775 330,913 204,931 Magazine Publishing............ 271,457 263,521 244,254 255,358 279,884 Corporate and Other............ 1,602,333 362,239 453,781 592,400 355,974 Discontinued Operations........ -- 427,722 364,036 477,567 1,163,848 ---------- ---------- ---------- ---------- ---------- $4,218,306 $3,238,620 $3,227,004 $3,496,296 $3,992,389 ========== ========== ========== ========== ========== DEPRECIATION AND AMORTIZATION Newspaper Publishing........... $ 116,116 $ 106,919 $ 104,743 $ 110,299 $ 114,115 Professional Information....... 18,947 18,880 17,340 14,520 10,269 Magazine Publishing............ 7,740 7,040 6,050 8,112 8,140 Corporate and Other............ 4,467 3,457 2,990 2,824 2,305 ---------- ---------- ---------- ---------- ---------- $ 147,270 $ 136,296 $ 131,123 $ 135,755 $ 134,829 ========== ========== ========== ========== ========== CAPITAL EXPENDITURES Newspaper Publishing........... $ 107,479 $ 78,760 $ 63,698 $ 63,014 $ 79,922 Professional Information....... 22,635 13,438 28,920 19,936 15,480 Magazine Publishing............ 1,651 2,243 10,849 1,060 800 Corporate and Other............ 6,593 22,543 4,989 16,177 4,092 ---------- ---------- ---------- ---------- ---------- $ 138,358 $ 116,984 $ 108,456 $ 100,187 $ 100,294 ========== ========== ========== ========== ==========
- --------------- (1) Includes restructuring, one-time and other charges as follows (in thousands):
1998 1997 1996 1995 -------- ------- ------- -------- Newspaper Publishing.............. $116,388 $18,000 -- $316,216 Professional Information.......... 69,510 8,656 $17,348 41,715 Magazine Publishing............... 29,072 -- -- 71,672 Corporate and Other............... 17,021 -- -- 68,806 -------- ------- ------- -------- $231,991 $26,656 $17,348 $498,409 ======== ======= ======= ========
The pre-tax charges in 1998 are comprised of restructuring and one-time charges of $200,806 and other charges that did not qualify for accounting classification as restructuring charges of $31,185. Total restructuring, one-time and other charges in 1998 are $233,491, of which $1,500 is included in Other, net. The pre-tax charges in 1995 are comprised of restructuring and one-time charges of $445,180 and other charges that did not qualify for accounting classification as restructuring charges of $53,229. 15 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company achieved record earnings in 1998 with net income of $1.42 billion, or $16.06 per share on a diluted basis, compared with 1997 net income of $250.3 million, or $2.29 per share. The 1998 results reflect: - An after-tax gain of $1.35 billion, or $15.50 per share, on the disposition of Matthew Bender/Shepard's and Mosby and $30.8 million, or $.35 per share, of after-tax losses associated with discontinuance of certain other businesses. - Completion of the Company's business operations review which resulted in pretax charges of $200.8 million, or $1.61 per share, and additional pretax charges of $32.7 million, or $.22 per share, that did not qualify for accounting classification as restructuring charges. - Income from continuing operations for 1998 of $253.0 million, or $2.66 per share, excluding these charges. Including the charges, income from continuing operations was $93.4 million, or $.83 per share. - Growth in revenues at all three of the Company's business segments contributing to an increase in revenues of 4.4% to $3.01 billion in 1998 compared with $2.88 billion in the prior year. - Income from discontinued operations for 1998, net of taxes, of $7.2 million, or $.08 per share, compared to $29.4 million, or $.31 per share, for 1997. - Share purchases in 1998 which reduced the number of shares of common stock outstanding for financial reporting purposes to 73.4 million at December 31, 1998 compared with 87.9 million at December 31, 1997. The Company's operating performance improved modestly in 1998, with growth in both revenues and operating profit, excluding restructuring, one-time and other charges. The Company's performance reflects an increasing focus on its core Newspaper Publishing segment, which now represents more than 75% of the Company's revenues and operating profit, following the disposition of its two largest professional information businesses. In 1998, revenues and operating profit at the Company's Eastern Newspapers, excluding restructuring, one-time and other charges, reached record highs and offset slow revenue growth and a decline in operating earnings at the Los Angeles Times, the Company's largest newspaper. To address these issues at The Times, significant changes were initiated in the second half of 1998 to improve operating performance. For 1998, income from continuing operations rose to $253.0 million, or $2.66 per share, excluding restructuring, one-time and other charges. In 1997, the Company reported income from continuing operations of $220.9 million, or $1.98 per share, including fourth-quarter pre-tax charges of $26.7 million, or $.17 per share, for specifically identified cost reduction programs that were not classified as restructuring charges. Excluding these charges, income from continuing operations for 1997 was $236.8 million, or $2.15 per share. The increase in earnings per share was due largely to share purchases in 1998 that reduced the number of average shares outstanding for financial reporting purposes, as well as a reduction in preferred dividend requirements due to a recapitalization in the third quarter of 1997 and the Company's redemption of its Series B preferred stock. DISCONTINUED OPERATIONS On July 31, 1998, the Company completed the divestiture of Matthew Bender & Company, Incorporated and its 50% ownership in legal citation provider Shepard's to an affiliate of Reed Elsevier, Inc. in a transaction valued at $1.65 billion. Additionally, on October 9, 1998, the Company completed the divestiture of Mosby, Inc., its health science and medical publisher, to Harcourt General, Inc. in a transaction valued at $415.0 million. On August 26, 1998, the Company determined that Apartment Search, Inc., its apartment location business, would be discontinued. The Company anticipates selling that business in the first half of 1999 and has recorded an estimated loss on disposal of $28.2 million, including a provision for operating losses through 16 18 the expected date of disposal. The total estimated loss is included in discontinued operations within "Net gain on disposal, net of income taxes". Results of discontinued operations primarily include Matthew Bender, Mosby, the Shepard's joint venture and Apartment Search, Inc. Prior year results have been restated accordingly. (See Note 3 to the consolidated financial statements for further information). SHARE PURCHASES Share purchases continued in 1998 through open market transactions, accelerated purchases and purchases by an affiliated limited liability company. A total of 16.7 million Series A common shares were acquired during 1998 which more than offset 2.1 million shares issued as a result of the exercise of stock options. CONSOLIDATED RESULTS OF OPERATIONS The following table summarizes the Company's financial results (dollars in millions, except per share and share amounts):
1998 1997 1996 -------- -------- -------- Revenues............................................. $3,009.1 $2,882.0 $2,775.8 Restructuring and one-time charges................... 200.8 -- 17.3 Operating profit..................................... 212.6 399.2 290.9 Interest expense, net................................ (36.0) (39.2) (14.5) Other, net........................................... 24.3 5.9 3.7 Income from continuing operations, net of income taxes.............................................. 93.4 220.9 169.2 Discontinued operations: Income from operations, net of income taxes........ 7.2 29.4 5.2 Net gain on disposal, net of income taxes.......... 1,316.7 -- 32.0 Net income........................................... 1,417.3 250.3 206.4 Preferred dividend requirements...................... 21.7 32.5 43.6 Earnings applicable to common shareholders........... $1,395.6 $ 217.8 $ 162.8 Basic earnings per share: Continuing operations.............................. $ .85 $ 2.03 $ 1.23 Discontinued operations............................ 15.61 .32 .36 -------- -------- -------- Basic earnings per share............................. $ 16.46 $ 2.35 $ 1.59 ======== ======== ======== Diluted earnings per share: Continuing operations.............................. $ .83 $ 1.98 $ 1.19 Discontinued operations............................ 15.23 .31 .35 -------- -------- -------- Diluted earnings per share........................... $ 16.06 $ 2.29 $ 1.54 ======== ======== ======== Weighted average shares: Basic.............................................. 84,814 92,572 102,113 ======== ======== ======== Diluted............................................ 86,928 97,013 105,372 ======== ======== ========
1998 COMPARED WITH 1997 Revenues in 1998 reached record highs, increasing 4.4% over the prior year due primarily to higher revenues in the Newspaper Publishing segment. The rate of growth slowed in the second half, reflecting some weakening in certain markets and advertising categories. Operating profit totaled $444.6 million in 1998 compared to $425.8 million in 1997, excluding restructuring, one-time and other charges. The increase in 1998 operating profit was due to improved performance in the Professional Information segment, as well as reduced expense levels in Corporate and 17 19 Other, which was partially offset by decreases in operating profit in the Newspaper and Magazine Publishing segments. Including restructuring, one-time and other charges, operating profit decreased to $212.6 million in 1998. Earnings per share for 1998 benefited principally from the net gain on divestitures, as well as a reduction in the average number of common shares outstanding and lower preferred dividend requirements. Preferred dividend requirements in 1998 declined due to the 1997 recapitalization and the Company's redemption of its Series B preferred stock. Net interest expense declined in 1998 due to an increase in interest income resulting from investment activity of the affiliated limited liability companies created as part of the Matthew Bender and Mosby transactions. Higher interest income more than offset a rise in interest expense primarily due to increased debt levels attributable to common stock purchases, the 1997 third quarter recapitalization and new acquisitions. 1997 COMPARED WITH 1996 The Company's revenues grew 3.8% in 1997 primarily due to strong advertising revenue growth in the Newspaper Publishing segment. Operating profit increased 38.1% in 1997, excluding restructuring and other charges, reflecting improvements in each of the Company's business segments. Including restructuring and other charges, operating profit increased 37.2% in 1997 compared to the prior year. Net income in 1997 rose $43.9 million, or 21.2%, from 1996. The 1996 net income included a $32.0 million net gain on the sale of the college publishing businesses and certain other professional information companies. The results of the Company's college publishing businesses are included as discontinued operations for 1996. Earnings per share in 1997 benefited from higher earnings and lower preferred dividend requirements, as well as a reduction in average number of common shares outstanding due to share repurchases and the 1997 recapitalization. Net interest expense rose to $39.2 million in 1997, an increase of $24.7 million, primarily due to the issuance of commercial paper and long-term debt which generated proceeds of $537.6 million in 1997 as well as lower interest income compared to 1996. ANALYSIS BY SEGMENT The following sections discuss the segment results of the Company's principal lines of business excluding restructuring, one-time and other charges of $232.0 million, $26.7 million and $17.3 million for 1998, 1997 and 1996, respectively, unless specifically stated otherwise: NEWSPAPER PUBLISHING Newspaper Publishing revenues and operating profit were as follows (dollars in millions):
1998 CHANGE 1997 CHANGE 1996 -------- ------ -------- ------ -------- Revenues Advertising..................... $1,787.3 6.2% $1,682.8 6.9% $1,574.4 Circulation..................... 434.4 (0.2) 435.3 (2.7) 447.6 Other........................... 86.5 41.6 61.1 16.0 52.7 -------- -------- -------- $2,308.2 5.9% $2,179.2 5.0% $2,074.7 ======== ======== ======== Operating profit.................. $ 297.4 (26.0)% $ 402.2 30.8% $ 307.5 ======== ======== ======== Operating profit excluding restructuring, one-time and other charges................... $ 413.8 (1.5)% $ 420.2 36.6% $ 307.5 ======== ======== ========
18 20 1998 Results In 1998, the Eastern Newspapers, including Newsday and The Baltimore Sun, achieved record high revenues and operating profit results, but the Newspaper Publishing segment's operating profit overall was reduced by sluggish advertising revenues and higher expense levels at the Los Angeles Times related to ongoing growth initiatives. Accordingly, the Newspaper Publishing's operating profit margin decreased to 17.9% in 1998 from 19.3% in 1997. Newspaper Publishing revenues rose to a record high in 1998 due primarily to classified advertising revenue growth at the Eastern Newspapers as well as incremental revenues from acquisitions. Excluding incremental revenues related to the acquisitions of This Week in October 1997 and The Recycler in May 1998, advertising revenues rose 3.9%. For 1998, newsprint expense rose 15.1%, as the average price per ton increased by 8.1%. In addition, daily circulation gains at the Company's largest newspapers and acquisitions contributed to an increase in newsprint consumption of 6.5%. Non-newsprint expense rose 2.4% for 1998, excluding acquisitions as well as restructuring, one-time and other charges. Total circulation averages for the Newspaper Publishing segment for the six-month period ended September 30, 1998, as reported by the Company to the Audit Bureau of Circulations, were 2,335,767 daily, an increase of 22,235, or 1.0%, and 3,043,004 Sunday, an increase of 3,550, or 0.1%. At The Times, average daily circulation for the six-month period ended September 30, 1998 was 1,067,540, an increase of 17,364, or 1.7%, and Sunday, 1,361,201, basically even with the level reported for the six-month period ended September 30, 1997. At Newsday, average daily circulation was 572,444, an increase of 3,603, or 0.6%, and Sunday was 671,214, an increase of 6,226, or 0.9%. Circulation revenues for 1998 were slightly lower compared to 1997 as marketing strategies involving pricing and promotional discounts reduced circulation revenues but resulted in circulation volume gains. In 1998, the Newspaper Publishing segment recorded $102.5 million of restructuring and one-time charges and $13.9 million of additional charges that did not qualify for accounting classification as restructuring charges. These charges consisted primarily of termination benefits, contract termination costs and asset write-offs. 1997 Results The Newspaper Publishing segment achieved steady growth in 1997 with gains in total revenues and operating profit led by strong advertising revenues. In addition, average circulation increases were achieved at The Times, Newsday, The Baltimore Sun, The Hartford Courant, The (Stamford) Advocate and Greenwich Time for the six-month period ended September 30, 1997, as reported by the Company to the Audit Bureau of Circulations. The operating profit margin for 1997 expanded to 19.3%, up from 14.8% in the prior year. Newspaper Publishing segment revenues in 1997 rose on the strength of higher advertising revenues. Advertising revenues were up in every category, with particular strength in national and classified advertising. Higher advertising revenues in 1997 were partly offset by a modest decline in circulation revenue as the marketing strategies involving pricing and promotional discounts helped stimulate circulation volume gains but resulted in lower overall circulation revenues. Newsprint expense declined 9.7% in 1997 compared to 1996, as lower average newsprint prices were partly offset by increased consumption resulting from gains in circulation and advertising volume. In 1997, the Newspaper Publishing segment's operating profit was impacted by $18.0 million of charges that were not classified as restructuring charges. These charges primarily related to the reorganization of the circulation department and the absorption of the corporate human resources and information systems functions at The Times. 19 21 PROFESSIONAL INFORMATION Professional Information revenues and operating profit were as follows (dollars in millions):
1998 CHANGE 1997 CHANGE 1996 ------ ------ ------ ------ ------ Revenues............................... $437.7 1.1% $432.9 5.5% $410.4 ====== ====== ====== Operating profit....................... $ 8.6 (86.4)% $ 63.6 77.7% $ 35.8 ====== ====== ====== Operating profit excluding restructuring, one-time and other charges........... $ 78.1 8.2% $ 72.2 36.0% $ 53.1 ====== ====== ======
1998 Results The Professional Information segment's results reflect the discontinuation of Matthew Bender/Shepard's and Mosby which are included in discontinued operations. Prior year results have been restated accordingly. Revenues for 1998 increased primarily due to improved performance at Jeppesen Sanderson and The StayWell Company which was partially offset by lower revenues at AchieveGlobal. The segment's 1998 operating profit increased primarily due to improved performance at StayWell resulting from the 1997 third quarter acquisition of Krames Communications Incorporated. In 1998, the Company recorded $53.3 million of restructuring and one-time charges which consisted of goodwill impairment and business exit costs. The Company recorded additional charges of $16.2 million that did not qualify for accounting classification as restructuring charges. These charges related to product development and other asset write-offs largely at AchieveGlobal and StayWell. 1997 Results The Professional Information segment's revenues increased due largely to improvements at Jeppesen Sanderson and the acquisition of Krames Communications Incorporated. Operating profit for 1997 increased primarily due to improvements at AchieveGlobal. Professional Information segment's 1997 operating profit was affected by $8.7 million of other charges that were not classified as restructuring charges. These charges were recorded to further consolidate the Company's training operations and to launch its brand name, AchieveGlobal. The 1996 restructuring charges totaled $17.3 million for efforts undertaken at AchieveGlobal to integrate the training companies. MAGAZINE PUBLISHING Magazine Publishing revenues and operating profit (loss) were as follows (dollars in millions):
1998 CHANGE 1997 CHANGE 1996 ------ ------ ------ ------ ------ Revenues............................... $262.7 5.6% $248.7 6.2% $234.2 ====== ====== ====== Operating profit (loss)................ $(14.2) (100+)% $ 18.3 100+% $ 8.8 ====== ====== ====== Operating profit excluding restructuring and one-time charges... $ 14.8 (18.9)% $ 18.3 100+% $ 8.8 ====== ====== ======
1998 Results Revenues increased in 1998 due to higher advertising revenues at most of the magazines. The acquisitions of TransWorld Skateboarding and Warp in April 1997, Ride BMX and SNAP in January 1998, InterZine Productions, Inc. in February 1998 and Senior Golfer in October 1998 also contributed to higher advertising revenues. Excluding incremental revenues related to acquisitions, revenues rose 4.2%. Magazine Publishing segment's 1998 operating profit decreased from 1997 due to ongoing investment in the relaunch of The Sporting News, higher paper costs, as well as the acquisitions of Interzine and Senior Golfer. Magazine Publishing segment's 1998 restructuring and one-time charges totaled $29.1 million which consisted primarily of goodwill impairment related to two titles acquired in 1977 and 1987. 20 22 1997 Results For 1997, Magazine Publishing segment's operating profit more than doubled due to strong advertising revenues at nearly all magazines as well as operating improvements at Outdoor Life and The Skiing Company. The acquisitions of TransWorld SKATEboarding and Warp in April 1997 also contributed to higher revenues. CORPORATE AND OTHER Corporate and Other revenues and operating loss were as follows (dollars in millions):
1998 CHANGE 1997 CHANGE 1996 ------ ------- ------ ------- ------ Revenues................................... $ 1.2 (94.5)% $ 21.8 (61.6)% $ 56.9 ====== ====== ====== Operating loss............................. $(79.3) (6.6)% $(84.9) 39.0 % $(61.1) ====== ====== ====== Operating loss excluding restructuring, one-time and other charges............... $(62.2) (26.7)% $(84.9) 39.0 % $(61.1) ====== ====== ======
1998 Results For 1998, revenues declined due to the disposition of Harry N. Abrams, Incorporated and National Journal, Inc. in the second and third quarters of 1997, respectively. Operating loss decreased in 1998 from 1997 primarily due to lower employee benefit costs. Additionally, information systems costs were lower in 1998 due to substantial completion of the Company's conversion to common financial systems in 1997. Corporate and Other's 1998 restructuring and one-time charges totaled $15.9 million and $1.1 million for other charges that did not qualify for accounting classification as restructuring charges. These charges consisted primarily of termination benefits and lease termination costs. 1997 Results Revenues for 1997 are lower compared to the prior year due to the divestitures of Harry N. Abrams, Incorporated and National Journal, Inc. For 1997, Corporate and Other operating loss increased primarily due to higher severance, employee benefits and information systems conversion costs. OTHER, NET 1998 Results In the second half of 1998, the Company sold 441,900 shares of its holdings in Netscape Communications Corporation (Netscape) stock and purchased an equal proportion of its 4 1/4% Premium Equity Participating Securities (PEPS) obligation in the open market. The PEPS hedge the Company's investment in Netscape. A $16.0 million pre-tax gain, previously included as a separate component of shareholders' equity, was recognized on these transactions. Such transactions may continue from time to time in the future. For 1998, the Company recorded gains on the disposition of excess real estate and other assets which were partially offset by equity losses related to new media and other partnership investments as well as other expenses. 1997 Results During 1997, the Company sold certain equity investments, including Tejon Ranch Co.; WebTV Network, Inc.; Netscape Communications Corporation; Access Health, Inc.; Speedvision Network, LLC and Outdoor Life Network, LLC, which were partially offset by writedowns and expenses related to non-operating items as well as losses on the sale of Harry N. Abrams Inc.; National Journal, Inc. and other assets. RESTRUCTURING, ONE-TIME AND OTHER CHARGES In 1998, the Company undertook a comprehensive review of its business operations to determine areas where operational efficiencies could be achieved through either product and/or facility consolidation, headcount reductions, product abandonments, contract terminations or through other measures. The Com- 21 23 pany began this review in anticipation of the impact of its significant 1998 divestitures and to better align its overall cost structure and business configurations. The Company's review led to a major restructuring program that resulted in the recording of $39.7 million, $80.0 million, and $81.1 million of charges in the second, third and fourth quarters of 1998, respectively. A summary of the significant components of the 1998 restructuring program is as follows (dollars in millions):
NEWSPAPER PROFESSIONAL MAGAZINE CORPORATE PUBLISHING INFORMATION PUBLISHING AND OTHER TOTAL ---------- ------------- ---------- ---------- ------ Termination benefits................. $ 43.4 $ 3.4 $ 0.2 $10.2 $ 57.2 Contract terminations................ 51.4 -- 4.3 -- 55.7 Goodwill impairments................. 0.3 28.9 19.7 -- 48.9 Lease termination costs.............. 2.3 4.8 1.5 3.1 11.7 Technology asset write-offs.......... 4.8 4.2 0.1 1.5 10.6 Business exit and other costs........ 0.3 12.0 3.3 1.1 16.7 ------ ----- ----- ----- ------ Total...................... $102.5 $53.3 $29.1 $15.9 $200.8 ====== ===== ===== ===== ======
The Company anticipates that the restructuring and one-time charges will result in future annual expense reductions of at least $30.0 million, beginning in 1999. These savings are predominately due to reductions in wage-related and contract payment costs, carrying costs of property and equipment, rent charges, and a decrease in goodwill amortization. Cost savings may be partially offset by costs of outsourcing. However, the Company does not believe that the restructuring plan will result in a significant increase in other expenses or a reduction in revenues. There are no significant costs that have not been recognized related to the Company's plans. A discussion of the specific restructuring activities follows: TERMINATION BENEFITS Staff reductions were implemented at substantially all operating units with the majority of these actions performed within the Newspaper Publishing segment. The Times recorded severance charges related to 358 full-time and 534 part-time employees through either voluntary or involuntary programs, primarily occurring in the fourth quarter of 1998. The Baltimore Sun's termination charges included 81 full-time employees and Newsday determined that 23 full-time and 26 part-time employees would be released. The staff reductions within the Newspaper Publishing segment were the result of identified efficiencies from outsourcing opportunities, elimination of duplicate functions and technological improvements to the Company's processes. In total, termination benefits, which were largely severance costs, covered 616 full-time and 578 part-time employees company-wide, of which 224 employees had been released by the end of 1998 with the majority of employees expected to be released by the second quarter of 1999. As of December 31, 1998, $5.1 million has been paid out under this program with the remaining liability (shown below) expected to be substantially paid by the end of 1999. Certain employees will, however, receive payments over a longer period of time. CONTRACT TERMINATIONS In reviewing the Company's processes, supply contracts and strategic alliances, the Company identified certain long-term contracts and relationships which were no longer providing benefits to the Company's current operations. As a result, the Company recorded charges for contract terminations which included (i) the termination of a long-term contract related to Newsday's pre-print distribution business for $34.3 million; (ii) the termination of The Hartford Courant's long-standing bonus arrangement for $12.0 million and (iii) the termination of 56 distribution contracts with outside agents at The Times for $4.9 million. GOODWILL IMPAIRMENTS In connection with the Company's divestiture of Mosby, Inc., the Company retained the consumer health publishing businesses of Mosby which were combined with its health information provider, The StayWell Company. In reorganizing these operations and making significant fundamental business and structural changes, revised forecasts of undiscounted cash flows related to these enterprises were prepared which 22 24 identified that the entity may not have the estimated future cash flows necessary to recover asset values. The Company recorded a write-off based on the difference between the net book value of goodwill, the entity's primary long-lived asset, and the fair value, measured by discounted estimated cash flows from future operations. In addition, an impairment charge was taken related to goodwill associated with two of the Company's magazine titles. These charges were taken as the result of disappointing market penetration and operating results and were also determined based on discounted estimated cash flows from future operations. LEASE TERMINATION COSTS In connection with the Company's consolidation of its training companies under one entity, AchieveGlobal, and its downsizing and/or relocation of other operating units, the Company has recorded charges for future operating lease payments and write-offs of leasehold improvements related to facilities it will vacate. The total lease payment accrual for periods through 2010 is net of estimated sublease income of $5.8 million. No amounts have been included for any period in which the operating units will continue to occupy the premises. TECHNOLOGY ASSET WRITE-OFFS During mid-1998, the Company determined that its long standing policy of allowing each operating unit to independently determine its technology requirements and make related equipment and software purchases was both inefficient as well as expensive in terms of maintenance, helpdesk, networking and other support costs. In connection with this decision, the Company established common hardware and software configurations to provide consistency across all business units. As a result, many operating units were required to dispose of a significant amount of technology resources to conform to the common platform. Total asset write-offs of technology-related equipment were taken in the quarter in which the equipment was replaced. BUSINESS EXIT AND OTHER COSTS In performing a detailed review of its business and related product offerings, AchieveGlobal recorded a $8.5 million charge to reflect the termination of its direct sales business line due to poor financial results and to record an estimated loss on the sale of its Canadian operations. Charges taken for the direct sales business were primarily for asset write-offs. The Company's estimated loss related to the Canadian operations uses an estimate of proceeds based on recent sales transactions of its other foreign entities. The estimated loss includes both the basis of the assets to be sold as well as costs required to sell the enterprise and a change to a franchise arrangement. Management anticipates that the franchising of these operations will be completed by the second quarter of 1999. The revenues and operating profits from those businesses that the Company plans to exit are not significant to total operations. Other costs were recognized at Jeppesen Sanderson, Inc. for the abandonment of certain projects and at The StayWell Company for the consolidation of processes. 23 25 The following table summarizes the restructuring charges by cash versus non-cash charges and provides information as to 1998 activity in the restructuring liability account as well as estimated cash flows for the following years (dollars in millions):
ESTIMATED CASH FLOWS --------------------------- CASH 1998 1998 BALANCE 2001 AND DESCRIPTION NON-CASH CHARGE ACTIVITY 12/31/98 1999 2000 THEREAFTER ----------- -------- ------ --------- -------- ----- ---- ---------- Termination benefits........... Cash $ 57.2 $ (5.1) $52.1 $48.1 $0.4 $3.6 Contract terminations.......... Cash 55.7 (24.4) 31.3 22.8 3.7 4.8 Goodwill impairments........... Non-cash 48.9 (48.9) -- -- -- -- Lease termination.............. Cash 7.9 0.3 8.2 5.7 1.1 1.4 costs........................ Non-cash 3.8 (3.8) -- -- -- -- Technology asset............... Cash 1.6 (0.9) 0.7 0.7 -- -- write-offs................... Non-cash 9.0 (9.0) -- -- -- -- Business exit and.............. Cash 4.3 (3.6) 0.7 0.7 -- -- other costs.................. Non-cash 12.4 (8.1) 4.3 4.3 -- -- ------ ------- ----- ----- ---- ---- Total................. $200.8 $(103.5) $97.3 $82.3 $5.2 $9.8 ====== ======= ===== ===== ==== ====
The Company believes that cash flows from operations will be adequate to cover future cash outflows under the restructuring program. OTHER PROGRAM CHARGES In addition to the charges listed above, the Company also recorded $32.7 million for certain asset write-offs that did not meet the accounting criteria for classification as "restructuring and one-time charges." These charges, which principally included inventory and other operating asset write-offs, have been classified within "Cost of sales," "Selling, general and administrative expenses" or "Other, net" in the Consolidated Statements of Income. PRIOR YEAR RESTRUCTURING AND OTHER CHARGES In the fourth quarter of 1997, the Company recorded pretax charges of $26.7 million for specifically identified cost reduction programs that were not classified as restructuring charges. In 1996, the Company recorded $17.3 million of restructuring charges for efforts undertaken at AchieveGlobal to integrate the training companies. As of December 31, 1998, these efforts were substantially complete. In 1995, the Company recorded restructuring, impairment and one-time charges. A summary of the activity with respect to the 1995 restructuring liability is as follows (dollars in millions):
1998 1998 12/31/97 CASH PAYMENTS OTHER(1) 12/31/98 -------- ------------- -------- -------- 1995 Restructuring................................ $45.7 $(19.9) $(1.4) $24.4
- --------------- (1) Represents transfers to 1998 restructuring liability. The remaining 1995 restructuring liability relates primarily to lease payments on unoccupied properties which will be paid over lease periods extending to 2005. LIQUIDITY AND CAPITAL RESOURCES The Company's operating cash requirements are funded primarily by its operations. Cash generated from operating activities and proceeds from borrowings have been used primarily to fund acquisitions and capital expenditures. At December 31, 1998, the Company had a $400.0 million long-term revolving line of credit through a group of domestic and international banks. This line of credit is used to support a commercial paper program which is available for short-term cash requirements. The Company had $298.6 million of commercial paper outstanding at December 31, 1998 under this credit facility. At March 10, 1999, the Company had 24 26 $321.0 million of commercial paper outstanding under this credit facility. Additionally, the Company has a shelf registration statement for $300.0 million of securities which has not been utilized. During the second quarter of 1998, the Company entered into an uncommitted bank line of credit which provides for unsecured borrowings up to $250.0 million of which there were no amounts outstanding at December 31, 1998. At March 10, 1999, the Company had $60.0 million of borrowings outstanding under this line of credit. ACQUISITIONS On April 30, 1998, the Company acquired the Los Angeles area business of EZ Buy & EZ Sell Recycler Corporation (Recycler), consisting primarily of the Recycler publications in the Los Angeles, Orange, Riverside, San Bernardino and Ventura counties and a portion of Santa Barbara County for $188.7 million. The Company also invested in preferred stock and provided a term loan to Target Media Partners, a new entity that owns all of the non-Los Angeles area assets of Recycler for a total amount of $34.8 million. In February 1999, Eagle New Media Investments, LLC, an investment affiliate of the Company, acquired Newport Media, Inc., a publisher of shopper publications in the Long Island and New Jersey areas, for $132 million. DISPOSITIONS On July 31, 1998, the Company completed the divestiture of Matthew Bender in a tax-free reorganization and the sale of the Company's 50% ownership interest in Shepard's to Reed Elsevier plc. The two transactions were valued at $1.65 billion in the aggregate. Proceeds from the sale of Shepard's were used to pay down commercial paper and short-term borrowings of $222.4 million. Concurrently with the closing of the Matthew Bender transaction, the Company became the sole manager of Eagle New Media Investments, LLC (Eagle New Media). At December 31, 1998, the assets of Eagle New Media were $605.8 million of cash and cash equivalents, $753.0 million of Times Mirror stock, $15.0 million of marketable securities and $22.3 million of other assets. On October 9, 1998, the Company completed the divestiture of Mosby, Inc. to Harcourt General, Inc. in a transaction valued at $415.0 million. Concurrently with the closing of the Mosby, Inc. transaction, the Company became the sole manager of Eagle Publishing Investments, LLC (Eagle Publishing). At December 31, 1998, the assets of Eagle Publishing were $377.2 million of cash and cash equivalents, $34.5 million of marketable securities and $20.1 million of other assets. While the Company believes that the Matthew Bender and Mosby transactions were completed on a tax-free basis, this position may be subject to review by the Internal Revenue Service. The Company intends to deploy the assets of both LLCs to finance acquisitions and investments, including purchases of the Company's common stock, and does not intend to use those funds for the Company's general working capital purposes. For financial reporting purposes, Eagle New Media and Eagle Publishing are consolidated with the financial results of the Company. The Company signed a definitive agreement on January 11, 1999 with Big Entertainment, Inc. to divest Hollywood Online, Inc., and its Web site, hollywood.com. Pursuant to the agreement, Big Entertainment, Inc. will issue newly-issued restricted stock to the Company with a then current quoted market value of $31.0 million. Big Entertainment, Inc. also has the right, under certain circumstances, to pay up to $1.0 million of the merger consideration in cash. The transaction is subject to customary regulatory and shareholder approval. During the 1996 fourth quarter, the Company completed the exchange of its college publishing businesses for Shepard's, a primary legal citation service. The Company recognized a gain of $121.6 million on the exchange of its college publishing businesses and the sale of its Spanish-language medical book publisher, Doyma Libros, and recorded a writedown of $16.7 million for the January 1997 disposal of certain net assets of CRC Press, Inc. The pre-tax net gain on disposal of $104.9 million amounted to $32.0 million after applicable taxes, primarily related to differences in the book and tax bases of the assets, and is included within "Net gain on disposal, net of income taxes." 25 27 COMMON SHARE PURCHASES Share purchases of the Company's Series A common shares continued in 1998 through a combination of open market transactions, accelerated purchases and purchases by Eagle New Media. The Company and Eagle New Media purchased 16.7 million shares of its Series A common stock during 1998. In 1997, the Company purchased 9.0 million shares of its Series A common stock. Included in the 1998 purchases are 13.3 million shares of Series A common stock acquired by Eagle New Media. The 1998 share purchases also include 4.0 million shares that were purchased by Eagle New Media in the fourth quarter of 1998 as part of an accelerated purchase agreement. The shares were purchased at the closing price on the date of the agreement for $54.69 per share. The agreement provides for a purchase price adjustment based on a pro-rata settlement over a one-year period. The agreement, which is due to mature in the fourth quarter of 1999, provides for settlement of the purchase price adjustment on a net share basis. Additionally, in February 1999, the Company purchased 1.0 million Series A common stock at a price of $63.35 per share in connection with a forward purchase agreement entered into in 1998. The Company believes that the purchase of shares of its common stock is an attractive investment for Eagle New Media which will also enhance Times Mirror shareholder value as well as offset dilution from shares of common stock issued under the Company's stock-based employee compensation and benefit programs. In October 1998, the Board of Directors authorized the purchase of an additional amount of up to 6.0 million shares of its Series A common stock either directly or in the Company's capacity as manager of affiliated limited liability companies. In February 1999, the Board of Directors authorized the purchase of an additional amount of up to 6.0 million shares of its Series A common stock. As of March 10, 1999, the Company and its affiliates are authorized to purchase 5.8 million Series A common stock. The purchases by the Company and its affiliates are expected to be made during the next two years in the open market or in private transactions, depending on market conditions, and may be discontinued at any time. In connection with this program, the Company from time to time sells put options on its common stock. At December 31, 1998, on a consolidated basis for financial reporting purposes, the number of shares of common stock outstanding totaled 73.4 million compared with 87.9 million at December 31, 1997. 1997 RECAPITALIZATION In August 1997, the Company completed a recapitalization transaction with its largest shareholders, the Chandler Trusts. The transaction resulted in a net effective reduction in the number of shares of Series A common stock by 6.0 million shares and in the stated value of Series A preferred stock by $367.5 million, as well as the issuance of two new series of preferred stock, Series C-1 and Series C-2. The changes in preferred stock resulted in a reduction of preferred dividend requirements to $21.7 million annually. In connection with the recapitalization transaction, the Company entered into a property financing arrangement, which added net debt of $57.8 million, and issued $250.0 million of 6.61% Debentures due September 15, 2027 (See Note 2 to the consolidated financial statements for further information). CASH FLOW The following table sets forth certain items from the Consolidated Statements of Cash Flows (dollars in millions):
1998 1997 -------- ------- Net cash provided by operating activities of continuing operations................................................ $ 287.3 $ 337.0 Proceeds from reorganization as described in Notes 3 and 4......................................................... 2,022.2 -- Acquisitions, net of cash acquired.......................... (200.8) (124.8) Capital expenditures........................................ (138.4) (117.0) Purchase of Times Mirror's common stock, including exercise of put options, net of premiums received.................. (964.7) (468.5) Net issuance of commercial paper, short-term borrowings and long-term debt............................................ 213.0 537.6
26 28 Cash generated by operating activities of continuing operations for 1998 was lower compared to 1997 due primarily to restructuring expenditures as well as lower operating profit. Capital expenditures for 1998 were higher compared to 1997 largely reflecting building renovations in the Newspaper Publishing segment and costs related to Year 2000 requirements. Capital expenditures for 1999 are expected to be approximately $200.0 million due to the Company's continuing investments for future growth, particularly in the Newspaper Publishing segment, which includes facility renovations and conversion to a 50-inch web at The Times. In addition, the Company expects to increase spending related to information technology projects, including Year 2000 requirements. Total debt at December 31, 1998 rose to $1.25 billion from $1.06 billion at December 31, 1997 primarily due to the issuance of commercial paper. DIVIDENDS Cash dividends of $.72 and $.55 per share of common stock were declared for the years ended December 31, 1998 and 1997, respectively. In February 1999, the Board of Directors approved an increase in the quarterly dividend on its common stock to $.20 per share, from $.18 per share, beginning with the March 10, 1999 payment date. MARKET RISK The Company enters into contractual agreements in the ordinary course of business to hedge its exposure to changes in interest rates, the value of foreign currencies relative to the U.S. dollar and newsprint prices. Counterparties to these agreements are major institutions. Such agreements are not entered into for trading purposes. The Company's debt portfolio is managed to maintain a balance of fixed and variable rate obligations. The Company utilizes interest rate swap agreements to help maintain the overall interest rate parameters set by management. During 1998, the Company entered into interest rate swap agreements on the 6.61% Debentures and 7 1/4% Debentures for notional amounts of $250.0 million and $148.0 million, respectively, to match potential exposure related to over $1.0 billion of variable rate investments held by Eagle New Media and Eagle Publishing. As a result of this interest rate mix, a hypothetical 10% change in interest rates would not have a material impact on the Company's results of operations or the fair values of its market risk sensitive financial instruments for the years ended December 31, 1998 and 1997. The Company periodically enters into foreign exchange forward contracts or uses other hedging strategies to substantially limit its exposure to changes in foreign currency rates. As such, changes in currency rates would not have a material impact on the Company's results of operations for the years ended December 31, 1998 and 1997. The Company periodically enters into newsprint hedging contracts not exceeding five years to manage the Company's exposure to newsprint price fluctuations. A hypothetical 10% change in newsprint prices would not have a material impact on the Company's results of operations, financial position or cash flows for the years ended December 31, 1998 and 1997. IMPACT OF YEAR 2000 The Company is preparing for the impact of the arrival of the Year 2000 on its business, as well as on the businesses of its customers, suppliers and business partners. The "Year 2000 Issue" is the result of computer programs written using two digits rather than four to define the applicable year. The Company's computer equipment and software and devices with embedded technology that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000 or process dates prior to or after the year 2000 in error. This could result in a system failure or miscalculations causing disruptions of operations including, among other things, a temporary inability to receive and process advertising orders, prepare editorial content, operate press facilities, package and deliver products, issue invoices, or engage in similar normal business activities. 27 29 STATE OF READINESS The Company has instituted a comprehensive program to address potential Year 2000 impacts for information technology and non-information technology systems. This program involves the following phases: Inventory -- This phase entails a comprehensive inventory of all items that may be affected by the Year 2000 issue. These items include hardware and software (e.g., business and operational applications, operating systems and third-party products), production facilities that may be at risk, and key third-party services whose Year 2000 failures may significantly impact the Company. The inventory phase is substantially complete. Assessment/Planning -- Items identified in the inventory phase are assessed based on criticality to the Company's business operations and potential impact of failure. This phase is targeted to be substantially complete by March 31, 1999. Remediation -- This phase involves reprogramming or replacing inventoried items to ensure they are Year 2000 ready in accordance with the plans identified during the Assessment/Planning phase. For those systems that are not expected to be operational after January 1, 2000, detailed manual workaround plans will be developed. Remediation is targeted to be substantially complete by June 30, 1999. Testing -- This phase includes defining test plans, establishing a test environment, developing test cases, performing testing (with third parties if necessary), and certifying and documenting the results. The certification process entails having subject matter experts (users) review test results, including computer screens and printouts against pre-established criteria to ensure system compliance. Testing and production implementation is targeted to be substantially complete by September 30, 1999. Contingency Planning -- This phase focuses on reducing the risk of Year 2000-induced business disruptions to help ensure the Company's ability to produce a minimum acceptable level of outputs and services in the event of internal or external critical systems failures. The Company has begun to develop contingency plans aimed at ensuring the continuity of critical business functions before and after December 31, 1999. The plans include increasing levels of consumable inventory, such as newsprint, ink and printing plates. Furthermore, the Company has begun to develop reasonably likely failure scenarios for its critical information technology systems, external relationships and the embedded systems in its critical facilities. Once these scenarios are identified, the Company will develop plans that are designed to reduce the impact on the Company, and provide methods of returning to normal operations, if one or more of those scenarios occur. Contingency Planning is targeted to be substantially complete by September 30, 1999. The Company believes that its Year 2000 project is on schedule. The table below lists the percentage complete for each project phase as of December 31, 1998. The project has been designated as the highest priority of the Company's information technology departments.
PERCENT COMPLETE AS OF TARGETED DATE FOR PROJECT PHASE DECEMBER 31, 1998 SUBSTANTIAL COMPLETION ------------- ---------------------- ---------------------- Inventory...................................... 97% March 1999 Assessment/Planning............................ 93% March 1999 Remediation.................................... 64% June 1999 Testing........................................ 42% September 1999 Contingency Planning........................... 14% September 1999
EXTERNAL RELATIONSHIPS The Company also faces the risk that one or more of its significant suppliers or other third-party businesses ("external relationships") will not be able to interact with the Company due to the third party's inability to resolve its own Year 2000 issues. The Company has completed its inventory of external relationships and is evaluating each relationship based upon the potential business impact, available alternatives and cost of substitution. The Company is also attempting to determine the overall Year 2000 readiness of its external relationships. In the case of mission critical suppliers such as newsprint, banks, telecommunications providers and other utilities and information technology vendors, the Company is engaged 28 30 in discussions with such third parties and is attempting to obtain detailed information as to their Year 2000 plans and state of readiness. Risk assessment, readiness evaluation and action plans related to these third parties are expected to be complete in the second quarter of 1999. YEAR 2000 COSTS Internal and external resources have been utilized to perform all phases of the Year 2000 project. Currently, total capital costs are estimated at $35.0 million for the purchase of systems and total expenses, excluding internal costs of employees listed below, are estimated at $11.0 million. These estimates include information technology and non-information technology systems including costs associated with planned replacements that have been accelerated due to the Year 2000 issue. Through December 31, 1998, the Company had capitalized $16.9 million for the replacement of mainframe computers, editorial and advertising systems, and expensed $4.3 million for project management, contract programming, and consulting services. An average of 70 employees worked on Year 2000 efforts during 1998. This represents estimated internal costs of $5.0 million. During 1999, the Company expects an average of 85 employees will work on the project with related costs expected to approximate $6.6 million. Year 2000 costs are funded through operating cash flows. Although priorities have been realigned, the Company has not deferred significant systems enhancements to become Year 2000 ready. YEAR 2000 RISKS Management believes that it has an effective program in place to address its Year 2000 issues in a timely manner and anticipates the necessary modifications, replacement and testing of critical systems to be substantially complete in the third quarter of 1999, subject to uncertainties as discussed below. As a result, the Year 2000 issue is not expected to pose significant operational or financial issues for the Company. The Company's expectations regarding its Year 2000 efforts are subject to various uncertainties that could cause the actual results to differ materially from the discussion above. These uncertainties include the success of the Company in identifying systems that are not Year 2000 ready; the nature and amount of programming required to upgrade or replace each of the affected systems; the availability, rate and magnitude of related labor and consulting costs; and the success of vendors, suppliers and other third parties with which the Company interacts in addressing the Year 2000 issue. If the Company, its vendors, suppliers or such other parties are unable to resolve the Year 2000 issue on schedule, the Company may not be able to prepare and distribute its publications in a timely manner, which may have a material adverse effect on the Company's results of operations. FORWARD-LOOKING STATEMENTS The forward-looking statements set forth above and elsewhere in this Annual Report on Form 10-K are subject to uncertainty and could be adversely affected by a number of factors. Some of these factors are described in Note 18 to the consolidated financial statements. DISCUSSIONS EXCLUDING RESTRUCTURING, ONE-TIME AND OTHER CHARGES Management's discussion and analysis of its results of operations presents information regarding operating profit as well as operating profit excluding the impact of restructuring, one-time and other charges. The Company believes that the financial information which excludes restructuring, one-time and other charges is necessary to an understanding of its operations and provides for a more comparable analysis of historical results as well as indications of future financial performance. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required to be furnished pursuant to this item is set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Liquidity and Capital Resources -- Market Risk." 29 31 [INTENTIONALLY LEFT BLANK] 30 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ---- Report of Ernst & Young LLP, Independent Auditors........... 32 Consolidated Statements of Income -- Years Ended December 31, 1998, 1997 and 1996................................... 33 Consolidated Balance Sheets -- December 31, 1998 and December 31, 1997......................................... 34 Consolidated Statements of Shareholders' Equity -- Years Ended December 31, 1998, 1997 and 1996.................... 36 Consolidated Statements of Cash Flows -- Years Ended December 31, 1998, 1997 and 1996.......................... 38 Notes to Consolidated Financial Statements.................. 39 Financial Statement Schedule: Schedule II -- Valuation and Qualifying Accounts and Reserves............................................... 67
All other schedules are omitted because they are not required by the regulations or related instructions or are not applicable. 31 33 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders and Board of Directors The Times Mirror Company We have audited the accompanying consolidated balance sheets of The Times Mirror Company as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. Our audits also include the financial statement schedule listed in the Index to Financial Statements and Financial Statement Schedule. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Times Mirror Company at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Los Angeles, California February 8, 1999 32 34 THE TIMES MIRROR COMPANY CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31 -------------------------------------- 1998 1997 1996 ---------- ---------- ---------- REVENUES............................................... $3,009,085 $2,882,017 $2,775,820 ---------- ---------- ---------- COSTS AND EXPENSES: Cost of sales........................................ 1,518,611 1,476,348 1,495,566 Selling, general and administrative expenses......... 1,077,105 1,006,482 971,974 Restructuring and one-time charges................... 200,806 -- 17,348 ---------- ---------- ---------- Total costs and expenses..................... 2,796,522 2,482,830 2,484,888 ---------- ---------- ---------- OPERATING PROFIT....................................... 212,563 399,187 290,932 Interest expense..................................... (76,154) (41,681) (20,153) Interest income...................................... 40,153 2,474 5,655 Equity income (loss)................................. (8,191) (1,878) 1,455 Other, net........................................... 32,481 7,763 2,278 ---------- ---------- ---------- Income from continuing operations before income taxes............................................. 200,852 365,865 280,167 Income tax provision................................. 107,438 144,965 110,964 ---------- ---------- ---------- Income from continuing operations.................... 93,414 220,900 169,203 Discontinued operations: Income from operations, net of income taxes....... 7,238 29,412 5,194 Net gain on disposal, net of income taxes......... 1,316,686 -- 32,047 ---------- ---------- ---------- NET INCOME............................................. $1,417,338 $ 250,312 $ 206,444 ========== ========== ========== Preferred dividend requirements........................ $ 21,697 $ 32,481 $ 43,645 ========== ========== ========== Earnings applicable to common shareholders............. $1,395,641 $ 217,831 $ 162,799 ========== ========== ========== Basic earnings per share: Continuing operations................................ $ .85 $ 2.03 $ 1.23 Discontinued operations.............................. 15.61 .32 .36 ---------- ---------- ---------- Basic earnings per share............................... $ 16.46 $ 2.35 $ 1.59 ========== ========== ========== Diluted earnings per share: Continuing operations................................ $ .83 $ 1.98 $ 1.19 Discontinued operations.............................. 15.23 .31 .35 ---------- ---------- ---------- Diluted earnings per share............................. $ 16.06 $ 2.29 $ 1.54 ========== ========== ==========
See notes to consolidated financial statements 33 35 THE TIMES MIRROR COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS)
DECEMBER 31 ------------------------ 1998 1997 ---------- ---------- ASSETS Current assets: Cash and cash equivalents.............................. $1,056,341 $ 48,659 Marketable securities.................................. 49,438 -- Accounts receivable, less allowances for doubtful accounts and returns of $44,988 and $42,769........... 368,740 363,252 Inventories............................................ 39,282 44,896 Deferred income taxes.................................. 44,012 58,018 Net assets of discontinued operations.................. -- 427,722 Prepaid expenses....................................... 32,763 22,081 Other current assets................................... 38,683 36,598 ---------- ---------- Total current assets.............................. 1,629,259 1,001,226 Property, plant and equipment, net........................ 915,992 934,700 Goodwill, net............................................. 564,324 502,886 Other intangibles, net.................................... 168,629 104,550 Deferred charges.......................................... 131,091 133,290 Equity investments........................................ 141,454 101,448 Prepaid pension costs..................................... 419,471 366,807 Investments and other assets.............................. 248,086 93,713 ---------- ---------- Total assets...................................... $4,218,306 $3,238,620 ========== ==========
See notes to consolidated financial statements 34 36 THE TIMES MIRROR COMPANY CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31 -------------------------- 1998 1997 ----------- ----------- LIABILITIES Current liabilities: Accounts payable....................................... $ 194,224 $ 212,444 Short-term debt........................................ 312,610 139,067 Employees' compensation................................ 102,204 109,585 Unearned income........................................ 148,997 145,728 Restructuring.......................................... 98,789 18,662 Net liabilities of discontinued operations............. 11,605 -- Other current liabilities.............................. 105,063 115,032 ----------- ----------- Total current liabilities......................... 973,492 740,518 Long-term debt............................................ 941,423 925,404 Deferred income taxes..................................... 374,679 175,187 Postretirement benefits................................... 226,018 234,375 Unearned income........................................... 72,457 65,843 Other liabilities......................................... 265,224 207,694 ----------- ----------- Total liabilities................................. 2,853,293 2,349,021 Common stock subject to put options......................... 22,560 13,600 Commitments and contingencies SHAREHOLDERS' EQUITY Preferred stock, $1 par value; stated at liquidation value; convertible to Series A common stock: Series A: 900,000 shares authorized; 824,000 shares issued and outstanding.............................. 411,784 411,784 Series C-1: 381,000 shares authorized, issued and outstanding......................................... 190,486 190,486 Series C-2: 245,000 shares authorized, issued and outstanding......................................... 122,550 122,550 Preferred stock, $1 par value; 23,035,000 shares authorized, no shares issued or outstanding Common stock, $1 par value: Series A: 500,000,000 shares authorized; 86,831,000 and 86,552,000 shares issued and outstanding.............. 86,831 86,552 Series B: 100,000,000 shares authorized; no shares issued or outstanding Series C: convertible to Series A common stock; 300,000,000 shares authorized, 25,258,000 and 25,503,000 shares issued and outstanding.............. 25,258 25,503 Additional paid-in capital................................ 1,278,916 1,253,142 Retained earnings......................................... 1,653,736 384,503 Accumulated other comprehensive income.................... 26,491 12,804 ----------- ----------- 3,796,052 2,487,324 Less treasury stock at cost: Series A common stock, 38,708,000 and 24,151,000 shares; and Series A preferred stock, 735,000 shares................................................ (2,453,599) (1,611,325) ----------- ----------- Total shareholders' equity........................ 1,342,453 875,999 ----------- ----------- Total liabilities and shareholders' equity........ $ 4,218,306 $ 3,238,620 =========== ===========
See notes to consolidated financial statements 35 37 THE TIMES MIRROR COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
THREE YEARS ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCK COMMON STOCK --------------------------------------------- ------------------- SERIES A SERIES B SERIES C-1 SERIES C-2 SERIES A SERIES C -------- -------- ---------- ---------- -------- -------- BALANCE AT DECEMBER 31, 1995................................ $411,784 $164,595 -- -- $ 77,765 $ 27,933 Conversion of Series C common to Series A common.......... -- -- -- -- 871 (871) Common stock issuances related to: Stock options and restricted stock...................... -- -- -- -- 2,190 37 Acquisition............................................. -- -- -- -- 212 -- Purchases of common stock................................. -- -- -- -- (11,236) (126) Put options: Sale.................................................... -- -- -- -- -- -- Exercise................................................ -- -- -- -- (45) -- Change in redemption value.............................. -- -- -- -- -- -- Dividends declared: Common stock; $.30 per share............................ -- -- -- -- -- -- Preferred stock......................................... -- -- -- -- -- -- Comprehensive income: Net income.............................................. -- -- -- -- -- -- Other comprehensive income, net of income taxes: Minimum pension liability adjustment.................. -- -- -- -- -- -- Net unrealized gains on securities.................... -- -- -- -- -- -- Foreign currency translation adjustments.............. -- -- -- -- -- -- Comprehensive income...................................... -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1996................................ 411,784 164,595 -- -- 69,757 26,973 Conversion to Series A common related to: Series C common......................................... -- -- -- -- 11,127 (11,127) Series B preferred...................................... -- (164,595) -- -- 4,446 -- Common stock issuances related to: Stock options and restricted stock...................... -- -- -- -- 1,070 1 Acquisition............................................. -- -- -- -- 45 -- Merger with Chandis Securities............................ -- -- $190,486 $122,550 6,582 9,656 Purchases of stock: Stock purchase program.................................. -- -- -- -- (6,475) -- LLC contributed shares.................................. -- -- -- -- -- -- Put options: Sale.................................................... -- -- -- -- -- -- Exercise................................................ -- -- -- -- -- -- Change in redemption value.............................. -- -- -- -- -- -- Dividends declared: Common stock; $.55 per share............................ -- -- -- -- -- -- Preferred stock......................................... -- -- -- -- -- -- Comprehensive income: Net income.............................................. -- -- -- -- -- -- Other comprehensive income, net of income taxes: Minimum pension liability adjustment.................. -- -- -- -- -- -- Net unrealized losses on securities................... -- -- -- -- -- -- Foreign currency translation adjustments.............. -- -- -- -- -- -- Comprehensive income...................................... -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1997................................ 411,784 -- 190,486 122,550 86,552 25,503 Conversion of Series C common to Series A common.......... -- -- -- -- 245 (245) Common stock issuances related to stock options and restricted stock........................................ -- -- -- -- 34 -- Purchases of common stock................................. -- -- -- -- -- -- Put options: Sale.................................................... -- -- -- -- -- -- Exercise................................................ -- -- -- -- -- -- Change in redemption value.............................. -- -- -- -- -- -- Dividends declared: Common stock; $.72 per share............................ -- -- -- -- -- -- Preferred stock......................................... -- -- -- -- -- -- Comprehensive income: Net income.............................................. -- -- -- -- -- -- Other comprehensive income, net of income taxes: Minimum pension liability adjustment.................. -- -- -- -- -- -- Net unrealized gains on securities.................... -- -- -- -- -- -- Foreign currency translation adjustments.............. -- -- -- -- -- -- Comprehensive income...................................... -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1998................................ $411,784 $ -- $190,486 $122,550 $ 86,831 $ 25,258 ======== ======== ======== ======== ======== ========
See notes to consolidated financial statements 36 38
- ----------------------------------------------------------------------- ACCUMULATED ADDITIONAL OTHER PAID-IN RETAINED COMPREHENSIVE TREASURY CAPITAL EARNINGS INCOME STOCK TOTAL ---------- ---------- ------------- ----------- ---------- $ 192,266 $ 889,817 $ 42,076 -- $1,806,236 -- -- -- -- -- 61,325 -- -- $ 872 64,424 6,900 -- -- -- 7,112 -- (484,700) (872) (496,934) 3,645 -- -- -- 3,645 (30) (1,879) -- -- (1,954) (38,172) -- -- -- (38,172) -- (30,067) -- -- (30,067) -- (32,734) -- -- (32,734) -- 206,444 -- -- 206,444 -- -- 898 -- 898 -- -- 10,724 -- 10,724 -- -- (812) -- (812) ---------- -- -- -- -- 217,254 ---------- ---------- -------- ----------- ---------- 225,934 546,881 52,886 -- 1,498,810 -- -- -- -- -- 160,119 (8) -- -- (38) 45,711 (17,509) -- 32,741 62,014 2,354 -- -- -- 2,399 807,834 -- -- (1,125,064) 12,044 (16,190) (309,734) -- (132,382) (464,781) -- -- -- (380,093) (380,093) 3,227 -- -- -- 3,227 (419) -- -- (6,527) (6,946) 24,572 -- -- -- 24,572 -- (50,885) -- -- (50,885) -- (34,554) -- -- (34,554) -- 250,312 -- -- 250,312 -- -- 1,902 -- 1,902 -- -- (38,170) -- (38,170) -- -- (3,814) -- (3,814) ---------- -- -- -- -- 210,230 ---------- ---------- -------- ----------- ---------- 1,253,142 384,503 12,804 (1,611,325) 875,999 -- -- -- -- -- 31,906 (65,952) -- 125,229 91,217 -- -- -- (947,203) (947,203) 2,891 -- -- -- 2,891 (63) -- -- (20,300) (20,363) (8,960) -- -- -- (8,960) -- (60,456) -- -- (60,456) -- (21,697) -- -- (21,697) -- 1,417,338 -- -- 1,417,338 -- -- (1,169) -- (1,169) -- -- 16,106 -- 16,106 -- -- (1,250) -- (1,250) ---------- -- -- -- -- 1,431,025 ---------- ---------- -------- ----------- ---------- $1,278,916 $1,653,736 $ 26,491 $(2,453,599) $1,342,453 ========== ========== ======== =========== ==========
37 39 TIMES MIRROR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31 ------------------------------------ 1998 1997 1996 ---------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations......................... $ 93,414 $ 220,900 $ 169,203 Adjustments to derive cash flows from continuing operating activities: Depreciation and amortization........................... 147,270 136,296 131,123 Restructuring and other charges: Impairments and other asset write-offs................ 98,036 -- 12,217 Net change in restructuring liability................. 75,890 (21,355) (67,296) Amortization of debt discount........................... 16,998 9,299 -- Amortization of product costs........................... 6,260 6,871 9,755 Gain on asset sales and writedowns, net................. (31,665) (3,712) -- Provision for doubtful accounts......................... 24,879 24,180 25,944 Provision for deferred income taxes..................... 11,319 37,771 61,742 Changes in assets and liabilities: Accounts receivable................................... (29,539) (47,377) (38,369) Inventories........................................... 4,574 (147) 9,787 Prepaid pension costs................................. (52,664) (39,872) (30,443) Accounts payable...................................... (18,233) 3,558 (1,366) Income taxes.......................................... 8,645 1,054 22,539 Other, net.............................................. (67,898) 9,540 10,953 ---------- --------- --------- Net cash provided by continuing operating activities.... 287,286 337,006 315,789 Net cash provided by discontinued operating activities............................................ 36,408 8,967 48,072 ---------- --------- --------- Net cash provided by operating activities............. 323,694 345,973 363,861 ---------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from reorganization as described in Notes 3 and 4....................................................... 2,022,224 -- -- Acquisitions, net of cash acquired........................ (200,786) (124,842) (17,841) Capital expenditures...................................... (138,358) (116,984) (108,456) Notes receivable.......................................... (69,120) -- -- Sale (purchase) of marketable securities, net............. (49,438) -- 79,845 Investment in equity affiliates........................... (51,761) (5,811) (885) Purchases of investments.................................. (25,957) (5,000) (10,312) Proceeds from sales of other assets....................... 24,847 72,523 193,035 Proceeds from sales of investments........................ 13,637 48,790 -- Capitalization of product costs........................... (8,196) (8,756) (18,020) Other, net................................................ 11,842 (1,284) 4,262 ---------- --------- --------- Net cash provided by (used in) investing activities of continuing operations................................. 1,528,934 (141,364) 121,628 Net cash used in investing activities of discontinued operations............................................ (16,333) (44,149) (99,129) ---------- --------- --------- Net cash provided by (used in) investing activities... 1,512,601 (185,513) 22,499 ---------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Purchases of Times Mirror common stock.................... (947,203) (464,781) (496,934) Net proceeds of commercial paper and short-term borrowings.............................................. 212,983 92,187 -- Dividends paid............................................ (82,153) (85,439) (80,001) Proceeds from exercise of stock options................... 59,277 36,431 51,178 Principal repayments of other debt........................ (54,206) (5,769) (363) Exercise of put options, net of premiums received......... (17,472) (3,719) 1,691 Proceeds from issuance of long-term debt.................. -- 445,429 198,651 Contribution to TMCT, LLC................................. -- (249,266) -- Repurchase of Series B preferred stock.................... -- -- (91,182) Other, net................................................ 161 (17,098) (3,824) ---------- --------- --------- Net cash used in financing activities................. (828,613) (252,025) (420,784) ---------- --------- --------- Increase (decrease) in cash and cash equivalents.......... 1,007,682 (91,565) (34,424) Cash and cash equivalents at beginning of year............ 48,659 140,224 174,648 ---------- --------- --------- Cash and cash equivalents at end of year.................. $1,056,341 $ 48,659 $ 140,224 ========== ========= =========
See notes to consolidated financial statements 38 40 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries as well as affiliates that are controlled by the Company, as described in Note 4, after elimination of all significant intercompany transactions and balances. Other affiliated companies in which the Company owns a 20% to 50% interest are accounted for by the equity method. Presentation. Certain amounts in previously issued financial statements have been reclassified to conform to the 1998 presentation. Financial information presented in the Notes to Consolidated Financial Statements excludes discontinued operations except where noted. Changes in Accounting Principles. Effective December 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS 132). Pension plans and postretirement benefit information for all prior periods has been restated to conform with the revised disclosures under SFAS 132 (see Note 15). Effective December 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards under which companies report information about operating segments in financial statements (see Note 17). As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities, minimum pension liability adjustments and foreign currency translation adjustments to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 simplified the calculation of earnings per share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share, respectively. Cash and Cash Equivalents. Cash equivalents consist of investments that are readily convertible into cash and have original maturities of three months or less. Cash equivalents of $997,670,000 and $9,911,000 at December 31, 1998 and 1997, respectively, consist of commercial paper, money market funds, auction rate securities or certificates of deposit. The Company has an investment policy for short-term investments covering eligible types of instruments, maximum investment terms, credit quality and individual issuer limits. Under the Company's cash management system, the bank notifies the Company daily of checks presented for payment against its primary disbursement account. The Company transfers funds from other sources such as short-term investments or commercial paper issuance to cover the checks presented for payment. This program results in a book cash overdraft in the primary disbursing accounts as a result of checks outstanding. The book overdraft, which was reclassified to accounts payable, was $46,866,000 and $32,862,000 at December 31, 1998 and 1997, respectively. Marketable Securities. Marketable securities consist of investments in commercial paper with original maturities over three months but less than one year. Inventories. Inventories are stated at the lower of cost or market. Newsprint is valued under the last-in, first-out (LIFO) method and paper and certain finished products are valued primarily under the weighted average cost method. Property, Plant and Equipment. Property, plant and equipment are carried on the basis of cost. Maintenance and repairs are charged to expense as incurred. Additions, improvements and replacements are capitalized. 39 41 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Depreciation is provided on a straight-line basis over the estimated useful lives as follows: Buildings.................................... 10-45 years Machinery and equipment...................... 3-20 years Leasehold improvements....................... Lesser of useful life or lease term
Goodwill and Other Intangibles. Goodwill recognized in business combinations accounted for as purchases ($554,617,000 and $493,179,000 at December 31, 1998 and 1997, respectively, net of accumulated amortization of $131,170,000 and $160,066,000, respectively) is being amortized on a straight-line basis primarily over periods of 15 to 40 years, with a weighted average amortization period of 36 years. Goodwill amortization expense was $21,821,000, $19,086,000 and $18,237,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Other intangibles arising in connection with acquisitions are being amortized on a straight-line basis over their estimated useful lives ranging primarily from 4 to 30 years, with a weighted average life of 25 years. Amortization expense was $13,833,000, $8,665,000 and $7,919,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Accumulated amortization was $66,246,000 and $62,183,000 at December 31, 1998 and 1997, respectively. The Company assesses on an ongoing basis the recoverability of goodwill based on estimates of future undiscounted cash flows for the applicable business compared to net book value. If the future undiscounted cash flows estimate were less than net book value, net book value would then be reduced to fair value based on an estimate of discounted cash flows. The Company also evaluates the amortization periods of assets, including goodwill and other intangible assets, to determine whether events or circumstances warrant revised estimates of useful lives. Deferred Charges. Magazine subscription procurement costs are charged to expense over the same period as the related revenue is earned. Certain expenses for training materials and consumer health publications are capitalized and charged to expense over the estimated product lives as the products are sold. Derivative Financial Instruments. Interest rate swaps (see Note 8) are used to manage exposure to market risk associated with changes in interest rates. Interest rate swaps are accounted for on the accrual basis. Payments made or received are recognized as an adjustment to interest expense. Amounts received in connection with initiating or terminating swaps are amortized on a straight-line basis as a reduction in interest expense over the term of the swaps. Premium equity participating debt securities (see Note 12) are used to manage the Company's exposure to market risk associated with changes in the fair values of the Company's investment in the common stock of Netscape Communications Corporation (Netscape). The Company's exposure to market risk associated with fluctuations in the value of foreign currencies relative to the U.S. dollar may be managed with foreign currency forward contracts, currency options, currency swaps or other risk management instruments permitted by the Company's internal policy guidelines. During 1998, 1997 and 1996, the Company's forward contracts and other risk management instruments were not significant. Commodity price hedging contracts (see Note 8) are used to manage the Company's exposure to market risk associated with fluctuations in newsprint prices. These contracts are accounted for on the accrual basis. Periodic settlement payments made or received are recognized as an adjustment to the cost basis of newsprint inventory. Amounts paid in connection with initiating these contracts are amortized on a straight-line basis as an adjustment to the cost basis of newsprint inventory over the term of the contracts. Put options are used in conjunction with the Company's common stock purchase program. These contracts are entered into based on market conditions as well as other factors. The costs or benefits derived 40 42 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) from these equity-based financial instruments are recorded in shareholders' equity on the date of the transaction. The potential obligation under these put options outstanding at December 31, 1998 and 1997 has been transferred from shareholders' equity to "Common stock subject to put options." Revenue Recognition. Revenues from certain products sold with the right of return, are recognized net of a provision for estimated returns. Revenues from newspaper and magazine subscriptions and professional service fee annual subscriptions are deferred as unearned income at the time of the sale. A pro rata share of the newspaper and magazine subscription price is included in revenue as products are delivered to subscribers. Professional service fee annual subscription revenues are recognized on a straight-line basis over the life of the subscription service. Advertising and Promotion Costs. Advertising and promotion costs, which are expensed as incurred, amounted to $69,725,000, $73,578,000 and $74,487,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Earnings Per Share. The following table sets forth the calculation of basic and diluted earnings per share (in thousands except per share amounts):
1998 1997 1996 -------- -------- -------- Earnings: Income from continuing operations.................. $ 93,414 $220,900 $169,203 Preferred stock dividends........................ (21,697) (32,481) (43,645) -------- -------- -------- Earnings applicable to common shareholders for basic earnings per share...................... 71,717 188,419 125,558 Effect of dilutive securities: LYONs interest expense, net of tax............ -- 3,925 -- -------- -------- -------- Earnings applicable to common shareholders for diluted earnings per share.................... $ 71,717 $192,344 $125,558 ======== ======== ======== Shares: Weighted average shares for basic earnings per share......................................... 84,814 92,572 102,113 Effect of dilutive securities: Stock options................................. 2,114 2,358 3,259 LYONs convertible debt........................ -- 2,083 -- -------- -------- -------- 2,114 4,441 3,259 -------- -------- -------- Adjusted weighted average shares and assumed conversions for diluted earnings per share.... 86,928 97,013 105,372 ======== ======== ======== Basic earnings per share from continuing operations.................................... $ .85 $ 2.03 $ 1.23 ======== ======== ======== Diluted earnings per share from continuing operations.................................... $ .83 $ 1.98 $ 1.19 ======== ======== ========
The Company has convertible preferred stock and certain stock options outstanding which are not included in the calculation of diluted earnings per share because the effects are antidilutive. The convertible preferred stock, stock options and the Liquid Yield Option Notes (LYONs(TM)) are described in Note 13, Note 14 and Note 12, respectively. 41 43 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Other Comprehensive Income. Other comprehensive income primarily consists of unrealized gains (losses) on securities for the years ended December 31, 1998, 1997 and 1996 as follows (in thousands):
1998 1997 1996 ------- -------- ------- Unrealized holding gains (losses) arising during period, net of taxes of $17,712, $(12,929) and $7,428, respectively............................... $25,753 $(18,850) $10,724 Reclassification adjustments for gains realized in net income, net of taxes of $6,703, $13,398 and $0, respectively....................................... (9,647) (19,320) -- ------- -------- ------- Net unrealized gains (losses) on securities.......... $16,106 $(38,170) $10,724 ======= ======== =======
Accumulated other comprehensive income for each classification is as follows (in thousands):
DECEMBER 31, -------------------- 1998 1997 -------- -------- Minimum pension liability adjustment........................ $ (4,396) $ (3,227) Net unrealized gains on securities.......................... 44,572 28,466 Foreign currency translation adjustments.................... (13,685) (12,435) -------- -------- $ 26,491 $ 12,804 ======== ========
Stock Options. Employee stock options (see Note 14) are accounted for under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which requires the recognition of expense when the option price is less than the fair value of the stock at the date of grant. The Company awards options for a fixed number of shares at an option price equal to the fair value at the date of grant. Accordingly, the financial statements do not include any expense related to employee stock option awards. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). NOTE 2 -- RECAPITALIZATION During the third quarter of 1997, the Company completed a transaction (Transaction) involving agreements with its largest shareholders, Chandler Trust No. 1 and Chandler Trust No. 2 (Chandler Trusts). The Transaction consisted of two components: (a) the merger of Chandis Securities Company (Chandis), a holding company owned by Chandler Trust No. 2 and affiliated minority investors, into Chandis Acquisition Corporation (CAC), a Delaware corporation and wholly-owned subsidiary of the Company (Merger) and (b) the formation of a new limited liability company by the Chandler Trusts and the Company. On August 8, 1997, Chandis merged with and into CAC. Pursuant to the Merger Agreement, the Chandis shareholders received 6,582,000 shares of Series A common stock, 9,656,000 shares of Series C common stock, 381,000 shares of new Series C-1 preferred stock, and 245,000 shares of new Series C-2 preferred stock. At the time of the Merger, Chandis owned 8,582,000 shares of Series A common stock, 9,656,000 shares of Series C common stock, and 381,000 shares of Series A preferred stock as well as an interest in undeveloped real estate and certain other assets and liabilities. CAC is not a "permitted transferee" as defined in the Company's Certificate of Incorporation, therefore, the Series C common stock was converted to Series A common stock as a result of the Merger. The Company's shares owned by CAC are reported as treasury stock for financial reporting purposes. The Merger was a tax-free transaction. Concurrent with the consummation of the Merger, the Company (including certain of its subsidiaries) and the Chandler Trusts formed TMCT, LLC (TMCT), a Delaware limited liability company, and the following capital contributions were made to TMCT: 1. the Company contributed $249,266,000 in cash and 8 real properties (Real Properties) with an aggregate market value of $225,850,000; 42 44 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. the Chandler Trusts contributed 5,001,000 shares of Series A common stock and 443,000 shares of Series A preferred stock (Contributed Shares). The cash contributed by the Company was used by TMCT to purchase a portfolio of securities (Portfolio). The Company has leased the Real Properties from TMCT under a lease with minimum lease payments equal to the fair values and with an initial term of 12 years. During 1998 and 1997, the Company made lease payments to TMCT of $24,166,000 and $9,599,000. The lease is accounted for as a financing arrangement and, accordingly, the Real Properties' book value remains on the Company's consolidated balance sheet and continues to be depreciated at the rates in effect prior to the contribution of the Real Properties to TMCT. The depreciation, along with a reduction of property, plant and equipment of $168,021,000, which represents the estimated net book value of the Real Properties at the end of the lease term, will result in a net book value of zero for the Real Properties at August 8, 2009. At that time, the Company has the option to purchase all the Real Properties for their fair market value. If the Real Properties are not purchased by the Company, they will remain the assets of TMCT and may be leased by the Company at a fair value rent as provided for under the terms of the lease agreement. The lease provides for two additional 12-year lease terms with fair value purchase options at the end of each lease term. The lease is included as a property financing in the Company's outstanding debt obligations (see Note 12). The Company and the Chandler Trusts share in the cash flow, profits and losses of the various assets held by TMCT. The cash flow from the Real Properties and the Portfolio is largely allocated to the Chandler Trusts and the cash flow from the Contributed Shares is largely allocated to the Company. Due to the allocations of the economic benefits in the TMCT, 80% of the Contributed Shares are included in treasury stock for financial reporting purposes and 80% of the preferred dividends on the Series A preferred stock are excluded from the preferred dividend requirements. The Company accounts for the investment in TMCT under the equity method. This net investment was $96,416,000 and $95,487,000 at December 31, 1998 and 1997, respectively, and is included in "Equity investments" in the consolidated balance sheets. During 1998 and 1997, the Company recognized $3,739,000 and $1,268,000 of equity income on this investment. As a result of the Transaction, for financial reporting purposes and earnings per share calculations, the number of shares of Series A common stock outstanding was reduced by 6,001,000, the number of shares of Series A preferred stock outstanding was reduced by 735,000 and the annual preferred dividend requirements were reduced to $21,697,000 beginning in 1998. Preferred dividend requirements for 1997 were reduced by $3,168,000. NOTE 3 -- DISCONTINUED OPERATIONS During the second quarter of 1998, the Company reached agreements to divest Matthew Bender & Company, Incorporated (Matthew Bender), the Company's legal publisher, in a tax-free reorganization (see Note 4) and its 50% ownership interest in legal citation provider Shepard's. The two transactions were valued at $1,649,650,000 in the aggregate and were completed in the third quarter of 1998. The disposition of the Company's 50% interest in Shepard's was consummated by a transfer of the respective partnership interests owned by two subsidiaries of the Company to affiliates of Reed Elsevier plc for a cash consideration of $274,650,000. The Company recorded a net gain on these two transactions in the amount of $1,108,452,000, net of expenses and $163,585,000 of income taxes, primarily consisting of tax reserves as disclosed in Note 11. Also during the second quarter of 1998, the Company reached agreements to divest Mosby, Inc. (Mosby), the Company's health science/medical publisher, in a tax-free reorganization (see Note 4). The transaction was valued at $415,000,000 and was completed in the fourth quarter of 1998. The Company recorded a net gain on this transaction in the amount of $239,023,000, net of expenses and $55,635,000 of income taxes, primarily consisting of tax reserves as disclosed in Note 11. While the Company believes that the Matthew Bender and Mosby transactions were completed on a tax-free basis, this position may be subject to review by the Internal Revenue Service. 43 45 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) These divestitures represent the final dispositions of the Company's professional and higher education publishing businesses and, as such, have been reflected as discontinued operations in the accompanying financial statements for all periods presented. The Company's Consolidated Statements of Income have been restated to reflect the operations and the related gains and losses associated with these and certain other previous dispositions as discontinued operations. During the third quarter of 1998, the Company decided to discontinue Apartment Search, Inc., its apartment location business. The Company anticipates selling the business in the first half of 1999 and has recorded an estimated loss on disposal including a provision for operating losses of $3,420,000 during the phase-out period. The total estimated loss of $47,623,000, or $28,217,000 after applicable tax benefit, is included in discontinued operations in "Net gain on disposal, net of income taxes" in the consolidated statements of income. During 1996, the Company recognized a gain of $121,649,000 on the exchange of its college publishing businesses and the sale of its Spanish-language medical book publisher, Doyma Libros, and recorded a writedown of $16,728,000 for the January 1997 disposal of certain net assets of CRC Press, Inc. The net gain on disposal of $104,921,000, or $32,047,000 after applicable taxes, which is primarily related to differences in the book and tax bases of the assets, is reflected in the consolidated statements of income as discontinued during 1996. A summary of the combined results of operations and net gain on disposal for all discontinued entities for the years ended December 31, 1998, 1997 and 1996, are as follows (in thousands):
1998 1997 1996 ---------- -------- -------- Revenues.......................................... $ 282,378 $436,511 $625,164 ========== ======== ======== Income before income taxes (1).................... $ 18,631 $ 51,442 $ 18,901 Income tax provision.............................. 11,393 22,030 13,707 ---------- -------- -------- Income from discontinued operations............... 7,238 29,412 5,194 Net gain on disposal, net of income taxes (2)..... 1,316,686 -- 32,047 ---------- -------- -------- Total discontinued operations........... $1,323,924 $ 29,412 $ 37,241 ========== ======== ========
- --------------- (1) It is the Company's policy to allocate interest expense among operating segments including discontinued operations. The allocation to discontinued operations is based on the ratio of net assets of discontinued operations plus consolidated debt, other than debt of the discontinued operations that will be assumed by the buyer and debt that can be directly attributed to the discontinued operations. Income before income taxes includes a charge for interest expense of $10,407,000, $11,065,000 and $6,145,000 for the years ended December 31, 1998, 1997 and 1996, respectively. (2) Net of income taxes of $198,045,000 and $72,874,000 in 1998 and 1996, respectively. 44 46 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The assets and liabilities of discontinued operations have been classified in the consolidated balance sheets as net assets (liabilities) of discontinued operations and consist of the following (in thousands):
DECEMBER 31 -------------------- 1998 1997 -------- -------- Accounts receivable, net.................................... $ 1,429 $138,932 Other current assets........................................ 22,463 67,039 Property, plant and equipment, net.......................... 2,329 62,730 Equity investments.......................................... -- 249,123 Other assets................................................ 510 128,028 -------- -------- Total assets...................................... 26,731 645,852 -------- -------- Current liabilities......................................... 36,779 196,796 Non-current liabilities..................................... 1,557 21,334 -------- -------- Total liabilities................................. 38,336 218,130 -------- -------- Net assets (liabilities) of discontinued operations......... $(11,605) $427,722 ======== ========
The major components of cash flow for discontinued operations for the years ended December 31, 1998, 1997 and 1996 are as follows (in thousands):
1998 1997 1996 -------- -------- -------- Income from discontinued operations................ $ 7,238 $ 29,412 $ 5,194 Depreciation and amortization...................... 13,477 19,087 30,540 Amortization of product costs...................... 10,677 16,980 43,151 Other, net......................................... 5,016 (56,512) (30,813) -------- -------- -------- Net cash provided by discontinued operating activities....................................... $ 36,408 $ 8,967 $ 48,072 ======== ======== ======== Capitalization of product costs.................... $(10,073) $(13,855) $(60,666) Capital expenditures............................... (4,675) (12,933) (38,463) Other, net......................................... (1,585) (17,361) -- -------- -------- -------- Net cash provided by (used in) investing activities of discontinued operations....................... $(16,333) $(44,149) $(99,129) ======== ======== ========
NOTE 4 -- REORGANIZATION During the third quarter of 1998, the Company completed the disposition of Matthew Bender in a tax-free reorganization with Reed Elsevier plc. The disposition of Matthew Bender was accomplished through the merger of an affiliate of Reed Elsevier with and into Matthew Bender with Matthew Bender as the surviving corporation in the merger. As a result of the merger, TMD, Inc., a wholly-owned subsidiary of Times Mirror, received all of the issued and outstanding common stock of CBM Acquisition Parent Co. (MB Parent). MB Parent is a holding company that owns controlling voting preferred stock of Matthew Bender with a stated value of $61,616,000 and participating stock of Matthew Bender. MB Parent is also the sole member of Eagle New Media Investments, LLC (Eagle New Media). Affiliates of Reed Elsevier own voting preferred stock of MB Parent with a stated value of $68,750,000 which affords them voting control over MB Parent, subject to certain rights held by Times Mirror with respect to Eagle New Media. Concurrently, with the closing of the merger, the Company became the sole manager of Eagle New Media and controls its operations and assets. At December 31, 1998, the assets of Eagle New Media were $605,786,000 of cash and cash equivalents, $752,956,000 (13,262,000 shares) of Series A common stock of Times Mirror, $14,952,000 of marketable securities and $22,270,000 of other assets. The consolidated financial statements of the Company include the accounts of Eagle New Media. 45 47 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During the fourth quarter of 1998, the Company completed the disposition of Mosby in a tax-free reorganization with Harcourt General, Inc. The disposition of Mosby was accomplished through the merger of an affiliate of Harcourt General, Inc. with and into Mosby, with Mosby as the surviving corporation in the merger. As a result of the merger, the Company received all of the issued and outstanding common stock of Mosby Parent Corp. (Mosby Parent). Mosby Parent is also the sole member of Eagle Publishing Investments, LLC (Eagle Publishing). An affiliate of Harcourt General, Inc. owns voting preferred stock of Mosby Parent with a stated value of $50,000,000 which affords it voting control over Mosby Parent, subject to certain rights held by the Company with respect to Eagle Publishing. Concurrently with the closing of the merger, the Company became the sole manager of Eagle Publishing and controls its operations and assets. At December 31, 1998, the assets of Eagle Publishing were $377,152,000 of cash and cash equivalents, $34,486,000 of marketable securities and $20,129,000 of other assets. The consolidated financial statements of the Company include the accounts of Eagle Publishing. The Company intends to deploy the assets of both LLCs to finance acquisitions and investments, including purchases of the Company's common stock, and does not intend to use those funds for the Company's general working capital purposes. NOTE 5 -- ACQUISITIONS, DISPOSITIONS AND WRITEDOWNS On April 30, 1998, the Company acquired the Los Angeles area business of EZ Buy & EZ Sell Recycler Corporation (Recycler), consisting primarily of the Recycler publications in the Los Angeles, Orange, Riverside, San Bernardino and Ventura counties and a portion of Santa Barbara county for $188,696,000. This acquisition resulted in goodwill of $119,242,000 and other intangible assets of $69,430,000, which are being amortized primarily over 30 years. The Company also invested in preferred stock and provided a term loan to Target Media Partners, a new entity which owns all of the non-Los Angeles area assets of Recycler, for a total amount of $34,800,000. The Company also had several other small acquisitions during 1998. Goodwill of $13,994,000 related to these small acquisitions is being amortized primarily over 15 years. During the third and fourth quarters of 1997, the Company acquired Krames Communications Incorporated, a publisher of consumer-oriented health education information; Patuxent Publishing Company, a publisher of 13 community weeklies in Maryland and This Week Publications, Inc., a free weekly shopper distributed in Queens and Long Island, New York. These and several other small acquisitions resulted in goodwill of $75,319,000, which is being amortized over periods of 15 to 30 years. During 1996, the Company had several small acquisitions which resulted in goodwill of $11,419,000, which is being amortized over periods of 8 to 15 years. These acquisitions were accounted for by the purchase method with the results of operations included in the Company's financial statements from the dates of acquisition. Pro forma results for 1998 and 1997, assuming these acquisitions occurred on January 1 of the respective year, are not materially different from the results reported. During 1998, the Company sold 441,900 shares of its holdings in Netscape common stock and purchased an equal proportion of its 4 1/4% Premium Equity Participating Securities (PEPS) obligation in the open market. The PEPS hedge the Company's investment in Netscape. The sales resulted in a gain of $16,025,000 or $9,495,000 after applicable income taxes. Also, the Company disposed of various excess real estate and other assets for an aggregate gain of $16,110,000 or $9,554,000 after applicable income taxes. The total aggregate gain of $32,135,000 is included in "Other, net" in the consolidated statements of income. During 1997, the Company sold certain equity investments, including Tejon Ranch Co.; WebTV Network, Inc.; Netscape Communications Corporation; Access Health, Inc.; Speedvision Network, LLC and Outdoor Life Network, LLC, for an aggregate gain of $81,984,000 or $53,759,000 after applicable income taxes. This gain was offset by $78,272,000, or $48,417,000 after applicable income taxes, for writedowns and 46 48 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) expenses related to non-operating items as well as losses on the sale of Harry N. Abrams, Inc.; National Journal, Inc. and other assets. The aggregate gain of $3,712,000 is included in "Other, net" in the consolidated statements of income. NOTE 6 -- RESTRUCTURING, ONE-TIME AND OTHER CHARGES 1998 Restructuring Charges. In 1998, the Company undertook a comprehensive review of its business operations to determine areas where operational efficiencies could be achieved through either product and/or facility consolidation, headcount reductions, product abandonments, contract terminations or through other measures. The Company began this review in anticipation of the impact of its significant 1998 divestitures and to better align its overall cost structure and business configurations. The Company's review led to a major restructuring program that resulted in the recording of $39,697,000, $80,012,000 and $81,097,000 of charges in the second, third and fourth quarters of 1998, respectively. A summary of the significant components of the 1998 restructuring program is as follows (in thousands):
CORPORATE NEWSPAPER PROFESSIONAL MAGAZINE AND PUBLISHING INFORMATION PUBLISHING OTHER TOTAL ---------- ------------ ---------- --------- -------- Termination benefits........ $ 43,406 $ 3,408 $ 156 $10,270 $ 57,240 Contract terminations....... 51,386 -- 4,330 -- 55,716 Goodwill impairments........ 324 28,922 19,715 -- 48,961 Lease termination costs..... 2,307 4,757 1,500 3,045 11,609 Technology asset write-offs................ 4,772 4,212 100 1,504 10,588 Business exit and other costs..................... 310 12,000 3,271 1,111 16,692 -------- ------- ------- ------- -------- $102,505 $53,299 $29,072 $15,930 $200,806 ======== ======= ======= ======= ========
A discussion of the specific restructuring activities follows: Termination benefits. Staff reductions were implemented at substantially all operating units with the majority of these actions performed within the Newspaper Publishing segment. The Los Angeles Times recorded severance charges related to 358 full-time and 534 part-time employees through either voluntary or involuntary programs, primarily occurring in the fourth quarter of 1998. The Baltimore Sun's termination charges included 81 full-time employees and Newsday determined that 23 full-time and 26 part-time employees would be released. The staff reductions within the Newspaper Publishing segment were the result of identified efficiencies from outsourcing opportunities, elimination of duplicate functions and technological improvements to the Company's processes. In total, termination benefits, which were largely severance costs, covered 616 full-time and 578 part-time employees company-wide of which 224 employees had been released by the end of 1998 with the majority of employees expected to be released by the second quarter of 1999. As of December 31, 1998, $5,126,000 has been paid out under this program with the remaining liability expected to be substantially paid by the end of 1999. Certain employees will, however, receive payments over a longer period of time. Contract Terminations. In reviewing the Company's processes, supply contracts and strategic alliances, the Company identified certain long-term contracts and relationships which were no longer providing benefits to the Company's current operations. As a result, the Company recorded charges for contract terminations which included (i) the termination of a long-term contract related to Newsday's pre-print distribution business for $34,250,000; (ii) the termination of The Hartford Courant's long-standing bonus arrangement for $12,000,000 and (iii) the termination of 56 distribution contracts with outside agents at the Los Angeles Times for $4,904,000. Goodwill Impairments. In connection with the Company's divestiture of Mosby, the Company retained the consumer health publishing businesses of Mosby which were combined with its health information 47 49 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) provider, The StayWell Company. In reorganizing these operations and making significant fundamental business and structural changes, revised forecasts of undiscounted cash flows related to these enterprises were prepared which identified that the entity may not have the estimated future cash flows necessary to recover asset values. The Company recorded a write-off based on the difference between the net book value of goodwill, the entity's primary long-lived asset, and the fair value, measured by discounted estimated cash flows from future operations. In addition, an impairment charge was taken related to goodwill associated with two of the Company's magazine titles. These charges were taken as the result of disappointing market penetration and operating results and were also determined based on discounted estimated cash flows from future operations. The valuation of goodwill was made in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Lease Termination Costs. In connection with the Company's consolidation of its training companies under one entity, AchieveGlobal, and its downsizing and/or relocation of other operating units, the Company has recorded charges for future operating lease payments and write-offs of leasehold improvements related to facilities it will vacate. The total lease payment accrual for periods through 2010 is net of estimated sublease income of $5,786,000. No amounts have been included for any period in which the operating units will continue to occupy the premises. Technology Asset Write-offs. During mid-1998, the Company determined that its long standing policy of allowing each operating unit to independently determine its technology requirements and make related equipment and software purchases was both inefficient as well as expensive in terms of maintenance, helpdesk, networking and other support costs. In connection with this decision, the Company established common hardware and software configurations to provide consistency across all business units. As a result, many operating units were required to dispose of a significant amount of technology resources to conform to the common platform. Total asset write-offs of technology-related equipment were taken in the quarter in which the equipment was replaced. Business Exit and Other Costs. In performing a detailed review of its business and related product offerings, AchieveGlobal recorded a $8,547,000 charge to reflect the termination of its direct sales business line due to poor financial results and to record an estimated loss on the sale of its Canadian operations. Charges taken for the direct sales business were primarily for asset write-offs. The Company's estimated loss related to the Canadian operations uses an estimate of proceeds based on recent sales transactions of its other foreign entities. The estimated loss includes both the basis of the assets to be sold as well as costs required to sell the enterprise and a change to a franchise arrangement. Management anticipates that the franchising of these operations will be completed by the second quarter of 1999. The revenues and operating profits from those businesses that the Company plans to exit are not significant to total operations. Other costs were recognized at Jeppesen Sanderson, Inc. for the abandonment of certain projects and at The StayWell Company for the consolidation of processes. Other Program Charges. In addition to the charges listed above, the Company also recorded $32,685,000 for certain asset write-offs that did not meet the accounting criteria for classification as "restructuring and one-time charges." These charges, which principally included inventory and other operating asset write-offs have been classified within "Cost of sales," "Selling, general and administrative expenses" or "Other, net" in the consolidated statements of income. 1996 Restructuring Charges. The 1996 restructuring charges totaled $17,348,000 for efforts undertaken at AchieveGlobal to integrate the training companies. As of December 31, 1998, these efforts were substantially complete. 48 50 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of the activity in the restructuring liabilities for the three years ended December 31, 1998, 1997 and 1996 is as follows (in thousands):
1998 1996 1995 RESTRUCTURING RESTRUCTURING RESTRUCTURING TOTAL ------------- ------------- ------------- -------- Balance at December 31, 1995............ -- -- $134,448 $134,448 Charged to costs and expenses......... -- $ 17,348 -- 17,348 Cash payments......................... -- (738) (77,243) (77,981) Asset write-offs...................... -- (12,217) -- (12,217) Other(1).............................. -- -- 5,554 5,554 -------- -------- -------- -------- Balance at December 31, 1996............ -- 4,393 62,759 67,152 Cash payments......................... -- (4,180) (25,809) (29,989) Other(2).............................. -- (85) 8,719 8,634 -------- -------- -------- -------- Balance at December 31, 1997............ -- 128 45,669 45,797 Charged to costs and expenses......... $200,806 -- -- 200,806 Cash payments......................... (34,465) (298) (19,942) (54,705) Asset write-offs...................... (70,666) -- -- (70,666) Other................................. 1,589 189 (1,323) 455 -------- -------- -------- -------- Balance at December 31, 1998............ $ 97,264 $ 19 $ 24,404 $121,687 ======== ======== ======== ========
- --------------- (1) Primarily includes transfers from discontinued operations. (2) Primarily includes transfers from discontinued operations for restructuring liabilities not assumed by purchasers of discontinued operations. The balance sheet classification of restructuring liabilities is as follows:
DECEMBER 31, ------------------- 1998 1997 -------- ------- Restructuring -- current liabilities 1995 Restructuring........................................ $ 16,464 $18,534 1996 Restructuring........................................ 19 128 1998 Restructuring........................................ 82,306 -- Other liabilities 1995 Restructuring........................................ 7,940 27,135 1998 Restructuring........................................ 14,958 -- -------- ------- $121,687 $45,797 ======== =======
The current portion of restructuring liabilities relates primarily to severance and contract termination payments while the non-current portion principally relates to lease payments which will be paid over lease periods extending to 2005. The Company made severance payments under all programs which totaled $8,532,000, $6,228,000 and $40,886,000 during 1998, 1997 and 1996, respectively. At December 31, 1998, the remaining liability for severance costs aggregated $53,831,000. The Company periodically assesses the adequacy of its remaining restructuring liabilities and makes adjustments if required. During 1998 and 1997, these adjustments resulted in recoveries of prior year's restructuring reserves which were largely offset by restructuring requirements in those years. The net change in the restructuring liabilities as a result of these reviews was not significant. 49 51 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 -- SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION Supplemental cash flow information is as follows (in thousands):
1998 1997 1996 ------- ---------- ------- Interest paid........................................... $69,241 $ 22,346 $17,715 Income taxes paid....................................... 50,049 139,022 70,196 Merger with Chandis Times Mirror stock received........................... -- 1,116,058 -- Other assets received................................. -- 21,050 -- Times Mirror stock issued............................. -- 1,137,108 -- Fair value of properties contributed to TMCT............ -- 225,850 -- Property financing obligation, net of original issue discount.............................................. -- 57,829 -- Liabilities assumed in connection with acquisitions..... 6,680 20,698 14,618 Notes issued in connection with an acquisition.......... -- 39,209 --
NOTE 8 -- FINANCIAL INSTRUMENTS Financial instruments consist of the following (in thousands):
DECEMBER 31 --------------------------------------------- 1998 1997 ----------------------- ------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ---------- ---------- -------- -------- Short-term assets.......................... $1,474,519 $1,474,519 $411,911 $411,911 Long-term investments...................... 129,364 129,364 47,738 47,738 Notes receivable........................... 75,265 75,265 8,761 8,761 Short-term liabilities..................... 506,834 506,834 351,511 351,511 Long-term debt............................. 941,423 1,017,245 925,404 982,647 Unrealized net gain on interest rate swaps.................................... -- 43,246 -- 27,583
Short-Term Assets and Liabilities. The fair values of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and short-term debt approximate their carrying values due to the short-term nature of these financial instruments. Long-Term Investments. Investments are primarily stated at fair value based on quoted market prices and are classified as available-for-sale securities. The investments are included in "Investments and other assets" in the consolidated balance sheets. The cost of the investments was $55,764,000 and $18,865,000 at December 31, 1998 and 1997, respectively. The unrealized gain is included in accumulated other comprehensive income in the consolidated statements of shareholders' equity, net of applicable income taxes. Notes Receivable. The carrying value of notes receivable is estimated to approximate fair values. Although there are no quoted market prices available for these instruments, the fair value estimates were based on the change in interest rates and risk related interest rate spreads since the notes origination date. Long-Term Debt. The fair value of long-term debt is based primarily on the Company's current refinancing rates for publicly issued fixed rate debt with comparable maturities, except for the PEPS securities whose fair value is the current maturity value determined by a formula based on quoted market prices of the underlying common stock whose market risk it modifies. Interest Rate Swaps. Interest rate swap agreements outstanding at December 31, 1998 were for notional amounts of $148,000,000, $250,000,000, $170,111,000 and $100,000,000 expiring in 1999, 1999, 2002 and 2023, respectively, with the $170,111,000 and $100,000,000 notional amounts also outstanding at Decem- 50 52 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ber 31, 1997. These swaps effectively convert a portion of the Company's long-term fixed rate debt to a variable rate obligation based on LIBOR or the Commercial Paper rate. The fair values of the interest rate swaps are the amounts at which they could be settled based on estimates of market rates. Commodity Hedging Contracts. The Company enters into various commodity hedging contracts to manage the Company's exposures to fluctuations in newsprint prices. As of December 31, 1998, the Company had newsprint swap agreements for a total notional amount of 261,000 metric tons per year expiring in 2002 and 2003 at a weighted average contract price of $609 per metric ton. Also, the Company has a newsprint option contract for a total notional amount of 30,000 metric tons per year expiring in 2001 at a contract price of $585 per metric ton. At December 31, 1998, the index rate used for these contracts was $585 per metric ton. This option contract limits the maximum payment to $115 per metric ton above the contract price on an annual basis. In addition to the newsprint hedging contracts, the Company has a swap contract for coated paper used in its Magazine Publishing activities for a total notional amount of 5,000 short tons per year expiring in 2000 at a contract price of $1,047 per short ton. As no liquid forward market for newsprint or coated paper exists, it was not practicable to estimate the fair value of the commodity hedging contracts. New Accounting Pronouncement. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which the Company is required to adopt effective January 1, 2000. SFAS 133 will require the Company to record all derivatives as assets or liabilities at fair value. Changes in derivative fair values will either be recognized in earnings, offset against changes in the fair value of the related hedged assets, liabilities and firm commitments or, for forecasted transactions, recorded as a component of other comprehensive income in shareholders' equity until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative's change in fair value will be recognized in earnings immediately. The impact of SFAS 133 on the Company's financial statements will depend on a variety of factors, including, the extent of the Company's hedging activities, the types of hedging instruments used and the effectiveness of such instruments. The Company expects to adopt SFAS 133 as of January 1, 2000. The effect of adopting the Statement is currently being evaluated, however, the Company does not believe the effects of adoption will be material to its financial position or results of operations. NOTE 9 -- INVENTORIES Inventories consist of the following (in thousands):
DECEMBER 31 ------------------ 1998 1997 ------- ------- Newsprint, paper and other raw materials.................... $23,404 $27,561 Finished products........................................... 13,967 16,609 Work-in-progress............................................ 1,911 726 ------- ------- $39,282 $44,896 ======= =======
Inventories determined by the last-in, first-out method were $13,669,000 and $17,053,000 at December 31, 1998 and 1997, respectively, and would have been higher by $16,100,000 in 1998 and $17,271,000 in 1997 had the first-in, first-out method (which approximates current cost) been used. 51 53 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following (in thousands):
DECEMBER 31 ------------------------ 1998 1997 ---------- ---------- Land........................................................ $ 45,065 $ 46,459 Buildings................................................... 433,860 425,683 Machinery and equipment..................................... 1,341,583 1,339,958 Leasehold improvements...................................... 30,297 28,577 Construction-in-progress.................................... 41,362 36,084 ---------- ---------- 1,892,167 1,876,761 Less accumulated depreciation and amortization.............. (976,175) (942,061) ---------- ---------- $ 915,992 $ 934,700 ========== ==========
In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 will require the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal use. The Company adopted SOP 98-1 on January 1, 1999 and does not believe the effects of adoption will be material to its financial position or results of operations. NOTE 11 -- INCOME TAXES Income tax expense from continuing operations consists of the following (in thousands):
1998 1997 1996 -------- -------- -------- Current: Federal.......................................... $ 72,255 $ 80,798 $ 21,730 State............................................ 10,670 12,558 15,262 Foreign.......................................... 13,194 13,838 12,230 Deferred: Federal.......................................... (849) 27,722 53,231 State............................................ 12,168 10,064 8,219 Foreign.......................................... -- (15) 292 -------- -------- -------- $107,438 $144,965 $110,964 ======== ======== ========
52 54 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The difference between actual income tax expense and the U.S. Federal statutory income tax expense for continuing operations is reconciled as follows (in thousands):
1998 1997 1996 -------- -------- -------- Income from continuing operations before income taxes: United States..................................... $173,329 $339,489 $258,287 Foreign........................................... 27,523 26,376 21,880 -------- -------- -------- $200,852 $365,865 $280,167 ======== ======== ======== Federal statutory income tax rate................... 35% 35% 35% Federal statutory income tax expense................ $ 70,298 $128,053 $ 98,058 Increase (decrease) in income taxes resulting from: State and local income tax expense, net of Federal effect......................................... 14,845 14,704 15,263 Basis difference in asset sales................... (2,193) 1,328 -- Goodwill amortization not deductible for tax purposes....................................... 7,166 5,554 6,412 Writedown of assets............................... 17,023 -- -- Foreign tax differentials......................... (3,433) 1,695 1,849 Other............................................. 3,732 (6,369) (10,618) -------- -------- -------- $107,438 $144,965 $110,964 ======== ======== ========
The tax effect of temporary differences results in deferred income tax assets (liabilities) and balance sheet classifications as follows (in thousands):
DECEMBER 31 ---------------------- 1998 1997 --------- --------- TEMPORARY DIFFERENCES Depreciation and other property, plant and equipment differences............................................... $(156,453) $(172,579) Retirement and health benefits.............................. (154,151) (138,309) Postretirement benefits..................................... 86,609 104,782 Valuation and other reserves................................ 12,552 5,140 Other employee benefits..................................... 56,046 49,440 Unrealized investment gains................................. (33,055) (21,168) State and local income taxes................................ 26,400 25,654 Restructuring and one-time charges.......................... 31,118 18,851 Intangible asset differences................................ (5,087) 2,190 Transaction tax reserve..................................... (176,585) -- Other deferred tax assets................................... 5,156 14,349 Other deferred tax liabilities.............................. (23,217) (5,519) --------- --------- $(330,667) $(117,169) ========= ========= BALANCE SHEET CLASSIFICATIONS Current deferred tax assets................................. $ 44,012 $ 58,018 Noncurrent deferred tax liabilities......................... (374,679) (175,187) --------- --------- $(330,667) $(117,169) ========= =========
In connection with the disposition of Matthew Bender and Mosby as discussed in Notes 3 and 4, the Company has recorded a tax reserve of $176,585,000. While the Company believes that these transactions were completed on a tax-free basis, this position may be subject to review by the Internal Revenue Service. The results of such a review are unpredictable and could result in a tax liability that is significantly higher or lower than that which has been provided by the Company. 53 55 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 -- DEBT Short-term debt consists of the following (in thousands except percentages):
DECEMBER 31 -------------------- 1998 1997 -------- -------- Commercial paper at weighted average interest rates of 5.3% and 5.9%.................................................. $298,603 $ 86,448 Notes payable at 6.125% due January 2, 1998................. -- 39,209 Current maturities of long-term debt........................ 7,440 7,671 Other notes payable at interest rates of 5.42% and 6.04%.... 6,567 5,739 -------- -------- Total short-term debt.................................. $312,610 $139,067 ======== ========
Long-term debt consists of the following (in thousands except percentages):
DECEMBER 31 -------------------- 1998 1997 -------- -------- 6.61% Debentures due September 15, 2027, net of unamortized discount of $98 and $101.................................. $249,902 $249,899 4.75% Liquid Yield Option Notes due April 15, 2017, net of unamortized discount of $288,129 and $297,845............. 211,871 202,155 7 1/4% Debentures due March 1, 2013......................... 148,215 148,215 7 1/4% Debentures due November 15, 2096, net of unamortized discount of $559 and $565................................. 147,441 147,435 7 1/2% Debentures due July 1, 2023.......................... 98,750 98,750 Property financing obligation expiring on August 8, 2009, net of unamortized discount of $158,080 and $165,353, with an effective interest rate of 4.3%........................ 47,088 54,743 4 1/4% PEPS due March 15, 2001; 863,100 and 1,305,000 securities stated at current maturity value............... 45,596 31,809 Others at various interest rates, maturing through 2001..... -- 69 -------- -------- 948,863 933,075 Less current maturities..................................... (7,440) (7,671) -------- -------- Total long-term debt................................... $941,423 $925,404 ======== ========
Interest rate swaps outstanding at December 31, 1998 converted the weighted average interest rate on the 7 1/4% Debentures due November 15, 2096, the 6.61% Debentures, the 7 1/2% Debentures and the Liquid Yield Option Notes (LYONS) from 6.32% to 5.62% for the year ended December 31, 1998. In September 1997, the Company issued $250,000,000 of 6.61% Debentures due September 15, 2027 (Debentures) with interest payable semiannually commencing March 15, 1998. The Debentures are redeemable at the option of the Company, in whole or in part, at any time after September 15, 2004 at a redemption price equal to the greater of (a) 100% of the principal amount or (b) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the redemption date. The Debentures may be put to the Company on September 15, 2004 at 100% of face value plus accrued interest. In April 1997, the Company received gross proceeds of $195,530,000 from the issuance of the LYONs. The LYONs are zero coupon subordinated notes with an aggregate face value of $500,000,000 and a yield to maturity of 4.75%. Each LYON has a $1,000 face value and is convertible at the option of the holder any time prior to maturity. If conversion is elected, the Company will, at its option, deliver (a) 5.828 shares of Series A common stock per each LYON or (b) cash equal to the market value of such shares. On or after April 15, 2002, the LYONs may be redeemed at any time by the Company for cash equal to the issuance price plus accrued original discount through the date of redemption. In addition, each LYON may be redeemed for cash 54 56 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) at the option of the holder on April 15, 2002, 2007 or 2012. The cash payable for each LYON at these redemption dates is approximately $495, $625 and $791, respectively, which is equal to the issuance price plus accrued original discount through the date of redemption. The Company has an interest rate swap agreement for a notional amount of $170,111,000, expiring April 15, 2002, to exchange a fixed interest rate of 4.75% for a variable rate based on six-month LIBOR less 2.458%. The 4 1/4% PEPS hedge the Company's investment in the common stock of Netscape. The amount payable at maturity is determined by reference to the fair market value of the Netscape common stock. As a result, the maturity value will generally move in tandem with changes in the fair market value of Netscape stock. Changes in the current maturity value of the PEPS are included in accumulated other comprehensive income, net of applicable income taxes. At December 31, 1998 and 1997, the fair market value of Netscape common stock was $60.75 and $24.375 per share, respectively. The PEPS are redeemable at the option of the Company, in whole or in part, at any time after December 15, 2000. The redemption price is based on the market value of the Netscape common stock adjusted in accordance with a predetermined formula which allocates a portion of the appreciation, if any, to the Company. During 1998, the Company sold 441,900 shares of Netscape stock and purchased an equal proportion of its PEPS in the open market (see Note 5). The Company has an agreement with several domestic and foreign banks for unsecured long-term revolving lines of credit that expire in September 2000. This agreement provides for borrowings up to $400,000,000 at interest rates based on, at the Company's option, the banks' base rates, Eurodollar rates or competitive bid rates. The commitment fee is approximately 0.065% per annum. The lines of credit are used to support a commercial paper program. The Company's revolving lines of credit contain restrictive provisions relating primarily to interest expense coverage. The Company's earnings before interest expense, income taxes, depreciation and amortization, divided by interest expense, must be greater than or equal to 5.0. The weighted average interest rates and weighted average commercial paper borrowings were 5.3% and 5.6% and $243,095,000 and $72,561,000 during 1998 and 1997, respectively. At December 31, 1998, the Company had an uncommitted bank line of credit which provides for unsecured borrowings up to $250,000,000 of which there were no amounts outstanding. In February 1999, the Company borrowed $60,000,000 under this line of credit. The Company has $20,820,000 of undrawn standby letters of credit at December 31, 1998. At December 31, 1998, the aggregate principal maturities of the Company's debt are as follows (in thousands): 1999...................................................... $ 7,440 2000...................................................... 7,150 2001...................................................... 52,367 2002...................................................... 6,292 2003...................................................... 5,699 Thereafter................................................ 869,915 -------- $948,863 ========
NOTE 13 -- CAPITAL STOCK AND STOCK PURCHASE PROGRAM Preferred Stocks. Series A, Series C-1 and Series C-2 preferred stocks are cumulative, non-voting stocks with annual dividends of 8%, 5.8% and 5.8%, respectively, based on liquidation value. Series A was entitled to dividends effective March 1, 1995. Dividends on Series C-1 and Series C-2 may increase commencing in 2001 to a maximum annual dividend of 8.4%, based on the percentage increases, if any, in the dividends paid by the Company on its common stock. Series A, Series C-1 and Series C-2 are convertible into Series A common stock in 2025 at the earliest. The conversion factor is calculated by dividing $500 plus accrued and unpaid 55 57 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) dividends by the average closing prices of Series A common stock for the 20 trading days immediately preceding the conversion date. The maximum number of shares of Series A common stock into which Series C-2 can be converted is limited to 2,957,000 shares. On February 28, 1997, the Series B preferred stock was called for redemption and was redeemed on April 2, 1997 for 4,446,000 shares of Series A common stock. The conversion ratio, determined pursuant to the original terms of the Series B, was .57083 of a share of Series A common stock. At the redemption date, the Company had forward purchase contracts for 3,900,000 shares of Series B preferred stock with a weighted average forward price of $28.475 per share. These contracts provided for early termination and, in May 1997, the termination of the contract resulted in the purchase by the Company of 2,226,000 shares of Series A common stock for an aggregate cost of $111,530,000. Preferred stock is issuable in series under such terms and conditions as the Board of Directors may determine. Common Stocks. Shares of Series A and Series C common stock are identical, except with respect to voting rights, restrictions on transfer of Series C shares and the right to convert Series C shares into Series A shares. Series A shares are entitled to one vote per share and Series C shares are entitled to ten votes per share. Series C shares are subject to mandatory conversion into Series A shares upon transfer to any person other than a "Permitted Transferee" as defined in the Company's Certificate of Incorporation or upon the occurrence of certain regulatory events. Series B common stock is entitled to one-tenth vote per share and is available for common stock issuance transactions, such as underwritten public offerings and acquisitions. Cash dividends of $.72 and $.55 per share of common stock were declared for the years ended December 31, 1998 and 1997, respectively. In February 1999, the Board of Directors approved an increase in the quarterly dividend on its common stock to $.20 per share, from $.18 per share, beginning with the March 10, 1999 payment date. Treasury Stock. Treasury stock includes shares of Series A common stock and Series A preferred stock owned by affiliates as well as Series A common stock purchased by the Company as part of the stock purchase program. Approximately 13,262,000, 4,001,000 and 18,238,000 shares of Series A common stock included in treasury stock are owned by Eagle New Media, TMCT and CAC, respectively, and $177,039,000 and $192,023,000 stated value of Series A preferred stock, which are owned by TMCT and CAC, respectively, are included in treasury stock at December 31, 1998. Stock Purchases. During 1998, the Company and Eagle New Media purchased 16,355,000 common shares for a total cost of $947,203,000. An additional 350,000 common shares were purchased for $17,472,000, net of premiums received, as a result of the exercise of put options. At December 31, 1998, the Company had 400,000 put options outstanding with a weighted average strike price of $56.40 per common share. The cash received from the issuance of put options during 1998 and 1997 was not significant. The put options entitle the holder to sell shares of Times Mirror Series A common stock to the Company at the strike price on the expiration date of the put option. The unexpired put options are at strike prices ranging from $55.81 to $58.00. These put options expire on various dates through April 1999. Included in the 1998 share purchases were 4,000,000 shares that were purchased in the fourth quarter of 1998 as part of an accelerated purchase agreement. The shares were purchased at the closing price on the date of the agreement for $54.69 per share. The agreement provides for a purchase price adjustment based on a pro-rata settlement over a one-year period. The agreement, which is due to mature in the fourth quarter of 1999, provides for settlement of the purchase price adjustment on a net share basis. In August 1998, the Company entered into a forward purchase agreement to acquire 1,000,000 shares of Series A common stock. The Company settled this agreement in February 1999 at a price of $63.35 per share in cash. 56 58 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During 1997, the Company purchased 8,882,000 shares of Series A common stock for a total cost of $464,781,000. An additional 120,000 shares of Series A common stock were purchased for $3,719,000, net of premiums received, as a result of the exercise of put options. In connection with the Company's ongoing stock purchase program, in October 1998, the Company's Board of Directors authorized the purchase over the next two years of an additional 6,000,000 shares of common stock. The aggregate remaining shares authorized for purchase at December 31, 1998 was approximately 1,100,000 shares. The Company believes that the purchase of shares of its common stock is an attractive investment for Eagle New Media which will enhance Times Mirror shareholder value as well as to offset dilution from shares of common stock issued under the Company's stock-based employee compensation and benefit program. In February 1999, the Board of Directors authorized the purchase of an additional amount of up to 6,000,000 shares of its Series A common stock. NOTE 14 -- STOCK OPTION AND AWARD PLANS The Company has various stock option plans under which options may be granted to purchase shares of Series A common stock at a price equal to the fair market value at the date of grant. Options that are not exercised expire ten years from the date of grant. Options granted to key employees generally vest over a four-year period. Grants made under a broad-based stock option plan, for employees not eligible for other stock option grants, are fully vested three years after the date of grant. Restricted stock is also awarded to key employees. The number of restricted stock awards, including matching awards in connection with the annual incentive bonus program, is not material. Options granted, exercised and forfeited were as follows:
WEIGHTED NUMBER AVERAGE OF EXERCISE SHARES PRICE ---------- -------- Options Outstanding December 31, 1995....................... 8,651,657 $23.29 Granted................................................... 1,613,851 33.22 Exercised................................................. (1,911,082) 18.86 Forfeited................................................. (582,937) 26.61 ---------- ------ Options Outstanding December 31, 1996....................... 7,771,489 26.12 Granted................................................... 4,686,643 47.85 Exercised................................................. (1,617,045) 22.47 Forfeited................................................. (571,732) 34.03 ---------- ------ Options Outstanding December 31, 1997....................... 10,269,355 36.17 Granted................................................... 4,370,240 59.58 Exercised................................................. (2,145,260) 27.58 Forfeited................................................. (1,084,989) 50.00 ---------- ------ Options Outstanding December 31, 1998....................... 11,409,346 $45.44 ========== ======
57 59 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Information regarding stock options outstanding and exercisable as of December 31, 1998 is as follows:
PRICE RANGE --------------------------------------------------- $11.43 $18.06 $30.06 $46.56 TO $17.29 TO $23.94 TO $44.94 TO $64.22 --------- ---------- ---------- ---------- Options Outstanding: Number............................ 45,979 1,170,163 2,452,916 7,740,288 Weighted average exercise price... $ 16.75 $ 18.57 $ 33.59 $ 53.43 Weighted average remaining contractual life............... 3years 5years 7years 9years Options Exercisable: Number............................ 45,979 798,192 1,160,230 697,755 Weighted average exercise price... $ 16.75 $ 18.79 $ 34.67 $ 48.69
At December 31, 1998 and 1997 shares reserved for future grants and awards were 9,707,503 and 13,057,372, respectively. If the Company recognized employee stock option-related compensation expense in accordance with SFAS 123 and used the Black-Scholes option valuation model for determining the weighted average fair value of options granted after December 31, 1994, its net income and earnings per share would have been as follows (in thousands except per share amounts):
1998 1997 1996 ---------- -------- -------- Net income -- as reported......................... $1,417,338 $250,312 $206,444 Pro forma stock compensation expense, net......... (18,709) (13,000) (4,959) ---------- -------- -------- Pro forma net income.............................. $1,398,629 $237,312 $201,485 ========== ======== ======== Pro forma basic earnings per share................ $ 15.86 $ 2.18 $ 1.54 ========== ======== ======== Pro forma diluted earnings per share.............. $ 15.48 $ 2.11 $ 1.49 ========== ======== ========
For purposes of the pro forma expense, the weighted average fair value of the options is amortized over the vesting period. The pro forma effect on net income for 1996 through 1998 may not be representative of future years' impact because options granted prior to 1995 are excluded from the pro forma calculations. Options are granted every year and the pro forma expense in future years will grow due to the added layers of amortization for succeeding grants. By 1999, however, the pro forma results will include a full four years' worth of option grants. The weighted average fair value of stock options on the date of grant, and the assumptions used to estimate the fair value using the Black-Scholes option valuation model, were as follows:
1998 1997 1996 -------- -------- -------- Weighted average fair value of stock options granted............................................ $ 12.78 $ 11.90 $ 8.87 Risk-free interest rate.............................. 5.5% 6.2% 5.4% Expected life........................................ 5 years 5 years 5 years Expected volatility.................................. .20 .22 .26 Expected dividend yield.............................. 2.33% 2.33% 2.00%
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. The Company's employee stock options have characteristics significantly different from those of traded options such as vesting restrictions and lack of transferability. In addition, the assumptions used in option valuation models are highly subjective, particularly with respect to the expected stock price volatility for the underlying stock. Because changes in these subjective input assumptions can materially affect the fair 58 60 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) value estimate, in management's opinion, the existing models do not provide a reliable single measure of the fair value of its employee stock options. NOTE 15 -- PENSION PLANS AND POSTRETIREMENT BENEFITS The Company has defined benefit pension plans and various other contributory and noncontributory retirement plans covering substantially all employees. In general, benefits under the defined benefit plans are based on years of service and the employee's compensation during the last five years of employment. The majority of the Company's employees are covered by one defined benefit plan. Funding for this plan is not expected to be required in the near future as the plan is overfunded. Postretirement health care benefits provided by the Company are unfunded and cover certain employees hired before January 1, 1993. The various plans have significantly different provisions for lifetime maximums, retiree cost-sharing, health care providers, prescription drug coverage and other benefits. Postretirement life insurance benefits are generally insured by life insurance policies and cover employees who retired on or before December 31, 1993. Life insurance benefits vary by plan, ranging from $1,000 to $250,000. Certain employees become eligible for the postretirement health care benefits if they meet minimum age and service requirements and retire from full-time, active service. 59 61 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following sets forth the changes in benefit obligations and in plan assets and the funded status of the plans (in thousands):
PENSION PLANS POSTRETIREMENT BENEFITS ------------------------ ------------------------ 1998 1997 1998 1997 ---------- ---------- ---------- ---------- CHANGE IN PROJECTED BENEFIT OBLIGATIONS Benefit obligations at January 1................................ $ 662,385 $ 600,577 $ 132,601 $ 129,292 Service cost....................... 37,377 33,164 3,052 2,732 Interest cost...................... 49,367 47,287 7,909 8,204 Plan amendments.................... 2,813 957 -- -- Participant contributions.......... -- -- 2,073 1,998 Actuarial losses (gains)(1)........ 86,647 23,856 4,996 (879) Curtailment gains.................. (8,898) -- (327) -- Benefits paid...................... (42,600) (43,456) (8,626) (8,746) ---------- ---------- --------- --------- Benefit obligations at December 31............................... $ 787,091 $ 662,385 $ 141,678 $ 132,601 ========== ========== ========= ========= CHANGE IN PLAN ASSETS Fair value of plan assets at January 1........................ $1,080,160 $ 975,384 $ -- $ -- Actual return on plan assets....... 102,355 148,056 -- -- Acquisitions....................... 3,310 -- -- -- Dispositions....................... -- (3,328) -- -- Company contributions.............. 2,943 3,504 6,553 6,748 Participant contributions.......... -- -- 2,073 1,998 Benefits paid...................... (42,600) (43,456) (8,626) (8,746) ---------- ---------- --------- --------- Fair value of plan assets at December 31...................... $1,146,168 $1,080,160 $ -- $ -- ========== ========== ========= ========= FUNDED STATUS Funded status (underfunded) at December 31...................... $ 359,077 $ 417,775 $(141,678) $(132,601) Unrecognized net actuarial losses (gains)(1)....................... 40,896 (41,551) (49,356) (45,426) Unrecognized prior service cost.... (4,309) (8,677) (34,984) (56,348) Unrecognized net transition asset............................ (3,656) (25,216) -- -- ---------- ---------- --------- --------- Net amount recognized.............. $ 392,008 $ 342,331 $(226,018) $(234,375) ========== ========== ========= =========
- --------------- (1) The increases in actuarial losses relate primarily to changes in the assumed discount rate. Amounts applicable to the Company's pension plans with accumulated benefit obligations in excess of plan assets are (in thousands):
DECEMBER 31 ------------------ 1998 1997 ------- ------- Projected benefit obligations............................... $61,044 $49,267 Accumulated benefit obligations............................. 51,134 43,232 Fair value of plan assets................................... 13,348 12,031
60 62 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following sets forth the amounts recognized in the consolidated balance sheets (in thousands):
PENSION PLANS POSTRETIREMENT BENEFITS ------------------- ----------------------- DECEMBER 31 DECEMBER 31 ------------------- ----------------------- 1998 1997 1998 1997 -------- -------- ---------- ---------- Prepaid pension cost...................... $419,471 $366,807 $ -- $ -- Accrued benefit liability................. (40,319) (29,923) (226,018) (234,375) Intangible asset.......................... 5,545 -- -- -- Deferred income taxes..................... 2,915 2,220 -- -- Accumulated other comprehensive income.... 4,396 3,227 -- -- -------- -------- --------- --------- Net amount recognized..................... $392,008 $342,331 $(226,018) $(234,375) ======== ======== ========= =========
Net periodic benefit cost (income) is as follows (in thousands):
PENSION PLANS POSTRETIREMENT BENEFITS ------------------------------- --------------------------- 1998 1997 1996 1998 1997 1996 --------- -------- -------- ------- ------- ------- Service cost............... $ 37,377 $ 33,164 $ 36,866 $ 3,052 $ 2,732 $ 3,190 Interest cost.............. 49,367 47,287 47,552 7,909 8,204 9,361 Expected return on plan assets................... (103,857) (93,753) (88,731) -- -- -- Amortization of transition asset.................... (21,560) (21,560) (21,560) -- -- -- Amortization of prior service cost............. 620 (44) 152 (6,992) (6,992) (7,368) Recognized net actuarial loss (gain).............. 241 (47) 1,413 (5,446) (3,218) (1,028) --------- -------- -------- ------- ------- ------- Benefit cost (income)...... (37,812) (34,953) (24,308) (1,477) 726 4,155 Curtailment gains.......... (8,898) -- -- (327) -- -- --------- -------- -------- ------- ------- ------- Benefit cost (income) after curtailments............. $ (46,710) $(34,953) $(24,308) $(1,804) $ 726 $ 4,155 ========= ======== ======== ======= ======= =======
Assumptions used in the actuarial computations were as follows:
PENSION PLANS POSTRETIREMENT BENEFITS -------------------- ----------------------- DECEMBER 31 DECEMBER 31 -------------------- ----------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ----- ----- ----- Discount rate.......................... 6.75% 7.50% 8.00% 6.75% 7.50% 8.00% Expected return on plan assets......... 9.75% 9.75% 9.75% N/A N/A N/A Rate of compensation increase.......... 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
At December 31, 1998, the health care trend rate of 8.5% was assumed to ratably decline to 4.25% by 2011 and remain at that level. The assumed health care cost trend rate can significantly affect postretirement expense and liabilities. A change of 1% in the health care cost trend rate would have the following effects (in thousands):
1-PERCENTAGE- 1-PERCENTAGE- POINT INCREASE POINT DECREASE -------------- -------------- Effect on total service and interest cost component...... $ 1,307 $ (1,319) Effect on postretirement benefit obligation.............. 13,579 (11,454)
Benefits provided by the Employee Stock Option Plan (ESOP) are coordinated with certain pension benefits and, as a result, the defined benefit plan obligations are net of the actuarially equivalent value of the benefits earned under the ESOP, with the maximum offset equal to the value of the benefits earned under the 61 63 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) defined benefit plan. The fair value of the ESOP assets was $264,715,000 and $307,188,000 as of December 31, 1998 and 1997, respectively. At December 31, 1998, the ESOP held 3,148,000 shares of Series A common stock, and 1,507,000 shares of Series C common stock. The final contribution to the ESOP was in 1994 and the ESOP has been amended to discontinue contributions by the Company. There are no unallocated shares in the ESOP at December 31, 1998. Substantially all employees over age 21 with one year of service are eligible to participate in the Company's Savings Plus Plan. Eligible employees may contribute from 1% to 15% of their basic compensation. The Company makes matching contributions equal to 50% of employee before-tax contributions from 1% to 6%. Employees may choose among eight investment options, including a Company common stock fund, for investing their contributions and the Company's matching contribution. Defined contribution plan expense, primarily related to the Savings Plus Plan, was $16,665,000, $19,151,000, and $16,867,000 for the years ended December 31, 1998, 1997 and 1996, respectively. A Voluntary Employee Beneficiary Association (VEBA) trust funds certain health care benefits. Funding of the VEBA is generally made on a pay-as-you-go-basis, which leaves minimal cash in the VEBA trust. NOTE 16 -- LEASES Rental expense under operating leases was $41,627,000, $45,371,000 and $46,487,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Capital leases, contingent rentals and sublease income are not significant. The future net minimum lease payments as of December 31, 1998 for all noncancelable operating leases, excluding future obligations included in the restructuring liabilities on the consolidated balance sheets, are as follows (in thousands): 1999...................................................... $ 33,579 2000...................................................... 28,618 2001...................................................... 28,158 2002...................................................... 25,361 2003...................................................... 21,099 Later years............................................... 77,937 -------- Total........................................... $214,752 ========
NOTE 17 -- SEGMENT INFORMATION The Company has three reportable operating segments, Newspaper Publishing, Professional Information and Magazine Publishing. The Newspaper Publishing segment publishes daily metropolitan newspapers in the east coast and west coast regions of the United States, as well as several weekly newspapers. The Professional Information segment publishes various information and other media, including aeronautical charts and flight information, sales and management training programs and consumer health information. The Magazine Publishing segment publishes special interest and trade magazines. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on several factors, of which the primary financial measure is segment operating profit. Total revenue by industry segment includes sales to unaffiliated customers and intersegment sales, which are accounted at market price. Revenues are attributed to geographic areas based on the location of the assets producing the revenues. Corporate and Other includes operations not directly related to the operating segments and general corporate activities including corporate overhead expenses, corporate investment income, interest expense on 62 64 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) corporate debt and the activities of the Company's affiliates, Eagle New Media and Eagle Publishing. The Corporate and Other assets are principally comprised of cash and cash equivalents, marketable securities and other investments. Substantially all of the Company's investments accounted for under the equity method are in Corporate and Other. Financial data for the Company's segments is as follows (in thousands):
1998 1997 1996 ---------- ---------- ---------- REVENUES Newspaper Publishing......................... $2,308,178 $2,179,244 $2,074,692 Professional Information..................... 437,729 432,866 410,398 Magazine Publishing.......................... 262,683 248,712 234,192 ---------- ---------- ---------- Total reportable segments................. 3,008,590 2,860,822 2,719,282 Corporate and Other.......................... 1,198 21,845 56,938 Intersegment Revenues........................ (703) (650) (400) ---------- ---------- ---------- $3,009,085 $2,882,017 $2,775,820 ========== ========== ========== OPERATING PROFIT (LOSS)(1) Newspaper Publishing......................... $ 297,433 $ 402,207 $ 307,512 Professional Information..................... 8,623 63,568 35,764 Magazine Publishing.......................... (14,232) 18,309 8,753 ---------- ---------- ---------- Total reportable segments................. 291,824 484,084 352,029 Corporate and Other.......................... (79,261) (84,897) (61,097) ---------- ---------- ---------- $ 212,563 $ 399,187 $ 290,932 ========== ========== ========== IDENTIFIABLE ASSETS Newspaper Publishing......................... $1,999,880 $1,792,286 $1,836,158 Professional Information..................... 344,636 392,852 328,775 Magazine Publishing.......................... 271,457 263,521 244,254 ---------- ---------- ---------- Total reportable segments................. 2,615,973 2,448,659 2,409,187 Corporate and Other.......................... 1,602,333 362,239 453,781 Discontinued Operations...................... -- 427,722 364,036 ---------- ---------- ---------- $4,218,306 $3,238,620 $3,227,004 ========== ========== ========== DEPRECIATION AND AMORTIZATION Newspaper Publishing......................... $ 116,116 $ 106,919 $ 104,743 Professional Information..................... 18,947 18,880 17,340 Magazine Publishing.......................... 7,740 7,040 6,050 ---------- ---------- ---------- Total reportable segments................. 142,803 132,839 128,133 Corporate and Other.......................... 4,467 3,457 2,990 ---------- ---------- ---------- $ 147,270 $ 136,296 $ 131,123 ========== ========== ========== CAPITAL EXPENDITURES Newspaper Publishing......................... $ 107,479 $ 78,760 $ 63,698 Professional Information..................... 22,635 13,438 28,920 Magazine Publishing.......................... 1,651 2,243 10,849 ---------- ---------- ---------- Total reportable segments................. 131,765 94,441 103,467 Corporate and Other.......................... 6,593 22,543 4,989 ---------- ---------- ---------- $ 138,358 $ 116,984 $ 108,456 ========== ========== ==========
63 65 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - --------------- (1) Includes restructuring, one-time and other charges as follows (in thousands):
1998 1997 1996 -------- ------- ------- Newspaper Publishing........................... $116,388 $18,000 -- Professional Information....................... 69,510 8,656 $17,348 Magazine Publishing............................ 29,072 -- -- -------- ------- ------- Total reportable segments.................... 214,970 26,656 17,348 Corporate and Other............................ 17,021 -- -- -------- ------- ------- $231,991 $26,656 $17,348 ======== ======= =======
The pre-tax charges in 1998 are comprised of restructuring and one-time charges of $200,806 and charges that did not qualify for accounting classification as restructuring charges of $31,185. Total restructuring, one-time and other charges in 1998 are $233,491, of which $1,500 is included in Other, net. Substantially all revenue and assets of the Company's reportable segments are attributed to or located in the United States. Non-U.S. revenues represent less than 3% of total revenues and are principally related to the Company's flight information business in Germany. Significant non-cash items excluding depreciation and amortization, were non-cash restructuring, one time and other charges in 1998 as follows (in thousands):
1998 -------- Newspaper Publishing...................................... $ 19,043 Professional Information.................................. 61,447 Magazine Publishing....................................... 20,718 -------- Total reportable segments............................... 101,208 Corporate and Other....................................... 6,055 -------- $107,263 ========
A reconciliation of operating profit to income from continuing operations before income taxes is set forth in the Company's Consolidated Statements of Income on page 33. The Company does not have a single external customer who represents 10% or more of its revenue. NOTE 18 -- USE OF ESTIMATES AND OTHER UNCERTAINTIES Financial statements prepared in accordance with generally accepted accounting principles require management to make estimates and judgments that affect amounts and disclosures reported in the financial statements. Actual results could differ from those estimates, although management does not believe that any differences would materially affect the Company's financial position or reported results. The Company's future results could be adversely affected by a number of factors, including (a) an increase in paper, printing and distribution costs over the levels anticipated; (b) increased consolidation among major retailers or other events depressing the level of display advertising; (c) an economic downturn in the Company's principal newspaper markets or other occurrences leading to decreased circulation and diminished revenues from both display and classified advertising; (d) an increase in the use of alternate media such as the Internet for classified and other advertising; (e) an increase in expenses related to new initiatives and product improvement efforts in the flight information and health information operating units; (f) unfavorable foreign currency fluctuations; and (g) a general economic downturn resulting in decreased professional or corporate spending on discretionary items such as information or training and in decreased consumer spending on discretionary items such as magazines or newspapers. 64 66 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) A summary of the unaudited quarterly results of operations restated for discontinued operations (see Note 3) follows (in thousands except per share amounts):
1998 QUARTERS ENDED ------------------------------------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- ---------- -------- Revenues........................................ $714,130 $755,818 $ 729,399 $809,738 Costs and expenses: Cost of sales................................. 383,603 388,770 385,249 360,989 Selling, general and administrative expenses................................... 240,580 242,199 260,400 333,926 Restructuring and one-time charges............ -- 39,697 80,012 81,097 -------- -------- ---------- -------- Operating profit................................ 89,947 85,152 3,738 33,726 Interest expense, net........................... (10,295) (16,388) (6,448) (2,870) Equity income (loss)............................ (4,884) (2,204) 1,223 (2,326) Other, net...................................... 4,400 10,026 6,451 11,604 -------- -------- ---------- -------- Income from continuing operations before income taxes......................................... 79,168 76,586 4,964 40,134 Income tax provision............................ 33,201 30,751 24,536 18,950 -------- -------- ---------- -------- Income (loss) from continuing operations........ 45,967 45,835 (19,572) 21,184 Discontinued operations, net.................... (706) 3,366 1,096,121 225,143 -------- -------- ---------- -------- Net income...................................... $ 45,261 $ 49,201 $1,076,549 $246,327 ======== ======== ========== ======== Basic earnings (loss) per share: Continuing operations......................... $ .46 $ .46 $ (.30) $ .20 Discontinued operations....................... (.01) .04 13.01 2.85 -------- -------- ---------- -------- Basic earnings per share........................ $ .45 $ .50 $ 12.71 $ 3.05 ======== ======== ========== ======== Diluted earnings (loss) per share: Continuing operations......................... $ .45 $ .45 $ (.30) $ .20 Discontinued operations....................... (.01) .04 13.01 2.79 -------- -------- ---------- -------- Diluted earnings per share...................... $ .44 $ .49 $ 12.71 $ 2.99 ======== ======== ========== ========
65 67 TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1997 QUARTERS ENDED ------------------------------------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- ---------- -------- Revenues........................................ $677,322 $714,237 $ 699,067 $791,391 Costs and expenses: Cost of sales................................. 352,892 359,046 368,139 396,271 Selling, general and administrative expenses................................... 240,287 241,919 233,218 291,058 -------- -------- ---------- -------- Operating profit................................ 84,143 113,272 97,710 104,062 Interest expense, net........................... (6,785) (7,522) (11,058) (13,842) Equity income (loss)............................ (974) (160) 336 (1,080) Other, net...................................... 104 1,256 3,192 3,211 -------- -------- ---------- -------- Income from continuing operations before income taxes......................................... 76,488 106,846 90,180 92,351 Income tax provision............................ 32,978 44,991 36,118 30,878 -------- -------- ---------- -------- Income from continuing operations............... 43,510 61,855 54,062 61,473 Discontinued operations, net.................... 1,723 4,131 12,862 10,696 -------- -------- ---------- -------- Net income...................................... $ 45,233 $ 65,986 $ 66,924 $ 72,169 ======== ======== ========== ======== Basic earnings per share: Continuing operations......................... $ .35 $ .56 $ .50 $ .64 Discontinued operations....................... .02 .04 .14 .12 -------- -------- ---------- -------- Basic earnings per share........................ $ .37 $ .60 $ .64 $ .76 ======== ======== ========== ======== Diluted earnings per share: Continuing operations......................... $ .34 $ .54 $ .49 $ .62 Discontinued operations....................... .02 .04 .13 .11 -------- -------- ---------- -------- Diluted earnings per share...................... $ .36 $ .58 $ .62 $ .73 ======== ======== ========== ========
NOTE 20 -- COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are defendants in actions for matters arising out of their business operations. In addition, from time to time, the Company and its subsidiaries are involved as parties in various governmental and administrative proceedings. The Company does not believe that any such proceedings currently pending will have a material adverse effect on its consolidated financial position, although an adverse resolution in any reporting period of one or more of these matters could have a material impact on results of operations for that period. To assure a long-term supply of newsprint for the Los Angeles Times, the Company has an agreement with a supplier to purchase specified quantities of newsprint at prevailing market prices. The specified quantities represent a majority of The Times' newsprint requirements. NOTE 21 -- SUBSEQUENT EVENTS The Company signed a definitive agreement in January 1999 with Big Entertainment, Inc. to sell Hollywood Online, Inc., and its Web site, hollywood.com. Pursuant to the agreement, Big Entertainment, Inc. will issue newly-issued stock to the Company with a then current quoted market value of $31,000,000. Big Entertainment, Inc. also has the right, under certain circumstances, to pay up to $1,000,000 of the merger consideration in cash. The transaction is subject to customary regulatory and shareholder approval. In February 1999, Eagle New Media Investments, Inc. LLC, an investment affiliate of the Company, acquired Newport Media, Inc., a publisher of shopper publications in the Long Island and New Jersey areas, for approximately $132,000,000. 66 68 THE TIMES MIRROR COMPANY SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS OF DOLLARS)
CHARGED TO BALANCE AT COSTS AND CHARGED DEDUCTIONS BALANCE AT BEGINNING EXPENSES TO OTHER FROM END OF OF PERIOD OR REVENUES ACCOUNTS RESERVES PERIOD ---------- ----------- -------- ---------- ---------- Year ended 12/31/98 Allowance for doubtful accounts.......... $31,511 $24,879 $1,348 $(24,563) $33,175 Allowance for returns.................... 11,258 60,055 176 (59,676) 11,813 ------- ------- ------ -------- ------- $42,769 $84,934 $1,524(A) $(84,239) $44,988 ======= ======= ====== ======== ======= Year ended 12/31/97 Allowance for doubtful accounts.......... $28,825 $24,180 $ 704 $(22,198) $31,511 Allowance for returns.................... 13,796 53,935 (1,506) (54,967) 11,258 ------- ------- ------ -------- ------- $42,621 $78,115 $ (802)(A) $(77,165) $42,769 ======= ======= ====== ======== ======= Year ended 12/31/96 Allowance for doubtful accounts.......... $24,475 $25,944 $ 185 $(21,779) $28,825 Allowance for returns.................... 12,125 58,919 -- (57,248) 13,796 ------- ------- ------ -------- ------- $36,600 $84,863 $ 185 $(79,027) $42,621 ======= ======= ====== ======== =======
- --------------- (A) Primarily allowances of businesses acquired and sold. Note: A detailed schedule of restructuring liabilities has been provided in Note 6 of the notes to consolidated financial statements. 67 69 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Company's principal officers, including executive officers, are listed in Part I hereof. The information under the headings "Election of Directors," "Nominees for Directors," "Continuing Directors," "Certain Relationships and Related Transactions" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive Proxy Statement for the Company's 1999 Annual Meeting of Shareholders to be filed by the Company with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information contained under the headings "Compensation of Directors" and "Executive Compensation" in the definitive Proxy Statement for the Company's 1999 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under the heading "Ownership of Voting Securities" in the definitive Proxy Statement for the Company's 1999 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained under the headings "Executive Compensation" and "Certain Relationships and Related Transactions" in the definitive Proxy Statement for the Company's 1999 Annual Meeting of Shareholders is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) and (a)(2) Financial Statements and Financial Statement Schedules filed as part of this report: As listed in the Index to Financial Statements and Financial Statement Schedule on page 31 hereof. (a)(3) Exhibits filed as part of this report: As listed in the Exhibit Index beginning on page 71 hereof. (b) Reports on Form 8-K: The Company filed a report on Form 8-K dated October 9, 1998 announcing the completion of the acquisition by Harcourt General, Inc. of the Company's health science publisher, Mosby, Inc. The Company filed a report on Form 8-K dated October 9, 1998 relating to the disposition of Mosby, Inc. The Company filed a report on Form 8-K dated December 21, 1998 announcing purchases of the Company's Series A Common Stock. 68 70 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE TIMES MIRROR COMPANY By: /s/ MARK H. WILLES ------------------------------------ Mark H. Willes Chairman of the Board, President and Chief Executive Officer Dated: March 4, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ MARK H. WILLES Chairman of the Board, March 4, 1999 - ----------------------------------------------------- President, Chief Executive Mark H. Willes Officer and Director (Principal Executive Officer) /s/ THOMAS UNTERMAN Executive Vice President and March 4, 1999 - ----------------------------------------------------- Chief Financial Officer Thomas Unterman (Principal Financial and Accounting Officer) /s/ GWENDOLYN GARLAND BABCOCK Director March 4, 1999 - ----------------------------------------------------- Gwendolyn Garland Babcock /s/ DONALD R. BEALL Director March 4, 1999 - ----------------------------------------------------- Donald R. Beall /s/ JOHN E. BRYSON Director March 4, 1999 - ----------------------------------------------------- John E. Bryson /s/ BRUCE CHANDLER Director March 4, 1999 - ----------------------------------------------------- Bruce Chandler /s/ CLAYTON W. FRYE, JR. Director March 4, 1999 - ----------------------------------------------------- Clayton W. Frye, Jr. /s/ ROGER GOODAN Director March 4, 1999 - ----------------------------------------------------- Roger Goodan /s/ SHERRY LANSING Director March 4, 1999 - ----------------------------------------------------- Sherry Lansing /s/ DAWN GOULD LEPORE Director March 4, 1999 - ----------------------------------------------------- Dawn Gould Lepore /s/ ALFRED E. OSBORNE, JR. Director March 4, 1999 - ----------------------------------------------------- Alfred E. Osborne, Jr.
69 71
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT W. SCHULT Director March 4, 1999 - ----------------------------------------------------- Robert W. Schult /s/ WILLIAM STINEHART, JR. Director March 4, 1999 - ----------------------------------------------------- William Stinehart, Jr. /s/ WARREN B. WILLIAMSON Director March 4, 1999 - ----------------------------------------------------- Warren B. Williamson /s/ EDWARD ZAPANTA Director March 4, 1999 - ----------------------------------------------------- Edward Zapanta
70 72 EXHIBIT INDEX Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by Times Mirror, or its predecessor Old Times Mirror, with the Securities and Exchange Commission, as indicated. All other documents listed are filed with this report, unless otherwise indicated.
EXHIBIT NO. ------- *2.1 Agreement and Plan of Merger by and among Times Mirror, Chandis Acquisition Corporation, Chandis Securities Company, and the shareholders of Chandis Securities Company, dated August 8, 1997 (Exhibit 2.1 to Times Mirror's Current Report on Form 8-K, dated August 8, 1997) *2.2 Contribution Agreement among Times Mirror, certain subsidiaries thereof, Chandler Trust No. 1 and Chandler Trust No. 2, dated August 8, 1997 (Exhibit 10.2 to Current Report on Form 8-K, dated August 8, 1997) *2.3 Amended and Restated Agreement and Plan of Merger, dated as of April 27, 1998, by and among Reed Elsevier U.S. Holdings Inc., Reed Elsevier Overseas BV, CBM Acquisition Parent Co., CBM MergerSub Corp., Times Mirror, TMD, Inc. and Matthew Bender Company, Incorporated (Exhibit 2.1 to Times Mirror's Current Report on Form 8-K, dated July 31, 1998) *2.4 Partnership Interest Purchase Agreement, dated as of April 26, 1998, by and among Times Mirror, Shepard's Inc., TM ShepCo, Inc., Reed Elsevier Inc. and Reed Books Inc. (Exhibit 2.2 to Times Mirror's Current Report on Form 8-K dated July 31, 1998) *2.5 Amended and Restated Agreement and Plan of Merger, dated as of October 8, 1998 by and among Harcourt Brace & Company, Mosby Parent Corp., Mosby Acquisition Corp., Times Mirror and Mosby, Inc. (Exhibit 2.1 to Times Mirror's Current Report on Form 8-K, dated October 9, 1998) *3.1 Restated Certificate of Incorporation of Times Mirror, as filed with the Secretary of State of the State of Delaware on January 23, 1995 (Exhibit to Times Mirror's Registration Statement on Form S-4 (File No. 33-87482)) *3.2 Certificate of Amendment to Certificate of Incorporation of Times Mirror, as filed with the Secretary of State of the State of Delaware on February 1, 1995 (Exhibit to Times Mirror's Registration Statement on Form S-4 (File No. 33-87482)) *3.3 Certificate of Designations of Series C Common Stock, as filed with the Secretary of State of the State of Delaware on January 23, 1995 (Exhibit to Times Mirror's Registration Statement on Form S-4 (File No. 33-87482)) 3.4 Amended and Restated Bylaws of Times Mirror *3.5 Certificate of Designations of Series A Preferred Stock (Exhibit 3.5 to Times Mirror's 1995 Annual Report on Form 10-K) *3.6 Certificate of Designations of Series B Preferred Stock (Exhibit 3.6 to Times Mirror's 1995 Annual Report on Form 10-K) *3.7 Certificate of Designation of Series C-1 Preferred Stock (Exhibit 4.1 to Times Mirror's Current Report on Form 8-K, dated August 8, 1997) *3.8 Certificate of Designation of Series C-2 Preferred Stock (Exhibit 4.2 to Times Mirror's Current Report on Form 8-K, dated August 8, 1997) *4.1 Indenture by and between New TMC Inc. (subsequently changed to The Times Mirror Company) and Wells Fargo Bank (successor to First Interstate Bank of California), as Trustee for the 7 1/4% Debentures due 2013 and 7 1/2% Debentures due 2023, dated January 30, 1995 (Exhibit 4.1 to Times Mirror's 1995 Annual Report on Form 10-K)
71 73
EXHIBIT NO. ------- *4.2 Specimen Note for 7 1/4% Debenture due March 1, 2013 (New TMC Inc., subsequently changed to The Times Mirror Company) (Exhibit 4.2 to Times Mirror's 1995 Annual Report on Form 10-K) *4.3 Specimen Note for 7 1/2% Debenture due July 1, 2023 (New TMC Inc., subsequently changed to The Times Mirror Company) (Exhibit 4.3 to Times Mirror's 1995 Annual Report on Form 10-K) *4.4 Indenture dated March 19, 1996, by and between The Times Mirror Company and Citibank, N.A., as Trustee for the 4 1/4% PEPS due March 15, 2001 and the 7 1/4% Debentures due November 15, 2096 (Exhibit 4.1 to Times Mirror's Current Report on Form 8-K, dated March 19, 1996) *4.5 Officers' Certificate dated as of March 19, 1996 establishing the terms of the PEPS and attaching the Specimen Certificate for the 4 1/4% PEPS due March 15, 2001 and the Specimen Certificate of Global PEPS (Exhibit 4.2 to Times Mirror's Current Report on Form 8-K, dated March 19, 1996) *4.6 Officers' Certificate dated November 13, 1996 establishing the terms of the 7 1/4% Debentures due November 15, 2096 and attaching the specimen Form of Debenture (Exhibit 4.2 to Times Mirror's Current Report on form 8-K, dated November 13, 1996) *4.7 Indenture dated April 15, 1997 between Times Mirror and Citibank, N.A., as trustee (Exhibit 4.1 to Times Mirror's Current Report on Form 8-K, dated April 9, 1997) *4.8 Officer's Certificate dated September 9, 1997 establishing the terms of the 6.61% Debentures due September 15, 2027 and attaching the specimen Form of Debenture (Exhibit 4.2 to Times Mirror's Current Report on Form 8-K, dated September 9, 1997) *10.1 Deferred Compensation Plan for Executives (Exhibit 10.1 to Times Mirror's 1994 Annual Report on Form 10-K) *10.2 1987 Restricted Stock Plan (Exhibit II to Old Times Mirror's definitive Proxy Statement, dated March 27, 1987) *10.3 1984 Executive Stock Option Plan (Exhibit A to Old Times Mirror's definitive Proxy Statement, dated April 23, 1984) *10.4 1988 Executive Stock Option Plan (Exhibit A to Old Times Mirror's Proxy Statement, dated March 30, 1988) *10.5 Deferral Plan for Directors' Fees (Exhibit 10.8 to Old Times Mirror's 1981 Annual Report on Form 10-K) *10.6 The Times Mirror Pension Plan for Directors, as Amended and Restated on March 5, 1987 (Exhibit 10.11 to Old Times Mirror's 1986 Annual Report on Form 10-K) *10.7 Deferred Compensation Plan for Non-Employee Directors (Exhibit 10.7 to Times Mirror's 1994 Annual Report on Form 10-K) *10.8 Non-Employee Director Stock Option Plan (Appendix A to Old Times Mirror's definitive Proxy Statement, dated March 21, 1994) *10.9 Agreement dated April 29, 1985 between Old Times Mirror and Otis Chandler (Exhibit 10.10 to Old Times Mirror's 1985 Annual Report on Form 10-K) *10.10 Letter Agreement amended and restated as of August 28, 1995 between Times Mirror and Mark H. Willes (Exhibit 10.10 to Times Mirror's 1995 Annual Report on Form 10-K) *10.11 1992 Key Employee Long-Term Incentive Plan (Appendix A to Old Times Mirror's Proxy Statement, dated March 20, 1992) *10.12 1996 Management Incentive Plan (Exhibit 10.12 to Times Mirror's 1995 Annual Report on Form 10-K)
72 74
EXHIBIT NO. ------- *10.13 Non-Employee Directors Stock Plan (Exhibit 10.13 to Times Mirror's 1995 Annual Report on Form 10-K) *10.14 The Times Mirror Company Non-Employee Directors Stock Plan As Amended and Restated Effective January 1, 1997 (Exhibit 10.14 to Times Mirror's 1996 Annual Report on Form 10-K) *10.15 The Times Mirror Company 1997 Directors Stock Option Plan (Exhibit 10.15 to Times Mirror's 1996 Annual Report on Form 10-K) *10.16 Limited Liability Company Agreement of TMCT, LLC, dated August 8, 1997 (Exhibit 10.1 to Times Mirror's Current Report on Form 8-K, dated August 8, 1997) *10.17 Registration Rights Agreement by and among Times Mirror and the shareholders of Chandis Securities Company, dated August 8, 1997 (Exhibit 10.3 to Times Mirror's Current Report on Form 8-K, dated August 8, 1997) *10.18 Lease Agreement between TMCT, LLC and Times Mirror, dated August 8, 1997 (Exhibit 10.4 to Times Mirror's Current Report on Form 8-K, dated August 8, 1997) 11 Computation of Earnings Per Share 12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Dividends 21 Subsidiaries of the Registrant 23 Consent of Ernst & Young LLP, Independent Auditors 27 Financial Data Schedule
73 EX-3.4 2 AMENDED AND RESTATED BYLAWS OF TIMES MIRROR 1 EXHIBIT 3.4 THE TIMES MIRROR COMPANY (A DELAWARE CORPORATION) AMENDED AND RESTATED BYLAWS EFFECTIVE MARCH 4, 1999 ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of The Times Mirror Company (hereinafter called the Corporation) shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. Principal Office. The principal office for the transaction of the business of the Corporation shall be at Times Mirror Square, in the City of Los Angeles, County of Los Angeles, State of California. The Board of Directors (hereinafter called the Board) is hereby granted full power and authority to change said principal office from one location to another. SECTION 3. Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. Place of Meetings. All annual meetings of stockholders and all other meetings of stockholders shall be held either at the principal office or at any other place within or without the State of Delaware which may be designated by the Board pursuant to authority hereinafter granted to said Board. SECTION 2. Annual Meetings. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution. SECTION 3. Special Meetings. Special meetings of the stockholders of the Corporation for any purpose or purposes may only be called in accordance with the provisions in the Certificate of Incorporation. 2 SECTION 4. Notice of Meetings. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Notice may be given (i) by delivering a written notice thereof to him personally, (ii) by depositing notice in the United States mail, in a postage prepaid envelope, directed to him at his address furnished by him to the Secretary of the Corporation for the purpose of receiving notice or, if he shall not have furnished to the Secretary his address for such purpose, then at his address last known to the Secretary, or (iii) by transmitting the notice to him at such address by any electronic means. Except as otherwise expressly required by law, no publication of any notice of a meeting of stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, shall also state the purpose for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder to whom notice may be omitted pursuant to applicable Delaware law or who shall have waived such notice and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. SECTION 5. Quorum. Except as otherwise required by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. Subject to the requirement of a larger percentage vote contained in the Certificate of Incorporation, these Bylaws or by statute, the stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. SECTION 6. Voting. (a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: 2 3 (i) on the date fixed pursuant to Article VI, Section 5 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy duly authorized as such by any means permitted under the General Corporation Law of the State of Delaware (including without limitation in writing or by transmitting or authorizing an electronic transmission, or by any copy, facsimile, telecommunication or other reproduction of such authorization) and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing, or by any other means permissible for authorizing a proxy, so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted. 3 4 SECTION 7. List of Stockholders. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, of not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 8. Judges. If at any meeting of stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint a judge or judges to act with respect to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of his ability. Such judges shall decide upon the qualification of the voters and shall certify and report the number of shares represented at the meeting and entitled to vote on such question, determine the number of votes entitled to be cast by each share, conduct and accept the votes, and, when the voting is completed, ascertain and report the number of shares voted respectively for and against the question, and determine and retain for a reasonable period a record of the disposition of any challenge made to any determination made by such judges. Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which he shall have a material interest. The judges may appoint or retain other persons or entities to assist the judges in the performance of the duties of the judges. ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. Subject to any requirements in the Certificate of Incorporation, the Bylaws, and of the Delaware General Corporation Law as to action which must be authorized or approved by the stockholders, any and all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be under the direction of the Board to the fullest extent permitted by law. Without limiting the generality of the foregoing, it is hereby expressly declared that the directors shall have the following powers, to wit: First - To select and remove all officers, agents and employees of the Corporation, prescribe such powers and duties for them as may not be inconsistent with law, with the Certificate of Incorporation or the Bylaws, fix their compensation, and require from them security for faithful service. 4 5 Second - To conduct, manage and control the affairs and business of the Corporation, and to make such rules and regulations therefor not inconsistent with law, or with the Certificate of Incorporation or the Bylaws, as they may deem best. Third - To change the location of the registered office of the Corporation in Article I, Section I hereof; to change the principal office and the principal office for the transaction of the business of the Corporation from one location to another as provided in Article I, Section 2, hereof; to fix and locate from time to time one or more subsidiary offices of the Corporation within or without the State of Delaware as provided in Article I, Section 3 hereof; to designate any place within or without the State of Delaware for the holding of any stockholders' meeting or meetings; and to adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time, as in their judgment they may deem best, provided such seal and such certificate shall at all times comply with the provisions of law. Fourth - To authorize the issue of shares of stock of the Corporation from time to time, upon such terms and for such considerations as may be lawful. Fifth - To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust and securities therefor. Sixth - By resolution adopted by a majority of the authorized number of directors, to designate an executive and other committees, each consisting of one or more directors, to serve at the pleasure of the Board, and to prescribe the manner in which proceedings of such committee shall be conducted. Unless the Board or these Bylaws shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee may be regularly scheduled in advance and may be called at any time by the chairman of the committee or by any two members thereof; otherwise, the provisions of these Bylaws with respect to notice and conduct of meetings of the Board shall govern. Any such committee, to the extent provided in a resolution of the Board and subject to any restrictions or limitations on the delegation of power and authority imposed by applicable Delaware law, shall have and may exercise all of the powers and authority of the Board. SECTION 2. Number and Term of Office. The authorized number of directors of this Corporation shall be not less than ten (10) nor more than twenty (20) until this Section 2 is amended by a resolution duly adopted by the directors or by the shareholders, in either case in accordance with the provisions of Article XVI of the Certificate of Incorporation. The authorized number of directors shall be fixed at fourteen (14) until such authorized number is changed by a resolution duly adopted by the directors or by the shareholders, in either case in accordance with the provisions of Article XVI of the Certificate of Incorporation. Directors need not be shareholders. Each of the directors of the Corporation shall serve until his or her term has expired and his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. 5 6 SECTION 3. Election of Directors. The directors shall be elected by the stockholders of the Corporation, and at each election the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provision contained in the Certificate of Incorporation relating thereto, including any provision for a classified Board and for cumulative voting. SECTION 4. Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, it shall take effect immediately upon receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 5. Vacancies. Except as otherwise provided in the Certificate of Incorporation, any vacancy on the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum. Each director so chosen to fill a vacancy shall hold office until his successor shall have been elected and shall qualify or until he shall resign or shall have been removed. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. SECTION 6. Place of Meeting. The Board or any committee thereof may hold any of its meetings at such place or places within or without the State of Delaware as the Board or such committee may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board or any committee thereof by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board or such committee can hear each other, and such participation shall constitute presence in person at such meeting. SECTION 7. First Meeting. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. SECTION 8. Regular Meetings. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given. SECTION 9. Special Meetings. Special meetings of the Board for any purpose or purposes shall be called at any time by the Chairman of the Board or, if he is absent or unable or refuses to act, by the President or, if he is absent or unable or refuses to act, or by the Executive Vice President, or if he is absent or unable or refuses to act, by any Senior Vice President or by any Vice President or by any two directors. Except as otherwise provided by law or by these Bylaws, written notice of the time and place of special meetings shall be 6 7 delivered personally to each director, or sent to each director by mail or by other form of written communication, charges prepaid, addressed to him at his address as it is shown upon the records of the Corporation, or if it is not shown on such records and is not readily ascertainable, at the place in which the meetings of the directors are regularly held. In case such notice is mailed or telegraphed, it shall be deposited in the United States mail or delivered to the telegraph company in the County in which the principal office for the transaction of the business of the Corporation is located at least forty-eight (48) hours prior to the time of the holding of the meeting. In case such notice is delivered personally as above provided, it shall be so delivered at least twenty-four (24) hours prior to the time of the holding of the meeting. Such mailing, telegraphing or delivery as above provided shall be due, legal and personal notice to such director. Except where otherwise required by law or by these Bylaws, notice of the purpose of a special meeting need not be given. Notice of any meeting of the Board shall not be required to be given any director who is present at such meeting, except a director who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 10. Quorum and Manner of Acting. Except as otherwise provided in these Bylaws, the Certificate of Incorporation or by applicable law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided any action taken is approved by at least a majority of the required quorum for such meeting. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such. SECTION 11. Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if consent in writing is given thereto by all members of the Board or of such committee, as the case may be, and such consent is filled with the minutes of proceedings of the Board or committee. SECTION 12. Compensation. Directors who are not employees of the Corporation or any of its subsidiaries may receive an annual fee for their services as directors in an amount fixed by resolution of the Board, and in addition, a fixed fee, with or without expenses of attendance, may be allowed by resolution of the Board for attendance at each meeting, including each meeting of a committee of the Board. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation therefor. SECTION 13. Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of 7 8 the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board and subject to any restrictions or limitations on the delegation of power and authority imposed by applicable Delaware law, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board. ARTICLE IV OFFICERS SECTION 1. Officers. The officers of the Corporation shall be a Chairman of the Board, one or more Vice Chairmen of the Board, a President, one or more Executive Vice Presidents, Senior Vice Presidents and Vice Presidents, a Secretary, a Treasurer, a Controller, one or more Assistant Secretaries, Assistant Treasurers, and Assistant Controllers, and such other officers as may be appointed at the discretion of the Board in accordance with the provisions of Section 3 of this Article IV. One person may hold two or more offices, except that the Secretary may not hold the offices of Chairman of the Board or President. SECTION 2. Election. The officers of the Corporation, except such officers as may be appointed or elected in accordance with the provisions of Section 3 or Section 5 of this Article IV, shall be chosen annually by the Board at the organization meeting hereof, and each shall hold office until he or she shall resign or shall be removed or otherwise disqualified to serve, or his or her successor shall be elected and qualified. SECTION 3. Other Officers. In addition to the officers chosen annually by the Board at its organization meeting, the Board also may appoint or elect such other officers as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board may from time to time specify, and shall hold office until he or she shall resign or shall be removed or otherwise disqualified to serve, or his or her successor shall be elected and qualified. In addition to the officers elected by the Board, the Chief Executive Officer may appoint staff officers as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Chief Executive Officer may from time to time specify, and shall hold office until he or she shall resign or shall be removed or otherwise disqualified to serve, or his or her successor shall be elected and qualified. SECTION 4. Removal and Resignation. Any officer may be removed, either with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or by any officer upon whom such power of removal may be conferred by the Board. 8 9 Any officer may resign at any time by giving written notice to the Board or to the President or to the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 5. Vacancies. A vacancy is any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws for regular appointments to such office. SECTION 6. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and all meetings of the Board of Directors of the Corporation and shall exercise and perform any other powers and duties that are assigned to him by the Board of Directors of the Corporation or by these Bylaws. He shall be a member of the Executive Committee and shall be an ex officio member of all other committees. SECTION 7. Chief Executive Officer. The Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and affairs of the Corporation. He shall have the general powers and duties of management usually vested in the Chief Executive Officer of a Corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or by these Bylaws. SECTION 8. Vice Chairmen of the Board. The Vice Chairmen of the Board shall exercise and may perform such powers and duties as may be assigned to them by the Chairman of the Board, or by the Board, or as may be prescribed by the Bylaws. In the absence or disability of the Chairman of the Board, or in the event and during the period of a vacancy in that office, the Vice Chairmen, in order of their rank as fixed by the Board or, if not ranked, the Vice Chairman designated by the Board, shall preside at all meetings of the stockholders and at all meetings of the Board. SECTION 9. President. The President shall exercise and may perform such powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned by the Chairman of the Board, or by the Board, or as may be prescribed by the Bylaws. In the absence or disability of the Chairman of the Board and Vice Chairmen of the Board, or in the event and during the period of a vacancy in such office, the President shall perform all the duties of the Chairman of the Board and when so acting shall have all of the powers of, and be subject to all the restrictions upon, the Chairman of the Board and Chief Executive Officer of the Corporation. SECTION 10. Executive Vice Presidents. The Executive Vice Presidents shall exercise and may perform such powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned by the Chairman of the Board, or the Board, or as may be prescribed by these Bylaws. In the absence or disability of the Chairman of the Board, Vice Chairmen of the Board and the President, the Executive Vice Presidents in order of their rank as fixed by the Board or, if not ranked, the 9 10 Executive Vice President designated by the Board, shall perform all of the duties of the Chairman of the Board and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chairman of the Board and Chief Executive Officer of the Corporation. SECTION 11. Senior Vice Presidents and Vice Presidents. The Senior Vice Presidents and Vice Presidents shall exercise and may perform such powers and duties with respect to the Corporation as may from time to time be assigned to each of them by the Chairman of the Board, a Vice Chairman of the Board, the President, an Executive Vice President, or the Board, or as may be prescribed by these Bylaws. In the absence or disability of the Chairman of the Board, the Vice Chairmen of the Board, the President and the Executive Vice Presidents, the Senior Vice President and Vice President in order of their rank as fixed by the Board or, if not ranked, the Senior Vice President or Vice President designated by the Board shall perform all of the duties of the Chairman of the Board, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chairman of the Board and Chief Executive Officer of the Corporation. SECTION 12. Secretary. The Secretary shall keep, or cause to be kept, at the principal office, or such other place as the Board may order, a book of minutes of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses; the number of classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board required by these Bylaws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by these Bylaws or assigned by the Board, the Chairman of the Board, a Vice Chairman of the Board, the President, an Executive Vice President or any Senior Vice President or Vice President to whom the Secretary may report. If for any reason the Secretary shall fail to give notice of any special meeting of the Board called by one or more of the persons identified in the first paragraph of Section 9, Article III, or if the Secretary shall fail to give notice of any special meeting of the stockholders called by one or more of the persons identified in Section 2 , Article II, then any such person or persons may give notice of any such special meeting. SECTION 13. Treasurer. The Treasurer shall supervise, have custody of and be responsible for all funds and securities of the Corporation. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board or in accordance with authority delegated by 10 11 the Board. The Treasurer shall disburse the funds of the Corporation as may be ordered or authorized by the Board, shall render to the Chairman of the Board, the President and the directors, whenever they request it, an account of all transactions as Treasurer and shall have such other powers and perform such other duties as may be prescribed by these Bylaws or assigned by the Board, the Chairman of the Board, a Vice Chairman of the Board, the President, an Executive Vice President or any Senior Vice President or Vice President to whom the Treasurer may report. SECTION 14. Controller. The Controller shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid-in-surplus and surplus arising from a reduction of stated capital, shall be classified according to source and shown in a separate account. The books of account shall at all reasonable times be open to inspection by any director. The Controller also shall supervise the maintenance of adequate and correct accounts of the properties and business transactions of all subsidiaries of the Corporation and shall have such other powers and perform such other duties as may from time to time be prescribed by these Bylaws or assigned to him by the Board, the Chairman of the Board, a Vice Chairman of the Board, the President, an Executive Vice President or any Senior Vice President or Vice President to whom the Controller may report. ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. SECTION 1. Execution of Contracts. The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. SECTION 2. Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such officer, assistant, agent or attorney shall give such bond, if any, as the Board may require. SECTION 3. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the 11 12 purpose of collection for the account of the Corporation, the President, any Vice President or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. SECTION 4. General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositaries as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. ARTICLE VI SHARES AND THEIR TRANSFER SECTION 1. Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board, or the President or the Executive Vice President or a Senior Vice President or a Vice President, and by the Secretary or an Assistant Secretary. Any of or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall thereafter have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 4 of this Article VI. SECTION 2. Transfers of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 3 of Article VI, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so stated expressly in the entry of transfer if, when the certificate or certificates shall be presented to 12 13 the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 3. Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. SECTION 4. Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper to do so. SECTION 5. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other event for which a record date is fixed. When a record date is so fixed, only stockholders who are such of record on that date are entitled to notice of and to vote at the meeting or to give written consent without a meeting, or to receive any such report, dividend, distribution, or allotment or rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date. If in any case involving the determination of stockholders for any purpose other than notice of or voting as a meeting of stockholders or expressing consent to corporate action without a meeting the Board shall not fix such a record date, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VII INDEMNIFICATION SECTION 1. Actions, Etc. Other Than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including 13 14 attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not at in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. SECTION 2. Actions, Etc., by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. Indemnification of Agents. The Corporation may, but only to the extent that the Board of Directors may (but shall not be obligated to) authorize from time to time, grant rights to indemnification and to the advancement of expenses to any agent of the Corporation to the fullest extent of the provisions of this Article VII as they apply to the indemnification and advancement of expenses of directors and officers of the Corporation. SECTION 4. Determination of Right of Indemnification. Any indemnification under Section 1 of this Article VII or Section 2 of this Article VII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 of this Article VII or Section 2 of this Article VII. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. SECTION 5. Indemnification Against Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that a director, officer or employee of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 of this Article VII or Section 2 of this Article VII, or in 14 15 defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 6. Prepaid Expenses. Expenses incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. SECTION 7. Other Rights and Remedies. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 8. Insurance. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article. SECTION 9. Constituent Corporations. For the purposes of this Article, references to "the Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer or employee of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. SECTION 10. Other Enterprises, Fines, and Serving at the Corporation's Request. For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer or employee of the corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. 15 16 ARTICLE VIII MISCELLANEOUS SECTION 1. Seal. The Board shall adopt a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words showing that the Corporation is incorporated in the State of Delaware. SECTION 2. Waiver of Notices. Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. SECTION 3. Amendments. Except as otherwise provided herein or in the Certificate of Incorporation, these Bylaws, or any of them, may be altered, amended, repealed or rescinded and new Bylaws may be adopted, (i) by the Board, or (ii) by the stockholders, at any annual meeting of stockholders, or at any special meeting of stockholders, provided that notice of such proposed alteration, amendment, repeal, rescission or adoption is given in the notice of meeting. SECTION 4. Representation of Other Corporations. The Chairman of the Board or the President or the Executive Vice President or a Senior Vice President or any Vice President or the Secretary or any Assistant Secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any person authorized so to do by proxy or power of attorney duly executed by said officers. 16 EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 THE TIMES MIRROR COMPANY COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
FOURTH QUARTER ENDED DECEMBER 31 -------------------------- 1998 1997 ----------- ----------- BASIC Average shares outstanding.................................. 78,922,823 88,106,246 =========== =========== Income from continuing operations........................... $ 21,184 $ 61,473 Preferred dividend requirements............................. (5,425) (5,424) ----------- ----------- Earnings applicable to common shareholders from continuing operations................................................ 15,759 56,049 Income from discontinued operations......................... 225,143 10,696 ----------- ----------- Total earnings applicable to common shareholders....... $ 240,902 $ 66,745 =========== =========== Basic earnings per common share: Continuing operations..................................... $ .20 $ .64 Discontinued operations................................... 2.85 .12 ----------- ----------- Basic earnings per common share............................. $ 3.05 $ .76 =========== =========== DILUTED Average shares outstanding.................................. 78,922,823 88,106,246 Common shares assumed issued upon conversion of LYONs....... -- 2,914,000 Dilutive stock options based on the treasury stock method using average market price................................ 1,649,256 2,350,629 ----------- ----------- Total.................................................. 80,572,079 93,370,875 =========== =========== Income from continuing operations........................... $ 21,184 $ 61,473 Preferred dividend requirements............................. (5,425) (5,424) Interest expense on LYONs, net of tax....................... -- 1,403 ----------- ----------- Earnings applicable to common shareholders from continuing operations................................................ 15,759 57,452 Income from discontinued operations......................... 225,143 10,696 ----------- ----------- Total earnings applicable to common shareholders....... $ 240,902 $ 68,148 =========== =========== Diluted earnings per common share: Continuing operations..................................... $ .20 $ .62 Discontinued operations................................... 2.79 .11 ----------- ----------- Diluted earnings per common share........................... $ 2.99 $ .73 =========== ===========
74 EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 THE TIMES MIRROR COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS (IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31 ----------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- --------- -------- Fixed charges: Interest expense........................... $ 76,352 $ 41,766 $ 20,153 $ 22,305 $ 54,101 Interest related to ESOP(a)................ -- -- -- -- 1,376 Capitalized interest....................... -- -- -- 485 1,042 Portion of rents deemed to be interest..... 14,012 15,219 15,496 16,761 16,077 Amortization of debt expense............... 2,151 1,417 529 411 335 -------- -------- -------- --------- -------- Total fixed charges................... 92,515 58,402 36,178 39,962 $ 72,931 ======== Preferred stock dividend requirements...... 46,651 53,797 72,268 74,581 -------- -------- -------- --------- Fixed charges and preferred stock dividends................................ $139,166 $112,199 $108,446 $ 114,543 ======== ======== ======== ========= Earnings (loss): Income (loss) from continuing operations before income taxes...................... $200,852 $365,865 $280,167 $(288,638) $140,166 Fixed charges, less capitalized interest and interest related to ESOP(a).......... 92,515 58,402 36,178 39,477 70,513 Amortization of capitalized interest....... 3,902 3,966 4,094 4,475 4,227 Distributed income from less than 50% owned unconsolidated affiliates................ -- 92 191 191 191 Equity loss (income) from less than 50% owned unconsolidated affiliates.......... 13,146 6,379 (115) (1,917) 1,329 -------- -------- -------- --------- -------- Total earnings (loss)................. $310,415 $434,704 $320,515 $(246,412) $216,426 ======== ======== ======== ========= ========
Ratio of earnings to fixed charges......... 3.4x 7.4x 8.9x (b) 3.0x Ratio of earnings to fixed charges and preferred stock dividends................ 2.2x 3.9x 3.0x (c)
- --------------- (a) The Company guaranteed repayment of debt of the Employee Stock Ownership Plan (ESOP) and, accordingly, included the related interest in fixed charges. This debt was repaid on December 15, 1994. (b) Earnings are approximately $286 million lower than the amount needed to cover fixed charges in this year, as earnings were impacted by approximately $541 million in restructuring charges. (c) Earnings are approximately $361 million lower than the amount needed to cover fixed charges and preferred stock dividends in this year, as earnings were impacted by approximately $541 million in restructuring charges. 75 EX-21 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE TIMES MIRROR COMPANY AS OF DECEMBER 31, 1998*
STATE (OR COUNTRY) NAME OF INCORPORATION ---- ------------------ AchieveGlobal, Inc.......................................... Florida The Baltimore Sun Company................................... Maryland Eagle New Media Investments, LLC**.......................... Delaware Eagle Publishing Investments, LLC **........................ Delaware E Z Buy & E Z Sell Recycler Corporation..................... Delaware The Hartford Courant Company................................ Connecticut Jeppesen & Co., GmbH***..................................... Germany Jeppesen Sanderson, Inc..................................... Delaware The Morning Call, Inc....................................... Pennsylvania Newsday, Inc.***............................................ New York The StayWell Company........................................ Delaware Times Mirror Magazines, Inc. ***............................ New York
- --------------- * The names of certain other subsidiaries have been omitted because, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary. The Los Angeles Times is a division of The Times Mirror Company. ** Affiliates that are controlled by the Registrant as described in Note 4 to the consolidated financial statements. *** 100% owned by a wholly-owned subsidiary of the Registrant. (All other subsidiaries listed above are directly wholly-owned by the Registrant.) 76 EX-23 6 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-3 Nos. 333-38605, 333-34691 and 333-30773) and in the Registration Statements (Form S-8 Nos. 333-32773 and 33-65259) of our report dated February 8, 1999, with respect to the consolidated financial statements and schedule of The Times Mirror Company included in its Annual Report (Form 10-K) for the year ended December 31, 1998. ERNST & YOUNG LLP Los Angeles, California March 23, 1999 77 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31, 1998 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1,056,341 49,438 413,728 44,988 39,282 1,629,259 1,892,167 976,175 4,218,306 973,492 941,423 0 724,820 112,089 505,544 4,218,306 3,009,085 3,009,085 1,518,611 1,518,611 200,806 24,879 76,154 200,852 107,438 93,414 1,323,924 0 0 1,417,338 16.46 16.06
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