-----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, VPP+Btes0v1DCF+u0ctBdI63xnWQBCBxekLuFFcXvMo3Zajruw5pCrN2fQ385Abe gIW6azELTewE6A4pi4W1Yg== 0000726513-00-000006.txt : 20000317 0000726513-00-000006.hdr.sgml : 20000317 ACCESSION NUMBER: 0000726513-00-000006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991226 FILED AS OF DATE: 20000316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIBUNE CO CENTRAL INDEX KEY: 0000726513 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 361880355 STATE OF INCORPORATION: DE FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08572 FILM NUMBER: 571854 BUSINESS ADDRESS: STREET 1: 435 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3122229100 10-K405 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 26, 1999 Commission file number 1-8572 TRIBUNE COMPANY (Exact name of registrant as specified in its charter) Delaware 36-1880355 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 435 North Michigan Avenue, Chicago, Illinois 60611 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (312) 222-9100 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock (without par value) New York Stock Exchange Preferred Share Purchase Rights Chicago Stock Exchange Pacific Stock Exchange 6 1/4% Exchangeable Notes Due August 15, 2001 New York Stock Exchange 2% Exchangeable Subordinated Debentures Due 2029 New York Stock Exchange 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] Aggregate market value of the Company's voting and non-voting common equity held by non-affiliates on March 7, 2000, based upon the closing price of the Company's Common Stock as reported on the New York Stock Exchange Composite Transactions list for such date: approximately $7,407,000,000. At March 7, 2000 there were 237,490,572 shares of the Company's Common Stock outstanding. The following documents are incorporated by reference, in part: 1999 Annual Report to Shareholders (Parts I and II, to the extent described therein). Definitive Proxy Statement for the May 2, 2000 Annual Meeting of Shareholders (Part III, to the extent described therein). ================================================================================ PART I ITEM 1. BUSINESS. Tribune Company ("Tribune" or the "Company") is a media company. Through its subsidiaries, the Company is engaged in the publishing of newspapers, books, educational materials and information in print and digital formats and the broadcasting, development and distribution of information and entertainment principally in metropolitan areas in the United States. The Company was founded in 1847 and incorporated in Illinois in 1861. As a result of a corporate restructuring in 1968, the Company became a holding company incorporated in Delaware. References in this report to "the Company" include Tribune Company and its subsidiaries, unless the context otherwise indicates. The information in this Item 1 should be read in conjunction with the information contained under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's 1999 Annual Report to Shareholders, which information is incorporated herein by reference. Certain prior year amounts have been reclassified to conform with the 1999 presentation. All Company share and per share data have been restated to reflect a two-for-one common stock split effective Sept. 9, 1999. This Annual Report on Form 10-K contains certain forward-looking statements that are based largely on the Company's current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such risks, trends and uncertainties, which in some instances are beyond the Company's control, include changes in advertising demand; newsprint prices; interest rates; competition; regulatory rulings and other economic conditions; the effect of professional sports team labor strikes, lock-outs and negotiations; the effect of acquisitions, investments and divestitures on the Company's results of operations and financial condition; and the Company's reliance on third-party vendors for various services. The words "believe," "expect," "anticipate," "estimate" and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are as of the date of this filing. Recent Developments On March 13, 2000, Tribune and The Times Mirror Company ("Times Mirror") announced the signing of a definitive agreement for a merger of the two companies in a cash and stock transaction valued at approximately $8 billion. Times Mirror publishes the Los Angeles Times, Newsday, The Baltimore Sun, The Hartford Courant, The Morning Call, The (Stamford) Advocate, Greenwich Time and several smaller newspapers. Times Mirror also provides information to the aviation market and publishes magazines. The combined company will have a major presence in 18 of the nation's top 30 U.S. markets, including New York, Los Angeles and Chicago. Tribune will make a cash tender offer for up to 28 million Times Mirror shares (approximately 48% of shares outstanding) at a price of $95 per share. Following completion of the tender offer, Tribune and Times Mirror will merge in a transaction in which each remaining Times Mirror shareholder will receive 2.5 shares of Tribune common stock for each share of Times Mirror stock held. In addition, if fewer than 28 million Times Mirror shares are purchased in the tender offer, Times Mirror shareholders will be permitted to elect cash in the merger, up to the balance of the 28 million shares. The merger is subject to the approval of the shareholders of both companies. It is also subject to other customary conditions, including Hart-Scott-Rodino clearance. The Chandler Trusts, who control the vote of approximately 65% of Times Mirror, have signed a voting agreement committing to vote their shares in favor of the transaction. The companies expect the tender offer to be completed in mid-April and the merger to be completed in the second or third quarter of 2000. The companies expect the transaction to be tax-free to Times Mirror shareholders who elect to take Tribune stock. Further information concerning this transaction is included in the Company's two reports on Form 8-K, both dated March 13, 2000. 1 Business Segments The Company's operations are divided into three industry segments, identified according to product: publishing, broadcasting and entertainment, and education. These segments operate primarily in the United States. The following table sets forth operating revenues and profit information for each segment of the Company (in thousands).
Fiscal Year Ended December -------------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Operating Revenues: (1) Publishing............................................. $1,580,226 $1,498,573 $1,436,718 Broadcasting and Entertainment......................... 1,302,058 1,153,006 1,057,529 Education.............................................. 339,606 329,310 225,533 ---------- ---------- ---------- Total Operating Revenues.......................... $3,221,890 $2,980,889 $2,719,780 ---------- ---------- ---------- Operating Profit: (2) Publishing............................................. $ 396,539 $ 377,137 $ 354,585 Broadcasting and Entertainment......................... 378,798 317,355 285,896 Education.............................................. 34,570 43,232 35,976 Corporate Expenses..................................... (39,467) (35,435) (34,426) ---------- ---------- ---------- Total Operating Profit............................ $ 770,440 $ 702,289 $ 642,031 ---------- ---------- ---------- - ----- (1) Includes revenues earned outside the United States, which were not significant. (2) Operating profit for each segment excludes interest income and expense, equity earnings and losses, non-operating items and income taxes.
The following table sets forth asset information for each industry segment (in thousands).
Fiscal Year Ended December ---------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Assets: Publishing............................................. $ 947,530 $ 800,853 $ 668,532 Broadcasting and Entertainment......................... 3,711,416 3,148,814 2,923,663 Education.............................................. 815,693 782,438 717,301 Corporate (1).......................................... 3,323,052 1,203,465 468,058 ---------- ---------- ---------- Total Assets...................................... $8,797,691 $5,935,570 $4,777,554 ---------- ---------- ---------- - ----- (1) Corporate assets include cash and the Company's investment portfolio.
The Company's results of operations, when examined on a quarterly basis, reflect the seasonality of the Company's revenues. In both publishing and broadcasting and entertainment, second and fourth quarter advertising revenues are typically higher than first and third quarter revenues. Results for the second quarter usually reflect spring advertising, while the fourth quarter includes advertising related to the holiday season. In education, second and third quarter revenues are typically higher than first and fourth quarter revenues. Results for the second and third quarters generally reflect the timing of sales to educational institutions for the upcoming school year, which begins in September. Fiscal years 1999, 1998 and 1997 all comprised 52 weeks. 2 Publishing The publishing segment represented 49% of the Company's consolidated operating revenues in 1999. The 12-month combined average circulation in 1999 of the Company's daily newspapers was approximately 1.2 million daily and 1.9 million Sunday. The Company's primary newspapers are the Chicago Tribune, the South Florida-based Sun-Sentinel, The Orlando Sentinel and the Hampton Roads (VA)-based Daily Press. The Company formerly owned two daily newspapers and a weekly newspaper located in suburban areas in the San Diego, California market that were sold in July 1995. For 1999, the portion of total publishing operating revenues represented by each of the Company's newspaper subsidiaries was as follows: Chicago Tribune Company--52%; Sun-Sentinel Company--21%; Orlando Sentinel Communications Company--17%; and The Daily Press, Inc.--4%. In addition, the Company owns an entertainment listings, newspaper syndication and media marketing company, a Chicago-area cable television news channel and other publishing-related businesses. The Company also operates the Internet sites of the Company's newspapers and broadcasting stations, and develops new online products and services. Each of the Company's newspapers operates independently to most effectively meet the needs of the area it serves. Local management establishes editorial policies. The Company coordinates certain aspects of operations and resources in order to provide greater operating efficiency and economies of scale. The Company's newspapers compete for readership and advertising in varying degrees with other metropolitan, suburban and national newspapers, as well as with television, radio, Internet services and other media. Competition for newspaper advertising is based upon circulation levels, readership demographics, price, service, and advertiser results, while competition for circulation is based upon the content of the newspaper, service and price. The Company's newspapers are printed in Company-owned production facilities. The principal raw material is newsprint. In 1999, the Company's newspapers consumed approximately 386,000 metric tons of newsprint. Average newsprint transaction prices decreased 15% in 1997 from 1996. Average newsprint prices remained relatively steady in 1998, increasing 3% from 1997. Average newsprint prices declined throughout 1999, decreasing 11% from 1998. The Company is party to a contract with Donohue Inc., expiring in 2007, to supply newsprint based on market prices. Under the contract, the Company has agreed to purchase 257,000 metric tons of newsprint in each of the years 2000 to 2007, subject to certain limitations. In 1999, approximately 67% of the newspapers' newsprint supply was purchased from Donohue. The following table provides a breakdown of revenues for the publishing segment for the last three years. Operating Revenues (In thousands)
Fiscal Year Ended December -------------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Advertising Retail..................................................... $ 481,137 $ 469,588 $ 455,104 General.................................................... 187,508 154,696 149,681 Classified ................................................ 532,616 537,655 510,753 ---------- ---------- ---------- Total.................................................... 1,201,261 1,161,939 1,115,538 Circulation ................................................. 241,258 243,842 250,558 Other (1).................................................... 137,707 92,792 70,622 ---------- ---------- ---------- Total.................................................... $1,580,226 $1,498,573 $1,436,718 ---------- ---------- ---------- - ----- (1) Primarily includes revenues from advertising placement services; the syndication of columns, features, information and
3 comics to newspapers; commercial printing operations; delivery of other publications; direct mail operations; revenues from Internet/electronic products; cable television news programming; distribution of entertainment listings; and other publishing-related activities. Advertising revenues grew in 1999 mainly due to higher general revenues resulting from volume and rate increases and the September 1998 acquisition of Sun-Sentinel Community News Group (formerly South Florida Newspaper Network). Retail advertising revenues grew due to the acquisition of Sun-Sentinel Community News Group. General advertising revenues grew primarily due to increases in Chicago in the high-tech, financial and resorts categories and gains in automotive advertising in Orlando, Fort Lauderdale and Chicago. Classified advertising revenues decreased mainly due to declines in Chicago in the help wanted and real estate advertising categories, partially offset by improved automotive advertising; increased help wanted advertising in Fort Lauderdale; improved real estate advertising in Orlando; and higher Internet advertising. Other revenues increased in 1999 primarily from the acquisition of JDTV in February 1999 and higher revenues from direct mail and commercial printing operations. Chicago Tribune Company Founded in 1847, the Chicago Tribune is published daily, including Sunday, and primarily serves a nine-county market in northern Illinois and Indiana. This market ranks third in the United States in number of households. For the six months ended September 1999, the Chicago Tribune ranked 7th in average daily circulation and 4th in average Sunday circulation in the nation, based on Audit Bureau of Circulations ("ABC") averages. For the six months ended September 1999, the Chicago Tribune had a 34% lead in total daily paid circulation and a 149% lead in Sunday paid circulation over its principal competitor, the Chicago Sun-Times, based on ABC averages. The Chicago Tribune's total advertising volume and operating revenues are estimated to be substantially greater than those of the Sun-Times. The Chicago Tribune also competes with other city, suburban and national daily newspapers, direct mail operations, local and national Internet services and other media. Approximately 77% of the paper's daily and 62% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. The daily edition's newsstand price increased by $.15 to $.50 in September 1992. The Sunday edition's newsstand price increased by $.25 to $1.75 in October 1995. In August 1999, the weekly home delivery price increased $.20 to $4.40. The following tables set forth selected information for the Chicago Tribune daily newspaper and other related activities.
Averages for the Twelve Months Ended December ----------------------------------------------- 1999 1998 1997 --------- --------- --------- Circulation: Daily ................................................... 632,000 653,000 656,000 Sunday................................................... 1,014,000 1,027,000 1,028,000
Fiscal Year Ended December ----------------------------------------------- 1999 1998 1997 -------- -------- -------- Advertising Inches (in thousands): Full Run (all zones) Retail................................................. 908 907 923 General................................................ 405 367 361 Classified............................................. 1,347 1,420 1,406 -------- -------- -------- Total............................................... 2,660 2,694 2,690 Part Run................................................. 5,209 5,325 5,445 Preprinted Inserts....................................... 4,514 4,229 3,347 -------- -------- -------- Total Inches........................................ 12,383 12,248 11,482 -------- -------- -------- Operating Revenues (in thousands).......................... $818,299 $808,705 $788,577 -------- -------- --------
4 The 1999 improvement in advertising volume was mainly due to increased preprinted inserts for retailers and increased high-tech general advertising. The Chicago Tribune publishes Exito!, a weekly newspaper targeting Spanish-speaking households. Other businesses owned by Chicago Tribune Company include Tribune Direct Marketing, a direct mail operation; and RELCON, Inc., a publisher of free apartment and new-home guides and a provider of apartment-rental referral services to prospective renters. The Chicago Tribune also offers printing and delivery of other publications. Sun-Sentinel Company (Fort Lauderdale) The Sun-Sentinel is published daily, including Sunday, and leads the Broward/South Palm Beach market in circulation. The Miami/Fort Lauderdale market ranks 16th in the nation in terms of households. The paper's principal competition comes from the Miami Herald and national and local publications, as well as other media. Approximately 72% of the paper's daily and 68% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. The daily Broward edition's newsstand price increased by $.10 to $.35 in May 1995. The daily South Palm Beach edition's newsstand price increased $.15 to $.50 in January 1996. The newsstand price of all Sunday editions was increased by $.25 to $1.00 in November 1989. In January 1992, the newsstand price of the South Palm Beach Sunday edition increased by $.25 to $1.25. In March 1996, the weekly home delivery price for the Broward edition increased $.15 to $2.75. In November 1996, the weekly home delivery price for the South Palm Beach edition increased $.25 to $3.00. The following tables set forth selected information for the Sun-Sentinel daily newspaper and other related activities.
Averages for the Twelve Months Ended December ----------------------------------------------- 1999 1998 1997 ------- ------- ------- Circulation: Daily ................................................... 258,000 261,000 257,000 Sunday................................................... 371,000 374,000 372,000
Fiscal Year Ended December ------------------------------------------------ 1999 1998 1997 -------- -------- -------- Advertising Inches (in thousands): (1) Full Run (all zones) Retail................................................. 1,151 1,266 1,190 General................................................ 303 242 245 Classified............................................. 2,635 2,683 2,417 -------- -------- -------- Total............................................... 4,089 4,191 3,852 Part Run................................................. 2,761 2,822 2,938 Preprinted Inserts....................................... 1,865 1,857 1,754 -------- -------- -------- Total Inches........................................ 8,715 8,870 8,544 -------- -------- -------- Operating Revenues (in thousands).......................... $329,309 $319,006 $308,023 -------- -------- -------- - ----- (1) Excludes inches for Gold Coast Shopper and other targeted publications.
The 1999 decline in advertising volume was mainly due to decreased department store retail advertising. The Sun-Sentinel Company owns Gold Coast Shopper, a publication located in Deerfield Beach and City Link (formerly known as XS), a weekly publication. In May 1999, the Company purchased Florida New Homes and Condominiums Guide, a bimonthly real estate magazine. In December 1997, Exito!, a weekly publication of the Sun-Sentinel Company targeting young adults and Spanish-speaking households, ceased publication. The Sun-Sentinel also offers printing and delivery of other publications, direct mail services and publications targeted to specific consumer market segments, such as South Florida Parenting, acquired in 1994. 5 Orlando Sentinel Communications Company The Orlando Sentinel is published daily, including Sunday, and serves primarily a five-county area in Central Florida. It is the only major daily newspaper in the Orlando market, although it competes with other Florida and national newspapers, as well as other media. The Orlando/Daytona Beach/Melbourne market ranks 22nd among U.S. markets in terms of households. Approximately 75% of the paper's daily and 68% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. In March 1992, the newsstand price of the daily edition increased $.15 to $.50, except for most Thursday editions, which had been priced at $.50 since February 1991. The newsstand price of the Sunday edition was increased to $1.50 from $1.25 at the end of 1990. In January 1999, the weekly home delivery price increased by $.10 to $3.95. The following tables set forth selected information for The Orlando Sentinel daily newspaper and other related activities.
Averages for the Twelve Months Ended December ------------------------------------------------ 1999 1998 1997 ------- ------- ------- Circulation: Daily ................................................... 262,000 259,000 259,000 Sunday................................................... 380,000 381,000 382,000
Fiscal Year Ended December ------------------------------------------------ 1999 1998 1997 -------- -------- -------- Advertising Inches (in thousands): Full Run (all zones) Retail................................................. 832 904 964 General................................................ 237 175 158 Classified............................................. 1,598 1,691 1,720 -------- -------- -------- Total............................................... 2,667 2,770 2,842 Part Run ................................................ 1,660 1,594 1,481 Preprinted Inserts....................................... 3,364 3,199 3,155 -------- -------- -------- Total Inches. ...................................... 7,691 7,563 7,478 -------- -------- -------- Operating Revenues (in thousands).......................... $265,482 $260,903 $253,570 -------- -------- --------
The 1999 improvement in advertising volume was mainly due to higher preprinted inserts for retailers, partially offset by a decline in full run retail and help wanted classified inches. The Orlando Sentinel also publishes US/Express, a free weekly entertainment publication used to distribute advertising to non-subscribers, which is syndicated nationally; a group of parenting magazines, and the RELCON apartment guide for the Central Florida market. In 1997, The Orlando Sentinel began publishing New Homes and Auto Finder, which are free publications distributed in the Central Florida market. The Orlando Sentinel also offers printing and delivery of other publications. The Daily Press, Inc. (Newport News, Virginia) The Daily Press is published daily, including Sunday, and serves the Hampton Roads market. The Daily Press constitutes the only major daily newspaper in the market, although it competes with other regional and national newspapers, as well as other media. The Daily Press market includes Newport News, Hampton, Williamsburg and eight other cities and counties. This market, together with Norfolk, Portsmouth and Virginia Beach, is the 42nd largest U.S. market in terms of households. Approximately 82% of the paper's daily and 76% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. 6 The newsstand price of the daily edition increased by $.15 to $.50 in July 1996 The Sunday edition newsstand price was increased to $1.50 from $1.25 in October 1995. The weekly home delivery price was increased by $.30 to $3.05 in October 1995. The following tables set forth selected information for the Daily Press.
Averages for the Twelve Months Ended December ------------------------------------------------ 1999 1998 1997 ------- ------- ------- Circulation: Daily ............................................... 93,000 98,000 98,000 Sunday............................................... 116,000 117,000 118,000
Fiscal Year Ended December ------------------------------------------------ 1999 1998 1997 ------- ------- ------- Advertising Inches (in thousands): Full Run (all zones) Retail............................................. 687 629 630 General............................................ 42 37 35 Classified......................................... 1,049 983 926 ------- ------- ------- Total........................................... 1,778 1,649 1,591 Part Run ............................................ 167 156 150 Preprinted Inserts .................................. 1,274 1,381 1,282 ------- ------- ------- Total Inches.................................... 3,219 3,186 3,023 ------- ------- ------- Operating Revenues (in thousands)...................... $58,394 $57,595 $55,721 ------- ------- -------
The 1999 improvement in advertising volume was mainly due to increases in the food and drug, high-tech, automotive and help wanted advertising categories, partially offset by a decline in preprinted inserts from retailers. Related Businesses The Company is also involved in weekly publications, syndication activities, advertising placement services, entertainment listings, Internet and other online-related businesses, cable television news programming and other publishing-related activities. The Company acquired Sun-Sentinel Community News Group, a group of community-based weeklies, in September 1998. Sun-Sentinel Community News Group's publications include the Jewish Journal, a collection of newspapers serving South Florida's Jewish community. The syndication activities conducted primarily through Tribune Media Services ("TMS"), involve the marketing of comics, features and opinion columns to newspapers. TMS is also engaged in advertising placement services for television, cable and movie listings in newspapers and online and the development of news products and services for electronic and print media. In February 1999, TMS acquired both Premier DataVision, Inc. ("PDI") and JDTV, Inc. ("JDTV"). PDI distributes movie show-time data and advertisements. JDTV publishes television listings information for the cable and satellite television industries. Internet and other online-related businesses include the electronic publishing of each of the Company's daily newspapers with enhanced content on the Internet; operation of the Internet sites for the Company's broadcasting stations; and development of new online products and services. The Company also operates CLTV News, a regional 24-hour cable news channel in the Chicagoland area. CLTV News was launched in January 1993 and currently is available to more than 1.7 million cable households in the Chicago-area market. Total operating revenues for these publishing-related businesses are shown in the following table, net of intercompany revenues. 7 Operating Revenues (In thousands) Fiscal Year Ended December -------- 1999................................ $108,742 1998................................ 52,364 1997................................ 30,827 Other revenues rose in 1999 primarily due to the acquisitions of JDTV and PDI (in February 1999) and Sun-Sentinel Community News Group (in September 1998) and increased revenues from Internet/electronic products. Broadcasting and Entertainment The broadcasting and entertainment segment represented 40% of the Company's consolidated operating revenues in 1999. At Dec. 26, 1999, the segment included WB television affiliates located in New York, Los Angeles, Chicago, Philadelphia, Boston, Dallas, Washington, D.C., Houston, Seattle, Miami, Denver, San Diego and Albany; FOX television affiliates in Seattle, Sacramento, Indianapolis, Hartford, Grand Rapids and Harrisburg; an ABC television affiliate in New Orleans; four radio stations, one located in Chicago and three located in Denver; the Chicago Cubs baseball team; and Tribune Entertainment, a company that develops and distributes first-run television programming for the Company's station group and national syndication. In March 1999, the Company acquired the assets of television station KCPQ-Seattle, with a fair value of approximately $380 million, in exchange for its WGNX-Atlanta television station and cash. In September 1999, the Company acquired the assets of television station WEWB-Albany (formerly WMHQ) for $18.5 million in cash. In November 1999, the Company acquired the assets of television station WBDC-Washington, D.C. for $125 million in cash. Federal Communications Commission ("FCC") regulations in effect at the time the exchange of WGNX-Atlanta for KCPQ-Seattle was consummated precluded the Company from owning both KCPQ and the Company's KTWB-Seattle (formerly KTZZ) television station. As part of the transaction, the Company transferred the assets of KTWB into a disposition trust. Pursuant to the terms of the disposition trust, an independent trustee was charged with finding a buyer for KTWB. On Aug. 5, 1999, the FCC adopted changes to its rules that now permit the Company to own both stations. The FCC revised its television duopoly rules to permit common ownership of two television stations within the same Nielsen Designated Market Area ("DMA"), provided that eight full-power independent television stations remain in the DMA and one of the stations is not among the top four-ranked stations in the DMA based on audience share. Based on the revised duopoly rule, the assets of KTWB were transferred back to the Company from the trust on Jan. 28, 2000. The operating results of KTWB have been included in the consolidated financial statements since its acquisition in June 1998. In June 1998, the Company exchanged substantially all of the assets of its WQCD radio station in New York and cash for the assets of television stations KTWB-Seattle and WXMI-Grand Rapids. The divestiture of WQCD was accounted for as a sale and the acquisition of the television stations was recorded as a purchase. In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WBZL-Miami, KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The FCC order granting the Company's application to acquire the Renaissance stations contained waivers of two FCC rules. First, the FCC temporarily waived its duopoly rule relating to the overlap of WTIC's and WPMT's broadcast signals with those of other Tribune stations. The temporary waivers were granted subject to the outcome of the Aug. 5, 1999 FCC rulemaking which now permits the Company to own both stations. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami 8 television station and the Fort Lauderdale Sun-Sentinel newspaper. The FCC subsequently issued a rule review to consider modifying its cross-ownership rule. In March 1998, the FCC granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Sun-Sentinel newspaper until the rule review has concluded. The Company cannot predict the outcome of the FCC cross-ownership rule review. In January 1996, the Company acquired television station KHWB-Houston for $102 million in cash. In February 1996, the Company acquired the remaining minority interest in WPHL-Philadelphia for $23 million in cash. In April 1996, the Company acquired television station KSWB-San Diego for $72 million in cash. In November 1995, the Company swapped its two Sacramento radio stations, KYMX and KCTC, for $3 million in cash and a Denver radio station. In June 1994, the Company acquired Farm Journal Inc., publisher of The Farm Journal, a leading farm magazine, for $17 million in cash. Farm Journal results were reported in radio until March 1997, when it was sold by the Company for approximately $17 million in cash. The acquisitions were accounted for as purchases. On Feb. 3, 2000, the Company acquired the remaining interest in Qwest Broadcasting LLC, which owned television stations WATL-Atlanta and WNOL-New Orleans, for $107 million in cash. The Company had owned a 33% equity interest and convertible debt in Qwest since it was formed in 1995. The acquisition was recorded as a purchase. The FCC's rule changes in August 1999 permit the Company to own both WNOL and the Company's WGNO-New Orleans television station. An application to acquire an additional television station, WTXX-Hartford, is currently pending before the FCC. The following table shows sources of revenue for the broadcasting and entertainment segment for the last three years. Operating Revenues (In thousands)
Fiscal Year Ended December -------------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Television (1)........................................ $1,109,652 $ 964,387 $ 861,434 Radio (2)............................................. 53,466 52,633 71,641 Entertainment/other (3)............................... 138,940 135,986 124,454 ---------- ---------- ---------- Total............................................. $1,302,058 $1,153,006 $1,057,529 ---------- ---------- ---------- - ----- (1) Includes the following stations since their respective acquisition dates: WBDC-Washington, D.C. (November 1999), WEWB-Albany (September 1999), KCPQ-Seattle (exchanged for WGNX-Atlanta in March 1999), KTWB-Seattle and WXMI-Grand Rapids (June 1998) and the six Renaissance stations (March 1997). (2) Includes Farm Journal until its sale in March 1997 and WQCD, which transferred station operations to Emmis Broadcasting Corporation effective July 1, 1997 in return for an annual management fee. WQCD was subsequently exchanged for television stations KTWB-Seattle and WXMI-Grand Rapids in June 1998. (3) Reflects the impact of Tribune Entertainment's syndicated program "Gene Roddenberry's Earth: Final Conflict," which was launched in September 1997; Tribune Entertainment's syndicated program "NightMan," which was launched in September 1997 and cancelled after the 1997-1998 season; and "The Geraldo Rivera Show," which ended after the 1997-1998 season.
Television In 1999, television contributed 85% of broadcasting and entertainment operating revenues. The Company's television stations compete for audience and advertising with other television and radio stations, cable television and other media serving the same markets. Competition for audience and advertising is based upon various interrelated factors including programming content, audience acceptance and price. Selected data for the Company's television stations is shown in the following table. 9
Market (1) Major ------------------------------ Commercial Expiration National % of U.S. FCC Stations in of FCC Year Rank Households % Channel Affiliation Market (2) License (3) Acquired -------- ---------- ----- ------- ----------- ------------ ----------- -------- WPIX - New York, NY........ 1 6.8 6.8 11-VHF WB 7 2007 1948 KTLA - Los Angeles, CA..... 2 5.2 5.2 5-VHF WB 8 2006 1985 WGN - Chicago, IL......... 3 3.2 3.2 9-VHF WB 8 2005 1948 WPHL - Philadelphia, PA.... 4 2.7 1.3 17-UHF WB 7 2007 1992 WLVI - Boston, MA.......... 6 2.2 1.1 56-UHF WB 8 2007 1994 KDAF - Dallas, TX ......... 7 2.0 1.0 33-UHF WB 9 2006 1997 WBDC - Washington, D.C..... 8 2.0 1.0 50-UHF WB 7 2004 1999 WATL - Atlanta, GA......... 10 1.8 0.9 36-UHF WB 8 2005 2000 KHWB - Houston, TX ........ 11 1.7 0.9 39-UHF WB 8 2006 1996 KCPQ - Seattle, WA ........ 12 1.6 1.6 13-VHF FOX 8 2007 1999 KTWB - Seattle, WA ........ 12 - - 22-UHF WB 8 2007 1998 (4) WBZL - Miami, FL........... 16 1.4 0.7 39-UHF WB 8 2005 (5) 1997 KWGN - Denver, CO.......... 18 1.3 1.3 2-VHF WB 7 2006 1966 KTXL - Sacramento, CA...... 19 1.2 0.6 40-UHF FOX 7 2006 1997 KSWB - San Diego, CA....... 25 1.0 0.5 69-UHF WB 6 2006 1996 WXIN - Indianapolis, IN.... 26 1.0 0.5 59-UHF FOX 7 2005 1997 WTIC - Hartford, CT........ 27 0.9 0.5 61-UHF FOX 7 2007 1997 WXMI - Grand Rapids, MI.... 38 0.7 0.3 17-UHF FOX 6 2005 1998 WGNO - New Orleans, LA..... 41 0.6 0.3 26-UHF ABC 7 2005 1983 WNOL - New Orleans, LA..... 41 - - 38-UHF WB 7 2005 2000 WPMT - Harrisburg, PA...... 46 0.6 0.3 43-UHF FOX 5 2007 1997 WEWB - Albany, NY.......... 55 0.5 0.3 45-UHF WB 5 2007 1999 - ----- (1) Source: Nielsen Station Index (DMA Market and Demographic Rank Report, September 1999). Ranking of markets is based on number of television households in DMA (Designated Market Area). (2) Source: Nielsen Station Index (Viewers in Profile Reports, 1999). Major commercial stations program for a broad, general audience and have a large viewership in the market. (3) See "Governmental Regulation." (4) FCC regulations in effect at the time KTWB was acquired precluded the Company from owning both KTWB and the Company's KCPQ-Seattle television station. As a result, the station's assets were transferred into a disposition trust. On Aug. 5, 1999, the FCC adopted changes to its rules that now permit the Company to own both stations. Based on the revised duopoly rule, the assets of KTWB were transferred back to the Company in January 2000. The operating results of KTWB have been included in the consolidated financial statements since its acquisition in June 1998. (5) The FCC has granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper until the FCC has completed a review of the newspaper/television cross-ownership rule. See "Item 3, Legal Proceedings" for a discussion of the cross-ownership rule.
Programming emphasis at the Company's WB and FOX-affiliated stations is placed on network-provided shows, syndicated series, feature motion pictures, local and regional sports coverage, news and children's programs. These stations acquire most of their programming from outside sources, including The WB Television Network ("The WB Network") and the FOX Network, although a significant amount is produced locally or supplied by Tribune Entertainment (see "Entertainment/Other"). Due to the growth and expansion of The WB Network's distribution system of local affiliates, WB programming is no longer aired on WGN Cable ("WGN Superstation"), which reaches over 48 million households outside of Chicago. WGN Superstation broadcasts movies and first-run programming. The Company's WGNO-New Orleans station, affiliated with the ABC Network, acquires much of its programming from that network. Contracts for purchased programming generally cover a period of one to five years, with payment also typically made over several years. The expense for amortization of television broadcast rights in 1999 was $309 million, which represented approximately 28% of total television operating revenues. 10 Average audience share information for the Company's television stations for the past three years is shown in the following table. Average Audience Share (1) Year Ended December ------------------------- 1999 1998 1997 ----- ----- ----- WPIX - New York, NY....................... 9.5% 10.5% 10.0% KTLA - Los Angeles, CA.................... 8.0 7.8 8.3 WGN - Chicago, IL........................ 10.0 9.8 10.0 WPHL - Philadelphia, PA................... 5.5 4.8 4.5 WLVI - Boston, MA......................... 5.5 5.0 4.5 KDAF - Dallas, TX......................... 7.3 8.0 8.3 WBDC - Washington, D.C.................... 4.0 4.0 3.3 WATL - Atlanta, GA........................ 6.5 7.5 7.0 KHWB - Houston, TX........................ 6.5 6.3 6.5 KCPQ - Seattle, WA........................ 7.3 7.3 8.0 KTWB - Seattle, WA........................ 3.8 4.0 3.0 WBZL - Miami, FL.......................... 6.0 6.0 6.3 KWGN - Denver, CO......................... 6.8 6.5 8.0 KTXL - Sacramento, CA..................... 7.3 8.3 9.0 KSWB - San Diego, CA...................... 5.5 4.5 4.0 WXIN - Indianapolis, IN................... 6.5 7.3 8.0 WTIC - Hartford, CT....................... 6.8 6.8 7.5 WXMI - Grand Rapids, MI................... 7.5 7.8 8.5 WGNO - New Orleans, LA.................... 7.5 9.5 9.8 WNOL - New Orleans, LA.................... 7.0 6.8 7.0 WPMT - Harrisburg, PA..................... 6.0 6.3 7.8 WEWB - Albany, NY......................... 0.5 - (2) - (2) - ----- (1) Represents the estimated number of television households tuned to a specific station as a percent of total viewing households in a defined area. The percentages shown reflect the average Nielsen ratings shares for the February, May, July and November measurement periods for 7 a.m. to 1 a.m. daily. (2) Prior to acquisition in September 1999, WEWB-Albany was a public broadcasting station. Radio In 1999, the Company's radio operations contributed 4% of broadcasting and entertainment operating revenues. The largest radio station owned by the Company, measured in terms of operating revenues, is WGN in Chicago. Radio operations also include three stations in Denver and Tribune Radio Network (which produces and distributes farm and sports programming to radio stations, primarily in the Midwest). Also included were WQCD (which transferred station operations to Emmis Broadcasting through a management agreement in July 1997 and was subsequently exchanged for television stations KTWB-Seattle and WXMI-Grand Rapids in June 1998) and Farm Journal (until its sale in March 1997). Selected information for the Company's radio operations is shown in the following table.
Number of National Operating Market Stations in Audience Format Frequency Rank (1) Market (2) Share (3) ------------------------ --------- -------- ----------- --------- WGN - Chicago, IL Personality/Infotainment /Sports 720-AM 3 45 6.3% KOSI - Denver, CO Adult Contemporary 101.1-FM 23 29 6.1% KEZW - Denver, CO Nostalgia/Big Band 1430-AM 23 29 2.7% KKHK - Denver, CO All Rock & Roll Hits 99.5-FM 23 29 3.5% - ----- (1) Source: Radio markets ranked by Arbitron Metro Survey Area, Arbitron Company 1999.
11 (2) Source: Arbitron Company 1999. (3) Source: Average of Winter, Spring, Summer and Fall 1999 Arbitron shares for persons 12 years old and over, 6 a.m. to midnight daily during the period measured. Entertainment/Other In 1999, entertainment/other contributed 11% of the segment's operating revenues. This portion of the broadcasting and entertainment segment includes Tribune Entertainment Company and the Chicago Cubs baseball team. Tribune Entertainment Company was formed to acquire and develop weekly programming for Company television stations and for syndication. Tribune Entertainment participates in the production and/or distribution of first-run programming, including television shows, music and variety shows, movies and specials. In 1999, Tribune Entertainment produced and syndicated a new weekly action hour, "Beastmaster," which airs on 164 stations that cover 95% of U.S. television households; and "DreamMaker," a one-hour show that was cancelled in January 2000. In September 1997, Tribune Entertainment launched two weekly action shows: "Gene Roddenberry's Earth: Final Conflict" and "NightMan." "Gene Roddenberry's Earth: Final Conflict" is aired on 183 stations that cover 98% of U.S. television households and has been renewed for the 1999-2000 and 2000-2001 television seasons. "NightMan" was not renewed for the 1999-2000 season. During the 1999-2000 television season, Tribune Entertainment originated or syndicated approximately 5.5 hours of first-run programs per week. On average, the Company's 22 television stations utilized approximately six hours per week of programming furnished by Tribune Entertainment. The Company owns the Chicago Cubs baseball team. In addition to providing local sports entertainment, the Cubs represent an important source of live programming for the Company's Chicago-based broadcasting operations and regional cable programming channel. In 1999, the Chicago Cubs reached an agreement with FOX Sports Chicago to provide coverage of selected Cubs games throughout the network's viewing region. Education The education segment represented 11% of the Company's consolidated operating revenues in 1999. The education segment specializes in learning products and services for use in schools and homes. The segment's primary business is supplemental and core curriculum materials for kindergarten through grade 12. The education segment also derives revenues from the adult basic education and consumer publishing markets. Subject areas include language arts, math, health and science, foreign language and social studies. In 1999, the education segment's revenues were derived as follows: 61% from the U.S. school channel, 31% from the U.S. consumer channel and 8% from sales outside the U.S. The market for education and consumer materials is highly competitive. The segment sells its products through several market channels, including direct-to-school, catalogs targeting teachers and administrators, parent/teacher stores, school and public libraries, bookstores, mass merchandisers, direct-to-consumer, teacher workshops, international distribution and educational toy stores. The segment utilizes both independent sales representatives and an internal sales force to sell its products. The segment's revenue is primarily driven by local school district funding rather than large state adoptions. 12 Total operating revenues for the education segment for the last three years are shown below. Operating Revenues (In thousands) Fiscal Year Ended December -------- 1999................................ $339,606 1998................................ 329,310 1997................................ 225,533 Education operating revenues in 1999 improved mainly due to increased sales through the school market channel, partially offset by a decline in consumer book sales. In March 1999, the Company acquired Mimosa Publications, an Australia-based company that publishes reading, language arts, mathematics, science and English language teaching materials for several international school markets. In December 1999, the Company acquired Meeks-Heit Publishing Company, a publisher of a complete line of educational health materials and teacher supplements for the K-12 market. In December 1999, the Company acquired the high school academic product lines of South-Western Educational Publishing. In January 1998, the Company acquired ownership of the North American Sunshine line of educational materials, which are sold through The Wright Group. In July 1998, the Company acquired Living and Learning, a Cambridge, England-based publisher of supplemental and special education products. In September 1997, the Company acquired Shortland Publications Limited for $32 million in cash. Shortland is a New Zealand-based company that publishes reading, language arts, science and social studies materials for several international elementary school markets. In December 1997, the Company acquired approximately 80% of Landoll, Inc. for $77 million in cash. On Feb. 14, 2000, the Company acquired the remaining 20% of Landoll for approximately $18 million in cash. Landoll publishes children's educational and activity books for the retail market. In March 1996, the Company acquired Educational Publishing Corporation for $205 million in cash and NTC Publishing Group for $83 million in cash. Educational Publishing publishes supplemental and core curriculum education materials through its Creative Publications and Instructional Fair Publishing Group divisions. NTC Publishing publishes trade books and educational products for the school and consumer markets. In August 1995, the Company acquired Everyday Learning Corporation, a publisher of mathematics materials for grades K-12, for $25 million in cash. The acquisitions were accounted for as purchases. Investments The Company has investments in several public and private companies. See Note 5 to the Company's Consolidated Financial Statements in the 1999 Annual Report to Shareholders for a discussion of the Company's significant cost and equity method investments. The Company's principal equity method investments currently include The WB Network, Digital City and BrassRing Inc. The Company acquired a 13% equity interest in The WB Network in 1995 and exercised options to increase its ownership interest to 22% in 1997 and 25% in March 1998. The WB is a growing network that provides the Company's WB affiliate television stations with original prime-time and children's programming. In 1996, the Company purchased a 20% equity interest in Digital City, a venture with America Online to develop a national network of local interactive services. BrassRing is a national recruitment services company, which the Company formed in September 1999 with The Washington Post Company. Tribune's current 36% equity interest in BrassRing is expected to decline to 27.5% in March 2000, as a result of a proposed BrassRing acquisition to be effected as a merger. In 1995, the Company acquired a 33% equity interest in Qwest Broadcasting, which owned WB affiliate television stations in Atlanta and New Orleans. On Feb. 3, 2000, the Company acquired the remaining interest in Qwest Broadcasting. 13 Non-Operating Items and Change in Accounting Principle In 1999, the Company elected early adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." See Note 1 to the Company's Consolidated Financial Statements in the 1999 Annual Report to Shareholders for further discussion. Also in 1999, the Company issued 8.0 million of its Exchangeable Subordinated Debentures due 2029 ("PHONES") indexed to the value of 16.0 million shares of America Online ("AOL") common stock. The Company also sold two million shares of AOL common stock, exchanged the Company's WGNX-Atlanta television station and cash for the assets of television station KCPQ-Seattle, and reclassified 16.0 million shares of AOL common stock and 5.5 million shares of Mattel common stock. In 1998, the Company sold its WQCD radio station subsidiary, sold a portion of its investment portfolio and wrote down certain investments. In 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. See Note 2 to the Company's Consolidated Financial Statements in the 1999 Annual Report to Shareholders for a discussion of these non-operating items. Governmental Regulation Various aspects of the Company's operations are subject to regulation by governmental authorities in the United States. The Company's television and radio broadcasting operations are subject to FCC jurisdiction under the Communications Act of 1934, as amended. FCC rules, among other things, govern the term, renewal and transfer of radio and television broadcasting licenses, and limit concentrations of broadcasting control inconsistent with the public interest. Federal law also regulates the rates charged for political advertising and the quantity of advertising within children's programs. The Company is permitted to own both newspaper and broadcast operations in the Chicago market by virtue of "grandfather" provisions in the FCC regulations and in the Fort Lauderdale/Miami market by virtue of a temporary waiver of the television/newspaper cross-ownership rule. Congress removed national limits on the number of broadcast stations a licensee may own in 1996. However, federal law continues to limit the number of radio and television stations a single owner may own in a local market, and the percentage of the national television audience that may be reached by a licensee's television stations in the aggregate. On Aug. 5, 1999, the FCC revised its local station ownership limitations to allow, under certain conditions, common ownership of two television stations and certain radio/television combinations. The FCC did not revise its national audience reach limitation of 35%. The August 1999 changes may be subject to further review based on requests for reconsideration filed by interested parties. The television/newspaper cross-ownership rule remains under review by the FCC. Television and radio broadcasting licenses are subject to renewal by the FCC, at which time they may be subject to competing applications for the licensed frequencies. At Dec. 26, 1999, the Company had FCC authorization to operate 19 television stations and two AM and two FM radio stations. In 2000, the Company received FCC authorization to operate television stations KTWB-Seattle, WATL-Atlanta and WNOL-New Orleans. An application to acquire an additional television station, WTXX-Hartford, is currently pending before the FCC. The FCC has approved technical standards and channel assignments for digital television ("DTV") service. DTV will permit broadcasters to transmit video images with higher resolution than existing analog signals. Operators of full-power television stations have each been assigned a second channel for DTV while they continue analog broadcasts on the original channel. After the transition is complete, broadcasters will be required to return one of the two channels to the FCC and transmit exclusively in digital format. By law, the transition to DTV is to occur by Dec. 31, 2006, subject to extension under certain circumstances. Conversion to digital transmission will require all television broadcasters, including those owned by the Company, to invest in digital equipment and facilities. The Company does not believe that the required capital expenditures will have a material effect on its consolidated financial position or results of operations. The FCC has not yet issued regulations governing some aspects of DTV operation. These include the obligations of cable television systems and other multichannel video providers to carry DTV signals and additional "public interest" obligations that may be imposed on broadcasters' use of DTV. The FCC has adopted rules 14 requiring broadcasters transmitting subscription-based services over the DTV channel to pay to the government fees in the amount of 5% on gross revenues collected from such services. From time to time, the FCC revises existing regulations and policies in ways that could affect the Company's broadcasting operations. In addition, Congress from time to time considers and adopts substantive amendments to the governing communications legislation. The Company cannot predict what regulations or legislation may be proposed or finally enacted or what effect, if any, such regulations or legislation could have on the Company's broadcasting operations. See "Item 3, Legal Proceedings" for a discussion of pending FCC rule review. Employees The average number of full-time equivalent employees of the Company in 1999 was 13,400, approximately 700 more than the average for 1998. The increase was mainly due to the net impact of the 1998 and 1999 acquisitions and divestitures and the growth of the Company's Internet/online businesses. Eligible employees participate in the Company's Employee Stock Ownership Plan ("ESOP"). Pension and other employee benefit plans are provided to employees of the Company. In connection with the establishment of the ESOP, the Company amended, effective January 1989, its Company-sponsored pension plan for employees not covered by a collective bargaining agreement. The pension plan continued to provide substantially the same pension benefits as under the pre-amended plan until December 1998. After this date, pension benefit credits are frozen in terms of pay and service. The Company also maintains several small plans for other employees. During 1999, the Company's publishing segment employed approximately 8,600 full-time equivalent employees, about 6% of whom were represented by a total of three unions. Contracts with unionized employees of the publishing segment expire at various times through September 2002. Broadcasting and entertainment had an average of 3,100 full-time equivalent employees in 1999. Approximately 22% of these employees were represented by a total of 22 unions. Contracts with unionized employees of the broadcasting and entertainment segment expire at various times through July 2003. Education had an average of 1,600 full-time equivalent employees in 1999. Approximately 3% of these employees were represented by one union. The contract with the unionized employees of the education segment expires in October 2001. 15 Executive Officers of the Company Information with respect to the executive officers of the Company as of March 7, 2000 is set forth below. The descriptions of the business experience of these individuals include the principal positions held by them since March 1995. Dennis J. FitzSimons (49) Executive Vice President/Media Operations of the Company since January 2000; President since May 1997 and Executive Vice President until May 1997 of Tribune Broadcasting Company*. Jack W. Fuller (53) President since May 1997 of Tribune Publishing Company*; President and Publisher until May 1997 of Chicago Tribune Company*. Donald C. Grenesko (51) Senior Vice President/Finance and Administration since August 1996, Senior Vice President and Chief Financial Officer until August 1996 of the Company. David D. Hiller (46) Senior Vice President/Development of the Company. Crane H. Kenney (37) Vice President/General Counsel and Secretary since August 1996, Vice President/Chief Legal Officer from February 1996 to August 1996, Senior Counsel until January 1996 of the Company. Luis E. Lewin (51) Vice President/Human Resources since October 1996 and Director of Human Resources until October 1996 of the Company; Acting Publisher of Exito! in Chicago from December 1995 to September 1996. John W. Madigan (62) Chairman since January 1996, Chief Executive Officer since May 1995, President, and Chief Operating Officer until May 1995 of the Company; Director of the Company since 1975. Ruthellyn Musil (48) Vice President/Corporate Relations of the Company. Jeff R. Scherb (42) President of Tribune Interactive* since May 1999; Chief Technology Officer since August 1996 and Senior Vice President until May 1999 of the Company; Chief Technology Officer and Senior Vice President, Dun & Bradstreet Software until August 1996. - ----- * A subsidiary of the Company. 16 ITEM 2. PROPERTIES. The corporate headquarters of the Company are located at 435 North Michigan Avenue, Chicago, Illinois. The general character, location and approximate size of the principal physical properties used by the Company on Dec. 26, 1999 are listed below. In addition to those listed, the Company owns or leases transmitter sites, parking lots and other properties aggregating approximately 654 acres in 65 separate locations, and owns or leases an aggregate of approximately 1,486,000 square feet of space in 199 locations. The Company also owns the 39,000-seat stadium used by the Chicago Cubs baseball team. The Company considers its various properties to be in good condition and suitable for the purposes for which they are used.
Approximate Area in Square Feet ------------------------------- General Character of Property Owned Leased - ----------------------------- --------- ------- Publishing: Printing plants, business and editorial offices and office and warehouse space located in: Chicago, IL....................................................................... 1,327,000 (1) 156,000 Orlando, FL....................................................................... 459,000 103,000 Deerfield Beach, FL............................................................... 386,000 - Northlake, IL..................................................................... - 216,000 Newport News, VA.................................................................. 207,000 - Fort Lauderdale, FL............................................................... - 112,000 Oak Brook, IL..................................................................... - 87,000 Broadcasting and Entertainment: Business offices, studios and transmitters located in: Los Angeles, CA................................................................... 256,000 - Chicago, IL....................................................................... 99,000 4,000 New York, NY...................................................................... - 99,000 Seattle, WA....................................................................... 65,000 18,000 Denver, CO........................................................................ 44,000 11,000 Indianapolis, IN.................................................................. 5,000 37,000 Houston, TX....................................................................... 36,000 - Dallas, TX........................................................................ 33,000 - Boston, MA........................................................................ 28,000 - San Diego, CA..................................................................... - 26,000 Philadelphia, PA.................................................................. 22,000 3,000 Sacramento, CA.................................................................... 24,000 - Hartford, CT...................................................................... - 22,000 New Orleans, LA................................................................... - 22,000 Grand Rapids, MI.................................................................. 21,000 - Miami, FL......................................................................... 20,000 - York, PA.......................................................................... 20,000 - Washington, D.C................................................................... - 13,000 Education: Printing plants, business offices and warehouse space located in: Ashland, OH....................................................................... - 688,000 Chicago, IL....................................................................... 185,000 31,000 Alsip, IL......................................................................... - 171,000 Grand Rapids, MI.................................................................. - 162,000 Kirkland, WA...................................................................... - 126,000 Lincolnwood, IL................................................................... - 71,000 Bothell, WA....................................................................... - 33,000 Denver, CO........................................................................ - 11,000 Coralville, IA.................................................................... - 9,000 - ----- (1) Includes Tribune Tower, an approximately 630,000-square-foot office building in downtown Chicago that houses the Company's corporate headquarters, the Chicago Tribune's business and editorial offices, offices of various subsidiary companies and approximately 45,000 square feet of space leased to unaffiliated tenants; and Freedom Center, an approximately 697,000-square-foot production center of the Chicago Tribune that houses the Chicago Tribune's printing, packaging and distribution operations.
17 ITEM 3. LEGAL PROCEEDINGS. The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WBZL-Miami, KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The FCC order granting the Company's application to acquire the Renaissance stations contained waivers of two FCC rules. First, the FCC temporarily waived its duopoly rule relating to the overlap of WTIC's and WPMT's broadcast signals with those of other Tribune stations. The temporary waivers were granted subject to the outcome of the Aug. 5, 1999 FCC rulemaking, which now permits the Company to own both stations. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The FCC subsequently issued a rule review to consider modifying its cross-ownership rule. In March 1998, the FCC granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Sun-Sentinel newspaper until the rule review has concluded. The Company cannot predict the outcome of the FCC cross-ownership rule review. The Company does not believe that any of the matters or proceedings presently pending will have a material adverse effect on its consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is presently listed on the New York, Chicago and Pacific stock exchanges. The high and low sales prices of the Common Stock by fiscal quarter for the two most recent fiscal years, as reported on the New York Stock Exchange Composite Transactions list, were as follows:
1999 1998 ------------------------ ------------------------ Quarter High Low High Low ------- --------- -------- --------- --------- First................................. $34 7/8 $30 5/32 $34 3/8 $29 5/32 Second................................ 44 9/16 32 1/4 36 3/16 31 13/32 Third................................. 49 31/32 42 3/32 37 17/32 25 Fourth................................ 60 7/8 46 33 3/4 22 3/8
At March 7, 2000, there were 6,020 holders of record of the Company's Common Stock. Quarterly cash dividends declared on Common Stock were $.09 per share in 1999 and $.085 per share in 1998. Total cash dividends declared on Common Stock by the Company were $85,625,000 for 1999 and $82,426,000 for 1998. On Feb. 1, 1999, the Company issued 423,466 shares of Common Stock to shareholders of PDI in consideration for all of the issued and outstanding shares of PDI capital stock. These shares were issued in reliance upon the exemption provided by Section 4 (2) of the Securities Act of 1933, as amended. 18 Other than the shares of Common Stock issued in connection with the PDI acquisition, during 1999, the Company did not sell any of its equity securities in transactions that were not registered under the Securities Act of 1933, as amended. ITEM 6. SELECTED FINANCIAL DATA. The information for the years 1995 through 1999 contained under the heading "Eleven Year Financial Summary" in the Company's 1999 Annual Report to Shareholders is incorporated herein by reference. The following table shows basic earnings per share for the last 11 years.
Basic Earnings (Loss) per Share Continuing Operations ------------------------------- Cumulative Before Effects of Non-Operating Discontinued Accounting Net Items Total (1) Operations Changes (2) Income ------------- --------- ------------ ----------- ------ 1999 $1.67 $6.17 $ - $(.01) $6.16 1998 1.37 1.63 - - 1.63 1997 1.25 1.53 - - 1.53 1996 1.05 1.07 .37 - 1.44 1995 .84 .87 .13 - 1.00 1994 .80 .80 .03 - .83 1993 .70 .70 (.06) - .64 1992 .62 .62 (.16) (.07) .39 1991 .55 .55 (.06) - .49 1990 .72 (.25) (.06) - (.31) 1989 .69 .69 .10 - .79 - ----- (1) Includes non-operating items as follows: gain on change in fair values of derivatives and related investments, gain on reclassification of investments and gain on sales of subsidiary and investments, totaling $4.50 per share in 1999; gain on sales of subsidiary and investments, net of write-downs, totaling $.26 per share in 1998; gain on sales of investments, net of write-downs, totaling $.28 per share in 1997; equity income related to Qwest Broadcasting of $.02 per share in 1996; gain on sales of investment and subsidiaries totaling $.03 per share in 1995; and charges relating to the New York Daily News totaling $.97 per share in 1990. (2) Reflects the cumulative effect of adopting a new accounting pronouncement for derivative instruments in 1999 and the cumulative effect of adopting new accounting pronouncements for retiree benefits, income taxes and postemployment benefits in 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information contained under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's 1999 Annual Report to Shareholders is incorporated herein by reference. YEAR 2000 COMPLIANCE - -------------------- The Company has experienced no significant operational effects as a result of the Year 2000 transition. The Company estimates total Year 2000 expenses will range from $17 million to $18 million, of which $15.9 million was incurred through Dec. 26, 1999. All costs have been expensed as incurred. 19 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information contained under the heading "Quantitative and Qualitative Disclosures About Market Risk" appearing on pages 36-38 in the Company's 1999 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's Consolidated Financial Statements and Notes thereto and the information contained under the heading "Business Segments" appearing on pages 39 through 63 of the Company's 1999 Annual Report to Shareholders, together with the report thereon of PricewaterhouseCoopers LLP dated January 21, 2000, except as to Note 17, which is as of February 14, 2000, appearing on page 68 of such Annual Report, and the information contained under the heading "Quarterly Results (Unaudited)" on pages 64 and 65, are incorporated herein by reference. 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 information contained under the heading "Executive Officers of the Company" in Item 1 hereof, and the information contained under the heading "Board of Directors" and contained under the subheading "Section 16(a) Beneficial Ownership Reporting Compliance" under the heading "Stock Ownership" in the definitive Proxy Statement for the Company's May 2, 2000 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information contained under the heading "Executive Compensation" (except that portion relating to Item 13, below) and contained under the subheading "Director Compensation" under the heading "Board of Directors" in the definitive Proxy Statement for the Company's May 2, 2000 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under the subheadings "Principal Shareholders" and "Management Ownership" under the heading "Stock Ownership" in the definitive Proxy Statement for the Company's May 2, 2000 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained under the subheading "Related Transactions" under the heading "Stock Ownership" and under the subheading "Compensation Committee Interlocks and Insider Participation" under the heading "Executive Compensation" (except that portion relating to Item 11, above) in the definitive Proxy Statement for the Company's May 2, 2000 Annual Meeting of Shareholders is incorporated herein by reference. 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1)&(2) Financial Statements and Financial Statement Schedule filed as part of this report As listed in the Index to Financial Statements and Financial Statement Schedule on page 24 hereof. (a)(3) Index to Exhibits filed as part of this report As listed in the Exhibit Index beginning on page 27 hereof. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 13, 2000. TRIBUNE COMPANY (Registrant) /s/ John W. Madigan ------------------- John W. Madigan Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 13, 2000. Signature Title --------- ----- /s/ John W. Madigan ------------------- John W. Madigan Chairman, President and Chief Executive Officer and Director (principal executive officer) /s/ Donald C. Grenesko ---------------------- Donald C. Grenesko Senior Vice President/Finance and Administration (principal financial officer) /s/ R. Mark Mallory ------------------- R. Mark Mallory Vice President and Controller (principal accounting officer) 22 Signature Title --------- ----- /s/ James C. Dowdle ------------------- James C. Dowdle Director /s/ Diego E. Hernandez ---------------------- Diego E. Hernandez Director /s/ Robert E. La Blanc ---------------------- Robert E. La Blanc Director /s/ Nancy Hicks Maynard ----------------------- Nancy Hicks Maynard Director /s/ Dudley S. Taft ------------------ Dudley S. Taft Director /s/ Arnold R. Weber ------------------- Arnold R. Weber Director 23 TRIBUNE COMPANY INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page Consolidated Statements of Income for each of the three fiscal years in the period ended December 26, 1999............................ * Consolidated Balance Sheets at December 26, 1999 and December 27, 1998...................................................... * Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended December 26, 1999............... * Consolidated Statements of Shareholders' Equity for each of the three fiscal years in the period ended December 26, 1999............... * Notes to Consolidated Financial Statements................................ * Report of Independent Accountants on Consolidated Financial Statements.... * Report of Independent Accountants on Financial Statement Schedule......... 25 Financial Statement Schedule for each of the three fiscal years in the period ended December 26, 1999......................................... 26 Schedule II Valuation and qualifying accounts and reserves. - ----- * Incorporated by reference to the Company's 1999 Annual Report to Shareholders. See Item 8 of this Annual Report on Form 10-K. ----- All other schedules required under Regulation S-X are omitted because they are not applicable or not required. 24 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Tribune Company Our audits of the consolidated financial statements referred to in our report dated January 21, 2000, except as to Note 17, which is as of February 14, 2000, appearing in the 1999 Annual Report to Shareholders of Tribune Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Chicago, Illinois January 21, 2000, except as to Note 17, which is as of February 14, 2000 25 SCHEDULE II TRIBUNE COMPANY SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands of dollars)
Additions Additions Balance at Charged to Recorded Balance Beginning Costs and Upon at End of Description of Period Expenses Acquisitions Deductions Period ----------- ---------- ---------- ------------ ---------- --------- Valuation accounts deducted from assets to which they apply: Year ended December 26, 1999 Accounts receivable allowances: Bad debts................................ $31,725 $24,857 $ 809 $23,663 $33,728 Rebates, volume discounts and other...... 12,677 18,577 - 16,736 14,518 ------- ------- ------ ------- ------- Total.............................. $44,402 $43,434 $ 809 $40,399 $48,246 ======= ======= ====== ======= ======= Year ended December 27, 1998 Accounts receivable allowances: Bad debts................................ $31,709 $19,931 $ 548 $20,463 $31,725 Rebates, volume discounts and other...... 11,496 17,497 4,030 20,346 12,677 ------- ------- ------ ------- ------- Total.............................. $43,205 $37,428 $4,578 $40,809 $44,402 ======= ======= ====== ======= ======= Year ended December 28, 1997 Accounts receivable allowances: Bad debts................................ $24,445 $19,135 $4,158 $16,029 $31,709 Rebates, volume discounts and other...... 9,961 19,945 633 19,043 11,496 ------- ------- ------ ------- ------- Total.............................. $34,406 $39,080 $4,791 $35,072 $43,205 ======= ======= ====== ======= =======
26 TRIBUNE COMPANY EXHIBIT INDEX Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by Tribune Company with the Securities and Exchange Commission, as indicated. Exhibits marked with a circle (o) are management contracts or compensatory plan contracts or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K. All other documents listed are filed with this Report. Number Description ------ ----------- 3.1 * Restated Certificate of Incorporation of Tribune Company, dated April 21, 1987; Certificate of Designations of Series B Convertible Preferred Stock, dated April 4, 1989 (Exhibit 3.1 to Annual Report on Form 10-K for 1991). 3.1a * Amended Certificate of Designation of Series A Junior Participating Preferred stock, dated December 2, 1997 (Exhibit 3.1a to Annual Report on Form 10-K for 1997). 3.2 By-Laws of Tribune Company As Amended and In Effect on December 14, 1999. 4 * Rights Agreement between Tribune Company and First Chicago Trust Company of New York, as Rights Agent, dated as of December 12, 1997 (Exhibit 1 to Form 8-K Current Report dated December 12, 1997). 4.1 * Indenture, dated as of March 1, 1992 between Tribune Company and Bank of Montreal Trust Company (as successor to Continental Bank, National Association) (Exhibit 4.1 to Registration Statement on Form S-3, Registration No. 333-02831). 4.2 * Indenture, dated as of January 1, 1997 between Tribune Company and Bank of Montreal Trust Company (Exhibit 4 to Form 8-K Current Report dated January 14, 1997). 4.3 * Indenture, dated as of April 1, 1999 between Tribune Company and Bank of Montreal Trust Company (Exhibit 4 to Form 8-K Current Report dated April 5, 1999). 4.4 * Form of First Supplemental Indenture between Tribune Company and Bank of Montreal Trust Company relating to the DECS Securities (Exhibit 4.1 to Form 8-K Current Report dated July 30, 1998). 4.5 * Form of Global Note relating to the DECS Securities (Exhibit 4.2 to Form 8-K Current Report dated July 30, 1998). 4.6 * Form of Exchangeable Subordinated Debenture due 2029 relating to PHONES securities (Exhibit 4 to Form 8-K Current Report dated April 13, 1999). 10.1 o* Chicago Tribune Company Split-Dollar Insurance Plan dated June 29, 1978, together with first amendment dated August 28, 1981, covering certain employees of Tribune Company and Chicago Tribune Company (Exhibit 10.4 in File No. 2-86087). 10.2 o* Tribune Company Supplemental Retirement Plan, as amended and restated on January 1, 1989 (Exhibit 10.6 to Annual Report on Form 10-K for 1988). 27 Number Description ------ ----------- 10.2a o* First Amendment of Tribune Company Supplemental Retirement Plan, effective January 1, 1994 (Exhibit 10.4b to Annual Report on Form 10-K for 1993). 10.3 o* Tribune Company Directors' Deferred Compensation Plan, as amended and restated on July 1, 1994 (Exhibit 10.7 to Annual Report on Form 10-K for 1994). 10.4 o* Tribune Company Bonus Deferral Plan, dated as of December 14, 1993 (Exhibit 10.8 to Annual Report on Form 10-K for 1993). 10.4a o* First Amendment of Tribune Company Bonus Deferral Plan, effective December 1, 1996 (Exhibit 10.4a to Annual Report on Form 10-K for 1996). 10.5 o* Tribune Company Amended and Restated 1984 Long-Term Performance Plan, effective as of July 25, 1989 (Exhibit 19.2 to Form 10-Q Quarterly Report for the quarter ended June 25, 1989); Forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreements for Tribune Company Amended and Restated 1984 Long-Term Performance Plan (Exhibit 19.2 to Form 10-Q Quarterly Report for the quarter ended July 1, 1990). 10.6 o* Tribune Company 1992 Long-Term Incentive Plan, dated as of April 29, 1992 and as amended and in effect on April 19, 1994 (Exhibit 10.11 to Annual Report on Form 10-K for 1994). 10.7 o* Tribune Company Executive Financial Counseling Plan, dated October 19, 1988 and as amended effective January 1, 1994 (Exhibit 10.13 to Annual Report on Form 10-K for 1993). 10.8 o* Tribune Company Amended and Restated Transitional Compensation Plan for Executive Employees, effective as of December 7, 1998 (Exhibit 10.8 to Annual Report on Form 10-K for 1998). 10.9 o* Tribune Company Supplemental Defined Contribution Plan, effective as of January 1, 1994 and as amended effective January 1, 1999 (Exhibit 10.9 to Annual Report on Form 10-K for 1998). 10.10 o Tribune Company Employee Stock Purchase Plan (as amended and restated effective July 27, 1999). 10.11 o* 1988 Restricted Stock Plan For Outside Directors, dated February 16, 1988 (Exhibit 10.12 to Annual Report on Form 10-K for 1992). 10.11a o* Amendment effective April 28, 1992 to the 1988 Restricted Stock Plan For Outside Directors (Exhibit 10.12b to Annual Report on Form 10-K for 1993). 10.12 o Tribune Company 1995 Nonemployee Director Stock Option Plan (as amended and restated effective January 1, 2000). 10.13 o* Tribune Company Amended and Restated 1996 Nonemployee Director Stock Compensation Plan, dated as of February 17, 1998 (Exhibit 10.14 to Annual Report on Form 10-K for 1997). 10.14 o* Tribune Company 1997 Incentive Compensation Plan effective December 29, 1996 (Exhibit 10.15 to Form 10-Q Quarterly Report for the quarter ended March 30, 1997). 12 Computation of Ratios of Earnings to Fixed Charges. 28 Number Description ------ ----------- 13 The portions of the Company's 1999 Annual Report to Shareholders which are specifically incorporated herein by reference. 21 Table of subsidiaries of Tribune Company. 23 Consent of Independent Accountants. 27 Financial Data Schedule. 99 Form 11-K financial statements for the Tribune Company Savings Incentive Plan (to be filed by amendment). 29 EX-3.2 2 BY-LAWS OF TRIBUNE COMPANY Exhibit 3.2 BY-LAWS OF TRIBUNE COMPANY A Delaware Corporation As Amended and In Effect on December 14, 1999 ARTICLE I Registered Office and Agent Section 1.1 Registered Office and Agent. The registered office of the Company in the State of Delaware shall be the office of The Corporation Trust Company in the City of Wilmington, County of New Castle, and the registered agent in charge thereof shall be The Corporation Trust Company. ARTICLE II Meetings of Stockholders Section 2.1 Place of Meeting. Meetings of stockholders shall be held at such locations as are designated by the Board of Directors or the officers calling such meetings. Section 2.2 Annual Meeting. The annual meeting of the stockholders shall be held on such date (not a legal holiday) and at such time as is designated by resolution of the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting. Section 2.3 Special Meetings. Special meetings of the stockholders may be called by the Chief Executive Officer of the Company or the Board of Directors. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice of the meeting. Section 2.4 Notice of Meetings. Unless otherwise required by statute, written notice stating the place, date and hour of each meeting of stockholders and the purpose or purposes of each such meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. In the case of a meeting to vote on a merger or consolidation such notice shall be given not 1 less than twenty nor more than sixty days before the date of the meeting. If given by mail, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Company. Section 2.5 Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Company. To be timely, a stockholder's notice must be delivered to the Secretary at the principal executive offices of the Company not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall the notice or public disclosure of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Company's books, of the stockholder proposing such business, (c) the class and number of shares of the Company which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting of stockholders except in accordance with the procedures set forth in this Section. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Chief Executive Officer or the Board of Directors. 2 Nothing in this By-law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Company's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act. Section 2.6 List of Stockholders. The officer or agent having charge of the stock ledger of the Company shall make, at least ten 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 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 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, if 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 2.7 Inspectors. In advance of any meeting of stockholders the Company, by its Board of Directors or by its Chairman or President, shall appoint one or more inspectors of voting who shall receive and count the ballots and make a written report of the results of the balloting, and who shall perform such other duties in connection therewith as is provided by law. The Company may also designate one or more persons as alternate inspectors to replace any inspector who is unable or fails to act. Section 2.8 Quorum. The holders of record of shares of capital stock of the Company having a majority of the votes entitled to be cast at the meeting, represented in person or by proxy, shall constitute a quorum at all meetings of stockholders. Where a separate vote by class or classes is to be held, the holders of stock having a majority of the votes entitled to be cast by such class or classes, represented in person or by proxy, shall constitute a quorum at the meeting. Regardless of whether a quorum is present or represented, the chairman of the meeting, or stockholders represented in person or by proxy at the meeting voting a majority of the votes cast by such stockholders on the matter, shall have the power to adjourn the meeting to another time and/or place. Unless the adjournment is for more than thirty days, or unless a new record date is set for the adjourned meeting, no notice of the adjourned meeting need be given to any stockholder; provided that the time and place of the adjourned meeting were announced at the meeting at which the adjournment was taken. At the adjourned meeting the Company may transact any business which might have been transacted at the original meeting. Section 2.9 Voting of Shares; Proxies. The voting rights of holders of common stock and preferred stock of the Company shall be as set forth in the Restated Certificate of Incorporation, as from time to time in effect, and in resolutions of the Board of Directors providing for series of the preferred stock. A stockholder may vote either in 3 person, by proxy executed in writing by the stockholder or an authorized officer, director, employee or agent of the stock-holder, or by electronic transmission as provided by law. No proxy shall be voted or acted upon after three years from the date of its execution, unless the proxy provides for a longer period. Action on any question or in any election may be by a voice vote unless the presiding officer shall order that voting be by ballot. The presiding officer at the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at the meeting. Section 2.10 Required Vote. At any duly constituted meeting of stockholders, the affirmative vote of holders of a majority of the voting power of all shares represented at the meeting in person or by proxy and entitled to vote on the matter shall be necessary for the adoption or approval of any matter properly brought before the meeting, unless the proposed action is for the election of directors or is one upon which, by express provision of statute or of the Restated Certificate of Incorporation, a different affirmative vote is specified or required, in which case such express provision shall govern and control the decision of such question. In elections for directors, the nominees receiving the highest number of votes cast for the number of director positions to be filled shall be elected. Where a separate vote by class or classes is to be held, unless otherwise provided by statute or the Restated Certificate of Incorporation, the affirmative vote of the holders of a majority of the voting power of all shares of such class or classes represented at the meeting in person or by proxy shall be the act of such class or classes. Section 2.11 Action Without a Meeting. Action by the stockholders may be taken without a meeting as provided in the Restated Certificate of Incorporation. ARTICLE III Directors Section 3.1 Number, Tenure and Qualifications. The business and affairs of the Company shall be managed by a Board of no less than ten (10) nor more than fifteen (15) directors, as fixed from time to time by resolution of the Board of Directors. Individuals shall be eligible to serve as a director of the Company until the annual meeting next occurring after such person's 72nd birthday. An officer of the Company shall be eligible for service as a director until either (i) such officer's resignation as an officer of the Company or (ii) the annual meeting next occurring after such officer's retirement as an officer of the Company. The Board shall be classified with respect to the time during which they hold office into three classes, as nearly equal in number as possible based on the then current membership of the Board, as determined by the Board of Directors, all as provided in the Restated Certificate of Incorporation. One 4 class of directors shall be elected at each annual meeting of the stockholders to hold office for the term of three years or until their respective successors are duly elected and qualified or until their earlier resignation or removal. Section 3.2 Nominating Procedures. Section 3.2.1 Eligibility to Make Nominations. Nominations of candidates for election as directors at any meeting of stockholders called for that purpose may be made by the Board of Directors or by any stockholder entitled to vote at such meeting, in accordance with the following provisions. Section 3.2.2 Procedure for Nominations by the Board of Directors. Nominations made by the Board of Directors shall be made at a meeting of the Board of Directors, or by written consent of the directors in lieu of a meeting, not less than 30 days prior to the date of the meeting of stockholders at which directors are to be elected. At the request of the Secretary of the Company, each proposed nominee shall provide the Company with such information concerning himself or herself as is necessary for purposes of the Company's proxy statement relating to the meeting. Section 3.2.3 Procedure for Nominations by Stockholders. Any stockholder who intends to make a nomination at a meeting of stockholders at which directors are to be elected, shall deliver a notice to the Secretary of the Company setting forth (i) the name, age, business address and residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, (iii) the number of shares of capital stock of the Company which are beneficially owned by each such nominee and (iv) such other information concerning each such nominee as would be required, under the rules of the Securities and Exchange Commission, in a proxy statement soliciting proxies for the election of such nominees. Such notice shall be accompanied by a signed consent of each proposed nominee to serve as a director of the Company if elected. To be timely, a stockholder's notice must be delivered to the Secretary at the principal executive offices of the Company not earlier than the close of business on the 120th day prior to such meeting and not later than the close of business on the later of the 90th day prior to such meeting or the 10th day following the day on which such notice of the date of the meeting is mailed to the stockholders or public announcement thereof is made, whichever occurs first. In no event shall the notice or public disclosure of an adjournment of a meeting of stockholders at which directors are to be elected commence a new time period for the giving of a stockholder's notice as described above. Section 3.2.4 Substitution of Nominees. In the event that a person is validly designated as a nominee in accordance with the preceding Sections and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may 5 designate a substitute nominee. At the request of the Secretary of the Company, each substitute nominee shall provide the Company with such information concerning himself or herself as would be necessary for purposes of a proxy statement relating to the meeting. Section 3.2.5 Determination of Compliance with Procedures. If the chairman of the meeting of stockholders determines that a nomination for director was not made in accordance with the foregoing procedures, such nomination shall be void. Section 3.3 Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this By-Law immediately after, and at the same address as, the annual meeting of stockholders. The Board of Directors may fix the time and place for the holding of additional regular meetings. No notice or call shall be required. Section 3.4 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman, the President or any two directors, by notice to the Secretary of the Company. The person or persons authorized to call special meetings of the Board of Directors may fix any place as the place for holding any special meeting of the Board of Directors called by them, provided that any meeting called at the request of directors shall be held at Tribune Tower, Chicago, Illinois. Notice of any special meeting shall be given to all directors at least twenty-four hours in advance thereof (except as set forth below), either (a) personally or by telephone or (b) by mail or telegram addressed to the director at his/her address as it appears on the records of the Company. Such notice shall include the time and place at which the meeting is to be held. If mailed, such notice must be given at least five days prior to the meeting and shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice is to be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting. Section 3.5 Quorum and Action. A majority of the total number of directors then in office shall constitute a quorum for the transaction of business at any meeting, but if less than a quorum is present a majority of the directors present may adjourn the meeting from time to time without further notice. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by statute, the Restated Certificate of Incorporation or these By-Laws. Section 3.6 Vacancies. Any vacancy occurring in the Board of Directors and any newly created directorship resulting from an increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, and the directors so chosen shall hold office for the unexpired portion of their 6 designated terms of office and until their successors are duly elected and qualified, or until their earlier resignation or removal. Section 3.7 Compensation of Directors. The Board of Directors, by the affirmative vote of the majority of the directors then in office, and irrespective of any personal interest of any of the directors, shall have authority to fix the compensation of directors for services to the Company as Board members, committee members or otherwise. Section 3.8 Removal of Directors. Any one or more directors may be removed from office only for cause, and only by the affirmative vote of holders of at least a majority of the voting power of all of the then outstanding shares of voting stock of the Company, voting together as a single class. Section 3.9 Committees. Section 3.9.1 Executive Committee. The Board of Directors, by resolution of a majority of the whole Board, shall appoint an Executive Committee to consist of not less than five members of the Board, one of whom shall be the person designated as Chief Executive Officer of the Company. The Executive Committee shall have the right to exercise the full power and authority of the Board of Directors of the Company to the fullest extent permitted by Section 141(c) of the General Corporation Law of the State of Delaware; provided, that, in addition to the restrictions provided in said Section 141(c), such Executive Committee shall not have the authority of the Board of Directors in reference to: (a) electing or removing officers of the Company or members of the Executive Committee; (b) fixing the compensation of any officer or director; (c) amending, altering or repealing these By-Laws or any resolution of the Board of Directors; (d) submission to the stockholders of any matter whatsoever; (e) action with respect to dividends; or (f) any action which either the Chief Executive Officer or two other members of the Executive Committee shall designate, by written instrument filed with the Secretary of the Company, as a matter to be considered by the full Board. All action taken by the Executive Committee between Board meetings on matters of a nature ordinarily requiring Board action shall be promptly reported to the Board of Directors. Section 3.9.2 Audit Committee. The Board of Directors, by resolution of a majority of the whole Board, shall appoint an Audit Committee to consist of not less than three directors, none of whom shall be an officer or employee of the Company or of any subsidiary or affiliated corporation. The Audit Committee (a) shall recommend to the Board of Directors the appointment of independent public accountants for each year to audit the books, records and accounts of the Company and to perform such other duties as the board of Directors or Audit Committee may from time to time prescribe, (b) shall review the financial statements submitted by the independent public accountants and shall report to the Board of Directors the results of such review, (c) shall review all 7 recommendations made by the independent public accountants to the Board of Directors with respect to the accounting methods used, the organization and operations of the Company and the system of internal control followed by the Company and shall advise the Board of Directors with respect thereto and (d) shall have authority to examine, and to make recommendations to the Board of Directors with respect to, the audit conducted by the Company's independent public accountants. The scope and frequency of the Audit Committee's review and examination shall be determined by the Committee, which shall have all the powers of the Board of Directors in carrying out its duties. Section 3.9.3 Finance Committee. The Board of Directors, by resolution of a majority of the whole Board, shall appoint a Finance Committee to consist of not less than three directors. The functions of the Finance Committee shall be (a) to supervise generally the financial affairs of the Company, (b) to review with management the capital needs of the Company and its subsidiaries, (c) to provide consultation on major borrowings and proposed issuances of debt and equity securities and (d) to report to the Board of Directors from time to time with respect to the foregoing. The Finance Committee shall make recommendations to the Board concerning the Company's financial strategies, policies and structure, and shall undertake such additional functions and activities related to the foregoing as may be requested from time to time by the Board of Directors. Section 3.9.4 Governance and Compensation Committee. The Board of Directors, by resolution of a majority of the whole Board, shall appoint a Governance and Compensation Committee to consist of not less than three directors, none of whom shall be an officer or employee of the Company or of any subsidiary or affiliated corporation. The functions of the Governance and Compensation Committee shall be (a) to identify and make recommendations to the Board of Directors regarding candidates for election to the Board, (b) to review and make recommendations to the Board of Directors regarding the renomination of incumbent directors, (c) to perform other related tasks, such as studying the size, committee structure or meeting frequency of the Board, making studies or recommendations regarding management succession, or tasks of similar character as may be requested from time to time by the Board of Directors or the Chief Executive Officer, (d) to establish the compensation of the Chief Executive Officer of the Company, (e) to consult with the Chief Executive Officer with respect to the compensation of officers and executive employees of the Company and its subsidiaries, (f) to fix and determine awards to employees of stock or stock options pursuant to any of the Company's employee stock option or stock related plans now or from time to time hereafter in effect and to exercise such other power and authority as may be permitted or required under such plans and (g) to undertake such additional similar functions and activities as may be required by other compensation plans maintained by the Company or as may be requested from time to time by the Board of Directors. 8 The Board of Directors, by resolution of a majority of the whole Board, shall designate one member of the Governance and Compensation Committee to act as chairman of the Committee. The Committee member so designated shall (a) chair all meetings of the Committee, (b) chair meetings involving only non-employee directors, (c) coordinate an annual performance evaluation of the Company, (d) coordinate the evaluation of the performance of the Chief Executive Officer, and (e) perform such other activities as from time-to-time are requested by the other directors or as circumstances indicate. Section 3.9.5 Other Committees. In addition to the Committees provided for in Sections 3.9.1 through 3.9.4 above, the Board of Directors may, by resolution passed by a majority of the whole Board, designate and appoint one or more other Board committees, each such committee to consist of two or more directors of the Company. Any such Board committee, to the extent provided in the resolution creating it and authorized by statute, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers which may require it. The Board of Directors may also appoint other committees for the administration of the affairs of the Company, whose members may or may not be directors. Every committee appointed by the Board of Directors may, unless the Board provides otherwise, fix its own rules of procedure and hold its meetings in accordance with such rules. The Board may designate one or more persons as alternate members of any Board or other committee, as applicable, who may replace any absent or disqualified member at any meeting of such committee. Section 3.10 Action By Directors Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 3.11 Meetings By Telephone. Members of the Board of Directors, or any committee of the Board, may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section shall constitute presence in person at such meeting. ARTICLE IV Officers Section 4.1 Officers of the Company. The officers of the Company shall consist of a Chairman and/or a President, a Secretary and a Treasurer, elected or appointed by the 9 Board of Directors. The Board may also elect or appoint as officers of the Company a Controller, a General Counsel and one or more Vice Chairmen, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Deputy General Counsels, Assistant Controllers, Assistant Secretaries, Assistant Treasurers or Assistant Vice Presidents, and such other officers, as the Board may from time to time determine. If the Board of Directors shall at any time elect or appoint both a Chairman and a President, the Board shall specify which individual is to serve as the Chief Executive Officer of the Company. Any two or more offices may be held by the same person except that neither the Chairman nor the President may also hold the office of Secretary. All officers of the Company shall have such authority and perform such duties in the management of the property and affairs of the Company as are provided in these By-Laws or as may be determined by resolution of the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board. Section 4.2 Election and Term of Office. The officers of the Company shall be elected annually by the Board of Directors at the first regular meeting of the Board of Directors held after the annual meeting of stockholders. Each officer shall hold office until his successor is duly elected and qualified or until his earlier resignation or removal. Section 4.3 Removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the whole Board of Directors, with or without cause, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create any contract rights. Section 4.4 Vacancies. A vacancy in any office by reason of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term. Section 4.5 Delegation of Duties of Officers. In case of the absence of any officer of the Company, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may temporarily delegate the power or duties of an officer to any other officer or to any other person. Section 4.6 The Chairman; Chief Executive Officer. If the Board of Directors shall elect a Chairman, that person when present shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman shall also have the power to vote shares of stock registered in the name of the Company and shall exercise such other powers and duties as from time to time may be provided in these By-Laws or as may be prescribed by the Board of Directors. If the Chairman shall be designated as Chief Executive Officer of the Company, he or she shall have the general management and direction, subject to the authority of the Board of Directors, of the Company's business 10 and affairs and its officers and employees, with the power to appoint and to remove and discharge any and all employees of the Company not elected or appointed directly by the Board. The Chief Executive Officer shall, upon consultation with the Governance and Compensation Committee of the Board, fix the salaries and bonuses (if any) of all officers and executive employees of the Company and its subsidiaries other than himself. Section 4.7 The President. If the Board of Directors shall elect a President, that person when present and in the absence of a Chairman shall preside at all meetings of the stockholders and of the Board of Directors. If there is no Chairman, or if the Board of Directors shall designate the President as the Chief Executive Officer of the Company, the President shall have all of the powers of the Chief Executive Officer enumerated in the preceding Section. The President shall also have the power to vote shares of stock registered in the name of the Company, and shall exercise such other powers and duties as from time to time may be provided in these By-Laws or as may be prescribed by the Board of Directors. Section 4.8 Vice Chairman, Executive Vice President, Senior Vice President, Vice President. Each Vice Chairman, Executive Vice President, Senior Vice President or Vice President of the Company shall perform such duties as may from time to time be assigned by the Chief Executive Officer or the Board of Directors. The Chief Executive Officer or the Board of Directors may add words signifying the function or position to the title of any Vice Chairman, Executive Vice President, Senior Vice President or Vice President appointed by the Board. The persons holding the foregoing positions shall each have the power to vote shares of stock registered in the name of the Company where such ownership interest constitutes less than 20% of the total voting interest of the corporation issuing the stock. Section 4.9 The Secretary. The Secretary shall record all of the proceedings of the meetings of the stockholders and directors in a book to be kept for that purpose, and shall perform like duties for the standing committees, when requested; shall have custody and care of the corporate seal, records, minutes and stock books of the Company; shall keep a suitable record of the addresses of stockholders and of directors, and shall, except as may be otherwise required by statute or these By-Laws, issue all notices required for meetings of stockholders and of the Board of Directors and committees thereof. The Secretary shall have authority to cause the seal of the Company to be affixed to all papers requiring the seal, to attest the same, and to attest any instruments signed by an officer of the Company. The Secretary shall perform such other duties as from time to time may be assigned by the Chairman, the President or the Board of Directors. Section 4.10 The Treasurer. The Treasurer shall have charge of the safekeeping of the Company's funds, and shall perform such other duties as may from time to time be 11 assigned by the Chief Executive Officer or the Board of Directors. The Treasurer may be required to give bond to the Company, at the Company's expense, for the faithful discharge of his or her duties in such form and in such amount and with such sureties as shall be determined by the Board of Directors. Section 4.11 The Controller. The Controller shall have charge of the general accounting department of the Company, and shall see that correct accounts of the Company's business are properly kept. He or she shall perform such other duties as from time to time may be assigned by the Chief Executive Officer or the Board of Directors. The Controller may be required to give bond to the Company, at the Company's expense, for the faithful discharge of his or her duties in such form and in such amount and with such sureties as shall be determined by the Board of Directors. Section 4.12 General Counsel. The General Counsel shall be the chief legal officer of the Company and shall be responsible for the management of the legal affairs of the Company. The General Counsel shall perform such other duties as from time to time may be assigned by the Chief Executive Officer or the Board of Directors. Section 4.13 Deputy General Counsel, Assistant Controller, Assistant Secretary, Assistant Treasurer and Assistant Vice President. The Deputy General Counsel shall assist the General Counsel in such manner and perform such duties as may be designated from time to time by the General Counsel. Each Assistant Vice President shall have such duties as may from time to time be assigned by the Vice President or Vice Presidents to whom he or she reports. Each Assistant Controller, Assistant Secretary and Assistant Treasurer shall assist the Controller, the Secretary or the Treasurer, as the case may be, in the performance of the respective duties of such principal officers. Each Assistant Secretary shall have the authority to affix the corporate seal to any instrument requiring it, to attest the same, and to attest any instrument signed by an officer of the Company. The powers and duties of the Controller, the Secretary, the Treasurer and the General Counsel, respectively, shall in case of the absence, disability, death, resignation, or removal from office of such principal officer, and except as otherwise ordered by the Board of Directors, temporarily devolve upon the first appointed deputy or assistant who is able to serve. Deputy or assistant officers shall perform such other duties as may be assigned to them from time to time. The Chief Executive Officer or the Board of Directors may add words signifying function or position to the title of any deputy or assistant officer. 12 ARTICLE V Capital Stock Section 5.1 Certificates for Shares. Subject to the provisions of Section 5.2, every holder of fully paid stock in the Company shall be entitled to have a certificate or certificates signed in the name of the Company by the Chairman, the President or any Vice President and by the Secretary or an Assistant Secretary of the Company, representing and certifying the number of shares of the Company's capital stock owned by such holder. Any or all of the signatures on each certificate may be facsimile. In case any officer, transfer agent or registrar whose signature or facsimile signature appears on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 5.2 Certificates for Fractional Shares. The Board of Directors may provide that, with respect to classes or series of stock as to which the issuance and ownership of fractional shares are permitted in accordance with the Restated Certificate of Incorporation, the ownership of fractional interests shall be evidenced by scrip certificates in lieu of the certificates referred to in Section 5.1 of these By-Laws. Any or all of the signatures on each scrip certificate may be facsimile. The Board of Directors may specify from time to time, with respect to any series or class of stock, particular fractions in which ownership will be permitted and recognized and as to which certificates will be issued. Section 5.3 Registration and Transfer of Shares. The Company will maintain or cause to be maintained a register for the registration of shares of its capital stock. Transfers of shares and exchanges of stock certificates shall be recorded on the books of the Company only at the request of the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Company, and only upon the surrender for cancellation of the certificate or certificates for such shares. Section 5.4 Only Holder of Record Entitled to Recognition. The Company shall be entitled to treat the holder of record of any share or shares as the owner thereof for all purposes and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 5.5 Fixing Record Date. For the purpose of determining 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 13 rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a date as the record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than sixty nor less than ten days (or, in the case of a meeting to vote on a merger or consolidation, not more than sixty nor less than twenty days) before the date of such meeting, nor more than sixty days prior to any other action. The record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be as provided by law. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. When a determination of stockholders entitled to notice of or to vote at any meeting of stockholders has been made as provided in this Section, such determination shall apply to any adjournment thereof; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 5.6 Lost Certificates. If an outstanding certificate of stock shall be lost, destroyed or stolen, the holder thereof may have a new certificate issued to him or her upon producing evidence satisfactory to the Company of such loss, destruction, or theft, and also upon furnishing to the Company a bond of indemnity deemed sufficient by the Secretary to protect the Company and any registrar or transfer agent against claims under the certificate alleged to be lost, destroyed or stolen; provided, however, that upon good cause shown the Board of Directors may waive the furnishing of such bond of indemnity. ARTICLE VI Miscellaneous Section 6.1 Execution of Instruments. Contracts and other written documents of the Company shall be executed as the Board of Directors may from time to time direct. In the absence of specific directions by the Board, the officers of the Company shall duly execute all necessary contracts and other written instruments properly coming within the scope of their respective powers and duties. When the execution of any contract or other written instrument of the Company has been authorized by the Board of Directors without specification of the executing officers, the Chairman, the President, any Vice Chairman or any Vice President may execute the same in the name and on behalf of the Company and the Secretary or any Assistant Secretary may attest the same and affix the corporate seal thereto. Section 6.2 Loans. No loans (except loans for current expenses) shall be incurred on behalf of the Company and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors or a duly authorized 14 committee thereof. Such authority may be general or confined to specific instances. No loans shall be made by the Company to any director or officer except upon the affirmative vote of a majority of the disinterested directors. Section 6.3 Bank Deposits and Check Authorization. The funds of the Company shall be deposited to its credit in such banks, trust companies or other financial institutions as may be determined from time to time by the Chairman or President and the Secretary of the Company, evidenced by joint written action. By such joint written action, filed with the minutes of the Board of Directors, the Chairman or President together with the Secretary may authorize (a) the opening of one or more deposit accounts at any such institution and (b) the designation of, or a change in the designation of, the officers or employees upon whose signature checks may be written or funds withdrawn on any Company account at any such institution, provided that the signature of one person other than the Chairman, President and Secretary shall be required therefor. By the adoption of this Section 6.3 of these By-Laws the Board of Directors adopts the form of any resolution or resolutions requested by or acceptable to any financial institution in connection with the foregoing actions, provided that the Secretary of the Company (x) believes that the adoption of such resolution or resolutions is necessary or advisable and (y) files such resolution or resolutions with the minutes of the Board of Directors. Section 6.4 Fiscal year. The fiscal year of the Company shall begin on the first Monday after the last Sunday in December of each year and end on the last Sunday in the following December. Section 6.5 Seal. The corporate seal shall be in the form of a circle and shall have inscribed thereon the name of the Company and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed, affixed, printed or otherwise reproduced. The Board of Directors may give general authority to any officer to affix the seal of the Company and to attest the fixing by his or her signature. Section 6.6 Waiver of Notice. Whenever any notice whatever is required to be given by statute, by the Restated Certificate of Incorporation of the Company, by these By-Laws or otherwise, in connection with any meeting of stockholders, directors or members of a committee of directors, a written waiver thereof, signed by the person entitled to such notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to such required notice. In addition, attendance by a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of such meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any 15 meeting of stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. ARTICLE VII Amendments of By-Laws Section 7.1 These By-Laws may be altered, amended or repealed and new by-laws may be made (a) by the stockholders as provided in the Restated Certificate of Incorporation or (b) by the affirmative vote of a majority of the whole Board of Directors at any regular or special meeting thereof. 16 EX-10.10 3 EMPLOYEE STOCK PURCHASE PLAN Exhibit 10.10 TRIBUNE COMPANY EMPLOYEE STOCK PURCHASE PLAN (As Amended and Restated July 27, 1999) The purpose of the Tribune Company Amended and Restated Employee Stock Purchase Plan (the "Plan") is to enable employees of Tribune Company and its qualified subsidiaries to purchase shares of the Common Stock (without par value) of Tribune Company ("Common Stock") at a discount through payroll withholding. The Plan was amended and restated effective July 27, 1999. 1. Shares Subject to Plan. An aggregate of 8,000,000* shares of Common Stock (the "Shares") may be sold pursuant to the Plan. Such Shares may be authorized but unissued Common Stock or authorized and issued Common Stock acquired by Tribune Company for the purposes of the Plan or held in Tribune Company's Treasury. Shares that are subject to rights granted under the Plan which expire or terminate unexercised shall again be available for sale under the Plan. If there is any change in the outstanding shares of Common Stock by reason of a stock dividend or distribution, stock split-up, recapitalization, combination or exchange of shares, or by reason of any merger, consolidation or other corporate reorganization in which Tribune Company is the surviving corporation, the number of Shares available for sale shall be equitably adjusted by the Committee appointed to administer the Plan to give proper effect to such change. 2. Administration. The Plan shall be administered by a Committee consisting of at least three members of the Board of Directors of Tribune Company. Each member of the Committee shall be a "nonemployee director" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor to such Rule) as now or hereafter amended. For as long as it continues to meet this requirement, the Governance and Compensation Committee of the Board of Directors of Tribune Company shall serve as the Committee. The Committee shall have the authority to make rules and regulations governing the administration of the Plan, and any interpretation or decision made by the Committee regarding the administration of the Plan shall be final and conclusive. 3. Eligibility. All regular employees of Tribune Company, and of each qualified subsidiary of Tribune Company which may be designated by Tribune Company's Board of Directors, other than: (a) employees whose customary employment is 20 hours or less per week, and (b) employees whose customary employment is for not more than 5 months per year shall be eligible to participate in the Plan. For the purposes of this Plan, the term "qualified subsidiary" means any subsidiary, more than 50% of the total combined voting power of all classes of stock in which is now owned or hereafter acquired by Tribune Company or any such - -------------- * Number of Shares available has been adjusted to reflect 2 for 1 stock split in January, 1997. 1 qualified subsidiary. The term "subsidiary" means any corporation, 50% or more of the total combined voting power of all classes of stock in which is now owned or hereafter acquired by Tribune Company or any such subsidiary. 4. Participation. An eligible employee may elect to participate in the Plan as of any "Enrollment Date". Enrollment Dates shall occur on the first day of each payroll period immediately following an employee's election to participate in the Plan. Any such election shall be made by completing and forwarding a payroll deduction authorization form to the employee's appropriate payroll location authorizing payroll deductions up to, but not exceeding, 15% of the employee's regular rate of cash compensation. A participating employee may increase or decrease his payroll deductions by completing and forwarding a revised payroll deduction authorization form to his or her appropriate payroll location; provided, that changes in payroll deductions shall not be permitted to the extent that they would result in total payroll deductions exceeding 15% of the employee's regular rate of cash compensation for the payroll period immediately preceding the date as of which the change takes effect. 5. Payroll Deduction Accounts. Tribune Company shall establish a payroll deduction account for each participating employee, and shall credit all payroll deductions made on behalf of each employee pursuant to paragraph 4 to his or her payroll deduction account. No interest shall be credited to any payroll deduction account. 6. Withdrawals. An employee may withdraw from an offering at any time by completing and forwarding a written notice to the employee's appropriate payroll location. Upon receipt of such notice, payroll deductions on behalf of the employee shall be discontinued commencing with the immediately following payroll period, and such employee may not again be eligible to participate in the Plan until the next Enrollment Date. Amounts credited to the payroll deduction account of any employee who withdraws shall remain in the account and be used to purchase Shares in accordance with paragraph 8 hereof, subject to the limitations in paragraph 7 hereof. 7. Offerings. The third Wednesday of each calendar month prior to the termination of the Plan shall constitute the purchase dates (the "Purchase Dates") on which each employee for whom a payroll deduction account has been maintained shall purchase the number of Shares determined under paragraph 8(a). Notwithstanding the foregoing, Tribune Company shall not permit the exercise of any right to purchase Shares: (a) to an employee who, immediately after the right is granted, would own stock possessing 5% or more of the total combined voting power or value of all classes of stock of Tribune Company or any subsidiary; or (b) which would permit an employee's rights to purchase stock under this Plan, or under any other qualified employee stock purchase plan maintained by Tribune Company or any subsidiary, to accrue at a rate in excess of $25,000 of the fair market value of such stock (determined at the time such rights are granted) for each 2 calendar year for which the right is outstanding at any time. For the purposes of subparagraph (a), the provisions of Section 425(d) of the Internal Revenue Code shall apply in determining the stock ownership of an employee, and the stock which an employee may purchase under outstanding rights or options shall be treated as stock owned by the employee. 8. Purchase of Shares. (a) Subject to the limitations set forth in paragraph 7, each employee participating in an offering shall have the right to purchase as many whole Shares (plus any fractional interest in a Share) as may be purchased with the amounts credited to his or her payroll deduction account as of the payroll date coinciding with or immediately preceding the second Wednesday of the month in which occurs the applicable Purchase Date (the "Cutoff Date"). Employees may purchase Shares only through payroll deductions, and cash contributions shall not be permitted. (b) The Purchase Price for each Share shall be 85% of the closing price of one share of Common Stock as reported on the New York Stock Exchange Composite Transactions list for the applicable Purchase Date. If no sales of Common Stock were reported on that date, the Purchase Price shall be the closing price of one share of Common Stock reported for the last preceding date on which sales of Common Stock were so reported. (c) On each Purchase Date, the amount credited to each participating employee's payroll deduction account as of the immediately preceding Cutoff Date shall be applied to purchase as many whole Shares (plus any fractional interest in a Share) as may be purchased with such amount at the applicable Purchase Price. Any amounts remaining in an employee's payroll deduction account as of the relevant Cutoff Date in excess of the amount that may properly be applied to the purchase of Shares shall be refunded to the employee as soon as practicable. 9. Brokerage Accounts or Plan Share Accounts. By enrolling in the Plan, each participating employee shall be deemed to have authorized the establishment of a brokerage account on his or her behalf at a securities brokerage firm selected by the Committee. Alternatively, the Committee may provide for Plan share accounts for each participating employee to be established by Tribune Company or by an outside entity selected by the Committee which is not a brokerage firm. Shares purchased by an employee pursuant to the Plan shall be held in the employee's brokerage or Plan share account in his or her name, or if the employee so indicates on his or her payroll deduction authorization form, in the employee's name jointly with a member of the employee's family, with right of survivorship. An employee who is a resident of a jurisdiction which does not recognize such a joint tenancy may request that such Shares be held in his or her name as tenant in common with a member of the employee's family, without right of survivorship. A participating employee may take part in any dividend reinvestment program offered by the brokerage firm or, if the stock is held in a Plan share account, in the Company's dividend reinvestment plan. 3 10. Rights as Stockholder. An employee shall have no rights as a stockholder with respect to Shares subject to any rights granted under this Plan until payment for such Shares has been completed at the close of business on the relevant Purchase Date. An employee shall have no right to vote any fractional interest in a Share credited to his account. 11. Certificates. Certificates for whole Shares purchased shall be issued as soon as practicable following an employee's written request. Tribune Company may make a reasonable charge for the issuance of such certificates. Fractional interests in Shares shall be carried forward in an employee's brokerage or Plan share account until they equal one whole Share or until the termination of the employee's participation in the Plan, in which event an amount in cash equal to the value of such fractional interest shall be paid to the employee in cash. 12. Termination of Employment. If a participating employee's employment is terminated for any reason, including death, if an employee is granted a leave of absence of more than 90 days duration or if an employee otherwise ceases to be eligible to participate in the Plan, payroll deductions on behalf of the employee shall be discontinued and any amounts then credited to the employee's payroll deduction account shall remain in the account and be used to purchase Shares in accordance with paragraph 8 hereof, subject to the limitations in paragraph 7 hereof. 13. Rights Not Transferable. Rights granted under this Plan are not transferable by a participating employee other than by will or the laws of descent and distribution, and are exercisable during an employee's lifetime only by the employee. 14. Employment Rights. Neither participation in the Plan, nor the exercise of any right granted under the Plan, shall be made a condition of employment, or of continued employment, with Tribune Company or any subsidiary. 15. Application of Funds. All funds received by Tribune Company pursuant to this Plan may be used for any corporate purpose. 16. Amendments. The Board of Directors may at any time, and from time to time, amend this Plan in any respect, except that no amendment: (a) increasing the number of Shares available for sale under this Plan (other than as permitted by paragraph 1); (b) changing the classification of employees eligible to participate in the Plan or the definitions of "subsidiary" or "qualified subsidiary"; or (c) materially changing the method for determining the Purchase Price of Shares; shall be made without the affirmative vote of stockholders holding at least a majority of the voting power of all shares of Tribune Company represented in person or by proxy at a duly held stockholders' meeting. 4 17. Termination. This Plan, and all rights of employees under any offering hereunder, shall terminate upon the first to occur of: (a) June 30, 2002; (b) the date on which the Committee determines that the total number of Shares then available for sale under the Plan is not sufficient to meet all unfilled purchase requirements; or (c) the date on which the Plan is terminated by the Board of Directors of Tribune Company. Upon termination of the Plan, all payroll deductions shall cease and all amounts then credited to the participating employees' payroll deduction accounts shall be equitably applied to the purchase of whole Shares then available for sale, and any remaining amounts shall be promptly refunded to the participating employees. 18. Applicable Laws. This Plan, and all rights granted hereunder, are intended to meet the requirements of an "employee stock purchase plan" under Section 423 of the Internal Revenue Code, as from time to time amended, and the Plan shall be construed and interpreted to accomplish this intent. Sales of Shares under the Plan are subject to, and shall be accomplished only in accordance with, the requirements of all applicable securities and other laws. 19. Expenses. Except to the extent provided in paragraph 11, all expenses of administering the Plan, including expenses incurred in connection with the purchase of Shares for sale to participating employees, shall be borne by Tribune Company and its subsidiaries. 5 EX-10.12 4 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN Exhibit 10.12 TRIBUNE COMPANY 1995 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (As Amended and Restated Effective January 1, 2000) ARTICLE I GENERAL 1.1 Purpose. The purpose of the 1995 Nonemployee Director Stock Option Plan (the "Plan") is to increase the stock ownership of nonemployee directors of Tribune Company, a Delaware corporation (the "Company"), to further align their interests with those of the Company's other stockholders and to foster and promote the long-term financial success of the Company by attracting and retaining outstanding nonemployee directors by enabling them to participate in the Company's growth through automatic, nondiscretionary grants of Options (as defined in Article II). 1.1 Participation. Only directors of the Company who at the time a grant is made are not employees of the Company or any subsidiary of the Company ("Directors") shall receive grants under the Plan. 1.2 Shares Subject to the Plan. Shares of stock covered by grants under the Plan may be in whole or in part authorized and unissued or treasury shares of the Company's common stock or such other shares as may be substituted pursuant to Section 3.2 ("Common Stock"). The maximum number of shares of Common Stock which may be issued for all purposes under the Plan shall be 400,000* (subject to adjustment pursuant to Section 3.2). Any shares of Common Stock subject to an Option which for any reason is cancelled or terminated, without having been exercised, shall again be available for grants under the Plan. ARTICLE II STOCK OPTIONS 2.1 Grant of Stock Options. Effective on the date of each annual meeting of the stockholders of the Company at which Directors are elected ("Annual Meeting") commencing with the Annual Meeting in 1995, each Director in office on adjournment of said meeting will automatically be awarded a non-qualified stock option (an "Option") under the Plan to purchase 4,000* (subject to adjustment pursuant to Section 3.2) shares of Common Stock. The Options are not intended to qualify as "incentive stock options" under Section 422 of the Internal Revenue Code of 1986, as amended. 2.2 Stock Option Certificates. The grant of an Option shall be evidenced by a Notice of Grant and Terms Sheet executed by an officer of the Company. - -------------- * Number of share available and size of annual grants have been adjusted to reflect 2 for 1 stock splits in January, 1997 and September, 1999. 1 2.3 Option Price. The purchase price of Common Stock under each Option (the "Option Price") granted shall be the Fair Market Value of the Common Stock as of the date of the Annual Meeting. 2.4 Exercise and Term of Options. (a) Options may be exercised by the delivery of written notice of exercise and the Option Price for the shares to be purchased to the Corporate Secretary of the Company. The Option Price shall be paid in cash (including check, bank draft or money order) or, unless in the opinion of counsel to the Company to do so may result in a possible violation of law, by delivery of Common Stock already owned by the Director for at least six months valued at Fair Market Value on the date of exercise. As soon as practicable after receipt of each notice and full payment, the Company shall deliver to the Director a certificate or certificates representing the acquired shares of Common Stock. (b) Each Option shall become exercisable beginning six months and one day after the date it is granted and may be exercised at any time until (subject to Section 3.1) the first to occur of the tenth anniversary of the date such Option was granted or the third anniversary of the date the Director ceases to be a Director (whether by death, disability, retirement or resignation). In the event of the death of a former Director prior to the exercise of any Options which were then exercisable, such Options may be exercised as provided in Section 3.1 until the third anniversary of the date the former Director ceased to be a Director; provided, that Options not exercisable on the day a person ceases to be a Director for any reason shall be cancelled. ARTICLE III MISCELLANEOUS PROVISIONS 3.1 Nontransferability; Beneficiaries. Options granted under the Plan shall generally be nontransferable by the Director otherwise than by will or, if the Director dies intestate, by the laws of descent and distribution. All grants shall be exercisable during the Director's lifetime only by the Director or his personal representative. Notwithstanding the foregoing, at the discretion of the Board of Directors or the Governance and Compensation Committee (if it qualifies under Rule 16b-3 as a nonemployee director committee), an Option granted under the Plan may be transferable to members of the Director's immediate family or trusts or family partnerships for the benefit of such persons, subject to such terms and conditions as may be established by the Board of Directors or the Committee. In the event of a Director's death prior to the exercise of any Options which were then exercisable, such Options may be exercised by the Director's beneficiary, designated as provided below, or, in the absence of any such designation, the Director's estate for the period indicated in Section 2.4(b) above. Each Director may name, from time to time, any beneficiary or beneficiaries (who may be named contingently or successively) who may exercise such Options and receive such certificates. Each designation will revoke all prior designations by such Director, and will be effective only when filed by the Director during the Director's lifetime with the Corporate Secretary. 2 3.2 Adjustments Upon Certain Changes. If any of the events described in Sections 13.1 and 13.2 of the Company's 1997 Incentive Compensation Plan shall occur, the number of shares authorized by the Plan, the number of Option shares to be awarded under Section 2.1, the number of shares covered by Outstanding Options and the Option Prices specified therein shall be automatically adjusted on the same basis to give the proper effect to such change so as to prevent the dilution or enlargement of rights under Options. In the event fractional shares would otherwise result from any such adjustment, the number of shares so authorized and covered and the Option Prices thereof shall be further adjusted so as to eliminate such fractions. 3.3 Amendment, Suspension and Termination of Plan. The Board of Directors may suspend or terminate the Plan or any portion thereof at any time and may amend it from time to time in such respects as the Board of Directors may deem advisable in order that any grants thereunder shall conform to or otherwise reflect any change in applicable laws or regulations, or to permit the Company or the Directors to enjoy the benefits of any change in applicable laws or regulations, or in any other respect the Board of Directors may deem to be in the best interests of the Company; provided, however, that no such amendment shall, without stockholder approval to the extent required by law, agreement or the rules of any exchange upon which the Common Stock is listed (a) except as provided in Section 3.2, materially increase the number of shares of Common Stock which may be issued under the Plan, (b) materially modify the requirements as to eligibility for participation in the Plan, or (c) materially increase the benefits accruing to Directors under the Plan. No such amendment, suspension, or termination shall impair the rights of Directors under any outstanding Options without the consent of the Directors affected thereby. 3.4 Definition of Fair Market Value. The term "Fair Market Value" unless otherwise required by any applicable provision of the Code or any regulations issued thereunder shall mean, as of any date, the closing price of the Common Stock as reported on the New York Stock Exchange Composite Transactions List (or such other consolidated transaction reporting system on which the Common Stock is primarily traded) for such day, or if the Common Stock was not traded on such day, then the next preceding day on which the stock was traded, all as reported by such source as the Board of Directors may select. If the Common Stock is not readily tradeable on a national securities exchange or other market system, its Fair Market Value shall be set under procedures established by the Board of Directors on the advice of an investment advisor. 3.5 Plan Not Exclusive. The adoption of the Plan shall not preclude the adoption by appropriate means of any other stock option or other incentive plan for Directors. 3.6 Listing, Registration and Legal Compliance. Each Option shall be subject to the requirement that if at any time counsel to the Company shall determine that the listing, registration or qualification thereof or of any shares of Common Stock or other property subject thereto upon any securities exchange or under any foreign, federal or state securities or other law or regulation, or the consent or approval of any governmental body or the taking of any other action to comply with or otherwise with respect to any such law or regulation, is necessary or desirable as a condition to or in connection with the grant of such Option or the issue, delivery or purchase of shares of Common Stock or other property thereunder, no such Option may be 3 exercised unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained free of any conditions not acceptable to the Company and the holder of the Option will supply the Company with such certificates, representations and information as the Company shall request and shall otherwise cooperate with the Company in effecting or obtaining such listing, registration, qualification, consent, approval or other action. The Company may at any time impose any limitations upon the exercise, of any Option which, in the opinion of the Board of Directors, are necessary or desirable in order to cause the Plan or any other plan of the Company to comply with Rule 16b-3. If the Company, as part of an offering of securities or otherwise, finds it desirable because of foreign, federal or state legal or regulatory requirements to reduce the period during which Options may be exercised, the Board of Directors may, without the holders' consent, so reduce such period on not less than 15 days' written notice to the holders thereof. 3.7 Rights of Directors. Nothing in the Plan shall confer upon any Director any right to serve as a Director for a period of time or to continue his present or any other rate of compensation. 3.8 Requirements of Law; Governing Law. The granting of Options and the issuance of shares of Common Stock shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware. 3.9 Change in Control. In the event of a change in control of the Company (as defined in Article XII of the Company's 1997 Incentive Compensation Plan), all outstanding Options granted prior to the change in control shall be fully vested and immediately exercisable in their entirety. 3.10 Effective Date. The Plan shall, subject to the approval of the holders of a majority of the votes of all shares present, or represented, and entitled to be cast on the matter at the 1995 Annual Meeting, be deemed effective as of such Annual Meeting. No grants shall be made hereunder after May 31, 2005. 4 EX-12 5 EXHIBIT 12 EXHIBIT 12 TRIBUNE COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (In thousands, except ratios)
Fiscal Year Ended December ------------------------------------------------------------------------ 1999 1998 1997 1996 1995 ---------- -------- -------- -------- -------- Income from continuing operations before $1,483,050 $414,272 $393,625 $282,750 $245,458 cumulative effect of accounting change (A) Add: Income tax expense 957,029 290,817 265,375 191,663 167,076 Losses on equity investments 21,545 33,980 34,696 13,281 13,209 ---------- -------- -------- -------- -------- Subtotal 2,461,624 739,069 693,696 487,694 425,743 ---------- -------- -------- -------- -------- Fixed charge adjustments Add: Interest expense 113,031 88,451 86,502 47,779 21,814 Amortization of capitalized interest 2,065 2,068 2,076 2,108 2,253 Interest component of rental expense (B) 11,217 10,671 10,416 9,362 8,200 ---------- -------- -------- -------- -------- Earnings, as adjusted $2,587,937 $840,259 $792,690 $546,943 $458,010 ========== ======== ======== ======== ======== Fixed charges: Interest expense $ 113,031 $ 88,451 $ 86,502 $ 47,779 $ 21,814 Interest capitalized 1,117 1,897 224 168 610 Interest component of rental expense (B) 11,217 10,671 10,416 9,362 8,200 Interest related to guaranteed ESOP debt (C) 13,146 15,578 17,901 20,134 22,057 ---------- -------- -------- -------- -------- Total fixed charges $ 138,511 $116,597 $115,043 $ 77,443 $ 52,681 ========== ======== ======== ======== ======== Ratio of earnings to fixed charges 18.7 7.2 6.9 7.1 8.7 ========== ======== ======== ======== ======== (A) Income from continuing operations, before cumulative effect of accounting change included non-operating net gains of $1,067.6 million in 1999, $63.5 million in 1998, $68.9 million in 1997, $6.0 million in 1996 and $8.7 million in 1995. Excluding these non-operating items, the ratio of earnings to fixed charges was 6.0 in 1999, 6.2 in 1998, 5.9 in 1997, 7.1 in 1996 and 8.4 in 1995. See Note 2 to the Company's Consolidated Financial Statements and the Eleven Year Financial Summary in the Company's 1999 Annual Report to Shareholders for further discussion of these non-operating items. (B) Represents a reasonable approximation of the interest cost component of rental expense incurred by the Company. (C) Tribune Company guarantees the debt of its Employee Stock Ownership Plan (ESOP).
EX-13 6 ANNUAL REPORT Exhibit 13 Tribune Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion presents the significant factors that have affected the businesses of Tribune Company and its subsidiaries (the "Company") over the last three years. This commentary should be read in conjunction with the Company's consolidated financial statements and Eleven Year Financial Summary, which are also presented in this annual report. All Company share and per share data have been restated to reflect a two-for-one common stock split effective Sept. 9, 1999. - -------------------------------------------------------------------------------- | FORWARD-LOOKING STATEMENTS | - -------------------------------------------------------------------------------- This discussion and the information in this report contain certain forward-looking statements that are based largely on the Company's current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such risks, trends and uncertainties, which in some instances are beyond the Company's control, include changes in advertising demand; newsprint prices; interest rates; competition; regulatory rulings and other economic conditions; the effect of professional sports team labor strikes, lock-outs and negotiations; the effect of acquisitions, investments and divestitures on the Company's results of operations and financial condition; and the Company's reliance on third-party vendors for various services. The words "believe," "expect," "anticipate," "estimate" and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are as of the date of this filing. - -------------------------------------------------------------------------------- | SIGNIFICANT EVENTS | - -------------------------------------------------------------------------------- In April 1999, the Company issued 8.0 million of its Exchangeable Subordinated Debentures due 2029 ("PHONES"), for an aggregate principal amount of over $1.2 billion. The principal amount equaled the value of 16.0 million shares of America Online ("AOL") common stock at the closing price of $78.50 per share on April 7, 1999. The Company will continue to own the AOL stock. References in this report to AOL's share and per share data reflect all stock splits that have occurred through Dec. 26, 1999. In the first quarter of 1999, the Company entered into a one-year hedge transaction ("AOL collar") with respect to 2.0 million shares of its AOL common stock investment. The AOL collar was restructured in the third quarter of 1999. The collar locks in the value of these shares within the price range of $46-$53 per share and will settle in four equal installments of 500,000 shares in each of the four quarters of 2000. Since these transactions will settle in 2000, the market value of these 2.0 million shares is classified as a short-term investment of $163 million in the balance sheet at Dec. 26, 1999. The Company elected early adoption of Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" as of the beginning of the 1999 second quarter. FAS 133 requires that all derivative instruments be recorded in the balance sheet at fair value. The provisions of FAS 133 affected the Company's accounting for its 8.0 million PHONES, its 4.6 million Debt Exchangeable for Common Stock securities ("DECS") (see Note 6 to the Company's Consolidated Financial Statements) and its America Online collar for 2.0 million shares. See further discussion below in "Non-Operating Items." In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WBZL-Miami, KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The Federal Communications Commission ("FCC") order granting the Company's application to acquire the Renaissance stations contained waivers of two FCC rules. First, the FCC temporarily waived its duopoly rule relating to the 23 overlap of WTIC's and WPMT's broadcast signals with those of other Tribune stations. The temporary waivers were granted subject to the outcome of the Aug. 5, 1999 FCC rulemaking, which now permits the Company to own both stations. Second, the FCC granted a 12-month waiver of its rule prohibiting television/ newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The FCC subsequently issued a rule review to consider modifying its cross-ownership rule. In March 1998, the FCC granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Sun-Sentinel newspaper until the rule review has concluded. The Company cannot predict the outcome of the FCC cross-ownership rule review. - -------------------------------------------------------------------------------- | SUBSEQUENT EVENTS | - -------------------------------------------------------------------------------- On Jan. 28, 2000, the assets of television station KTWB-Seattle (formerly KTZZ) were transferred back to the Company from a disposition trust after the FCC approved the Company's application. The Company had transferred KTWB's assets into a trust as part of the March 1999 television station exchange of WGNX-Atlanta for KCPQ-Seattle. FCC regulations in effect at the time of the exchange precluded the Company from owning both KCPQ and KTWB. However, on Aug. 5, 1999, the FCC adopted changes to its rules that now permit Tribune to own both stations. The operating results of KTWB have been included in the consolidated financial statements since its acquisition in June 1998. On Feb. 3, 2000, the Company acquired the remaining interest in Qwest Broadcasting ("Qwest"), which owned television stations WATL-Atlanta and WNOL-New Orleans, for $107 million in cash. The Company had owned a 33% equity interest and convertible debt in Qwest since it was formed in 1995. The acquisition was recorded as a purchase. The FCC's rule changes in August 1999 permit Tribune to own both WNOL and the Company's WGNO-New Orleans television station. On Feb. 14, 2000, the Company acquired the remaining 20% of Landoll, a publisher of children's books for the mass market, for approximately $18 million in cash. The Company has owned approximately 80% of Landoll since December 1997. In November 1999, the Company announced an agreement to acquire, for approximately $24 million, the remaining interest in Tiberius Broadcasting, Inc. ("Tiberius"), the current licensee of television station WTXX-Hartford. Since December 1997, Tribune has owned a 28.5% equity interest in Tiberius and has operated WTXX under a local management agreement. Tribune has filed an application with the FCC for a waiver of its rule prohibiting duopoly ownership in the same Nielsen Designated Market Area where fewer than eight separately owned television stations remain in the market after the combination. The transaction, subject to FCC approval, would close in the second quarter of 2000. 24 - -------------------------------------------------------------------------------- | RESULTS OF OPERATIONS | - -------------------------------------------------------------------------------- The Company's fiscal year ends on the last Sunday in December. Fiscal years 1999, 1998 and 1997 all comprised 52 weeks. Acquisitions - -------------------------------------------------------------------------------- The Company completed several acquisitions in 1999, including JDTV in February, and television stations KCPQ-Seattle in March, WEWB-Albany (formerly WMHQ) in September and WBDC-Washington, D.C. in November. In 1998, the Company acquired television stations KTWB-Seattle and WXMI-Grand Rapids in June, and Sun-Sentinel Community News Group (formerly South Florida Newspaper Network) in September. In 1997, the Company acquired Renaissance Communications Corp. in March, Shortland Publications Limited in September and approximately 80% of Landoll, Inc. in December. The operating results of these acquired businesses have been included in the consolidated financial statements since their respective dates of acquisition. Non-Operating Items - -------------------------------------------------------------------------------- The Company elected early adoption of FAS 133 as of the beginning of the 1999 second quarter. FAS 133 requires that all derivative instruments be recorded in the balance sheet at fair value. The provisions of FAS 133 affected the Company's accounting for its 8.0 million PHONES, its 4.6 million DECS and its AOL collar for 2.0 million shares. Prior to the adoption of FAS 133, changes in the fair values of the Company's 16.0 million AOL shares and 5.5 million Mattel shares related to the PHONES and DECS, respectively, had been recorded in the accumulated other comprehensive income component of shareholders' equity in the Company's balance sheet, as these securities had been classified as available-for-sale. With the adoption of FAS 133, the 16.0 million shares of AOL common stock and the 5.5 million shares of Mattel common stock were reclassified to trading securities. As a result of this change in classification, the Company was required, under the provisions of FAS 115, "Accounting for Certain Investments in Debt and Equity Securities," to recognize pretax gains totaling approximately $1.1 billion in its second quarter 1999 statement of income, which added $2.55 to diluted earnings per share ("EPS"). These one-time, non-cash gains represented the unrealized market appreciation on these investments through the end of the 1999 first quarter. Beginning in the second quarter of 1999, the Company records subsequent changes in the fair values of these investments in the statement of income. Under the provisions of FAS 133, the initial value of the PHONES and the DECS were each split into a debt component and a derivative component. Changes in the fair values of the derivative component of the PHONES and DECS are recorded in the statement of income. Changes in the fair values of the related AOL and Mattel shares should at least partially offset changes in the fair values of the derivative component of the PHONES and the DECS, respectively. There may be periods with significant non-cash increases or decreases to the Company's net income pertaining to the PHONES, DECS and the related AOL and Mattel shares. The 2.0 million shares of AOL common stock related to the AOL collar are classified as available-for-sale securities, with the unrealized gain or loss on these shares reported in the accumulated other comprehensive income component of shareholders' equity. Changes in the time value of the AOL collar are recorded in the Company's statement of income. In 1999, the change in fair value of the derivative component of the PHONES resulted in a pretax loss of $68 million, which was more than offset by a $299 million pretax gain resulting from the change in fair value of the related AOL trading shares since the beginning of the second quarter. The net change in the fair values of the derivative component of the PHONES and the related AOL shares resulted in a non-cash pretax gain of $231 million, which increased diluted EPS by $.53. The total changes in the fair values of all of the Company's derivatives, net of changes in the fair values of the related shares, resulted in a net pretax gain of $216 million, which increased diluted EPS by $.50. 25 The cumulative effect of adopting FAS 133 as of the beginning of the second quarter of 1999 resulted in a $3 million after-tax loss, or $.01 per diluted EPS. This cumulative effect resulted from adjusting the DECS and the AOL collar derivatives to their fair values as of March 28, 1999. In March 1999, the Company exchanged its WGNX-Atlanta television station and cash for the assets of television station KCPQ-Seattle. Also in 1999, the Company sold certain investments. Non-operating items for 1999 are summarized as follows:
Shares Pretax Diluted 1999 (In millions, except per share data) Sold Proceeds Gain EPS ==================================================================================================================== Gain on change in fair values of derivatives and related investments $ - $ 216 $ .50 Gain on reclassification of investments - 1,096 2.55 Sale of WGNX subsidiary - 348 .80 Sale of AOL common stock 2.0 95 95 .23 Sale of other investment 4 2 - - -------------------------------------------------------------------------------------------------------------------- Total non-operating items $99 $1,757 $4.08 - --------------------------------------------------------------------------------------------------------------------
In 1998, the Company sold its WQCD radio station subsidiary, sold a portion of its investment portfolio and wrote down certain investments. These non-operating items are summarized as follows:
Shares Pretax Diluted 1998 (In millions, except per share data) Sold Proceeds Gain EPS =================================================================================================================== Sale of WQCD subsidiary $ - $ 85 $.16 Sale of AOL common stock .6 14 14 .03 Sale of The Learning Company common stock .6 17 11 .02 Other sales of investments, net of write-downs 21 9 .02 - ------------------------------------------------------------------------------------------------------------------- Total non-operating items $52 $119 $.23 - -------------------------------------------------------------------------------------------------------------------
In 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. These non-operating items are summarized as follows:
Shares Pretax Diluted 1997 (In millions, except per share data) Sold Proceeds Gain (Loss) EPS ================================================================================================================== Sales of AOL common stock 41.0 $134 $131 $.30 Sale of CheckFree common stock 2.2 46 35 .08 The Learning Company Sale of convertible notes 123 7 .02 Write-down of stock - (77) (.18) Other sales of investments, net of write-downs 40 16 .03 - ------------------------------------------------------------------------------------------------------------------ Total non-operating items $343 $112 $.25 - ------------------------------------------------------------------------------------------------------------------
In March 1997, the Company sold its Farm Journal subsidiary for approximately $17 million in cash. The Company acquired Farm Journal in 1994 for approximately $17 million. In June 1997, the Company completed the sale of a building in Fort Lauderdale, which is approximately 35% occupied by the Company's Sun-Sentinel newspaper subsidiary. The Company received proceeds of approximately $43 million and deferred, under sale and leaseback accounting rules, the pretax gain of approximately $11 million, which is being amortized over the Sun-Sentinel's 14-year lease term. 26 Consolidated - -------------------------------------------------------------------------------- The Company's consolidated financial results for 1999, 1998 and 1997 were as follows:
CHANGE ----------------- (In millions, except per share data) 1999 1998 1997 99-98 98-97 ================================================================================================================ Operating revenues $3,222 $2,981 $2,720 + 8% + 10% Operating profit 770 702 642 + 10% + 9% Non-operating items: Gain on change in fair values of derivatives and related investments 216 - - * - Gain on reclassification of investments 1,096 - - * - Gain on sales of subsidiaries and investments, net of write-downs 445 119 112 * + 7% Net income: Before non-operating items 415 351 325 + 18% + 8% Before accounting change 1,483 414 394 * + 5% Cumulative effect of accounting change, net (3) - - * - Net income 1,480 414 394 * + 5% Diluted EPS: Before non-operating items 1.54 1.27 1.15 + 21% + 10% Before accounting change 5.62 1.50 1.40 * + 7% Cumulative effect of accounting change, net (.01) - - * - Net income 5.61 1.50 1.40 * + 7% - ---------------------------------------------------------------------------------------------------------------- * Not meaningful
Earnings Per Share (EPS) -- Diluted EPS in 1999 was $1.54, up 21% from $1.27 in 1998, excluding non-operating items. The increase was due to gains in the broadcasting and entertainment and publishing segments, improved equity results, lower net interest expense and fewer shares outstanding. Diluted EPS in 1998 was $1.27, up 10% from $1.15 in 1997, excluding non-operating items. The increase was due to improvements in all three business segments and fewer shares outstanding, partially offset by higher net interest expense. In the aggregate, non-operating items increased diluted EPS by $4.08 in 1999, $.23 in 1998 and $.25 in 1997. Weighted average common shares outstanding decreased 2% in 1999 and 1% in 1998. 27 Operating Revenues and Profit -- Consolidated operating revenues, EBITDA and operating profit by business segment were as follows:
CHANGE --------------- (In millions) 1999 1998 1997 99-98 98-97 =========================================================================================================== Operating revenues Publishing $1,580 $1,499 $1,437 + 5% + 4% Broadcasting and Entertainment 1,302 1,153 1,057 + 13% + 9% Education 340 329 226 + 3% + 46% - ----------------------------------------------------------------------------------------------------------- Total operating revenues $3,222 $2,981 $2,720 + 8% + 10% - ----------------------------------------------------------------------------------------------------------- EBITDA (1) Publishing $ 486 $ 457 $ 430 + 6% + 6% Broadcasting and Entertainment 481 405 363 + 19% + 12% Education 62 69 54 - 9% + 27% Corporate expenses (36) (33) (32) - 12% - 2% - ----------------------------------------------------------------------------------------------------------- Total EBITDA $ 993 $ 898 $ 815 + 11% + 10% - ----------------------------------------------------------------------------------------------------------- Operating profit Publishing $ 396 $ 377 $ 354 + 5% + 6% Broadcasting and Entertainment 379 317 286 + 19% + 11% Education 35 43 36 - 20% 20% Corporate expenses (40) (35) (34) - 11% - 3% - ----------------------------------------------------------------------------------------------------------- Total operating profit $ 770 $ 702 $ 642 + 10% + 9% - ----------------------------------------------------------------------------------------------------------- (1) EBITDA is defined as earnings before interest, taxes, depreciation, amortization, equity results and non-operating items. The Company has presented EBITDA because it is comparable to the data provided by other companies in the industry and is a common alternative measure of performance. EBITDA does not represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flows, is not a measure of financial performance under generally accepted accounting principles ("GAAP") and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
Consolidated operating revenues increased 8%, or $241 million, in 1999, and 10%, or $261 million, in 1998, with all three segments reporting improvements in both years. Consolidated operating profit increased 10%, or $68 million, in 1999, due to increases in broadcasting and entertainment and publishing. Broadcasting and entertainment operating profit increased 19% due to significant growth in television from improvements at existing stations and the acquisition of KCPQ-Seattle (in March 1999). Publishing operating profit increased 5% mainly due to higher general advertising revenues, lower newsprint prices and acquisitions. Education operating profit decreased 20% due to lower retail sales, higher sales and marketing costs and one-time charges related to inventories and receivables. Consolidated operating profit increased 9%, or $60 million, in 1998 as all three segments reported gains. Broadcasting and entertainment operating profit rose 11% due to growth in television as a result of improvements at existing stations and the acquisitions of six Renaissance stations (in March 1997) and KTWB-Seattle and WXMI-Grand Rapids (in June 1998). Publishing operating profit grew 6% mainly due to higher advertising revenues, partially offset by increased newsprint and ink expense. Education operating profit improved 20% due to growth at existing businesses and acquisitions. Consolidated 1999 EBITDA increased 11%, or $95 million, due to gains in broadcasting and entertainment and publishing. Consolidated 1998 EBITDA grew 10%, or $83 million, as all three segments reported gains. 28 Operating Expenses -- Consolidated operating expenses were as follows:
CHANGE -------------- (In millions) 1999 1998 1997 99-98 98-97 =========================================================================================================== Cost of sales $1,454 $1,391 $1,255 + 5% + 11% Selling, general and administrative 775 692 650 + 12% + 6% Depreciation and amortization of intangible assets 222 196 173 + 14% + 13% - ----------------------------------------------------------------------------------------------------------- Total operating expenses $2,451 $2,279 $2,078 + 8% + 10% - -----------------------------------------------------------------------------------------------------------
Cost of sales increased 5%, or $63 million, in 1999 mainly due to the 1998 and 1999 acquisitions. Excluding the acquisitions and dispositions ("on a comparable basis"), cost of sales rose 2%, or $25 million, mainly due to higher compensation costs, increased broadcast rights amortization expense and higher development spending, partially offset by lower newsprint expense. On a comparable basis, compensation costs increased 6%, or $24 million, mainly due to increased players' salaries at the Cubs. Broadcast rights amortization grew 7%, or $20 million, mainly due to the airing of "Friends." Development spending related to Internet activities increased $2 million. Newsprint and ink expense decreased 11%, or $26 million, as average newsprint prices declined 11% and consumption fell 1%. Cost of sales increased 11%, or $136 million, in 1998 due to the 1997 and 1998 acquisitions. On a comparable basis, cost of sales increased 5%, or $65 million, mainly due to higher compensation costs, increased broadcast rights amortization and higher newsprint and ink expense. On a comparable basis, compensation costs rose 5%, or $19 million, mainly due to increased players' salaries at the Cubs. Broadcast rights amortization grew 7%, or $16 million, largely due to higher program costs at Tribune Entertainment. Newsprint and ink expense increased 6%, or $14 million, as both average newsprint prices and consumption rose 3%. Selling, general and administrative ("SG&A") expense increased 12%, or $83 million, in 1999 partially due to acquisitions. On a comparable basis, SG&A expense grew 9%, or $62 million, primarily due to higher compensation expense and increased development costs. On a comparable basis, compensation costs rose 13%, or $43 million, partially due to increases in incentive compensation. Development spending related to Internet activities increased $12 million. SG&A expense grew 6%, or $42 million, in 1998 mainly due to acquisitions. On a comparable basis, SG&A expense increased 1%, or $4 million. The increase in depreciation and amortization of intangible assets in both 1999 and 1998 was principally due to acquisitions and capital expenditures. 29 Publishing - -------------------------------------------------------------------------------- Operating Revenues and Profit -- The following table presents publishing operating revenues, EBITDA and operating profit for daily newspapers and other publications/services/development. The latter category includes syndication of editorial products, advertising placement services, niche and weekly publications, direct mail operations, cable news programming, distribution of entertainment listings and Internet/electronic products.
CHANGE -------------- (In millions) 1999 1998 1997 99-98 98-97 =========================================================================================================== Operating revenues Daily newspapers $1,411 $1,395 $1,359 + 1% + 3% Other publications/services/development 169 104 78 + 63% + 33% - ----------------------------------------------------------------------------------------------------------- Total operating revenues $1,580 $1,499 $1,437 + 5% + 4% - ----------------------------------------------------------------------------------------------------------- EBITDA Daily newspapers $ 488 $ 463 $ 435 + 5% + 7% Other publications/services/development (2) (6) (5) + 73% - 27% - ----------------------------------------------------------------------------------------------------------- Total EBITDA $ 486 $ 457 $ 430 + 6% + 6% - ----------------------------------------------------------------------------------------------------------- Operating profit Daily newspapers $ 411 $ 392 $ 367 + 5% + 7% Other publications/services/development (15) (15) (13) - 1% - 15% - ----------------------------------------------------------------------------------------------------------- Total operating profit $ 396 $ 377 $ 354 + 5% + 6% - -----------------------------------------------------------------------------------------------------------
Publishing operating revenues increased 5%, or $81 million, in 1999 principally due to the acquisitions of Sun-Sentinel Community News Group (in September 1998) and JDTV (in February 1999) and higher advertising revenues. Excluding acquisitions, publishing revenues were up 2%, or $31 million, in 1999. Publishing operating revenues increased 4%, or $62 million in 1998 primarily due to higher advertising revenues. Advertising revenues rose 3%, or $39 million, in 1999 and 4%, or $46 million, in 1998. Operating profit increased 5%, or $19 million, in 1999 mainly from higher general advertising revenues, lower newsprint prices and acquisitions, partially offset by higher losses from Internet activities. Operating profit rose 6%, or $23 million, in 1998 mainly due to higher advertising revenues at all four newspapers, partially offset by higher newsprint and ink expense. Daily newspaper operating profit margins were 29.2% in 1999, 28.1% in 1998 and 27.1% in 1997. Total publishing operating revenues by classification were as follows:
CHANGE --------------- (In millions) 1999 1998 1997 99-98 98-97 ========================================================================================== Advertising Retail $ 481 $ 469 $ 455 + 2% + 3% General 187 155 150 + 21% + 3% Classified 533 538 511 - 1% + 5% - ------------------------------------------------------------------------------------------ Total advertising 1,201 1,162 1,116 + 3% + 4% Circulation 241 244 250 - 1% - 3% Other 138 93 71 + 48% + 31% - ------------------------------------------------------------------------------------------ Total operating revenues $1,580 $1,499 $1,437 + 5% + 4% - ------------------------------------------------------------------------------------------
30 Advertising revenues increased in 1999 due to rate increases and the September 1998 acquisition of Sun-Sentinel Community News Group. Retail advertising revenues grew 2% in 1999 due to the acquisition of Sun-Sentinel Community News Group. General advertising revenues were up 21% primarily due to increases in Chicago in the high-tech, financial and resorts categories and gains in automotive advertising in Orlando, Fort Lauderdale and Chicago. Classified advertising revenues declined 1% mainly due to declines in Chicago in the help wanted and real estate advertising categories, partially offset by improved automotive advertising; increased help wanted advertising in Fort Lauderdale; improved real estate advertising in Orlando; and higher Internet advertising. Advertising revenues grew in 1998 due to both linage and rate increases, as well as the acquisition of Sun-Sentinel Community News Group. Retail advertising revenues, excluding Sun-Sentinel Community News Group, rose 2% mainly due to improvements in hardware advertising in Chicago and Fort Lauderdale; movies and food and drug advertising in Chicago; department store advertising in Fort Lauderdale; and higher Internet advertising. General advertising revenues increased primarily due to increased transportation and high-tech advertising in Chicago. Classified advertising revenues rose mainly due to higher help wanted advertising at all of the newspapers; increased automotive advertising in Chicago and Fort Lauderdale; and higher Internet advertising. Advertising linage for 1999, 1998 and 1997 was as follows: CHANGE --------------- (In thousands) 1999 1998 1997 99-98 98-97 ============================================================================== Full run Retail 3,578 3,706 3,707 - 3% - General 987 821 799 + 20% + 3% Classified 6,629 6,777 6,469 - 2% + 5% - ------------------------------------------------------------------------------ Total full run 11,194 11,304 10,975 - 1% + 3% Part run 9,797 9,897 10,014 - 1% - 1% Preprint 11,017 10,666 9,538 + 3% + 12% - ------------------------------------------------------------------------------ Total inches 32,008 31,867 30,527 - + 4% - ------------------------------------------------------------------------------ Total advertising linage increased slightly in 1999 due to gains in Chicago, Orlando and Newport News, offset by a decrease in Fort Lauderdale. Full run retail linage declined 3% due to decreases in Fort Lauderdale and Orlando. Full run general advertising linage was up 20% due to gains at all of the newspapers. Full run classified advertising linage declined 2% due to decreases in Chicago, Fort Lauderdale and Orlando. Preprint advertising linage increased 3% due to gains at Chicago, Orlando and Fort Lauderdale. Total advertising linage increased 4% in 1998 due to gains at all four of the newspapers. Full run general advertising linage was up 3% due to increases in Orlando and Chicago. Full run classified advertising linage rose 5% due to increases in Fort Lauderdale and Newport News. Preprint advertising linage increased 12% due to gains at all of the newspapers. Circulation revenues declined 1% in 1999 mainly due to lower copy sales resulting partially from reduced discounting. Circulation revenues declined 3% in 1998 mainly due to lower Sunday copy sales and selective promotional discounting in Chicago. Total average daily circulation decreased 2% in 1999 to 1,245,000 from 1,271,000 copies in 1998, and total average Sunday circulation declined 1% to 1,881,000 from 1,899,000 copies in 1998. Total average daily circulation was up slightly in 1998 to 1,271,000 from 1,270,000 copies in 1997, while total average Sunday circulation declined less than 1% to 1,899,000 from 1,900,000 copies in 1997. 31 Other revenues are derived from advertising placement services; the syndication of columns, features, information and comics to newspapers; commercial printing operations; delivery of other publications; direct mail operations; revenues from Internet/electronic products; cable news programming; distribution of entertainment listings; and other publishing-related activities. The increase in other revenues in 1999 resulted primarily from the acquisition of JDTV in February 1999 and higher revenues from direct mail and commercial printing operations. Other revenues rose in 1998 primarily due to increased revenues from direct mail operations, commercial printing operations and Internet/electronic products. Operating Expenses -- Publishing operating expenses rose 6%, or $62 million, in 1999 mainly due to acquisitions. On a comparable basis, operating expenses increased 2%, or $17 million, mainly due to higher compensation expense, increased development spending, higher depreciation expense and increased promotion expenses, partially offset by lower newsprint and ink expense. On a comparable basis, newsprint and ink expense decreased 11%, or $26 million, as average newsprint prices declined 11% and consumption fell 1%. Compensation expenses rose 3%, or $14 million. Development spending, primarily for Internet activities, rose $15 million in 1999. Promotion expenses grew $7 million in 1999. Depreciation expense increased $5 million in 1999. Publishing operating expenses rose 4%, or $39 million, in 1998. The increase was mainly due to increased newsprint and ink expense, higher compensation expense, increased expenses for development activities and higher Year 2000 compliance expenses, partially offset by lower expenses for circulation and promotion. Newsprint and ink expense grew 6%, or $14 million, as both average newsprint prices and consumption rose 3%. Compensation expenses rose 2%, or $10 million. Development spending, primarily for Internet activities, rose $8 million in 1998. Year 2000 compliance expenses grew $5 million in 1998. Circulation and promotion expenses declined $4 million in 1998. Broadcasting and Entertainment - -------------------------------------------------------------------------------- Operating Revenues and Profit -- The following table presents broadcasting and entertainment operating revenues, EBITDA and operating profit for television, radio and entertainment/other. Entertainment/other includes Tribune Entertainment and the Chicago Cubs.
CHANGE -------------- (In millions) 1999 1998 1997 99-98 98-97 ================================================================================================= Operating revenues Television $1,110 $ 964 $ 861 + 15% + 12% Radio 53 53 72 + 2% - 27% Entertainment/other 139 136 124 + 2% + 9% - ------------------------------------------------------------------------------------------------- Total operating revenues $1,302 $1,153 $1,057 + 13% + 9% - ------------------------------------------------------------------------------------------------- EBITDA Television $ 460 $ 385 $ 336 + 19% + 15% Radio 18 19 24 - 7% - 19% Entertainment/other 3 1 3 +243% - 70% - ------------------------------------------------------------------------------------------------- Total EBITDA $ 481 $ 405 $ 363 + 19% + 12% - ------------------------------------------------------------------------------------------------- Operating profit Television $ 364 $ 303 $ 268 + 20% + 13% Radio 16 17 20 - 5% - 17% Entertainment/other (1) (3) (2) + 71% - 32% - ------------------------------------------------------------------------------------------------- Total operating profit $ 379 $ 317 $ 286 + 19% + 11% - -------------------------------------------------------------------------------------------------
32 Broadcasting and entertainment revenues rose 13%, or $149 million, in 1999 primarily due to gains in television. Television revenues increased 15%, or $146 million, due to strong performance of the syndicated show "Friends" which debuted in fall 1998; improvement in The WB Network ("The WB") prime-time revenue; gains at WGN cable ("WGN Superstation"); and the acquisitions of stations in Grand Rapids, Seattle and Washington, D.C. Tribune acquired KCPQ-Seattle (in exchange for WGNX-Atlanta in March 1999), WBDC-Washington, D.C. (in November 1999) and KTWB-Seattle and WXMI-Grand Rapids (in exchange for Tribune's WQCD radio station in June 1998). On a comparable basis, television revenues were up 13% primarily due to improvements at the WB affiliates, led by WPIX-New York, KTLA-Los Angeles, WLVI-Boston and WGN-Chicago, and the WGN Superstation. Radio revenues increased 2% in 1999 primarily due to improvements at WGN-AM in Chicago, partially offset by the divestiture of WQCD. On a comparable basis, radio revenues improved 9%. Entertainment/other revenues increased 2% mainly due to higher revenues at the Chicago Cubs from higher attendance, increased ticket prices and higher television revenues. These increases were partially offset by lower revenues at Tribune Entertainment due to the absence of "The Geraldo Rivera Show," which ended after the 1997-1998 season. Broadcasting and entertainment revenues rose 9%, or $96 million, in 1998 primarily due to gains in television. Television revenues increased 12%, or $103 million, due to the acquisitions of six Renaissance stations (in March 1997), KTWB-Seattle and WXMI-Grand Rapids (in June 1998) and growth at existing stations. On a comparable basis, television revenues were up 5%. Radio revenues declined 27% in 1998 mainly due to the divestitures of WQCD (in June 1998) and Farm Journal (in March 1997). On a comparable basis, radio revenues improved 3%. Entertainment/other revenues increased 9% mainly due to the September 1997 launch of the "Gene Roddenberry's Earth: Final Conflict" and "NightMan" syndicated programs by Tribune Entertainment and higher Cubs revenues. Broadcasting and entertainment operating profit in 1999 grew to a record $379 million, up 19% from 1998, due to increases in television. Television operating profit increased 20%, or $61 million, mainly from growth at the WB affiliates, led by WPIX-New York, KTLA-Los Angeles, WLVI-Boston and WGN-Chicago, the WGN Superstation and acquisitions, partially offset by the sale of WGNX-Atlanta. On a comparable basis, television operating profit improved 22%. Operating profit in 1998 was up 11%, or $31 million, from 1997 due to improvements in television. Television operating profit increased 13%, or $35 million, primarily due to the acquisitions and gains at KTLA-Los Angeles, KHWB-Houston and WLVI-Boston. On a comparable basis, television operating profit improved 10%. Operating Expenses -- Broadcasting and entertainment operating expenses increased 10%, or $88 million, in 1999 mainly due to television station acquisitions, partially offset by the sale of WGNX-Atlanta. On a comparable basis, broadcasting and entertainment operating expenses increased 7%, or $56 million, due to higher compensation expense and increased broadcast rights amortization. On a comparable basis, compensation increased 14%, or $36 million, partially due to increased players' salaries at the Cubs and expansion of news at three television stations. Broadcast rights amortization rose 7%, or $20 million, mainly due to the airing of "Friends." Broadcasting and entertainment operating expenses increased 8%, or $64 million, in 1998 mainly due to the television station acquisitions, increased compensation expense and higher broadcast rights amortization, partially offset by the WQCD and Farm Journal dispositions. On a comparable basis, broadcasting and entertainment operating expenses increased 4%, or $26 million, in 1998. Compensation increased 5%, or $11 million, mainly due to increased players' salaries at the Cubs. Broadcast rights amortization rose 7%, or $16 million, largely due to higher program costs at Tribune Entertainment. 33 Education - ------------------------------------------------------------------------- Operating Revenues and Profit -- The following table presents education operating revenues, EBITDA and operating profit. CHANGE ---------------- (In millions) 1999 1998 1997 99-98 98-97 ========================================================================= Operating revenues $340 $329 $226 + 3% + 46% EBITDA 62 69 54 - 9% + 27% Operating profit 35 43 36 - 20% + 20% - ------------------------------------------------------------------------- Education operating revenues in 1999 grew 3% to $340 million primarily due to a 14%, or $25 million, increase in sales through the school channel, partially offset by a decline in retail revenues of 16%, or $20 million. The retail decline was due to a weaker adult trade book market, as well as the loss of promotional store space in the children's publishing market. In 1999, sales to the school channel represented 61% of total education revenues. Education operating revenues in 1998 increased 46% to $329 million mainly due to the acquisitions of Landoll (in December 1997) and Shortland (in September 1997) and increased sales to both school and retail markets by existing businesses. On a comparable basis, education revenues increased 9% in 1998, largely due to growth from the "Everyday Mathematics" curriculum and higher supplemental education sales at Instructional Fair Group. Operating profit decreased 20% to $35 million in 1999 due to the decline in retail revenues, higher sales and marketing costs and one-time charges recorded in 1999 related to inventories and receivables. Sales and marketing costs increased 15%, or $9 million, in 1999. One-time charges related to inventories and receivables were $5 million in 1999. Operating profit increased 20% to $43 million in 1998. The improvement was due to growth at existing businesses and acquisitions. On a comparable basis, operating profit rose 12%. Operating Expenses -- Education operating expenses include costs to produce products, including paper, printing and binding; amortization of prepublication costs; and royalty expense. Operating expenses also include sales and marketing, development, fulfillment, depreciation and amortization of intangible assets. Education operating expenses were up 7%, or $19 million, in 1999 primarily due to higher sales and marketing costs and one-time charges related to inventories and receivables. Education operating expenses were up 51%, or $97 million, in 1998 mainly due to acquisitions. On a comparable basis, operating expenses were up 8%, or $15 million, in 1998 primarily due to increased cost of sales as a result of higher sales volume and higher marketing and development costs. Equity Results - ----------------------------------------------------------------------------- CHANGE ------------- (In millions) 1999 1998 1997 99-98 98-97 ============================================================================= Net loss on equity investments $(22) $(34) $(35) - 37% - 2% - ----------------------------------------------------------------------------- Net loss on equity investments relates primarily to the Company's interest in the growing WB Network and various Internet-related investments. The Company acquired a 13% equity interest in The WB in 1995, and increased its ownership interest to 22% in 1997 and 25% in 1998. Equity losses declined 37% to $22 million in 1999 due to improved results from The WB and Qwest, partially offset by losses from the Company's investment in BrassRing Inc., which was formed in September 1999. In 1999, the Company owned a 36% equity interest in BrassRing Inc. In March 2000, the Company's equity interest in BrassRing Inc. is expected to decrease to 27.5%. Equity losses declined 2% to $34 million in 1998 due to improved results from The WB and Qwest, partially offset by higher losses from Internet-related investments. 34 Interest Income and Expense - ------------------------------------------------------------------------------- CHANGE --------------- (In millions) 1999 1998 1997 99-98 98-97 =============================================================================== Interest income $ 47 $ 6 $ 26 * - 77% Interest expense (113) (88) (86) + 28% + 2% - ------------------------------------------------------------------------------- Net interest expense $(66) $(82) $(60) - 20% + 37% - ------------------------------------------------------------------------------- *Not meaningful Interest income increased to $47 million in 1999 primarily due to higher cash balances and marketable securities from the investments of the PHONES proceeds. Interest income declined 77% in 1998 primarily due to the sale of The Learning Company convertible debentures in December 1997. Interest expense increased 28% in 1999 primarily due to the issuance of the PHONES. Interest expense increased 2% in 1998 mainly due to higher average debt levels resulting from acquisitions and stock repurchases. Average debt levels increased $847 million in 1999 to $2.4 billion and increased $24 million in 1998 to $1.6 billion. Excluding the PHONES, the average debt level was $1.5 billion in 1999. Outstanding debt was $2.7 billion at year-end 1999 and $1.6 billion at year-end 1998 and 1997. Excluding the PHONES, outstanding debt was $1.4 billion at year-end 1999. - ------------------------------------------------------------------------------- | LIQUIDITY AND CAPITAL RESOURCES | - ------------------------------------------------------------------------------- Cash flow generated from operations is the Company's primary source of liquidity. Net cash provided by operations was $572 million in 1999 and $546 million in 1998. The increase was mainly due to higher net income. The Company normally expects to fund dividends, capital expenditures and other operating requirements with net cash provided by operations. Funding required for share repurchases and acquisitions is financed by available cash flow from operations and, if necessary, by the issuance of debt. Net cash used for investments totaled $746 million in 1999 compared to $348 million in 1998. In 1999, the Company spent approximately $221 million for acquisitions and $212 million for investments. The Company also invested a portion of the PHONES proceeds in short-term and long-term marketable securities, resulting in net purchases of $345 million in 1999. Capital spending totaled $135 million in 1999. These outflows were partially offset by proceeds of $99 million from the sales of investments and the collection of a $54 million advance made to an investee in 1998. Net cash generated by financing activities was $792 million in 1999 as proceeds from the issuance of the PHONES and sales of common stock to employees were partially offset by repayments of debt, repurchases of common stock and payments of dividends. In 1999, the Company repaid $151 million of commercial paper and repurchased 5.0 million shares of its common stock for $205 million. Of this total, 3.9 million shares were purchased for $168 million by the Tribune Stock Compensation Fund ("TSCF"). The Company established the TSCF in July 1998 to purchase common stock for the purpose of funding certain existing stock-based compensation plans. At Dec. 26, 1999, the Company had authorization to repurchase $405 million of its common stock. Dividends on common and preferred shares were $104 million in 1999. Dividends on common stock increased 6% in 1999 to $.36 per share. The Company has revolving credit agreements with banks in the aggregate amount of $1.2 billion that extend to Dec. 31, 2001. At Dec. 26, 1999, no amounts were borrowed under these credit agreements. Capital spending for 2000 is expected to total approximately $225 to $250 million for a variety of normal replacement projects, including the Chicago Tribune's expansion of a packaging and distribution facility, new editorial and pagination systems, and press enhancements at selected newspapers, and the purchase of digital equipment at selected television stations. The Company has experienced no significant operational effects from Year 2000 transition. The Company estimates total Year 2000 compliance expenses will range from $17 to $18 million, of which $15.9 million was incurred through Dec. 26, 1999. All costs have been expensed as incurred. 35 - ------------------------------------------------------------------------------- | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | - ------------------------------------------------------------------------------- Interest Rate Risk - -------------------------------------------------------------------------------- All of the Company's borrowings are denominated in U.S. dollars. At Dec. 26, 1999, the Company's debt was not subject to changes in interest rates. The Company's policy is to manage interest rate risk by issuing long-term debt and medium-term notes at fixed interest rates and short-term promissory notes. Information pertaining to the Company's debt at Dec. 26, 1999 is shown in the table below.
Fixed Rate Weighted Avg. Variable Rate Weighted Avg. Maturities (In thousands) Debt Interest Rate Debt Interest Rate ================================================================================================== 2000(1) $ 80,189 6.8% - - 2001(1) (2) 217,364 6.7% - - 2002 92,883 7.1% - - 2003 92,787 6.7% - - 2004 180,007 6.4% - - Thereafter(3) 2,061,651 3.7% - - - -------------------------------------------------------------------------------------------------- Total at Dec. 26, 1999 $2,724,881 - -------------------------------------------------------------------------------------------------- Fair Value at Dec. 26, 1999 (4) $2,654,891 - -------------------------------------------------------------------------------------------------- (1) As discussed in Note 6 to the Company's Consolidated Financial Statements, medium-term notes of $49.5 million scheduled to mature in 2000 were presented as maturing in 2001 for financial statement presentation because of the Company's ability and intent to refinance these securities. (2) Includes $81.1 million of 6.25% DECS, related to the Company's investment in Mattel common stock. At maturity, the DECS will be repaid using shares of Mattel common stock or, at the Company's option, the cash equivalent thereof. See Note 6 to the Company's Consolidated Financial Statements for further discussion. (3) Includes $1.3 billion of 2% PHONES, related to the Company's investment in AOL common stock. At maturity, the PHONES will be redeemed at the greater of the then market value of two shares of AOL common stock or $157 per PHONES. Interest on the debentures is paid quarterly at an annual rate of 2%. The Company also records non-cash interest expense on the discounted debt component of the PHONES. See Note 6 to the Company's Consolidated Financial Statements for further discussion. (4) Fair value was determined based on quoted market prices for similar issues or on current rates available to the Company for debt of the same remaining maturities and similar terms. The carrying value of the Company's derivative instruments approximates fair value. The fair values of the PHONES and DECS are determined by reference to market values resulting from trading on a national securities exchange.
Information pertaining to the Company's debt at Dec. 27, 1998 is shown in the table below.
Fixed Rate Weighted Avg. Variable Rate Weighted Avg. Maturities (In thousands) Debt Interest Rate Debt Interest Rate ================================================================================================ 1999 (1) $ 61,905 7.4% $150,643 5.1% 2000 80,222 6.8% - - 2001 (1) (2) 254,641 6.6% - - 2002 92,809 7.1% - - 2003 92,762 6.7% - - Thereafter 913,179 6.2% - - - ------------------------------------------------------------------------------------------------ Total at Dec. 27, 1998 $1,495,518 $150,643 - ------------------------------------------------------------------------------------------------ Fair Value at Dec. 27, 1998 (3) $1,533,617 $150,643 - ------------------------------------------------------------------------------------------------ (1) Medium-term notes (fixed rate debt) of $32.0 million and promissory notes (variable rate debt) of $150.6 million scheduled to mature in 1999 were presented as maturing in 2001 for financial statement presentation because of the Company's ability and intent to refinance these securities. (2) Includes $118.5 million of 6.25% DECS, related to the Company's investment in Mattel common stock. At maturity, the DECS will be repaid using shares of Mattel common stock or, at the Company's option, the cash equivalent thereof. (3) Fair value was determined based on quoted market prices for similar issues or on current rates available to the Company for debt of the same remaining maturities and similar terms.
36 Equity Price Risk - -------------------------------------------------------------------------------- Available-For-Sale Securities. The Company has common stock investments in several publicly traded companies that are subject to market price volatility. Except for 16.0 million shares of AOL common stock and 5.5 million shares of Mattel common stock (see discussion below), these investments are classified as available-for-sale securities and are recorded in the balance sheet at fair value with unrealized gains or losses, net of related tax effects, reported in the accumulated other comprehensive income component of shareholders' equity. 1999 -- The following analysis presents the hypothetical change in the fair value of the Company's common stock investments in publicly traded companies that are classified as available-for-sale, assuming hypothetical stock price fluctuations of plus or minus 10%, 20% and 30% in each stock's price. This analysis excludes two million shares of AOL common stock related to a one-year hedge transaction. The AOL collar locked in the value of these shares within the price range of $46-$53 per share (see Note 1 to the Company's Consolidated Financial Statements).
Valuation of Investments Valuation of Investments Assuming Indicated Decrease Dec. 26, 1999 Assuming Indicated Increase in Each Stock's Price Fair Value in Each Stock's Price - --------------------------------------------------------------------------------------------------------------------------- (In thousands) -30% -20% -10% +10% +20% +30% - --------------------------------------------------------------------------------------------------------------------------- Common stock investments in public companies $374,500 $428,000 $481,500 $535,000(1) $588,500 $642,000 $695,500 - --------------------------------------------------------------------------------------------------------------------------- (1) Includes approximately four million shares of AOL common stock valued at $323,200. Excludes 16.0 million shares of AOL common stock and 5.5 million shares of Mattel common stock, see discussion below.
During the last 12 quarters, market price movements caused the fair value of the Company's common stock investments in publicly traded companies to change by 10% or more in ten of the quarters, by 20% or more in seven of the quarters and by 30% or more in six of the quarters. 1998 -- The following analysis presents the fair value of the Company's common stock investments in publicly traded companies at Dec. 27, 1998, assuming hypothetical stock price fluctuations of plus or minus 10%, 20% and 30%. At Dec. 27, 1998, this analysis excludes 4.6 million shares of The Learning Company common stock related to the Company's DECS. In 1999, Mattel acquired The Learning Company.
Valuation of Investments Valuation of Investments Assuming Indicated Decrease Dec. 27, 1998 Assuming Indicated Increase in Each Stock's Price Fair Value in Each Stock's Price - --------------------------------------------------------------------------------------------------------------------------- (In thousands) -30% -20% -10% +10% +20% +30% - --------------------------------------------------------------------------------------------------------------------------- Common stock investments in public companies $637,700 $728,800 $819,900 $911,000(1) $1,002,100 $1,093,200 $1,184,300 - --------------------------------------------------------------------------------------------------------------------------- (1) Includes approximately 24 million shares of AOL common stock valued at $818,000.
During the last 12 quarters preceding Dec. 27, 1998, market price movements caused the fair value of the Company's common stock investments in publicly traded companies to change by 10% or more in nine of the quarters, by 20% or more in eight of the quarters and by 30% or more in five of the quarters. 37 Derivatives and Related Trading Securities. The Company has issued 8.0 million PHONES indexed to the value of its investment in 16.0 million shares of AOL common stock and 4.6 million DECS indexed to the value of its investment in 5.5 million shares of Mattel common stock (see Notes 1 and 6 to the Company's Consolidated Financial Statements). Beginning in the second quarter of 1999, these investments in AOL and Mattel stock are classified as trading securities, and changes in their fair values, net of the changes in the fair values of the related derivative components of the PHONES and the DECS, are recorded in the statement of income. At maturity, the PHONES will be redeemed at the greater of the then market value of two shares of AOL common stock or $157 per PHONES. At Dec. 26, 1999, the PHONES fair value was $1.3 billion. Since the issuance of the PHONES in April 1999, changes in the fair value of the PHONES have partially offset changes in the fair value of the related AOL shares. There may be periods with significant non-cash increases or decreases to the Company's net income pertaining to the PHONES and the related AOL shares. At maturity, the DECS will be repaid using shares of Mattel common stock or, at the Company's option, the cash equivalent thereof. The number of Mattel shares due at maturity, or the cash equivalent thereof, is based on the fair market value of the Mattel common stock, adjusted using a predetermined formula that allocates a portion of the appreciation, if any, to the Company. Holders of the DECS bear the full risk of a decline in the value of Mattel common stock. The fair value of the DECS was $81 million at Dec. 26, 1999. Since the issuance of the DECS in August 1998, changes in the fair value of the DECS have partially offset changes in the fair value of the related Mattel shares. There may be periods with significant non-cash increases or decreases to the Company's net income pertaining to the DECS and the related Mattel shares. The following analysis presents the hypothetical change in the fair value of the Company's 16.0 million shares of AOL common stock related to the PHONES and 5.5 million shares of Mattel common stock related to the DECS assuming hypothetical stock price fluctuations of plus or minus 10%, 20% and 30% in each stock's price.
Valuation of Investments Valuation of Investments Assuming Indicated Decrease Dec. 26, 1999 Assuming Indicated Increase in Each Stock's Price Fair Value in Each Stock's Price - ------------------------------------------------------------------------------------------------------------------------------- (In thousands) -30% -20% -10% +10% +20% +30% - ------------------------------------------------------------------------------------------------------------------------------- AOL common stock $912,800 $1,043,200 $1,173,600 $1,304,000 $1,434,400 $1,564,800 $1,695,200 Mattel common stock 49,508 56,580 63,653 70,725 77,798 84,870 91,943 - -------------------------------------------------------------------------------------------------------------------------------
During the last 12 quarters, market price movements have caused the fair value of the Company's 16.0 million shares in AOL common stock to change by 10% or more in ten of the quarters, by 20% or more in eight of the quarters and by 30% or more in five of the quarters. For the Company's 5.5 million shares in Mattel common stock, market price movements have caused the fair value to change by 10% or more in ten of the quarters, by 20% or more in five of the quarters and by 30% or more in four of the quarters. 38
Tribune Company and Subsidiaries Consolidated Statements of Income (In thousands of dollars, except per share data) Year Ended Dec. 26, 1999 Dec. 27, 1998 Dec. 28, 1997 ================================================================================================================================= Operating Publishing Revenues Advertising $1,201,261 $1,161,939 $1,115,538 Circulation 241,258 243,842 250,558 Other 137,707 92,792 70,622 ----------------------------------------------------------------------------------------------------------------- Total 1,580,226 1,498,573 1,436,718 Broadcasting and Entertainment 1,302,058 1,153,006 1,057,529 Education 339,606 329,310 225,533 ----------------------------------------------------------------------------------------------------------------- Total operating revenues 3,221,890 2,980,889 2,719,780 - --------------------------------------------------------------------------------------------------------------------------------- Operating Cost of sales (exclusive of items shown below) 1,454,058 1,391,029 1,254,981 Expenses Selling, general and administrative 775,233 692,003 650,255 Depreciation and amortization of intangible assets 222,159 195,568 172,513 ----------------------------------------------------------------------------------------------------------------- Total operating expenses 2,451,450 2,278,600 2,077,749 - --------------------------------------------------------------------------------------------------------------------------------- Operating Profit 770,440 702,289 642,031 Net loss on equity investments (21,545) (33,980) (34,696) Interest income 47,436 6,112 26,343 Interest expense (113,031) (88,451) (86,502) Gain on change in fair values of derivatives and related investments 215,876 - - Gain on reclassification of investments 1,095,976 - - Gain on sales of subsidiaries and investments, net of write-downs 444,927 119,119 111,824 - --------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 2,440,079 705,089 659,000 Income taxes (957,029) (290,817) (265,375) - --------------------------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of Change in Accounting Principle 1,483,050 414,272 393,625 Cumulative effect of change in accounting principle, net of tax (see Note 1) (3,060) - - - --------------------------------------------------------------------------------------------------------------------------------- Net Income 1,479,990 414,272 393,625 Preferred dividends, net of tax (18,639) (18,782) (18,798) - --------------------------------------------------------------------------------------------------------------------------------- Net Income Attributable to Common Shares $1,461,351 $ 395,490 $ 374,827 - --------------------------------------------------------------------------------------------------------------------------------- Earnings Per Share (see Note 1) Basic: Before cumulative effect of change in accounting principle $ 6.17 $ 1.63 $ 1.53 Cumulative effect of accounting change, net (0.01) - - ----------------------------------------------------------------------------------------------------------------- Net income $ 6.16 $ 1.63 $ 1.53 - --------------------------------------------------------------------------------------------------------------------------------- Diluted: Before cumulative effect of change in accounting principle $ 5.62 $ 1.50 $ 1.40 Cumulative effect of accounting change, net (0.01) - - - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 5.61 $ 1.50 $ 1.40 - --------------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
39
Consolidated Balance Sheets Assets (In thousands of dollars, except share data) Dec. 26, 1999 Dec. 27, 1998 ================================================================================================================================== Current Assets Cash and cash equivalents $ 631,018 $ 12,433 Short-term investments 435,770 - Accounts receivable (less allowances of $48,246 and $44,402) 594,949 555,229 Inventories 112,689 99,005 Broadcast rights 253,129 232,394 Prepaid expenses and other 56,996 46,068 --------------------------------------------------------------------------------------------------------- Total current assets 2,084,551 945,129 - ---------------------------------------------------------------------------------------------------------------------------------- Properties Machinery, equipment and furniture 1,232,082 1,130,791 Buildings and leasehold improvements 397,357 369,319 --------------------------------------------------------------------------------------------------------- 1,629,439 1,500,110 Accumulated depreciation (1,077,903) (987,791) --------------------------------------------------------------------------------------------------------- 551,536 512,319 Land 90,208 83,691 Construction in progress 70,792 80,725 --------------------------------------------------------------------------------------------------------- Net properties 712,536 676,735 - ---------------------------------------------------------------------------------------------------------------------------------- Other Assets Broadcast rights 192,070 207,757 Intangible assets (less accumulated amortization of $455,711 and $373,820) 3,150,648 2,703,993 America Online stock related to PHONES debt 1,304,000 546,500 Other investments 1,175,634 703,479 Other 178,252 151,977 --------------------------------------------------------------------------------------------------------- Total other assets 6,000,604 4,313,706 --------------------------------------------------------------------------------------------------------- Total assets $8,797,691 $5,935,570 - ---------------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
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Tribune Company and Subsidiaries Liabilities and Shareholders' Equity Dec. 26, 1999 Dec. 27, 1998 ================================================================================================================================== Current Long-term debt due within one year $ 30,689 $ 29,905 Liabilities Accounts payable 176,552 157,708 Employee compensation and benefits 122,333 114,202 Contracts payable for broadcast rights 276,307 260,264 Deferred income 64,419 55,097 Income taxes 2,226 59,607 Accrued liabilities 188,070 151,347 --------------------------------------------------------------------------------------------------------- Total current liabilities 860,596 828,130 - ---------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt PHONES debt related to America Online stock 1,328,480 - Other long-term debt (less portions due within one year) 1,365,712 1,616,256 - ---------------------------------------------------------------------------------------------------------------------------------- Other Deferred income taxes 1,251,377 701,778 Non-Current Contracts payable for broadcast rights 269,698 268,099 Liabilities Compensation and other obligations 251,930 164,690 --------------------------------------------------------------------------------------------------------- Total other non-current liabilities 1,773,005 1,134,567 - ---------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Liabilities (see Notes 9 and 11) - - - ---------------------------------------------------------------------------------------------------------------------------------- Shareholders' Series B convertible preferred stock (without par value) Equity Authorized: 1,600,000 shares Issued and outstanding: 1,282,665 shares in 1999 and 1,337,926 shares in 1998 (liquidation value $220 per share) 281,093 293,203 Common stock (without par value) Authorized: 400,000,000 shares; 327,086,632 shares issued 1,018 1,018 Additional paid-in capital 136,108 209,474 Retained earnings 4,195,318 2,819,474 Treasury stock (at cost) 88,071,818 shares in 1999 and 88,255,022 shares in 1998 (1,430,900) (1,414,661) Treasury stock held by Tribune Stock Compensation Fund (at cost) 1,223,384 shares in 1999 and 827,548 shares in 1998 (61,909) (26,602) Unearned compensation related to ESOP (127,595) (156,495) Accumulated other comprehensive income 476,765 631,206 --------------------------------------------------------------------------------------------------------- Total shareholders' equity 3,469,898 2,356,617 --------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $8,797,691 $ 5,935,570 - ----------------------------------------------------------------------------------------------------------------------------------
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Tribune Company and Subsidiaries Consolidated Statements of Cash Flows (In thousands of dollars) Dec. 26, 1999 Dec. 27, 1998 Dec. 28, 1997 ============================================================================================================================== Operations Net income $1,479,990 $414,272 $393,625 Adjustments to reconcile net income to net cash provided by operations: Gain on change in fair values of derivatives and related investments (215,876) - - Gain on reclassification of investments (1,095,976) - - Gain on sales of subsidiaries and investments, net of write-downs (444,927) (119,119) (111,824) Cumulative effect of accounting change, net 3,060 - - Depreciation and amortization of intangible assets 222,159 195,568 172,513 Deferred income taxes 720,088 7,904 (13,959) Net loss on equity investments 21,545 33,980 34,696 Changes in working capital items excluding effects from acquisitions: Accounts receivable (75,469) (49,987) (43,957) Inventories, prepaid expenses and other current assets (21,234) (4,786) (3,671) Accounts payable, employee compensation and benefits, deferred income and accrued liabilities (6,231) 28,400 36,322 Income taxes (57,776) 52,514 (46,356) Change in broadcast rights, net of liabilities 5,528 (1,072) (11,862) Other, net 36,978 (11,795) (21,449) -------------------------------------------------------------------------------------------------------------- Net cash provided by operations 571,859 545,879 384,078 - ------------------------------------------------------------------------------------------------------------------------------ Investments Capital expenditures (134,736) (139,710) (103,845) Acquisitions (excluding $13.6 million of stock issued in 1999) (220,729) (154,711) (1,239,612) Investments (211,590) (40,245) (48,342) Net purchases of marketable securities (344,541) - - Proceeds from sales of investments and subsidiary stock 98,595 51,585 402,473 Net (increase) decrease in advances to investee 51,908 (52,244) (1,514) Other, net 15,444 (12,622) 8,522 -------------------------------------------------------------------------------------------------------------- Net cash used for investments (745,649) (347,947) (982,318) - ------------------------------------------------------------------------------------------------------------------------------ Financing Net proceeds from issuance of PHONES debt 1,230,880 - - Proceeds from issuance of other long-term debt - 469,878 626,375 Repayments of long-term debt (183,722) (336,886) (55,437) Sales of common stock to employees, net 53,960 46,129 57,145 Purchases of treasury stock (37,015) (261,160) (140,038) Purchases of treasury stock by Tribune Stock Compensation Fund (167,582) (68,988) - Dividends (104,146) (101,090) (97,357) -------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing 792,375 (252,117) 390,688 - ------------------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Cash and Cash Equivalents 618,585 (54,185) (207,552) Cash and cash equivalents, beginning of year 12,433 66,618 274,170 -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 631,018 $ 12,433 $ 66,618 - ------------------------------------------------------------------------------------------------------------------------------ Supplemental Cash paid for: Cash Flow Interest (net of amounts capitalized) $ 105,489 $ 87,320 $ 84,456 Information Income taxes $ 225,534 $168,912 $285,656 - ------------------------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Financial Statements.
42
Tribune Company and Subsidiaries Consolidated Statements of Shareholders' Equity Dec. 26, 1999 Dec. 27, 1998 Dec. 28, 1997 ================================== ================================== ================================ (In thousands, Shareholders' Comprehensive Shareholders' Comprehensive Shareholders' Comprehensive except per share data) Equity Income Shares Equity Income Shares Equity Income Shares ================================================================================================================================= Retained Earnings Balance, beginning of year $2,819,474 $2,506,292 $2,210,024 Net income 1,479,990 $1,479,990 414,272 $414,272 393,625 $393,625 ---------- -------- -------- Dividends declared Common ($.36/share in 1999, $.34/share in 1998 and $.32/share in 1997) (85,625) (82,426) (78,646) Preferred ($17.05/share) (21,910) (22,812) (23,641) Tax benefit on dividends paid to the ESOP(1) 3,389 4,148 4,930 ---------- ---------- ---------- Balance, end of year 4,195,318 2,819,474 2,506,292 - --------------------------------------------------------------------------------------------------------------------------------- Accumulated Other Comprehensive Income Balance, beginning of year 631,206 161,641 118,813 Change in unrealized gain on securities, net (153,940) 475,168 42,828 Change in foreign currency translation adjustments, net (501) (5,603) - ---------- -------- -------- Other comprehensive income (loss) (154,441) (154,441) 469,565 469,565 42,828 42,828 ---------- -------- -------- Comprehensive income $1,325,549 $883,837 $436,453 ---------- ---------- ---------- -------- ---------- -------- Balance, end of year 476,765 631,206 161,641 - --------------------------------------------------------------------------------------------------------------------------------- Series B Convertible Preferred Stock Balance, beginning of year 293,203 1,338 303,864 1,387 312,470 1,426 Redemptions of convertible preferred stock (12,110) (55) (10,661) (49) (8,606) (39) ---------- ------- ---------- ------- ---------- ------- Balance, end of year 281,093 1,283 293,203 1,338 303,864 1,387 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock and Additional Paid-In Capital Balance, beginning of year 210,492 327,087 202,419 327,087 150,879 327,087 Redemptions of convertible preferred stock (2,122) - (477) - 535 - Shares issued under option and stock plans (78,315) - 8,550 - 51,005 - Shares issued for acquisition of subsidiary 7,071 - - - - - ---------- ------- ---------- ------- ---------- ------- Balance, end of year 137,126 327,087 210,492 327,087 202,419 327,087 - --------------------------------------------------------------------------------------------------------------------------------- Treasury Stock (at cost) Balance, beginning of year (1,414,661) (88,255) (1,159,832) (82,026) (1,034,012) (81,197) Redemptions of convertible preferred stock 14,232 884 11,138 778 8,071 628 Purchases of treasury stock (37,015) (1,118) (261,160) (9,006) (140,038) (5,684) Shares issued under option and stock plans - - 39,736 3,343 91,221 7,611 Shares tendered as payment for options exercised - - (44,543) (1,344) (85,074) (3,384) Shares issued for acquisition of subsidiary 6,544 417 - - - - ---------- ------- ---------- ------- ---------- ------- Balance, end of year (1,430,900) (88,072) (1,414,661) (88,255) (1,159,832) (82,026) - --------------------------------------------------------------------------------------------------------------------------------- Treasury Stock Held by Tribune Stock Compensation Fund (at cost) Balance, beginning of year (26,602) (828) - - - - Purchases of treasury stock (167,582) (3,888) (68,988) (2,115) - - Shares issued under option and stock plans 332,402 8,192 85,366 2,594 - - Shares tendered as payment for options exercised (200,127) (4,699) (42,980) (1,307) - - ---------- ------- ---------- ------- ---------- ------- Balance, end of year (61,909) (1,223) (26,602) (828) - - - --------------------------------------------------------------------------------------------------------------------------------- Unearned Compensation (ESOP) Balance, beginning of year (156,495) (188,380) (218,668) Repayment of ESOP debt 28,900 31,885 30,288 ---------- ---------- ---------- Balance, end of year (127,595) (156,495) (188,380) - --------------------------------------------------------------------------------------------------------------------------------- Total (2) $3,469,898 237,792 $2,356,617 238,004 $1,826,004 245,061 - ---------------------------------------------------------------------------------------------------------------------------------
(1) Excludes the tax benefit on allocated preferred shares held by the ESOP, which was credited to income tax expense. (2) For shares, total represents net common shares outstanding. See Notes to Consolidated Financial Statements. 43 Tribune Company and Subsidiaries Notes To Consolidated Financial Statements The significant accounting policies of Tribune Company and subsidiaries (the "Company"), as summarized below, conform with generally accepted accounting principles in the United States and reflect practices appropriate to the businesses in which they operate. Certain prior year amounts have been reclassified to conform with the 1999 presentation. All Company share and per share data have been restated to reflect a two-for-one common stock split effective Sept. 9, 1999. - -------------------------------------------------------------------------------- | NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | - -------------------------------------------------------------------------------- Fiscal Year -- The Company's fiscal year ends on the last Sunday in December. Fiscal years 1999, 1998 and 1997 all comprised 52 weeks. Principles of Consolidation -- The consolidated financial statements include the accounts of Tribune Company and all majority-owned subsidiaries. Investments comprising 20 to 50 percent of the voting stock of companies and certain partnership interests are accounted for using the equity method. All other investments are generally accounted for using the cost method. All significant intercompany transactions are eliminated. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Cash and Cash Equivalents -- Cash and cash equivalents are stated at cost, which approximates market value. Investments with maturities of three months or less at the time of purchase are considered to be cash equivalents. Short-Term Investments -- Short-term investments include corporate bonds and notes, medium-term notes, certificates of deposits, commercial paper, municipal bonds and U.S. Treasury notes. The securities are classified as held-to-maturity and are recorded at cost. At Dec. 26, 1999, short-term investments also include 2.0 million shares of America Online ("AOL") common stock with a fair value of $163 million. These AOL shares are related to a collar transaction and are further discussed in "Adoption of New Accounting Pronouncement" below. References in this report to AOL's share and per share data reflect all stock splits that have occurred through Dec. 26, 1999. Inventories -- Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out ("LIFO") basis for newsprint and on the first-in, first-out ("FIFO") or average basis for all other inventories. Broadcast Rights -- Broadcast rights consist principally of rights to broadcast syndicated programs, sports and feature films and are stated at the lower of cost or estimated net realizable value. The total cost of these rights is recorded as an asset and a liability when the program becomes available for broadcast. Syndicated program rights that have limited showings are generally amortized using an accelerated method as programs are aired. Sports and feature films rights are amortized using the straight-line method. The current portion of broadcast rights represents those rights available for broadcast that are expected to be amortized in the succeeding year. Properties -- Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the properties' estimated useful lives, ranging from 3 to 40 years. Intangible Assets -- Intangible assets primarily represent the excess of cost over the fair market value of tangible net assets acquired. The excess cost related to net assets acquired since 1971 is being amortized on a straight-line basis over various periods. These periods range from 5 to 40 years for goodwill (with the majority being amortized over 40 years), 40 years for Federal Communications Commission ("FCC") 44 licenses, and from 4 to 40 years for other intangible assets. Intangible assets of $23.5 million related to pre-1971 acquisitions are not being amortized as the Company believes there has been no diminution of value. The Company evaluates the carrying values of all intangible assets periodically in relation to the projected future undiscounted cash flows of the related businesses to determine whether impairment exists. Adjustments to net realizable value are made as needed; no such adjustments to intangible assets were required in the periods presented. Investments -- The Company records its investments in debt and equity securities at their fair value, except for debt securities that the Company intends to hold to maturity and equity securities that are accounted for under the equity method or that are issued by private companies. In 1999, the Company reclassified 16.0 million shares of AOL common stock and 5.5 million shares of Mattel common stock from available-for-sale to trading securities in connection with the adoption of Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." See further discussion in "Adoption of New Accounting Pronouncement" below. Changes in the difference between cost and fair value of the 16.0 million AOL shares and 5.5 million Mattel shares is recorded in the statement of income beginning in the second quarter of 1999. All other investments recorded at fair value have been classified as available-for-sale, and accordingly, the difference between cost and fair value, net of related tax effects, for all other investments is recorded in the accumulated other comprehensive income component of shareholders' equity. The cost of securities sold is determined on an average cost basis. Adoption of New Accounting Pronouncement -- The Company elected early adoption of FAS 133 as of the beginning of the 1999 second quarter. FAS 133 requires that all derivative instruments be recorded in the balance sheet at fair value. The provisions of FAS 133 affected the Company's accounting for its 8.0 million Exchangeable Subordinated Debentures due 2029 ("PHONES"), its 4.6 million Debt Exchangeable for Common Stock securities ("DECS") (see Note 6) and its America Online collar for 2.0 million shares. In April 1999, the Company issued 8.0 million PHONES for an aggregate principal amount of over $1.2 billion. The principal amount equaled the value of 16.0 million shares of AOL common stock at the closing price of $78.50 per share on April 7, 1999. The Company will continue to own the AOL stock. In the first quarter of 1999, the Company entered into a one-year hedge transaction ("AOL collar") with respect to 2.0 million shares of its AOL common stock investment. The AOL collar was restructured in the third quarter of 1999. The collar locks in the value of these shares within the price range of $46-$53 per share and will settle in four equal installments of 500,000 shares in each of the four quarters of 2000. Since these transactions will settle in 2000, the value of these shares under the collar is classified as a short-term investment of $163 million in the balance sheet at Dec. 26, 1999. Prior to the adoption of FAS 133, changes in the fair values of the Company's 16.0 million AOL shares and 5.5 million Mattel shares related to the PHONES and DECS, respectively, had been recorded in the accumulated other comprehensive income component of shareholders' equity in the Company's balance sheet, as these securities had been classified as available-for-sale. With the adoption of FAS 133, the 16.0 million shares of AOL common stock and the 5.5 million shares of Mattel common stock were reclassified to trading securities. As a result of this change in classification, the Company was required, under the provisions of FAS 115, "Accounting for Certain Investments in Debt and Equity Securities," to recognize pretax gains totaling approximately $1.1 billion in its second quarter 1999 statement of income, which added $2.55 to diluted earnings per share ("EPS"). These one-time, non-cash gains represented the unrealized market appreciation on these investments through the end of the 1999 first quarter. Beginning in the second quarter of 1999, the Company records subsequent changes in the fair values of these investments in the statement of income. Under the provisions of FAS 133, the initial values of the PHONES and the DECS were each split into a debt component and a derivative component. Changes in the fair values of the derivative component of the PHONES and DECS are recorded in the statement of income. Changes in the fair values of the related AOL and Mattel shares should at least partially offset changes in the fair values of the derivative component of the PHONES and the DECS, respectively. There may be periods with significant non-cash increases or decreases to the Company's net income pertaining to the PHONES, DECS and the related 45 AOL and Mattel shares. The 2.0 million shares of AOL common stock related to the AOL collar are classified as available-for-sale securities, with the unrealized gain or loss on these shares reported in the accumulated other comprehensive income component of shareholders' equity. Changes in the time value of the AOL collar are recorded in the Company's statement of income. In 1999, the change in fair value of the derivative component of the PHONES resulted in a pretax loss of $68 million, which was more than offset by a $299 million pretax gain resulting from the change in fair value of the related AOL trading shares since the beginning of the second quarter. The net change in the fair values of the derivative component of the PHONES and the related AOL shares resulted in a non-cash pretax gain of $231 million, which increased diluted EPS by $.53. The total changes in the fair values of all of the Company's derivatives, net of changes in the fair values of the related shares, resulted in a net pretax gain of $216 million, which increased diluted EPS by $.50. The cumulative effect of adopting FAS 133 as of the beginning of the second quarter of 1999 resulted in a $3 million after-tax loss, or $.01 per diluted EPS. This cumulative effect resulted from adjusting the DECS and the AOL collar derivatives to their fair values as of March 28, 1999. The carrying value of the Company's derivative instruments approximates fair value. The fair values of the PHONES and DECS are determined by reference to market values resulting from trading on a national securities exchange. The AOL collar's fair value is based on estimates using the Black-Scholes valuation model. Pension Plans -- Retirement benefits are provided to employees through pension plans sponsored either by the Company or by unions. Under the Company-sponsored plans, pension benefits are primarily a function of both the years of service and the level of compensation for a specified number of years, depending on the plan. It is the Company's policy to fund the minimum for Company-sponsored pension plans as required by ERISA. Contributions made to union-sponsored plans are based upon collective bargaining agreements. Income Taxes -- Provision is made for income taxes on undistributed earnings of foreign subsidiaries that are expected to be remitted to the U.S. parent company. No provision for income taxes, however, is made on undistributed earnings that are intended to be reinvested in facilities and other assets in the foreign countries for an indefinite period of time. The cumulative amount of unremitted earnings that has been reinvested indefinitely was immaterial as of Dec. 26, 1999. Foreign Currency Translation -- The assets and liabilities of foreign subsidiaries are translated at year-end exchange rates. Results of operations are translated at average rates of exchange in effect during the year. Translation adjustments are included in the accumulated other comprehensive income component of shareholders' equity. Stock-Based Compensation -- The Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board ("APB") Opinion No. 25 and related Interpretations. Under APB 25, no compensation expense is recorded because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant. The Company has adopted the disclosure-only provisions of FAS 123, "Accounting for Stock-Based Compensation." Earnings Per Share (EPS) -- Basic EPS is computed by dividing net income attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted EPS is computed based on the assumption that all of the convertible preferred shares held by the Company's Employee Stock Ownership Plan ("ESOP") are converted into common shares (see Note 14). For purposes of calculating diluted EPS, net income is reduced by the additional ESOP contribution that would be required for ESOP debt service, and the weighted average number of shares outstanding is increased by (i) the additional common shares that would be issued upon conversion of the preferred shares based on the stated conversion rate plus any additional common shares that would have to be issued to meet the redemption price guarantee for all preferred shares that have been allocated to participants, and (ii) the effect of stock options. 46 The computations of basic and diluted EPS were as follows:
(In thousands, except per share data) 1999 1998 1997 ========================================================================================================== BASIC Net income $1,479,990 $414,272 $393,625 Preferred dividends, net of tax (18,639) (18,782) (18,798) - ---------------------------------------------------------------------------------------------------------- Net income attributable to common shares $1,461,351 $395,490 $374,827 Weighted average common shares outstanding 237,367 242,428 245,758 - ---------------------------------------------------------------------------------------------------------- Basic EPS $ 6.16 $ 1.63 $ 1.53 - ---------------------------------------------------------------------------------------------------------- DILUTED Net income $1,479,990 $414,272 $393,625 Additional ESOP contribution required assuming all preferred shares were converted, net of tax (12,251) (12,720) (13,141) - ---------------------------------------------------------------------------------------------------------- Adjusted net income $1,467,739 $401,552 $380,484 - ---------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 237,367 242,428 245,758 Assumed conversion of preferred shares into common shares 20,523 21,384 22,186 Assumed exercise of stock options, net of common shares assumed repurchased with the proceeds 3,929 3,112 2,982 - ---------------------------------------------------------------------------------------------------------- Adjusted weighted average common shares outstanding 261,819 266,924 270,926 - ---------------------------------------------------------------------------------------------------------- Diluted EPS $ 5.61 $ 1.50 $ 1.40 - ----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- | NOTE 2: CHANGES IN OPERATIONS AND NON-OPERATING ITEMS | - -------------------------------------------------------------------------------- Acquisitions -- The Company completed acquisitions totaling approximately $234 million in 1999, $155 million in 1998 and $1.2 billion in 1997. These acquisitions were accounted for as purchases. Accordingly, the results of these operations are included in the consolidated statements of income since their respective dates of acquisition. Pro forma results of operations are not material for presentation. In February 1999, the Company acquired JDTV, a distributor of television listings information to the cable and satellite television industries. In March 1999, the Company acquired the assets of television station KCPQ-Seattle, with a fair value of approximately $380 million, in exchange for its WGNX-Atlanta television station and cash. In September 1999, the Company acquired the assets of television station WEWB-Albany (formerly WMHQ) for $18.5 million in cash. In November 1999, the Company acquired the assets of television station WBDC-Washington, D.C. for $125 million in cash. FCC regulations in effect at the time the exchange of WGNX-Atlanta for KCPQ-Seattle was consummated precluded the Company from owning both KCPQ and the Company's KTWB-Seattle (formerly KTZZ) television station. As part of the transaction, the Company transferred the assets of KTWB into a disposition trust. Pursuant to the terms of the trust, an independent trustee was charged with finding a buyer for KTWB. However, on Aug. 5, 1999, the FCC adopted changes to its rules that now permit the Company to own both stations. The FCC revised its television duopoly rules to permit common ownership of two television stations within the same Nielsen Designated Market Area ("DMA"), provided that eight full-power independent television stations remain in the DMA and one of the stations is not among the top four-ranked stations in the DMA based on audience share. Based on the revised duopoly rule, the assets of KTWB were transferred back to the Company from the trust on Jan. 28, 2000. In June 1998, the Company acquired the assets of television stations KTWB-Seattle and WXMI-Grand Rapids, with a fair value of approximately $179 million, in exchange for its WQCD-New York radio station and cash. In September 1998, the Company purchased Sun-Sentinel Community News Group (formerly South Florida Newspaper Network), a publisher of weekly newspapers in South Florida. 47 In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WBZL-Miami, KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The FCC order granting the Company's application to acquire the Renaissance stations contained waivers of two FCC rules. First, the FCC temporarily waived its duopoly rule relating to the overlap of WTIC's and WPMT's broadcast signals with those of other Tribune stations. The temporary waivers were granted subject to the outcome of the Aug. 5, 1999 FCC rulemaking, which now permits the Company to own both stations. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The FCC subsequently issued a rule review to consider modifying its cross-ownership rule. In March 1998, the FCC granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Sun-Sentinel newspaper until the rule review has concluded. The Company cannot predict the outcome of the FCC cross-ownership rule review. Also in 1997, the Company acquired Shortland Publications Limited, a New Zealand-based company that publishes reading, language arts, science and social studies materials for several international elementary school markets (in September for $32 million), and approximately 80% of Landoll, Inc., a publisher of children's books for the mass market (in December for $77 million). Supplemental cash flow information for the 1999, 1998 and 1997 acquisitions is summarized in the table below: Acquisitions (In thousands) 1999 1998 1997 =============================================================================== Fair value of assets acquired (1) $275,291 $184,506 $1,396,753 Liabilities assumed (54,562) (29,795) (157,141) - ------------------------------------------------------------------------------- Net cash paid $220,729 $154,711 $1,239,612 - ------------------------------------------------------------------------------- (1) Includes intangible assets, net of acquisition-related deferred taxes. Non-Operating Items -- The Company elected early adoption of FAS 133 as of the beginning of the 1999 second quarter. FAS 133 requires that all derivative instruments be recorded in the balance sheet at fair value. The provisions of FAS 133 affected the Company's accounting for its 8.0 million PHONES, its 4.6 million DECS and its AOL collar for 2.0 million shares. In 1999, the Company recorded a net pretax gain of $216 million for the change in fair values of its derivatives and related investments, and a pretax gain of $1.1 billion from reclassifying certain investments from available-for-sale to trading securities. See Note 1, "Adoption of New Accounting Pronouncement" for further discussion. On March 1, 1999 the Company exchanged its WGNX-Atlanta television station and cash for the assets of television station KCPQ-Seattle. The divestiture of WGNX was accounted for as a sale, and the acquisition of KCPQ was recorded as a purchase. The Company recorded the assets of KCPQ at fair market value and recognized a pretax gain of $348 million, which increased diluted EPS by $.80. Also in 1999, the Company sold certain investments. Non-operating items for 1999 are summarized as follows:
Shares Pretax Diluted 1999 (In thousands, except per share data) Sold Proceeds Gain EPS ======================================================================================================= Gain on change in fair values of derivatives and related investments $ - $ 215,876 $ .50 Gain on reclassification of investments - 1,095,976 2.55 Sale of WGNX subsidiary - 348,041 .80 Sale of AOL common stock 2,000 94,995 94,840 .23 Sale of other investment 3,600 2,046 - - ------------------------------------------------------------------------------------------------------- Total non-operating items $98,595 $1,756,779 $4.08 - -------------------------------------------------------------------------------------------------------
48 In 1998, the Company sold its WQCD radio station subsidiary, sold a portion of its investment portfolio and wrote down certain investments. These non-operating items are summarized as follows:
Shares Pretax Diluted 1998 (In thousands, except per share data) Sold Proceeds Gain EPS ===================================================================================================== Sale of WQCD subsidiary $ - $ 85,168 $.16 Sale of AOL common stock 600 13,949 13,902 .03 Sale of The Learning Company common stock 611 16,552 11,128 .02 Other sales of investments, net of write-downs 21,084 8,921 .02 - ----------------------------------------------------------------------------------------------------- Total non-operating items $51,585 $119,119 $.23 - -----------------------------------------------------------------------------------------------------
In June 1998, the Company exchanged its WQCD radio station in New York and cash for the assets of television stations KTWB-Seattle and WXMI-Grand Rapids. The divestiture of WQCD was accounted for as a sale and the acquisition of the television stations was recorded as a purchase. The transaction resulted in a pretax gain of $85 million, or $.16 per diluted EPS. In 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. These non-operating items are summarized as follows:
Shares Pretax Diluted 1997 (In thousands, except per share data) Sold Proceeds Gain (Loss) EPS =========================================================================================================== Sales of AOL common stock 40,954 $134,259 $131,107 $.30 Sale of CheckFree common stock 2,158 46,161 35,294 .08 The Learning Company Sale of convertible notes 123,000 6,641 .02 Write-down of stock - (77,266) (.18) Other sales of investments, net of write-downs 39,303 16,048 .03 - ----------------------------------------------------------------------------------------------------------- Total non-operating items $342,723 $111,824 $.25 - -----------------------------------------------------------------------------------------------------------
In June 1997, the Company concluded that the decline in the value of its $123.5 million investment in The Learning Company common stock was other than temporary and wrote down the investment to fair market value in accordance with FAS 115. As shown in the above table, the write-down resulted in a non-cash, pretax loss of $77 million, or $.18 per diluted EPS. In December 1997, the Company completed the sale of The Learning Company convertible notes for $123 million in cash. In March 1997, the Company sold its Farm Journal subsidiary for approximately $17 million in cash. The Company had acquired Farm Journal in 1994 for approximately $17 million. In June 1997, the Company completed the sale of a building in Fort Lauderdale, which is approximately 35% occupied by the Company's Sun-Sentinel newspaper subsidiary. The Company received proceeds of approximately $43 million and deferred, under sale and leaseback accounting rules, the pretax gain of approximately $11 million, which is being amortized over the Sun-Sentinel's 14-year lease term. 49 - -------------------------------------------------------------------------------- | NOTE 3: INVENTORIES | - -------------------------------------------------------------------------------- (In thousands) Dec. 26, 1999 Dec. 27, 1998 =========================================================================== Finished goods $ 83,746 $74,631 Newsprint (at LIFO) 17,465 12,207 Supplies and other 11,478 12,167 - --------------------------------------------------------------------------- Total inventories $112,689 $99,005 - --------------------------------------------------------------------------- Newsprint inventories are valued under the LIFO method and were less than current cost by approximately $7.5 million at Dec. 26, 1999 and $9.9 million at Dec. 27, 1998. Finished goods primarily include books and supplemental educational materials. - -------------------------------------------------------------------------------- | NOTE 4: INTANGIBLE ASSETS | - -------------------------------------------------------------------------------- Intangible assets consisted of the following: (In thousands) Dec. 26, 1999 Dec. 27, 1998 =============================================================================== Goodwill $2,211,113 $1,810,478 FCC licenses 714,587 589,826 Other 680,659 677,509 - ------------------------------------------------------------------------------- Total intangible assets 3,606,359 3,077,813 Less accumulated amortization (455,711) (373,820) - ------------------------------------------------------------------------------- Net intangible assets $3,150,648 $2,703,993 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- | NOTE 5: INVESTMENTS | - -------------------------------------------------------------------------------- Investments consisted of the following: (In thousands) Dec. 26, 1999 Dec. 27, 1998 ================================================================================ Short-term marketable securities $ 272,770 $ - AOL stock related to collar 163,000 - AOL stock related to PHONES debt 1,304,000 546,500 Long-term marketable securities 71,771 - Other cost method investments 710,138 512,080 Equity method investments 163,071 48,597 Debt securities 230,654 142,802 - -------------------------------------------------------------------------------- Total investments $2,915,404 $1,249,979 - -------------------------------------------------------------------------------- Short-term and long-term marketable securities include corporate bonds and notes, medium-term notes, certificates of deposits, commercial paper, municipal bonds and U.S. Treasury notes. The securities are classified as held-to-maturity and are recorded at cost. In the first quarter of 1999, the Company entered into a one-year hedge transaction, the AOL collar, with respect to 2.0 million shares of its AOL common stock investment. In April 1999, the Company issued 8.0 million PHONES, indexed to the value of 16.0 million shares of AOL common stock (see Note 1). 50 At Dec. 26, 1999, the Company's investments included primarily the cost method investments in public companies and equity method investments in private companies in the table below: COST METHOD INVESTMENTS EQUITY METHOD INVESTMENTS - ---------------------------------- ------------------------------------ Public % Private % Companies Owned Companies Owned ============================================================================== America Online, Inc. (1) 0.9% BrassRing Inc. 36% At Home Corporation 0.8% Central Florida News 13 50% Exactis.com, Inc. 8.3% Digital City, Inc. 20% iVillage, Inc. 2.4% ImageBuilder Software, Inc. 22% Mattel, Inc. (2) 1.2% Qwest Broadcasting LLC 33% Peapod, Inc. 8.7% TV Food Network 29% The WB Television Network 25% - ------------------------------------------------------------------------------ (1) Consists of 22.0 million shares, including 16.0 million shares related to the PHONES and 2.0 million shares related to the AOL collar. (2) Consists of 5.5 million shares related to the DECS. The Company's investment in Qwest Broadcasting LLC ("Qwest") comprises a 33% equity interest and $73 million in convertible notes and accrued interest. The notes bear interest at 6% and are convertible into an additional 47% equity interest. On Feb. 3, 2000, the Company acquired the remaining interest in Qwest (see Note 17). Accounts receivable included advances to an investee, which totaled $1.9 million at Dec. 26, 1999, and $53.8 million at Dec. 27, 1998, which was fully repaid in January 1999. For investments classified as available-for-sale and recorded at fair value under FAS 115, the aggregate cost basis, net unrealized gain and fair value were as follows:
Dec. 26, 1999 Dec. 27, 1998 ----------------------------------- ---------------------------------- Cost Unrealized Fair Cost Unrealized Fair (In thousands) Basis Gain Value Basis Gain Value ================================================================================================================== Marketable equity securities $18,199 $517,114 $535,313 $58,345 $971,374 $1,029,719 Debt securities 74,615 156,039 230,654 76,425 66,377 142,802 AOL stock related to collar 154 162,846 163,000 - - - - ------------------------------------------------------------------------------------------------------------------
The difference between cost and fair value, net of related tax effects, is recorded in the accumulated other comprehensive income component of shareholders' equity and amounted to a net gain of $482.9 million at Dec. 26, 1999 and $630.7 million at Dec. 27, 1998. - -------------------------------------------------------------------------------- | NOTE 6: LONG-TERM DEBT | - -------------------------------------------------------------------------------- Long-term debt consisted of the following:
(In thousands) Dec. 26, 1999 Dec. 27, 1998 ============================================================================================================== Promissory notes, weighted average interest rate of 5.1% Medium-term notes, weighted average - $ 150,643 interest rate of 6.2%, due 1999-2008 $1,086,115 1,118,115 6.25% notes due 2026, putable to the Company at par in 2001 100,000 100,000 6.25% DECS, due 2001 81,075 118,450 8.4% guaranteed ESOP notes, due 1999-2003 127,595 156,495 Other notes and obligations 1,616 2,458 - -------------------------------------------------------------------------------------------------------------- Total debt excluding PHONES 1,396,401 1,646,161 Less portions due within one year (30,689) (29,905) - -------------------------------------------------------------------------------------------------------------- Long-term debt excluding PHONES 1,365,712 1,616,256 2% PHONES debt related to AOL stock, due 2029 1,328,480 - - -------------------------------------------------------------------------------------------------------------- Total long-term debt $2,694,192 $1,616,256 - --------------------------------------------------------------------------------------------------------------
51 Medium-Term Notes -- The Company has issued all of its $200 million Series B, $500 million Series C and $500 million Series D medium-term notes. Notes issued under this program generally have maturities from 3 to 30 years and may not be redeemed by the Company prior to maturity. As part of the Series D medium-term note program, the Company sold $100 million of 6.25% notes in 1996 that mature in 2026. These notes may be put back to the Company in 2001 at 100% of the principal amount, plus accrued interest. In 1998, the Company began offering up to $500 million of its Series E medium-term notes, of which $464 million were issued and outstanding as of Dec. 26, 1999. These notes have maturities from 3 to 10 years and may not be redeemed by the Company prior to maturity. As part of the Series E medium-term note program, the Company issued $128.5 million of DECS. In 1998, the Company's registration statement for $500 million of Series F medium-term notes was declared effective by the Securities and Exchange Commission. No Series F medium-term notes have been issued. Debt Exchangeable for Common Stock Securities (DECS) -- In 1998, the Company issued 4.6 million of DECS with a principal amount of approximately $128.5 million related to its investment in The Learning Company common stock. In 1999, Mattel acquired The Learning Company. At maturity, the DECS will be repaid using shares of Mattel common stock or, at the Company's option, the cash equivalent thereof. The number of Mattel shares due at maturity, or the cash equivalent thereof, is based on the fair market value of the Mattel common stock, adjusted using a predetermined formula that allocates a portion of the appreciation, if any, to the Company. Holders of the DECS bear the full risk of a decline in the value of Mattel common stock. Under the provisions of FAS 133, the DECS consist of a debt component and a derivative component. Prior to the second quarter of 1999, the DECS were recorded at maturity value. The maturity value of the DECS obligation will move in accordance with changes in the fair market value of Mattel common stock, except for the appreciation that is allocable to the Company. At Dec. 26, 1999, the maturity value of the DECS, based on the fair market value of Mattel common stock of $12.81 per share, was $70.7 million. Beginning in the second quarter of 1999, changes in the fair value of the derivative component of the DECS are recorded in the statement of income. Previously, the difference between the DECS face value and maturity value, net of related tax effects, was recorded in the accumulated other comprehensive income component of shareholders' equity and amounted to a net gain of $6.1 million at Dec. 27, 1998. Exchangeable Subordinated Debentures due 2029 (PHONES) -- In 1999, the Company issued 8.0 million PHONES for an aggregate principal amount of approximately $1.2 billion (see Note 1). The principal amount equaled the value of 16.0 million shares of AOL common stock at the closing price of $78.50 per share on April 7, 1999. At maturity, the PHONES will be redeemed at the greater of the then market value of two shares of AOL common stock or $157 per PHONES. At Dec. 26, 1999, the maturity value of the PHONES was $1.3 billion. Under the provisions of FAS 133, the PHONES consist of a discounted debt component and a derivative component. Changes in the fair value of the derivative component of the PHONES are recorded in the statement of income. Interest on the debentures is paid quarterly at an annual rate of 2%. The Company also records non-cash interest expense on the discounted debt component of the PHONES. ESOP Notes -- The notes issued by the Company's ESOP are unconditionally guaranteed by the Company as to payment of principal and interest (see Note 14). Therefore, the unpaid balance of these borrowings is reflected in the accompanying consolidated balance sheets as long-term debt. An amount equivalent to the unpaid balance of these borrowings, representing unearned employee compensation, is recorded as a reduction of shareholders' equity. Other -- The Company intends to refinance $49.5 million of medium-term notes scheduled to mature in 2000, and has the ability to do so on a long-term basis through existing revolving credit agreements. Accordingly, these notes were classified as long-term and treated as maturing in fiscal year 2001. The Company has revolving credit agreements with a number of financial institutions in an aggregate amount of $1.2 billion, extending to Dec. 31, 2001. At Dec. 26, 1999, no amounts were borrowed under these credit agreements. These agreements contain various interest rate options and provide for annual fees based on a percentage of the commitment. Such fees totaled approximately $1.0 million in 1999, 1998 and 1997. Certain debt agreements limit the amount of secured debt the Company can incur without equally and ratably securing additional borrowings under those agreements. 52 Maturities -- Debt at Dec. 26, 1999, matures as shown below: Maturities (In thousands) ======================== 2000 $ 30,689 2001 266,864 2002 92,883 2003 92,787 2004 180,007 Thereafter 2,061,651 - ------------------------ Total $2,724,881 - ------------------------ - -------------------------------------------------------------------------------- | NOTE 7: CONTRACTS PAYABLE FOR BROADCAST RIGHTS | - -------------------------------------------------------------------------------- Contracts payable for broadcast rights are classified as current or long-term liabilities in accordance with the payment terms of the contracts. Required payments under contractual agreements for broadcast rights recorded at Dec. 26, 1999 are shown in the table below. (In thousands) ========================= 2000 $276,307 2001 156,214 2002 92,154 2003 18,093 2004 2,689 Thereafter 548 - ------------------------- Total $546,005 - ------------------------- - -------------------------------------------------------------------------------- | NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS | - -------------------------------------------------------------------------------- Estimated fair values and carrying amounts of the Company's financial instruments were as follows:
Dec. 26, 1999 Dec. 27, 1998 ------------------------- ------------------------- Fair Carrying Fair Carrying (In thousands) Value Amount Value Amount ============================================================================================================== Cost method investments $2,532,921 $2,521,679 $1,061,495 $ 1,058,580 Debt securities 230,654 230,654 142,802 142,802 Debt 2,654,891 2,724,881 1,684,260 1,646,161 Contracts payable for broadcast rights 517,433 546,005 502,999 528,363 - --------------------------------------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of each category of financial instruments. Cost Method Investments and Debt Securities -- Cost method investments in public companies and debt securities were recorded at fair value in the consolidated balance sheets (see Notes 1 and 5). Cost method investments in private companies were recorded at cost, and fair value was generally estimated based on prices recently paid for shares in those companies. Investments in marketable securities are recorded at cost and fair value was based on quoted market prices. Debt -- Fair value was determined based on quoted market prices for similar issues or on current rates available to the Company for debt of the same remaining maturities and similar terms. The carrying value of the Company's PHONES and DECS approximates fair value, which is determined by reference to market values resulting from trading on a national securities exchange. Contracts Payable for Broadcast Rights -- Fair value was estimated using the discounted cash flow method. 53 - -------------------------------------------------------------------------------- | NOTE 9: CONTINGENCIES AND LEGAL PROCEEDINGS | - -------------------------------------------------------------------------------- The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. The Company does not believe that any of the matters or proceedings presently pending will have a material adverse effect on its consolidated financial position or results of operations. - -------------------------------------------------------------------------------- | NOTE 10: PENSION AND POSTRETIREMENT BENEFITS | - -------------------------------------------------------------------------------- Employee Pension Plans -- In connection with the establishment of the ESOP, the Company amended, effective January 1989, its Company-sponsored pension plan for employees not covered by a collective bargaining agreement. The pension plan continued to provide substantially the same pension benefits as under the pre-amended plan until December 1998. After this date, pension benefit credits are frozen in terms of pay and service. The Company also maintains several small plans for other employees. Postretirement Benefits Other Than Pensions -- The Company provides postretirement health care and life insurance benefits to eligible employees under a variety of plans. Employees become eligible for these benefits if they meet age and service requirements. Effective January 1991, the Company provides a fixed medical contribution to participants who retire between the ages of 55 to 65 and have 10 or more years of service. Medical coverage for these participants ends when they reach age 65. Retirees are also eligible for life insurance benefits, which are primarily a function of both the years of service and the level of compensation at retirement. The cost of postretirement medical and life benefits is accrued over the active service periods of employees to the date they attain full eligibility for such benefits. It is the Company's policy to fund postretirement benefits as claims are incurred. Summarized information for the Company's pension and postretirement plans is provided below.
Pension Benefits Other Postretirement Benefits ------------------------------- ------------------------------ (In thousands) Dec. 26, 1999 Dec. 27, 1998 Dec. 26, 1999 Dec. 27, 1998 ============================================================================================================= Change in benefit obligation: Benefit obligation, beginning of year $383,931 $334,487 $ 47,499 $ 46,063 Service cost 375 10,033 303 278 Interest cost 26,267 24,173 3,073 3,201 Plan amendments 127 1,340 - - Actuarial (gain) loss (33,478) 32,099 (2,509) 670 Benefits paid (19,734) (18,201) (4,666) (2,713) - ------------------------------------------------------------------------------------------------------------- Benefit obligation, end of year 357,488 383,931 43,700 47,499 - ------------------------------------------------------------------------------------------------------------- Change in plans' assets: Fair value of plans' assets, beginning of year 471,078 418,856 - - Actual return on plans' assets 58,638 69,973 - - Employer contributions 495 450 4,666 2,713 Benefits paid (19,734) (18,201) (4,666) (2,713) - ------------------------------------------------------------------------------------------------------------- Fair value of plans' assets, end of year 510,477 471,078 - - - ------------------------------------------------------------------------------------------------------------- Funded (underfunded) status of the plans 152,989 87,147 (43,700) (47,499) Unrecognized net actuarial (gain) loss (100,770) (45,440) (1,728) 781 Unrecognized prior service cost 1,728 1,545 73 79 Unrecognized transition asset (5,839) (7,409) - - - ------------------------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 48,108 $ 35,843 $(45,355) $(46,639) - -------------------------------------------------------------------------------------------------------------
54 The components of net periodic benefit cost (credit) for Company-sponsored plans were as follows:
Pension Benefits Other Postretirement Benefits --------------------------------- ----------------------------- (In thousands) 1999 1998 1997 1999 1998 1997 ========================================================================================================= Service cost $ 375 $10,033 $ 9,149 $ 303 $ 278 $ 309 Interest cost 26,267 24,173 22,656 3,073 3,201 3,302 Expected return on plans' assets (36,681) (34,128) (31,299) - - - Recognized actuarial gain (105) (9) (22) - - - Amortization of prior service costs (56) 8 (11) 6 6 7 Amortization of transition asset (1,570) (1,570) (1,571) - - - - --------------------------------------------------------------------------------------------------------- Net periodic benefit (credit) cost $(11,770) $(1,493) $(1,098) $3,382 $3,485 $3,618 - ---------------------------------------------------------------------------------------------------------
The pension plans' assets consist primarily of listed common stocks and bonds. Total pension expense for union-sponsored pension plans was $6.0 million in 1999 and 1998 and $6.1 million in 1997. The Company's portion of assets and liabilities for multi-employer union pension plans is not determinable. Weighted average assumptions used each year in accounting for pension benefits and postretirement benefits were:
Pension Benefits Other Postretirement Benefits ---------------- ----------------------------- 1999 1998 1999 1998 ===================================================================================================== Discount rate 7.75% 6.75% 7.75% 6.75% Increase in future salary levels 4.0% 4.0% - - Long-term rate of return on plans' assets 9.0% 9.5% - - - -----------------------------------------------------------------------------------------------------
Health Care Cost Trend Rates -- For purposes of measuring health care costs and obligations, an 8.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually to 7.0% for 2002 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A 1% change in assumed health care cost trend rates would have the following effects: (In thousands) 1% Increase 1% Decrease =========================================================================== Service cost and interest cost $ 259 $ (238) Benefit obligation $3,150 $(2,891) - --------------------------------------------------------------------------- - -------------------------------------------------------------------------------- | NOTE 11: COMMITMENTS | - -------------------------------------------------------------------------------- The Company has entered into commitments for broadcast rights that are not currently available for broadcast and are therefore not included in the financial statements. These commitments totaled $441 million at Dec. 26, 1999. Payments for broadcast rights generally commence when the programs become available for broadcast. The Company had commitments totaling $133 million at Dec. 26, 1999 related to the purchase of inventory, property, plant and equipment and talent contracts. The Company leases certain equipment and office and production space under various operating leases. Rental expense totaled $33.6 million in 1999, $32.0 million in 1998 and $31.3 million in 1997. Future minimum rental commitments under non-cancelable operating leases are shown in the table below: Lease Commitments (In thousands) ===================================== 2000 $ 33,305 2001 27,685 2002 24,983 2003 22,195 2004 20,286 Thereafter 67,656 - ------------------------------------- Total $196,110 - ------------------------------------- The Company has guaranteed certain obligations of affiliates totaling $13.7 million at Dec. 26, 1999. 55 - -------------------------------------------------------------------------------- | NOTE 12: INCOME TAXES | - -------------------------------------------------------------------------------- The following is a reconciliation of income taxes computed at the U.S. federal statutory rate to income taxes reported in the consolidated statements of income:
(In thousands) 1999 1998 1997 ================================================================================================================ Income before income taxes and accounting change $2,440,079 $705,089 $659,000 - ---------------------------------------------------------------------------------------------------------------- Federal income taxes at 35% $ 854,028 $246,781 $230,650 State and local income taxes, net of federal tax benefit 103,716 39,951 34,653 Other (715) 4,085 72 - ---------------------------------------------------------------------------------------------------------------- Income taxes reported $ 957,029 $290,817 $265,375 Effective tax rate 39.2% 41.2% 40.3% - ----------------------------------------------------------------------------------------------------------------
Components of income tax expense charged to income were as follows:
(In thousands) 1999 1998 1997 ================================================================================================================ Currently payable: U.S. federal $253,525 $204,296 $233,640 State and local 61,448 56,650 57,060 - ---------------------------------------------------------------------------------------------------------------- 314,973 260,946 290,700 - ---------------------------------------------------------------------------------------------------------------- Deferred: U.S. federal 544,072 24,237 (21,577) State and local 97,984 5,634 (3,748) - ---------------------------------------------------------------------------------------------------------------- 642,056 29,871 (25,325) - ---------------------------------------------------------------------------------------------------------------- Total $957,029 $290,817 $265,375 - ----------------------------------------------------------------------------------------------------------------
Significant components of the Company's net deferred tax liabilities were as follows:
(In thousands) Dec. 26, 1999 Dec. 27, 1998 ================================================================================================================ Net properties $ 48,923 $ 71,057 Net intangible assets 437,858 293,756 Pensions 6,315 8,960 Investments 828,690 411,005 Other future taxable items 9,638 789 - ---------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities 1,331,424 785,567 - ---------------------------------------------------------------------------------------------------------------- Broadcast rights (16,411) (15,937) Postretirement and postemployment benefits other than pensions (15,350) (16,073) Deferred compensation (29,503) (21,577) Other accrued liabilities (39,569) (21,312) Accrued employee compensation and benefits (20,106) (22,448) Accounts receivable (19,046) (16,890) Other investments (12,789) (10,665) Other future deductible items (20,455) (32,222) - ---------------------------------------------------------------------------------------------------------------- Total deferred tax assets (173,229) (157,124) - ---------------------------------------------------------------------------------------------------------------- Net deferred tax liability $1,158,195 $628,443 - ----------------------------------------------------------------------------------------------------------------
56 - -------------------------------------------------------------------------------- | NOTE 13: CAPITAL STOCK | - -------------------------------------------------------------------------------- Preferred Stock -- Under the Company's Restated Certificate of Incorporation, 5 million shares of preferred stock are authorized. In 1989, the Company established a series of 1.6 million shares of Series B Convertible Preferred Stock of which 1.59 million shares were issued to the Company's ESOP. Each share of such preferred stock pays a cumulative dividend of 7.75% annually, has a liquidation value of $220 per share, is convertible into 16 shares of the Company's common stock and is voted with the common stock with an entitlement to 18.32 votes per preferred share. Common Stock -- In July 1999, the Board of Directors declared a two-for-one common stock split effective Sept. 9, 1999, to holders of record on Aug. 19, 1999. All Company share and per share data have been restated to reflect the stock split. At Jan. 21, 2000, there were approximately 5,900 holders of record of the Company's common stock. Treasury Stock -- The Board from time to time has authorized the repurchase of shares of the Company's common stock in the open market or through private transactions to be used for employee benefit programs and other purposes. At Dec. 26, 1999, the Company had authorization to repurchase $405 million of its common stock in the open market. Treasury Stock Held by Tribune Stock Compensation Fund (TSCF) -- In July 1998, the Company established the TSCF to purchase common stock of the Company for the purpose of funding certain existing stock-based compensation plans. In 1999 and as part of the treasury stock repurchase authorization, the TSCF purchased 3.9 million shares of the Company's common stock for $168 million. At Dec. 26, 1999, 1.2 million shares were available for future funding. Any shares acquired by the TSCF that are not utilized must be disposed of by December 2002. Share Purchase Rights Plan -- In December 1997, the Company adopted a Share Purchase Rights Plan that replaced a similar agreement. The plan provides for a dividend of one right on each outstanding share of the Company's common stock. Each right will entitle stockholders to buy one two-hundredth of a share of Series A Junior Participating preferred stock at an exercise price of $125. These rights expire Jan. 5, 2008. The rights have no voting rights and are not exercisable until 10 days after the occurrence of certain triggering events, upon which the holders of the rights are entitled to purchase either the common stock of an acquiror or additional common stock of the Company at a discounted price. The rights are redeemable at the option of the Company for $.005 per right. The Company has established a series of 2 million shares of Series A Junior Participating Preferred Stock in connection with the plan, none of which have been issued. - -------------------------------------------------------------------------------- | NOTE 14: INCENTIVE COMPENSATION AND STOCK PLANS | - -------------------------------------------------------------------------------- Employee Stock Ownership Plan (ESOP) -- In 1988, the Company established an ESOP as a long-term employee benefit plan. In connection therewith, the ESOP purchased, in 1988 and 1989, approximately 3.2 million common shares and 1.59 million Series B convertible preferred shares for an aggregate of $375 million. The ESOP provides for the awarding of shares of the Company's preferred and common stock on a noncontributory basis to eligible employees of the Company not covered by a collective bargaining agreement. At Dec. 26, 1999, 20.5 million shares of common stock were reserved for issuance in connection with this plan. Shares of stock held by the ESOP have been placed with the ESOP Trustee and are allocated to eligible employees annually. These common and preferred shares are allocated in the same proportion that the current year's principal and interest payments bear to the total principal and interest to be paid over the lives of the related borrowings. Each preferred share is convertible into 16 shares of the Company's common stock. The ESOP Trustee must convert the preferred shares when making distributions to participants upon their withdrawal from the ESOP. If at the time of such conversion the price of the 57 Company's common stock is below $13.75 per share, the Company must, at its option, either pay the difference in cash or issue additional common stock. At Dec. 26, 1999, preferred shares allocated and committed to be released were 779,012 and 107,482, respectively, and common shares allocated were 2,377,575. The Company recognizes expense for this plan based upon cash contributions it makes to the ESOP. The ESOP services its debt requirements with amounts received from preferred dividends and Company contributions. The following table summarizes ESOP debt service activity for the three years ended Dec. 26, 1999. ESOP Debt (In thousands) 1999 1998 1997 ========================================================================== Debt Requirements Principal $28,900 $31,885 $30,288 Interest 13,146 15,731 18,274 - -------------------------------------------------------------------------- Total $42,046 $47,616 $48,562 - -------------------------------------------------------------------------- Debt Service Dividends $21,910 $23,673 $24,460 Company cash contributions 20,136 23,943 24,102 - -------------------------------------------------------------------------- Total $42,046 $47,616 $48,562 - -------------------------------------------------------------------------- Savings Incentive Plan -- The Company maintains various qualified 401(k) savings plans, which permit eligible employees to make voluntary contributions on a pretax basis. Company contributions to these plans were $3.4 million in 1999 and $3.3 million in 1998 and 1997. The Savings Incentive Plan provides for uniform employer contributions to eligible employees of $.25 for each $1.00 contributed by participants up to 4% of the participants' eligible compensation. This plan allows participants to invest their savings in various investments including the Company's common stock. The Company had 1.6 million shares of common stock reserved for possible issuance under this plan at Dec. 26, 1999. Employee Stock Purchase Plan -- This plan permits eligible employees to purchase up to 16 million shares of the Company's common stock at 85% of market price. The Company's only expense relating to this plan is for its administration. During 1999, 1998 and 1997, 402,208, 431,646 and 430,848 shares, respectively, were sold to employees under this plan. As of Dec. 26, 1999, a total of 7.0 million shares were available for sale. The weighted average fair value of shares sold in 1999 was $43.75. 1997 Incentive Compensation Plan -- In 1997, the 1992 Long-Term Incentive Plan was terminated and replaced with the 1997 Incentive Compensation Plan. At Dec. 26, 1999, remaining options outstanding under the 1992 plan totaled 2.0 million shares, all of which were exercisable. The 1997 plan provides for the granting of awards to eligible employees in any one or combination of stock options, performance equity program awards and annual management incentive program bonuses. At Dec. 26, 1999, options outstanding under the 1997 plan totaled 17.3 million shares, of which 1.7 million shares were exercisable. At Dec. 26, 1999, a total of 23.9 million shares were available for award under the 1997 plan. Under the stock option portion of the 1997 plan, the option price may not be less than the market value of the Company's common stock at the time the option is granted. Options are exercisable not less than six months or more than 10 years after the date the option is granted. General awards under the 1997 plan vest in annual 25% increments beginning one year from the date of the grant. Replacement options may be granted under the 1997 plan in connection with a participant's payment of part or all of the exercise price of a stock option and related tax withholding obligations with previously acquired mature shares of common stock. 58 The performance equity portion of the 1997 plan provides for the awarding of common stock to key employees if certain financial goals are met over a period not less than two years. The Company recorded $15.9 million, $4.5 million and $4.2 million of expense in 1999, 1998 and 1997, respectively, related to the 1997 plan allocations which were distributed in February 2000 under this portion of the plan. No further stock awards are expected to be made under this portion of the plan. A combined summary of stock option activity and weighted average prices follows:
1999 1998 1997 ----------------------- ---------------------- ---------------------- Weighted Avg. Weighted Avg. Weighted Avg. (Shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price ================================================================================================================ Outstanding, beginning of year 17,964 $27.18 16,376 $20.25 16,812 $15.34 Granted 10,762 $38.04 8,262 $33.66 7,804 $25.95 Exercised (8,904) $26.10 (6,418) $17.96 (7,946) $15.56 Cancelled (565) $30.38 (256) $26.16 (294) $18.83 - ---------------------------------------------------------------------------------------------------------------- Outstanding, end of year 19,257 $33.69 17,964 $27.18 16,376 $20.25 - ---------------------------------------------------------------------------------------------------------------- Exercisable, end of year 3,716 $23.29 6,983 $19.65 5,860 $13.87 - ----------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding and options exercisable at Dec. 26, 1999 (shares in thousands).
Options Outstanding Options Exercisable -------------------------------------------------- ---------------------------- Range of Number Weighted Avg. Weighted Avg. Number Weighted Avg. Exercise Prices Outstanding Remaining Life Exercise Price Exercisable Exercise Price ================================================================================================================== $9.66-$26.47 4,341 6.73 $22.22 2,637 $19.43 $26.66-$34.25 9,540 8.60 $33.05 982 $33.70 $34.31-$60.88 5,376 4.89 $43.90 97 $38.27 - ------------------------------------------------------------------------------------------------------------------
Stock Plans Pro Forma Disclosure -- The Company's 1997 Incentive Compensation Plan, 1992 Long-Term Incentive Plan and Employee Stock Purchase Plan are accounted for under APB Opinion 25. Accordingly, no compensation cost related to options has been recognized in the consolidated statements of income. Under FAS 123, compensation cost is measured at the grant date based on the fair value of the award and is recognized as compensation expense over the vesting or service period. Had compensation cost for these plans been determined consistent with FAS 123, the Company's net income and diluted EPS would have been reduced to the following pro forma amounts:
1999 1998 1997 ------------------------- ----------------------- ----------------------- (In thousands, except per share data) As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma ========================================================================================================================== Net income $1,479,990 $1,443,612 $414,272 $391,715 $393,625 $377,262 Net income attributable to common shares $1,461,351 $1,424,973 $395,490 $372,933 $374,827 $358,464 Diluted EPS $5.61 $5.47 $1.50 $1.42 $1.40 $1.34 - --------------------------------------------------------------------------------------------------------------------------
In determining the pro forma compensation cost, the weighted average fair value of options granted at date of grant was estimated to be $8.26 in 1999, $7.48 in 1998 and $5.85 in 1997, using the Black-Scholes option pricing model. 59 The following weighted average assumptions were used for general awards and replacement options:
1999 1998 1997 ---------------------- ----------------------- ----------------------- General Replacement General Replacement General Replacement Awards Options Awards Options Awards Options ================================================================================================================= Risk-free interest rate 5.1% 4.9% 5.6% 5.5% 6.1% 5.8% Expected dividend yield 1.2% 1.2% 1.5% 1.5% 1.6% 1.6% Expected stock price volatility 23.6% 27.9% 21.4% 23.5% 22.5% 21.3% Expected life (in years) 5 2 6 2 6 2 - -----------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- | NOTE 15: COMPREHENSIVE INCOME | - -------------------------------------------------------------------------------- Other comprehensive income includes foreign currency translation adjustments and unrealized gains and losses on marketable securities classified as available-for-sale. Approximately six million AOL shares are currently classified as available-for-sale. Prior to the adoption of FAS 133, changes in the fair value of the Company's 5.5 million Mattel shares, net of the change in the current maturity value of the Company's related DECS securities, and all of the Company's AOL shares were recorded in accumulated other comprehensive income, as the Mattel and AOL securities had been classified as available-for-sale. With the adoption of FAS 133 as of the beginning of the 1999 second quarter, 16.0 million of the AOL shares and all of the Mattel shares were reclassified to trading securities. As a result of this reclassification and the adoption of FAS 133, beginning in the 1999 second quarter, changes in the fair values of the 16.0 million AOL shares and 5.5 million Mattel shares, net of the changes in the fair values of the related derivative component of the PHONES and DECS, are recorded in the Company's statement of income. The Company's comprehensive income and related tax effects were as follows:
(In thousands) 1999 1998 1997 =============================================================================================================== Net income $1,479,990 $414,272 $393,625 - --------------------------------------------------------------------------------------------------------------- Foreign currency translation adjustments: Foreign currency translation adjustments, before tax (771) (8,620) - Income tax benefit 270 3,017 - - --------------------------------------------------------------------------------------------------------------- Change in net foreign currency translation adjustments (501) (5,603) - - --------------------------------------------------------------------------------------------------------------- Unrealized gain on marketable securities: Unrealized holding gain arising during the period, net of taxes of $351,124, $322,575 and $72,556, respectively 571,076 500,723 115,030 Less adjustment for gain on sales of investments included in net income, net of taxes of $36,068, $15,896 and $44,914, respectively (58,772) (25,555) (72,202) Less adjustment for gain on reclassification of investments included in net income, net of taxes of $429,732 (666,244) - - - --------------------------------------------------------------------------------------------------------------- Change in net unrealized gain on securities (153,940) 475,168 42,828 - --------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) (154,441) 469,565 42,828 - --------------------------------------------------------------------------------------------------------------- Comprehensive income $1,325,549 $883,837 $436,453 - ---------------------------------------------------------------------------------------------------------------
60 A reconciliation of the components of accumulated other comprehensive income is as follows:
(In thousands) 1999 1998 1997 =============================================================================================================== Foreign currency translation adjustments: Balance, beginning of year $ (5,603) $ - $ - Current year change (501) (5,603) - - --------------------------------------------------------------------------------------------------------------- Balance, end of year (6,104) (5,603) - - --------------------------------------------------------------------------------------------------------------- Unrealized gain on marketable securities: Balance, beginning of year 636,809 161,641 118,813 Current year change (153,940) 475,168 42,828 - --------------------------------------------------------------------------------------------------------------- Balance, end of year 482,869 636,809 161,641 - --------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income $476,765 $631,206 $161,641 - ---------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- | NOTE 16: SEGMENT INFORMATION | - -------------------------------------------------------------------------------- Tribune Company is a media company comprising three business segments as of Dec. 26, 1999. The segments were identified according to product. Publishing -- The Company's publishing segment consists of four daily newspapers, Internet and other online publishing businesses, cable news programming and related publications and services. The newspapers are the Chicago Tribune, the South Florida-based Sun-Sentinel, The Orlando Sentinel and the Hampton Roads (Va.)-based Daily Press. Broadcasting and Entertainment -- The Company's broadcasting operations consist of WB television affiliates in New York, Los Angeles, Chicago, Philadelphia, Boston, Dallas, Washington, D.C., Houston, Seattle, Miami, Denver, San Diego and Albany; FOX television affiliates in Seattle, Sacramento, Indianapolis, Hartford, Grand Rapids and Harrisburg; an ABC television affiliate in New Orleans; and four radio stations. In entertainment, the Company owns the Chicago Cubs baseball team and develops and distributes first-run television programming. Education -- The Company's education segment consists of The Wright Group, Everyday Learning/Creative Publications Group, NTC/Contemporary Publishing, Landoll and Instructional Fair Group. Financial data for each of the Company's business segments is presented on page 63. No single customer provides more than 10% of the Company's revenue. The Company derives less than 10% of its revenues from markets outside the U.S. In determining operating profit for each segment, none of the following items have been added or deducted: interest income and expense, equity earnings and losses, non-operating items or income taxes. Assets represent those tangible and intangible assets used in the operations of each segment. Corporate assets include cash and the Company's investment portfolio. The Company's cost of sales by business segment was as follows: (In thousands) 1999 1998 1997 ============================================================================ Publishing $ 736,432 $ 724,363 $ 692,390 Broadcasting and Entertainment 588,913 540,933 490,269 Education 128,713 125,733 72,322 - ---------------------------------------------------------------------------- Total cost of sales $1,454,058 $1,391,029 $1,254,981 - ---------------------------------------------------------------------------- 61 - -------------------------------------------------------------------------------- | NOTE 17: SUBSEQUENT EVENTS | - -------------------------------------------------------------------------------- On Jan. 28, 2000, the assets of television station KTWB-Seattle were transferred back to the Company from a disposition trust after the FCC approved the Company's application. The Company had transferred KTWB's assets into a trust as part of the March 1999 television station exchange of WGNX-Atlanta for KCPQ-Seattle. FCC regulations in effect at the time of the exchange precluded the Company from owning both KCPQ and KTWB. However, on Aug. 5, 1999, the FCC adopted changes to its rules that now permit Tribune to own both stations. The operating results of KTWB have been included in the consolidated financial statements since its acquisition in June 1998. On Feb. 3, 2000, the Company acquired the remaining interest in Qwest, which owned television stations WATL-Atlanta and WNOL-New Orleans, for $107 million in cash. The Company had owned a 33% equity interest and convertible debt in Qwest since it was formed in 1995. The acquisition was recorded as a purchase. The FCC's rule changes in August 1999 permit Tribune to own both WNOL and the Company's WGNO-New Orleans television station. On Feb. 14, 2000, the Company acquired the remaining 20% of Landoll for approximately $18 million in cash. The Company has owned approximately 80% of Landoll since December 1997. In November 1999, the Company announced an agreement to acquire, for approximately $24 million, the remaining interest in Tiberius Broadcasting, Inc. ("Tiberius"), the current licensee of television station WTXX-Hartford. Since December 1997, Tribune has owned a 28.5% equity interest in Tiberius and has operated WTXX under a local management agreement. Tribune has filed an application with the FCC for a waiver of its rule prohibiting duopoly ownership in the same Nielsen Designated Market Area where fewer than eight separately owned television stations remain in the market after the combination. The transaction, subject to FCC approval, would close in the second quarter of 2000. 62
Tribune Company and Subsidiaries Business Segments (In thousands of dollars) 1999 1998 1997 =================================================================================================================================== Operating Publishing $1,580,226 $1,498,573 $1,436,718 Revenues Broadcasting and Entertainment 1,302,058 1,153,006 1,057,529 Education 339,606 329,310 225,533 ---------------------------------------------------------------------------------------------------- Total operating revenues $3,221,890 $2,980,889 $2,719,780 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Publishing $ 396,539 $ 377,137 $ 354,585 Profit Broadcasting and Entertainment 378,798 317,355 285,896 Education 34,570 43,232 35,976 Corporate expenses (39,467) (35,435) (34,426) ---------------------------------------------------------------------------------------------------- Total operating profit $ 770,440 $ 702,289 $ 642,031 - ----------------------------------------------------------------------------------------------------------------------------------- Depreciation Publishing $ 80,909 $ 74,519 $ 70,417 Broadcasting and Entertainment 38,822 33,362 32,034 Education 8,858 7,450 4,153 Corporate 2,711 2,761 2,410 ---------------------------------------------------------------------------------------------------- Total depreciation $ 131,300 $ 118,092 $ 109,014 - ----------------------------------------------------------------------------------------------------------------------------------- Amortization Publishing $ 8,704 $ 5,175 $ 4,647 of Intangible Broadcasting and Entertainment 63,209 54,357 44,922 Assets Education 18,946 17,944 13,930 ---------------------------------------------------------------------------------------------------- Total amortization of intangible assets $ 90,859 $ 77,476 $ 63,499 - ----------------------------------------------------------------------------------------------------------------------------------- Capital Publishing $ 66,676 $ 65,577 $ 60,494 Expenditures Broadcasting and Entertainment 41,730 44,055 23,747 Education 9,158 10,910 5,526 Corporate 17,172 19,168 14,078 ---------------------------------------------------------------------------------------------------- Total capital expenditures $ 134,736 $ 139,710 $ 103,845 - ----------------------------------------------------------------------------------------------------------------------------------- Business Publishing $ 35,321 $ 47,000 $ - Acquisitions and Broadcasting and Entertainment 412,424 286,654 1,358,120 Other Additions Education 54,555 77,933 136,048 to Long-Lived ---------------------------------------------------------------------------------------------------- Assets (1) Total acquisitions and other additions $ 502,300 $ 411,587 $1,494,168 - ----------------------------------------------------------------------------------------------------------------------------------- Assets Publishing $ 947,530 $ 800,853 $ 668,532 Broadcasting and Entertainment 3,711,416 3,148,814 2,923,663 Education 815,693 782,438 717,301 Corporate 3,323,052 1,203,465 468,058 ---------------------------------------------------------------------------------------------------- Total assets $8,797,691 $5,935,570 $4,777,554 - ----------------------------------------------------------------------------------------------------------------------------------- (1) Other additions to long-lived assets include broadcast rights payments for broadcasting and entertainment and prepublication payments for education.
63
Quarterly Results (Unaudited) Quarters --------------------------------------------- 1999 (In thousands of dollars, except per share data) First Second Third Fourth Total ================================================================================================================================== Operating Publishing $391,815 $ 394,906 $376,237 $417,268 $1,580,226 Revenues Broadcasting and Entertainment 263,823 348,811 341,155 348,269 1,302,058 Education 64,221 93,194 119,344 62,847 339,606 --------------------------------------------------------------------------------------------------------------------- Total operating revenues $719,859 $ 836,911 $836,736 $828,384 $3,221,890 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Publishing $102,793 $ 103,845 $ 82,028 $107,873 $ 396,539 Profit Broadcasting and Entertainment 62,974 105,859 96,839 113,126 378,798 Education (1,066) 14,595 31,963 (10,922) 34,570 Corporate expenses (8,536) (9,454) (12,122) (9,355) (39,467) --------------------------------------------------------------------------------------------------------------------- Total operating profit 156,165 214,845 198,708 200,722 770,440 - ---------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) on equity investments (14,212) (2,891) (5,549) 1,107 (21,545) Net interest expense (21,686) (17,488) (13,064) (13,357) (65,595) Gain on change in fair values of derivatives and related investments (1) - 171,433 20,771 23,672 215,876 Gain on reclassification of investments (2) - 1,095,976 - - 1,095,976 Gain on sales of subsidiary and investments (3) 444,927 - - - 444,927 - ---------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 565,194 1,461,875 200,866 212,144 2,440,079 Income taxes (221,932) (573,827) (79,099) (82,171) (957,029) - ---------------------------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of Change in Accounting Principle 343,262 888,048 121,767 129,973 1,483,050 Cumulative effect of change in accounting principle, net of tax (4) - (3,060) - - (3,060) - ---------------------------------------------------------------------------------------------------------------------------------- Net Income 343,262 884,988 121,767 129,973 1,479,990 Preferred dividends, net of tax (4,659) (4,660) (4,660) (4,660) (18,639) - ---------------------------------------------------------------------------------------------------------------------------------- Net Income Attributable to Common Shares $338,603 $ 880,328 $117,107 $125,313 $1,461,351 - ---------------------------------------------------------------------------------------------------------------------------------- Earnings Per Share (5) Basic: Before cumulative effect of change in accounting principle $ 1.42 $ 3.72 $ .49 $ .53 $ 6.17 Cumulative effect of accounting change, net - (0.01) - - (0.01) ----------------------------------------------------------------------------------------------------------------------- Net income $ 1.42 $ 3.71 $ .49 $ .53 $ 6.16 ----------------------------------------------------------------------------------------------------------------------- Diluted: Before cumulative effect of change in accounting principle $ 1.30 $ 3.38 $ .45 $ .48 $ 5.62 Cumulative effect of accounting change, net (4) - (0.01) - - (0.01) ----------------------------------------------------------------------------------------------------------------------- Net income $ 1.30 $ 3.37 $ .45 $ .48 $ 5.61 - ---------------------------------------------------------------------------------------------------------------------------------- Common Dividends Per Share $ .09 $ .09 $ .09 $ .09 $ .36 - ---------------------------------------------------------------------------------------------------------------------------------- Common Stock Price (High-Low) $34 7/8- $ 44 9/16- $49 31/32- $60 7/8- 30 5/32 32 1/4 42 3/32 46 - ---------------------------------------------------------------------------------------------------------------------------------- Notes to Quarterly Results: (1) The Company adopted a new accounting pronouncement, FAS 133, "Accounting for Derivative Instruments and Hedging Activities" as of the beginning of the 1999 second quarter. In the aggregate, changes in the fair values of the Company's derivatives, net of changes in the fair values of the related investments, increased full year 1999 net income by $131.2 million and diluted EPS by $.50. By quarter, net income and diluted EPS increased as follows: $104.2 million and $.40 in the second quarter; $12.6 million and $.05 in the third quarter; and $14.4 million and $.05 in the fourth quarter. (2) As of the beginning of the 1999 second quarter, with the adoption of FAS 133, 16.0 million shares of AOL common stock and 5.5 million shares of Mattel common stock were reclassified from available-for-sale to trading securities, which increased second quarter and full year net income by $666.2 million and diluted EPS by $2.55 (see Note 1). (3) In the 1999 first quarter, the Company sold its WGNX-Atlanta television station subsidiary and certain investments. In the aggregate, these non-operating items increased first quarter and full year net income by $270.1 million and diluted EPS by $1.03.
64
Tribune Company and Subsidiaries Quarters -------------------------------------------------------- 1998 (In thousands of dollars, except per share data) First Second Third Fourth Total =================================================================================================================================== Operating Publishing $372,508 $ 377,311 $ 353,614 $395,140 $1,498,573 Revenues Broadcasting and Entertainment 240,358 322,633 291,144 298,871 1,153,006 Education 59,827 85,640 112,390 71,453 329,310 -------------------------------------------------------------------------------------------------------------------- Total operating revenues $672,693 $ 785,584 $ 757,148 $765,464 $2,980,889 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Publishing $ 99,020 $ 100,440 $ 78,120 $ 99,557 $ 377,137 Profit Broadcasting and Entertainment 54,472 97,814 69,240 95,829 317,355 Education (696) 13,321 28,844 1,763 43,232 Corporate expenses (8,744) (8,912) (8,640) (9,139) (35,435) -------------------------------------------------------------------------------------------------------------------- Total operating profit 144,052 202,663 167,564 188,010 702,289 - ----------------------------------------------------------------------------------------------------------------------------------- Net loss on equity investments (14,325) (7,540) (7,212) (4,903) (33,980) Net interest expense (19,699) (19,551) (20,647) (22,442) (82,339) Gain on sales of subsidiary and investments, net of write-downs (6) 7,299 85,800 - 26,020 119,119 - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 117,327 261,372 139,705 186,685 705,089 Income taxes (47,250) (113,724) (56,399) (73,444) (290,817) - ----------------------------------------------------------------------------------------------------------------------------------- Net Income 70,077 147,648 83,306 113,241 414,272 Preferred dividends, net of tax (4,695) (4,696) (4,696) (4,695) (18,782) - ----------------------------------------------------------------------------------------------------------------------------------- Net Income Attributable to Common Shares $ 65,382 $ 142,952 $ 78,610 $108,546 $ 395,490 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings Per Share (5) Basic $ .27 $ .59 $ .32 $ .46 $ 1.63 ---------------------------------------------------------------------------------------------------------------------- Diluted $ .25 $ .54 $ .30 $ .42 $ 1.50 - ----------------------------------------------------------------------------------------------------------------------------------- Common Dividends Per Share $ .085 $ .085 $ .085 $ .085 $ .34 - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock Price (High-Low) $34 3/8- $36 3/16- $37 17/32- $33 3/4- 29 5/32 31 13/32 25 22 3/8 - ----------------------------------------------------------------------------------------------------------------------------------- (4) The cumulative effect of adopting FAS 133 resulted from adjusting the DECS (see Note 6) and AOL collar (see Note 1) derivatives to fair value as of March 28, 1999. The cumulative effect of this change was a decrease in net income of $3.1 million, or $.01 per diluted EPS. (5) The total of the 1999 and 1998 quarters do not equal the respective full year amounts for earnings per share due to differences in the weighted average number of shares outstanding used in the computations for the respective periods. Per share amounts for the respective quarters and years have been computed using the average number of common shares outstanding for each period. All share and per share data have been restated to reflect a two-for-one common stock split effective Sept. 9, 1999. (6) During 1998, the Company sold its WQCD radio station subsidiary, sold investments and recorded certain investment write-downs. In the aggregate, these non-operating items increased full year 1998 net income by $63.5 million and diluted EPS by $.23. By quarter, they increased net income and diluted EPS as follows: $4.5 million and $.02 in the first quarter; $42.9 million and $.16 in the second quarter; and $16.1 million and $.06 in the fourth quarter.
65
Eleven Year Financial Summary (In thousands of dollars, except per share data) 1999 1998 1997 1996 =================================================================================================================== Operating Results Operating Revenues Publishing excluding Daily News $1,580,226 1,498,573 1,436,718 1,336,639 New York Daily News $ - - - - Broadcasting and Entertainment $1,302,058 1,153,006 1,057,529 876,750 Education $ 339,606 329,310 225,533 192,316 - ------------------------------------------------------------------------------------------------------------------- Total Operating Revenues $3,221,890 2,980,889 2,719,780 2,405,705 - ------------------------------------------------------------------------------------------------------------------- Operating Profit Publishing excluding Daily News $ 396,539 377,137 354,585 291,257 New York Daily News $ - - - - Broadcasting and Entertainment $ 378,798 317,355 285,896 203,531 Education $ 34,570 43,232 35,976 39,504 Corporate expenses $ (39,467) (35,435) (34,426) (30,935) - ------------------------------------------------------------------------------------------------------------------- Total Operating Profit $ 770,440 702,289 642,031 503,357 - ------------------------------------------------------------------------------------------------------------------- Net loss on equity investments $ (21,545) (33,980) (34,696) (13,281) Net interest expense $ (65,595) (82,339) (60,159) (15,663) Non-operating items $1,756,779 119,119 111,824 - - ------------------------------------------------------------------------------------------------------------------- Income (Loss) from Continuing Operations Before Income Taxes $2,440,079 705,089 659,000 474,413 Income taxes $ (957,029) (290,817) (265,375) (191,663) - ------------------------------------------------------------------------------------------------------------------- Income (Loss) from Continuing Operations Before Accounting Changes $1,483,050 414,272 393,625 282,750 Discontinued Operations of QUNO, net of tax $ - - - 89,317 Cumulative effects of changes in accounting principles (1) $ (3,060) - - - - ------------------------------------------------------------------------------------------------------------------- Net Income (Loss) (2) $1,479,990 414,272 393,625 372,067 - ------------------------------------------------------------------------------------------------------------------- Share Information (3) Diluted EPS Continuing operations Before non-operating items $ 1.54 1.27 1.15 .97 Total $ 5.62 1.50 1.40 .99 Discontinued operations $ - - - .33 Cumulative effects of accounting changes $ (.01) - - - Net income $ 5.61 1.50 1.40 1.32 Common dividends per share $ .36 .34 .32 .30 Weighted average common shares outstanding (000's) 237,367 242,428 245,758 245,684 Financial Ratios Operating profit margin 23.9% 23.6% 23.6% 20.9% Debt to capital (4) 37% 35% 41% 37% Financial Position and Other Data Total assets $8,797,691 5,935,570 4,777,554 3,700,900 Long-term debt $2,694,192 1,616,256 1,521,453 979,754 Shareholders' equity $3,469,898 2,356,617 1,826,004 1,539,506 Capital expenditures $ 134,736 139,710 103,845 93,324 - ------------------------------------------------------------------------------------------------------------------- (1) The cumulative effect of adopting a new accounting pronouncement for derivative instruments decreased net income by $3.1 million in 1999. The cumulative effect of adopting new accounting pronouncements for retiree benefits, income taxes and postemployment benefits decreased net income by $16.8 million in 1992. (2) Includes non-operating items as follows: gain on change in fair values of derivatives and related investments of $131.2 million, gain on reclassification of investments of $666.2 million, and gain on sales of subsidiary and investments of $270.1 million, totaling $1.1 billion in 1999; gain on sales of subsidiary and investments, net of write-downs totaling $63.5 million in 1998; gain on sales of investments, net of write-downs, totaling $68.9 million in 1997; equity income related to Qwest Broadcasting of $6.0 million in 1996; gain on sale of investment and subsidiaries totaling $8.7 million in 1995; and charges relating to New York Daily News totaling $255.0 million in 1990.
66
Tribune Company and Subsidiaries 1995 1994 1993 1992 1991 1990 1989 ======================================================================================================== 1,312,767 1,246,377 1,163,116 1,136,619 1,122,434 1,183,177 1,197,077 - - - - - 321,823 422,024 828,806 764,197 727,213 684,051 617,514 623,981 584,326 103,101 102,082 21,209 - - - - - -------------------------------------------------------------------------------------------------------- 2,244,674 2,112,656 1,911,538 1,820,670 1,739,948 2,128,981 2,203,427 - -------------------------------------------------------------------------------------------------------- 272,093 291,323 252,412 226,412 218,138 280,587 301,303 - - - - - (114,468) (2,179) 171,618 138,213 127,984 121,267 100,175 107,528 96,803 4,608 2,829 2,071 - - - - (29,899) (26,001) (24,207) (23,465) (21,499) (22,362) (21,900) - -------------------------------------------------------------------------------------------------------- 418,420 406,364 358,260 324,214 296,814 251,285 374,027 - -------------------------------------------------------------------------------------------------------- (13,209) (9,739) (1,857) (2,081) (1,864) (2,285) (2,221) (7,349) (4,778) (9,545) (22,510) (30,387) (23,478) (12,040) 14,672 - - - - (295,000) 3,133 - -------------------------------------------------------------------------------------------------------- 412,534 391,847 346,858 299,623 264,563 (69,478) 362,899 (167,076) (158,698) (142,212) (120,089) (106,514) 22,055 (150,948) - -------------------------------------------------------------------------------------------------------- 245,458 233,149 204,646 179,534 158,049 (47,423) 211,951 32,707 8,898 (16,040) (42,909) (16,068) (16,110) 30,470 - - - (16,800) - - - - -------------------------------------------------------------------------------------------------------- 278,165 242,047 188,606 119,825 141,981 (63,533) 242,421 - -------------------------------------------------------------------------------------------------------- .78 .74 .65 .58 .51 .72 .65 .81 .74 .65 .58 .51 (.25) .65 .11 .03 (.06) (.15) (.05) (.06) .10 - - - (.06) - - - .92 .77 .59 .37 .46 (.31) .75 .28 .26 .24 .24 .24 .24 .22 259,160 268,852 265,484 260,072 257,456 264,128 289,560 18.6% 19.2% 18.7% 17.8% 17.1% 11.8% 17.0% 33% 23% 31% 46% 47% 51% 41% 3,288,255 2,785,825 2,536,410 2,751,570 2,795,298 2,826,099 3,013,537 757,437 411,200 510,838 740,979 897,835 998,962 880,686 1,379,909 1,332,980 1,095,627 911,889 851,699 764,512 1,077,996 117,863 91,626 75,620 88,349 54,988 91,226 113,969 - -------------------------------------------------------------------------------------------------------- (3) All share and per share data have been restated for a two-for-one common stock split effective Sept. 9, 1999. (4) Capital comprises total debt, deferred taxes and shareholders' equity.
67 Tribune Company and Subsidiaries - ------------------------------------------------------------------------------- | Management's Responsibility for Financial Statements | - ------------------------------------------------------------------------------- Financial Statements -- Management is responsible for the preparation, integrity and fair presentation of the Company's consolidated financial statements and related financial information included in this annual report to shareholders. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States and necessarily include certain amounts that are based on management's best estimates and judgments. The consolidated financial statements were audited by PricewaterhouseCoopers LLP, independent accountants, and their report is shown below. PricewaterhouseCoopers LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the Board of Directors and committees of the Board. The Company believes that all representations made to the independent accountants during their audits were valid and appropriate. Internal Control System -- Management is also responsible for establishing and maintaining a system of internal control, designed to provide reasonable assurance to the Company's management and Board of Directors regarding the preparation of reliable published financial statements. The system of internal controls is continually reviewed for its effectiveness and is augmented by written policies and procedures, the careful selection and training of qualified personnel and a program of internal audit. Each year, the Company's independent accountants conduct a review of internal accounting controls to the extent required by generally accepted auditing standards and perform such tests and related procedures as they deem necessary to arrive at an opinion on the fairness of the financial statements. The Audit Committee of the Board of Directors is responsible for reviewing and monitoring the Company's financial reporting and accounting practices. The Audit Committee consists of five independent directors. The Committee meets with representatives of management, the independent accountants and internal auditors to discuss financial reporting, accounting and internal control matters. PricewaterhouseCoopers LLP and the internal auditors have direct access to the Audit Committee. /S/ John W. Madigan /s/ Donald C. Grenesko - ------------------- ---------------------- John W. Madigan Donald C. Grenesko Chairman, President and Senior Vice President/Finance and Chief Executive Officer Administration - -------------------------------------------------------------------------------- | Report of Independent Accountants | - -------------------------------------------------------------------------------- To the Board of Directors and Shareholders of Tribune Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Tribune Company and its subsidiaries at December 26, 1999 and December 27, 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 26, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, in 1999 the Company changed its method of accounting for derivative instruments and hedging activities. /s/ PricewaterhouseCoopers LLP - ------------------------------ Chicago, Illinois January 21, 2000, except as to Note 17, which is as of February 14, 2000 68 EX-21 7 TABLE OF SUBSIDIARIES OF TRIBUNE COMPANY EXHIBIT 21 TRIBUNE COMPANY TABLE OF SUBSIDIARIES
Jurisdiction of Other names under which Incorporation subsidiary does business --------------- ------------------------ PUBLISHING - ---------- Tribune Publishing Company Delaware Chicago Tribune Company Illinois Chicago Tribune Newspapers, Inc. Illinois Chicago Tribune; Exito! Chicago Tribune Press Service, Inc. Illinois Tribune Newspaper Network Newspaper Readers Agency, Inc. Illinois Tribune Direct Marketing, Inc. Delaware Tribune Direct Marketing RELCON, Inc. Delaware Tribune Media Services, Inc. Delaware TV Log; TV Week; TV Listings Sun-Sentinel Company Delaware Sun-Sentinel; Gold Coast Labeling; Signs by Sun-Sentinel Gold Coast Publications, Inc. Delaware Gold Coast Shopper; Vital Signs; South Florida Parenting; City Link Sun-Sentinel Community News Group, Inc. Delaware Orlando Sentinel Communications Company Delaware The Orlando Sentinel; US Express; Family Journal Publications; Black Family Today; Central Florida Family; Central Florida Family Guide; O'Arts; Orlando City Book; Relcon of Florida Neocomm, Inc. Delaware Neocomm of Delaware, Inc. North Avenue Properties, Inc. Florida Sentinel Communications News Ventures, Inc. Delaware The Daily Press, Inc. Delaware Daily Press Tribune National Marketing Company Delaware JDTV, Inc. Wisconsin UltimateTV, Inc. Wisconsin Premier DataVision, Inc. Colorado Chicago Classifieds, Inc. Delaware INTERACTIVE - ----------- Tribune Interactive, Inc. Delaware chicagotribune.com; sun-sentinel.com; orlandosentinel.com; dailypress.com; metromix.com; go2orlando.com BlackVoices.com, Inc. Delaware
1
Jurisdiction of Other names under which Incorporation subsidiary does business --------------- ------------------------ BROADCASTING AND ENTERTAINMENT - ------------------------------ Tribune Broadcasting Company Delaware Tribune Plus; Tribune Plus Corporate Sales; Tribune Creative Services Group Tribune Broadcasting News Network, Inc. Delaware TribNet ChicagoLand Television News, Inc. Delaware ChicagoLand Television/CLTV News Oak Brook Productions, Inc. Delaware ChicagoLand Microwave Licensee, Inc. Delaware Tribune Denver Radio, Inc. Delaware KOSI; KEZW; KKHK WGN Continental Broadcasting Company Delaware WGN-TV; WGN Radio; Tribune Radio Network Tribune Entertainment Company Delaware Magic T Music Publishing Company Delaware Tribune Entertainment Production Company Delaware Chicago River Production Company Delaware 435 Production Company Delaware 5800 Sunset Productions Inc. Delaware North Michigan Production Company Delaware Towering T Music Publishing Company Delaware Tribune (FN) Cable Ventures, Inc. Delaware KWGN Inc. Delaware KWGN-TV WGNO Inc. Delaware WGNO-TV KCPQ Inc. Delaware KCPQ-TV KTLA Inc. California KTLA-TV WPIX, Inc. Delaware WPIX-TV WLVI Inc. Delaware WLVI-TV Tribune Network Holdings Company Delaware KSWB Inc. Delaware KSWB-TV KHWB Inc. Delaware KHWB-TV Tribune Television Company Delaware WPMT-TV; WXIN-TV; WTIC-TV; KDAF-TV; WPHL-TV Channel 20, Inc. Delaware Channel 40, Inc. Delaware KTXL-TV Channel 39, Inc. Delaware WBZL-TV Tribune Television Holdings, Inc. Delaware WXMI-TV, KTWB-TV WBDC Broadcasting, Inc. Delaware WBDC-TV WEWB, L.L.C. Delaware WEWB-TV Qwest Broadcasting, L.L.C. Delaware WATL-TV; WNOL-TV Tribune California Properties, Inc. Delaware Chicago National League Ball Club, Inc. Delaware Chicago Cubs Diana-Quentin, Inc. Illinois
2
Jurisdiction of Other names under which Incorporation subsidiary does business --------------- ------------------------ EDUCATION - --------- Tribune Education Company Delaware NTC/Contemporary Publishing Group, Inc. Illinois Contemporary Books; NTC Publishing Group; Country Roads Press; NTC Learning Works; National Textbook Company; Passport Books; VGM Career Horizons; The Quilt Digest Press; NTC Business Books; Masters Press; RGA Publishing Group; Lowell House; Peter Bedrick Books; Keats Publishing Wright Group Publishing, Inc. Delaware The Wright Group Breakthrough to Literacy, Inc. Delaware Mimosa Education, Inc. Delaware Mimosa Publications Pty Limited Australia Yarra Pty Limited Australia Carringbush Publications Pty Limited Australia Dragon Media International Pty Limited Australia Everyday Learning Corporation Illinois Educational Publishing Corporation Delaware Instructional Fair Group, Inc. Delaware Instructional Fair.TS Denison; In Celebration; Ideal School Supply Company Creative Publications, Inc. Delaware Tribune Education Sales, Inc. Delaware Landoll, Inc. Ohio Landoll's Applecross Enterprises Limited British Virgin Islands Shortland Publications, Inc. Delaware Shortland Publications Limited New Zealand Lands End Publishing, Inc. Delaware Lands End Publishing Limited New Zealand Shortland Publications (USA), Inc. Colorado Tribune Education (UK) Limited United Kingdom Living and Learning (Cambridge) Ltd. United Kingdom Kingscourt Publishing Limited United Kingdom Sunshine International, Inc. Delaware MISCELLANEOUS - ------------- Tribune Properties, Inc. Delaware New River Center Management Co. Riverwalk Center I Joint Venture Florida (Partnership) Tribune Stock Compensation Fund Partnership Illinois (Partnership) Chicago Avenue Construction Company Illinois
3 EX-23 8 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333-18921, 333-66077 and 333-74961) and in the Registration Statements on Form S-8 (File Nos. 2-90727, 33-21853, 33-26239, 33-47547, 33-59233, 333-00575, 333-03245 and 333-18269) of Tribune Company of our report dated January 21, 2000, except as to Note 17, which is as of February 14, 2000, which appears in the 1999 Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report, dated January 21, 2000, except as to Note 17, which is as of February 14, 2000, relating to the Financial Statement Schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Chicago, Illinois March 13, 2000 EX-27 9 FDS
5 This schedule contains summary financial information extracted from the 1999 Consolidated Statements of Income and Consolidated Balance Sheets and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-26-1999 DEC-28-1999 DEC-26-1999 16,903 614,115 643,195 48,246 112,689 2,084,551 1,790,439 1,077,903 8,797,691 860,596 0 0 281,093 1,018 3,187,787 8,797,691 0 3,221,890 0 1,454,058 0 0 113,031 2,440,079 957,029 1,483,050 0 0 (3,060) 1,479,990 6.16 5.61 Excluding non-operating items, basic earnings per share was $1.67 and diluted earnings per share was $1.54 for the year ended December 26, 1999. Per share data reflects a two-for-one common stock split effective September 9, 1999 to holders of record on August 19, 1999. Prior year financial data schedules have not been restated.
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