-----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, CeFO5z+nPMpYMIzLfUeGyjB6II7/a4tmzZvM16wprerGWYZRIvVXfHM5P/oNtR1i T+WXKaften64Ar4hlkJ1tw== 0000726513-97-000016.txt : 19970328 0000726513-97-000016.hdr.sgml : 19970328 ACCESSION NUMBER: 0000726513-97-000016 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970327 SROS: CSX SROS: NYSE SROS: PSE 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: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08572 FILM NUMBER: 97564624 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 29, 1996 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 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 stock held by non-affiliates on March 11, 1997, 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 $4,391,000,000. At March 11, 1997 there were 122,692,797 shares of the Company's Common Stock outstanding. The following documents are incorporated by reference, in part: 1996 Annual Report to Stockholders (Parts I and II, to the extent described therein). Definitive Proxy Statement for the May 6, 1997 Annual Meeting of Stockholders (Part III, to the extent described therein). ================================================================================ PART I ITEM 1. BUSINESS. Tribune Company (the "Company") is an information, education and entertainment 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, production and syndication of information and entertainment 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 "Tribune Company" or "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 1996 Annual Report to Stockholders, which information is incorporated herein by reference. Certain prior year amounts have been restated to conform with the 1996 presentation. All share and per share data has been restated to reflect a two-for-one common stock split effective January 15, 1997. This Annual Report on Form 10-K contains certain forward-looking statements that are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and uncertainties are changes in advertising demand, newsprint prices, interest rates and other economic conditions and the effect of acquisitions and dispositions on the Company's results of operations or financial condition. BUSINESS SEGMENTS The Company's operations are divided for reporting purposes into three industry segments: publishing, broadcasting and entertainment, and education. These segments operate in the United States. The education segment was established in 1994. The following table sets forth operating revenues and profit information for each segment of the Company (in thousands).
Fiscal Year Ended December ---------------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Operating Revenues: Publishing ...................................... $1,336,639 $1,312,767 $1,246,377 Broadcasting and Entertainment .................. 876,750 828,806 764,197 Education........................................ 192,316 103,101 102,082 ---------- ---------- ---------- Total Operating Revenues.................... $2,405,705 $2,244,674 $2,112,656 ---------- ---------- ---------- Operating Profit (1): Publishing ...................................... $ 281,312 $ 270,143 $ 287,590 Broadcasting and Entertainment (2)............... 200,537 160,616 132,413 Education........................................ 39,422 4,586 2,829 Corporate expenses............................... (31,195) (30,134) (26,207) ---------- ---------- ---------- Total Operating Profit...................... $ 490,076 $ 405,211 $ 396,625 ---------- ---------- ---------- - ----- (1) Operating profit for each segment excludes interest income and expense, non-operating gains and losses and income taxes. (2) 1996 includes a $10 million non-recurring pretax gain, representing the Company's equity interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station.
1 The following table sets forth asset information for each industry segment (in thousands).
Fiscal Year Ended December ---------------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Assets: Publishing....................................... $ 686,730 $ 693,853 $ 757,889 Broadcasting and Entertainment................... 1,616,797 1,405,213 1,321,768 Education........................................ 544,226 211,510 210,445 Corporate (1).................................... 853,147 977,679 495,723 ---------- ---------- ---------- Total Assets................................ $3,700,900 $3,288,255 $2,785,825 ---------- ---------- ---------- - ----- (1) Corporate assets include the investment in and advances to QUNO in 1995 and 1994.
Prior to 1993 the Company also had a segment called Newsprint Operations, which consisted entirely of QUNO Corporation ("QUNO") and operated in Canada. In March 1996, the Company completed the sale of its holdings in QUNO as part of QUNO's merger with Donohue Inc. QUNO was a wholly owned subsidiary of the Company until February 1993, when QUNO completed an initial public offering of 9 million shares of common stock. This reduced the Company's ownership to 59% and its voting interest to 49%. In April 1994, the Company reduced its ownership holdings in QUNO to 34% by selling 5.5 million shares of QUNO common stock. The Company began accounting for its investment in QUNO using the equity method in 1993. QUNO has been accounted for as a discontinued operation in the consolidated financial statements. 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. Fiscal years 1996 and 1994 comprised 52 weeks. Fiscal year 1995 comprised 53 weeks. The effect of the additional week in 1995 on the comparisons of the financial statements taken as a whole is generally not significant. PUBLISHING The publishing segment represented 56% of the Company's consolidated operating revenues in 1996. The twelve-month combined average circulation of the Company's daily newspapers was approximately 1.3 million daily and 1.9 million Sunday. The Company's primary newspapers are the Chicago Tribune, the Fort Lauderdale-based Sun-Sentinel, The Orlando Sentinel and the Newport News, Va. Daily Press. In California, the Company owned two daily newspapers and a weekly newspaper located in suburban areas in the San Diego market that were sold in July 1995 for approximately $16 million in cash. The Company recorded a $7.5 million pretax loss on this sale in 1995. The Company also operated one daily newspaper and several weekly newspapers in Palo Alto, California, which ceased publication in March 1993. The Company recorded a $15.3 million pretax charge in 1992 for the closure of these Palo Alto-based papers. For 1996, the portion of total publishing operating revenues represented by each of the Company's newspaper subsidiaries was as follows: Chicago Tribune Company--55%; Sun-Sentinel Company--22%; Sentinel Communications Company--17%; and The Daily Press--4%. In addition, the Company owns a newspaper syndication and media marketing company and other publishing-related businesses. Each of the Company's newspapers operates independently to most effectively meet the needs of the area it serves. Editorial policies are established by local management. The Company coordinates certain aspects of operations and resources in order to provide greater operating efficiency and economies of scale. 2 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 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 1996, the Company's newspapers consumed approximately 357,000 metric tons of newsprint. In 1995 and 1994, the North American newsprint industry increased newsprint prices several times due to higher demand for newsprint in the U.S. and overseas. As a result, average newsprint transaction prices increased 45% in 1995 over 1994. The higher newsprint prices increased newsprint expense at the Company's newspapers by approximately $75 million in 1995. The Company's publishing operations offset most of this increase through cost controls, a decrease in newsprint consumption and revenue increases. Newsprint prices peaked in the first quarter of 1996 and then declined throughout the remainder of the year. As a result, average newsprint transaction prices decreased 1% in 1996 from 1995. 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 specified minimum amounts of newsprint each year subject to certain limitations. The specified minimum annual volume is 250,000 metric tons in years 1997 to 1999, 225,000, 200,000 and 175,000 metric tons in years 2000 to 2002, respectively, and 150,000 metric tons in each of years 2003 to 2007. In 1996, approximately 74% 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 --------------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Advertising Retail............... $ 433,373 $ 450,141 $ 438,235 General.............. 140,741 130,680 135,742 Classified .......... 456,912 429,961 387,717 ---------- ---------- ---------- Total........... 1,031,026 1,010,782 961,694 Circulation ........... 252,263 249,860 242,993 Other (1).............. 53,350 52,125 41,690 ---------- ---------- ---------- Total........... $1,336,639 $1,312,767 $1,246,377 ---------- ---------- ---------- - ----- (1) Primarily includes revenues from advertising placement services; the syndication of columns, features, information and comics to newspapers; commercial printing operations; delivery of other publications; direct mail operations; and other publishing-related activities. Total advertising revenues improved in 1996 due to rate increases. The decline in retail advertising revenues was mainly due to a decrease in the food and drug, hardware and department store categories, primarily in Chicago. General advertising revenues rose at all of the newspapers due to higher advertising in the transportation, hi-tech and other categories. Classified advertising revenues also rose at each of the newspapers due primarily to increases in help wanted advertising. 3 Chicago Tribune Company Founded in 1847, the Chicago Tribune is published daily, including Sunday, and primarily serves an eight-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 1996, the Chicago Tribune ranked 7th in average daily circulation and 4th in average Sunday circulation in the nation, based on ABC averages. Approximately 76% and 57% of the Tribune's daily and Sunday circulation, respectively, is sold through home delivery, with the remainder primarily 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 June 1996, the Chicago Tribune began to phase in a weekly home delivery price increase of $.10 to $4.00. The following tables set forth selected information for the Chicago Tribune daily newspaper and other related activities.
Averages for the Twelve Months Ended December ----------------------------------------------------- 1996 1995 1994 --------- --------- --------- Circulation: Daily......................... 674,000 683,000 682,000 Sunday........................ 1,052,000 1,085,000 1,092,000
Fiscal Year Ended December ----------------------------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands) Advertising Inches: Full Run (all zones) Retail...................... 953 1,123 1,211 General..................... 354 314 338 Classified.................. 1,330 1,339 1,320 -------- -------- -------- Total . . . ............. 2,637 2,776 2,869 Part Run...................... 4,877 5,160 5,017 Preprinted Inserts............ 2,967 3,045 2,852 -------- -------- -------- Total Inches............. 10,481 10,981 10,738 -------- -------- -------- Operating Revenues.............. $735,158 $723,344 $678,297 -------- -------- --------
The 1996 decline in advertising volume was mainly due to a weaker retail advertising market and the extra week in 1995, partially offset by increases in general and classified help wanted inches. Based on ABC averages for the six months ended September 1996, the Chicago Tribune had a 37% lead in total daily paid circulation and a 136% lead in Sunday paid circulation over its principal competitor, the Chicago Sun-Times. 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 and other media. In September 1993, the Chicago Tribune began publishing Exito!, a weekly newspaper targeted to Spanish-speaking households. The Chicago Tribune owns Chicago Tribune Direct, a direct mail operation acquired in 1991. The Chicago Tribune also operates audiotex services and publications targeted to specific consumer market segments. In January 1995, the Chicago Tribune acquired RELCON, Inc. for approximately $8 million in cash, which publishes free apartment and new home guides and provides apartment rental referral services to prospective renters. 4 Sun-Sentinel Company (Fort Lauderdale) The Sun-Sentinel is published daily, including Sunday, and leads the Broward/South Palm Beach market in circulation. Approximately 70% and 64% of the Sun-Sentinel's daily and Sunday circulation, respectively, is sold through home delivery, with the remainder sold at newsstands and vending boxes. The paper's principal competition comes from the Miami Herald and national and local publications, as well as other media. The Miami/Fort Lauderdale market ranks 16th in the nation in terms of households. 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 ----------------------------------------------------- 1996 1995 1994 ------- ------- ------- Circulation: Daily......................... 256,000 262,000 268,000 Sunday........................ 371,000 370,000 365,000
Fiscal Year Ended December ------------------------------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands) Advertising Inches: (1) Full Run (all zones) Retail...................... 1,161 1,203 1,237 General..................... 240 226 237 Classified.................. 2,425 2,451 2,442 -------- -------- -------- Total.................... 3,826 3,880 3,916 Part Run...................... 2,980 2,967 2,979 Preprinted Inserts............ 1,521 1,748 1,660 -------- -------- -------- Total Inches............. 8,327 8,595 8,555 -------- -------- -------- Operating Revenues .............. $292,248 $284,838 $267,095 -------- -------- --------
- ----- (1) Excludes inches for Gold Coast Shopper and other targeted publications. The 1996 decline in advertising volume was mainly due to the extra week in 1995 and lower preprint linage. The Sun-Sentinel Company owns Gold Coast Shopper, a publication located in Deerfield Beach. In 1991, two weekly publications, XS and Exito!, targeted to young adults and Spanish-speaking households, respectively, were launched and have continued to expand readership. The Sun-Sentinel also offers alternate delivery services, audiotex services and publications targeted to specific consumer market segments, such as South Florida Parenting, acquired in 1994. 5 Sentinel Communications Company (Orlando) 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. Approximately 77% of the paper's daily and 67% of its Sunday circulation is sold on a home delivery basis, 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 October 1995, the weekly home delivery price was increased by $.10 to $3.85. The Orlando/Daytona Beach/Melbourne market ranks 22nd among U.S. markets in terms of households. The following tables set forth selected information for The Orlando Sentinel daily newspaper and other related activities.
Averages for the Twelve Months Ended December ------------------------------------------------------ 1996 1995 1994 ------- ------- ------- Circulation: Daily......................... 261,000 268,000 269,000 Sunday........................ 383,000 389,000 390,000
Fiscal Year Ended December -------------------------------------------------------- 1996 1995 1994 -------- --------- -------- (In thousands) Advertising Inches: Full Run (all zones) Retail...................... 914 930 971 General..................... 133 137 99 Classified.................. 1,728 1,848 1,842 -------- -------- -------- Total.................... 2,775 2,915 2,912 Part Run ..................... 1,387 1,506 1,884 Preprinted Inserts............ 2,764 2,787 2,741 -------- -------- -------- Total Inches ............ 6,926 7,208 7,537 -------- -------- -------- Operating Revenues.............. $232,874 $221,786 $214,125 -------- -------- --------
The 1996 decline in advertising volume was mainly due to the extra week in 1995 and lower transportation, automotive and real estate advertising, partially offset by increased help wanted inches. The Orlando Sentinel also publishes US/Express, a free weekly entertainment publication that is used to distribute advertising to non-subscribers. US/Express is syndicated nationally. In 1995, The Orlando Sentinel purchased Family Journal Publications, a group of central Florida parenting magazines, and began publishing RELCON free apartment and home guides for the central Florida market. The Daily Press (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 Hampton Roads market includes Newport News, Hampton, Williamsburg and eight other cities and counties in Virginia. This market area is also commonly called the Virginia Peninsula and, together with Norfolk, Portsmouth and Virginia Beach, is the 40th largest U.S. market in terms of households. 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 6 to $3.05 in October 1995. Approximately 81% of the paper's daily and 77% of its Sunday circulation is sold on a home delivery basis, with the remainder sold at newsstands and vending boxes. The following tables set forth selected information for the Daily Press.
Averages for the Twelve Months Ended December -------------------------------------------------------- 1996 1995 1994 ------- ------- ------- Circulation: Daily......................... 100,000 103,000 104,000 Sunday........................ 121,000 126,000 126,000
Fiscal Year Ended December ------------------------------------------------------- 1996 1995 1994 ------- ------- ------- (In thousands) Advertising Inches: Full Run (all zones) Retail...................... 610 674 728 General..................... 28 18 29 Classified.................. 858 887 880 ------- ------- ------- Total.................... 1,496 1,579 1,637 Part Run ..................... 125 110 115 Preprinted Inserts ........... 1,184 1,185 1,147 ------- ------- ------- Total Inches............. 2,805 2,874 2,899 ------- ------- ------- Operating Revenues ............ $52,618 $51,555 $49,866 ------- ------- -------
Related Businesses The Company is also involved in syndication activities, advertising placement services, Internet and other online-related businesses and other publishing-related activities. The syndication activities, conducted primarily through Tribune Media Services ("TMS"), involve the marketing of columns, features, information and comic strips to newspapers. TMS is also engaged in advertising placement services for television listings in newspapers and the development of news products and services for electronic and print media. In 1996, the Company acquired a 20% equity interest in Digital City, Inc., a venture with America Online to develop a national network of local interactive services. The Digital City affiliate in each of the Company's newspaper markets is wholly owned by the Company. Internet and other online-related businesses include the electronic publishing of each of the Company's daily newspapers with enhanced content on the Internet. Total operating revenues for these publishing-related businesses are shown below, net of intercompany revenues. Operating Revenues (In thousands) Fiscal Year Ended December -------- 1996................................ $23,741 1995................................ 22,739 1994................................ 19,519 7 BROADCASTING AND ENTERTAINMENT The broadcasting and entertainment segment represented 36% of the Company's consolidated operating revenues in 1996. At December 29, 1996, the segment included WB television affiliates located in New York, Los Angeles, Chicago, Philadelphia, Boston, Houston, Denver and San Diego, a CBS television affiliate (effective December 1994) in Atlanta, an ABC television affiliate (effective January 1996) in New Orleans and five radio stations located in New York, Chicago and Denver (three stations). In January 1996, the Company acquired television station KHTV-Houston for approximately $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. The Company acquired television station WLVI-Boston in April 1994, for $25 million in cash. In June 1994, the Company acquired Farm Journal Inc., publisher of The Farm Journal, a leading farm magazine, for $17.5 million in cash. Farm Journal results are reported in radio. In 1997, the Company reached an agreement to sell Farm Journal for $17 million in cash. The sale is expected to close in March 1997. In January 1993, the Company acquired two Denver radio stations, KOSI-FM and KEZW-AM, for $19.9 million in cash. The acquisitions were accounted for as purchases. In March 1997, the Company completed its acquisition of Renaissance Communications Corp., a publicly traded company owning six television stations, for approximately $1.1 billion in cash. The stations acquired were WB affiliates KDAF-Dallas and WDZL-Miami and Fox affiliates 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 overlap of WTIC's and WPMT's broadcast signals with those of other Tribune Company stations. The temporary waivers were granted subject to the outcome of pending FCC rulemaking that is expected to make duopoly waivers unnecessary. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, relating to the Miami television station and the Fort Lauderdale Sun-Sentinel. The Company plans to appeal the FCC's ruling on the cross-ownership issue. The Company cannot predict the outcome of such FCC rulemaking or any such appeal. With the acquisition of the six Renaissance stations, the Company became the second largest TV station group in the nation with a reach of 33.4% of US households (measured by Nielsen Market Ranks, DMAs, for 1996-1997). Under FCC rules, which count UHF stations at half credit, the Company's household coverage is 24.8%, well under the regulatory cap of 35%. In entertainment/Chicago Cubs, the Company owns the Chicago Cubs baseball team and produces and syndicates television programming. Cable programming/ development includes CLTV News, a Chicago-area news cable channel, and the Company's equity income or loss from its investments in The WB Network, TV Food Network (a basic cable channel specializing in cooking, nutrition and fitness programming) and Qwest Broadcasting. 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 ------------------------------------------------- 1996 1995 1994 -------- -------- -------- Television (1).......................... $680,504 $629,502 $598,532 Radio (2)............................... 89,260 88,435 68,817 Entertainment/Chicago Cubs (3).......... 98,415 103,689 92,080 Cable Programming/Development........... 8,571 7,180 4,768 -------- -------- -------- Total............................... $876,750 $828,806 $764,197 -------- -------- --------
8 - ----- (1) Includes WLVI-Boston since its acquisition in April 1994, KHTV-Houston since its acquisition in January 1996 and KSWB-San Diego since its acquisition in April 1996. (2) Includes Farm Journal Inc. since its acquisition in June 1994. (3) 1996 reflects the impact of the cancellation of two Tribune Entertainment syndicated programs, "Charles Perez" and "The Road." 1995 and 1994 reflect the impact of the Major League baseball strike which began August 12, 1994 and ended in April 1995. Television In 1996, television contributed 78% 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, including the six stations acquired in March 1997, is shown in the following table.
Market (1) Major ----------------------------- Commercial Expiration National % of U.S. FCC Stations in of FCC Rank Households % Channel Affiliation Market (2) License (3) -------- ---------- --- ------- ----------- ----------- ----------- WPIX - New York, NY.............. 1 6.9 6.9 11-VHF WB 6 1999 KTLA - Los Angeles, CA........... 2 5.1 5.1 5-VHF WB 7 1998 WGN - Chicago, IL............... 3 3.2 3.2 9-VHF WB 7 1997 (4) WPHL - Philadelphia, PA.......... 4 2.7 1.3 17-UHF WB 6 1999 WLVI - Boston, MA................ 6 2.2 1.1 56-UHF WB 7 1999 KDAF - Dallas, TX (5)............ 8 1.9 1.0 33-UHF WB 8 1998 WGNX - Atlanta, GA............... 10 1.7 0.8 46-UHF CBS 7 1997 (6) KHTV - Houston, TX .............. 11 1.7 0.8 39-UHF WB 7 1998 WDZL - Miami, FL (5)............. 16 1.4 0.7 39-UHF WB 6 1997 (7) KWGN - Denver, CO................ 18 1.2 1.2 2-VHF WB 6 1998 KTXL - Sacramento, CA (5)........ 20 1.2 0.6 40-UHF Fox 6 1998 WXIN - Indianapolis, IN (5)...... 25 1.0 0.5 59-UHF Fox 6 1997 (8) KSWB - San Diego, CA............. 26 1.0 0.5 69-UHF WB 6 1998 WTIC - Hartford, CT (5).......... 27 1.0 0.5 61-UHF Fox 6 1999 WGNO - New Orleans, LA........... 41 0.6 0.3 26-UHF ABC 6 1997 (9) WPMT - Harrisburg, PA (5)........ 45 0.6 0.3 43-UHF Fox 5 1999 - ----- (1) Source: Nielsen Station Index, September 1996. Ranking of markets is based on number of television households in DMA (Designated Market Area). (2) Source: Nielsen Metered Market Service Station Index Report, November 1996. (3) See "Governmental Regulation." (4) Expires December 1997. Renewal application will be filed. (5) Acquired March 1997. (6) Expires April 1997. Renewal application filed in December 1996 is pending. (7) Expired February 1997. Renewal application filed in September 1996 is pending. (8) Expires August 1997. Renewal application will be filed. (9) Expires June 1997. Renewal application filed in January 1997 is pending.
Programming emphasis at the Company's WB affiliated stations is placed on syndicated series, feature motion pictures, local and regional sports coverage, news and children's programs. The stations acquire most of their programming from outside sources, including The WB Network, although a significant amount is produced locally or supplied by Tribune Entertainment (see "Entertainment/ Chicago Cubs"). Contracts for purchased programming generally cover a period of one to seven years, with payment also typically made over several years. The expense for amortization of television broadcast rights in 1996 was $233 million, which represented approximately 34% of total television operating revenues. 9 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 -------------------------------------- 1996 1995 1994 ----- ----- ----- WPIX - New York, NY.................. 11.0% 10.0% 9.8% KTLA - Los Angeles, CA............... 8.5 10.0 9.3 WGN - Chicago, IL................... 10.0 10.8 10.8 WPHL - Philadelphia, PA ............. 4.8 5.3 4.8 WLVI - Boston, MA (2)................ 4.3 4.5 5.0 KDAF - Dallas, TX (3)................ 8.3 10.0 9.3 WGNX - Atlanta, GA................... 8.3 9.3 7.0 KHTV - Houston, TX (4)............... 5.8 6.3 6.8 WDZL - Miami, FL (3)................. 6.5 6.8 7.3 KWGN - Denver, CO ................... 8.8 9.0 9.8 KTXL - Sacramento, CA (3)............ 9.3 10.0 11.5 WXIN - Indianapolis, IN (3).......... 7.8 9.3 10.8 KSWB - San Diego, CA (5)............. 3.3 2.5 3.0 WTIC - Hartford, CT (3).............. 8.3 8.8 9.8 WGNO - New Orleans, LA............... 7.3 9.0 9.5 WPMT - Harrisburg, PA (3)............ 7.3 6.8 7.5 - ----- (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) Acquired April 1994. (3) Acquired March 1997. (4) Acquired January 1996. (5) Acquired April 1996.
Radio In 1996, the Company's radio operations contributed 10% of broadcasting and entertainment operating revenues. The largest radio station owned by the Company, measured in terms of operating revenues, is WGN. Radio operations include Tribune Radio Networks, which produces and distributes farm and sports programming to radio stations, primarily in the Midwest, and Farm Journal Inc. 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) ------------------------ --------- -------- ----------- --------- WQCD - New York, NY New Adult Contemporary/Jazz 101.9-FM 1 45 3.2% WGN - Chicago, IL Personality/Infotainment /Sports 720-AM 3 43 6.4% KOSI - Denver, CO Adult Contemporary 101.1-FM 23 31 5.7% KEZW - Denver, CO Nostalgia 1430-AM 23 31 2.8% KKHK - Denver, CO Classic Rock 99.5-FM 23 31 3.7% - ----- (1) Source: Radio markets ranked by Arbitron Metro Survey Area, Arbitron Company 1996. (2) Source: Arbitron Company 1996. (3) Source: Average of Winter, Spring, Summer and Fall 1996 Arbitron shares for persons 12 years old and over, 6 a.m. to midnight daily during the period measured.
10 Entertainment/Chicago Cubs In 1996, entertainment/Chicago Cubs contributed 11% of the segment's operating revenues. This portion of the broadcasting and entertainment segment includes Tribune Entertainment Company, the Chicago Cubs baseball team and one minor league baseball team. Agreement on a new five-year contract between the Major League Baseball Players Association ("MLBPA") and Major League Baseball was reached in December 1996. The previous contract expired on December 31, 1993. The MLBPA initiated a strike on August 12, 1994, and on August 28, 1994, the owners canceled the remainder of the 1994 Major League Baseball season. In April 1995, the National Labor Relations Board invalidated the owners' posted rules, and the players ended their strike. The 1995 baseball season began April 26, 1995. The strike shortened the 1995 season by 18 games and continued to impact attendance throughout the season. The new contract is not expected to have a material impact on the Company's results of operations. Tribune Entertainment Company was formed to acquire and develop programming for Company television stations and for syndication. Tribune Entertainment participates in the production or distribution of first-run programming, including one daily talk show, music and variety shows, television shows, movies and specials. Tribune Entertainment's most popular program is "Geraldo," a one-hour, daily talk show which is aired on 106 stations that cover 81% of U.S. television households, and is sold internationally to many cities in Canada, as well as to several countries in Latin America and Europe. During the 1996-1997 television season, Tribune Entertainment originated or syndicated approximately 10.5 hours of first-run programs per week. On average, the Company's ten television stations utilized more than 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 service. The Company also owns a Class A Midwest League franchise in Rockford, Illinois. Cable Programming/Development Cable programming/development contributed 1% of the segment's operating revenues in 1996. CLTV News, a regional 24-hour cable news programming service, was launched in January 1993 and currently is available to more than 1.5 million cable households in the Chicago-area market. The Company acquired a 12.5% equity interest in The WB Network in 1995, and agreed to increase its equity interest to 21.9% in March 1997. In 1995, the Company acquired a 33% equity interest in Qwest Broadcasting, which owns WB affiliate television stations in Atlanta and New Orleans. In 1993, the Company acquired a 31% equity interest in TV Food Network, a 24-hour basic cable channel focusing on cooking, nutrition and fitness. These investments are accounted for under the equity method of accounting, and accordingly, the Company records its share of the investment's net income or loss in cable programming/development. EDUCATION The education segment represented 8% of the Company's consolidated operating revenues in 1996. Education revenues are derived from publishing supplemental and curriculum education materials and adult education and trade books. Education operating revenues in 1996 were $192 million, up 87% from 1995 due mainly to acquisitions. The education market consists primarily of two components, core curriculum education products and supplemental education materials. The Company's education segment has become one of the nation's largest publishers for grades K-12. 11 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 curriculum education materials. 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 kindergarten through 6, for approximately $25 million. In February 1994, the Company acquired The Wright Group, a publisher of supplemental education materials for the elementary school market, for approximately $96 million in cash. In July 1993, the Company acquired Contemporary Books, Inc., a publisher of nonfiction trade titles and educational books and materials, for approximately $22 million in cash and $18.5 million in common stock. In September 1993, the Company acquired Compton's Multimedia Publishing Group for approximately $57 million in cash. The Company sold Compton's to The Learning Company, Inc. in December 1995. The acquisitions were accounted for as purchases. DISCONTINUED OPERATIONS (QUNO CORPORATION) In March 1996, the Company completed the sale of its holdings in QUNO Corporation, a Canadian newsprint company, as part of QUNO's merger with Donohue Inc. The Company owned approximately 34% of QUNO's common stock plus $138.8 million in convertible debt. The sale resulted in a 1996 after-tax gain of $89.3 million, or $.73 per share on a primary basis. The gross proceeds from the sale were approximately $427 million in cash, Donohue stock and short-term notes. Immediately after the sale, the Company sold the Donohue stock and notes for cash. After-tax proceeds were approximately $331 million. In April 1994, the Company reduced its ownership holdings in QUNO from 59% to 34% by selling 5.5 million shares of QUNO common stock. The sale of the shares resulted in an after-tax gain in 1994 of $13 million, or $.10 per share. QUNO has been accounted for as a discontinued operation in the Company's consolidated financial statements. The following table shows QUNO newsprint sales to affiliated (Tribune) and unaffiliated customers for 1995 and 1994. Newsprint Sales (In thousands of metric tons) Fiscal Year Ended December ----------------------------- 1995 1994 ---------- ---------- Affiliated customers........................... 251 256 Unaffiliated customers......................... 585 531 ------- ------- Total sales............................. 836 787 ------- ------- See "Publishing" for a discussion of the supply contract between the Company and Donohue. 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 Federal Communications Commission 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. National limits on the number of broadcast stations a licensee may own were removed by Congress in 12 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. 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 December 29, 1996, the Company had FCC authorization to operate ten television stations and two AM and three FM radio stations. In March 1997, the Company received FCC authorization to operate the six Renaissance television stations, subject to certain conditions as outlined on page 8. 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. EMPLOYEES The average number of full-time equivalent employees of the Company in 1996 was 10,700, approximately 200 more than the average for 1995. The increase was due to the net impact of the 1995 and 1996 acquisitions and dispositions. Pension and other employee benefit plans are provided for substantially all employees of the Company. Eligible employees also participate in the Company's Employee Stock Ownership Plan. During 1996, the Company's publishing segment employed approximately 7,400 full-time equivalent employees, about 7% of whom were represented by a total of five unions. Contracts with unionized employees of the publishing segment expire at various times through September 1999. Broadcasting and entertainment had an average of 2,700 full-time equivalent employees in 1996. Approximately 23% 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 December 1999. Education had an average of 600 full-time equivalent employees in 1996. Approximately 9% of these employees were represented by one union. The contract with the unionized employees of the education segment expires in October 1998. EXECUTIVE OFFICERS OF THE COMPANY Information with respect to the executive officers of the Company as of March 11, 1997 is set forth below. The descriptions of the business experience of these individuals include the principal positions held by them since March 1992. Robert D. Bosau (50) Executive Vice President, Tribune Education Company* since August 1994; Vice President/Administration of Tribune Publishing Company* from 1991 to August 1994. Joseph D. Cantrell (52) Executive Vice President, Tribune Publishing Company* since August 1994; President of The Daily Press, Inc.* and Publisher of the Daily Press from 1986 to August 1994. - ----- * A subsidiary of the Company. 13 James C. Dowdle (63) Executive Vice President/Media Operations since August 1994, Executive Vice President of the Company since August 1991; President and Chief Executive Officer of Tribune Broadcasting Company* since 1981; President of Tribune Publishing Company* since August 1994; Director of the Company since 1985. Dennis J. FitzSimons (46) Executive Vice President, Tribune Broadcasting Company* since August 1994; President of Tribune Television* from 1992 to August 1994; Vice President/ General Manager of WGN-TV* from 1987 to 1992. Donald C. Grenesko (48) Senior Vice President/Finance and Administration since August 1996, Senior Vice President and Chief Financial Officer from March 1993 to August 1996 and Vice President and Chief Financial Officer of the Company from October 1991 to March 1993. David D. Hiller (43) Senior Vice President/Development since November 1993, Senior Vice President and General Counsel from March to November 1993 and Vice President and General Counsel of the Company from 1988 to March 1993; Partner, Sidley & Austin until November 1993. Crane H. Kenney (34) Vice President/General Counsel and Secretary since August 1996, Vice President/ Chief Legal Officer from February 1996 to August 1996, Senior Counsel from March 1995 to January 1996 and Counsel of the Company from February 1994 to February 1995; Associate, Schiff, Harden & Waite until January 1994. Luis E. Lewin (48) Vice President/Human Resources since October 1996, Director of Human Resources of the Company from March 1994 to October 1996; Acting Publisher of Exito! in Chicago from December 1995 to September 1996; Vice President/Human Resources of Sun-Sentinel Company* from 1991 to 1994. John W. Madigan (59) Chairman since January 1996, Chief Executive Officer since May 1995, President since May 1994 and Chief Operating Officer of the Company from May 1994 to May 1995; Executive Vice President of the Company and President and Chief Executive Officer of Tribune Publishing Company* from August 1991 to May 1994; Publisher of the Chicago Tribune from August 1990 to May 1994 and President and Chief Executive Officer of Chicago Tribune Company* until September 1993; Director of the Company since 1975. Ruthellyn Musil (45) Vice President/Corporate Relations since March 1995 and Director of Communications of the Company from July 1992 to March 1995; Director of Employee Communications of Chicago Tribune Company* from 1989 to July 1992. Jeff R. Scherb (39) Senior Vice President/Chief Technology Officer of the Company since August 1996; Chief Technology Officer and Senior Vice President, Dun & Bradstreet Software from March 1995 to August 1996; Vice President/Systems Development, Turner Broadcasting from 1994 to 1995; Senior Vice President/Product Development, Delphi Information Systems from 1992 to 1994. - ----- * A subsidiary of the Company. 14 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 December 29, 1996 are listed below. In addition to those listed, the Company owns or leases transmitter sites, parking lots and other properties aggregating approximately 572 acres in 47 separate locations, and owns or leases an aggregate of approximately 1,238,000 square feet of space in 178 locations. Included in these figures is a 115,000 square foot office building in Philadelphia, Pennsylvania which was sold by the Company on December 30, 1996. This office building had been occupied by the Company's subsidiary, Farm Journal, Inc. until October 1995, when Farm Journal employees relocated to leased space in Philadelphia. 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 warehouse space located in: Chicago, Illinois.................................. 1,327,000 (1) 166,000 Orlando, Florida................................... 406,000 98,000 Deerfield Beach, Florida........................... 386,000 - Fort Lauderdale, Florida........................... 279,000 (2) 33,000 Northlake, Illinois................................ - 216,000 Newport News, Virginia............................. 207,000 - Franklin Park, Illinois............................ - 78,000 Broadcasting and Entertainment: Business offices, studios, garages and transmitters located in: Los Angeles, California............................ 253,000 - New York, New York................................. - 129,000 Chicago, Illinois.................................. 99,000 4,000 Philadelphia, Pennsylvania......................... 22,000 50,000 Oak Brook, Illinois................................ - 69,000 Denver, Colorado................................... 46,000 11,000 Houston, Texas..................................... 35,000 - Boston, Massachusetts.............................. 28,000 - Chula Vista, California............................ 22,000 - New Orleans, Louisiana............................. - 22,000 Atlanta, Georgia................................... - 21,000 Education: Business offices and warehouse space located in: Chicago, Illinois.................................. 185,000 29,000 Alsip, Illinois.................................... - 171,000 Kirkland, Washington............................... - 126,000 Lincolnwood, Illinois.............................. - 74,000 Bothell, Washington................................ - 60,000 Grand Rapids, Michigan............................. - 53,000 Mountain View, California.......................... - 28,000
- ----- (1) Includes Tribune Tower, an approximately 630,000 square foot office building in downtown Chicago, and Freedom Center, the approximately 697,000 square foot production center of the Chicago Tribune. Tribune Tower houses the 15 Company's corporate headquarters, the Chicago Tribune's business and editorial offices, offices of various subsidiary companies and approximately 70,000 square feet of space leased to unaffiliated tenants. Freedom Center houses the Chicago Tribune's printing, packaging and distribution operations. (2) Represents New River Center, an approximately 279,000 square foot office building in downtown Fort Lauderdale. New River Center houses the business and editorial offices of the Sun-Sentinel, which occupies approximately 94,000 square feet. The remaining space is leased to or available for commercial tenants. 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. The State of Florida Department of Environmental Protection ("DEP") and the Company's subsidiary, Sentinel Communications Company (the "Sentinel"), have entered into a consent decree under which the Sentinel will assist the DEP in remediating certain trichloroethene groundwater contamination in downtown Orlando, Florida. The Company currently estimates that the Sentinel's share of the remediation costs will not be material and has provided for the costs in the Company's consolidated financial statements. The Sun-Sentinel Company (the "Sun-Sentinel") has been notified by the United States Environmental Protection Agency ("EPA") that it is a potentially responsible party ("PRP") under Superfund legislation with respect to the Wingate Road site in Fort Lauderdale. The EPA has also identified 30 other PRP's for the site. The Company denies liability for clean-up costs at the site; however, the Company estimates that its liability, if any, will not be material. 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. 16 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. Per share data has been restated to reflect a two-for-one common stock split effective January 15, 1997. 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: 1996 1995 --------------------- ----------------------- Quarter High Low High Low ------- ------- -------- -------- --------- First............. $34 1/2 $28 5/16 $28 1/16 $25 3/8 Second............ 38 1/8 32 1/16 30 3/8 26 7/8 Third............. 39 1/2 31 5/8 34 1/8 29 7/8 Fourth............ 44 1/8 37 7/8 34 7/16 29 13/16 At March 11, 1997, there were 5,165 holders of record of the Company's Common Stock. Quarterly cash dividends declared on Common Stock were $.15 per share in 1996 and $.14 per share in 1995. Total cash dividends declared on Common Stock by the Company were $73,742,000 for 1996 and $72,524,000 for 1995. During 1996, 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 1992 through 1996 contained under the heading "Eleven Year Financial Summary" in the Company's 1996 Annual Report to Stockholders is incorporated herein by reference. 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 1996 Annual Report to Stockholders 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 53 through 71 of the Company's 1996 Annual Report to Stockholders, together with the report thereon of Price Waterhouse LLP dated February 11, 1997, appearing on page 76 of such Annual Report and the information contained under the heading "Quarterly Results (Unaudited)" on pages 72 and 73, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 17 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 under the heading "Election of Directors" in the definitive Proxy Statement for the Company's May 6, 1997 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information contained under the heading "Executive Compensation" (except those portions relating to Item 13, below) in the definitive Proxy Statement for the Company's May 6, 1997 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under the subheadings "Principal Stockholders" and "Management Ownership" under the heading "Ownership Information" in the definitive Proxy Statement for the Company's May 6, 1997 Annual Meeting of Stockholders, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained under the heading "Executive Compensation" (except those portions relating to Item 11, above) and the subheadings "Compensation of Directors" and "Other Transactions" in the definitive Proxy Statement for the Company's May 6, 1997 Annual Meeting of Stockholders, is incorporated herein by reference. 18 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 22 hereof. (a)(3) Index to Exhibits filed as part of this report As listed in the Exhibit Index beginning on page 25 hereof. (b) Reports on Form 8-K The Company filed two reports on Form 8-K during the last quarter of the period covered by this report. o The Company filed a Form 8-K Current Report dated October 18, 1996, which reported under Item 5 the Company's third quarter 1996 earnings press release. No financial statements were filed as part of the report. o The Company filed a Form 8-K/A-3, Amendment No. 3, (dated July 26, 1996, date of earliest event reported) on November 8, 1996 which amended and supplemented the Form 8-K dated July 26, 1996. The Form 8-K/A-3 reported under Item 7 the financial statements of Renaissance Communications Corp. for the quarter ended September 30, 1996, the unaudited pro forma condensed consolidated balance sheet of Tribune Company as of September 29, 1996 and the unaudited pro forma condensed consolidated statements of income for Tribune Company for the fiscal year ended December 31, 1995 and the first three quarters ended September 29, 1996 to reflect all completed or pending acquisitions and dispositions. 19 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 27, 1997. 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 27, 1997. Signature Title --------- ----- /s/ John W. Madigan ------------------- John W. Madigan Chairman, President and Chief Executive Officer and Director (principal executive officer) /s/ James C. Dowdle ------------------- James C. Dowdle Executive Vice President and Director /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) 20 Signature Title --------- ----- /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 21 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 29, 1996......................... * Consolidated Balance Sheets at December 29, 1996 and December 31, 1995.......................................................... * Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended December 29, 1996................... * Consolidated Statements of Shareholders' Equity for each of the three fiscal years in the period ended December 29, 1996............ * Notes to Consolidated Financial Statements.................................... * Report of Independent Accountants on Consolidated Financial Statements....................................................... * Report of Independent Accountants on Financial Statement Schedule.........................................................23 Financial Statement Schedule for each of the three fiscal years in the period ended December 29, 1996 .............................. 24 Schedule II Valuation and qualifying accounts and reserves. - ----- * Incorporated by reference to the Company's 1996 Annual Report to Stockholders. 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. 22 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 February 11, 1997 appearing in the 1996 Annual Report to Stockholders 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/ Price Waterhouse LLP - ------------------------ PRICE WATERHOUSE LLP Chicago, Illinois February 11, 1997 23
SCHEDULE II TRIBUNE COMPANY SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands of dollars) Additions Balance at Charged to Balance Beginning Costs and at End of Description of Period Expenses Deductions Period ----------- ---------- ---------- ---------- --------- Valuation accounts deducted from assets to which they apply: Year ended December 29, 1996 Accounts receivable allowances: Bad debts....................................... $ 23,078 $ 19,846 $ 18,479 $ 24,445 Rebates, volume discounts and other............. 7,076 20,313 17,428 9,961 -------- -------- -------- -------- Total..................................... $ 30,154 $ 40,159 $ 35,907 $ 34,406 ======== ======== ======== ======== Year ended December 31, 1995 Accounts receivable allowances: Bad debts....................................... $ 24,464 $ 19,745 $ 21,131 $ 23,078 Rebates, volume discounts and other............. 9,534 27,754 30,212 7,076 -------- -------- -------- -------- Total..................................... $ 33,998 $ 47,499 $ 51,343 (1) $ 30,154 ======== ======== ======== ======== Year ended December 25, 1994 Accounts receivable allowances: Bad debts....................................... $ 17,589 $ 18,024 $ 11,149 $ 24,464 Rebates, volume discounts and other............. 7,843 18,284 16,593 9,534 -------- -------- -------- -------- Total..................................... $ 25,432 $ 36,308 $ 27,742 $ 33,998 ======== ======== ======== ======== - ----- (1) For 1995, $9,389 represents deductions pertaining to Compton's NewMedia and Times Advocate Company, sold in 1995.
24 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 ------ ----------- 2 * Pre-Amalgamation Agreement among Donohue Inc., Tribune Company and QUNO Corporation, dated as of December 22, 1995 (Exhibit 99.2 to Form 8-K Current Report dated January 8, 1996); Pre-Amalgamation Amendment Agreement thereto dated as of December 28, 1995 (Exhibit 99.3 to Form 8-K Current Report dated January 8, 1996). 2.1 * Agreement and Plan of Merger among Tribune Company, Tower Acquisition Company, Inc. and Renaissance Communications Corp. dated as of July 1, 1996 (Exhibit 99.1 to Form 8-K Current Report dated July 9, 1996). 3.1 * Restated Certificate of Incorporation of Tribune Company, dated April 21, 1987; Certificate of Designations of Series A Junior Participating Preferred Stock, dated December 31, 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). 3.2 By-Laws of Tribune Company As Amended and In Effect on December 10, 1996. 4 * Rights Agreement between Tribune Company and The First National Bank of Chicago, as Rights Agent, dated as of December 22, 1987 (Exhibit 1 to Form 8-K Current Report dated January 6, 1988); First Amendment thereto dated as of July 31, 1990 (Exhibit 4 to Form 10-Q Quarterly Report for the quarter ended July 1, 1990); Second Amendment thereto dated as of October 31, 1990 (Exhibit 4 to Form 10-Q Quarterly Report for the quarter ended September 30, 1990). 4.1 * Indenture, dated as of March 1, 1992 between Tribune Company and Continental Bank, National Association (Incorporated by reference 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 (Incorporated by reference to Registration Statement on Form S-3, Registration No. 333-18921). 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). 25 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. 10.5 o* Tribune Company Management Incentive Plan, dated as of January 1, 1991 (Exhibit 10.10 to Annual Report on Form 10-K for 1990). 10.5a o* Amendment effective January 1, 1992 to the Tribune Company Management Incentive Plan dated as of January 1, 1991 (Exhibit 10.9b to Annual Report on Form 10-K for 1991). 10.6 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). 10.7 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). 10.8 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). 10.9 o* Tribune Company Amended and Restated Transitional Compensation Plan for Executive Employees, effective as of January 1, 1995 (Exhibit 10.14 to Annual Report on Form 10-K for 1994). 10.10 o* Tribune Company Supplemental Defined Contribution Plan, effective as of January 1, 1994 (Exhibit 10.15 to Annual Report on Form 10-K for 1993). 10.11 o* Tribune Company Amended and Restated Employee Stock Purchase Plan, dated October 22, 1996 (Exhibit 10.20 to Form 10-Q Quarterly Report for the quarter ended September 29, 1996). 10.12 o* 1988 Restricted Stock Plan For Outside Directors, dated February 16, 1988 (Exhibit 10.12 to Annual Report on Form 10-K for 1992). 10.12a 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). 10.13 o* Tribune Company Amended and Restated 1995 Nonemployee Director Stock Option Plan, dated October 22, 1996 (Exhibit 10.19 to Form 10-Q Quarterly Report for the quarter ended September 29, 1996). 26 Number Description ------ ----------- 10.14 o* Tribune Company Amended and Restated 1996 Nonemployee Director Stock Compensation Plan, dated October 22, 1996 (Exhibit 10.21 to Form 10-Q Quarterly Report for the quarter ended September 29, 1996). 11 Statements of Computation of Primary and Fully Diluted Net Income Per Share. 12 Computation of Ratios of Earnings to Fixed Charges. 13 The portions of the Company's 1996 Annual Report to Stockholders 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). 27 EX-3.2 2 BY-LAWS OF TRIBUNE COMPANY AS AMENDED EXHIBIT 3.2 BY-LAWS OF TRIBUNE COMPANY A Delaware Corporation As Amended and In Effect on December 10, 1996 ARTICLE I0. 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 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 or mailed and received at the principal executive offices of the Company not less than 60 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed to stockholders or such public disclosure was made, whichever occurs first. 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. 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, - 2 - 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 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. - 3 - 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. Officers of the Company shall not be eligible for service as a director following their retirement or resignation 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 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. - 4 - 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. Not less than 90 days (except as provided below) prior to the date of a meeting of stockholders at which directors are to be elected, any stockholder who intends to make a nomination at such meeting 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. In the event that less than 100 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice of stockholder nominees to be timely under this Section must be delivered not later than the close of business on the 10th day following the day on which notice of the date of the meeting is mailed to stockholders or public disclosure thereof is made, whichever occurs first. 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 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. - 5 - 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 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. - 6 - 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 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 - 7 - 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. 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 - 8 - management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all paper 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 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. - 9 - 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 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 - 10 - 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 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. - 11 - 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. 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 Incorpora- - 12 - tion, 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 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 - 13 - 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 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 - 14 - 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 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. - 15 - EX-10.4A 3 AMENDMENT OF TRIBUNE COMPANY BONUS DEFERRAL PLAN EXHIBIT 10.4a FIRST AMENDMENT --------------- OF -- TRIBUNE COMPANY BONUS DEFERRAL PLAN ----------------------------------- WHEREAS, Tribune Company (the "Company") maintains TRIBUNE COMPANY BONUS DEFERRAL PLAN (the "Plan"); and WHEREAS, it is now deemed desirable to amend the Plan; NOW, THEREFORE, by virtue and in exercise of the amending power reserved to this Company under Section 7 of the Plan, the Plan be and it hereby is amended, effective as of December 1, 1996, in the following particulars: 1. By substituting the phrases "subsection 3.3" and "subparagraph 3.1(b)" for the phrases "Section 3.3" and "subsection 3.1(b)", respectively, where the two latter phrases occur in the first sentence of subsection 1.2 of the Plan; and by adding the following sentence to subsection 1.2 of the Plan at the end of said subsection: "Effective with respect to elections made by participants on and after December 1, 1996, it is an additional purpose of the Plan (i) to permit Participants to elect irrevocably that the 'Increments' thereafter credited for specific periods to all or a portion of their Accounts under subsections 4.2 and 4.1 below, respectively, be calculated based on the investment performance of the common stock of the Company during that period and (ii) that said portion of any Participant's Account shall be distributed to him in the form of shares of common stock of the Company, all as described in greater detail below." 2. By substituting the following for subparagraphs (a) and (b) of Section 2 of the Plan: "(a) is a participant in the Tribune Company Management Incentive Plan, or any successor plan designated by the Committee, and (b) has an annualized rate of Compensation (as defined in the SIP) in excess of the then applicable maximum annual dollar limitation on Compensation described in the SIP in accordance with Sections 401(a)(17) and 404(l) of the Internal Revenue Code." 3. By adding the following subparagraph (d) to subsection 3.1 of the Plan, immediately following subparagraph (c) of said subsection: "(d) Election of Manner in which Increments Are Determined and Medium in which Deferred Amounts Are Paid. Each election under this subsection (including an automatic election under subparagraph (b) above) made by a Participant on or after December 1, 1996 shall indicate the portions of the amount being deferred pursuant to that election, which the Participant elects to have credited to the cash subaccount and stock subaccounts maintained within his Account as of the following March 1 under subsection 4.1 below. In addition, the Committee may permit each Participant to elect, on his annual deferral election forms and/or on such other forms (at such other times and in accordance with such rules as the Committee may in its discretion determine), that all or a portion of the balance credited to his cash subaccount as of the following March 1 (after all other adjustments to his Account and subaccounts as of that date have been made) be transferred and credited to his stock subaccount. Any amounts to be credited to a Participant's stock subaccount as of a March 1 shall be credited in the form of a number of full and fractional (rounded to the nearest hundredth) -2- hypothetical shares of common stock of the Company which is the quotient of the cash amount that would otherwise be so credited, divided by the fair market value (as defined in subsection 4.5 below) of a share of common stock of the Company on that March 1. Any election by a Participant under this subparagraph (d) to have amounts credited to his stock subaccounts shall be irrevocable, and a Participant may not at any time elect to transfer all or any portion of the balance of his stock subaccount to his cash subaccount." 4. By adding the following to subsection 4.1 of the Plan, immediately following the last sentence of said subsection: "Effective with respect to elections made after December 1, 1996 under subparagraphs (a) through (d) of subsection 3.1 above, there shall be established within each Participant's Account a 'cash subaccount' and a 'stock subaccount.' The balance in the Account of any Participant as of December 1, 1996 shall initially be credited to his cash subaccount. After December 1, 1996, Participants may elect in accordance with subparagraph 3.1(d) above that all or a portion of any future deferral be credited to a particular subaccount or that all or a portion of the balance in their cash subaccounts be transferred to their stock subaccounts." 5. By substituting the following for subsection 4.2 of the Plan: "4.2. Increments. With respect to Participants' Accounts: (a) Through December 1, 1996: Prior to and through December 1, 1996, the balance credited to each Participant's Account was deemed to earn 'interest' at a rate equal to the thirty-year United States Treasury bond rate determined as of -3- March 1 of each year or, if that March 1 was not a business day, then the first business day following that March 1 (in which event references in the Plan to March 1 shall mean the first business day following that March 1). Interest was credited to Participants' accounts as of the last day of each fiscal quarter of the Company. Any interest deemed to have been earned on the Participant's Account balance is referred to as an 'Increment' for purposes of this Plan. (b) After December 1, 1996: Cash Subaccounts: After December 1, 1996, increments to Participants' cash subaccounts established under subsection 4.1 above shall be determined and credited in the same manner as described in subparagraph (a) above. (c) After December 1, 1996: Stock Subaccounts: The hypothetical shares of common stock of the Company credited to each Participant's stock subaccount shall have no voting rights. Dividends, rights, warrants and options declared or created with respect to actual shares of common stock of the Company shall also be deemed to have been declared or created with respect to hypothetical shares of common stock of the Company credited to each Participant's stock subaccount. Stock dividends deemed declared on such hypothetical shares credited to a Participant's stock subaccount shall be credited to that subaccount; cash dividends deemed declared on such hypothetical shares shall be converted to additional hypothetical shares in accordance with the formula contained in subparagraph 3.1(d) above, based on the fair market value of a share of common stock of the Company as of the day the dividend was paid. Rights, warrants and options, if any, deemed created with respect to such hypothetical shares shall be deemed held, exercised or sold by all Participants uniformly, as soon as -4- practicable, as determined by the Committee in its sole discretion, and the hypothetical proceeds thereof attributable to a Participant's stock subaccount shall be applied in the same manner as cash dividends paid on such shares. Stock splits shall be treated in the same manner as stock dividends. In the event of a corporate transaction which results in a change to the outstanding common stock of the Company, the hypothetical shares of common stock of the Company credited to the stock subaccounts of participants shall be adjusted hereunder as if those hypothetical shares were shares of outstanding common stock of the Company." 6. By adding the following new subsection 4.5 to Section 4 of the Plan, immediately following subsection 4.4 thereof: "4.5. Fair Market Value. The 'fair market value' of a share of common stock of the Company shall mean as of any date the closing price of said common stock as reported on the New York Stock Exchange Composite Transaction List for such day or, if the common stock was not traded on such day, then the next preceding day on which the common stock was traded." 7. By substituting for subsections 5.1 and 5.2 of the Plan the following new subsections 5.1 and 5.2: "5.1. Amount of Payment. The amount to be paid to a Participant following his settlement Date in a lump sum under subsection 5.3 or 5.5 below (or in the case of installments under subsection 5.3 below, the amount from which the first installment payment amount will be derived) shall be an amount equal to the sum of (a) the net credit balance in his cash subaccount and the number of hypothetical shares of common stock of the Company credited to his stock subaccount, as of the last day of the Fiscal Year immediately preceding his Settlement Date, after all adjustments required to be made to those subaccounts within his Account as of that date have been made, -5- plus (b) the deferred amount (if any) of his Qualifying Bonus for the Fiscal Year preceding the year in which his Settlement Date occurred." "5.2. Medium of Payment. All payments of stock subaccount balances under this Plan shall be made in whole shares of common stock of the Company, with the fair market value of any fractional share (as of the day preceding the date of payment) being paid in cash. All payments of cash subaccount balances, and of the deferred amounts of Qualifying Bonuses for the Fiscal Year preceding the year in which payment is made or commences, shall be made in cash." 8. By substituting the following two sentences for the fourth and fifth sentences of subsection 5.3 of the Plan: "If a Participant's Account balance is paid in installments, it shall be credited with Increments during the Payout Period at the rate or in the manner from time to time determined under subsection 4.2. The installment payment to a Participant in any year shall be in an amount equal to the quotient obtained by dividing his cash subaccount balance, and the number of hypothetical shares of common stock of the Company credited to his stock subaccount, as of the last day of the preceding Fiscal Year by the number of payments remaining in his Payout Period, including the current payment." 9. By substituting the phrase "dollar value amount" for the phrase "dollar amount" wherever the latter phrase occurs in the last sentence of subsection 5.3 of the Plan. 10. By adding the following sentence to subsection 6.9 of the Plan, immediately following the last sentence thereof: "Any such deduction with respect to payments of shares of common stock of the Company shall be made -6- by withholding a sufficient number of the shares which would otherwise be paid to the Participant." IN WITNESS WHEREOF, the Company acting through its duly authorized representative hereby adopts the foregoing amendment this 17th day of December, 1996. TRIBUNE COMPANY By: /s/ Crane H. Kenney ------------------- Its: Vice President -7- EX-11 4 EXHIBIT 11
EXHIBIT 11 TRIBUNE COMPANY STATEMENTS OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE (A) (In thousands, except per share amounts) Fiscal Year Ended December ---------------------------------------- PRIMARY 1996 1995 1994 - ------- -------- -------- -------- Income from continuing operations $282,750 $245,458 $233,149 Discontinued operations of QUNO, net of tax 89,317 32,707 8,898 -------- -------- -------- Net income 372,067 278,165 242,047 Preferred dividends, net of tax (18,786) (18,841) (18,574) -------- -------- -------- Net income attributable to common shares $353,281 $259,324 $223,473 -------- -------- -------- Weighted average common shares outstanding 122,842 129,580 134,426 -------- -------- -------- Primary net income per share: Continuing operations (B) $ 2.15 $ 1.75 $ 1.60 Discontinued operations .73 .25 .06 -------- -------- -------- Total $ 2.88 $ 2.00 $ 1.66 ======== ======== ======== FULLY DILUTED - ------------- Income from continuing operations $282,750 $245,458 $233,149 Additional ESOP contribution required assuming all preferred shares were converted, net of tax (13,498) (14,759) (14,639) -------- -------- -------- Adjusted income from continuing operations 269,252 230,699 218,510 Discontinued operations of QUNO, net of tax 89,317 32,707 8,898 -------- -------- -------- Adjusted net income $358,569 $263,406 $227,408 -------- -------- -------- Weighted average common shares outstanding 122,842 129,580 134,426 Assumed conversion of preferred shares into common shares 11,407 11,774 12,100 Assumed exercise of stock options, net of common shares assumed repurchased with the proceeds 2,404 1,658 1,620 -------- -------- -------- Adjusted weighted average common shares outstanding 136,653 143,012 148,146 -------- -------- -------- Fully diluted net income per share: Continuing operations $ 1.97 $ 1.61 $ 1.48 Discontinued operations .65 .23 .06 -------- -------- -------- Total $ 2.62 $ 1.84 $ 1.54 ======== ======== ======== (A) All share and per share data has been restated to reflect a two-for-one common stock split effective January 15, 1997. (B) Primary net income per share from continuing operations is computed by deducting preferred dividends, net of tax, from income from continuing operations and then dividing by weighted average common shares outstanding.
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 ---------------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Income from continuing operations before cumulative effects of accounting changes $282,750 $245,458 $233,149 $204,646 $179,534 Add: Income tax expense 191,663 167,076 158,698 142,212 120,089 Losses on equity investments 13,281 13,209 9,739 1,857 1,903 --------- -------- -------- -------- -------- Subtotal 487,694 425,743 401,586 348,715 301,526 -------- -------- -------- -------- -------- Fixed charge adjustments Add: Interest expense 47,779 21,814 20,585 24,660 35,301 Amortization of capitalized interest 2,108 2,253 2,362 2,392 2,434 Interest component of rental expense (A) 9,362 8,200 8,236 8,732 8,182 -------- -------- -------- -------- -------- Earnings, as adjusted $546,943 $458,010 $432,769 $384,499 $347,443 ======== ======== ======== ======== ======== Fixed charges: Interest expense $ 47,779 $ 21,814 $ 20,585 $ 24,660 $ 35,301 Interest capitalized 168 610 - 1,099 1,092 Interest component of rental expense (A) 9,362 8,200 8,236 8,732 8,182 Interest related to guaranteed ESOP debt (B) 20,134 22,057 24,017 25,742 27,019 -------- -------- -------- -------- -------- Total fixed charges $ 77,443 $ 52,681 $ 52,838 $ 60,233 $ 71,594 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges 7.1 8.7 8.2 6.4 4.9 ======== ======== ======== ======== ======== (A) Represents a portion of rental expense incurred by the Company, which is a reasonable approximation of the interest cost component of such expense. (B) 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. Certain prior year amounts have been restated to conform with the 1996 presentation. All share and per share data has been restated to reflect a two-for-one common stock split effective January 15, 1997. This Management's Discussion and Analysis of Results of Operations and Financial Condition contains certain forward-looking statements that are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and uncertainties are changes in advertising demand, newsprint prices, interest rates and other economic conditions and the effect of acquisitions and dispositions on the Company's results of operations or financial condition. ................................................................................ SIGNIFICANT EVENTS ................................................................................ In March 1996, the Company completed the sale of its holdings in QUNO Corporation, a Canadian newsprint company, as part of QUNO's merger with Donohue Inc. The Company owned approximately 34% of QUNO's common stock plus $138.8 million in convertible debt. The sale resulted in a 1996 after-tax gain of $89.3 million, or $.73 per share on a primary basis. The gross proceeds from the sale were approximately $427 million in cash, Donohue stock and short-term notes. Immediately after the sale, the Company sold the Donohue stock and notes for cash. After-tax proceeds were approximately $331 million. In April 1994, the Company reduced its ownership holdings in QUNO from 59% to 34% by selling 5.5 million shares of QUNO common stock. The sale of the shares resulted in an after-tax gain in 1994 of $13 million, or $.10 per share. QUNO has been accounted for as a discontinued operation in the Company's consolidated financial statements. In the first quarter of 1997, the Company expects to complete its acquisition of Renaissance Communications Corp., a publicly traded company owning six television stations, for approximately $1.1 billion in cash. The stations to be acquired consist of KDAF-Dallas, WDZL-Miami, KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The transaction is subject to various closing conditions, including Federal Communications Commission approval. The FCC is reviewing a cross-ownership issue relating to the Miami station and the Company's Fort Lauderdale Sun-Sentinel. Depending on the outcome of such review, the Miami television station may need to be divested. A new five-year contract between the Major League Baseball Players Association ("MLBPA") and Major League Baseball was signed in December 1996. The previous contract expired on December 31, 1993. The MLBPA initiated a strike on August 12, 1994, and on August 28, 1994, the owners canceled the remainder of the 1994 Major League Baseball season. In April 1995, the National Labor Relations Board invalidated the owners' posted rules, and the players ended their strike. The 1995 baseball season began April 26, 1995. The strike shortened the 1995 season by 18 games and continued to impact attendance throughout the season. The new contract will not have a material impact on the Company's results of operations. 45 ................................................................................ RESULTS OF OPERATIONS ................................................................................ The Company's fiscal year ends on the last Sunday in December. Fiscal years 1996 and 1994 comprised 52 weeks. Fiscal year 1995 comprised 53 weeks. The effect of the additional week in 1995 on the comparisons of the financial statements taken as a whole is generally not significant. ACQUISITIONS AND DISPOSITIONS In 1996, the Company acquired television station KHTV-Houston in January, Educational Publishing Corporation and NTC Publishing Group in March and television station KSWB-San Diego in April. In August 1995, the Company purchased Everyday Learning Corporation. In 1994, the Company acquired The Wright Group in February, television station WLVI-Boston in April and Farm Journal, Inc. in June. The results of these businesses have been included in the consolidated financial statements since their respective dates of acquisition. The Company has also made several equity investments, including The Warner Bros. Television Network ("The WB Network") and Digital City, Inc. in 1996 and The WB Network, Qwest Broadcasting LLC and Interealty in 1995. The Company's share of these companies' results of operations has been included in the consolidated financial statements since their respective investment dates. In December 1995, the Company sold its Compton's NewMedia subsidiary to The Learning Company, Inc. for $123.5 million of The Learning Company common stock and also invested $150 million in The Learning Company convertible notes. These transactions resulted in a pretax gain of $6.9 million, or $.03 per share on a primary basis. At December 29, 1996, the Company had a net unrealized loss on The Learning Company common stock investment of $47 million. The Company believes this loss was temporary at December 29, 1996. In July 1995, the Company sold its California newspaper subsidiary, Times Advocate Company in Escondido, for approximately $16 million in cash. The sale resulted in a pretax loss of $7.5 million, or $.03 per share. In March 1995, the Company sold shares of America Online common stock for approximately $17 million. The sale resulted in a pretax gain of $15.3 million, or $.07 per share. CONSOLIDATED The Company's consolidated financial results for 1996, 1995 and 1994 were as follows:
Change (In millions, except per share amounts) 1996 1995 1994 96-95 95-94 =========================================================================================================== Operating revenues $2,405 $2,244 $2,112 + 7% + 6% Operating profit 490 405 396 + 21% + 2% Dispositions of subsidiary stock and investment - 15 - * * Income from continuing operations 283 245 233 + 15% + 5% Discontinued operations of QUNO, net of tax 89 33 9 + 173% + 268% Net income 372 278 242 + 34% + 15% Continuing operations before non-recurring items 277 237 233 + 17% + 2% Primary net income per share Continuing operations 2.15 1.75 1.60 + 23% + 9% Discontinued operations .73 .25 .06 + 192% + 317% Total 2.88 2.00 1.66 + 44% + 20% Continuing operations before non-recurring items 2.10 1.68 1.60 + 25% + 5% * Not meaningful
NET INCOME PER SHARE -- Primary net income per share from continuing operations in 1996 was $2.10, up 25% from $1.68 in 1995, excluding the 1995 net gain from dispositions of subsidiary stock and investment and a 1996 non-recurring gain. The improvement was mainly due to solid gains in all three business segments. In the fourth quarter of 1996, the Company recorded a non-recurring pretax gain of $10 million, or $.05 per share on a primary basis, representing the Company's equity interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station. The 5% increase in 1995 primary net income per share from continuing operations before non-recurring items was mainly due to increased television operating profit and a lower number of shares outstanding as a result of stock repurchases during 1995. Average common shares outstanding decreased 5% in 1996 and 4% in 1995. 46 OPERATING PROFIT AND REVENUES -- The following table shows consolidated operating revenues, EBITDA and operating profit by business segment.
Change (In millions) 1996 1995 1994 96-95 95-94 =========================================================================================================== Operating revenues Publishing $1,336 $1,312 $1,246 + 2% + 5% Broadcasting and Entertainment 877 829 764 + 6% + 8% Education 192 103 102 + 87% + 1% - ----------------------------------------------------------------------------------------------------------- Total operating revenues $2,405 $2,244 $2,112 + 7% + 6% - ----------------------------------------------------------------------------------------------------------- EBITDA (1) Publishing $ 362 $ 344 $ 359 + 5% - 4% Broadcasting and Entertainment (2) 246 198 168 + 24% + 18% Education 54 13 10 + 308% + 33% Corporate expenses (29) (29) (25) + 1% - 18% - ----------------------------------------------------------------------------------------------------------- Total EBITDA $ 633 $ 526 $ 512 + 20% + 3% - ----------------------------------------------------------------------------------------------------------- Operating profit Publishing $ 281 $ 270 $ 287 + 4% - 6% Broadcasting and Entertainment (2) 201 160 132 + 25% + 21% Education 39 5 3 + 760% + 62% Corporate expenses (31) (30) (26) - 4% - 15% - ----------------------------------------------------------------------------------------------------------- Total operating profit $ 490 $ 405 $ 396 + 21% + 2% - -----------------------------------------------------------------------------------------------------------
(1) EBITDA is defined as earnings before gain/loss on stock sales, interest, taxes, depreciation and amortization. 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. (2) 1996 includes the $10 million non-recurring pretax gain related to Qwest Broadcasting. As shown above, consolidated 1996 operating revenues were up 7%, or $161 million, from 1995 and 1995 revenues increased 6%, or $132 million, from 1994, with all three segments reporting gains in both years. Consolidated operating profit increased 21%, or $85 million, in 1996. Excluding the non-recurring Qwest gain in 1996, consolidated operating profit increased 18% in 1996, or $75 million, due to gains in all three business segments. Publishing was up 4% due primarily to lower newsprint costs, broadcasting and entertainment was up 19% due mainly to a full season of baseball which benefited both television and the Chicago Cubs, and education was up $34 million due to the 1996 acquisitions. Excluding the non-recurring Qwest gain, consolidated 1996 EBITDA was up $97 million, or 18%, due to gains in all three segments. Consolidated operating profit increased 2%, or $9 million, in 1995. Publishing was down $17 million due primarily to higher newsprint prices, while broadcasting and entertainment was up $28 million due mainly to higher television profits. Consolidated 1995 EBITDA was up $14 million, or 3%, due primarily to broadcasting and entertainment, which was up $30 million, or 18%. OPERATING EXPENSES -- Consolidated operating expenses were as follows:
Change (In millions) 1996 1995 1994 96-95 95-94 ============================================================================================== Cost of sales $1,172 $1,164 $1,059 + 1% + 10% Selling, general and administrative 600 554 542 + 8% + 2% Depreciation and amortization of intangible assets 143 121 115 + 18% + 5% - ---------------------------------------------------------------------------------------------- Total operating expenses $1,915 $1,839 $1,716 + 4% + 7% - ----------------------------------------------------------------------------------------------
47 The 1% increase in cost of sales in 1996 was due to the acquisitions made since mid-1995, partially offset by the dispositions. Excluding the acquisitions and dispositions, cost of sales decreased $26 million, or 2%, due to lower newsprint and ink expense and lower programming costs from the cancellation of "Charles Perez" and "The Road." Newsprint and ink expense decreased $15 million, or 6%, as average newsprint transaction prices fell 1% and consumption decreased 7%. Entertainment programming costs decreased $17 million in 1996. The 10%, or $105 million, increase in cost of sales in 1995 was due primarily to increased newsprint and ink expense and additional costs from acquisitions made since the beginning of 1994. Excluding the acquisitions, cost of sales increased $82 million, or 8%. Newsprint and ink expense rose $67 million, or 36%, as average newsprint prices increased 45%. Selling, general and administrative expense increased 8%, or $46 million, in 1996 mainly due to the acquisitions. Excluding the acquisitions and dispositions, SG&A expense increased 5%, or $24 million, in 1996 primarily due to higher development costs for Internet and other online-related publishing businesses of $19 million. SG&A expense increased 2%, or $12 million, in 1995 mainly due to the acquisitions. Excluding the acquisitions, SG&A expense remained virtually unchanged in 1995. The increase in depreciation and amortization of intangible assets in both 1996 and 1995 was principally due to acquisitions and capital expenditures. PUBLISHING OPERATING PROFIT AND REVENUES -- The following tables and discussion exclude Times Advocate Company, which was sold in July 1995. 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 publications, delivery of other publications, direct mail operations, online/electronic products and, for EBITDA and operating profit, equity losses from investments.
Change (In millions) 1996 1995 1994 96-95 95-94 ============================================================================================================= Operating revenues Daily newspapers $1,266 $1,238 $1,176 + 2% + 5% Other publications/services/development 70 66 53 + 6% + 23% - ------------------------------------------------------------------------------------------------------------- Total operating revenues $1,336 $1,304 $1,229 + 2% + 6% - ------------------------------------------------------------------------------------------------------------- EBITDA Daily newspapers $ 383 $ 350 $ 368 + 10% - 5% Other publications/services/development (21) (5) (7) - 287% + 25% - ------------------------------------------------------------------------------------------------------------- Total EBITDA $ 362 $ 345 $ 361 + 5% - 4% - ------------------------------------------------------------------------------------------------------------- Operating profit Daily newspapers $ 310 $ 281 $ 301 + 10% - 7% Other publications/services/development (29) (9) (10) - 197% + 6% - ------------------------------------------------------------------------------------------------------------- Total operating profit $ 281 $ 272 $ 291 + 4% - 7% - -------------------------------------------------------------------------------------------------------------
Publishing operating revenues increased 2%, or $32 million, in 1996 due principally to higher advertising revenues of 3%, or $27 million. Operating revenues increased 6%, or $75 million, in 1995 due principally to higher advertising revenues of 6%, or $57 million. Operating profit increased 4% in 1996 to $281 million from $272 million in 1995 due to a 10% increase at the four daily newspapers, partially offset by increased spending for the development of Internet and other online-related businesses. The daily newspapers benefited from a 6%, or $15 million, decrease in newsprint and ink expense and higher revenues. Operating profit for 1995 was down 7% to $272 million from $291 million in 1994, as gains in operating revenues were more than offset by increased expenses resulting primarily from significantly higher newsprint prices. Daily newspaper operating margins were 24.5% in 1996 compared to 22.7% in 1995 and 25.6% in 1994. The increase in 1996 was primarily due to the decrease in newsprint costs, while the decline in 1995 was mainly due to the significant increase in newsprint costs. 48 Total publishing operating revenues by classification were as follows:
Change (In millions) 1996 1995 1994 96-95 95-94 ======================================================================================= Advertising Retail $ 433 $ 447 $ 430 - 3% + 4% General 141 130 135 + 8% - 3% Classified 457 427 382 + 7% + 12% - --------------------------------------------------------------------------------------- Total advertising 1,031 1,004 947 + 3% + 6% Circulation 252 249 241 + 1% + 3% Other 53 51 41 + 3% + 26% - --------------------------------------------------------------------------------------- Total operating revenues $1,336 $1,304 $1,229 + 2% + 6% - ---------------------------------------------------------------------------------------
Advertising revenues increased in 1996 due to rate increases. The 3% decline in retail advertising revenues was mainly due to a decrease in the food and drug, hardware and department store categories, primarily in Chicago. General advertising revenues rose at all of the newspapers and climbed 8% in total due to higher advertising in the transportation, hi-tech and other categories. Classified advertising revenues also rose at each of the newspapers due primarily to increases in help wanted advertising. Advertising revenues in 1995 increased largely due to rate increases. Retail advertising revenues increased due primarily to improvements in the general merchandise category in Chicago. Classified advertising revenues rose 12% as a result of increased help wanted advertising at all of the newspapers and increased real estate advertising in Chicago and Fort Lauderdale. General advertising was down 3% in 1995 due to decreased transportation advertising in Chicago and Fort Lauderdale. The following table presents advertising linage for 1996, 1995 and 1994.
Change (Inches in thousands) 1996 1995 1994 96-95 95-94 ======================================================================================= Full run Retail 3,638 3,930 4,147 - 7% - 5% General 755 695 703 + 9% - 1% Classified 6,341 6,525 6,484 - 3% + 1% - --------------------------------------------------------------------------------------- Total full run 10,734 11,150 11,334 - 4% - 2% Part run 9,369 9,743 9,995 - 4% - 3% Preprint 8,436 8,765 8,400 - 4% + 4% - --------------------------------------------------------------------------------------- Total inches 28,539 29,658 29,729 - 4% - - ---------------------------------------------------------------------------------------
Total advertising linage decreased 4% in 1996 due to declines at all four of the newspapers. Full run retail advertising linage was down 7% due to decreases at all of the newspapers. Full run general linage increased 9% due to increases at Chicago, Fort Lauderdale and Newport News. Part run advertising linage was down 4% in 1996 due primarily to decreases in retail and classified in Chicago and retail in Orlando. Preprint advertising linage decreased 4% in 1996 due primarily to lower linage in Fort Lauderdale. Total advertising linage in 1995 was virtually unchanged from 1994. Full run retail advertising linage was down at all four of the newspapers. Part run advertising linage was down 3% in 1995 due primarily to decreases at Orlando in both retail and classified. Preprint advertising linage increased 4% in 1995 due in part to a new large customer in Chicago. Circulation revenues rose 1% in 1996 and increased 3% in 1995 due primarily to selective price increases. Total average daily circulation was down 2% in 1996 to 1,291,000 from 1,316,000 in 1995, and total average Sunday circulation was down 2% to 1,927,000 in 1996 from 1,970,000 in 1995. Total average daily circulation was down slightly in 1995 to 1,316,000 from 1,323,000 in 1994, and total average Sunday circulation also was down slightly to 1,970,000 in 1995 from 1,973,000 in 1994. 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; and other publishing-related 49 activities. The 1996 increase in other revenues was due primarily to higher advertising placement services. The 1995 increase in other revenues resulted primarily from higher advertising placement services and from the addition of RELCON, an apartment listing service acquired in January 1995. OPERATING EXPENSES -- Publishing operating expenses increased 2%, or $23 million, in 1996. This growth was due to a $22 million increase in costs associated with the development of Internet and other online-related businesses and an additional $5 million of depreciation and amortization expense at the daily newspapers. These increases were partially offset by a decline in newsprint and ink expense of 6%, or $15 million, as average newsprint prices were down 1% and consumption declined 7%. Publishing operating expenses increased 10%, or $94 million, in 1995. Newsprint and ink expense rose $69 million, or 37%, as average newsprint selling prices increased 45%. Newsprint consumption declined 5% in 1995 mainly due to lower full run and part run linage and to actions at the newspapers to reduce newsprint usage. Compensation costs rose $18 million, or 5%, with full-time equivalent employees down slightly from 1994. BROADCASTING AND ENTERTAINMENT OPERATING PROFIT AND REVENUES -- The following table presents operating revenues, EBITDA and operating profit for television, radio, entertainment/ Chicago Cubs and cable programming/development. Cable programming/development includes CLTV News and, for EBITDA and operating profit, the Company's equity income or loss from its investments in The WB Network, TV Food Network and Qwest Broadcasting. This table and the discussion that follows exclude the $10 million non-recurring Qwest gain.
Change (In millions) 1996 1995 1994 96-95 95-94 ======================================================================================================== Operating revenues Television $681 $630 $599 + 8% + 5% Radio 89 88 69 + 1% + 29% Entertainment/Chicago Cubs 98 104 92 - 5% + 13% Cable Programming/Development 9 7 4 + 19% + 51% - -------------------------------------------------------------------------------------------------------- Total operating revenues $877 $829 $764 + 6% + 8% - -------------------------------------------------------------------------------------------------------- EBITDA Television $230 $215 $189 + 7% + 14% Radio 17 15 13 + 12% + 15% Entertainment/Chicago Cubs 7 (17) (24) * + 29% Cable Programming/Development (18) (15) (10) - 17% - 42% - -------------------------------------------------------------------------------------------------------- Total EBITDA $236 $198 $168 + 19% + 18% - -------------------------------------------------------------------------------------------------------- Operating profit Television $193 $186 $162 + 4% + 15% Radio 13 11 10 + 9% + 16% Entertainment/Chicago Cubs 3 (21) (28) * + 25% Cable Programming/Development (18) (16) (12) - 15% - 39% - -------------------------------------------------------------------------------------------------------- Total operating profit $191 $160 $132 + 19% + 21% - -------------------------------------------------------------------------------------------------------- * Not meaningful
Broadcasting and entertainment revenues increased 6%, or $48 million, in 1996 from $829 million in 1995 due mainly to increases in television. Television revenues increased 8%, or $51 million, due primarily to the acquisition of stations KHTV-Houston and KSWB-San Diego and to improvements at WPIX-New York, WGN-Chicago and KWGN-Denver. Excluding the two new stations, television revenues were up 3%, or $19 million, in 1996. Entertainment/Chicago Cubs revenues decreased 5% due to lower Tribune Entertainment revenues as a result of the cancellation of "Charles Perez" and "The Road," partially offset by higher Cubs revenues due to a full season of baseball. Operating revenues increased 8%, or $65 million, in 1995 from $764 million in 1994. Television revenues were up 5%, or $31 million, with strong growth at all of the Company's stations except KTLA-Los Angeles and KWGN-Denver, which declined due to soft advertising markets. The largest increases were reported by WGN-Chicago, WPIX-New York and WPHL-Philadelphia. Television revenues include those of WLVI-Boston, acquired in 50 April 1994. Excluding WLVI-Boston, television revenues were up 4%, or $25 million, in 1995. Radio revenues include those of Farm Journal Inc., acquired in June 1994. Excluding Farm Journal, radio revenues were up 4%. Entertainment/ Chicago Cubs revenues were up 13% in 1995 as a result of higher Cubs revenues and more shows in syndication. Cubs revenues in 1994 and 1995 were impacted by the Major League Baseball strike that affected both the 1994 and 1995 seasons. Broadcasting and entertainment operating profit was up 19% in 1996 to a record $191 million. The increase was due primarily to improvements at the Chicago Cubs, Tribune Entertainment and in television. The Chicago Cubs benefited from a full season of baseball in 1996 and Tribune Entertainment improved due to the cancellation of the "Charles Perez" syndicated program. Television operating profit increased 4%, or $7 million, due primarily to the addition of the two new stations and improvements at WGN-Chicago and WPIX-New York. Excluding the acquisitions, television operating profit was up 2%. Operating profit was up 21%, or $28 million, in 1995 to $160 million due primarily to a 15%, or $24 million, increase in television and a 25%, or $7 million, improvement in entertainment/Chicago Cubs. Entertainment results in 1994 were significantly impacted by programming and development costs recorded for "The Road," a program canceled in 1995. These improvements were partially offset by equity losses from the Company's investment in The WB Network. OPERATING EXPENSES -- Broadcasting and entertainment operating expenses increased 3%, or $18 million, in 1996 due primarily to the acquisition of television stations KHTV-Houston and KSWB-San Diego. Excluding the acquisitions, operating expenses were down 2%, or $11 million, due to lower expenses at Tribune Entertainment from the cancellation of "Charles Perez" and "The Road," offset partially by a $3 million increase in television broadcast rights amortization and higher equity losses from The WB Network. Broadcasting and entertainment operating expenses increased 6%, or $37 million, in 1995 due primarily to the 1994 acquisitions of Farm Journal and WLVI-Boston, equity losses from The WB Network, and increased Chicago Cubs expenses as more games were played in 1995. These increases were partially offset by a reduction in programming and development costs for "The Road." Excluding WLVI-Boston, Farm Journal and the Cubs, total operating expenses for the group were up $7 million, or 1%. EDUCATION OPERATING PROFIT AND REVENUES -- The following table and discussion excludes Compton's NewMedia, which was sold in December 1995. The following table presents operating revenues, EBITDA and operating profit for the education segment. Change (In millions) 1996 1995 1994 96-95 95-94 ======================================================================== Operating revenues $192 $77 $59 + 151% + 29% EBITDA 54 22 18 + 149% + 21% Operating profit 39 17 14 + 136% + 21% Education revenues are derived from publishing supplemental and curriculum education materials and adult education and trade books. Education operating revenues were up 151% to $192 million from $77 million in 1995 due primarily to the acquisitions of Everyday Learning, Educational Publishing and NTC Publishing and growth in the existing business units. Excluding the acquisitions and Compton's, revenues were up 9%, or $6 million, in 1996. Education operating revenues in 1995 increased 29%, to $77 million in 1995 from $59 million in 1994. This increase was due to growth at both The Wright Group and Contemporary Books and to the acquisition of Everyday Learning. Excluding Everyday Learning, revenues were up 25% in 1995. Education operating profit was $39 million in 1996, up $22 million from $17 million in 1995, and EBITDA increased $32 million to $54 million in 1996. The improvements were due to the acquisitions. In 1995, education operating profit was up 21% to $17 million, and EBITDA increased 21% to $22 million. The increases were due to improvements at The Wright Group and Contemporary Books, offset partially by losses at Everyday Learning. Everyday Learning's revenues are highly seasonal and substantially all of its profits are earned in the summer months, which was prior to its acquisition by the Company. OPERATING EXPENSES -- Education expenses were up 155%, or $93 million, in 1996 primarily due to the recent acquisitions. Excluding the acquisitions, operating expenses were up 13%, or $8 million, as a result of higher sales and expenses for a new warehouse/distribution facility at The Wright Group. Education expenses were up 32% to $60 million in 1995 and $46 million in 1994 due mainly to higher sales volume and the acquisitions of The Wright Group in 1994 and Everyday Learning in 1995. 51 DISCONTINUED OPERATIONS (QUNO CORPORATION) Income from discontinued operations of QUNO, net of tax, in 1995 was $32.7 million, or $.25 per share compared with $8.9 million, or $.06 per share, in 1994. Excluding the $13 million gain on the April 1994 QUNO stock sale, there was a loss from discontinued operations of $4.1 million, or $.03 per share in 1994. The improvement in 1995 was mainly due to increased newsprint prices and higher sales volume. QUNO's average newsprint selling prices increased 47% in 1995, and newsprint shipments were up 6%. INTEREST INCOME AND EXPENSE The components of net interest expense were as follows: Change (In millions) 1996 1995 1994 96-95 95-94 ============================================================================== Interest income $ 32 $ 14 $ 16 + 122% - 8% Interest expense (48) (21) (21) + 119% + 6% - ------------------------------------------------------------------------------ Net interest expense $ (16) $ (7) $ (5) + 113% + 54% - ------------------------------------------------------------------------------ Interest income consists primarily of interest on The Learning Company and Qwest Broadcasting convertible debentures, a mortgage note receivable from a real estate affiliate (repaid in October, 1996) and short-term marketable securities. Interest income increased 122% in 1996 mainly due to the addition of the convertible debentures at the end of 1995. Interest expense increased 119% in 1996 due to higher average debt levels resulting from acquisitions and stock repurchases. Average debt levels increased $412 million in 1996 to $913 million. Outstanding debt increased to $1.0 billion at year-end 1996 from $786 million at the end of 1995. Interest expense increased 6% in 1995 due to higher average debt levels. Average debt levels increased $13 million in 1995 to $501 million. Outstanding debt increased to $786 million at year-end 1995 from $439 million at the end of 1994. ................................................................................ LIQUIDITY AND CAPITAL RESOURCES ................................................................................ Cash flow generated from operations is the Company's primary source of liquidity. Net cash provided by operations was $342 million in 1996 and $394 million in 1995. The reduction was mainly due to the payment of taxes on the sale of QUNO and changes in working capital. 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 or stock. Net cash used for investments totaled $151 million in 1996 compared to $393 million in 1995. In 1996, the Company spent $501 million for acquisitions, including Educational Publishing, NTC Publishing and television stations KHTV-Houston and KSWB-San Diego, and $72 million for investments. Capital spending totaled $93 million in 1996. Gross proceeds from the sale of QUNO of $427 million and from the repayment of a mortgage note receivable of $83 million partially offset these expenditures. Net cash provided from financing activities was $61 million in 1996. Proceeds from the issuance of long-term debt and the sale of stock to employees were partially offset by purchases of treasury stock, dividends and repayments of long-term debt. In 1996, the Company issued $470 million of medium-term notes with an average interest rate of 6.6% and repurchased 4.5 million shares of its common stock for $148 million. At December 29, 1996, the Company had authorization to repurchase an additional 5 million shares. Dividends on common and preferred shares were $92 million in 1996. Dividends on common stock increased 7% in 1996 to $.60 per share. At December 29, 1996, the Company had no commercial paper outstanding. The Company has revolving credit agreements with banks in the aggregate amount of $1.2 billion that extend to December 31, 2001. These agreements are fully available to support the issuance of commercial paper. The Company's cash balance at December 29, 1996 was $274 million. In the first quarter of 1997, the Company expects to complete its acquisition of Renaissance Communications Corp. for approximately $1.1 billion in cash. In the third quarter of 1996, the Company's debt ratings were downgraded due to the anticipated financing of this acquisition. The rating changes are not likely to significantly restrict the Company's ability to borrow funds or materially affect the cost of those funds. The Company intends to finance this acquisition using available cash, medium- to long-term borrowings and commercial paper. In December 1996, the Company filed a shelf registration and prospectus supplement with the Securities and Exchange Commission relating to the offer and sale from time to time of up to $500 million principal amount of the Company's Medium-Term Notes, Series E. Funds borrowed under this issue will be used for general corporate purposes, including the funding of acquisitions. Capital spending for 1997 is expected to total approximately $135 million for a variety of normal replacement projects, as well as for press enhancement and pagination projects at the newspapers and the purchase of digital equipment at the television stations. 52
Tribune Company and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (In thousands of dollars, except per share data) Year Ended Dec. 29, 1996 Dec. 31, 1995 Dec. 25, 1994 =============================================================================================================================== OPERATING Publishing REVENUES Advertising $1,031,026 $1,010,782 $ 961,694 Circulation 252,263 249,860 242,993 Other 53,350 52,125 41,690 ------------------------------------------------------------------------------------------------------------ Total 1,336,639 1,312,767 1,246,377 Broadcasting and Entertainment 876,750 828,806 764,197 Education 192,316 103,101 102,082 ------------------------------------------------------------------------------------------------------------ Total operating revenues 2,405,705 2,244,674 2,112,656 - ------------------------------------------------------------------------------------------------------------------------------- OPERATING Cost of sales (exclusive of items shown below) 1,172,664 1,164,609 1,059,306 EXPENSES Selling, general and administrative 600,072 553,868 541,350 Depreciation and amortization of intangible assets 142,893 120,986 115,375 ------------------------------------------------------------------------------------------------------------ Total operating expenses 1,915,629 1,839,463 1,716,031 - ------------------------------------------------------------------------------------------------------------------------------- OPERATING PROFIT 490,076 405,211 396,625 Dispositions of subsidiary stock and investment - 14,672 - Interest income 32,116 14,465 15,807 Interest expense (47,779) (21,814) (20,585) - ------------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 474,413 412,534 391,847 Income taxes (191,663) (167,076) (158,698) - ------------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 282,750 245,458 233,149 DISCONTINUED OPERATIONS OF QUNO, NET OF TAX 89,317 32,707 8,898 - ------------------------------------------------------------------------------------------------------------------------------- NET INCOME 372,067 278,165 242,047 Preferred dividends, net of tax (18,786) (18,841) (18,574) - ------------------------------------------------------------------------------------------------------------------------------- NET INCOME ATTRIBUTABLE TO COMMON SHARES $ 353,281 $ 259,324 $ 223,473 - ------------------------------------------------------------------------------------------------------------------------------- NET INCOME PER SHARE Primary: Continuing operations $ 2.15 $ 1.75 $ 1.60 Discontinued operations .73 .25 .06 ------------------------------------------------------------------------------------------------------------ Net income $ 2.88 $ 2.00 $ 1.66 ------------------------------------------------------------------------------------------------------------ Fully Diluted: Continuing operations $ 1.97 $ 1.61 $ 1.48 Discontinued operations .65 .23 .06 ------------------------------------------------------------------------------------------------------------ Net income $ 2.62 $ 1.84 $ 1.54 ------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Financial Statements. 53
CONSOLIDATED BALANCE SHEETS ASSETS (In thousands of dollars, except share data) Dec. 29, 1996 Dec. 31, 1995 ====================================================================================================================== CURRENT ASSETS Cash and short-term investments $ 274,170 $ 22,899 Accounts receivable (less allowances of $34,406 and $30,154) 350,773 296,363 Inventories 80,525 45,348 Broadcast rights 154,904 163,339 Prepaid expenses and other 26,349 17,651 ----------------------------------------------------------------------------------------------------- Total current assets 886,721 545,600 - ---------------------------------------------------------------------------------------------------------------------- INVESTMENT IN AND ADVANCES TO QUNO (see Note 2) - 356,925 - ---------------------------------------------------------------------------------------------------------------------- PROPERTIES Machinery, equipment and furniture 965,739 886,601 Buildings and leasehold improvements 377,682 355,369 ----------------------------------------------------------------------------------------------------- 1,343,421 1,241,970 Accumulated depreciation (813,501) (725,995) ----------------------------------------------------------------------------------------------------- 529,920 515,975 Land 56,951 55,849 Construction in progress 55,837 68,922 ----------------------------------------------------------------------------------------------------- Net properties 642,708 640,746 - ---------------------------------------------------------------------------------------------------------------------- OTHER ASSETS Broadcast rights 173,552 194,038 Intangible assets (less accumulated amortization of $232,557 and $197,090) 1,251,470 795,856 Investments 629,129 549,735 Mortgage note receivable from affiliate - 82,599 Other 117,320 122,756 ----------------------------------------------------------------------------------------------------- Total other assets 2,171,471 1,744,984 ----------------------------------------------------------------------------------------------------- Total assets $3,700,900 $3,288,255 ----------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
54
Tribune Company and Subsidiaries LIABILITIES AND SHAREHOLDERS' EQUITY Dec. 29, 1996 Dec. 31, 1995 ====================================================================================================================== CURRENT Long-term debt due within one year $ 31,073 $ 28,665 LIABILITIES Accounts payable 119,605 112,357 Employee compensation and benefits 98,331 107,755 Contracts payable for broadcast rights 178,589 164,443 Deferred income 51,591 43,961 Income taxes 83,467 8,401 Accrued liabilities 110,445 91,571 ----------------------------------------------------------------------------------------------------- Total current liabilities 673,101 557,153 - ---------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT (less portions due within one year) 979,754 757,437 - ---------------------------------------------------------------------------------------------------------------------- OTHER Deferred income taxes 189,673 223,756 NON-CURRENT Contracts payable for broadcast rights 209,754 225,771 LIABILITIES Compensation and other obligations 109,112 144,229 ----------------------------------------------------------------------------------------------------- Total other non-current liabilities 508,539 593,756 - ---------------------------------------------------------------------------------------------------------------------- COMMITMENTS (see Note 11) - - - ---------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' Series B convertible preferred stock (without par value) EQUITY Authorized: 1,600,000 shares Issued and outstanding: 1,425,842 shares in 1996 and 1,471,795 shares in 1995 (liquidation value $220 per share) 312,470 322,540 Common stock (without par value) Authorized: 400,000,000 shares; 163,543,316 shares issued 1,018 1,018 Additional paid-in capital 149,861 126,796 Retained earnings 2,210,024 1,930,380 Treasury stock (at cost) 40,598,300 shares in 1996 and 38,439,618 shares in 1995 (1,034,012) (923,828) Unearned compensation related to ESOP (218,668) (247,281) Cumulative translation adjustment - (19,188) Unrealized gain on investments 118,813 189,472 ----------------------------------------------------------------------------------------------------- Total shareholders' equity 1,539,506 1,379,909 ----------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $3,700,900 $3,288,255 ----------------------------------------------------------------------------------------------------- 55
Tribune Company and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) Dec. 29, 1996 Dec. 31, 1995 Dec. 25, 1994 =============================================================================================================================== OPERATIONS Net income $ 372,067 $ 278,165 $ 242,047 Adjustments to reconcile net income to net cash provided by operations: Discontinued operations of QUNO, net of tax (89,317) (32,707) (8,898) Dispositions of subsidiary stock and investment - (14,672) - Depreciation and amortization of intangible assets 142,893 120,986 115,375 Deferred income taxes (24,503) (883) (803) Losses on equity investments 13,281 13,209 9,739 (Increase) decrease in working capital items excluding effects from acquisitions: Accounts receivable (34,917) 20,455 (18,999) Inventories, prepaid expenses and other current assets (12,920) (15,585) (593) Accounts payable, employee compensation and benefits, deferred income and accrued liabilities 3,653 10,678 37,655 Income taxes (20,298) (13,939) (36,457) Decrease in broadcast rights net of current and long-term contracts payable 7,554 20,998 20,319 Other, net (15,962) 6,962 9,402 --------------------------------------------------------------------------------------------------------------- Net cash provided by operations 341,531 393,667 368,787 - ------------------------------------------------------------------------------------------------------------------------------- INVESTMENTS Capital expenditures (93,324) (117,863) (91,626) Acquisitions (501,375) (39,817) (138,477) Investments (72,127) (271,939) (24,186) Proceeds from sale of QUNO 426,828 - 94,936 Proceeds from mortgage note receivable from affiliate 83,313 - - Proceeds from dispositions of subsidiary stock and investment - 32,729 - Other, net 5,840 4,291 (12,039) --------------------------------------------------------------------------------------------------------------- Net cash used for investments (150,845) (392,599) (171,392) - ------------------------------------------------------------------------------------------------------------------------------- FINANCING Proceeds from issuance of long-term debt 470,000 383,876 - Repayments of long-term debt (219,803) (12,826) (77,100) Sale of common stock to employees, net 51,256 40,794 20,410 Purchase of treasury stock (148,445) (314,667) (49,080) Dividends (92,423) (91,202) (88,325) Redemption of preferred stock - (5,968) - --------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing 60,585 7 (194,095) - ------------------------------------------------------------------------------------------------------------------------------- NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS 251,271 1,075 3,300 Cash and short-term investments at the beginning of year 22,899 21,824 18,524 --------------------------------------------------------------------------------------------------------------- Cash and short-term investments at the end of year $ 274,170 $ 22,899 $ 21,824 - ------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL Cash paid for: CASH FLOW Interest (net of amounts capitalized) $ 44,324 $ 20,646 $ 20,957 INFORMATION Income taxes $ 206,371 $ 165,675 $ 175,965 --------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
56
Tribune Company and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Series B Stock and Treasury Stock Convertible Additional ------------------ Unearned Cumulative Unrealized (In thousands, Preferred Paid-In Retained Amount Compensation Translation Gain on except per share data) Stock Capital(1) Earnings Shares - at cost (ESOP) Adjustment Investments Total =================================================================================================================================== BALANCE AT DECEMBER 26, 1993 $335,532 $106,837 $1,589,695 (29,582) $(607,332) $(298,969) $(30,136) - $1,095,627 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 242,047 242,047 Translation adjustment (2) 9,461 9,461 Unrealized gain on investments 77,972 77,972 Redemptions of convertible preferred stock (6,246) 1,589 228 4,657 - Dividends declared Common-$.52/share (69,907) (69,907) Preferred-$17.05/share (25,619) (25,619) Tax benefit on dividends paid to the ESOP (3) 7,201 7,201 Repayment of ESOP debt 24,868 24,868 Purchase of treasury stock (1,894) (49,080) (49,080) Shares issued under option and stock plans 5,216 1,806 36,467 41,683 Stock tendered as payment for options exercised (698) (21,273) (21,273) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 25, 1994 329,286 113,642 1,743,417 (30,140) (636,561) (274,101) (20,675) 77,972 1,332,980 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 278,165 278,165 Translation adjustment 1,487 1,487 Change in unrealized gain 111,500 111,500 Redemptions of convertible preferred stock (6,746) 171 28 607 (5,968) Dividends declared Common-$.56/share (72,524) (72,524) Preferred-$17.05/share (25,094) (25,094) Tax benefit on dividends paid to the ESOP (3) 6,416 6,416 Repayment of ESOP debt 26,820 26,820 Purchase of treasury stock (10,378) (314,667) (314,667) Shares issued under option and stock plans 14,001 3,936 86,018 100,019 Stock tendered as payment for options exercised (1,886) (59,225) (59,225) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 322,540 127,814 1,930,380 (38,440) (923,828) (247,281) (19,188) 189,472 1,379,909 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 372,067 372,067 Translation adjustment (2) 19,188 19,188 Change in unrealized gain (70,659) (70,659) Redemptions of convertible preferred stock (10,070) 1,120 368 8,950 - Dividends declared Common-$.60/share (73,742) (73,742) Preferred-$17.05/share (24,311) (24,311) Tax benefit on dividends paid to the ESOP (3) 5,630 5,630 Repayment of ESOP debt 28,613 28,613 Purchase of treasury stock (4,531) (148,445) (148,445) Shares issued under option and stock plans 21,945 3,410 82,243 104,188 Stock tendered as payment for options exercised (1,405) (52,932) (52,932) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 29, 1996 $312,470 $150,879 $2,210,024 (40,598)$(1,034,012) $(218,668) - $118,813 $1,539,506 - ----------------------------------------------------------------------------------------------------------------------------------- (1) Issued shares of common stock totaled 163,543,316 for all dates presented. (2) Includes write-offs of the cumulative translation adjustment related to the sale of QUNO common stock in 1994 and 1996. (3) Excludes the tax benefit on allocated preferred shares held by the ESOP, which is credited to income tax expense. See Notes to Consolidated Financial Statements. 57
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 and reflect practices appropriate to the businesses in which they operate. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. Certain prior year amounts have been reclassified to conform with the 1996 presentation. All share and per share data has been restated to reflect a two-for-one common stock split effective January 15, 1997. ................................................................................ NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ................................................................................ FISCAL YEAR -- The Company's fiscal year ends on the last Sunday in December. Fiscal years 1996 and 1994 comprised 52 weeks. Fiscal year 1995 comprised 53 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 joint ventures 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. SHORT-TERM INVESTMENTS -- Short-term investments are stated at cost, which approximates market value. For purposes of the consolidated statements of cash flows, investments with maturities of three months or less at the time of purchase are considered to be cash equivalents. 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. Broadcast rights that have limited showings are generally amortized using an accelerated method as programs are aired. Those with unlimited showings are amortized on a straight-line basis over the contract period. 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 ranging from 3 to 40 years, with the majority being amortized over 40 years. 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 value of intangibles periodically in relation to the projected future undiscounted cash flows of the related businesses. PENSION PLANS -- The Company contributes to pension plans that provide retirement benefits for substantially all employees. These plans are 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. 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. All of these investments have been classified as available for sale. The difference between cost and fair value, net of related tax effects, is recorded in a separate component of shareholders' equity. 58 STOCK-BASED COMPENSATION -- The Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25 and related Interpretations. In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which requires either recording the estimated fair value of stock-based compensation over the applicable vesting period in the financial statements or disclosing the unrecorded pro forma effect on net income in the Notes to the Financial Statements. The Company has chosen not to change its method of accounting for stock-based compensation plans and has included the required pro forma disclosures in Note 14. This standard does not apply to employee stock ownership plans. NET INCOME PER SHARE -- Primary net income per share is computed by dividing net income attributable to common shares by the weighted average number of common shares outstanding during the period. Fully diluted net income per share is computed based on the assumption that all of the convertible preferred shares are converted into common shares. For purposes of calculating fully diluted net income per share, net income is reduced by the additional Employee Stock Ownership Plan ("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. The numbers of common shares used in the computations of primary and fully diluted net income per share were as follows: (In thousands) 1996 1995 1994 =========================================================== Primary 122,842 129,580 134,426 Fully diluted 136,653 143,012 148,146 ................................................................................ NOTE 2: DISCONTINUED OPERATIONS (QUNO CORPORATION) ................................................................................ In March 1996, the Company completed the sale of its holdings in QUNO Corporation, a Canadian newsprint company, as part of QUNO's merger with Donohue Inc. The Company owned approximately 34% of QUNO's common stock plus $138.8 million in convertible debt. The sale resulted in a 1996 after-tax gain of $89.3 million, or $.73 per share on a primary basis. The gross proceeds from the sale were approximately $427 million in cash, Donohue stock and short-term notes. Immediately after the sale, the Company sold the Donohue stock and notes for cash. After-tax proceeds were approximately $331 million. QUNO was a wholly owned subsidiary of the Company until February 1993, when QUNO completed an initial public offering of 9 million shares of common stock. This reduced the Company's ownership to 59% and its voting interest to 49%. In April 1994, the Company reduced its ownership holdings in QUNO to 34% by selling 5.5 million shares of QUNO common stock. The sale of the shares resulted in an after-tax gain in 1994 of $13 million, or $.10 per share on a primary basis. The Company's consolidated financial statements reflect the 1996 and 1994 gains on the sale of QUNO stock, equity earnings from QUNO and interest income from the QUNO convertible debenture, net of income tax, as discontinued operations. Income tax expense related to discontinued operations was $82.7 million in 1996, $5.1 million in 1995 and $28.0 million in 1994. QUNO's sales of newsprint to the Company's newspapers, at market prices, were $161.4 million in 1995 and $112.8 million in 1994, which represented 66% and 67% of their total newsprint consumption, respectively. ................................................................................ NOTE 3: CHANGES IN OPERATIONS AND NON-RECURRING ITEMS ................................................................................ ACQUISITIONS -- The Company recorded acquisitions totaling $501.4 million in 1996, $39.8 million in 1995 and $138.5 million in 1994. These acquisitions were accounted for as purchases. The intangible assets recorded on these acquisitions are being amortized on a straight-line basis over periods from 3 to 40 years. The results of these operations are included in the consolidated statements of income from their respective dates of acquisition. In January 1996, the Company acquired Houston television station KHTV for approximately $102 million in cash. In February 1996, the Company acquired the remaining minority interest in Philadelphia television station WPHL for approximately $23 million in cash. In March 1996, the Company acquired Educational Publishing Corporation and NTC Publishing Group. Educational Publishing, purchased for $205 million in cash, 59 publishes supplemental and curriculum education materials. NTC Publishing was acquired for $83 million in cash and publishes trade books and educational products in print, audio and multimedia formats for the foreign language, English as a second language and language arts markets. In April 1996, the Company acquired San Diego television station KSWB for $72 million in cash. In August 1995, the Company acquired Everyday Learning Corporation for $25 million in cash. In February 1994, the Company acquired The Wright Group for $96 million in cash. In April 1994, the Company acquired Boston television station WLVI for $25 million in cash. In June 1994, the Company acquired Farm Journal Inc. for $17.5 million in cash. Supplemental cash flow information for acquisitions in 1996, 1995 and 1994 is summarized as follows: (In thousands) 1996 1995 1994 ============================================================================= Fair value of assets acquired (1) $547,044 $ 45,903 $183,668 Liabilities assumed (45,669) (6,086) (45,191) - ----------------------------------------------------------------------------- Net cash paid $501,375 $ 39,817 $138,477 - ----------------------------------------------------------------------------- (1) Net of acquisition-related deferred taxes. In the first quarter of 1997, the Company expects to complete its acquisition of Renaissance Communications Corp., a publicly traded company owning six television stations, for approximately $1.1 billion in cash. The stations to be acquired consist of KDAF-Dallas, WDZL-Miami, KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The transaction is subject to various closing conditions, including Federal Communications Commission approval. The FCC is reviewing a cross-ownership issue relating to the Miami station and the Company's Fort Lauderdale Sun-Sentinel. Depending on the outcome of such review, the Miami television station may need to be divested. INVESTMENTS -- In 1996, 1995 and 1994, respectively, the Company invested cash of $72.1 million, $271.9 million and $24.2 million in several companies. The 1996 investments included $18 million in The WB Network, $15 million in Digital City, Inc., $10 million in The Lightspan Partnership, Inc. and $7 million in Excite, Inc. The 1995 investments included $150 million in The Learning Company, Inc. convertible notes, $70 million in Qwest Broadcasting LLC and $8 million in The WB Network. The Company's current investment in Qwest Broadcasting is composed of a $9 million equity interest (33%) and $67 million in convertible notes and accrued interest. The notes bear interest at 6%, are convertible into an additional 47% interest and may only be converted when and if FCC regulations permit such conversion. In December 1995, Qwest Broadcasting acquired television stations in Atlanta (WATL) and New Orleans (WNOL) for approximately $167 million. DISPOSITIONS -- In December 1995, the Company sold Compton's NewMedia to The Learning Company for $123.5 million of The Learning Company common stock. In connection with the Compton's sale, the Company also invested $150 million in The Learning Company in exchange for five-year, 5.5% notes, convertible into common stock at $53 per share. The notes were recorded at $100 million, representing their estimated fair value at the time of the transaction. The $50 million difference between fair value and face value is being amortized into interest income over the five-year term of the notes, with an effective interest rate of 15.5%. These transactions resulted in a pretax gain of $6.9 million, or $.03 per share on a primary basis. Compton's operating results included in the consolidated statements of income were operating revenues of $26.4 million and $42.8 million in 1995 and 1994, respectively, and operating losses of $12.1 million and $11.0 million in 1995 and 1994. In July 1995, the Company sold Times Advocate Company, a California newspaper subsidiary, for approximately $16 million in cash. The sale resulted in a pretax loss of $7.5 million, or $.03 per share. Times Advocate operating results included in the consolidated statements of income were revenues of $8.5 million and $17.5 million in 1995 and 1994, and operating losses of $1.4 million and $3.2 million in 1995 and 1994, respectively. In March 1995, the Company sold shares of America Online common stock for approximately $17 million. The sale resulted in a pretax gain of $15.3 million, or $.07 per share. OTHER -- In the fourth quarter of 1996, the Company recorded in operating profit a non-recurring pretax gain of $10 million, or $.05 per share, representing the Company's equity interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station. 60 ................................................................................ NOTE 4: INVESTMENTS ................................................................................ Investments, excluding QUNO, consisted of the following:
(In thousands) Dec. 29, 1996 Dec. 31, 1995 ============================================================================================================= Cost method investments $336,707 $343,345 Equity method investments 72,009 31,878 Debt securities 220,413 174,512 - ------------------------------------------------------------------------------------------------------------- Total investments $629,129 $549,735 - -------------------------------------------------------------------------------------------------------------
At December 29, 1996 the Company's cost and equity method investments consisted primarily of the following:
Cost Method Investments Equity Method Investments - ----------------------------------------------------------------------- ----------------------------- Public % Private % Private % Companies Owned Companies Owned Companies Owned ======================================================================= ============================= America Online, Inc. 4% iVillage 12% Digital City, Inc. 20% CheckFree Corporation 6% The Lightspan Partnership, Inc. 5% ImageBuilder Software 23% Excite, Inc. 7% Mercury Mail, Inc. 13% Interealty 25% The Learning Company, Inc. 12% Peapod LP 13% Qwest Broadcasting 33% Open Market, Inc. 6% TV Food Network 31% StarSight Telecast, Inc. 4% The WB Network 12.5%
For investments recorded at fair value under SFAS No. 115, the aggregate cost basis, net unrealized gain and fair value were as follows:
December 29, 1996 December 31, 1995 Cost Unrealized Fair Cost Unrealized Fair (In thousands) Basis Gain Value Basis Gain Value ====================================================================================================================== Marketable equity securities $160,660 $151,695 $312,355 $146,040 $188,716 $334,756 Debt securities 176,611 43,802 220,413 174,512 - 174,512 QUNO debenture - - - 138,757 121,891 260,648
At December 29, 1996 the net unrealized gain on marketable equity securities included a $47 million unrealized loss on The Learning Company common stock investment. The Company believes this loss was temporary at December 29, 1996. The difference between cost and fair value, net of related tax effects, is recorded in a separate component of shareholders' equity and amounted to a net gain of $118.8 million at December 29, 1996 and $189.5 million at December 31, 1995. 61 ................................................................................ NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS ................................................................................ Estimated fair values and carrying amounts of the Company's financial instruments were as follows:
December 29, 1996 December 31,1995 Fair Carrying Fair Carrying (In thousands) Value Amount Value Amount =============================================================================================================== Cost method investments: Practicable to estimate fair value $340,011 $331,413 $345,620 $340,766 Not practicable - 5,294 - 2,579 Debt securities 220,413 220,413 174,512 174,512 QUNO debenture - - 260,648 260,648 Mortgage note receivable - - 89,070 83,313 Debt 1,039,385 1,010,827 847,577 786,102 Contracts payable for broadcast rights 350,498 388,343 349,845 390,214
The following methods and assumptions were used to estimate the fair value of each category of financial instruments. COST METHOD INVESTMENTS, DEBT SECURITIES AND QUNO DEBENTURE -- Cost method investments in public companies, debt securities and the QUNO debenture were recorded at fair value in the consolidated balance sheets (see Notes 1 and 4). Cost method investments in private companies were recorded at cost, and fair value was generally estimated based on prices recently paid for shares in that company. For several investments, it was not practicable to estimate fair value. MORTGAGE NOTE RECEIVABLE -- Fair value was estimated using the discounted cash flow method. 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. CONTRACTS PAYABLE FOR BROADCAST RIGHTS -- Fair value was estimated using the discounted cash flow method. ................................................................................ NOTE 6: INVENTORIES ................................................................................ Inventories consisted of the following: (In thousands) Dec. 29, 1996 Dec. 31, 1995 ========================================================= Finished goods $60,341 $21,638 Newsprint (at LIFO) 10,186 12,473 Supplies and other 9,998 11,237 - --------------------------------------------------------- Total inventories $80,525 $45,348 - --------------------------------------------------------- Newsprint inventories are valued under the LIFO method and were less than current cost by approximately $11.4 million at December 29, 1996, $12.8 million at December 31, 1995 and $8.0 million at December 25, 1994. Finished goods primarily include books and supplementary educational materials. ................................................................................ NOTE 7: MORTGAGE NOTE RECEIVABLE FROM AFFILIATE ................................................................................ In October 1996, the Company received $83 million as prepayment of a mortgage note receivable from an affiliate. The Company held the mortgage note on a building in which the Company had an equity interest. The note had an interest rate of 13% plus contingent interest based upon the building's cash flow and appreciation. 62 ................................................................................ NOTE 8: 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 December 29, 1996 are: $178.6 million in 1997, $111.5 million in 1998, $67.6 million in 1999, $19.0 million in 2000, $5.9 million in 2001 and $5.7 million thereafter. ................................................................................ NOTE 9: LONG-TERM DEBT ................................................................................ Long-term debt consisted of the following: (In thousands) Dec. 29, 1996 Dec. 31, 1995 =============================================================================== Promissory notes, weighted average interest rate of 5.7% in 1995 $ - $208,718 Medium-term notes, weighted average interest rate of 6.6%, due 1996-2006 667,300 307,300 6.25% notes due 2026, putable to the Company at par in 2001 100,000 - 8.4% guaranteed ESOP notes, due 1996-2003 210,606 235,648 8.19% guaranteed ESOP note, due 1996-1998 8,062 11,633 Other notes and obligations 24,859 22,803 - ------------------------------------------------------------------------------- Total debt 1,010,827 786,102 Less portions due within one year (31,073) (28,665) - ------------------------------------------------------------------------------- Long-term debt $ 979,754 $757,437 - ------------------------------------------------------------------------------- The Company has issued all of its $200 million Series B medium-term notes and $500 million Series C medium-term notes. These notes have maturities from 2 to 10 years and may not be redeemed by the Company prior to maturity. In 1996, the Company began offering up to $500 million of its Series D medium-term notes, of which $350 million were issued and outstanding at December 29, 1996. As part of the Series D medium-term note program, the Company sold $100 million of 6.25% notes that mature in 2026. These notes may be put back to the Company in 2001 at 100% of the principal amount, plus accrued interest. The proceeds from the sale of the notes have been used for general corporate purposes, including the funding of acquisitions. The notes issued by the Company's ESOP are unconditionally guaranteed by the Company as to payment of principal and interest. 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. Certain debt agreements limit the amount of secured debt the Company can incur without equally and ratably securing additional borrowings under those agreements. In 1997, the Company intends to refinance $31.0 million of Series B medium-term notes scheduled to mature in 1997 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 banks in an aggregate amount of $1.2 billion, extending to December 31, 2001, which are fully available to support the issuance of promissory notes. These agreements contain various interest rate options and provide for annual fees based on a percentage of the commitment. Such fees totaled approximately $.5 million in 1996, 1995 and 1994. Debt at December 29, 1996 matures as follows: $31.1 million in 1997, $34.7 million in 1998, $59.7 million in 1999, $78.2 million in 2000, $165.1 million in 2001 and $642.0 million thereafter. 63 ................................................................................ NOTE 10: INCOME TAXES ................................................................................ The following is a reconciliation of income taxes computed at the U.S. federal statutory rate to income taxes from continuing operations reported in the consolidated statements of income:
(In thousands) 1996 1995 1994 ====================================================================================================================== Income from continuing operations before income taxes $474,413 $412,534 $391,847 - ---------------------------------------------------------------------------------------------------------------------- Federal income taxes at 35% $166,045 $144,387 $137,146 State and local income taxes, net of federal tax benefit 27,747 24,344 24,000 Other (2,129) (1,655) (2,448) - ---------------------------------------------------------------------------------------------------------------------- Income taxes reported $191,663 $167,076 $158,698 Effective tax rate 40.4% 40.5% 40.5% - ----------------------------------------------------------------------------------------------------------------------
Components of income tax expense charged to income from continuing operations were as follows:
(In thousands) 1996 1995 1994 ====================================================================================================================== Currently payable: U.S. federal $165,169 $137,420 $135,145 State and local 47,491 37,389 37,390 - ---------------------------------------------------------------------------------------------------------------------- 212,660 174,809 172,535 - ---------------------------------------------------------------------------------------------------------------------- Deferred: U.S. federal (18,360) (7,617) (10,380) State and local (2,637) (116) (3,457) - ---------------------------------------------------------------------------------------------------------------------- (20,997) (7,733) (13,837) - ---------------------------------------------------------------------------------------------------------------------- Total $191,663 $167,076 $158,698 - ----------------------------------------------------------------------------------------------------------------------
Significant components of the Company's net deferred tax liabilities were as follows:
(In thousands) Dec. 29, 1996 Dec. 31, 1995 ====================================================================================================================== Net properties $ 84,807 $ 87,956 Net intangible assets 103,268 58,483 Pensions 8,849 9,226 Unrealized gain on investments 76,684 74,024 Investment in QUNO - 59,792 Other investments 7,634 12,146 Other future taxable items 7,310 7,102 - ---------------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities 288,552 308,729 - ---------------------------------------------------------------------------------------------------------------------- Broadcast rights (15,538) (20,211) Postretirement and postemployment benefits other than pensions (20,132) (19,646) Deferred compensation (20,759) (26,733) Disposition of New York Daily News (12,905) (6,448) Other accrued liabilities (18,047) (18,100) Accrued employee compensation and benefits (18,831) (19,012) Federal benefit on deferred state taxes (23,517) (16,952) Accounts receivable (14,786) (11,822) Other future deductible items (15,242) (7,199) - ---------------------------------------------------------------------------------------------------------------------- Total deferred tax assets (159,757) (146,123) - ---------------------------------------------------------------------------------------------------------------------- Net deferred tax liability $128,795 $162,606 - ----------------------------------------------------------------------------------------------------------------------
64 ................................................................................ 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 $265 million at December 29, 1996. Payments for broadcast rights generally commence when the programs become available for broadcast. The Company had commitments totaling $74 million at December 29, 1996 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 $28.1 million in 1996 and $24.6 million in 1995 and 1994. Future minimum rental commitments under non-cancelable operating leases are $22.3 million in 1997, $19.2 million in 1998, $17.6 million in 1999, $15.4 million in 2000, $13.7 million in 2001 and $66.9 million thereafter. The Company has guaranteed certain obligations of affiliates totaling $21.6 million at December 29, 1996. ................................................................................ NOTE 12: 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 State of Florida Department of Environmental Protection ("DEP") and the Company's subsidiary, Sentinel Communications Company (the "Sentinel"), have entered into a consent decree under which the Sentinel will assist the DEP in remediating certain trichloroethene groundwater contamination in downtown Orlando, Florida. The Company currently estimates that the Sentinel's share of the remediation costs will not be material and has provided for the costs in the Company's consolidated financial statements. 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 13: CAPITAL STOCK ................................................................................ In December 1996, the Board of Directors declared a two-for-one common stock split effective January 15, 1997, to holders of record on December 27, 1996. All share and per share data has been restated to reflect the stock split. 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 eight shares of the Company's common stock and is voted with the common stock with an entitlement to 9.16 votes per preferred share. In December 1987, the Company adopted a Share Purchase Rights Plan and declared a distribution 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 $75. 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 800,000 shares of Series A Junior Participating Preferred Stock in connection with the plan, none of which have been issued. 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 December 29, 1996, the Company had authorization to repurchase 5.0 million shares of its common stock. There were approximately 5,100 holders of record of the Company's common stock at February 11, 1997. 65 ................................................................................ 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 to supplement the Company's employee pension plan. In connection therewith, the ESOP purchased, in 1988 and 1989, approximately 1.6 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 non-union employees of the Company. At December 29, 1996, 11.4 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 eight 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 Company's common stock is below $27.50 per share, the Company must, at its option, either pay the difference in cash or issue additional common stock. At December 29, 1996, preferred shares allocated and committed to be released were 584,353 and 114,657, respectively, and common shares allocated and committed to be released were 932,180 and 154,036. 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, common dividends earned on unallocated common shares and Company contributions. The following table summarizes ESOP debt service activity for the three years ended December 29, 1996: (In thousands) 1996 1995 1994 ========================================================================== Debt Requirements: Principal $28,613 $26,820 $24,868 Interest 20,676 22,927 25,015 - -------------------------------------------------------------------------- Total $49,289 $49,747 $49,883 - -------------------------------------------------------------------------- Debt Service: Dividends $24,589 $25,439 $26,019 Company cash contributions 24,700 24,308 23,864 - -------------------------------------------------------------------------- Total $49,289 $49,747 $49,883 - -------------------------------------------------------------------------- SAVINGS INCENTIVE PLAN -- The Company maintains various qualified 401(k) savings plans, which permit eligible employees to make voluntary contributions on a pretax basis. 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. Company contributions to this plan for 1996, 1995 and 1994 were $3.0 million, $2.6 million and $2.3 million, respectively. The Company had 800,000 shares of common stock reserved for possible issuance under this plan at December 29, 1996. EMPLOYEE STOCK PURCHASE PLAN -- This plan permits eligible employees to purchase up to 8 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 1996, 1995 and 1994, 230,688, 222,034 and 221,850 shares, respectively, were sold to employees under this plan. As of December 29, 1996, a total of 4.1 million shares were available for sale. The weighted average fair value of shares sold in 1996 was $36.08. 1992 LONG-TERM INCENTIVE PLAN -- The 1992 Long-Term Incentive Plan provides for the granting of stock options or various other types of awards to eligible employees. General awards available under this plan each year are equal to nine-tenths of one percent (.009) of the shares used to calculate fully diluted net income per share for the preceding year, plus shares of stock available for awards in previous years that have not been awarded and any previously forfeited or expired options. These options vest in two years. At December 29, 1996 and December 31, 1995, 1.3 million and 1.5 million shares, respectively, were available for general awards. An additional number of shares is available for replacement options. The number of shares available for replacement options each year is generally equal to four-tenths of one percent (.004) of the shares used to calculate fully diluted net income per share for the preceding year, plus shares of stock available for awards in previous years that have not been awarded and any previously forfeited or expired replacement options. At December 29, 1996 and December 31, 1995, 7.1 million and 6.1 million shares, respectively, were available for replacement options. Under the 1992 plan, the option price is 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. 66 A summary of stock option activity and weighted average prices follows:
1996 1995 1994 Weighted Avg. Weighted Avg. Weighted Avg. (Shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price ======================================================================================================================= Outstanding, beginning of year 8,906 $27.30 10,090 $24.27 9,786 $22.88 Granted 2,965 $36.46 2,950 $31.67 2,100 $28.03 Exercised (3,370) $26.88 (3,908) $22.70 (1,664) $20.55 Canceled (95) $31.12 (226) $28.17 (132) $27.89 - ----------------------------------------------------------------------------------------------------------------------- Outstanding, end of year 8,406 $30.68 8,906 $27.30 10,090 $24.27 - ----------------------------------------------------------------------------------------------------------------------- Exercisable, end of year 4,017 $26.05 5,092 $25.31 6,450 $22.70 - -----------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding and options exercisable at December 29, 1996 (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 ============================================================================================================================ $19.31 - $28.88 3,250 5.51 $24.54 3,154 $24.49 $29.19 - $34.81 3,865 7.57 33.03 863 31.72 $34.88 - $43.69 1,291 5.14 38.90 - -
STOCK PLANS PRO FORMA DISCLOSURE -- The Company's 1992 Long-Term Incentive Plan and Employee Stock Purchase Plan are accounted for under APB Opinion No. 25. Accordingly, no compensation cost has been recognized in the consolidated statements of income. Under SFAS No. 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 SFAS No. 123, the Company's net income and net income per share would have been reduced to the following pro forma amounts:
1996 1995 (In thousands, except per share data) As Reported Pro Forma As Reported Pro Forma ============================================================================================================================ Net income $372,067 $361,116 $278,165 $272,469 Net income attributable to common shares 353,281 342,330 259,324 253,628 Primary net income per share 2.88 2.79 2.00 1.96 Fully diluted net income per share 2.62 2.54 1.84 1.80
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to 1995, the pro forma compensation cost in 1995 and 1996 is not representative of that in future years. The weighted average fair value of options granted was estimated to be $8.06 and $7.47 in 1996 and 1995, respectively. In determining the proforma compensation cost, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for 1996 general awards and replacement options, respectively: risk-free interest rates of 6.7% and 6.5%; expected dividend yields of 1.7% and 1.7%; expected lives of 5 and 3 years; and expected stock price volatility of 22.2% and 18.9%. The weighted average assumptions used for 1995 general awards and replacement options, respectively, were: risk-free interest rates of 6.2% and 6.2%; expected dividend yields of 1.7% and 1.7%; expected lives of 5 and 3 years; and expected stock price volatility of 26.0% and 20.9%. 67 ................................................................................ NOTE 15: 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 will continue to provide substantially the same pension benefits as under the pre-amended plan until December 1998. After that date, the plan provides that the pension benefit credits be frozen in terms of pay and service. In addition, the Company maintains several small plans for other employees. Net pension expense (credit) for Company-sponsored plans in 1996, 1995 and 1994 included the following components:
(In thousands) 1996 1995 1994 =================================================================================================== Benefits earned during the period (service costs) $ 10,093 $ 8,256 $ 9,038 Interest cost on projected benefit obligation 21,783 20,302 17,912 Recognized return on plan assets (29,199) (27,857) (27,424) Amortization, net (971) (531) (380) - --------------------------------------------------------------------------------------------------- Net pension expense (credit) $ 1,706 $ 170 $ (854) - ---------------------------------------------------------------------------------------------------
Actual returns on plan assets were gains of $57.2 million in 1996 and $57.9 million in 1995 and a loss of $2.0 million in 1994. The following table sets forth the funded status of the Company-sponsored pension plans as of year-end 1996 and 1995:
(In thousands) Dec. 29, 1996 Dec. 31, 1995 ===================================================================================================== Plans' assets at fair value $365,740 $324,860 Actuarial present value of benefit obligations: Vested benefits 286,720 288,086 Non-vested benefits 10,841 10,872 - ----------------------------------------------------------------------------------------------------- Accumulated benefit obligation 297,561 298,958 Projected future salary increases 8,231 8,324 - ----------------------------------------------------------------------------------------------------- Projected benefit obligation 305,792 307,282 - ----------------------------------------------------------------------------------------------------- Plans' assets in excess of projected benefit obligation 59,948 17,578 Unrecognized net asset at transition being amortized through 2003 (10,550) (12,120) Unrecognized net (gain) loss due to actual experience varying from actuarial assumptions (17,113) 27,941 Unrecognized prior service costs (26) 131 - ----------------------------------------------------------------------------------------------------- Pension asset recognized in the consolidated balance sheets $ 32,259 $ 33,530 - -----------------------------------------------------------------------------------------------------
The plans' assets consist primarily of listed common stocks and bonds. In determining the projected benefit obligation for the plans, the weighted average assumed discount rate used was 7.75% in 1996 and 7.25% in 1995, while the assumed average rate of increase in future salary levels was 5.0% for 1996 and 4.5% for 1995. The weighted average expected long-term rate of return on assets used in determining net pension expense or credit was 9.5% in 1996 and 1995, and 9.75% in 1994. Total pension expense for union-sponsored pension plans was $5.7 million in 1996, $5.6 million in 1995 and $5.8 million in 1994. The Company's portion of assets and liabilities for multi-employer union pension plans is not determinable. 68 ................................................................................ NOTE 16: 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 age 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. Postretirement benefit cost for 1996, 1995 and 1994 included the following components:
(In thousands) 1996 1995 1994 ====================================================================================================== Service cost of benefits earned during the year $ 265 $ 222 $ 350 Interest cost on accumulated postretirement benefit obligation ("APBO") 3,244 3,437 3,069 - ------------------------------------------------------------------------------------------------------ Postretirement benefit cost $3,509 $3,659 $3,419 - ------------------------------------------------------------------------------------------------------
The plans' APBO and the Company's postretirement liability were as follows:
(In thousands) Dec. 29, 1996 Dec. 31, 1995 ====================================================================================================== Actuarial present value of benefit obligations: Retirees $40,391 $42,705 Active participants, fully eligible 1,466 1,405 Active participants, not eligible 2,592 2,649 - ------------------------------------------------------------------------------------------------------ APBO 44,449 46,759 Unrecognized net gain (loss) due to actual experience varying from actuarial assumptions 317 (3,699) - ------------------------------------------------------------------------------------------------------ Postretirement benefit liability $44,766 $43,060 - ------------------------------------------------------------------------------------------------------
In determining the APBO, the weighted average assumed discount rate used was 7.75% in 1996 and 7.25% in 1995. Increases of 9.5% in the cost of covered health care benefits were assumed for fiscal 1997. These rates were assumed to decrease ratably to 7.0% after five years and remain at that level thereafter. The effect of a one percentage point increase in the assumed health care cost trend rate for each future year would increase the total APBO at year-end 1996 by $3.2 million and the 1996 net benefit cost by $.3 million. 69 ................................................................................ NOTE 17: SEGMENT INFORMATION ................................................................................ Tribune Company is an information, education and entertainment company comprising three business segments. As of December 29, 1996, the Company's publishing segment consisted of four daily newspapers and other related publications and services. The newspapers are the Chicago Tribune, the Fort Lauderdale-based Sun-Sentinel, The Orlando Sentinel and the Newport News-based Daily Press. The Company's broadcasting operations consisted of WB television affiliates in New York, Los Angeles, Chicago, Philadelphia, Boston, Houston, Denver and San Diego, an ABC television affiliate in New Orleans, a CBS television affiliate in Atlanta and five radio stations. In entertainment, the Company owns the Chicago Cubs baseball team, produces and syndicates television programming and has interests in cable programming. The Company's education segment consisted of The Wright Group, Educational Publishing, NTC/Contemporary Publishing and Everyday Learning. In 1995, the Company sold Times Advocate Company, its California newspaper subsidiary, and Compton's NewMedia, an education software company (see Note 3). Financial data for each of the Company's business segments is presented on the following page. In determining operating profit for each segment, none of the following items have been added or deducted: interest income and expense, nonoperating gains and losses or income taxes. Assets represent those identifiable tangible and intangible assets used in the operations of each segment. The Company's cost of sales by business segment was as follows: (In thousands) 1996 1995 1994 ================================================================================ Publishing $ 657,466 $ 679,037 $ 608,327 Broadcasting and Entertainment 454,828 451,749 412,704 Education 60,370 33,823 38,275 - -------------------------------------------------------------------------------- Total cost of sales $1,172,664 $1,164,609 $1,059,306 - -------------------------------------------------------------------------------- 70
Tribune Company and Subsidiaries BUSINESS SEGMENTS (In thousands of dollars) 1996 1995 1994 ================================================================================================================== OPERATING Publishing $1,336,639 $1,312,767 $1,246,377 REVENUES Broadcasting and Entertainment 876,750 828,806 764,197 Education 192,316 103,101 102,082 ------------------------------------------------------------------------------------------------- Total operating revenues $2,405,705 $2,244,674 $2,112,656 - ------------------------------------------------------------------------------------------------------------------ OPERATING Publishing $ 281,312 $ 270,143 $ 287,590 PROFIT Broadcasting and Entertainment (1) 200,537 160,616 132,413 Education 39,422 4,586 2,829 Corporate expenses (31,195) (30,134) (26,207) ------------------------------------------------------------------------------------------------- Total operating profit $ 490,076 $ 405,211 $ 396,625 - ------------------------------------------------------------------------------------------------------------------ DEPRECIATION Publishing $ 73,379 $ 68,123 $ 66,639 Broadcasting and Entertainment 24,873 21,384 18,891 Education 2,693 2,818 1,554 Corporate 2,265 1,048 1,575 ------------------------------------------------------------------------------------------------- Total depreciation $ 103,210 $ 93,373 $ 88,659 - ------------------------------------------------------------------------------------------------------------------ AMORTIZATION Publishing $ 7,564 $ 5,675 $ 4,990 OF INTANGIBLE Broadcasting and Entertainment 20,567 16,188 16,216 ASSETS Education 11,552 5,750 5,510 ------------------------------------------------------------------------------------------------- Total amortization of intangible assets $ 39,683 $ 27,613 $ 26,716 - ------------------------------------------------------------------------------------------------------------------ CAPITAL Publishing $ 58,686 $ 65,676 $ 51,205 EXPENDITURES Broadcasting and Entertainment 27,233 38,025 21,041 Education 6,153 4,883 4,905 Corporate 1,252 9,279 14,475 ------------------------------------------------------------------------------------------------- Total capital expenditures $ 93,324 $ 117,863 $ 91,626 - ------------------------------------------------------------------------------------------------------------------ ASSETS Publishing $ 686,730 $ 693,853 $ 757,889 Broadcasting and Entertainment 1,616,797 1,405,213 1,321,768 Education 544,226 211,510 210,445 Corporate 853,147 977,679 495,723 ------------------------------------------------------------------------------------------------- Total assets $3,700,900 $3,288,255 $2,785,825 ------------------------------------------------------------------------------------------------- (1) In 1996, the Company recorded a pretax gain of $10 million, representing the Company's equity interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station. 71
QUARTERLY RESULTS (UNAUDITED) Quarters 1996 (In thousands of dollars, except per share data) First Second Third Fourth Total =================================================================================================================================== OPERATING Publishing $327,333 $330,495 $322,784 $356,027 $1,336,639 REVENUES Broadcasting and Entertainment 187,195 253,280 222,905 213,370 876,750 Education 22,594 58,152 72,638 38,932 192,316 ----------------------------------------------------------------------------------------------------------------- Total operating revenues $537,122 $641,927 $618,327 $608,329 $2,405,705 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING Publishing $ 63,243 $ 72,861 $ 60,989 $ 84,219 $ 281,312 PROFIT Broadcasting and Entertainment (1) 29,024 65,904 41,449 64,160 200,537 Education 2,222 13,749 21,839 1,612 39,422 Corporate expenses (7,414) (7,641) (7,964) (8,176) (31,195) ----------------------------------------------------------------------------------------------------------------- Total operating profit 87,075 144,873 116,313 141,815 490,076 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest expense (2,405) (3,208) (4,992) (5,058) (15,663) - ----------------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 84,670 141,665 111,321 136,757 474,413 Income taxes (34,291) (57,375) (45,085) (54,912) (191,663) - ----------------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 50,379 84,290 66,236 81,845 282,750 DISCONTINUED OPERATIONS OF QUNO, NET OF TAX (2) 89,317 - - - 89,317 - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME 139,696 84,290 66,236 81,845 372,067 Preferred dividends, net of tax (4,696) (4,697) (4,697) (4,696) (18,786) - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME ATTRIBUTABLE TO COMMON SHARES $135,000 $ 79,593 $ 61,539 $ 77,149 $ 353,281 - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME PER SHARE (3) Primary: Continuing operations $ .37 $ .65 $ .50 $ .63 $ 2.15 Discontinued operations .72 - - - .73 ----------------------------------------------------------------------------------------------------------------- Net income $ 1.09 .65 $ .50 $ .63 $ 2.88 ----------------------------------------------------------------------------------------------------------------- Fully Diluted: Continuing operations $ .34 $ .60 $ .46 $ .57 $ 1.97 Discontinued operations .66 - - - .65 ----------------------------------------------------------------------------------------------------------------- Net income $ 1.00 $ .60 $ .46 $ .57 $ 2.62 - ----------------------------------------------------------------------------------------------------------------------------------- COMMON DIVIDENDS PER SHARE $ .15 $ .15 $ .15 $ .15 $ .60 - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK PRICE (HIGH-LOW) $34 1/2- $38 1/8- $39 1/2- $44 1/8- 28 5/16 32 1/16 31 5/8 37 7/8 - ------------------------------------------------------------------------------------------------------------------ Notes to Quarterly Results: (1) In December 1996, the Company recorded a pretax gain of $10 million, or $6 million after taxes ($.05 per share on a primary basis), representing the Company's equity interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station. (2) In March 1996, the Company sold its holdings in QUNO Corporation as part of QUNO's merger with Donohue Inc. The sale resulted in an after-tax gain of $89.3 million, or $.73 per share on a primary basis. (3) Quarterly and full year net income per share amounts are calculated independently based on the weighted average number of common shares outstanding for each period. All share and per share data has been restated to reflect a two-for-one common stock split effective January 15, 1997. (4) In March 1995, shares of America Online common stock were sold, which resulted in a pretax gain of $15.3 million, or $9.1 million after taxes ($.07 per share on a primary basis). In July 1995, Times Advocate Company was sold, which resulted in a pretax loss of $7.5 million, or $4.5 million after taxes ($.03 per share). In December 1995, Compton's NewMedia was sold, which resulted in a pretax gain of $6.9 million, or $4.1 million after taxes ($.03 per share).
72
Tribune Company and Subsidiaries Quarters 1995 (In thousands of dollars, except per share data) First Second Third Fourth Total =================================================================================================================================== OPERATING Publishing $323,547 $327,787 $304,686 $356,747 $1,312,767 REVENUES Broadcasting and Entertainment 176,432 220,910 217,031 214,433 828,806 Education 21,427 28,521 30,527 22,626 103,101 ----------------------------------------------------------------------------------------------------------------- Total operating revenues $521,406 $577,218 $552,244 $593,806 $2,244,674 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING Publishing $ 70,805 $ 74,991 $ 52,186 $ 72,161 $ 270,143 PROFIT Broadcasting and Entertainment 28,724 53,024 35,058 43,810 160,616 Education (356) 3,862 3,215 (2,135) 4,586 Corporate expenses (7,139) (7,366) (7,336) (8,293) (30,134) ----------------------------------------------------------------------------------------------------------------- Total operating profit 92,034 124,511 83,123 105,543 405,211 - ----------------------------------------------------------------------------------------------------------------------------------- Dispositions of subsidiary stock and investment (4) 15,272 - (7,500) 6,900 14,672 Net interest expense (923) (1,438) (1,553) (3,435) (7,349) - ----------------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 106,383 123,073 74,070 109,008 412,534 Income taxes (43,085) (49,845) (29,998) (44,148) (167,076) - ----------------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 63,298 73,228 44,072 64,860 245,458 DISCONTINUED OPERATIONS OF QUNO, NET OF TAX 4,665 8,899 11,828 7,315 32,707 - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME 67,963 82,127 55,900 72,175 278,165 Preferred dividends, net of tax (4,621) (4,622) (4,622) (4,976) (18,841) - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME ATTRIBUTABLE TO COMMON SHARES $ 63,342 $ 77,505 $ 51,278 $ 67,199 $ 259,324 - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME PER SHARE (3) Primary: Continuing operations $ .44 $ .53 $ .31 $ .47 $ 1.75 Discontinued operations .04 .07 .09 .06 .25 ----------------------------------------------------------------------------------------------------------------- Net income $ .48 $ .60 $ .40 $ .53 $ 2.00 ----------------------------------------------------------------------------------------------------------------- Fully Diluted: Continuing operations $ .41 $ .49 $ .28 $ .44 $ 1.61 Discontinued operations .03 .06 .08 .05 .23 ----------------------------------------------------------------------------------------------------------------- Net income $ .44 $ .55 $ .36 $ .49 $ 1.84 - ----------------------------------------------------------------------------------------------------------------------------------- COMMON DIVIDENDS PER SHARE $ .14 $ .14 $ .14 $ .14 $ .56 - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK PRICE (HIGH-LOW) $28 1/16- $ 30 3/8- $ 34 1/8- $34 7/16- 25 3/8 26 7/8 29 7/8 29 13/16 - ------------------------------------------------------------------------------------------------------------------- 73
ELEVEN YEAR FINANCIAL SUMMARY (Dollars in thousands, except per share data) 1996 1995 1994 1993 ================================================================================================================================== OPERATING RESULTS OPERATING REVENUES Publishing excluding Daily News $1,336,639 1,312,767 1,246,377 1,163,116 New York Daily News $ - - - - Broadcasting and Entertainment $ 876,750 828,806 764,197 727,213 Education $ 192,316 103,101 102,082 21,209 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING REVENUES $2,405,705 2,244,674 2,112,656 1,911,538 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATING PROFIT Publishing excluding Daily News $ 281,312 270,143 287,590 253,050 New York Daily News $ - - - - Broadcasting and Entertainment $ 200,537 160,616 132,413 125,684 Education $ 39,422 4,586 2,829 2,071 Corporate expenses $ (31,195) (30,134) (26,207) (24,402) - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING PROFIT $ 490,076 405,211 396,625 356,403 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest expense $ (15,663) (7,349) (4,778) (9,545) Other $ - 14,672 - - - ---------------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $ 474,413 412,534 391,847 346,858 Income taxes $ (191,663) (167,076) (158,698) (142,212) - ---------------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS $ 282,750 245,458 233,149 204,646 DISCONTINUED OPERATIONS OF QUNO, NET OF TAX $ 89,317 32,707 8,898 (16,040) Cumulative effects of changes in accounting principles $ - - - - - ---------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) (1) $ 372,067 278,165 242,047 188,606 - ---------------------------------------------------------------------------------------------------------------------------------- SHARE INFORMATION (2) Primary net income (loss) per share (1) Continuing operations $ 2.15 1.75 1.60 1.40 Discontinued operations $ .73 .25 .06 (.12) Net income $ 2.88 2.00 1.66 1.28 Common dividends per share $ .60 .56 .52 .48 Shareholders' equity per share $ 11.69 10.34 9.47 7.77 Weighted average common shares outstanding (000's) 122,842 129,580 134,426 132,742 FINANCIAL RATIOS Operating profit margin 20.4% 18.1% 18.8% 18.6% Net income margin 15.5% 12.4% 11.5% 9.9% Net income as a percentage of average shareholders' equity 25.5% 20.5% 19.9% 18.8% Debt to capital 37% 33% 23% 31% FINANCIAL POSITION AND OTHER DATA Total assets $3,700,900 3,288,255 2,785,825 2,536,410 Long-term debt $ 979,754 757,437 411,200 510,838 Shareholders' equity $1,539,506 1,379,909 1,332,980 1,095,627 Capital expenditures $ 93,324 117,863 91,626 75,620 Repurchase (issuance) of treasury stock, net $ 97,189 273,873 28,670 (46,138) Dividends $ 92,423 91,202 88,325 81,927 Amortization of broadcast rights $ 244,110 234,065 244,361 236,468 Employees (full-time equivalents) 10,700 10,500 10,500 9,900 - ---------------------------------------------------------------------------------------------------------------------------------- (1) Includes a gain on sale of QUNO of $89.3 million or $.73 per share and a non-recurring gain related to Qwest Broadcasting of $6 million or $.05 per share in 1996, a gain on sale of America Online common stock of $9.1 million or $.07 per share, a loss on sale of Times Advocate Company of $4.5 million or $.03 per share, and a gain on sale of Compton's NewMedia of $4.1 million or $.03 per share in 1995, a gain on sale of QUNO stock of $13 million or $.10 per share in 1994, the cumulative effects of accounting changes of $16.8 million or $.13 per share in 1992, charges relating to New York Daily News totaling $255.0 million or $1.93 per share in 1990, a non-recurring net loss of $21.1 million or $.13 per share in 1987 and a non-recurring net gain of $151.6 million or $.94 per share in 1986. (2) All share and per share data has been restated for a two-for-one common stock split effective January 15, 1997. 74
Tribune Company and Subsidiaries 1992 1991 1990 1989 1988 1987 1986 ==================================================================================================================== 1,136,619 1,122,434 1,183,177 1,197,077 1,117,487 1,043,310 943,366 - - 321,823 422,024 436,843 419,853 411,840 684,051 617,514 623,981 584,326 505,729 485,276 466,231 - - - - - - - -------------------------------------------------------------------------------------------------------------------- 1,820,670 1,739,948 2,128,981 2,203,427 2,060,059 1,948,439 1,821,437 -------------------------------------------------------------------------------------------------------------------- 224,509 217,031 278,594 299,282 248,567 239,358 209,525 - - (114,468) (2,179) 15,167 (47,357) (9,228) 121,267 100,175 107,528 96,803 77,754 62,858 65,537 - - - - - - - (23,643) (22,256) (22,654) (22,100) (22,699) (25,815) (17,650) -------------------------------------------------------------------------------------------------------------------- 322,133 294,950 249,000 371,806 318,789 229,044 248,184 -------------------------------------------------------------------------------------------------------------------- (22,510) (30,387) (23,478) (12,040) (33,341) (33,414) (29,019) - - (295,000) 3,133 - - 276,587 -------------------------------------------------------------------------------------------------------------------- 299,623 264,563 (69,478) 362,899 285,448 195,630 495,752 (120,089) (106,514) 22,055 (150,948) (135,135) (101,349) (219,520) -------------------------------------------------------------------------------------------------------------------- 179,534 158,049 (47,423) 211,951 150,313 94,281 276,232 (42,909) (16,068) (16,110) 30,470 60,093 47,256 16,638 (16,800) - - - - - - -------------------------------------------------------------------------------------------------------------------- 119,825 141,981 (63,533) 242,421 210,406 141,537 292,870 -------------------------------------------------------------------------------------------------------------------- 1.24 1.09 (.49) 1.38 .99 .60 1.71 (.33) (.12) (.12) .21 .40 .30 .11 .78 .97 (.61) 1.59 1.39 .90 1.82 .48 .48 .48 .44 .38 .32 .26 6.66 6.39 5.84 7.80 7.94 7.18 6.95 130,036 128,728 132,064 144,780 151,272 157,072 161,354 17.7% 17.0% 11.7% 16.9% 15.5% 11.8% 13.6% 6.6% 8.2% (3.0)% 11.0% 10.2% 7.3% 16.1% 13.6% 17.6% (6.9)% 21.4% 18.4% 12.9% 29.1% 46% 47% 51% 41% 32% 30% 29% 2,751,570 2,795,298 2,826,099 3,013,537 2,905,382 2,738,484 2,571,432 740,979 897,835 998,962 880,686 650,118 551,651 522,750 911,889 851,699 764,512 1,077,996 1,188,480 1,094,943 1,101,274 130,232 93,931 148,897 238,307 213,596 191,895 147,726 (31,918) (10,007) 178,517 296,738 56,185 108,647 65,893 80,407 78,415 80,110 75,298 57,416 50,025 42,201 233,859 207,392 228,605 221,897 192,045 169,921 155,183 12,400 12,900 16,100 17,100 16,800 16,800 17,300 -------------------------------------------------------------------------------------------------------------------- 75
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 stockholders. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include certain amounts that are based on management's best estimates and judgments. The consolidated financial statements were audited by Price Waterhouse LLP, independent accountants, and their report is shown below. Price Waterhouse LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders, 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. Price Waterhouse LLP and the internal auditors have direct access to the Audit Committee. /s/ John W. Madigan - ------------------- John W. Madigan Chairman, President and Chief Executive Officer /s/ Donald C. Grenesko - ---------------------- Donald C. Grenesko Senior Vice President/Finance and Administration ................................................................................ REPORT OF INDEPENDENT ACCOUNTANTS ................................................................................ TO THE BOARD OF DIRECTORS AND STOCKHOLDERS 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 29, 1996 and December 31, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 1996, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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. /s/ Price Waterhouse LLP - ------------------------ Price Waterhouse LLP Chicago, Illinois February 11, 1997 76 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 Chicago Tribune Direct RELCON, Inc. Delaware Tribune Media Services, Inc. Delaware TV Log; TV Week; TV Listings; TMS Stocks; Voice News Network Sun-Sentinel Company Delaware Sun-Sentinel; Gold Coast Labeling Gold Coast Publications, Inc. Delaware Gold Coast Shopper; Porch Plus; XS; Exito!; iCE; Vital Signs; South Florida Parenting New River Center Maintenance Association, Inc. Florida Sentinel Communications Company Delaware The Orlando Sentinel; US Express; Magic Magazine; Tribune Interactive Network Services; Downtown Orlando Magazine; Florida Journal Publications; Black Family Today; Central Florida Family; Tampa Bay Family; Jacksonville Family Neocomm, Inc. Delaware Porch Plus; Relcon of Florida; Sentinel Communications News Ventures, Inc. Delaware Neocomm of Delaware, Inc. Tribune Interactive Delaware South Florida Interactive Delaware Orlando Interactive Delaware Hampton Roads Interactive Delaware Chicago Interactive Delaware The Daily Press, Inc. Delaware Daily Press Hampton Roads Newspapers, Inc. Virginia Tribune National Marketing Company 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 Regional Programming, Inc. Delaware Tribune New York Radio, Inc. Delaware WQCD-FM Tribune Denver Radio, Inc. Delaware KOSI; KEZW; KKHK Tribune Denver Direct Mail, Inc. Delaware To be dissolved WGN Continental Broadcasting Company Delaware WGN-TV; WGN Radio; Tribune Radio Networks 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 Tribune (FN) Cable Ventures, Inc. Delaware KWGN Inc. Delaware KWGN-TV WGNO Inc. Delaware WGNO-TV WGNX Inc. Delaware WGNX-TV KTLA Inc. California KTLA-TV WPHL-TV, Inc. Pennsylvania WPHL-TV WPIX Inc. New York WPIX-TV; Tribune New York Holdings WLVI Inc. Delaware WLVI-TV Tribune Network Holdings Company Delaware KSWB Inc. Delaware KSWB-TV KHTV Inc. Delaware KHTV-TV Renaissance Communications Corporation (1) Delaware Hartford Television, Inc. Delaware 61 Licensee, Inc. Delaware WTIC Hartford Indianapolis Television, Inc. Delaware 59 Licensee, Inc. Delaware WXIN Indianapolis Channel 33, Inc. Delaware 33 Licensee, Inc. Delaware KDAF Dallas Channel 43, Inc. Delaware Channel 43 Licensee, Inc. Delaware WPMT York/Harrisburg Channel 40, Inc. Delaware Channel 40 Licensee, Inc. Delaware KXTL Sacramento Channel 39, Inc. Delaware Channel 39 Licensee, Inc. Delaware WDZL Miami - ----- (1) Acquired in March 1997. 2
Jurisdiction of Other names under which Incorporation subsidiary does business BROADCASTING AND ENTERTAINMENT --------------- ------------------------ - ------------------------------ (Continued) Interstate Radio Network, Inc. Illinois To be dissolved Tribune California Properties, Inc. Delaware Farm Journal, Inc. Pennsylvania Rockwood Research Corporation Farm Journal Tours, Inc. Pennsylvania Chicago National League Ball Club, Inc. Delaware Chicago Cubs Diana-Quentin, Inc. Illinois Rockford Professional Baseball Club, Inc. Florida Rockford Cubbies Rock River Concessions, Inc. Florida Orlando Baseball Club, Inc. Delaware To be dissolved EDUCATION - --------- Tribune Education Company Delaware NTC/Contemporary Publishing Company Illinois Contemporary Books; Best Publications Company; Best Books Company; National Textbook Company; Passport Books; VGM Career Horizons; The Quilt Digest Press; NTC Business Books Wright Group Publishing, Inc. Delaware NewMedia Source, Inc. California Jamestown Publishers, Inc. Rhode Island Everyday Learning Corporation Illinois Janson Publications, Inc. Rhode Island Educational Publishing Corporation Delaware Creative Publications Ideal School Supply Corporation Delaware Instructional Fair, Inc. Delaware Instructional Fair.TS Denison Tribune Education Sales, Inc. Delaware MISCELLANEOUS - ------------- Tribune Properties, Inc. Delaware New River Center Management Co. Tribune New York Properties, Inc. Delaware Riverwalk Center I Joint Venture Florida (Partnership) Tower Acquisition Company, Inc. Delaware
3 EX-23 8 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting parts of the Registration Statements on Form S-3 (File Nos. 333-02831 and 333-18921) 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 February 11, 1997 appearing in the 1996 Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears in this Form 10-K. /s/ Price Waterhouse LLP - ------------------------ PRICE WATERHOUSE LLP Chicago, Illinois March 27, 1997 EX-27 9 FDS
5 This schedule contains summary financial information extracted from the 1996 Consolidated Statements of Income and Consolidated Balance Sheets and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-29-1996 JAN-01-1996 DEC-29-1996 0 274,170 385,179 34,406 80,525 886,721 1,456,209 813,501 3,700,900 673,101 0 0 312,470 1,018 1,226,018 3,700,900 0 2,405,705 0 1,172,664 0 0 47,779 474,413 191,663 282,750 89,317 0 0 372,067 2.88 2.62 Per share data reflects a two-for-one common stock split effective Janury 15, 1997 to holders of record on December 27, 1996. Prior financial data schedules have not been restated.
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