-----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, Vd6UkU0GNQoPfWrFkEAsh0RX5rEco1g8Tuo9iu88xqbn4HlhGdUSBPnQin/vn9Yb +RKksDVHHkOxsfi+thpotw== 0000726513-99-000007.txt : 19990325 0000726513-99-000007.hdr.sgml : 19990325 ACCESSION NUMBER: 0000726513-99-000007 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981227 FILED AS OF DATE: 19990323 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: SEC FILE NUMBER: 001-08572 FILM NUMBER: 99570922 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 27, 1998 Commission file number 1-8572 TRIBUNE COMPANY (Exact name of registrant as specified in its charter) Delaware 36-1880355 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 435 North Michigan Avenue, Chicago, Illinois 60611 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (312) 222-9100 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock (without par value) New York Stock Exchange Preferred Share Purchase Rights Chicago Stock Exchange Pacific Stock Exchange 6 1/4% Exchangeable Notes Due August 15, 2001 New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the Company's voting and non-voting common equity held by non-affiliates on March 9, 1999, 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 $6,314,000,000. At March 9, 1999 there were 119,436,839 shares of the Company's Common Stock outstanding. The following documents are incorporated by reference, in part: 1998 Annual Report to Shareholders (Parts I and II, to the extent described therein). Definitive Proxy Statement for the May 4, 1999 Annual Meeting of Shareholders (Part III, to the extent described therein). ================================================================================ PART I ITEM 1. BUSINESS. Tribune Company (the "Company") is a media company. Through its subsidiaries, the Company is engaged in the publishing of newspapers, books, educational materials and information in print and digital formats and the broadcasting, development and distribution of information and entertainment principally in metropolitan areas in the United States. The Company was founded in 1847 and incorporated in Illinois in 1861. As a result of a corporate restructuring in 1968, the Company became a holding company incorporated in Delaware. References in this report to "the Company" include Tribune Company and its subsidiaries, unless the context otherwise indicates. The information in this Item 1 should be read in conjunction with the information contained under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's 1998 Annual Report to Shareholders, which information is incorporated herein by reference. This Annual Report on Form 10-K contains certain forward-looking statements that are based largely on the Company's current expectations. Such forward-looking statements include estimates and statements regarding the Company's plans to address Year 2000 issues and associated costs and risks. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such risks, trends and uncertainties, which in some instances are beyond the Company's control, include changes in advertising demand; newsprint prices; interest rates; regulatory rulings and other economic conditions; the effect of acquisitions, investments and divestitures on the Company's results of operations and financial condition; and the Company's reliance on third-party vendors for various services. The words "believe," "expect," "anticipate," "estimate" and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are as of the date of this filing. Business Segments The Company's operations are divided into three industry segments, identified according to product: publishing, broadcasting and entertainment, and education. These segments operate primarily in the United States. The following table sets forth operating revenues and profit information for each segment of the Company (in thousands).
Fiscal Year Ended December --------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Operating Revenues: (1) Publishing........................................... $1,498,573 $1,436,718 $1,336,639 Broadcasting and Entertainment....................... 1,153,006 1,057,529 876,750 Education............................................ 329,310 225,533 192,316 ---------- ---------- ---------- Total Operating Revenues........................ $2,980,889 $2,719,780 $2,405,705 ---------- ---------- ---------- Operating Profit: (2) Publishing........................................... $ 377,137 $ 354,585 $ 291,257 Broadcasting and Entertainment....................... 317,355 285,896 203,531 Education............................................ 43,232 35,976 39,504 Corporate Expenses................................... (35,435) (34,426) (30,935) ---------- ---------- ---------- Total Operating Profit.......................... $ 702,289 $ 642,031 $ 503,357 ---------- ---------- ---------- - ----- (1) Includes revenues earned outside the United States, which were not significant. (2) Operating profit for each segment excludes interest income and expense, non-operating gains and losses, equity income and losses and income taxes.
1 The following table sets forth asset information for each industry segment (in thousands).
Fiscal Year Ended December --------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Assets: Publishing........................................... $ 800,853 $ 668,532 $ 686,730 Broadcasting and Entertainment....................... 3,148,814 2,923,663 1,616,797 Education............................................ 782,438 717,301 544,226 Corporate............................................ 1,203,465 468,058 853,147 ---------- ---------- ---------- Total Assets.................................... $5,935,570 $4,777,554 $3,700,900 ---------- ---------- ----------
Prior to 1993, the Company also owned a newsprint segment, which consisted entirely of QUNO Corporation ("QUNO") and operated in Canada. In 1993 and 1994, the Company reduced its ownership holdings in QUNO and in March 1996, the Company completed the sale of its holdings in QUNO as part of QUNO's merger with Donohue Inc. 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. Results for the second and third quarters generally reflect the timing of sales to educational institutions for the upcoming school year, which begins in September. Fiscal years 1998, 1997 and 1996 all comprised 52 weeks. Publishing The publishing segment represented 50% of the Company's consolidated operating revenues in 1998. The 12-month combined average circulation in 1998 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 South Florida-based Sun-Sentinel, The Orlando Sentinel and the Hampton Roads (VA)-based Daily Press. The Company formerly owned two daily newspapers and a weekly newspaper located in suburban areas in the San Diego, California market that were sold in July 1995. For 1998, the portion of total publishing operating revenues represented by each of the Company's newspaper subsidiaries was as follows: Chicago Tribune Company--54%; Sun-Sentinel Company--22%; Orlando Sentinel Communications Company--17%; and The Daily Press, Inc.--4%. In addition, the Company owns a newspaper syndication and media marketing company, a Chicago-area cable television news channel and other publishing-related businesses. Each of the Company's newspapers operates independently to most effectively meet the needs of the area it serves. Local management establishes editorial policies. The Company coordinates certain aspects of operations and resources in order to provide greater operating efficiency and economies of scale. The Company's newspapers compete for readership and advertising in varying degrees with other metropolitan, suburban and national newspapers, as well as with television, radio, Internet services and other media. Competition for newspaper advertising is based upon circulation levels, readership demographics, price, service and advertiser results, while competition for circulation is based upon the content of the newspaper, service and price. 2 The Company's newspapers are printed in Company-owned production facilities. The principal raw material is newsprint. In 1998, the Company's newspapers consumed approximately 387,000 metric tons of newsprint. In 1995, the North American newsprint industry increased newsprint prices several times due to higher demand for newsprint in the U.S. and overseas. Newsprint prices peaked in the first quarter of 1996 and then declined throughout the remainder of 1996 and the beginning of 1997. Although newsprint prices increased moderately after the first quarter of 1997, average newsprint transaction prices for the year decreased 15% in 1997 from 1996. Average newsprint prices remained relatively steady throughout 1998, increasing 3% from 1997. 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, 225,000, 200,000 and 175,000 metric tons in years 1999 to 2002, respectively, and 150,000 metric tons in each of years 2003 to 2007. In 1998, approximately 69% 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 --------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Advertising Retail............................................... $ 469,588 $ 455,104 $ 433,373 General.............................................. 154,696 149,681 140,741 Classified .......................................... 537,655 510,753 456,912 ---------- ---------- ---------- Total.............................................. 1,161,939 1,115,538 1,031,026 Circulation ........................................... 243,842 250,558 252,263 Other (1).............................................. 92,792 70,622 53,350 ---------- ---------- ---------- Total.............................................. $1,498,573 $1,436,718 $1,336,639 ---------- ---------- ---------- - ----- (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; revenues from Internet/electronic products; cable television news programming; and other publishing-related activities.
Advertising revenues grew in 1998 due to both linage and rate increases, as well as the acquisition of South Florida Newspaper Network. Retail advertising revenues, excluding South Florida Newspaper Network, rose mainly due to improvements in hardware advertising in Chicago and Fort Lauderdale; movies and food and drug advertising in Chicago; department store advertising in Fort Lauderdale; and also due to higher Internet advertising. General advertising revenues increased primarily due to increased transportation and high-tech advertising in Chicago. Classified advertising revenues rose mainly due to higher help wanted advertising at all of the newspapers; increased automotive advertising in Chicago and Fort Lauderdale; and higher Internet advertising. 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 1998, the Chicago Tribune ranked 7th in average daily circulation and 4th in average Sunday circulation in the nation, based on Audit Bureau of Circulations ("ABC") averages. For the six months ended September 1998, the Chicago Tribune had a 34% lead in total daily paid circulation and a 148% lead in Sunday paid circulation over its principal competitor, the Chicago Sun-Times, based on ABC averages. The Chicago Tribune's total advertising volume and operating revenues are estimated to be substantially greater than those of the Sun-Times. The Chicago Tribune also competes with other city, suburban and national daily newspapers, direct mail operations, local and national Internet services and other media. Approximately 76% of the paper's daily and 60% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. The daily edition's newsstand price increased by $.15 to $.50 in September 1992. The Sunday edition's newsstand price increased by $.25 to $1.75 in October 1995. In August 1998, the weekly home delivery price increased $.10 to $4.20. The following tables set forth selected information for the Chicago Tribune daily newspaper and other related activities.
Averages for the Twelve Months Ended December --------------------------------------------- 1998 1997 1996 --------- --------- --------- Circulation: Daily ............................................... 653,000 656,000 674,000 Sunday............................................... 1,027,000 1,028,000 1,052,000
Fiscal Year Ended December ------------------------------------------- 1998 1997 1996 -------- -------- -------- Advertising Inches (in thousands): Full Run (all zones) Retail............................................. 907 923 953 General............................................ 367 361 354 Classified......................................... 1,420 1,406 1,330 -------- -------- -------- Total........................................... 2,694 2,690 2,637 Part Run............................................. 5,325 5,445 4,877 Preprinted Inserts................................... 4,229 3,347 2,967 -------- -------- -------- Total Inches.................................... 12,248 11,482 10,481 -------- -------- -------- Operating Revenues (in thousands)...................... $808,705 $788,577 $735,158 -------- -------- --------
The 1998 improvement in advertising volume was mainly due to increased preprinted inserts for retailers. The Chicago Tribune publishes Exito!, a weekly newspaper targeting Spanish-speaking households. Other businesses owned by the Chicago Tribune include Tribune Direct Marketing, a direct mail operation; audiotext services and publications targeting specific consumer market segments; and RELCON, Inc., a publisher of free apartment and new-home guides and a provider of 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. The Miami/Fort Lauderdale market ranks 16th in the nation in terms of households. The paper's principal competition comes from the Miami Herald and national and local publications, as well as other media. Approximately 72% of the paper's daily and 67% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. The daily Broward edition's newsstand price increased by $.10 to $.35 in May 1995. The daily South Palm Beach edition's newsstand price increased $.15 to $.50 in January 1996. The newsstand price of all Sunday editions was increased by $.25 to $1.00 in November 1989. In January 1992, the newsstand price of the South Palm Beach Sunday edition increased by $.25 to $1.25. In March 1996, the weekly home delivery price for the Broward edition increased $.15 to $2.75. In November 1996, the weekly home delivery price for the South Palm Beach edition increased $.25 to $3.00. The following tables set forth selected information for the Sun-Sentinel daily newspaper and other related activities.
Averages for the Twelve Months Ended December --------------------------------------------- 1998 1997 1996 ------- ------- ------- Circulation: Daily ............................................... 261,000 257,000 256,000 Sunday............................................... 374,000 372,000 371,000
Fiscal Year Ended December --------------------------------------------- 1998 1997 1996 -------- -------- -------- Advertising Inches (in thousands)(1): Full Run (all zones) Retail............................................. 1,266 1,190 1,161 General............................................ 242 245 240 Classified......................................... 2,683 2,417 2,425 -------- -------- -------- Total........................................... 4,191 3,852 3,826 Part Run............................................. 2,822 2,938 2,980 Preprinted Inserts................................... 1,857 1,754 1,521 -------- -------- -------- Total Inches.................................... 8,870 8,544 8,327 -------- -------- -------- Operating Revenues (in thousands)...................... $326,217 $308,023 $292,248 -------- -------- -------- - ----- (1) Excludes inches for South Florida Newspaper Network, Gold Coast Shopper and other targeted publications.
The 1998 improvement in advertising volume was mainly due to increased classified help wanted inches and higher preprinted inserts for retailers, partially offset by lower part run inches. The Sun-Sentinel Company owns Gold Coast Shopper, a publication located in Deerfield Beach and City Link (formerly known as XS), a weekly publication. In December 1997, Exito!, a weekly publication of the Sun-Sentinel Company targeting young adults and Spanish-speaking households, ceased publication. The Sun-Sentinel also offers delivery of other publications, direct mail services and publications targeted to specific consumer market segments, such as South Florida Parenting, acquired in 1994. The Sun-Sentinel Company acquired the South Florida Newspaper Network, Inc. ("SFNN"), a group of 33 community-based weeklies, in September 1998. SFNN publishes the Jewish Journal, a collection of six newspapers serving South Florida's Jewish community. SFNN expanded in 1999 to 35 community-based weeklies. 5 Orlando Sentinel Communications Company The Orlando Sentinel is published daily, including Sunday, and serves primarily a five-county area in Central Florida. It is the only major daily newspaper in the Orlando market, although it competes with other Florida and national newspapers, as well as other media. The Orlando/Daytona Beach/Melbourne market ranks 22nd among U.S. markets in terms of households. Approximately 77% of the paper's daily and 68% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. In March 1992, the newsstand price of the daily edition increased $.15 to $.50, except for most Thursday editions, which had been priced at $.50 since February 1991. The newsstand price of the Sunday edition was increased to $1.50 from $1.25 at the end of 1990. In January 1999, the weekly home delivery price increased by $.10 to $3.95. The following tables set forth selected information for The Orlando Sentinel daily newspaper and other related activities.
Averages for the Twelve Months Ended December --------------------------------------------- 1998 1997 1996 ------- ------- ------- Circulation: Daily ............................................... 259,000 259,000 261,000 Sunday............................................... 381,000 382,000 383,000
Fiscal Year Ended December --------------------------------------------- 1998 1997 1996 -------- -------- -------- Advertising Inches (in thousands): Full Run (all zones) Retail............................................. 904 964 914 General............................................ 175 158 133 Classified......................................... 1,691 1,720 1,728 -------- -------- -------- Total........................................... 2,770 2,842 2,775 Part Run ............................................ 1,594 1,481 1,387 Preprinted Inserts................................... 3,199 3,155 2,764 -------- -------- -------- Total Inches. .................................. 7,563 7,478 6,926 -------- -------- -------- Operating Revenues (in thousands)...................... $260,903 $253,570 $232,874 -------- -------- --------
The 1998 improvement in advertising volume was mainly due to higher part run inches and preprinted inserts for retailers, partially offset by lower full run retail inches as a result of department store and electronic store consolidations and a decline in the health care category. The Orlando Sentinel also publishes US/Express, a free weekly entertainment publication that is used to distribute advertising to non-subscribers, which is syndicated nationally, a group of parenting magazines and the RELCON apartment guide for the Central Florida market. In 1997, The Orlando Sentinel began publishing New Homes and Auto Finder, which are free publications distributed in the Central Florida market. The Daily Press, Inc. (Newport News, Virginia) The Daily Press is published daily, including Sunday, and serves the Hampton Roads market. The Daily Press constitutes the only major daily newspaper in the market, although it competes with other regional and national newspapers, as well as other media. The 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. Approximately 82% of the paper's daily and 76% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. The newsstand price of the daily edition increased by $.15 to $.50 in July 1996. The Sunday edition newsstand price was increased to $1.50 from $1.25 in October 1995. The weekly home delivery price was increased by $.30 to $3.05 in October 1995. 6 The following tables set forth selected information for the Daily Press.
Averages for the Twelve Months Ended December --------------------------------------------- 1998 1997 1996 ------- ------- ------- Circulation: Daily ............................................... 98,000 98,000 100,000 Sunday............................................... 117,000 118,000 121,000
Fiscal Year Ended December --------------------------------------------- 1998 1997 1996 ------- ------- ------- Advertising Inches (in thousands): Full Run (all zones) Retail............................................. 629 630 610 General............................................ 37 35 28 Classified......................................... 983 926 858 ------- ------- ------- Total........................................... 1,649 1,591 1,496 Part Run ............................................ 156 150 125 Preprinted Inserts .................................. 1,381 1,282 1,184 ------- ------- ------- Total Inches.................................... 3,186 3,023 2,805 ------- ------- ------- Operating Revenues (in thousands)...................... $57,595 $55,721 $52,618 ------- ------- -------
The 1998 improvement in advertising volume was mainly due to higher preprinted inserts for retailers and grocery chains and increased full run classified inches, primarily in the automotive and help wanted categories. Related Businesses The Company is also involved in syndication activities, advertising placement services, Internet and other online-related businesses, cable television news programming 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 and movie listings in newspapers and the development of news products and services for electronic and print media. In February 1999, TMS acquired both Premier DataVision, Inc. ("PDI") and JDTV, Inc. ("JDTV"). PDI distributes movie show-time data and advertisements. JDTV distributes television listings information to the cable and satellite television industries. Internet and other online-related businesses include the electronic publishing of each of the Company's daily newspapers with enhanced content on the Internet. In addition, the Company owns and operates the Digital City affiliate in each of the Company's markets. See "Investments" for a discussion of the Company's investment in Digital City. The Company also operates CLTV News, a regional 24-hour cable television news channel in the Chicagoland area. CLTV News was launched in January 1993 and currently is available to more than 1.7 million cable households in the Chicago-area market. Total operating revenues for these publishing-related businesses are shown below, net of intercompany revenues. Operating Revenues (In thousands) Fiscal Year Ended December -------- 1998................................ $45,153 1997................................ 30,827 1996................................ 23,741 Other revenues rose in 1998 partially due to increased revenues from Internet/electronic products. 7 Broadcasting and Entertainment The broadcasting and entertainment segment represented 39% of the Company's consolidated operating revenues in 1998. At December 27, 1998, the segment included WB television affiliates located in New York, Los Angeles, Chicago, Philadelphia, Boston, Dallas, Houston, Seattle, Miami, Denver and San Diego; Fox television affiliates in Sacramento, Indianapolis, Hartford, Grand Rapids and Harrisburg; a CBS television affiliate in Atlanta; an ABC television affiliate in New Orleans; four radio stations, one located in Chicago and three located in Denver; the Chicago Cubs baseball team; and Tribune Entertainment, a company that develops and distributes first run television programming. In December 1997, the Company reached an agreement with Emmis Broadcasting Corporation to exchange substantially all of the assets of the Company's WQCD radio station in New York and cash for the assets of television stations KTZZ-Seattle and WXMI-Grand Rapids. Emmis agreed to acquire these television stations as part of its acquisition of Dudley Communications Corporation. The exchange was completed in June 1998. The divestiture of WQCD was accounted for as a sale and the acquisition of the television stations was recorded as a purchase. In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WBZL-Miami (formerly WDZL), 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 stations. The temporary waivers were granted subject to the outcome of pending FCC rulemaking that is expected to make such duopoly waivers unnecessary. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The FCC subsequently issued a rule review to consider modifying its cross-ownership rule. In March 1998, the FCC granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Sun-Sentinel newspaper until the rule review was concluded. The Company cannot predict the outcome of the FCC duopoly rulemaking or cross-ownership rule review. In January 1996, the Company acquired television station KHTV-Houston for $102 million in cash. In February 1996, the Company acquired the remaining minority interest in WPHL-Philadelphia for $23 million in cash. In April 1996, the Company acquired television station KSWB-San Diego for $72 million in cash. In November 1995, the Company swapped its two Sacramento radio stations, KYMX and KCTC, for $3 million in cash and a Denver radio station. 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 million in cash. Farm Journal results were reported in radio until March 1997, when it was sold by the Company for approximately $17 million in cash. The acquisitions were accounted for as purchases. In August 1998, the Company reached an agreement with Meredith Corporation to acquire the assets of television station KCPQ-Seattle in exchange for the assets of the Company's WGNX-Atlanta television station and cash. On March 1, 1999 and in a three-way transaction, Meredith purchased KCPQ from Kelly Television Co. and then exchanged the station for WGNX. The divestiture of WGNX will be accounted for as a sale and the acquisition of KCPQ will be recorded as a purchase. The Company will record the assets of KCPQ at fair market value, which will result in an estimated pretax gain of $350 million in the first quarter of 1999. Current FCC regulations preclude the Company from owning both KCPQ and the Company's KTZZ-Seattle television station. As part of the transaction, the Company transferred the assets of KTZZ into a disposition trust. Pursuant to the terms of the disposition trust, an independent trustee is charged with finding a buyer for KTZZ by September 1, 1999. 8 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 --------------------------------------------- 1998 1997 1996 ---------- ---------- -------- Television(1).......................................... $ 964,387 $ 861,434 $680,504 Radio(2)............................................... 52,633 71,641 89,260 Entertainment/other(3)................................. 135,986 124,454 106,986 ---------- ---------- -------- Total.............................................. $1,153,006 $1,057,529 $876,750 ---------- ---------- -------- - ----- (1) Includes KTZZ-Seattle and WXMI-Grand Rapids since their acquisition in June 1998, the six Renaissance stations since their acquisition in March 1997, KHTV-Houston since its acquisition in January 1996 and KSWB-San Diego since its acquisition in April 1996. (2) Includes Farm Journal until its sale in March 1997 and WQCD, which transferred station operations to Emmis Broadcasting Corporation effective July 1, 1997 in return for an annual management fee. WQCD was subsequently exchanged for television stations KTZZ-Seattle and WXMI-Grand Rapids in June 1998. (3) 1997 and 1998 reflect the impact of two syndicated programs launched by Tribune Entertainment in September 1997: "Gene Roddenberry's Earth: Final Conflict" and "NightMan."
Television In 1998, television contributed 84% of broadcasting and entertainment operating revenues. The Company's television stations compete for audience and advertising with other television and radio stations, cable television and other media serving the same markets. Competition for audience and advertising is based upon various interrelated factors including programming content, audience acceptance and price. Selected data for the Company's television stations is shown in the following table.
Market (1) Major ----------------------------- Commercial Expiration National % of U.S. FCC Stations in of FCC Year Rank Households % Channel Affiliation Market (2) License (3) Acquired -------- ---------- ----- ------- ----------- ----------- ----------- -------- WPIX - New York, NY......... 1 6.9 6.9 11-VHF WB 6 1999 (4) 1948 KTLA - Los Angeles, CA...... 2 5.2 5.2 5-VHF WB 7 1998 (5) 1985 WGN - Chicago, IL.......... 3 3.2 3.2 9-VHF WB 7 2005 1948 WPHL - Philadelphia, PA..... 4 2.7 1.3 17-UHF WB 6 1999 (6) 1992 WLVI - Boston, MA........... 6 2.2 1.1 56-UHF WB 7 1999 (7) 1994 KDAF - Dallas, TX .......... 7 2.0 1.0 33-UHF WB 8 2006 1997 WGNX - Atlanta, GA (8)...... 10 1.7 0.9 46-UHF CBS 7 2005 1984 KHTV - Houston, TX ......... 11 1.7 0.8 39-UHF WB 7 2006 1996 KCPQ - Seattle, WA (8)...... 12 1.6 1.6 13-VHF Fox 7 2007 1999 KTZZ - Seattle, WA (8)...... 12 1.6 0.8 22-UHF WB 7 2007 1998 WBZL - Miami, FL............ 16 1.4 0.7 39-UHF WB 7 2005 (9) 1997 KWGN - Denver, CO........... 18 1.2 1.2 2-VHF WB 6 2006 1966 KTXL - Sacramento, CA....... 20 1.1 0.6 40-UHF Fox 6 2006 1997 WXIN - Indianapolis, IN..... 25 1.0 0.5 59-UHF Fox 6 2005 1997 KSWB - San Diego, CA........ 26 1.0 0.5 69-UHF WB 6 2006 1996 WTIC - Hartford, CT......... 27 0.9 0.5 61-UHF Fox 6 1999 (7) 1997 WXMI - Grand Rapids, MI..... 38 0.7 0.3 17-UHF Fox 6 2005 1998 WGNO - New Orleans, LA...... 41 0.6 0.3 26-UHF ABC 6 2005 1983 WPMT - Harrisburg, PA....... 46 0.6 0.3 43-UHF Fox 5 1999 (6) 1997
- ----- (1) Source: Nielsen Station Index (DMA Market and Demographic Rank Report, September 1998). Ranking of markets is based on number of television households in DMA (Designated Market Area). 9 (2) Source: Nielsen Station Index (Viewers in Profile Reports, 1998). Major commercial stations program for a broad, general audience and have a large viewership in the market. (3) See "Governmental Regulation." (4) Expires June 1999. Renewal application filed in February 1999 is pending. (5) Expired December 1998. Renewal application filed in August 1998 is pending. (6) Expires August 1999. Renewal application will be filed. (7) Expires April 1999. Renewal application filed in December 1998 is pending. (8) On March 1, 1999, WGNX was exchanged for KCPQ. Current FCC regulations preclude the Company from owning both KCPQ and KTZZ. As part of the transaction, the Company transferred the assets of KTZZ into a disposition trust. Pursuant to the terms of the disposition trust, an independent trustee is charged with finding a buyer for KTZZ by September 1, 1999. (9) The FCC has granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper until the FCC has completed a review of the newspaper/television cross-ownership rule. See "Item 3, Legal Proceedings" for a discussion of the cross-ownership rule. Programming emphasis at the Company's WB and Fox affiliated stations is placed on network provided shows, syndicated series, feature motion pictures, local and regional sports coverage, news and children's programs. These stations acquire most of their programming from outside sources, including The WB Television Network ("The WB Network") and the Fox Network, although a significant amount is produced locally or supplied by Tribune Entertainment (see "Entertainment/Other"). The Company's stations affiliated with other major networks acquire much of their programming from those networks. Contracts for purchased programming generally cover a period of one to five years, with payment also typically made over several years. The expense for amortization of television broadcast rights in 1998 was $277 million, which represented approximately 29% of total television operating revenues. 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 ---------------------------- 1998 1997 1996 ----- ----- ----- WPIX - New York, NY....................... 10.5% 10.0% 11.0% KTLA - Los Angeles, CA.................... 7.8 8.3 8.5 WGN - Chicago, IL........................ 9.8 10.0 10.0 WPHL - Philadelphia, PA................... 4.8 4.5 4.8 WLVI - Boston, MA......................... 5.0 4.5 4.3 KDAF - Dallas, TX......................... 8.0 8.3 8.3 WGNX - Atlanta, GA........................ 8.3 8.3 8.3 KHTV - Houston, TX........................ 6.3 6.5 5.8 KCPQ - Seattle, WA........................ 7.3 8.0 9.3 KTZZ - Seattle, WA........................ 4.0 3.0 2.8 WBZL - Miami, FL.......................... 6.0 6.3 6.5 KWGN - Denver, CO......................... 6.5 8.0 8.8 KTXL - Sacramento, CA..................... 8.3 9.0 9.3 WXIN - Indianapolis, IN................... 7.3 8.0 7.8 KSWB - San Diego, CA...................... 4.5 4.0 3.3 WTIC - Hartford, CT....................... 6.8 7.5 8.3 WXMI - Grand Rapids, MI................... 7.8 8.5 8.8 WGNO - New Orleans, LA.................... 9.5 9.8 7.3 WPMT - Harrisburg, PA..................... 6.3 7.8 7.3 - ----- (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. 10 Radio In 1998, the Company's radio operations contributed 4% of broadcasting and entertainment operating revenues. The largest radio station owned by the Company, measured in terms of operating revenues, is WGN in Chicago. Radio operations also include three stations in Denver and Tribune Radio Networks (which produces and distributes farm and sports programming to radio stations, primarily in the Midwest). Also included were WQCD (which transferred station operations to Emmis Broadcasting through a management agreement in July 1997, and was subsequently exchanged for television stations KTZZ-Seattle and WXMI-Grand Rapids in June 1998) and Farm Journal (until its sale in March 1997). Selected information for the Company's radio operations is shown in the following table.
Number of National Operating Market Stations in Audience Format Frequency Rank (1) Market (2) Share (3) ------------------------ --------- -------- ----------- --------- WGN - Chicago, IL Personality/Infotainment /Sports 720-AM 3 38 6.6% KOSI - Denver, CO Adult Contemporary 101.1-FM 23 28 5.8% KEZW - Denver, CO Nostalgia/Big Band 1430-AM 23 28 3.1% KKHK - Denver, CO All Rock & Roll Hits 99.5-FM 23 28 4.0% - ----- (1) Source: Radio markets ranked by Arbitron Metro Survey Area, Arbitron Company 1998. (2) Source: Arbitron Company 1998. (3) Source: Average of Winter, Spring, Summer and Fall 1998 Arbitron shares for persons 12 years old and over, 6 a.m. to midnight daily during the period measured.
Entertainment/Other In 1998, entertainment/other contributed 12% of the segment's operating revenues. This portion of the broadcasting and entertainment segment includes Tribune Entertainment Company and the Chicago Cubs baseball team. Tribune Entertainment Company was formed to acquire and develop weekly programming for Company television stations and for syndication. Tribune Entertainment participates in the production and/or distribution of first-run programming, including television shows, music and variety shows, movies and specials. In September 1997, Tribune Entertainment launched two weekly action shows: "Gene Roddenberry's Earth: Final Conflict" and "NightMan." "Gene Roddenberry's Earth: Final Conflict" is aired on 203 stations that cover 97% of U.S. television households and has been renewed for the 1999-2000 and 2000-2001 seasons. During the 1997-1998 television season, "NightMan" was aired on 161 stations that covered 96% of U.S. television households; "NightMan" has not been renewed. In addition, Tribune Entertainment produced and syndicated "The Geraldo Rivera Show," a one-hour, daily talk show, which ended after the 1997-1998 season. During the 1998-1999 television season, Tribune Entertainment originated or syndicated approximately 4.5 hours of first-run programs per week. On average, the Company's 18 television stations utilized approximately six hours per week of programming furnished by Tribune Entertainment. The Company owns the Chicago Cubs baseball team. In addition to providing local sports entertainment, the Cubs represent an important source of live programming for the Company's Chicago-based broadcasting operations and regional cable programming channel. 11 Education The education segment represented 11% of the Company's consolidated operating revenues in 1998. The education segment specializes in learning products and services for use in schools and homes. The segment's primary business is supplemental and core curriculum materials for kindergarten through grade 12. The education segment also derives revenues from the adult basic education and consumer publishing markets. In 1998, the education segment's revenues were derived as follows: 56% from sales to the U.S. school market, 38% from sales to the U.S. consumer market and 6% from sales outside the U.S. The market for education and consumer materials is highly competitive. The segment sells its products through several market channels, including direct-to-school, catalogs targeting teachers and administrators, parent/teacher stores, school and public libraries, bookstores, mass merchandisers, direct-to-consumer, teacher workshops, international distribution, and educational toy stores. Total operating revenues for the education segment for the last three years are shown below. Operating Revenues (In thousands) Fiscal Year Ended December -------- 1998.............................. $329,310 1997.............................. 225,533 1996.............................. 192,316 Education operating revenues in 1998 increased mainly due to the acquisitions of Landoll (in December 1997) and Shortland (in September 1997) and increased sales to both school and consumer markets at existing businesses. In March 1999, the Company acquired Mimosa Publications. Mimosa is an Australia-based company that publishes reading, language arts, mathematics, science and English language teaching materials for several international school markets. In January 1998, the Company acquired ownership of the North American Sunshine line of educational materials. In September 1997, the Company acquired Shortland Publications Limited for $32 million in cash. Shortland is a New Zealand-based company that publishes reading, language arts, science and social studies materials for several international elementary school markets. In December 1997, the Company acquired approximately 80% of Landoll, Inc. for $77 million in cash. Landoll publishes children's books for the mass market. In March 1996, the Company acquired Educational Publishing Corporation for $205 million in cash and NTC Publishing Group for $83 million in cash. Educational Publishing publishes supplemental and core curriculum education materials through its Creative Publications and Ideal/Instructional Fair divisions. NTC Publishing publishes trade books and educational products for the school and consumer markets. In August 1995, the Company acquired Everyday Learning Corporation, a publisher of mathematics materials for grades kindergarten through 6, for $25 million in cash. In February 1994, the Company acquired The Wright Group, a publisher of supplemental education materials for the elementary school market, for $96 million in cash. In July 1993, the Company acquired Contemporary Books, Inc., a publisher of non-fiction trade titles and educational books and materials, for $22 million in cash and $18.5 million in common stock. In September 1993, the Company acquired Compton's Multimedia Publishing Group for $57 million in cash. The Company sold Compton's to The Learning Company, Inc. in December 1995. The acquisitions were accounted for as purchases. 12 Investments The Company has investments in several public and private companies. See Note 5 to the Company's Consolidated Financial Statements in the 1998 Annual Report to Shareholders for a discussion of the Company's significant cost and equity method investments. The principal equity method investments include The WB Network, Qwest Broadcasting and Digital City. The Company acquired a 13% equity interest in The WB Network in 1995, and exercised options to increase its ownership interest to 22% in 1997 and 25% in March 1998. The WB is a growing network that provides the Company's WB affiliate television stations with original prime-time and children's programming. In 1995, the Company acquired a 33% equity interest in Qwest Broadcasting, which owns WB affiliate television stations in Atlanta and New Orleans. In 1996, the Company purchased a 20% equity interest in Digital City, a venture with America Online to develop a national network of local interactive services. Non-Recurring Items In 1998, the Company sold its WQCD radio station subsidiary, sold a portion of its investment portfolio and wrote down certain investments. In 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. In 1996, the Company recorded non-recurring equity income representing the Company's interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station. See Note 2 to the Company's Consolidated Financial Statements in the 1998 Annual Report to Shareholders for a discussion of these non-recurring items. 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 $.66 per diluted share. 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 has been accounted for as a discontinued operation in the Company's consolidated financial statements. 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 ("FCC") jurisdiction under the Communications Act of 1934, as amended. FCC rules, among other things, govern the term, renewal and transfer of radio and television broadcasting licenses, and limit concentrations of broadcasting control inconsistent with the public interest. Federal law also regulates the rates charged for political advertising and the quantity of advertising within children's programs. The Company is permitted to own both newspaper and broadcast operations in the Chicago market by virtue of "grandfather" provisions in the FCC regulations and in the Fort Lauderdale/Miami market by virtue of a temporary waiver of the television/newspaper cross-ownership rule. Congress removed national limits on the number of broadcast stations a licensee may own in 1996. However, federal law continues to limit the number of radio and television stations a single owner may own in a local market, and the percentage of the national television audience that may be reached by a licensee's television stations in the aggregate. Both the television/newspaper cross-ownership rule and the station limitation rule are currently under review by the FCC. Television and radio broadcasting licenses are subject to renewal by the FCC, at which time they may be subject to competing applications for the licensed frequencies. At December 27, 1998, the Company had FCC authorization to operate 18 television stations and two AM and two FM radio stations. 13 The FCC has approved technical standards and channel assignments for digital television ("DTV") service. DTV will permit broadcasters to transmit video images with higher resolution than existing analog signals. Operators of full-power television stations (including those owned by the Company) have each been assigned a second channel for DTV while they continue analog broadcasts on the original channel. After the transition is complete, broadcasters will be required to return one of the two channels to the FCC and transmit exclusively in digital format. By law, the transition to DTV is to occur by December 31, 2006, subject to extension under certain circumstances. Conversion to digital transmission will require all television broadcasters, including those owned by the Company, to invest in digital equipment and facilities. The Company does not believe that the required capital expenditures will have a material effect on its consolidated financial position or results of operations. The FCC has not yet issued regulations governing some aspects of DTV operation. These include the obligations of cable television systems and other multichannel video providers to carry DTV signals and additional "public interest" obligations that may be imposed on broadcasters' use of DTV. The FCC has adopted rules requiring broadcasters transmitting subscription-based services over the DTV channel to pay to the government fees in the amount of 5% on gross revenues collected from such services. From time to time, the FCC revises existing regulations and policies in ways that could affect the Company's broadcasting operations. In addition, Congress from time to time considers and adopts substantive amendments to the governing communications legislation. The Company cannot predict what regulations or legislation may be proposed or finally enacted or what effect, if any, such regulations or legislation could have on the Company's broadcasting operations. See "Item 3, Legal Proceedings" for a discussion of pending FCC rulemaking and rule review. Employees The average number of full-time equivalent employees of the Company in 1998 was 12,700, approximately 1,100 more than the average for 1997. The increase was mainly due to the net impact of the 1997 and 1998 acquisitions and divestitures and the growth of the Company's Internet/online businesses. Eligible employees participate in the Company's Employee Stock Ownership Plan ("ESOP"). Pension and other employee benefit plans are provided for substantially all employees of the Company. In connection with the establishment of the ESOP, the Company amended, effective January 1989, its Company-sponsored pension plan for employees not covered by a collective bargaining agreement. The pension plan continued to provide substantially the same pension benefits as under the pre-amended plan until December 1998. After that date, the plan provides that the pension benefit credits be frozen in terms of pay and service. The Company also maintains several small plans for other employees. During 1998, the Company's publishing segment employed approximately 8,100 full-time equivalent employees, about 6% of whom were represented by a total of four unions. Contracts with unionized employees of the publishing segment expire at various times through September 1999. Broadcasting and entertainment had an average of 3,000 full-time equivalent employees in 1998. Approximately 22% of these employees were represented by a total of 21 unions. Contracts with unionized employees of the broadcasting and entertainment segment expire at various times through July 2003. Education had an average of 1,500 full-time equivalent employees in 1998. Approximately 3% of these employees were represented by one union. The contract with the unionized employees of the education segment expires in October 2001. 14 Executive Officers of the Company Information with respect to the executive officers of the Company as of March 9, 1999 is set forth below. The descriptions of the business experience of these individuals include the principal positions held by them since March 1994. Robert D. Bosau (52) President since May 1997 and Executive Vice President from August 1994 to May 1997 of Tribune Education Company*; Vice President/Administration of Tribune Publishing Company* until August 1994. James C. Dowdle (65) Executive Vice President of the Company; President and Chief Executive Officer of Tribune Broadcasting Company* until May 1997; President of Tribune Publishing Company* from August 1994 to May 1997; Director of the Company since 1985. Dennis J. FitzSimons (48) President since May 1997 and Executive Vice President from August 1994 until May 1997 of Tribune Broadcasting Company*; President of Tribune Television Company* until August 1994. Jack W. Fuller (52) President since May 1997 of Tribune Publishing Company*; President and Publisher until May 1997 of Chicago Tribune Company*. Donald C. Grenesko (50) Senior Vice President/Finance and Administration since August 1996, Senior Vice President and Chief Financial Officer until August 1996 of the Company. David D. Hiller (45) Senior Vice President/Development of the Company. Crane H. Kenney (36) 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 until February 1995 of the Company. Luis E. Lewin (50) Vice President/Human Resources since October 1996 and Director of Human Resources from March 1994 to October 1996 of the Company; Acting Publisher of Exito! in Chicago from December 1995 to September 1996. John W. Madigan (61) Chairman since January 1996, Chief Executive Officer since May 1995, President since May 1994, Chief Operating Officer from May 1994 to May 1995 and Executive Vice President of the Company until May 1994; President of Tribune Publishing Company* until May 1994; Publisher of the Chicago Tribune until May 1994; Director of the Company since 1975. Ruthellyn Musil (47) Vice President/Corporate Relations since March 1995 and Director of Communications until March 1995 of the Company. Jeff R. Scherb (41) Senior Vice President/Chief Technology Officer since August 1996 of the Company; 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 until 1994. - ----- * A subsidiary of the Company. 15 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 27, 1998 are listed below. In addition to those listed, the Company owns or leases transmitter sites, parking lots and other properties aggregating approximately 812 acres in 63 separate locations, and owns or leases an aggregate of approximately 1,522,000 square feet of space in 193 locations. The Company also owns the 39,000-seat stadium used by the Chicago Cubs baseball team. The Company considers its various properties to be in good condition and suitable for the purposes for which they are used.
Approximate Area in Square Feet ------------------------------- General Character of Property Owned Leased - ----------------------------- --------- ------- Publishing: Printing plants, business and editorial offices and warehouse space located in: Chicago, IL....................................................................... 1,327,000 (1) 156,000 Orlando, FL....................................................................... 424,000 103,000 Deerfield Beach, FL............................................................... 386,000 - Northlake, IL..................................................................... - 216,000 Newport News, VA.................................................................. 207,000 - Fort Lauderdale, FL............................................................... - 106,000 Broadcasting and Entertainment: Business offices, studios and transmitters located in: Los Angeles, CA................................................................... 256,000 - New York, NY...................................................................... - 131,000 Chicago, IL....................................................................... 99,000 4,000 Oak Brook, IL..................................................................... - 69,000 Denver, CO........................................................................ 44,000 11,000 Indianapolis, IN.................................................................. 5,000 37,000 Houston, TX....................................................................... 36,000 - Dallas, TX........................................................................ 33,000 - Boston, MA........................................................................ 28,000 - San Diego, CA..................................................................... - 26,000 Philadelphia, PA.................................................................. 22,000 2,000 Sacramento, CA.................................................................... 24,000 - Hartford, CT...................................................................... - 22,000 New Orleans, LA................................................................... - 22,000 Grand Rapids, MI.................................................................. 21,000 - Atlanta, GA....................................................................... - 21,000 Miami, FL......................................................................... 20,000 - York, PA.......................................................................... 20,000 - Seattle, WA....................................................................... - 18,000 Education: Printing plants, business offices and warehouse space located in: Ashland, OH....................................................................... - 683,000 Chicago, IL....................................................................... 185,000 29,000 Alsip, IL......................................................................... - 171,000 Kirkland, WA...................................................................... - 126,000 Lincolnwood, IL................................................................... - 71,000 Bothell, WA....................................................................... - 60,000 Grand Rapids, MI.................................................................. - 53,000 Denver, CO........................................................................ - 10,000 Oakdale, IA....................................................................... - 6,000 - ----- (1) Includes Tribune Tower, an approximately 630,000-square-foot office building in downtown Chicago which houses the Company's corporate Headquarters, the Chicago Tribune's business and editorial offices, offices of various subsidiary companies and approximately 62,000 square feet of space leased to unaffiliated tenants; and Freedom Center, an approximately 697,000-square- foot production center of the Chicago Tribune which houses the Chicago Tribune's printing, packaging and distribution operations.
16 ITEM 3. LEGAL PROCEEDINGS. The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WBZL-Miami (formerly WDZL), KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The FCC order granting the Company's application to acquire the Renaissance stations contained waivers of two FCC rules. First, the FCC temporarily waived its duopoly rule relating to the overlap of WTIC's and WPMT's broadcast signals with those of other Tribune stations. The temporary waivers were granted subject to the outcome of pending FCC rulemaking that is expected to make such duopoly waivers unnecessary. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The FCC subsequently issued a rule review to consider modifying its cross-ownership rule. In March 1998, the FCC granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Sun-Sentinel newspaper until the rule review has concluded. The Company cannot predict the outcome of the FCC duopoly rulemaking or cross-ownership rule review. The Company does not believe that any of the matters or proceedings presently pending will have a material adverse effect on its consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is presently listed on the New York, Chicago and Pacific stock exchanges. The high and low sales prices of the Common Stock by fiscal quarter for the two most recent fiscal years, as reported on the New York Stock Exchange Composite Transactions list, were as follows:
1998 1997 ---------------------- ---------------------- Quarter High Low High Low ------- -------- --------- --------- -------- First......................................... $68 3/4 $58 5/16 $42 3/8 $35 1/2 Second........................................ 72 3/8 62 13/16 50 5/16 39 3/4 Third......................................... 75 1/16 50 54 13/16 48 Fourth........................................ 67 1/2 44 3/4 61 1/2 51 9/16
At March 9, 1999, there were 5,855 holders of record of the Company's Common Stock. Quarterly cash dividends declared on Common Stock were $.17 per share in 1998 and $.16 per share in 1997. Total cash dividends declared on Common Stock by the Company were $82,426,000 for 1998 and $78,646,000 for 1997. During 1998, the Company did not sell any of its equity securities in transactions that were not registered under the Securities Act of 1933, as amended. 17 ITEM 6. SELECTED FINANCIAL DATA. The information for the years 1994 through 1998 contained under the heading "Eleven Year Financial Summary" in the Company's 1998 Annual Report to Shareholders is incorporated herein by reference. The following table shows basic earnings per share for the last 11 years. Basic Earnings (Loss) per Share Continuing Operations --------------------------- Before Non-Recurring Discontinued Net Items Total (1) Operations Income ------------- --------- ------------ ------ 1998 $2.74 $3.26 $ - $3.26 1997 2.49 3.05 - 3.05 1996 2.10 2.15 .73 2.88 1995 1.68 1.75 .25 2.00 1994 1.60 1.60 .06 1.66 1993 1.40 1.40 (.12) 1.28 1992 1.24 1.24 (.33) .78 (2) 1991 1.09 1.09 (.12) .97 1990 1.44 (.49) (.12) (.61) 1989 1.38 1.38 .21 1.59 1988 .99 .99 .40 1.39 - ----- (1) Includes non-recurring items as follows: gain on the sales of subsidiary and investments, net of write-downs, totaling $.52 per share in 1998; gain on the sales of investments, net of write-downs, totaling $.56 per share in 1997; equity income related to Qwest Broadcasting of $.05 per share in 1996; gain on the sale of investment and subsidiaries totaling $.07 per share in 1995; and charges relating to the New York Daily News totaling $1.93 per share in 1990. (2) The adoption of new accounting rules for retiree benefits, income taxes and postemployment benefits decreased net income per share by $.13 per share in 1992. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information contained under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's 1998 Annual Report to Shareholders is incorporated herein by reference. YEAR 2000 COMPLIANCE The Company relies on various technologies throughout its business operations that could be affected by the date change in the Year 2000. The Company is progressing through a comprehensive program to evaluate and address the impact of the Year 2000 issue on its operational and financial reporting systems and equipment with embedded technology and the Year 2000 risks associated with its vendors and customers. The program has been assigned a high priority in relation to other business projects. The Company has formed a Project Management Office to provide company-wide leadership, oversight and coordination of the Year 2000 project. The Company's Chief Technology Officer and Chief Financial Officer head the Project Management Office. These project heads receive frequent updates from the other members of the Project Management Office team. In addition, progress reports on the Year 2000 program are presented regularly to the Company's board of directors and senior management. 18 State of Readiness Both internal and external resources are being utilized throughout the Company to implement the program, which includes the following overlapping phases: system and equipment inventory and analysis; remediation, testing and implementation; contingency planning; and vendors and investments. The Company expects that its internal operational and financial reporting systems and equipment will be Year 2000 compliant by June 30, 1999. None of the Company's other significant information technology projects has been delayed as a result of the Company's Year 2000 compliance efforts. System and Equipment Inventory and Analysis -- The system and equipment inventory and analysis phase consists of compiling a detailed inventory of all of the Company's information and non-information technology hardware, software, systems and equipment to determine which of these items are date-sensitive and require remediation to become Year 2000 compliant. This analysis involves both an internal assessment and contact with the systems and equipment manufacturers. The principal systems and equipment identified by the Company as requiring remediation are financial systems, human resource systems and news production systems. This phase is complete. Remediation, Testing and Implementation -- The remediation, testing and implementation phase consists of determining and implementing a remediation method (upgrade, replace or discontinue) for date-sensitive items. The remediated item is tested and returned to normal operations when compliant. Testing for significant systems may include functional testing of remedial measures and regression testing to validate that changes have not altered existing functionality. A separate Year 2000 mainframe environment has been created to test all operating system software and program product software. This Year 2000 environment is designed to accomplish "end to end" testing of the larger systems applications and to validate interface communications between systems applications. The Company is also performing its own tests of mission critical vendor-provided systems and equipment, even if vendor certification of Year 2000 compliance has been received. The Company is working with the manufacturers of its affected systems and other outside vendors to implement required upgrades. The Company has also identified vendors from which the Company can procure new systems and equipment to replace non-compliant systems and equipment. The Company is currently in the middle stages of this phase and expects to be substantially complete by June 30, 1999. Contingency Planning -- Contingency planning consists of developing solutions and options in the event that the Company experiences a failure in its production processes or in the operations of certain of the Company's vendors. Contingency plans and enactment dates for production processes and vendors are being developed, but have not yet been finalized. The Company will continue to develop, review, test and revise contingency plans, as more information becomes available from internal testing and external vendor assessment. Vendors and Investments -- Vendor management consists of assessing vendor readiness, and if necessary, identifying alternate channels to receive critical materials and/or supplies. The Company has initiated formal communications with its vendors through an assessment survey. For critical vendors, including utilities, banks, newsprint and ink suppliers and a satellite provider, site visits have been completed. In the event that satisfactory commitments from key suppliers are not received, the Company is forming plans for the continuing availability of critical materials and supplies through alternate channels. In general, the Company is comfortable with the progress made by critical vendors to date and no critical issues have been identified, except for a general concern with the utilities industry, as alternative suppliers may not be available. Tribune is also assessing Year 2000 compliance of the companies in its venture investment portfolio. Tribune will continue to monitor information provided by these companies regarding their progress toward remediation of Year 2000 issues. Risks The Company may discover additional Year 2000 problems, including that remediation or contingency plans are not feasible or that the costs of such plans exceed current expectations. In many cases, the Company is relying on assurances from vendors that their systems, or that new or upgraded systems acquired by the Company, will be Year 19 2000 compliant. The Company believes that one of its principal Year 2000 risks is the effect the Year 2000 issue will have on its vendors, especially the utilities industry. A substantial part of the Company's day-to-day operations is dependent on power and telecommunications services, for which alternative sources of service may be limited. The Company will continue to investigate the readiness of its suppliers, including utilities, and pursue the availability of alternatives to further analyze and diminish the extent of any impact Year 2000 issues may have on the Company. Although there can be no assurance that the Company will be able to complete all of the modifications in the required timeframe and that unanticipated events will not occur, it is management's belief that the Company is taking adequate action to address Year 2000 issues. In the event that either the Company or the Company's vendors fail to adequately address Year 2000 issues, the Company could suffer business interruptions. If such interruptions cause the Company to be unable to fulfill its obligations to third parties, the Company could be exposed to liability to such third parties. Costs The Company does not currently expect that the costs of addressing the Year 2000 issue will have a material effect on the consolidated financial position or results of operations of the Company. Year 2000 compliance costs are expensed as incurred and are funded through operating cash flow. The Company currently estimates total expenses to range from $20 to $25 million, of which $7 million was incurred in 1998. 20 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The information provided below about the Company's market sensitive financial information contains forward-looking statements. Interest rate risk. The Company's debt is subject to changes in interest rates in the United States. All of the Company's borrowings are denominated in U.S. dollars. The Company's policy is to manage interest rate risk through the use of a combination of medium-term notes and promissory notes. Information pertaining to the Company's debt at December 27, 1998 is shown in the table below.
Fixed Rate Weighted Avg. Variable Rate Weighted Avg. Maturities (in thousands) Debt Interest Rate Debt Interest Rate - ------------------------- ---------- ------------- ------------- ------------- 1999 (1) $ 61,905 7.4% $150,643 5.1% 2000 80,222 6.8% - - 2001 (1) (2) 254,641 6.6% - - 2002 92,809 7.1% - - 2003 92,762 6.7% - - Thereafter 913,179 6.2% - - ---------- -------- Total at Dec. 27, 1998 $1,495,518 $150,643 ---------- -------- Fair Value at Dec. 27, 1998 (3) $1,533,617 $150,643 ---------- -------- - ----- (1) As discussed in Note 6 to the Company's Consolidated Financial Statements in the 1998 Annual Report to Shareholders, medium-term notes (fixed rate debt) of $32.0 million and promissory notes (variable rate debt) of $150.6 million scheduled to mature in 1999 were presented as maturing in 2001 for financial statement presentation because of the Company's ability and intent to refinance these maturities. (2) Includes $118.5 million of 6.25% Debt Exchangeable for Common Stock securities ("DECS"), related to the Company's investment in The Learning Company ("TLC") common stock. At maturity, the DECS will be repaid using shares of TLC common stock or, at the Company's option, the cash equivalent thereof. See Note 6 to the Company's Consolidated Financial Statements in the 1998 Annual Report to Shareholders for further discussion. (3) Fair value was determined based on quoted market prices for similar issues or on current rates available to the Company for debt of the same remaining maturities and similar terms.
Information pertaining to the Company's debt at December 28, 1997 is shown in the table below.
Fixed Rate Weighted Avg. Variable Rate Weighted Avg. Maturities (in thousands) Debt Interest Rate Debt Interest Rate - ------------------------- ---------- ------------- ------------- ------------- 1998 (1) $ 37,098 8.4% $476,375 5.9% 1999 61,914 7.5% - - 2000 80,052 7.4% - - 2001 (1) 36,166 8.4% - - 2002 92,827 7.1% - - Thereafter 770,369 6.5% - - ---------- -------- Total at Dec. 28, 1997 $1,078,426 $476,375 ---------- -------- Fair Value at Dec. 28, 1997 (2) $1,099,046 $476,375 ---------- -------- - ----- (1) As discussed in Note 7 to the Company's Consolidated Financial Statements in the 1997 Annual Report to Shareholders, medium-term notes (fixed rate debt) of $3.8 million and promissory notes (variable rate debt) of $476.4 million scheduled to mature in 1998 were presented as maturing in 2001 for financial statement presentation because of the Company's ability and intent to refinance these maturities. (2) 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.
21 Equity price risk. The Company has common stock investments in several publicly traded companies that are subject to market price volatility. These investments are classified as available-for-sale and are recorded on the balance sheet at fair value with unrealized gains or losses, net of related tax effects, reported in the accumulated other comprehensive income component of shareholders' equity. The following analysis presents the hypothetical change in the fair value of the Company's common stock investments in publicly traded companies assuming hypothetical stock price fluctuations of plus or minus 10%, 20% and 30% in each stock's price. At December 27, 1998, this analysis excludes 4.6 million shares of TLC common stock related to the Company's DECS. See Note 6 in the Company's Consolidated Financial Statements in the 1998 Annual Report to Shareholders.
Valuation of Investments Valuation of Investments Assuming Indicated Decrease in Assuming Indicated Increase in Each Stock's Price Each Stock's Price ------------------------------ Dec. 27, 1998 -------------------------------------- (In thousands) -30% -20% -10% Fair Value +10% +20% +30% -------- -------- -------- ------------- ---------- ---------- ---------- Common stock investments in public companies $637,700 $728,800 $819,900 $911,000(1) $1,002,100 $1,093,200 $1,184,300 - ----- (1) Includes America Online common stock investment of $818,800.
During the last 12 quarters preceding December 27, 1998, market price movements caused the fair value of the Company's common stock investments in publicly traded companies to change by 10% or more in nine of the quarters, by 20% or more in eight of the quarters and by 30% or more in five of the quarters. The fair value of the Company's common stock investments in publicly traded companies at December 28, 1997 assuming hypothetical stock price fluctuations of plus or minus 10%, 20% and 30% would be as follows:
Valuation of Investments Valuation of Investments Assuming Indicated Decrease in Assuming Indicated Increase in Each Stock's Price Each Stock's Price ------------------------------ Dec. 28, 1997 -------------------------------- (In thousands) -30% -20% -10% Fair Value +10% +20% +30% -------- -------- -------- ------------- -------- -------- -------- Common stock investments in public companies $184,329 $210,661 $236,994 $263,327(1) $289,659 $315,992 $342,325 - ----- (1) Includes America Online common stock investment of $133,500.
During the last 12 quarters preceding December 28, 1997, market price movements caused the fair value of the Company's common stock investments in publicly traded companies to change by 10% or more in nine of the quarters, by 20% or more in five of the quarters and by 30% or more in three of the quarters. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's Consolidated Financial Statements and Notes thereto and the information contained under the heading "Business Segments" appearing on pages 39 through 63 of the Company's 1998 Annual Report to Shareholders, together with the report thereon of PricewaterhouseCoopers LLP dated February 9, 1999, except as to Note 2, which is as of March 1, 1999, appearing on page 68 of such Annual Report, and the information contained under the heading "Quarterly Results (Unaudited)" on pages 64 and 65, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information contained under the heading "Executive Officers of the Company" in Item 1 hereof, and the information contained under the heading "Board of Directors" and contained under the subheading "Section 16(a) Beneficial Ownership Reporting Compliance" under the heading "Stock Ownership" in the definitive Proxy Statement for the Company's May 4, 1999 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information contained under the heading "Executive Compensation" (except that portion relating to Item 13, below) and contained under the subheading "Director Compensation" under the heading "Board of Directors" in the definitive Proxy Statement for the Company's May 4, 1999 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under the subheadings "Principal Shareholders" and "Management Ownership" under the heading "Stock Ownership" in the definitive Proxy Statement for the Company's May 4, 1999 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained under the subheading "Related Transactions" under the heading "Stock Ownership" and under the subheading "Compensation Committee Interlock and Insider Participation" under the heading "Executive Compensation" (except that portion relating to Item 11, above) in the definitive Proxy Statement for the Company's May 4, 1999 Annual Meeting of Shareholders is incorporated herein by reference. 23 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 27 hereof. (a)(3) Index to Exhibits filed as part of this report As listed in the Exhibit Index beginning on page 30 hereof. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. 24 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 22, 1999. 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 22, 1999. 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) 25 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 26 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 27, 1998............................. * Consolidated Balance Sheets at December 27, 1998 and December 28, 1997....................................................... * Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended December 27, 1998................ * Consolidated Statements of Shareholders' Equity for each of the three fiscal years in the period ended December 27, 1998................ * Notes to Consolidated Financial Statements................................. * Report of Independent Accountants on Consolidated Financial Statements..... * Report of Independent Accountants on Financial Statement Schedule.......... 28 Financial Statement Schedule for each of the three fiscal years in the period ended December 27, 1998.......................................... 29 Schedule II Valuation and qualifying accounts and reserves. - ----- * Incorporated by reference to the Company's 1998 Annual Report to Shareholders. See Item 8 of this Annual Report on Form 10-K. ----- All other schedules required under Regulation S-X are omitted because they are not applicable or not required. 27 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 9, 1999, except as to Note 2, which is as of March 1, 1999, appearing in the 1998 Annual Report to Shareholders of Tribune Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Chicago, Illinois February 9, 1999, except as to Note 2, which is as of March 1, 1999 28
SCHEDULE II TRIBUNE COMPANY SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands of dollars) Additions Additions Balance at Charged to Recorded Balance Beginning Costs and Upon at End of Description of Period Expenses Acquisitions Deductions Period ----------- ---------- ---------- ------------ ---------- --------- Valuation accounts deducted from assets to which they apply: Year ended December 27, 1998 Accounts receivable allowances: Bad debts................................. $31,709 $19,931 $ 548 $20,463 $31,725 Rebates, volume discounts and other....... 11,496 17,497 4,030 20,346 12,677 ------- ------- ------ ------- ------- Total.................................. $43,205 $37,428 $4,578 $40,809 $44,402 ======= ======= ====== ======= ======= Year ended December 28, 1997 Accounts receivable allowances: Bad debts................................. $24,445 $19,135 $4,158 $16,029 $31,709 Rebates, volume discounts and other....... 9,961 19,945 633 19,043 11,496 ------- ------- ------ ------- ------- Total.................................. $34,406 $39,080 $4,791 $35,072 $43,205 ======= ======= ====== ======= ======= Year ended December 29, 1996 Accounts receivable allowances: Bad debts................................. $23,078 $19,846 $ 992 $19,471 $24,445 Rebates, volume discounts and other....... 7,076 20,313 1,331 18,759 9,961 ------- ------- ------ ------- ------- Total.................................. $30,154 $40,159 $2,323 $38,230 $34,406 ======= ======= ====== ======= =======
29 TRIBUNE COMPANY EXHIBIT INDEX Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by Tribune Company with the Securities and Exchange Commission, as indicated. Exhibits marked with a circle (o) are management contracts or compensatory plan contracts or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K. All other documents listed are filed with this Report. Number Description ------ ----------- 3.1 * Restated Certificate of Incorporation of Tribune Company, dated April 21, 1987; Certificate of Designations of Series B Convertible Preferred Stock, dated April 4, 1989 (Exhibit 3.1 to Annual Report on Form 10-K for 1991). 3.1a * Amended Certificate of Designation of Series A Junior Participating Preferred stock, dated December 2, 1997 (Exhibit 3.1a to Annual Report on Form 10-K for 1997). 3.2 * By-Laws of Tribune Company As Amended and In Effect on October 20, 1998 (Exhibit 3.2 to Quarterly Report on Form 10-Q for the quarter ended September 27, 1998). 4 * Rights Agreement between Tribune Company and First Chicago Trust Company of New York, as Rights Agent, dated as of December 12, 1997 (Exhibit 1 to Form 8-K Current Report dated December 12, 1997). 4.1 * Indenture, dated as of March 1, 1992 between Tribune Company and 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). 10.2a o* First Amendment of Tribune Company Supplemental Retirement Plan, effective January 1, 1994 (Exhibit 10.4b to Annual Report on Form 10-K for 1993). 10.3 o* Tribune Company Directors' Deferred Compensation Plan, as amended and restated on July 1, 1994 (Exhibit 10.7 to Annual Report on Form 10-K for 1994). 10.4 o* Tribune Company Bonus Deferral Plan, dated as of December 14, 1993 (Exhibit 10.8 to Annual Report on Form 10-K for 1993). 10.4a o* First Amendment of Tribune Company Bonus Deferral Plan, effective December 1, 1996 (Exhibit 10.4a to Annual Report on Form 10-K for 1996). 30 Number Description ------ ----------- 10.5 o* Tribune Company Amended and Restated 1984 Long-Term Performance Plan, effective as of July 25, 1989 (Exhibit 19.2 to Form 10-Q Quarterly Report for the quarter ended June 25, 1989); Forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreements for Tribune Company Amended and Restated 1984 Long-Term Performance Plan (Exhibit 19.2 to Form 10-Q Quarterly Report for the quarter ended July 1, 1990). 10.6 o* Tribune Company 1992 Long-Term Incentive Plan, dated as of April 29, 1992 and as amended and in effect on April 19, 1994 (Exhibit 10.11 to Annual Report on Form 10-K for 1994). 10.7 o* Tribune Company Executive Financial Counseling Plan, dated October 19, 1988 and as amended effective January 1, 1994 (Exhibit 10.13 to Annual Report on Form 10-K for 1993). 10.8 o Tribune Company Amended and Restated Transitional Compensation Plan for Executive Employees, effective as of December 7, 1998. 10.9 o Tribune Company Supplemental Defined Contribution Plan, effective as of January 1, 1994 and as amended effective January 1, 1999. 10.10 o* Tribune Company Amended and Restated Employee Stock Purchase Plan, dated May 5, 1998 (Exhibit 10.11 to Form 10-Q Quarterly Report for the quarter ended March 29, 1998). 10.11 o* 1988 Restricted Stock Plan For Outside Directors, dated February 16, 1988 (Exhibit 10.12 to Annual Report on Form 10-K for 1992). 10.11a o* Amendment effective April 28, 1992 to the 1988 Restricted Stock Plan For Outside Directors (Exhibit 10.12b to Annual Report on Form 10-K for 1993). 10.12 o* Tribune Company 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). 10.13 o* Tribune Company Amended and Restated 1996 Nonemployee Director Stock Compensation Plan, dated as of February 17, 1998 (Exhibit 10.14 to Annual Report on Form 10-K for 1997). 10.14 o* Tribune Company 1997 Incentive Compensation Plan effective December 29, 1996 (Exhibit 10.15 to Form 10-Q Quarterly Report for the quarter ended March 30, 1997). 12 Computation of Ratios of Earnings to Fixed Charges. 13 The portions of the Company's 1998 Annual Report to Shareholders which are specifically incorporated herein by reference. 21 Table of subsidiaries of Tribune Company. 23 Consent of Independent Accountants. 27 Financial Data Schedule. 99 Form 11-K financial statements for the Tribune Company Savings Incentive Plan (to be filed by amendment). 31 EX-10.8 2 COMPENSATION PLAN FOR EXECUTIVE EMPLOYEES Exhibit 10.8 Tribune Company Transitional Compensation Plan for Executive Employees Tribune Company, by resolution of its Board of Directors, adopted the Tribune Company Transitional Compensation Plan for Executive Employees (the "Plan") on December 9, 1985, to attract and retain executives of outstanding competence and to provide additional assurance that they will remain with Tribune Company and its subsidiaries on a long-term basis. The following provisions constitute an amendment and restatement of the Plan effective as of December 7, 1998. 1. Participation. Any full-time, key executive employee of Tribune Company or of any of its subsidiaries shall be eligible to participate in the Plan in one of two separate tiers, if at the time his employment terminates he has been designated by the Committee as being covered by the Plan within a specific tier, and such designation has not been revoked; provided, however, that no revocation of such designation shall be effective if made: (a) on the day of, or within 36 months after, occurrence of a "Change in Control," as such term is hereinafter defined; or (b) prior to a Change in Control, but at the request of any third party participating in or causing the Change in Control; or (c) otherwise in connection with or in anticipation of a Change in Control. For the purposes of the Plan, the term "subsidiary" shall mean any corporation, more than 50 percent of the outstanding, voting stock in which is owned by Tribune Company or by a subsidiary. 2. Administration. The Plan shall be administered by the Governance and Compensation Committee of the Board of Directors of Tribune Company (the "Committee") or by a successor committee. The Committee shall have the authority to make rules and regulations governing the administration of the Plan, to designate executive employees to be covered by the Plan, to revoke such designations, and to make all other determinations or decisions, and to take such actions, as may be necessary or advisable for the administration of the Plan. The Committee's determinations need not be uniform, and may be made selectively among eligible employees, whether or not they are similarly situated. 3. Eligibility for Transitional Compensation. An executive who is a Participant in the Plan shall be eligible to receive transitional compensation, in the amounts and at the times described in paragraph 5, if: (a) His employment with the Company and all of its subsidiaries is terminated: (i) On the day of, or within 36 months after, occurrence of a "Change in Control," as such term is hereinafter defined; or (ii) Prior to a Change in Control, but at the request of any third party participating in or causing the Change in Control; or (iii) Otherwise in connection with or in anticipation of a Change in Control; and (b) The Participant's termination of employment was not: (i) On account of his death; (ii) On account of a physical or mental condition that would entitle him to long-term disability benefits under the Tribune Company Salary Continuation Plan, as then in effect (whether or not he is actually a Participant in such plan); (iii) For conduct involving dishonesty or willful misconduct which, in either case, is detrimental in a significant way to the business of Tribune Company or any of its subsidiaries; or (iv) On account of the employee's voluntary resignation; provided that a resignation shall not be considered to be "voluntary" for the purposes of the Plan in the following situations: (x) if the termination by Tribune Company's Chairman, President & Chief Executive Officer or those designated as Tier I participants as of January 1, 1995 occurs during the 30-day period immediately following the first anniversary of the Change in Control (i.e., this provision is not available for Tier II Participants); or (y) if the termination occurs under the circumstances described in paragraph 13(a) of the Plan; or (z) if, subsequent to the Change in Control and prior to such resignation, there has been a reduction in the nature or scope of the Participant's compensation or benefits, or a change in the city in which he is required to perform his duties. 4. Change in Control. For the purposes of the Plan, a "Change in Control" shall mean: (a) The acquisition, other than from Tribune Company, by any person, entity, or "group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")), excluding for this purpose the Robert R. McCormick Tribune Foundation, the Cantigny Foundation (or any charitable trust, foundation, organization, or similar entity or entities succeeding to one or both of those Foundations or any substantial part thereof) and any employee benefit plan or trust of Tribune Company or its subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the then outstanding shares of common stock or the combined voting power of Tribune Company's then outstanding voting securities entitled to vote generally in the election of directors; or (b) Individuals who, as of December 7, 1998, constitute the Board of Directors of Tribune Company (as of December 7, 1998 the "Incumbent Board" and, generally, the "Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election, by the shareholders of Tribune Company was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the members of the Board of Tribune Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be considered as though such persons were a member of the Incumbent Board; or (c) Approval by the shareholders of Tribune Company of a reorganization, merger, or consolidation, in each case, with respect to which persons who were the shareholders of Tribune Company immediately prior to such reorganization, merger, or 2 consolidation do not, immediately thereafter, own, directly or indirectly, more than 60 percent of the combined voting power for the then outstanding securities entitled to vote generally in the election of directors of the reorganized, merged, or consolidated company, or a liquidation or dissolution of Tribune Company, or the sale of all or substantially all of the assets of Tribune Company. 5. Amount and Payment of Transitional Compensation. A Participant who is eligible for transitional compensation shall receive: (a) A lump-sum cash payment, payable within 30 calendar days after the date on which his employment terminates, in an amount equal to the sum of: (i) For Tier I Participants, three (3) multiplied by the sum of the Participant's highest annual rate of Base Salary in effect within the three years prior to or upon the effective date of termination, and by the Participant's average annual bonus paid over the prior three years, or shorter period equal to the Participant's total years of prior service (a target bonus will be paid to Participants with less than one year of prior service); or (ii) For Tier II Participants, two (2) multiplied by the sum of the Participant's highest annual rate of Base Salary in effect within the three years prior to or upon the effective date of termination, and by the Participant's average annual bonus paid over the prior three years, or shorter period equal to the Participant's total years of prior service (a target bonus will be paid to Participants with less than one year of prior service); (b) Outplacement services at a qualified agency selected by Tribune Company; (c) Continuation of coverage under his employer's group medical, group life, and group long-term disability plans, if any, and under any policy or policies of "split dollar" life insurance maintained by his employer, until the earliest to occur of: (i) The expiration of 36 months for Tier I Participants, and the expiration of 24 months for Tier II Participants, from the date on which his employment terminates; or (ii) The date on which he obtains comparable coverage provided by a new employer. For purposes of this paragraph 5, a Participant's annual rate of base salary shall be determined prior to any reduction for deferred compensation, "401(k)" plan contributions, and similar items, provided that any reduction in a Participant's annual rate of salary, group insurance or split dollar coverage, occurring within 36 months after a Change in Control shall be disregarded, and the payments and coverage under this paragraph shall be governed by the annual salary, group insurance and split dollar coverage, provided to such Participant immediately prior to such reduction. 6. Taxes. If, for any reason, any part or all of the amounts payable to a Tier I or Tier II Participant pursuant to the Plan (or otherwise, if such amounts are paid by Tribune Company or any of its subsidiaries after there has been a Change in Control) are deemed to be "excess parachute payments" within the meaning of Section 280G(b)(1) of the Internal Revenue 3 Code of 1986, as amended (the "Code"), Tribune Company shall pay to such Participant, in addition to any other amounts that he may be entitled to receive pursuant to the Plan, an amount which, after all federal, state, and local taxes (of whatever kind) imposed on the Participant with respect to such amount are subtracted therefrom, is equal to the excise taxes imposed on such excess parachute payments pursuant to Section 4999 of the Code. 7. No Funding of Transitional Compensation. Nothing herein contained shall require or be deemed to require Tribune Company or a subsidiary to segregate, earmark, or otherwise set aside any funds or other assets to provide for any payments required to be made hereunder, and the rights of a terminating Participant to transitional compensation hereunder shall be solely those of a general, unsecured creditor of Tribune Company. However, Tribune Company may, in its discretion, deposit cash or property, or both, equal in value to all or a portion of the amounts anticipated to be payable hereunder for any or all Participants into a trust, the assets of which are to be distributed at such times as are provided for in the Plan; provided that such assets shall be subject at all times to the rights of Tribune Company's general creditors. 8. Death. In the event of a Participant's death, any amount or benefit payable or distributable to him pursuant to paragraph 5(a) and paragraph 6 shall be paid to the beneficiary designated by such Participant for such purpose in the last written instrument received by the Committee prior to the Participant's death, if any, otherwise, to the Participant's estate. 9. Rights in the Event of Dispute. If a claim or dispute arises concerning the rights of a Participant or beneficiary to benefits under the Plan, regardless of the party by whom such claim or dispute is initiated, Tribune Company shall, upon presentation of appropriate vouchers, pay all legal expenses, including reasonable attorneys' fees, court costs, and ordinary and necessary out-of-pocket costs of attorneys, billed to and payable by the Participant or by anyone claiming under or through the Participant (such person being hereinafter referred to as the Participant's "claimant"), in connection with the bringing, prosecuting, defending, litigating, negotiating, or settling such claim or dispute; provided that: (a) The Participant or the Participant's claimant shall repay to Tribune Company any such expenses theretofore paid or advanced by Tribune Company if and to the extent that the party disputing the Participant's rights obtains a judgment in its favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, and it is determined that such expenses were not incurred by the Participant or the Participant's claimant while acting in good faith; provided further that (b) In the case of any claim or dispute initiated by a Participant or the Participant's claimant, such claim shall be made, or notice of such dispute given, with specific reference to the provisions of this Plan, to the Committee within one year after the occurrence of the event giving rise to such claim or dispute. 10. Amendment or Termination. The Board of Directors of Tribune Company reserves the right to amend, modify, suspend, or terminate the Plan at any time; provided that: 4 (a) Without the consent of the Participant, no such amendment, modification, suspension, or termination shall reduce or diminish his right to receive any payment or benefit which becomes due and payable under the Plan as then in effect by reason of his termination of employment prior to the date on which such amendment, modification, suspension, or termination becomes effective; and (b) No such amendment, modification, suspension, or termination which has the effect of reducing or diminishing the right of any Participant to receive any payment or benefit under the Plan will become effective prior to the expiration of the 36 consecutive month period commencing on the date of a Change in Control, if such amendment, modification, suspension, or termination was effected: (i) on the day of or subsequent to the Change in Control; (ii) prior to the Change in Control, but at the request of any third party participating in or causing the Change in Control; or (iii) otherwise in connection with or in anticipation of a Change in Control. 11. No Obligation to Mitigate Damages. In the event a Participant becomes eligible to receive benefits hereunder, the Participant shall have no obligation to seek other employment in an effort to mitigate damages. To the extent a Participant shall accept other employment after his termination of employment, the compensation and benefits received from such employment shall not reduce any compensation and benefits due under this Plan, except as provided in paragraph 5(c). 12. Other Benefits. The benefits provided under the Plan shall, except to the extent otherwise specifically provided herein, be in addition to, and not in derogation or diminution of, any benefits that a Participant or his beneficiary may be entitled to receive under any other plan or program now or hereafter maintained by Tribune Company or by any of its subsidiaries. 13. Successors. (a) Tribune Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of Tribune Company, to expressly assume and agree to perform Tribune Company's obligations under this Plan in the same manner and to the same extent that Tribune Company would be required to perform them if no such succession had taken place unless, in the opinion of legal counsel mutually acceptable to a majority of the Participants, such obligations have been assumed by the successor as a matter of law. Failure of Tribune Company to obtain such agreement prior to the effectiveness of any such succession (unless the foregoing opinion is rendered to the Participants) shall entitle each Participant to terminate his employment and to receive the payments provided for in paragraphs 5 and 6 above. As used in this Plan, "Tribune Company" shall mean such company, as presently constituted, and any successor to its business and/or assets which executes and delivers the agreement provided for in this paragraph 13 or which otherwise becomes bound by all the terms and provisions of the Plan as a matter of law. (b) A Participant's rights under this Plan shall inure to the benefit of, and shall be enforceable by, the Participant's legal representative or other successors in interest, but shall not otherwise be assignable or transferable. 5 14. Notices. Any notices referred to herein shall be in writing and shall be sufficient if delivered in person or sent by U.S. registered or certified mail to the Participant at his address on file with his employer (or to such other address as the Participant shall specify by notice), or to Tribune Company at 435 North Michigan Avenue, Chicago, Illinois 60611, Attention: Governance and Compensation Committee. 15. Waiver. Any waiver of any breach of any of the provisions of the Plan shall not operate as a waiver of any other breach of such provisions or any other provisions, nor shall any failure to enforce any provision of the Plan operate as a waiver of any party's right to enforce such provision or any other provision. 16. Severability. If any provision of the Plan or the application thereof is held invalid or unenforceable by a court of competent jurisdiction, the invalidity or unenforceability thereof shall not affect any other provisions or applications of this Plan which can be given effect without the invalid or unenforceable provision or application. 17. Governing Law. The validity, interpretation, construction, and performance of the Plan shall be governed by the laws of the state of Illinois. 18. Headings. The headings and paragraph designations of the Plan are included solely for convenience of reference and shall in no event be construed to effect or modify any provisions of the Plan. 19. Gender and Number. In the Plan where the context admits, words in any gender shall include the other gender, words in the plural shall include the singular, and words in the singular shall include the plural. 6 EX-10.9 3 SUPPLEMENTAL DEFINED CONTRIBUTION PLAN Exhibit 10.9 TRIBUNE COMPANY --------------- SUPPLEMENTAL DEFINED CONTRIBUTION PLAN -------------------------------------- (As in effect January 1, 1999) TRIBUNE COMPANY SUPPLEMENTAL DEFINED CONTRIBUTION PLAN ------------------------------------------------------ (As in effect January 1, 1999) SECTION 1 --------- Introduction ------------ 1.1. The Plan. TRIBUNE COMPANY SUPPLEMENTAL DEFINED CONTRIBUTION PLAN (the "Plan"), as set forth herein, has been established by TRIBUNE COMPANY, a Delaware corporation (the "Company"), effective January 1, 1994 (the "Effective Date"). 1.2. Purpose. The Company and certain of its subsidiaries maintain, and are Employers under, the Tribune Company Employee Stock Ownership Plan (the "ESOP") which is intended to constitute an employee stock ownership plan that meets the requirements for qualification under Sections 401(a) and 4975(e)(7) of the Internal Revenue Code. Sections 401(a)(17) and 404(l) of the Internal Revenue Code limit the amount of employees' annual compensation that may be taken into account after December 31, 1993 in determining the amount of deductible Employer contributions that may be allocated to their accounts under a qualified employee stock ownership plan or other qualified defined contribution plan, to $150,000 (subject to cost-of-living adjustments of that amount calculated as described in said Section 401(a)(17)) (the "Compensation Limitation"). The purpose of this Plan is to provide for Participants in this Plan the amount of Employer contributions that would have been allocated to their respective accounts under the ESOP but for the Compensation Limitation. 1.3. Employers. The Company and each subsidiary of the Company that is an Employer under the ESOP shall be an "Employer" under this Plan unless specified to the contrary by the Company by written notice filed with the Committee described in subsection 1.4. 1.4. Plan Administration. The Plan will be administered by the Governance and Compensation Committee of the Board of Directors of the Company (or such successor committee of said Board as shall from time to time have responsibility for compensation matters) (the "Committee"). The Committee has, to the extent appropriate and in addition to the powers described in subsection 2.1 below, the same powers, rights, duties and obligations with respect to the Plan as the Administrative Committee under the ESOP has with respect to that plan. The Committee's determinations hereunder need not be uniform, and may be made selectively among eligible employees, whether or not they are similarly situated. The Plan will be administered on the basis of a "Plan Year" which is each calendar year beginning on or after the Effective Date. SECTION 2 --------- Participation and Supplemental Benefits --------------------------------------- 2.1. Eligibility. Subject to the conditions and limitations of the Plan, each Employee of an Employer on or after the Effective Date who is a participant in the ESOP shall become a "Participant" under this Plan, entitled to "Supplemental Benefits" payable under this Plan, as of the first day of the first plan year under the ESOP which begins on or after the Effective Date, and during which: (a) such participant under the ESOP has been designated by the Board of Directors of the Company (by resolutions adopted on December 14, 1993) or thereafter by the Committee (by a written instrument filed with the Secretary of the Company) as being part of a select group of management or highly compensated employees covered by this Plan, and such designation has not been revoked by the Committee; provided, that no revocation of a designation under this subparagraph (a) shall be effective if made (i) on the day of, or within 36 months after, the occurrence of a "Change-In-Control" (as defined in subsection 3.1 below), (ii) prior to a Change-In-Control but at the request of any third party participating in or causing the Change-In-Control, or (iii) otherwise in connection with or in anticipation of a Change-In- Control; and (b) the Compensation (as defined in the ESOP) of such participant under the ESOP is greater than the Compensation Limitation. In the event of the death of such a Participant, his beneficiary shall be entitled to participate in the Plan as of the date benefit payments to such beneficiary commence under the Plan, to the extent provided by the following subsections of the Plan. 2.2. Amount of Supplemental Benefits. The Committee shall maintain or cause to be maintained in the records of the Plan a separate account in the name of each Participant. As of the last day of each Plan Year that ends after the date as of which he first became a Participant, the Committee shall: 2 (a) First, charge to each Participant's account all payments (if any) made from that account since the last day of the preceding Plan Year that have not been charged previously; (b) Next, increase the net credit balance in each Participant's account, as adjusted as described in subparagraph (a) above, by 7.75 percent thereof; and (c) Finally, credit each Participant's account with an amount, expressed as cash, equal to the difference between (i) the value of the number of shares of Company Stock that would have been credited to the Participant's accounts under the ESOP for that Plan Year pursuant to subparagraph 5.2(d) of the ESOP if there had been no Compensation Limitation in effect for that Plan Year and (ii) the value of the number of shares of Company Stock that were in fact credited to the Participant's accounts under the ESOP for that Plan Year pursuant to subparagraph 5.2(d) of the ESOP after application of the Compensation Limitation actually in effect for that Plan Year. A Participant's Supplemental Benefits under the Plan as of any Valuation Date shall be the Nonforfeitable Percentage (determined in accordance with the vesting schedule under the ESOP) of the net credit balance in his account under this Plan as of that Valuation Date. 2.3. Payment of Supplemental Benefits. The Supplemental Benefits that a Participant (or, in the event of the Participant's death, the Participant's beneficiary) becomes entitled to receive under the Plan on account of the retirement, other termination of employment or death of the Participant on or after the Effective Date shall be paid at the same time and in the same manner as benefits that are to be paid to the Participant (or his beneficiary) under the Tribune Company Bonus Deferral Plan. Notwithstanding any other provision of this Plan to the contrary, the Committee, in its sole discretion, is empowered to accelerate the payment of a Participant's Supplemental Benefits or of all Participants' Supplemental Benefits, to a smaller number of installment payments or to a single lump sum payment, for any reason the Committee may determine to be appropriate. Neither the Employers nor the Committee shall have any obligation to make any such acceleration for any reason whatsoever. 2.4. Funding. Supplemental Benefits payable under this Plan to a Participant or his beneficiary shall be paid (i) directly by the Employers from their general assets and/or (ii) from Tribune Company Deferred Benefit Trust, in such proportions as the Company shall determine. The provisions of this Plan shall not require that the Employers segregate on their 3 books or otherwise any amount to be used for payment of Supplemental Benefits under this Plan, except as to any amounts paid or payable to Tribune Company Deferred Benefit Trust. SECTION 3 --------- General Provisions ------------------ 3.1. Terms. References in this Plan to an individual as being a "participant" in the ESOP and (unless expressly provided to the contrary in this Plan) terms used in this Plan that also are used in the ESOP as to that individual shall have the meanings for those terms set forth in the ESOP, except that a reference in this Plan to the "beneficiary" of a Participant shall mean for purposes of this Plan any person who becomes entitled to benefits under the ESOP because of the Participant's death. For purposes of this Plan, a "subsidiary" of the Company shall mean any corporation, more than 50% of the voting stock in which is owned, directly or indirectly, by the Company, and the term "Change-In-Control" shall mean a change in control as defined in the Tribune Company Transitional Compensation Plan for Executive Employees as in effect on the Effective Date of this Plan. 3.2. Employment Rights. Establishment of the Plan shall not be construed to give any participant in the ESOP the right to be retained in the service of the Company or any of its subsidiaries or to any benefits not specifically provided by the Plan. 3.3. Interests Not Transferable. Except as to withholding of any tax under the laws of the United States or any state or municipality, the interests of Participants and any other persons who become entitled to a Supplemental Benefit under the Plan are not subject to the claims of their creditors and may not be voluntarily or involuntarily transferred, assigned, alienated or encumbered. 3.4. Controlling Law. To the extent not superseded by the laws of the United States, the laws of Illinois shall be controlling in all matters relating to the Plan. 3.5. Gender and Number. Where the context admits, words in the masculine gender shall include the feminine and neuter genders, the plural shall include the singular and the singular shall include the plural. 4 3.6. Action by the Company. Any action required of or permitted by the Company under the Plan shall be by resolution of its Board of Directors or by a duly authorized committee of its Board of Directors, or by any person or persons authorized by resolution of its Board of Directors or such committee. 3.7. Successor to the Company or Any Other Employer. The term "Company" as used in the Plan shall include any successor to the Company by reason of merger, consolidation, the purchase or transfer of all or substantially all of the Company's assets, or otherwise. The term "Employer" as used in the Plan with respect to the Company or any of its subsidiaries shall include any successor to that corporation by reason of merger, consolidation, the purchase or transfer of all or substantially all of the assets of that corporation, or otherwise. 3.8. Facility of Payment. Any amounts payable under this Plan to any person under a legal disability or who, in the judgment of the Committee, is unable to properly manage his affairs may be paid to the legal representative of such person or may be applied for the benefit of such person in any manner which the Committee may select. 3.9. Rights in the Event of Dispute. If a claim or dispute arises concerning the rights of a Participant or beneficiary to benefits under the Plan, regardless of the party by whom such claim or dispute is initiated, the Company shall, upon presentation of appropriate vouchers, pay all legal expenses, including reasonable attorneys' fees, court costs, and ordinary and necessary out-of-pocket costs of attorneys, billed to and payable by the Participant or by anyone claiming under or through the Participant (such person being hereinafter referred to as the Participant's "claimant"), in connection with the bringing, prosecuting, defending, litigating, negotiating, or settling of such claim or dispute; provided, that: (a) the Participant or the Participant's claimant shall repay to the Company any such expenses theretofore paid or advanced by the Company if and to the extent that the party disputing the Participant's rights obtains a judgment in its favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, and it is determined that such expenses were not incurred by the Participant or the Participant's claimant while acting in good faith; provided further, that (b) in the case of any claim or dispute initiated by a Participant or the Participant's claimant, such claim shall be made, or notice of such dispute given, with specific reference to the provisions of this Plan, to 5 the Committee within one year after the occurrence of the event giving rise to such claim or dispute. 3.10. Other Benefits. The benefits provided under the Plan shall, except to the extent otherwise specifically provided herein, be in addition to, and not in derogation or diminution of, any benefits that a Participant or his beneficiary may be entitled to receive under any other plan or program now or hereafter maintained by the Company or by any of its subsidiaries. SECTION 4 --------- Amendment and Termination ------------------------- While the Company and its subsidiaries that become Employers expect to continue the Plan, the Company must necessarily reserve and reserves the right to amend the Plan from time to time or to terminate the Plan at any time. However, neither an amendment of the Plan nor termination of the Plan may: (a) cause the reduction or cessation of any Supplemental Benefits (and of the Employers' obligation to provide such benefits) which had accrued as of the date such amendment is made or the termination of the Plan occurs and which, but for such amendment or termination, are payable under this Plan on, or would become payable under this Plan after, the date such amendment is made or the termination of the Plan occurs; or (b) cause the modification, rescission or revocation of (i) the provisions of subsection 2.1 with respect to a Change-In-Control or (ii) any written determinations by the Committee pursuant to subsection 2.3 as to the form of payment of Supplemental Benefits to any person that are in effect on said date. In addition, no amendment or termination of the Plan which has the effect of reducing or diminishing the right of any participant to receive any payment or benefit under the Plan will become effective prior to the expiration of the 36 consecutive month period commencing on the date of a Change-In-Control, if such amendment or termination was adopted (i) on the day of or subsequent to the Change-In-Control, (ii) prior to the Change-In-Control, but at the request of any third party participating in or causing the Change-In-Control, or (iii) otherwise in connection with or in anticipation of a Change-In-Control. 6 EX-12 4 EXHIBIT 12 EXHIBIT 12 TRIBUNE COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (In thousands, except ratios)
Fiscal Year Ended December ---------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Income from continuing operations $414,272 $393,625 $282,750 $245,458 $233,149 Add: Income tax expense 290,817 265,375 191,663 167,076 158,698 Losses on equity investments 33,980 34,696 13,281 13,209 9,739 -------- -------- -------- -------- -------- Subtotal 739,069 693,696 487,694 425,743 401,586 -------- -------- -------- -------- -------- Fixed charge adjustments Add: Interest expense 88,451 86,502 47,779 21,814 20,585 Amortization of capitalized interest 2,068 2,076 2,108 2,253 2,362 Interest component of rental expense (A) 10,671 10,416 9,362 8,200 8,236 -------- -------- -------- -------- -------- Earnings, as adjusted $840,259 $792,690 $546,943 $458,010 $432,769 ======== ======== ======== ======== ======== Fixed charges: Interest expense $ 88,451 $ 86,502 $ 47,779 $ 21,814 $ 20,585 Interest capitalized 1,897 224 168 610 - Interest component of rental expense (A) 10,671 10,416 9,362 8,200 8,236 Interest related to guaranteed ESOP debt (B) 15,578 17,901 20,134 22,057 24,017 -------- -------- -------- -------- -------- Total fixed charges $116,597 $115,043 $ 77,443 $ 52,681 $ 52,838 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 7.2 6.9 7.1 8.7 8.2 ======== ======== ======== ======== ========
(A) Represents a reasonable approximation of the interest cost component of rental expense incurred by the Company. (B) Tribune Company guarantees the debt of its Employee Stock Ownership Plan (ESOP). EX-13 5 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. - -------------------------------------------------------------------------------- | FORWARD-LOOKING STATEMENTS | - -------------------------------------------------------------------------------- This discussion and the information contained in the notes to the consolidated financial statements contain certain forward-looking statements that are based largely on the Company's current expectations. Such forward-looking statements include estimates and statements regarding the Company's plans to address Year 2000 issues and associated costs and risks. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such risks, trends and uncertainties, which in some instances are beyond the Company's control, include changes in advertising demand; newsprint prices; interest rates; regulatory rulings and other economic conditions; the effect of acquisitions, investments and divestitures on the Company's results of operations and financial condition; and the Company's reliance on third-party vendors for various services. The words "believe," "expect," "anticipate," "estimate" and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are as of the date of this filing. - -------------------------------------------------------------------------------- | SIGNIFICANT EVENTS | - -------------------------------------------------------------------------------- [Introductory language appearing in large bold face type reads as follows:] TRIBUNE CONTINUED TO BUILD ITS BROADCASTING AND ENTERTAINMENT SEGMENT BY ACQUIRING EIGHT TELEVISION STATIONS IN THE LAST TWO YEARS. In May 1997, the Company reached an agreement with Emmis Broadcasting Corporation regarding the sale or exchange of the Company's WQCD radio station in New York. Effective July 1, 1997 and in connection with the agreement, Emmis assumed responsibility for certain operations of the station for up to three years for an annual fee of approximately $8 million, after which Emmis had the right to purchase the station. In December 1997, the Company reached an agreement with Emmis to exchange substantially all of the assets of WQCD and cash for the assets of television stations KTZZ-Seattle and WXMI-Grand Rapids, Mich. Emmis agreed to acquire these television stations as part of its acquisition of Dudley Communications Corporation. The exchange was completed in June 1998. The divestiture of WQCD was accounted for as a sale and the acquisition of the television stations was recorded as a purchase. The transaction resulted in a pretax gain of $85 million, which increased diluted earnings per share by $.32. In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WBZL-Miami (formerly WDZL), 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 stations. The temporary waivers were granted subject to the outcome of pending FCC rulemaking that is expected to make such duopoly waivers unnecessary. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The FCC subsequently issued a rule review to consider 25 modifying its cross-ownership rule. In March 1998, the FCC granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Sun-Sentinel newspaper until the rule review was concluded. The Company cannot predict the outcome of the FCC duopoly rulemaking or cross-ownership rule review. In August 1998, the Company reached an agreement with Meredith Corporation to acquire the assets of television station KCPQ-Seattle in exchange for the assets of the Company's WGNX-Atlanta television station and cash. On March 1, 1999 and in a three-way transaction, Meredith purchased KCPQ from Kelly Television Co. and then exchanged the station for WGNX. The divestiture of WGNX will be accounted for as a sale and the acquisition of KCPQ will be recorded as a purchase. The Company will record the assets of KCPQ at fair market value, which will result in an estimated pretax gain of $350 million in the first quarter of 1999. Current FCC regulations preclude the Company from owning both KCPQ and the Company's KTZZ-Seattle television station. As part of the transaction, the Company transferred the assets of KTZZ into a disposition trust. Pursuant to the terms of the disposition trust, an independent trustee is charged with finding a buyer for KTZZ by September 1, 1999. 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 $.66 per diluted share. 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 has been accounted for as a discontinued operation in the Company's consolidated financial statements. - -------------------------------------------------------------------------------- | RESULTS OF OPERATIONS | - -------------------------------------------------------------------------------- The Company's fiscal year ends on the last Sunday in December. Fiscal years 1998, 1997 and 1996 all comprised 52 weeks. Acquisitions - -------------------------------------------------------------------------------- The Company completed several acquisitions in 1998, including the North American Sunshine line of educational materials in January, television stations KTZZ-Seattle and WXMI-Grand Rapids in June, and South Florida Newspaper Network Inc. in September. In 1997, the Company acquired Renaissance Communications Corp. in March, Shortland Publications Limited in September and approximately 80% of Landoll, Inc. in December. 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. The results of these businesses have been included in the consolidated financial statements since their respective dates of acquisition. 26 Non-Recurring Items - -------------------------------------------------------------------------------- In 1998, the Company sold its WQCD radio station subsidiary, sold a portion of its investment portfolio and wrote down certain investments. In the aggregate, the sales of the subsidiary and investments, net of write-downs, resulted in a pretax gain of $119 million and increased diluted earnings per share by $.48. These non-recurring items are summarized as follows:
Shares Pretax Diluted 1998 (in millions, except per share data) Sold Proceeds Gain EPS ===================================================================================================== Sale of WQCD subsidiary - $ - $ 85 $.32 Sales of common stock America Online .2 14 14 .06 The Learning Company .6 17 11 .05 Other sales of investments, net of write-downs 21 9 .05 - ----------------------------------------------------------------------------------------------------- Sales of subsidiary and investments, net of write-downs $52 $119 $.48 - -----------------------------------------------------------------------------------------------------
In 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. In the aggregate, these sales of investments, net of write-downs, resulted in a pretax gain of $112 million and increased diluted earnings per share by $.51. These non-recurring items are summarized as follows:
Shares Pretax Diluted 1997 (in millions, except per share data) Sold Proceeds Gain (Loss) EPS ===================================================================================================== Sales of common stock America Online 2.6 $134 $131 $.60 CheckFree 2.2 46 35 .16 Open Market 1.0 14 11 .05 Gemstar International .7 17 10 .05 The Learning Company Sale of convertible notes 123 7 .03 Write-down of stock - (77) (.35) Other sales of investments, net of write-downs 9 (5) (.03) - ----------------------------------------------------------------------------------------------------- Sales of investments, net of write-downs $343 $112 $.51 - -----------------------------------------------------------------------------------------------------
In March 1997, the Company sold its Farm Journal subsidiary for approximately $17 million in cash. The Company had acquired Farm Journal in 1994 for approximately $17 million. In June 1997, the Company completed the sale of a building in Fort Lauderdale, which is approximately 35% occupied by the Company's Sun-Sentinel newspaper subsidiary. The Company received proceeds of approximately $43 million and deferred, under sale and leaseback accounting rules, the pretax gain of approximately $11 million, which is being amortized over the Sun-Sentinel's 14-year lease term. In December 1996, the Company recorded non-recurring equity income 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. This income increased diluted earnings per share by $.04. 27 Consolidated - -------------------------------------------------------------------------------- The Company's consolidated financial results for 1998, 1997 and 1996 were as follows:
CHANGE ---------------- (In millions, except per share data) 1998 1997 1996 98-97 97-96 ============================================================================================================ Operating revenues $2,981 $2,720 $2,405 + 10% + 13% Operating profit 702 642 503 + 9% + 28% Net loss on equity investments (34) (35) (13) - 2% + 161% Sales of subsidiary and investments, net of write-downs (non-recurring) 119 112 - + 7% * Income Continuing operations Before non-recurring items 351 325 277 + 8% + 17% Non-recurring items 63 69 6 - 8% * Total 414 394 283 + 5% + 39% Discontinued operations - - 89 - * Net income 414 394 372 + 5% + 6% Diluted earnings per share Continuing operations Before non-recurring items 2.53 2.30 1.94 + 10% + 19% Non-recurring items .48 .51 .04 - 6% * Total 3.01 2.81 1.98 + 7% + 42% Discontinued operations - - .66 - * Net income 3.01 2.81 2.64 + 7% + 6% - ------------------------------------------------------------------------------------------------------------ * Not meaningful
Earnings Per Share -- Diluted earnings per share in 1998 was $2.53, up 10% from $2.30 in 1997, excluding non-recurring items. The increase was due to improvements in all three business segments and fewer shares outstanding, partially offset by higher net interest expense. Diluted earnings per share from continuing operations in 1997 was $2.30, up 19% from $1.94 in 1996, excluding non-recurring items. The improvement was primarily due to gains in broadcasting and entertainment and publishing, partially offset by higher net interest expense. In the aggregate, non-recurring items increased diluted earnings per share from continuing operations by $.48 in 1998, $.51 in 1997 and $.04 in 1996. Weighted average common shares outstanding decreased 1% in 1998 and were flat in 1997. 28 Operating Revenues and Profit -- Consolidated operating revenues, EBITDA and operating profit by business segment were as follows:
CHANGE -------------- (In millions) 1998 1997 1996 98-97 97-96 ====================================================================================================== Operating revenues Publishing $1,499 $1,437 $1,336 + 4% + 7% Broadcasting and Entertainment 1,153 1,057 877 + 9% + 21% Education 329 226 192 + 46% + 17% - ------------------------------------------------------------------------------------------------------ Total operating revenues $2,981 $2,720 $2,405 + 10% + 13% - ------------------------------------------------------------------------------------------------------ EBITDA (1) Publishing $ 457 $ 430 $ 372 + 6% + 15% Broadcasting and Entertainment 405 363 249 + 12% + 46% Education 69 54 54 + 27% + 1% Corporate expenses (33) (32) (29) - 2% - 12% - ------------------------------------------------------------------------------------------------------ Total EBITDA $ 898 $ 815 $ 646 + 10% + 26% - ------------------------------------------------------------------------------------------------------ Operating profit Publishing $ 377 $ 354 $ 291 + 6% + 22% Broadcasting and Entertainment 317 286 204 + 11% + 40% Education 43 36 39 + 20% - 9% Corporate expenses (35) (34) (31) - 3% - 11% - ------------------------------------------------------------------------------------------------------ Total operating profit $ 702 $ 642 $ 503 + 9% + 28% - ------------------------------------------------------------------------------------------------------
(1) EBITDA is defined as earnings before interest, taxes, depreciation, amortization, equity results and non-recurring items. The Company has presented EBITDA because it is comparable to the data provided by other companies in the industry and is a common alternative measure of performance. EBITDA does not represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flows, is not a measure of financial performance under generally accepted accounting principles ("GAAP") and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Consolidated operating revenues increased 10%, or $261 million, in 1998; and 13%, or $315 million, in 1997, with all three segments reporting improvements in both years. [Introductory language appearing in large bold face type reads as follows:] CONSOLIDATED OPERATING PROFIT ROSE TO A RECORD $702 MILLION, DUE TO STRONG REVENUE GROWTH FROM ALL SEGMENTS. Consolidated operating profit increased 9%, or $60 million, in 1998 as all three segments reported gains. Broadcasting and entertainment operating profit rose 11% due to growth in television as a result of improvements at existing stations and the acquisitions of six Renaissance stations (in March 1997) and KTZZ-Seattle and WXMI-Grand Rapids (in June 1998). Publishing operating profit grew 6% mainly due to higher advertising revenues, partially offset by increased newsprint and ink expense. Education operating profit improved 20% due to growth at existing businesses and acquisitions. Consolidated operating profit increased 28%, or $139 million, in 1997 due to increases in broadcasting and entertainment and publishing. Broadcasting and entertainment operating profit was up 40% as a result of significant growth in television with the acquisition of six Renaissance stations and improvements at existing stations. Publishing operating profit was up 22% primarily due to higher advertising revenues and lower newsprint expense. Education operating profit decreased 9% due to lower sales at Educational Publishing Corporation's Creative Publications division, partially offset by improvements at the other education companies. Consolidated 1998 EBITDA increased 10%, or $83 million, and 1997 EBITDA grew 26%, or $169 million, with all three segments reporting gains in both years. 29 Operating Expenses -- Consolidated operating expenses were as follows:
CHANGE -------------- (In millions) 1998 1997 1996 98-97 97-96 ==================================================================================================== Cost of sales $1,391 $1,255 $1,195 + 11% + 5% Selling, general and administrative 692 650 564 + 6% + 15% Depreciation and amortization of intangible assets 196 173 143 + 13% + 21% - ---------------------------------------------------------------------------------------------------- Total operating expenses $2,279 $2,078 $1,902 + 10% + 9% - ----------------------------------------------------------------------------------------------------
Cost of sales increased 11%, or $136 million, in 1998 due to the 1997 and 1998 acquisitions. Excluding the acquisitions and dispositions ("on a comparable basis"), cost of sales increased 5%, or $65 million, due to higher compensation costs, increased broadcast rights amortization and higher newsprint and ink expense. Compensation costs rose 5%, or $19 million. Broadcast rights amortization grew 7%, or $16 million, largely due to higher program costs at Tribune Entertainment. Newsprint and ink expense increased 6%, or $14 million, as both average newsprint prices and consumption rose 3%. Cost of sales increased 5%, or $60 million, in 1997 due to the 1996 and 1997 acquisitions. On a comparable basis, cost of sales increased 1%, or $14 million, due to higher compensation costs, increased newspaper manufacturing and distribution costs (including increased costs for supplies, outside services and delivery of other products) and increased expenses for development activities, partially offset by lower newsprint and ink expense and reduced broadcast rights amortization. Compensation costs increased 8%, or $29 million, and newspaper manufacturing and distribution costs were up 10%, or $16 million. Newsprint and ink expense decreased 10%, or $25 million, as average newsprint transaction prices declined 15% while consumption increased 5%. Broadcast rights amortization decreased 6%, or $15 million. Selling, general and administrative ("SG&A") expense increased 6%, or $42 million, in 1998 mainly due to acquisitions. On a comparable basis, SG&A expense increased 1%, or $4 million. SG&A expense increased 15%, or $86 million, in 1997 partially due to the 1996 and 1997 acquisitions. On a comparable basis, SG&A expense increased 10%, or $49 million, in 1997 primarily due to higher compensation expense of 15%, or $35 million, increased promotion expenses at the Company's newspapers and higher expenses for development activities. The increase in depreciation and amortization of intangible assets in both 1998 and 1997 was principally due to acquisitions and capital expenditures. Publishing - -------------------------------------------------------------------------------- Operating Revenues and Profit -- The following table presents publishing operating revenues, EBITDA and operating profit for daily newspapers and other publications/services/development. The latter category includes syndication of editorial products, advertising placement services, niche publications, direct mail operations and Internet/electronic products. 30
CHANGE -------------- (In millions) 1998 1997 1996 98-97 97-96 ========================================================================================================== Operating revenues Daily newspapers $1,395 $1,359 $1,266 + 3% + 7% Other publications/services/development 104 78 70 + 33% + 11% - ---------------------------------------------------------------------------------------------------------- Total operating revenues $1,499 $1,437 $1,336 + 4% + 7% - ---------------------------------------------------------------------------------------------------------- EBITDA Daily newspapers $ 463 $ 435 $ 383 + 7% + 13% Other publications/services/development (6) (5) (11) - 27% + 55% - ---------------------------------------------------------------------------------------------------------- Total EBITDA $ 457 $ 430 $ 372 + 6% + 15% - ---------------------------------------------------------------------------------------------------------- Operating profit Daily newspapers $ 392 $ 367 $ 310 + 7% + 19% Other publications/services/development (15) (13) (19) - 15% + 29% - ---------------------------------------------------------------------------------------------------------- Total operating profit $ 377 $ 354 $ 291 + 6% + 22% - ----------------------------------------------------------------------------------------------------------
Publishing operating revenues increased 4%, or $62 million, in 1998 and 7%, or $101 million, in 1997 principally due to higher advertising revenues in both years. Advertising revenues increased 4%, or $46 million, in 1998 and 8%, or $85 million, in 1997. Operating profit rose 6%, or $23 million, in 1998 mainly due to higher advertising revenues at all four newspapers, partially offset by higher newsprint and ink expense. Operating profit increased 22%, or $63 million, in 1997 as all four newspapers reported higher advertising revenues and lower newsprint and ink expense. Daily newspaper operating margins were 28.1% in 1998, 27.1% in 1997 and 24.5% in 1996. Total publishing operating revenues by classification were as follows: CHANGE ------------- (In millions) 1998 1997 1996 98-97 97-96 =============================================================================== Advertising Retail $ 469 $ 455 $ 433 + 3% + 5% General 155 150 141 + 3% + 6% Classified 538 511 457 + 5% + 12% - ------------------------------------------------------------------------------- Total advertising 1,162 1,116 1,031 + 4% + 8% Circulation 244 250 252 - 3% - 1% Other 93 71 53 + 31% + 32% - ------------------------------------------------------------------------------- Total operating revenues $1,499 $1,437 $1,336 + 4% + 7% - ------------------------------------------------------------------------------- Advertising revenues grew in 1998 due to both linage and rate increases, as well as for the acquisition of South Florida Newspaper Network. Retail advertising revenues, excluding South Florida Newspaper Network, rose 2% mainly due to improvements in hardware advertising in Chicago and Fort Lauderdale; movies and food and drug advertising in Chicago; department store advertising in Fort Lauderdale; and also due to higher Internet advertising. General advertising revenues increased primarily due increased transportation and high-tech advertising in Chicago. Classified advertising revenues rose mainly due to higher help wanted advertising at all of the newspapers; increased automotive advertising in Chicago and Fort Lauderdale; and higher Internet advertising. 31 Advertising revenues were higher in 1997 due to both linage and rate increases. The increase in retail advertising revenues was primarily due to improvements in the movie and electronics categories in Chicago, and the department store and health care categories in Orlando and Fort Lauderdale. The increase in general advertising revenues was mainly due to growth in the resorts, transportation and high-tech categories in Chicago and the telecommunications, movie and transportation categories in Fort Lauderdale. Classified advertising revenues were up mainly due to increases in help wanted advertising at all of the newspapers. Advertising linage for 1998, 1997 and 1996 was as follows: CHANGE ------------- Inches (In thousands) 1998 1997 1996 98-97 97-96 =============================================================================== Full run Retail 3,706 3,707 3,638 - + 2% General 821 799 755 + 3% + 6% Classified 6,777 6,469 6,341 + 5% + 2% - ------------------------------------------------------------------------------- Total full run 11,304 10,975 10,734 + 3% + 2% Part run 9,897 10,014 9,369 - 1% + 7% Preprint 10,666 9,538 8,436 + 12% + 13% - ------------------------------------------------------------------------------- Total inches 31,867 30,527 28,539 + 4% + 7% - ------------------------------------------------------------------------------- [Introductory language appearing in large bold face type reads as follows:] DAILY NEWSPAPERS AND INTERNET PRODUCTS CONTINUED TO GENERATE STRONG ADVERTISING REVENUES. Total advertising linage increased 4% in 1998 due to gains at all four of the newspapers. Full run general advertising linage was up 3% due to increases in Orlando and Chicago. Full run classified advertising linage rose 5% due to increases in Fort Lauderdale and Newport News. Preprint advertising linage increased 12% due to gains at all of the newspapers. Total advertising linage increased 7% in 1997 due to growth at all four of the newspapers. Full run retail advertising linage was up 2% due to increases in Orlando, Fort Lauderdale and Newport News. Full run general advertising linage increased 6% due to gains at all of the newspapers. Full run classified advertising linage rose 2% due to increases in Chicago and Newport News. Part run advertising linage increased 7% mainly due to higher classified in Chicago. Preprint advertising linage grew 13% due to increases at all four newspapers. Circulation revenues declined 3% in 1998 mainly due to lower Sunday copy sales and selective promotional discounting in Chicago. Circulation revenues decreased 1% in 1997 primarily due to lower daily and Sunday copy sales. Total average daily circulation was up slightly in 1998 to 1,271,000 from 1,270,000 copies in 1997, while total average Sunday circulation declined less than 1% to 1,899,000 from 1,900,000 copies in 1997. Total average daily circulation was down 2% in 1997 to 1,270,000 from 1,291,000 copies in 1996, and total average Sunday circulation fell 1% to 1,900,000 in 1997 from 1,927,000 copies in 1996. Other revenues are derived from advertising placement services; the syndication of columns, features, information and comics to newspapers; commercial printing operations; delivery of other publications; direct mail operations; revenues from Internet/electronic products; cable news programming; and other publishing-related activities. The increase in other revenues in 1998 resulted mainly from higher revenues from direct mail operations, commercial printing operations and Internet/electronic products. Other revenues rose in 1997 primarily due to increased revenues from the delivery of other publications, higher commercial printing and direct mail revenues and increased revenues from Internet/electronic products. 32 Operating Expenses -- Publishing operating expenses rose 4%, or $39 million, in 1998. The increase was mainly due to increased newsprint and ink expense, higher compensation expense, increased expenses for development activities and higher Year 2000 compliance expenses, partially offset by lower expenses for circulation and promotion. Newsprint and ink expense grew 6%, or $14 million, as both average newsprint prices and consumption rose 3%. Compensation expenses rose 2%, or $10 million. Development spending, primarily for Internet activities, rose $8 million in 1998. Publishing operating expenses increased 4%, or $37 million, in 1997. This growth was due to higher compensation expense of 9%, or $33 million, higher newspaper manufacturing and distribution costs of $16 million, increased expenses for development activities of $11 million and higher promotion costs. These increases were partially offset by a decline in newsprint and ink expense of 10%, or $25 million, as average newsprint prices were down 15% while consumption increased 5%. Broadcasting and Entertainment - -------------------------------------------------------------------------------- Operating Revenues and Profit -- The following table presents broadcasting and entertainment operating revenues, EBITDA and operating profit for television, radio and entertainment/other. Entertainment/other includes Tribune Entertainment and the Chicago Cubs.
CHANGE --------------- (In millions) 1998 1997 1996 98-97 97-96 =================================================================================================== Operating revenues Television $ 964 $ 861 $681 + 12% + 27% Radio 53 72 89 - 27% - 20% Entertainment/other 136 124 107 + 9% + 16% - --------------------------------------------------------------------------------------------------- Total operating revenues $1,153 $1,057 $877 + 9% + 21% - --------------------------------------------------------------------------------------------------- EBITDA Television $ 385 $ 336 $228 + 15% + 48% Radio 19 24 16 - 19% + 44% Entertainment/other 1 3 5 - 70% - 37% - --------------------------------------------------------------------------------------------------- Total EBITDA $ 405 $ 363 $249 + 12% + 46% - --------------------------------------------------------------------------------------------------- Operating profit Television $ 303 $ 268 $191 + 13% + 40% Radio 17 20 13 - 17% + 61% Entertainment/other (3) (2) - - 32% * - --------------------------------------------------------------------------------------------------- Total operating profit $ 317 $ 286 $204 + 11% + 40% - --------------------------------------------------------------------------------------------------- *Not meaningful
Broadcasting and entertainment revenues rose 9%, or $96 million, in 1998 primarily due to gains in television. Television revenues increased 12%, or $103 million, due to the acquisitions of six Renaissance stations (in March 1997), KTZZ-Seattle and WXMI-Grand Rapids (in June 1998) and growth at existing stations. Excluding acquisitions, television revenues were up 5%. Radio revenues declined 27% in 1998 mainly due to the divestitures of WQCD (in June 1998) and Farm Journal (in March 1997). Excluding divestitures, radio revenues improved 3%. Entertainment/other revenues increased 9% mainly due to the September 1997 launch of the "Gene Roddenberry's Earth: Final Conflict" and "NightMan" syndicated programs by Tribune Entertainment and higher Cubs revenues. 33 Broadcasting and entertainment revenues increased 21%, or $180 million, in 1997 mainly due to increases in television. Television revenues were up 27%, or $180 million, largely due to the acquisition of the six Renaissance stations in March 1997. Excluding Renaissance, television revenues were up 4%. Radio revenues decreased 20% mainly due to the sale of Farm Journal and the management agreement which transferred station operations of WQCD to Emmis Broadcasting in July 1997. Excluding Farm Journal and WQCD, radio revenues increased 2%. Entertainment/other increased due to higher Cubs revenues and more programs in syndication at Tribune Entertainment. Broadcasting and entertainment operating profit in 1998 grew to a record $317 million, up 11% from 1997, due to increases in television. Television operating profit increased 13%, or $35 million, primarily due to the acquisitions and gains at KTLA-Los Angeles, KHTV-Houston and WLVI-Boston. Excluding the acquisitions, television operating profit improved 10%. Operating profit was up 40%, or $82 million, in 1997 primarily due to increases in television. Television operating profit increased 40%, or $77 million, mainly from the acquisition of Renaissance and gains at KTLA-Los Angeles, WGN-Chicago and WPIX-New York. Excluding Renaissance, television operating profit was up 14%. Radio operating profit increased 61%, or $7 million, due to gains at all of the radio stations. [Introductory language appearing in large bold face type reads as follows:] TELEVISION EBITDA CLIMBED 15% AS MARGINS GREW TO 40% IN 1998. Operating Expenses -- Broadcasting and entertainment operating expenses increased 8%, or $64 million, in 1998 mainly due to the television station acquisitions, increased compensation expense and higher broadcast rights amortization, partially offset by the WQCD and Farm Journal dispositions. Excluding acquisitions and divestitures, broadcasting and entertainment operating expenses increased 4%, or $26 million. Compensation increased 5%, or $11 million, mainly due to increased players' salaries at the Cubs. Broadcast rights amortization rose 7%, or $16 million, largely due to higher program costs at Tribune Entertainment. Broadcasting and entertainment operating expenses increased 15%, or $98 million, in 1997 primarily due to the acquisition of Renaissance. Excluding Renaissance, KSWB-San Diego, Farm Journal and WQCD, broadcasting and entertainment operating expenses increased 2%, or $12 million, due to higher compensation expense of 11%, or $22 million, partially offset by lower broadcast rights amortization. The increase in compensation expense was partially due to higher players' salaries at the Cubs. Broadcast rights amortization decreased $15 million, primarily due to lower amortization for syndicated and feature programming and lower sports rights at KTLA-Los Angeles. Education - -------------------------------------------------------------------------------- Operating Revenues and Profit -- The following table presents education operating revenues, EBITDA and operating profit. CHANGE --------------- (In millions) 1998 1997 1996 98-97 97-96 =============================================================================== Operating revenues $329 $226 $192 + 46% + 17% EBITDA 69 54 54 + 27% + 1% Operating profit 43 36 39 + 20% - 9% - ------------------------------------------------------------------------------- The education segment specializes in learning products and services for use in schools and homes. The segment's primary business is supplemental and core curriculum materials for kindergarten through grade 12. The education segment also derives revenues from the adult basic education and consumer publishing markets. Education operating revenues in 1998 increased 46% to $329 million mainly due to the acquisitions of Landoll (in December 1997) and Shortland (in September 1997) and increased sales to both school and consumer markets at existing businesses. Excluding acquisitions, education revenues increased 9% in 1998, largely due to growth from the Everyday Mathematics curriculum and higher supplemental education sales at Ideal/Instructional Fair. Education operating revenues in 1997 were up 17% to $226 million primarily due to improvements at all of the education businesses except 34 Educational Publishing Corporation's Creative Publications division. Education operating profit increased 20% to $43 million in 1998. The improvement was due to growth at existing businesses and acquisitions. Excluding acquisitions, operating profit rose 12%. Education operating profit was $36 million in 1997, down $3 million from 1996. The decline in operating profit was due to lower sales at Creative Publications, which more than offset improvements at the other education companies. [Introductory language appearing in large bold face type reads as follows:] ACQUISITIONS AND GROWTH FROM EXISTING BUSINESSES DROVE REVENUE GAINS OF 46% Operating Expenses -- Education operating expenses include costs to produce products including paper, printing and binding; amortization of pre-publication costs; and royalty expense. Operating expenses also include sales and marketing, development, fulfillment, depreciation and amortization of intangible assets. Education operating expenses were up 51%, or $97 million, in 1998 mainly due to acquisitions. Excluding acquisitions, operating expenses were up 8%, or $15 million, primarily due to increased cost of sales as a result of higher sales volume and higher marketing and development costs. Education operating expenses were up 24%, or $37 million, in 1997 primarily due to the 1996 and 1997 acquisitions. Excluding acquisitions, 1997 operating expenses were up 13%, or $11 million, as a result of higher compensation expense and increased cost of sales expense at Everyday Learning due to increased sales. Equity Results - -------------------------------------------------------------------------------- CHANGE --------------- (In millions) 1998 1997 1996 98-97 97-96 =============================================================================== Net loss on equity investments $(34) $(35) $(13) - 2% + 161% - ------------------------------------------------------------------------------- Net loss on equity investments relates primarily to the Company's interest in the growing WB Network ("The WB") and various Internet investments. The Company acquired a 13% equity interest in The WB in 1995, and increased its ownership interest to 22% in 1997 and 25% in 1998. Equity losses declined 2% to $34 million in 1998 due to improved results from The WB and Qwest Broadcasting, partially offset by higher losses from Internet investments. Equity losses increased 161% to $35 million in 1997, largely due to increased losses from The WB. In addition, equity results for 1996 included non-recurring equity income 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. Interest Income and Expense - -------------------------------------------------------------------------------- CHANGE ---------------- (In millions) 1998 1997 1996 98-97 97-96 =============================================================================== Interest income $ 6 $ 26 $ 32 - 77% - 18% Interest expense (88) (86) (48) + 2% + 81% - ------------------------------------------------------------------------------- Net interest expense $(82) $(60) $(16) + 37% + 284% - ------------------------------------------------------------------------------- Interest income consists primarily of interest on the Qwest Broadcasting convertible debentures, short-term marketable securities, The Learning Company ("TLC") convertible debentures (sold in December 1997) and a mortgage note receivable from a real estate affiliate (repaid in October 1996). Interest income declined 77% in 1998 primarily due to the sale of the TLC convertible debentures in 1997. Interest income decreased 18% in 1997 primarily due to the repayment of the mortgage note receivable in 1996. Interest expense increased 2% in 1998 and 81% in 1997 mainly due to higher average debt levels resulting from acquisitions and stock repurchases. Average debt levels increased $24 million in 1998 to $1.6 billion and increased $622 million in 1997 to $1.5 billion. Outstanding debt was $1.6 billion at year-end 1998 and 1997 and $1.0 billion at year-end 1996. 35 - -------------------------------------------------------------------------------- | LIQUIDITY AND CAPITAL RESOURCES | - -------------------------------------------------------------------------------- Cash flow generated from operations is the Company's primary source of liquidity. Net cash provided by operations was $546 million in 1998 and $384 million in 1997. The increase was mainly due to higher net income and changes in working capital items. The Company normally expects to fund dividends, capital expenditures and other operating requirements with net cash provided by operations. Funding required for common stock repurchases and acquisitions is financed by available cash flow from operations and, if necessary, by the issuance of debt. Net cash used for investments totaled $348 million in 1998 compared to $982 million in 1997. In 1998, the Company spent approximately $155 million for acquisitions and $40 million for investments. Capital spending totaled $140 million in 1998. In 1998, the Company advanced $52 million to an investee, which was repaid in January 1999. Proceeds of $52 million from the sale of investments partially offset these cash outflows. [Introductory language appearing in large bold face type reads as follows:] THE COMPANY ACCELERATED ITS SHARE BUYBACK PROGRAM IN 1998 BY REPURCHASING 5.6 MILLION SHARES ON THE OPEN MARKET. Net cash used for financing activities was $252 million in 1998 as proceeds from the issuance of long-term debt and sales of common stock to employees were more than offset by repayments of debt, repurchases of common stock and payments of dividends. As part of the Series E medium-term note program, the Company issued approximately $128.5 million of Debt Exchangeable for Common Stock securities in 1998. In 1998, the Company repurchased 5.6 million shares of its common stock for $330 million. Of this total, 1.1 million shares were purchased for $69 million by the Tribune Stock Compensation Fund ("TSCF"). In July 1998, the Company established the TSCF to purchase common stock of the Company for the purpose of funding certain existing stock-based compensation plans. At December 27, 1998, the Company had authorization to repurchase 1.6 million shares and an additional $500 million of its common stock. The Company has continued to repurchase shares in 1999. Dividends on common and preferred shares were $101 million in 1998. Dividends on common stock increased 6% in 1998 to $.68 per share. At December 27, 1998, the Company had commercial paper outstanding of $151 million with a weighted average interest rate of 5.1%. 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. Capital spending for 1999 is expected to total approximately $125 to $150 million for a variety of normal replacement projects, as well as for new editorial and pagination systems and press enhancements at the newspapers and the purchase of digital equipment at the television stations. 36 - -------------------------------------------------------------------------------- | YEAR 2000 COMPLIANCE | - -------------------------------------------------------------------------------- The Company relies on various technologies throughout its business operations that could be affected by the date change in the Year 2000. The Company is progressing through a comprehensive program to evaluate and address the impact of the Year 2000 issue on its operational and financial reporting systems and equipment with embedded technology and the Year 2000 risks associated with its vendors and customers. The program has been assigned a high priority in relation to other business projects. The Company has formed a Project Management Office to provide company-wide leadership, oversight and coordination of the Year 2000 project. The Company's Chief Technology Officer and Chief Financial Officer head the Project Management Office. These project heads receive frequent updates from the other members of the Project Management Office team. In addition, progress reports on the Year 2000 program are presented regularly to the Company's board of directors and senior management. State of Readiness - -------------------------------------------------------------------------------- Both internal and external resources are being utilized throughout the Company to implement the program, which includes the following overlapping phases: system and equipment inventory and analysis; remediation, testing and implementation; contingency planning; and vendors and investments. The Company expects that its internal operational and financial reporting systems and equipment will be Year 2000 compliant by June 30, 1999. None of the Company's other significant information technology projects has been delayed as a result of the Company's Year 2000 compliance efforts. System and Equipment Inventory and Analysis -- The system and equipment inventory and analysis phase consists of compiling a detailed inventory of all of the Company's information and non-information technology hardware, software, systems and equipment to determine which of these items are date-sensitive and require remediation to become Year 2000 compliant. This analysis involves both an internal assessment and contact with the systems and equipment manufacturers. The principal systems and equipment identified by the Company as requiring remediation are financial systems, human resource systems and news production systems. This phase is complete. Remediation, Testing and Implementation -- The remediation, testing and implementation phase consists of determining and implementing a remediation method (upgrade, replace or discontinue) for date-sensitive items. The remediated item is tested and returned to normal operations when compliant. Testing for significant systems may include functional testing of remedial measures and regression testing to validate that changes have not altered existing functionality. A separate Year 2000 mainframe environment has been created to test all operating system software and program product software. This Year 2000 environment is designed to accomplish "end to end" testing of the larger systems applications and to validate interface communications between systems applications. The Company is also performing its own tests of mission critical vendor-provided systems and equipment, even if vendor certification of Year 2000 compliance has been received. The Company is working with the manufacturers of its affected systems and other outside vendors to implement required upgrades. The Company has also identified vendors from which the Company can procure new systems and equipment to replace non-compliant systems and equipment. The Company is currently in the middle stages of this phase and expects to be substantially complete by June 30, 1999. Contingency Planning -- Contingency planning consists of developing solutions and options in the event that the Company experiences a failure in its production processes or in the operations of certain of the Company's vendors. Contingency plans and enactment dates for production processes and vendors are being developed, but have not yet been finalized. The Company will continue to develop, review, test and revise contingency plans, as more information becomes available from internal testing and external vendor assessment. 37 Vendors and Investments -- Vendor management consists of assessing vendor readiness, and if necessary, identifying alternate channels to receive critical materials and/or supplies. The Company has initiated formal communications with its vendors through an assessment survey. For critical vendors, including utilities, banks, newsprint and ink suppliers and a satellite provider, site visits have been completed. In the event that satisfactory commitments from key suppliers are not received, the Company is forming plans for the continuing availability of critical materials and supplies through alternate channels. In general, the Company is comfortable with the progress made by critical vendors to date and no critical issues have been identified, except for a general concern with the utilities industry as alternative suppliers may not be available. Tribune is also assessing Year 2000 compliance of the companies in its venture investment portfolio. Tribune will continue to monitor information provided by these companies regarding their progress toward remediation of Year 2000 issues. Risks - -------------------------------------------------------------------------------- The Company may discover additional Year 2000 problems, including that remediation or contingency plans are not feasible or that the costs of such plans exceed current expectations. In many cases, the Company is relying on assurances from vendors that their systems, or that new or upgraded systems acquired by the Company, will be Year 2000 compliant. The Company believes that one of its principal Year 2000 risks is the effect the Year 2000 issue will have on its vendors, especially the utilities industry. A substantial part of the Company's day-to-day operations is dependent on power and telecommunications services, for which alternative sources of service may be limited. The Company will continue to investigate the readiness of its suppliers, including utilities, and pursue the availability of alternatives to further analyze and diminish the extent of any impact Year 2000 issues may have on the Company. Although there can be no assurance that the Company will be able to complete all of the modifications in the required timeframe and that unanticipated events will not occur, it is management's belief that the Company is taking adequate action to address Year 2000 issues. In the event that either the Company or the Company's vendors fail to adequately address Year 2000 issues, the Company could suffer business interruptions. If such interruptions cause the Company to be unable to fulfill its obligations to third parties, the Company could be exposed to liability to such third parties. Costs - -------------------------------------------------------------------------------- The Company does not currently expect that the costs of addressing the Year 2000 issue will have a material effect on the consolidated financial position or results of operations of the Company. Year 2000 compliance costs are expensed as incurred and are funded through operating cash flow. The Company currently estimates total expenses to range from $20 to $25 million, of which $7 million was incurred in 1998. 38
Tribune Company and Subsidiaries Consolidated Statements of Income (In thousands of dollars, except per share data) Year Ended Dec. 27, 1998 Dec. 28, 1997 Dec. 29, 1996 =================================================================================================================================== Operating Publishing Revenues Advertising $1,161,939 $1,115,538 $1,031,026 Circulation 243,842 250,558 252,263 Other 92,792 70,622 53,350 ---------------------------------------------------------------------------------------------------------------- Total 1,498,573 1,436,718 1,336,639 Broadcasting and Entertainment 1,153,006 1,057,529 876,750 Education 329,310 225,533 192,316 ---------------------------------------------------------------------------------------------------------------- Total operating revenues 2,980,889 2,719,780 2,405,705 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Cost of sales (exclusive of items shown below) 1,391,029 1,254,981 1,195,161 Expenses Selling, general and administrative 692,003 650,255 564,294 Depreciation and amortization of intangible assets 195,568 172,513 142,893 ---------------------------------------------------------------------------------------------------------------- Total operating expenses 2,278,600 2,077,749 1,902,348 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Profit 702,289 642,031 503,357 Net loss on equity investments (33,980) (34,696) (13,281) Sales of subsidiary and investments, net of write-downs 119,119 111,824 - Interest income 6,112 26,343 32,116 Interest expense (88,451) (86,502) (47,779) - ----------------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations Before Income Taxes 705,089 659,000 474,413 Income taxes (290,817) (265,375) (191,663) - ----------------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations 414,272 393,625 282,750 Discontinued Operations of QUNO, net of tax - - 89,317 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income 414,272 393,625 372,067 Preferred dividends, net of tax (18,782) (18,798) (18,786) - ----------------------------------------------------------------------------------------------------------------------------------- Net Income Attributable to Common Shares $ 395,490 $ 374,827 $ 353,281 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings Per Share Basic: Continuing operations $ 3.26 $ 3.05 $ 2.15 Discontinued operations - - .73 ---------------------------------------------------------------------------------------------------------------- Net income $ 3.26 $ 3.05 $ 2.88 ---------------------------------------------------------------------------------------------------------------- Diluted: Continuing operations $ 3.01 $ 2.81 $ 1.98 Discontinued operations - - .66 ---------------------------------------------------------------------------------------------------------------- Net income $ 3.01 $ 2.81 $ 2.64 - ----------------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
39
Consolidated Balance Sheets Assets (in thousands of dollars, except share data) Dec. 27, 1998 Dec. 28, 1997 ========================================================================================================================= Current Assets Cash and short-term investments $ 12,433 $ 66,618 Accounts receivable (less allowances of $44,402 and $43,205) 555,229 442,332 Inventories 99,005 99,491 Broadcast rights 232,394 190,339 Prepaid expenses and other 46,068 48,969 ----------------------------------------------------------------------------------------------------- Total current assets 945,129 847,749 - ------------------------------------------------------------------------------------------------------------------------- Properties Machinery, equipment and furniture 1,130,791 1,061,208 Buildings and leasehold improvements 369,319 359,041 ----------------------------------------------------------------------------------------------------- 1,500,110 1,420,249 Accumulated depreciation (987,791) (900,450) ----------------------------------------------------------------------------------------------------- 512,319 519,799 Land 83,691 78,510 Construction in progress 80,725 52,138 ----------------------------------------------------------------------------------------------------- Net properties 676,735 650,447 - ------------------------------------------------------------------------------------------------------------------------- Other Assets Broadcast rights 207,757 162,096 Intangible assets (less accumulated amortization of $373,820 and $294,179) 2,703,993 2,503,069 Investments 1,249,979 481,544 Other 151,977 132,649 ----------------------------------------------------------------------------------------------------- Total other assets 4,313,706 3,279,358 ----------------------------------------------------------------------------------------------------- Total assets $5,935,570 $4,777,554 - ------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
40
Tribune Company and Subsidiaries Liabilities and Shareholders' Equity Dec. 27, 1998 Dec. 28, 1997 ========================================================================================================================= Current Long-term debt due within one year $ 29,905 $ 33,348 Liabilities Accounts payable 157,708 138,897 Employee compensation and benefits 114,202 122,007 Contracts payable for broadcast rights 260,264 210,565 Deferred income 55,097 53,065 Income taxes 59,607 6,867 Accrued liabilities 151,347 116,971 ----------------------------------------------------------------------------------------------------- Total current liabilities 828,130 681,720 - ------------------------------------------------------------------------------------------------------------------------- Long-Term Debt (less portions due within one year) 1,616,256 1,521,453 - ------------------------------------------------------------------------------------------------------------------------- Other Deferred income taxes 701,778 387,686 Non-Current Contracts payable for broadcast rights 268,099 230,832 Liabilities Compensation and other obligations 164,690 129,859 ----------------------------------------------------------------------------------------------------- Total other non-current liabilities 1,134,567 748,377 - ------------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Liabilities (see Notes 8 and 10) - - - ------------------------------------------------------------------------------------------------------------------------- Shareholders' Series B convertible preferred stock (without par value) Equity Authorized: 1,600,000 shares Issued and outstanding: 1,337,926 shares in 1998 and 1,386,572 shares in 1997 (liquidation value $220 per share) 293,203 303,864 Common stock (without par value) Authorized: 400,000,000 shares; 163,543,316 shares issued 1,018 1,018 Additional paid-in capital 209,474 201,401 Retained earnings 2,819,474 2,506,292 Treasury stock (at cost) 44,127,511 shares in 1998 and 41,012,883 shares in 1997 (1,414,661) (1,159,832) Treasury Stock held by Tribune Stock Compensation Fund (at cost) 413,774 shares in 1998 (26,602) - Unearned compensation related to ESOP (156,495) (188,380) Accumulated other comprehensive income 631,206 161,641 ----------------------------------------------------------------------------------------------------- Total shareholders' equity 2,356,617 1,826,004 ----------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $5,935,570 $4,777,554 - -------------------------------------------------------------------------------------------------------------------------
41
Tribune Company and Subsidiaries Consolidated Statements of Cash Flows (In thousands of dollars) Dec. 27, 1998 Dec. 28, 1997 Dec. 29, 1996 ================================================================================================================================= Operations Net income $414,272 $393,625 $372,067 Adjustments to reconcile net income to net cash provided by operations: Discontinued operations of QUNO, net of tax - - (89,317) Gain on sales of subsidiary and investments, net of write-downs (119,119) (111,824) - Depreciation and amortization of intangible assets 195,568 172,513 142,893 Deferred income taxes 7,904 (13,959) (24,503) Net loss on equity investments 33,980 34,696 13,281 Changes in working capital items excluding effects from acquisitions: Accounts receivable (49,987) (43,957) (34,917) Inventories, prepaid expenses and other current assets (4,786) (3,671) (12,920) Accounts payable, employee compensation and benefits, deferred income and accrued liabilities 28,400 36,322 3,653 Income taxes 52,514 (46,356) (20,298) Change in broadcast rights, net of liabilities (1,072) (11,862) 7,554 Other, net (11,795) (21,449) (20,973) ------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 545,879 384,078 336,520 - --------------------------------------------------------------------------------------------------------------------------------- Investments Capital expenditures (139,710) (103,845) (93,324) Acquisitions (154,711) (1,239,612) (501,375) Investments (40,245) (48,342) (72,127) Proceeds from sales of investments and subsidiary stock 51,585 402,473 - Increase in advances to investee (52,244) (1,514) - Proceeds from sale of QUNO - - 426,828 Proceeds from mortgage note receivable from affiliate - - 83,313 Other, net (12,622) 8,522 10,851 ------------------------------------------------------------------------------------------------------------------- Net cash used for investments (347,947) (982,318) (145,834) - --------------------------------------------------------------------------------------------------------------------------------- Financing Proceeds from issuance of long-term debt 469,878 626,375 470,000 Repayments of long-term debt (336,886) (55,437) (219,803) Sales of common stock to employees, net 46,129 57,145 51,256 Purchases of treasury stock (261,160) (140,038) (148,445) Purchases of treasury stock by Tribune Stock Compensation Fund (68,988) - - Dividends (101,090) (97,357) (92,423) ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing (252,117) 390,688 60,585 - --------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Short-Term Investments (54,185) (207,552) 251,271 Cash and short-term investments, beginning of year 66,618 274,170 22,899 ------------------------------------------------------------------------------------------------------------------- Cash and short-term investments, end of year $ 12,433 $ 66,618 $274,170 - --------------------------------------------------------------------------------------------------------------------------------- Supplemental Cash paid for: Cash Flow Interest (net of amounts capitalized) $ 87,320 $ 84,456 $ 44,324 Information Income taxes $168,912 $285,656 $206,371 - --------------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
42
Tribune Company and Subsidiaries Consolidated Statements of Shareholders' Equity Dec. 27, 1998 Dec. 28, 1997 Dec. 29, 1996 ---------------------------------- ---------------------------------- ---------------------------------- (In thousands, Shareholders' Comprehensive Shareholders' Comprehensive Shareholders' Comprehensive except per share data) Equity Income Shares Equity Income Shares Equity Income Shares ==================================================================================================================================== Retained Earnings Balance, beginning of year $2,506,292 $2,210,024 $1,930,380 Net income 414,272 $414,272 393,625 $393,625 372,067 $372,067 -------- -------- -------- Dividends declared Common ($.68/share in 1998, $.64/share in 1997 and $.60/share in 1996) (82,426) (78,646) (73,742) Preferred ($17.05/share) (22,812) (23,641) (24,311) Tax benefit on dividends paid the to ESOP (1) 4,148 4,930 5,630 ---------- ---------- --------- Balance, end of year 2,819,474 2,506,292 2,210,024 - ----------------------------------------------------------------------------------------------------------------------------------- Accumulated Other Comprehensive Income Balance, beginning of year 161,641 118,813 170,284 Change in unrealized gain on securities, net 475,168 42,828 (70,659) Foreign currency translation adjustment (2) (5,603) - 19,188 -------- -------- -------- Other comprehensive income 469,565 469,565 42,828 42,828 (51,471) (51,471) -------- -------- -------- Comprehensive income $883,837 $436,453 $320,596 ---------- -------- ---------- -------- ---------- -------- Balance, end of year 631,206 161,641 118,813 - ----------------------------------------------------------------------------------------------------------------------------------- Series B Convertible Preferred Stock Balance, beginning of year 303,864 1,387 312,470 1,426 322,540 1,472 Redemptions of convertible preferred stock (10,661) (49) (8,606) (39) (10,070) (46) ---------- ------- ---------- ------- ---------- ------- Balance, end of year 293,203 1,338 303,864 1,387 312,470 1,426 - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock and Additional Paid-In Capital Balance, beginning of year 202,419 163,543 150,879 163,543 127,814 163,543 Redemptions of convertible preferred stock (477) - 535 - 1,120 - Shares issued under option and stock plans 8,550 - 51,005 - 21,945 - ---------- ------- ---------- ------- ---------- ------- Balance, end of year 210,492 163,543 202,419 163,543 150,879 163,543 - ----------------------------------------------------------------------------------------------------------------------------------- Treasury Stock (at cost) Balance, beginning of year (1,159,832) (41,013) (1,034,012) (40,598) (923,828) (38,440) Redemptions of convertible preferred stock 11,138 389 8,071 314 8,950 368 Purchases of treasury stock (261,160) (4,503) (140,038) (2,842) (148,445) (4,531) Shares issued under option and stock plans 39,736 1,671 91,221 3,805 82,243 3,410 Shares tendered as payment for options exercised (44,543) (672) (85,074) (1,692) (52,932) (1,405) ---------- ------- ---------- ------- ---------- ------- Balance, end of year (1,414,661) (44,128) (1,159,832) (41,013) (1,034,012) (40,598) - ----------------------------------------------------------------------------------------------------------------------------------- Treasury Stock Held by Tribune Stock Compensation Fund (at cost) Balance, beginning of year - - - - - - Purchases of treasury stock (68,988) (1,057) - - - - Shares issued under option and stock plans 85,366 1,297 - - - - Shares tendered as payment for options exercised (42,980) (654) - - - - ---------- ------- ---------- ------- ---------- ------- Balance, end of year (26,602) (414) - - - - - ----------------------------------------------------------------------------------------------------------------------------------- Unearned Compensation (ESOP) Balance, beginning of year (188,380) (218,668) (247,281) Repayment of ESOP debt 31,885 30,288 28,613 ---------- ---------- ---------- Balance, end of year (156,495) (188,380) (218,668) - ----------------------------------------------------------------------------------------------------------------------------------- Total (3) $2,356,617 119,001 $1,826,004 122,530 $1,539,506 122,945 ===================================================================================================================================
(1) Excludes the tax benefit on allocated preferred shares held by the ESOP, which is credited to income tax expense. (2) In 1996, represents the write-off of the cumulative translation adjustment as a result of the sale of QUNO. (3) For shares, total represents net common shares outstanding. See Notes to Consolidated Financial Statements. 43 Tribune Company and Subsidiaries Notes To Consolidated Financial Statements The significant accounting policies of Tribune Company and subsidiaries (the "Company"), as summarized below, conform with generally accepted accounting principles and reflect practices appropriate to the businesses in which they operate. Certain prior year amounts have been reclassified to conform with the 1998 presentation. - -------------------------------------------------------------------------------- | NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | - -------------------------------------------------------------------------------- Fiscal Year -- The Company's fiscal year ends on the last Sunday in December. Fiscal years 1998, 1997 and 1996 all comprised 52 weeks. Principles of Consolidation -- The consolidated financial statements include the accounts of Tribune Company and all majority-owned subsidiaries. Investments comprising 20 to 50 percent of the voting stock of companies and certain partnership interests are accounted for using the equity method. All other investments are generally accounted for using the cost method. All significant intercompany transactions are eliminated. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. 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. The current portion of broadcast rights represents those rights available for broadcast that are expected to be amortized in the succeeding year. Properties -- Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the properties' estimated useful lives, ranging from 3 to 40 years. Intangible Assets -- Intangible assets primarily represent the excess of cost over the fair market value of tangible net assets acquired. The excess cost related to net assets acquired since 1971 is being amortized on a straight-line basis over various periods. These periods range from 5 to 40 years for goodwill (with the majority being amortized over 40 years), 40 years for Federal Communications Commission ("FCC") licenses, and from 5 to 40 years for other intangible assets. Intangible assets of $23.5 million related to pre-1971 acquisitions are not being amortized as the Company believes there has been no diminution of value. The Company evaluates the carrying values of all intangible assets periodically in relation to the projected future undiscounted cash flows of the related businesses to determine whether impairment exists. Adjustments to net realizable value are made as needed; no such adjustments to intangible assets were required in the periods presented. 44 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 investments recorded at fair value have been classified as available for sale. The difference between cost and fair value, net of related tax effects, is recorded in the accumulated other comprehensive income component of shareholders' equity. The cost of securities sold is determined on an average cost basis. Pension Plans -- Retirement benefits are provided to substantially all employees through pension plans sponsored either by the Company or by unions. Under the Company-sponsored plans, pension benefits are primarily a function of both the years of service and the level of compensation for a specified number of years, depending on the plan. It is the Company's policy to fund the minimum for Company-sponsored pension plans as required by ERISA. Contributions made to union-sponsored plans are based upon collective bargaining agreements. Income Taxes -- Provision is made for income taxes on undistributed earnings of foreign subsidiaries that are expected to be remitted to the U.S. parent company. No provision for income taxes, however, is made on undistributed earnings that are intended to be reinvested in facilities and other assets in the foreign countries for an indefinite period of time. The cumulative amount of unremitted earnings that has been reinvested indefinitely was immaterial as of December 27, 1998. Foreign Currency Translation -- The assets and liabilities of foreign subsidiaries are translated at year-end exchange rates. Results of operations are translated at average rates of exchange in effect during the year. Translation adjustments are included in the accumulated other comprehensive income component of shareholders' equity. Stock-Based Compensation -- The Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board ("APB") Opinion No. 25 and related Interpretations. Under APB 25, no compensation expense is recorded because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." New Accounting Pronouncements -- In 1998, the AICPA's Accounting Standards Executive Committee issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," effective for fiscal year 1999. SOP 98-1 requires companies to capitalize and amortize many of the costs associated with developing or obtaining software for internal use. The Company does not believe that the effect of adopting SOP 98-1 in fiscal year 1999 will have a material impact on its financial position or results of operations. In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal year 2000. This statement establishes accounting and reporting standards for derivative instruments and hedging activities and requires companies to recognize derivative instruments as either an asset or liability on the balance sheet at fair value. Changes in such fair value are required to be recognized in earnings to the extent the derivative is not effective as a hedge. This statement will apply to the Company's Debt Exchangeable for Common Stock securities (see Note 6) and the Company's underlying investment in The Learning Company common stock. The impact on the Company's financial statements will depend on a variety of factors, including future interpretative guidance from the FASB. Management is currently reviewing the impact of this new accounting pronouncement; however, the Company does not believe that the effect of adopting SFAS No. 133 will have a material impact on its financial position or results of operations. 45 Earnings Per Share -- In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings per Share," which requires presentation on the face of the income statement of both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based on the assumption that all of the convertible preferred shares held by the Company's Employee Stock Ownership Plan ("ESOP") are converted into common shares (see Note 15). For purposes of calculating diluted earnings per share, net income is reduced by the additional ESOP contribution that would be required for ESOP debt service, and the weighted average number of shares outstanding is increased by (i) the additional common shares that would be issued upon conversion of the preferred shares based on the stated conversion rate plus any additional common shares that would have to be issued to meet the redemption price guarantee for all preferred shares that have been allocated to participants, and (ii) the effect of stock options. The computations of basic and diluted earnings per share from continuing operations were as follows:
(In thousands, except per share data) 1998 1997 1996 ====================================================================================================== BASIC Income from continuing operations $414,272 $393,625 $282,750 Preferred dividends, net of tax (18,782) (18,798) (18,786) - ------------------------------------------------------------------------------------------------------ Net income from continuing operations attributable to common shares $395,490 $374,827 $263,964 Weighted average common shares outstanding 121,214 122,879 122,842 - ------------------------------------------------------------------------------------------------------ Basic earnings per share from continuing operations $ 3.26 $ 3.05 $ 2.15 - ------------------------------------------------------------------------------------------------------ DILUTED Income from continuing operations $414,272 $393,625 $282,750 Additional ESOP contribution required assuming all preferred shares were converted, net of tax (12,720) (13,141) (13,498) - ------------------------------------------------------------------------------------------------------ Adjusted income from continuing operations $401,552 $380,484 $269,252 - ------------------------------------------------------------------------------------------------------ Weighted average common shares outstanding 121,214 122,879 122,842 Assumed conversion of preferred shares into common shares 10,692 11,093 11,407 Assumed exercise of stock options, net of common shares assumed repurchased with the proceeds 1,556 1,491 1,816 - ------------------------------------------------------------------------------------------------------ Adjusted weighted average common shares outstanding 133,462 135,463 136,065 - ------------------------------------------------------------------------------------------------------ Diluted earnings per share from continuing operations $ 3.01 $ 2.81 $ 1.98 - ------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- | NOTE 2: CHANGES IN OPERATIONS AND NON-RECURRING ITEMS | - -------------------------------------------------------------------------------- Acquisitions -- The Company completed acquisitions for cash totaling approximately $155 million in 1998, $1.2 billion in 1997 and $501 million in 1996. These acquisitions were accounted for as purchases. Accordingly, the results of these operations are included in the consolidated statements of income since their respective dates of acquisition. In January 1998, the Company acquired ownership of the North American Sunshine line of educational materials. In June 1998, the Company acquired the assets of television stations KTZZ-Seattle and WXMI-Grand Rapids, with a fair value of approximately $179 million, in exchange for its WQCD radio station in New York and cash. In September 1998, the Company purchased South Florida Newspaper Network Inc., which published 33 weekly newspapers in south Florida. 46 In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WBZL-Miami (formerly WDZL), KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The FCC order granting the Company's application to acquire the Renaissance stations scontained waivers of two FCC rules. First, the FCC temporarily waived its duopoly rule relating to the overlap of WTIC's and WPMT's broadcast signals with those of other Tribune stations. The temporary waivers were granted subject to the outcome of pending FCC rulemaking that is expected to make such duopoly waivers unnecessary. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The FCC subsequently issued a rule review to consider modifying its cross-ownership rule. In March 1998, the FCC granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Sun-Sentinel newspaper until the rule review was concluded. The Company cannot predict the outcome of the FCC duopoly rulemaking or cross-ownership rule review. Also in 1997, the Company acquired Shortland Publications Limited, a New Zealand-based company that publishes reading, language arts, science and social studies materials for several international elementary school markets (in September for $32 million), and approximately 80% of Landoll, Inc., a publisher of children's books for the mass market (in December for $77 million). Acquisitions in 1996 were all completed for cash and included Houston television station KHTV (in January for $102 million); the remaining minority interest in Philadelphia television station WPHL (in February for $23 million); Educational Publishing Corporation, a publisher of supplemental and core curriculum education materials through its Creative Publications and Ideal/Instructional Fair divisions (in March for $205 million); NTC Publishing Group, a publisher of trade books and educational products (in March for $83 million); and San Diego television station KSWB (in April for $72 million). Supplemental cash flow information for the 1998, 1997 and 1996 acquisitions is summarized in the table below: Acquisitions (in thousands) 1998 1997 1996 =============================================================================== Fair value of assets acquired (1) $184,506 $1,396,753 $547,044 Liabilities assumed (29,795) (157,141) (45,669) - ------------------------------------------------------------------------------- Net cash paid $154,711 $1,239,612 $501,375 - ------------------------------------------------------------------------------- (1) Includes intangible assets, net of acquisition-related deferred taxes. In August 1998, the Company reached an agreement with Meredith Corporation to acquire the assets of television station KCPQ-Seattle in exchange for the assets of the Company's WGNX-Atlanta television station and cash. On March 1, 1999 and in a three-way transaction, Meredith purchased KCPQ from Kelly Television Co. and then exchanged the station for WGNX. The divestiture of WGNX will be accounted for as a sale and the acquisition of KCPQ will be recorded as a purchase. The Company will record the assets of KCPQ at fair market value, which will result in an estimated pretax gain of $350 million in the first quarter of 1999. Current FCC regulations preclude the Company from owning both KCPQ and the Company's KTZZ-Seattle television station. As part of the transaction, the Company transferred the assets of KTZZ into a disposition trust. Pursuant to the terms of the disposition trust, an independent trustee is charged with finding a buyer for KTZZ by September 1, 1999. 47 Non-Recurring Items -- In 1998, the Company sold its WQCD radio station subsidiary, sold a portion of its investment portfolio and wrote down certain investments. In the aggregate, the sales of the subsidiary and investments, net of write-downs, resulted in a pretax gain of $119.1 million and increased diluted earnings per share by $.48. These non-recurring items are summarized as follows:
Shares Pretax Diluted 1998 (in thousands, except per share data) Sold Proceeds Gain EPS ======================================================================================================= Sale of WQCD subsidiary - $ - $ 85,168 $.32 Sales of common stock America Online 150 13,949 13,902 .06 The Learning Company 611 16,552 11,128 .05 Other sales of investments, net of write-downs 21,084 8,921 .05 - ----------------------------------------------------------------------------------------------------- Sales of subsidiary and investments, net of write-downs $51,585 $119,119 $.48 - -----------------------------------------------------------------------------------------------------
In December 1997, the Company signed an agreement with Emmis Broadcasting Corporation to exchange substantially all of the assets of the Company's WQCD radio station in New York and cash for the assets of television stations KTZZ-Seattle and WXMI-Grand Rapids. Emmis agreed to acquire these television stations as part of its acquisition of Dudley Communications Corporation. The exchange was completed in June 1998. The divestiture of WQCD was accounted for as a sale and the acquisition of the television stations was recorded as a purchase. The transaction resulted in a pretax gain of $85.2 million, or $.32 per diluted share. In 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. In the aggregate, these sales of investments, net of write-downs, resulted in a pretax gain of $111.8 million and increased diluted earnings per share by $.51. These non-recurring items are summarized as follows:
Shares Pretax Diluted 1997 (in thousands, except per share data) Sold Proceeds Gain (Loss) EPS ======================================================================================================= Sales of common stock America Online 2,560 $134,259 $131,107 $.60 CheckFree 2,158 46,161 35,294 .16 Open Market 1,010 13,825 11,313 .05 Gemstar International 680 16,478 10,027 .05 The Learning Company Sale of convertible notes 123,000 6,641 .03 Write-down of stock - (77,266) (.35) Other sales of investments, net of write-downs 9,000 (5,292) (.03) - ------------------------------------------------------------------------------------------------------- Sales of investments, net of write-downs $342,723 $111,824 $.51 - -------------------------------------------------------------------------------------------------------
In June 1997, the Company concluded that the decline in the value of its $123.5 million investment in The Learning Company common stock was other than temporary and wrote down the investment to fair market value in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As shown in the above table, the write-down resulted in a non-cash, pretax loss of $77 million, or $.35 per diluted share. In December 1997, the Company completed the sale of The Learning Company convertible notes for $123 million in cash. In March 1997, the Company sold its Farm Journal subsidiary for approximately $17 million in cash. The Company had acquired Farm Journal in 1994 for approximately $17 million. In June 1997, the Company completed the sale of a building in Fort Lauderdale, which is approximately 35% occupied by the Company's Sun-Sentinel newspaper subsidiary. The Company received proceeds of approximately $43 million and deferred, under sale and leaseback accounting rules, the pretax gain of approximately $11 million, which is being amortized over the Sun-Sentinel's 14-year lease term. 48 In December 1996, the Company recorded non-recurring equity income 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. This income increased diluted earnings per share by $.04. 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. Pro Forma Information -- Unaudited 1998 and 1997 pro forma results of operations are shown below. The pro forma information was prepared assuming the 1998 and 1997 acquisitions, investments and dispositions of subsidiaries discussed above had occurred as of the beginning of each year. The pro forma results may not be indicative of the results that would have been reported if the transactions had actually occurred at the beginning of each year presented, or of results that may be attained in the future. Unaudited pro forma results do not reflect any synergies anticipated by the Company as a result of the acquisitions.
1998 1997 -------------------------- -------------------------- (In thousands, except per share data) As Reported Pro Forma As Reported Pro Forma ========================================================================================================== Operating revenues $2,980,889 $3,010,606 $2,719,780 $2,872,290 Net income $414,272 $411,379 $393,625 $379,187 Diluted earnings per share $3.01 $2.99 $2.81 $2.70 - ----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- | NOTE 3: INVENTORIES | - -------------------------------------------------------------------------------- (In thousands) Dec. 27, 1998 Dec. 28, 1997 =================================================================== Finished goods $74,631 $78,058 Newsprint (at LIFO) 12,207 11,653 Supplies and other 12,167 9,780 - ------------------------------------------------------------------- Total inventories $99,005 $99,491 - ------------------------------------------------------------------- Newsprint inventories are valued under the LIFO method and were less than current cost by approximately $9.9 million at December 27, 1998 and $10.5 million at December 28, 1997. Finished goods primarily include books and supplemental educational materials. - -------------------------------------------------------------------------------- | NOTE 4: INTANGIBLE ASSETS | - -------------------------------------------------------------------------------- Intangible assets consisted of the following: (In thousands) Dec. 27, 1998 Dec. 28, 1997 =========================================================================== Goodwill $1,818,592 $1,720,622 FCC licenses 542,803 450,024 Other 716,418 626,602 - --------------------------------------------------------------------------- Total intangible assets 3,077,813 2,797,248 Less accumulated amortization (373,820) (294,179) - --------------------------------------------------------------------------- Net intangible assets $2,703,993 $2,503,069 - --------------------------------------------------------------------------- 49 - -------------------------------------------------------------------------------- | NOTE 5: INVESTMENTS | - -------------------------------------------------------------------------------- Investments consisted of the following: (In thousands) Dec. 27, 1998 Dec. 28, 1997 ============================================================================ Cost method investments $1,058,580 $283,826 Equity method investments 48,597 58,153 Debt securities 142,802 139,565 - ---------------------------------------------------------------------------- Total investments $1,249,979 $481,544 - ---------------------------------------------------------------------------- At December 27, 1998, the Company's investments included primarily cost method investments in public companies and equity method investments in private companies as shown below. COST METHOD INVESTMENTS EQUITY METHOD INVESTMENTS - ------------------------------------- ------------------------------------ Public % Private % Companies Owned Companies Owned ================================================================================ America Online, Inc. 1.1% CareerPath.com LLC 17% Excite, Inc. 2.6% Central Florida News 13 50% The Learning Company, Inc. 3.7% Classified Ventures LLC 17% Peapod, Inc. 9.3% Digital City, Inc. 20% ImageBuilder Software, Inc. 22% Qwest Broadcasting LLC 33% TV Food Network 29% The WB Television Network 25% - -------------------------------------------------------------------------------- The Company's current investment in Qwest Broadcasting is comprised of a 33% equity interest and $75 million in convertible notes and accrued interest. The notes bear interest at 6%, are convertible into an additional 47% equity interest and may only be converted when and if FCC regulations permit such conversion. Accounts receivable included advances to an investee which totaled $53.8 million at December 27, 1998 and $1.5 million at December 28, 1997. The Company's advances were fully repaid in January 1999. For investments recorded at fair value under SFAS No. 115, the aggregate cost basis, net unrealized gain and fair value were as follows:
December 27, 1998 December 28, 1997 ----------------------------------- ----------------------------------- Cost Unrealized Fair Cost Unrealized Fair (In thousands) Basis Gain Value Basis Gain Value ================================================================================================================== Marketable equity securities $58,345 $971,374 $1,029,719 $64,465 $198,862 $263,327 Debt securities 76,425 66,377 142,802 72,460 67,105 139,565 - ------------------------------------------------------------------------------------------------------------------
In June 1997, the Company concluded that the decline in the value of its $123.5 million investment in The Learning Company ("TLC") common stock was other than temporary and wrote down the investment to the then fair market value of $46.2 million in accordance with SFAS No. 115. The write-down resulted in a non-cash, pretax loss of $77.3 million and is included in "Sales of subsidiary and investments, net of write-downs" in the 1997 consolidated statement of income (see Note 2). In 1998, the Company sold .6 million shares of TLC stock (see Note 2). The remaining TLC investment is related to the Company's Debt Exchangeable for Common Stock securities (see Note 6) and had a fair value of $118.5 million at December 27, 1998. The difference between cost and fair value, net of related tax effects, is recorded in the accumulated other comprehensive income component of shareholders' equity and amounted to a net gain of $630.7 million at December 27, 1998 and $161.6 million at December 28, 1997. 50 - -------------------------------------------------------------------------------- | NOTE 6: LONG-TERM DEBT | - -------------------------------------------------------------------------------- Long-term debt consisted of the following:
(In thousands) Dec. 27, 1998 Dec. 28, 1997 =============================================================================================== Promissory notes, weighted average interest rates of 5.1% and 5.9% $ 150,643 $ 476,375 Medium-term notes, weighted average interest rates of 6.2% and 6.6%, due 1998-2008 1,118,115 786,300 6.25% notes due 2026, putable to the Company at par in 2001 100,000 100,000 6.25% Debt Exchangeable for Common Stock securities, due 2001 118,450 - 8.4% guaranteed ESOP notes, due 1998-2003 156,495 184,187 8.19% guaranteed ESOP note, due 1998 - 4,193 Other notes and obligations 2,458 3,746 - ----------------------------------------------------------------------------------------------- Total debt 1,646,161 1,554,801 Less portions due within one year (29,905) (33,348) - ----------------------------------------------------------------------------------------------- Long-term debt $1,616,256 $1,521,453 - -----------------------------------------------------------------------------------------------
Medium-Term Notes -- The Company has issued all of its $200 million Series B, $500 million Series C and $500 million Series D medium-term notes. Notes issued under this program generally have maturities from 3 to 30 years and may not be redeemed by the Company prior to maturity. As part of the Series D medium-term note program, the Company sold $100 million of 6.25% notes in 1996 that mature in 2026. These notes may be put back to the Company in 2001 at 100% of the principal amount, plus accrued interest. The proceeds from the sale of the notes have been used for general corporate purposes. In 1998, the Company began offering up to $500 million of its Series E medium-term notes, of which $464 million were issued and outstanding as of December 27, 1998. These notes have maturities from 3 to 10 years and may not be redeemed by the Company prior to maturity. As part of the Series E medium-term note program, the Company issued $128.5 million of Debt Exchangeable for Common Stock securities ("DECS"). In 1998, the Company's registration statement for $500 million of Series F medium-term notes was declared effective by the Securities and Exchange Commission. No Series F medium-term notes were issued during 1998. Debt Exchangeable for Common Stock Securities -- In 1998, the Company issued 4.6 million of DECS with a principal amount of approximately $128.5 million related to its investment in The Learning Company ("TLC") common stock. At maturity, the DECS will be repaid using shares of TLC common stock or, at the Company's option, the cash equivalent thereof. The number of TLC shares due at maturity, or the cash equivalent thereof, is based on the fair market value of the TLC common stock, adjusted using a predetermined formula that allocates a portion of the appreciation, if any, to the Company. Holders of the DECS bear the full risk of a decline in the value of TLC common stock. The DECS are recorded at maturity value in the consolidated financial statements. The maturity value of the DECS obligation will move in accordance with changes in the fair market value of TLC common stock, except for the appreciation that is allocated to the Company. At December 27, 1998, the maturity value of the DECS, based on the fair market value of TLC common stock of $25.75 per share, was $118.5 million. The difference between the DECS face value and maturity value, net of related tax effects, is recorded in the accumulated other comprehensive income component of shareholders' equity and amounted to a net gain of $6.1 million at December 27, 1998. In December 1998, TLC announced a merger with Mattel, Inc. Upon completion of the merger, shares of TLC common stock will be exchanged for shares of Mattel at an agreed upon exchange ratio. This transaction will not affect the terms of the DECS and the DECS will be repaid at maturity with Mattel shares, or the cash equivalent thereof. 51 ESOP Notes -- The notes issued by the Company's ESOP are unconditionally guaranteed by the Company as to payment of principal and interest (see Note 15). Therefore, the unpaid balance of these borrowings is reflected in the accompanying consolidated balance sheets as long-term debt. An amount equivalent to the unpaid balance of these borrowings, representing unearned employee compensation, is recorded as a reduction of shareholders' equity. Other -- In 1999, the Company intends to refinance $150.6 million of promissory notes and $32.0 million of Series C medium-term notes scheduled to mature in 1999 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 $1.0 million in 1998 and 1997 and $.5 million in 1996. Certain debt agreements limit the amount of secured debt the Company can incur without equally and ratably securing additional borrowings under those agreements. Maturities -- Debt at December 27, 1998 matures as shown below: Maturities (in thousands) ============================ 1999 $ 29,905 2000 80,222 2001 437,284 2002 92,809 2003 92,762 Thereafter 913,179 - ---------------------------- Total $1,646,161 - ---------------------------- - -------------------------------------------------------------------------------- | NOTE 7: CONTRACTS PAYABLE FOR BROADCAST RIGHTS | - -------------------------------------------------------------------------------- Contracts payable for broadcast rights are classified as current or long-term liabilities in accordance with the payment terms of the contracts. Required payments under contractual agreements for broadcast rights recorded at December 27, 1998 are shown in the table below: (In thousands) ============================ 1999 $260,264 2000 153,212 2001 90,897 2002 19,588 2003 3,449 Thereafter 953 - ---------------------------- Total $528,363 - ---------------------------- - -------------------------------------------------------------------------------- | NOTE 8: CONTINGENCIES AND LEGAL PROCEEDINGS | - -------------------------------------------------------------------------------- The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. The Company does not believe that any of the matters or proceedings presently pending will have a material adverse effect on its consolidated financial position or results of operations. 52 - -------------------------------------------------------------------------------- | NOTE 9: FAIR VALUE OF FINANCIAL INSTRUMENTS | - -------------------------------------------------------------------------------- Estimated fair values and carrying amounts of the Company's financial instruments were as follows:
December 27, 1998 December 28, 1997 ------------------------- ------------------------ Fair Carrying Fair Carrying (In thousands) Value Amount Value Amount ============================================================================================================== Cost method investments $1,061,495 $1,058,580 $ 282,081 $ 283,826 Debt securities 142,802 142,802 139,565 139,565 Debt 1,684,260 1,646,161 1,575,421 1,554,801 Contracts payable for broadcast rights 502,999 528,363 403,588 441,397 - --------------------------------------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of each category of financial instruments. Cost Method Investments and Debt Securities -- Cost method investments in public companies and debt securities were recorded at fair value in the consolidated balance sheets (see Notes 1 and 5). Cost method investments in private companies were recorded at cost, and fair value was generally estimated based on prices recently paid for shares in those companies. 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 10 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 $431 million at December 27, 1998. Payments for broadcast rights generally commence when the programs become available for broadcast. The Company had commitments totaling $93 million at December 27, 1998 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 $32.0 million in 1998, $31.3 million in 1997 and $28.1 million in 1996. Future minimum rental commitments under non-cancelable operating leases are shown in the table below: Lease Commitments (in thousands) =============================== 1999 $ 30,985 2000 25,062 2001 23,715 2002 21,442 2003 17,732 Thereafter 63,507 - ------------------------------- Total $182,443 - ------------------------------- The Company has guaranteed certain obligations of affiliates totaling $23.9 million at December 27, 1998. 53 - -------------------------------------------------------------------------------- | NOTE 11: 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) 1998 1997 1996 ======================================================================================================= Income from continuing operations before income taxes $705,089 $659,000 $474,413 - ------------------------------------------------------------------------------------------------------- Federal income taxes at 35% $246,781 $230,650 $166,045 State and local income taxes, net of federal tax benefit 39,951 34,653 27,747 Other 4,085 72 (2,129) - ------------------------------------------------------------------------------------------------------- Income taxes reported $290,817 $265,375 $191,663 Effective tax rate 41.2% 40.3% 40.4% - -------------------------------------------------------------------------------------------------------
Components of income tax expense charged to income from continuing operations were as follows:
(In thousands) 1998 1997 1996 ======================================================================================================= Currently payable: U.S. federal $204,296 $233,640 $165,169 State and local 56,650 57,060 47,491 - ------------------------------------------------------------------------------------------------------- 260,946 290,700 212,660 - ------------------------------------------------------------------------------------------------------- Deferred: U.S. federal 24,237 (21,577) (18,360) State and local 5,634 (3,748) (2,637) - ------------------------------------------------------------------------------------------------------- 29,871 (25,325) (20,997) - ------------------------------------------------------------------------------------------------------- Total $290,817 $265,375 $191,663 - -------------------------------------------------------------------------------------------------------
Significant components of the Company's net deferred tax liabilities were as follows:
(In thousands) Dec. 27, 1998 Dec. 28, 1997 ======================================================================================================= Net properties $ 71,057 $ 75,832 Net intangible assets 293,756 280,123 Pensions 8,960 7,824 Unrealized gain on investments 411,005 104,326 Other future taxable items 789 2,020 - ------------------------------------------------------------------------------------------------------- Total deferred tax liabilities 785,567 470,125 - ------------------------------------------------------------------------------------------------------- Broadcast rights (15,937) (24,690) Postretirement and postemployment benefits other than pensions (16,073) (15,770) Deferred compensation (21,577) (18,985) Other accrued liabilities (21,312) (24,097) Accrued employee compensation and benefits (22,448) (23,960) Accounts receivable (16,890) (17,417) Other investments (10,665) (16,113) Other future deductible items (32,222) (19,809) - ------------------------------------------------------------------------------------------------------- Total deferred tax assets (157,124) (160,841) - ------------------------------------------------------------------------------------------------------- Net deferred tax liability $ 628,443 $ 309,284 - -------------------------------------------------------------------------------------------------------
54 - -------------------------------------------------------------------------------- | NOTE 12: EMPLOYEE PENSION PLANS | - -------------------------------------------------------------------------------- In connection with the establishment of the ESOP, the Company amended, effective January 1989, its Company-sponsored pension plan for employees not covered by a collective bargaining agreement. The pension plan continued to provide substantially the same pension benefits as under the pre-amended plan until December 1998. After that date, the plan provides that the pension benefit credits be frozen in terms of pay and service. The Company also maintains several small plans for other employees. In 1998, the Company adopted the provisions of SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits." The adoption had no effect on the financial position or the results of operations of the Company. Following is a reconciliation of the change in the plans' prepaid benefit cost:
(In thousands) Dec. 27, 1998 Dec. 28, 1997 ======================================================================================= Change in benefit obligation: Benefit obligation, beginning of year $334,487 $305,792 Service cost 10,033 9,149 Interest cost 24,173 22,656 Plan amendments 1,340 227 Actuarial loss 32,099 14,329 Benefits paid (18,201) (17,666) - --------------------------------------------------------------------------------------- Benefit obligation, end of year 383,931 334,487 - --------------------------------------------------------------------------------------- Change in plans' assets: Fair value of plans' assets, beginning of year 418,856 365,740 Actual return on plans' assets 69,973 70,240 Employer contributions 450 542 Benefits paid (18,201) (17,666) - --------------------------------------------------------------------------------------- Fair value of plans' assets, end of year 471,078 418,856 - --------------------------------------------------------------------------------------- Funded status of the plans 87,147 84,369 Unrecognized net actuarial gain (45,440) (41,703) Unrecognized prior service cost 1,545 213 Unrecognized transition asset (7,409) (8,979) - --------------------------------------------------------------------------------------- Prepaid benefit cost $ 35,843 $ 33,900 - ---------------------------------------------------------------------------------------
The components of net periodic benefit cost (credit) were as follows: (In thousands) 1998 1997 1996 ============================================================================== Service cost $ 10,033 $ 9,149 $ 10,093 Interest cost 24,173 22,656 21,783 Expected return on plans' assets (34,128) (31,299) (29,199) Recognized actuarial gain (9) (22) 465 Amortization of prior service costs 8 (11) 135 Amortization of transition asset (1,570) (1,571) (1,571) - ------------------------------------------------------------------------------ Net periodic benefit cost (credit) $ (1,493) $ (1,098) $ 1,706 - ------------------------------------------------------------------------------ 55 The plans' assets consist primarily of listed common stocks and bonds. In determining the plans' benefit obligation, the weighted average assumed discount rate used was 6.75% in 1998 and 7.25% in 1997, while the assumed average rate of increase in future salary levels was 4.0% in 1998 and 5.0% in 1997. The weighted average expected long-term rate of return on assets used in determining net pension expense or credit was 9.5% in 1998 and 1997. Total pension expense for union-sponsored pension plans was $6.0 million in 1998, $6.1 million in 1997 and $5.7 million in 1996. The Company's portion of assets and liabilities for multi-employer union pension plans is not determinable. - -------------------------------------------------------------------------------- | NOTE 13: 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. Following is a reconciliation of the plans' accrued benefit cost: (In thousands) Dec. 27, 1998 Dec. 28, 1997 =============================================================================== Change in benefit obligation: Benefit obligation, beginning of year $46,063 $44,449 Service cost 278 309 Interest cost 3,201 3,302 Actuarial loss 670 520 Benefits paid (2,713) (2,517) - ------------------------------------------------------------------------------- Benefit obligation, end of year 47,499 46,063 - ------------------------------------------------------------------------------- Unrecognized net loss (781) (111) Unrecognized prior service cost (79) (85) - ------------------------------------------------------------------------------- Accrued benefit cost $46,639 $45,867 - ------------------------------------------------------------------------------- The components of net periodic benefit cost were as follows: (In thousands) 1998 1997 1996 =============================================================================== Service cost $ 278 $ 309 $ 259 Interest cost 3,201 3,302 3,244 Amortization of prior service cost 6 7 6 - ------------------------------------------------------------------------------- Net periodic benefit cost $3,485 $3,618 $3,509 - ------------------------------------------------------------------------------- 56 In determining the plans' benefit obligation, the weighted average assumed discount rate used was 6.75% in 1998 and 7.25% in 1997. For measurement purposes, an 8.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999. The rate was assumed to decrease gradually to 7.0% for 2002 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A 1% change in assumed health care cost trend rates would have the following effects: (In thousands) 1% Increase 1% Decrease ======================================================================= Service cost and interest cost $ 266 $ (245) Benefit obligation $3,424 $(3,143) - ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- | NOTE 14: CAPITAL STOCK | - -------------------------------------------------------------------------------- Preferred Stock -- Under the Company's Restated Certificate of Incorporation, 5 million shares of preferred stock are authorized. In 1989, the Company established a series of 1.6 million shares of Series B Convertible Preferred Stock of which 1.59 million shares were issued to the Company's ESOP. Each share of such preferred stock pays a cumulative dividend of 7.75% annually, has a liquidation value of $220 per share, is convertible into 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. Common 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 have been restated to reflect the stock split. At February 9, 1999, there were approximately 5,800 holders of record of the Company's common stock. Treasury Stock -- The Board from time to time has authorized the repurchase of shares of the Company's common stock in the open market or through private transactions to be used for employee benefit programs and other purposes. At December 27, 1998, the Company had authorization to repurchase 1.6 million shares and an additional $500 million of its common stock in the open market. Treasury Stock Held by Tribune Stock Compensation Fund -- In July 1998, the Company established the Tribune Stock Compensation Fund ("TSCF") to purchase common stock of the Company for the purpose of funding certain existing stock-based compensation plans. In 1998 and as part of the treasury stock repurchase authorization, the TSCF purchased 1.1 million shares of the Company's common stock for $69 million. At December 27, 1998, .4 million shares were available for future funding. Any shares acquired by the TSCF that are not utilized must be disposed of by July 2002. Share Purchase Rights Plan -- In December 1997, the Company adopted a Share Purchase Rights Plan that replaced a similar agreement. The plan provides for a dividend of one right on each outstanding share of the Company's common stock. Each right will entitle stockholders to buy one one-hundredth of a share of Series A Junior Participating preferred stock at an exercise price of $250. These rights expire January 5, 2008. The rights have no voting rights and are not exercisable until 10 days after the occurrence of certain triggering events, upon which the holders of the rights are entitled to purchase either the common stock of an acquiror or additional common stock of the Company at a discounted price. The rights are redeemable at the option of the Company for $.01 per right. The Company has established a series of 2 million shares of Series A Junior Participating Preferred Stock in connection with the plan, none of which have been issued. 57 - -------------------------------------------------------------------------------- | NOTE 15: INCENTIVE COMPENSATION AND STOCK PLANS | - -------------------------------------------------------------------------------- Employee Stock Ownership Plan (ESOP) -- In 1988, the Company established an ESOP as a long-term employee benefit plan. In connection therewith, the ESOP purchased, in 1988 and 1989, approximately 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 employees of the Company not covered by a collective bargaining agreement. At December 27, 1998, 10.7 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 27, 1998, preferred shares allocated and committed to be released were 723,893 and 110,380, respectively, and common shares allocated and committed to be released were 1,106,494 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, a portion of the common dividends and Company contributions. The table below summarizes ESOP debt service activity for the three years ended December 27, 1998. ESOP Debt (in thousands) 1998 1997 1996 ============================================================================= Debt Requirements Principal $31,885 $30,288 $28,613 Interest 15,731 18,274 20,676 - ----------------------------------------------------------------------------- Total $47,616 $48,562 $49,289 - ----------------------------------------------------------------------------- Debt Service Dividends $23,673 $24,460 $24,589 Company cash contributions 23,943 24,102 24,700 - ----------------------------------------------------------------------------- Total $47,616 $48,562 $49,289 - ----------------------------------------------------------------------------- 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 were $3.3 million in 1998 and 1997 and $3.0 million in 1996. The Company had 800,000 shares of common stock reserved for possible issuance under this plan at December 27, 1998. 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 1998, 1997 and 1996, 215,823, 215,424 and 230,688 shares, respectively, were sold to employees under this plan. As of December 27, 1998, a total of 3.7 million shares were available for sale. The weighted average fair value of shares sold in 1998 was $63.07. 58 1997 Incentive Compensation Plan -- In 1997, the 1992 Long-Term Incentive Plan was terminated and replaced with the 1997 Incentive Compensation Plan. At December 27, 1998, remaining options outstanding under the 1992 plan totaled 4.6 million shares, of which 3.1 million shares were exercisable. No further awards were made under the 1992 plan and remaining options vested in 1998. The 1997 plan provides for the granting of awards to eligible employees in any one or combination of stock options, performance equity program awards and annual management incentive program bonuses. At December 27, 1998, options outstanding under the 1997 plan totaled 4.4 million shares, of which .4 million shares were exercisable. At December 27, 1998, a total of 13.6 million shares were available for award under the 1997 plan. Under the stock option portion of the 1997 plan, the option price may not be less than the market value of the Company's common stock at the time the option is granted. Options are exercisable not less than six months or more than 10 years after the date the option is granted. General awards under the 1997 plan vest in annual 25% increments beginning one year from the date of the grant. Replacement options may be granted under the 1997 plan in connection with a participant's payment of part or all of the exercise price of a stock option and related tax withholding obligations with previously acquired shares of common stock. The performance equity portion of the 1997 plan provides for the awarding of common stock to key employees if certain financial goals are met over a period not less than two years. The Company recorded $4.5 million and $4.2 million of expense in 1998 and 1997, respectively, related to this portion of the plan. A combined summary of stock option activity and weighted average prices follows:
1998 1997 1996 ---------------------- ---------------------- ---------------------- Weighted Avg. Weighted Avg. Weighted Avg. (Shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price ================================================================================================================= Outstanding, beginning of year 8,188 $40.50 8,406 $30.68 8,906 $27.30 Granted 4,131 $67.33 3,902 $51.89 2,965 $36.46 Exercised (3,209) $35.92 (3,973) $31.12 (3,370) $26.88 Canceled (128) $52.33 (147) $37.67 (95) $31.12 - ----------------------------------------------------------------------------------------------------------------- Outstanding, end of year 8,982 $54.36 8,188 $40.50 8,406 $30.68 - ----------------------------------------------------------------------------------------------------------------- Exercisable, end of year 3,492 $39.30 2,930 $27.74 4,017 $26.05 - -----------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding and options exercisable at December 27, 1998 (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-$34.81 2,148 6.29 $30.77 2,148 $30.77 $35.06-$66.50 3,306 6.58 $54.39 1,324 $53.61 $66.56-$73.50 3,528 8.01 $68.43 20 $68.13 - --------------------------------------------------------------------------------------------------------
59 Stock Plans Pro Forma Disclosure -- The Company's 1997 Compensation Plan, 1992 Long-Term Incentive Plan and Employee Stock Purchase Plan are accounted for under APB Opinion No. 25. Accordingly, no compensation cost related to options 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 earnings per share would have been reduced to the following pro forma amounts:
1998 1997 1996 (In thousands, except ----------------------- ----------------------- ------------------------ per share data) As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma ============================================================================================================= Net income $414,272 $391,715 $393,625 $377,262 $372,067 $361,116 Net income attributable to common shares $395,490 $372,933 $374,827 $358,464 $353,281 $342,330 Diluted earnings per share $3.01 $2.84 $2.81 $2.69 $2.64 $2.55 - -------------------------------------------------------------------------------------------------------------
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to 1995, the pro forma compensation cost in 1996 is not representative of such cost in future years. In determining the pro forma compensation cost, the weighted average fair value of options granted at date of grant was estimated to be $14.95 in 1998, $11.70 in 1997 and $8.06 in 1996, using the Black-Scholes option pricing model. The following weighted-average assumptions were used for general awards and replacement options:
1998 1997 1996 ------------------------ ---------------------- ---------------------- General Replacement General Replacement General Replacement Awards Options Awards Options Awards Options ================================================================================================================= Risk-free interest rate 5.6% 5.5% 6.1% 5.8% 6.7% 6.5% Expected dividend yield 1.5% 1.5% 1.6% 1.6% 1.7% 1.7% Expected stock price volatility 21.4% 23.5% 22.5% 21.3% 22.2% 18.9% Expected life (in years) 6 2 6 2 5 3 - -----------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- | NOTE 16: 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 $.66 per diluted share. 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. The Company's consolidated financial statements reflect the 1996 gain 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. 60 - -------------------------------------------------------------------------------- | NOTE 17: COMPREHENSIVE INCOME | - -------------------------------------------------------------------------------- In 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." The statement requires companies to report, by major component and in total, the change in net assets from non-owner sources. The adoption had no effect on the financial position or results of operations of the Company. Other comprehensive income includes foreign currency translation adjustments and unrealized gains and losses on marketable securities, net of the change in the current maturity value of the Company's Debt Exchangeable for Common Stock securities ("DECS"). The Company's other comprehensive income and related tax effects were as follows:
(In thousands) 1998 1997 1996 ================================================================================================= Foreign currency translation adjustments: Foreign currency translation adjustments, before tax $ (8,620) $ - $ 29,520 Income tax benefit (expense) 3,017 - (10,332) - ------------------------------------------------------------------------------------------------- Net foreign currency translation adjustments (5,603) - 19,188 - ------------------------------------------------------------------------------------------------- Unrealized gains (losses) on securities, net of the change in DECS maturity value: Unrealized holding gains (losses) arising during the period, before tax 823,298 187,586 (10,522) Income tax expense (322,575) (72,556) (5,903) - ------------------------------------------------------------------------------------------------- Net unrealized holding gains (losses) 500,723 115,030 (16,425) Less: reclassification adjustment for gains realized in net income, before tax (41,451) (117,116) (104,588) Income taxes 15,896 44,914 50,354 - ------------------------------------------------------------------------------------------------- Net reclassification adjustment (25,555) (72,202) (54,234) - ------------------------------------------------------------------------------------------------- Net unrealized gains (losses) on securities 475,168 42,828 (70,659) - ------------------------------------------------------------------------------------------------- Other comprehensive income $469,565 $ 42,828 $(51,471) - -------------------------------------------------------------------------------------------------
A reconciliation of the components of accumulated other comprehensive income is as follows:
(In thousands) 1998 1997 1996 ================================================================================================= Foreign currency translation adjustments: Balance, beginning of year $ - $ - $(19,188) Current year change (5,603) - 19,188 - ------------------------------------------------------------------------------------------------- Balance, end of year (5,603) - - - ------------------------------------------------------------------------------------------------- Unrealized gains on marketable securities, net of the change in DECS maturity value: Balance, beginning of year 161,641 118,813 189,472 Current year change 475,168 42,828 (70,659) - ------------------------------------------------------------------------------------------------- Balance, end of year 636,809 161,641 118,813 - ------------------------------------------------------------------------------------------------- Accumulated other comprehensive income $631,206 $161,641 $118,813 - -------------------------------------------------------------------------------------------------
61 - -------------------------------------------------------------------------------- | NOTE 18: SEGMENT INFORMATION | - -------------------------------------------------------------------------------- In 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which require the Company to report certain financial and other descriptive information about its reportable operating segments. The adoption had no effect on the financial position or the results of operations of the Company. Tribune Company is a media company comprising three business segments as of December 27, 1998. The segments were identified according to product. Publishing -- The Company's publishing segment consists of four daily newspapers, Internet and other online publishing businesses, cable news programming and related publications and services. The newspapers are the Chicago Tribune, the South Florida-based Sun-Sentinel, The Orlando Sentinel and the Hampton Roads (Va.)-based Daily Press. Broadcasting and Entertainment -- The Company's broadcasting operations consist of WB television affiliates in New York, Los Angeles, Chicago, Philadelphia, Boston, Dallas, Houston, Seattle, Miami, Denver and San Diego; Fox television affiliates in Sacramento, Indianapolis, Hartford, Grand Rapids and Harrisburg; an ABC television affiliate in New Orleans; a CBS television affiliate in Atlanta; and four radio stations. In entertainment, the Company owns the Chicago Cubs baseball team and produces and syndicates television programming. Education -- The Company's education segment consists of The Wright Group, Everyday Learning/Creative Publications, NTC/Contemporary Publishing, Landoll and Ideal/Instructional Fair Publishing. Financial data for each of the Company's business segments is presented on page 63. No single customer provides more than 10% of the Company's revenue. The Company derives less than 10% of its revenues from markets outside the U.S. In determining operating profit for each segment, none of the following items have been added or deducted: interest income and expense, equity earnings and losses, non-recurring items or income taxes. Assets represent those 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) 1998 1997 1996 ============================================================================== Publishing $ 724,363 $ 692,390 $ 679,963 Broadcasting and Entertainment 540,933 490,269 454,828 Education 125,733 72,322 60,370 - ------------------------------------------------------------------------------ Total cost of sales $1,391,029 $1,254,981 $1,195,161 - ------------------------------------------------------------------------------ 62
Tribune Company and Subsidiaries Business Segments (In thousands of dollars) 1998 1997 1996 ============================================================================================================ Operating Publishing $1,498,573 $1,436,718 $1,336,639 Revenues Broadcasting and Entertainment 1,153,006 1,057,529 876,750 Education 329,310 225,533 192,316 ----------------------------------------------------------------------------------------- Total operating revenues $2,980,889 $2,719,780 $2,405,705 - ------------------------------------------------------------------------------------------------------------ Operating Publishing $ 377,137 $ 354,585 $ 291,257 Profit Broadcasting and Entertainment 317,355 285,896 203,531 Education 43,232 35,976 39,504 Corporate expenses (35,435) (34,426) (30,935) ----------------------------------------------------------------------------------------- Total operating profit $ 702,289 $ 642,031 $ 503,357 - ------------------------------------------------------------------------------------------------------------ Depreciation Publishing $ 74,519 $ 70,417 $ 73,379 Broadcasting and Entertainment 33,362 32,034 24,873 Education 7,450 4,153 2,693 Corporate 2,761 2,410 2,265 ----------------------------------------------------------------------------------------- Total depreciation $ 118,092 $ 109,014 $ 103,210 - ------------------------------------------------------------------------------------------------------------ Amortization Publishing $ 5,175 $ 4,647 $ 7,564 of Intangible Broadcasting and Entertainment 54,357 44,922 20,567 Assets Education 17,944 13,930 11,552 ----------------------------------------------------------------------------------------- Total amortization of intangible assets $ 77,476 $ 63,499 $ 39,683 - ------------------------------------------------------------------------------------------------------------ Capital Publishing $ 65,577 $ 60,494 $ 58,686 Expenditures Broadcasting and Entertainment 44,055 23,747 27,233 Education 10,910 5,526 6,153 Corporate 19,168 14,078 1,252 ----------------------------------------------------------------------------------------- Total capital expenditures $ 139,710 $ 103,845 $ 93,324 - ------------------------------------------------------------------------------------------------------------ Business Publishing $ 47,000 $ - $ 1,627 Acquisitions and Broadcasting and Entertainment 387,363 1,358,120 408,810 Other Additions Education 77,933 136,048 304,096 to Long-Lived ----------------------------------------------------------------------------------------- Assets (1) Total acquisitions and other additions $ 512,296 $1,494,168 $ 714,533 - ------------------------------------------------------------------------------------------------------------ Assets Publishing $ 800,853 $ 668,532 $ 686,730 Broadcasting and Entertainment 3,148,814 2,923,663 1,616,797 Education 782,438 717,301 544,226 Corporate 1,203,465 468,058 853,147 ----------------------------------------------------------------------------------------- Total assets $5,935,570 $4,777,554 $3,700,900 - ------------------------------------------------------------------------------------------------------------ (1) Other additions to long-lived assets include broadcast rights payments for broadcasting and entertainment and prepublication payments for education. For education, prepublication payments exceeded prepublication amortization by $9.5 million, $12.5 million, and $9.4 million in 1998, 1997 and 1996 respectively.
63
Quarterly Results (Unaudited) Quarters -------------------------------------------- 1998 (In thousands of dollars, except per share data) First Second Third Fourth Total =========================================================================================================================== Operating Publishing $372,508 $377,311 $353,614 $395,140 $1,498,573 Revenues Broadcasting and Entertainment 240,358 322,633 291,144 298,871 1,153,006 Education 59,827 85,640 112,390 71,453 329,310 -------------------------------------------------------------------------------------------------------- Total operating revenues $672,693 $785,584 $757,148 $765,464 $2,980,889 - --------------------------------------------------------------------------------------------------------------------------- Operating Publishing $ 99,020 $100,440 $ 78,120 $ 99,557 $ 377,137 Profit Broadcasting and Entertainment 54,472 97,814 69,240 95,829 317,355 Education (696) 13,321 28,844 1,763 43,232 Corporate expenses (8,744) (8,912) (8,640) (9,139) (35,435) -------------------------------------------------------------------------------------------------------- Total operating profit 144,052 202,663 167,564 188,010 702,289 - --------------------------------------------------------------------------------------------------------------------------- Net loss on equity investments (14,325) (7,540) (7,212) (4,903) (33,980) Sales of subsidiary and investments, net of write-downs (1) 7,299 85,800 - 26,020 119,119 Net interest expense (19,699) (19,551) (20,647) (22,442) (82,339) - --------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 117,327 261,372 139,705 186,685 705,089 Income taxes (47,250) (113,724) (56,399) (73,444) (290,817) - --------------------------------------------------------------------------------------------------------------------------- Net Income 70,077 147,648 83,306 113,241 414,272 Preferred dividends, net of tax (4,695) (4,696) (4,696) (4,695) (18,782) - --------------------------------------------------------------------------------------------------------------------------- Net Income Attributable to Common Shares $ 65,382 $142,952 $ 78,610 $108,546 $ 395,490 - --------------------------------------------------------------------------------------------------------------------------- Earnings Per Share (2) Basic $ .53 $ 1.17 $ .65 $ .91 $ 3.26 -------------------------------------------------------------------------------------------------------- Diluted $ .49 $ 1.07 $ .60 $ .84 $ 3.01 - --------------------------------------------------------------------------------------------------------------------------- Common Dividends Per Share $ .17 $ .17 $ .17 $ .17 $ .68 - --------------------------------------------------------------------------------------------------------------------------- Common Stock Price (High-Low) $68 3/4- $72 3/8- $75 1/16- $67 1/2- 58 5/16 62 13/16 50 44 3/4 - --------------------------------------------------------------------------------------------------------------------------- Notes to Quarterly Results: (1) During 1998, the Company sold its WQCD radio station subsidiary, sold investments and recorded certain investment write-downs. In the aggregate, these non-recurring items increased full year 1998 net income by $63.5 million and diluted earnings per share by $.48. By quarter, they increased net income and diluted earnings per share as follows: $4.5 million and $.03 in the first quarter; $42.9 million and $.32 in the second quarter; and $16.1 million and $.12 in the fourth quarter. (2) Quarterly and full year earnings per share amounts are calculated independently based on the weighted average number of common shares outstanding for each period. (3) During 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. In the aggregate, these non-recurring items increased full year 1997 net income by $68.9 million and diluted earnings per share by $.51. By quarter, they increased net income and diluted earnings per share as follows: $17.6 million and $.13 in the second quarter; $25.5 million and $.19 in the third quarter; and $25.8 million and $.19 in the fourth quarter.
64
Tribune Company and Subsidiaries Quarters -------------------------------------------- 1997 (In thousands of dollars, except per share data) First Second Third Fourth Total =========================================================================================================================== Operating Publishing $355,126 $360,131 $341,516 $379,945 $1,436,718 Revenues Broadcasting and Entertainment 201,390 300,267 274,020 281,852 1,057,529 Education 37,403 59,344 79,750 49,036 225,533 -------------------------------------------------------------------------------------------------------- Total operating revenues $593,919 $719,742 $695,286 $710,833 $2,719,780 - --------------------------------------------------------------------------------------------------------------------------- Operating Publishing $ 97,185 $ 94,328 $ 73,035 $ 90,037 $ 354,585 Profit Broadcasting and Entertainment 39,399 84,839 70,958 90,700 285,896 Education (160) 11,481 24,098 557 35,976 Corporate expenses (8,312) (7,950) (8,613) (9,551) (34,426) -------------------------------------------------------------------------------------------------------- Total operating profit 128,112 182,698 159,478 171,743 642,031 - --------------------------------------------------------------------------------------------------------------------------- Net loss on equity investments (11,703) (5,666) (8,590) (8,737) (34,696) Sales of investments, net of write-downs (3) - 28,529 41,496 41,799 111,824 Net interest expense (6,144) (19,303) (17,426) (17,286) (60,159) - --------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 110,265 186,258 174,958 187,519 659,000 Income taxes (45,760) (75,326) (70,180) (74,109) (265,375) - --------------------------------------------------------------------------------------------------------------------------- Net Income 64,505 110,932 104,778 113,410 393,625 Preferred dividends, net of tax (4,699) (4,700) (4,700) (4,699) (18,798) - --------------------------------------------------------------------------------------------------------------------------- Net Income Attributable to Common Shares $ 59,806 $106,232 $100,078 $108,711 $ 374,827 - --------------------------------------------------------------------------------------------------------------------------- Earnings Per Share (2) Basic $ .49 $ .86 $ .81 $ .88 $ 3.05 -------------------------------------------------------------------------------------------------------- Diluted $ .45 $ .80 $ .75 $ .81 $ 2.81 - --------------------------------------------------------------------------------------------------------------------------- Common Dividends Per Share $ .16 $ .16 $ .16 $ .16 $ .64 - --------------------------------------------------------------------------------------------------------------------------- Common Stock Price (High-Low) $42 3/8- $50 5/16- $54 13/16- $61 1/2- 35 1/2 39 3/4 48 51 9/16 - ---------------------------------------------------------------------------------------------------------------------------
65
Eleven Year Financial Summary (In thousands of dollars, except per share data) 1998 1997 1996 1995 ========================================================================================================================== Operating Results Operating Revenues Publishing excluding Daily News $1,498,573 1,436,718 1,336,639 1,312,767 New York Daily News $ - - - - Broadcasting and Entertainment $1,153,006 1,057,529 876,750 828,806 Education $ 329,310 225,533 192,316 103,101 - -------------------------------------------------------------------------------------------------------------------------- Total Operating Revenues $2,980,889 2,719,780 2,405,705 2,244,674 - -------------------------------------------------------------------------------------------------------------------------- Operating Profit Publishing excluding Daily News $ 377,137 354,585 291,257 272,093 New York Daily News $ - - - - Broadcasting and Entertainment $ 317,355 285,896 203,531 171,618 Education $ 43,232 35,976 39,504 4,608 Corporate expenses $ (35,435) (34,426) (30,935) (29,899) - -------------------------------------------------------------------------------------------------------------------------- Total Operating Profit $ 702,289 642,031 503,357 418,420 - -------------------------------------------------------------------------------------------------------------------------- Net loss on equity investments $ (33,980) (34,696) (13,281) (13,209) Sales of investments and subsidiaries, net of write-downs $ 119,119 111,824 - 14,672 Net interest expense $ (82,339) (60,159) (15,663) (7,349) - -------------------------------------------------------------------------------------------------------------------------- Income (Loss) from Continuing Operations Before Income Taxes $ 705,089 659,000 474,413 412,534 Income taxes $ (290,817) (265,375) (191,663) (167,076) - -------------------------------------------------------------------------------------------------------------------------- Income (Loss) from Continuing Operations $ 414,272 393,625 282,750 245,458 Discontinued Operations of QUNO, net of tax $ - - 89,317 32,707 Cumulative effects of changes in accounting principles (1) $ - - - - - -------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) (2) $ 414,272 393,625 372,067 278,165 - -------------------------------------------------------------------------------------------------------------------------- Share Information Diluted earnings (loss) per share Continuing operations Before non-recurring items $ 2.53 2.30 1.94 1.55 Total (2) $ 3.01 2.81 1.98 1.61 Discontinued operations $ - - .66 .23 Net income $ 3.01 2.81 2.64 1.84 Common dividends per share $ .68 .64 .60 .56 Weighted average common shares outstanding (000's) 121,214 122,879 122,842 129,580 Financial Ratios Operating profit margin 23.6% 23.6% 20.9% 18.6% Net income margin 13.9% 14.5% 15.5% 12.4% Net income as a percentage of average shareholders' equity 19.8% 23.4% 25.5% 20.5% Debt to capital 35% 41% 37% 33% Financial Position and Other Data Total assets $5,935,570 4,777,554 3,700,900 3,288,255 Long-term debt $1,616,256 1,521,453 979,754 757,437 Shareholders' equity $2,356,617 1,826,004 1,539,506 1,379,909 Capital expenditures $ 139,710 103,845 93,324 117,863 Dividends $ 101,090 97,357 92,423 91,202 Employees (full-time equivalents) 12,700 11,600 10,700 10,500 - -------------------------------------------------------------------------------------------------------------------------- (1) The adoption of new accounting rules for retiree benefits, income taxes and postemployment benefits decreased net income by $16.8 million, or $.12 per share in 1992. (2) Includes non-recurring items as follows: gain on the sales of subsidiary and investments, net of write-downs, totaling $63.5 million, or $.48 per share in 1998; gain on the sales of investments, net of write-downs, totaling $68.9 million, or $.51 per share in 1997; equity income related to Qwest Broadcasting of $6.0 million, or $.04 per share in 1996; gain on the sale of investment and subsidiaries totaling $8.7 million, or $.06 per share in 1995; and charges relating to New York Daily News totaling $255.0 million, or $1.93 per share in 1990.
66
Tribune Company and Subsidiaries 1994 1993 1992 1991 1990 1989 1988 ========================================================================================================= 1,246,377 1,163,116 1,136,619 1,122,434 1,183,177 1,197,077 1,117,487 - - - - 321,823 422,024 436,843 764,197 727,213 684,051 617,514 623,981 584,326 505,729 102,082 21,209 - - - - - - --------------------------------------------------------------------------------------------------------- 2,112,656 1,911,538 1,820,670 1,739,948 2,128,981 2,203,427 2,060,059 - --------------------------------------------------------------------------------------------------------- 291,323 252,412 226,412 218,138 280,587 301,303 250,709 - - - - (114,468) (2,179) 15,167 138,213 127,984 121,267 100,175 107,528 96,803 77,754 2,829 2,071 - - - - - (26,001) (24,207) (23,465) (21,499) (22,362) (21,900) (22,699) - --------------------------------------------------------------------------------------------------------- 406,364 358,260 324,214 296,814 251,285 374,027 320,931 - --------------------------------------------------------------------------------------------------------- (9,739) (1,857) (2,081) (1,864) (2,285) (2,221) (2,142) - - - - (295,000) 3,133 - (4,778) (9,545) (22,510) (30,387) (23,478) (12,040) (33,341) - --------------------------------------------------------------------------------------------------------- 391,847 346,858 299,623 264,563 (69,478) 362,899 285,448 (158,698) (142,212) (120,089) (106,514) 22,055 (150,948) (135,135) - --------------------------------------------------------------------------------------------------------- 233,149 204,646 179,534 158,049 (47,423) 211,951 150,313 8,898 (16,040) (42,909) (16,068) (16,110) 30,470 60,093 - - (16,800) - - - - - --------------------------------------------------------------------------------------------------------- 242,047 188,606 119,825 141,981 (63,533) 242,421 210,406 - --------------------------------------------------------------------------------------------------------- 1.48 1.30 1.16 1.02 1.44 1.30 .99 1.48 1.30 1.16 1.02 (.49) 1.30 .99 .06 (.11) (.30) (.11) (.12) .20 .40 1.54 1.19 .74 .91 (.61) 1.50 1.39 .52 .48 .48 .48 .48 .44 .38 134,426 132,742 130,036 128,728 132,064 144,780 151,272 19.2% 18.7% 17.8% 17.1% 11.8% 17.0% 15.6% 11.5% 9.9% 6.6% 8.2% (3.0)% 11.0% 10.2% 19.9% 18.8% 13.6% 17.6% (6.9)% 21.4% 18.4% 23% 31% 46% 47% 51% 41% 32% 2,785,825 2,536,410 2,751,570 2,795,298 2,826,099 3,013,537 2,905,382 411,200 510,838 740,979 897,835 998,962 880,686 650,118 1,332,980 1,095,627 911,889 851,699 764,512 1,077,996 1,188,480 91,626 75,620 88,349 54,988 91,226 113,969 140,471 88,325 81,927 80,407 78,415 80,110 75,298 57,416 10,500 9,900 10,000 10,000 13,500 13,800 13,800 - ---------------------------------------------------------------------------------------------------------
67 Tribune Company and Subsidiaries - -------------------------------------------------------------------------------- | Management's Responsibility for Financial Statements | - -------------------------------------------------------------------------------- Financial Statements -- Management is responsible for the preparation, integrity and fair presentation of the Company's consolidated financial statements and related financial information included in this annual report to shareholders. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include certain amounts that are based on management's best estimates and judgments. The consolidated financial statements were audited by PricewaterhouseCoopers LLP, independent accountants, and their report is shown below. PricewaterhouseCoopers LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of 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. PricewaterhouseCoopers LLP and the internal auditors have direct access to the Audit Committee. /s/ John W. Madigan /s/ Donald C. Grenesko - ------------------- ---------------------- John W. Madigan Donald C. Grenesko Chairman, President and Senior Vice President/Finance and Chief Executive Officer Administration - -------------------------------------------------------------------------------- | Report of Independent Accountants | - -------------------------------------------------------------------------------- To the Board of Directors and Shareholders of Tribune Company -- In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Tribune Company and its subsidiaries at December 27, 1998 and December 28, 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 1998, 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/ PricewaterhouseCoopers LLP - ------------------------------ Chicago, Illinois February 9, 1999, except as to Note 2, which is as of March 1, 1999 68 EX-21 6 TABLE OF SUBSIDIARIES OF TRIBUNE COMPANY EXHIBIT 21 TRIBUNE COMPANY TABLE OF SUBSIDIARIES
Jurisdiction of Other names under which Incorporation subsidiary does business --------------- ------------------------ PUBLISHING - ---------- Tribune Publishing Company Delaware Chicago Tribune Company Illinois Chicago Tribune Newspapers, Inc. Illinois Chicago Tribune; Exito! Chicago Tribune Press Service, Inc. Illinois Tribune Newspaper Network Newspaper Readers Agency, Inc. Illinois Tribune Direct Marketing, Inc. Delaware Tribune Direct Marketing RELCON, Inc. Delaware Tribune Career Events, Inc. Delaware Tribune Media Services, Inc. Delaware TV Log; TV Week; TV Listings; TMS Stocks Sun-Sentinel Company Delaware Sun-Sentinel; Gold Coast Labeling; Signs by Sun-Sentinel; Gold Coast Publications, Inc. Delaware Gold Coast Shopper; Vital Signs; South Florida Parenting; City Link New River Center Maintenance Association, Inc. Florida Orlando Sentinel Communications Company Delaware The Orlando Sentinel; US Express; Tribune Interactive Network Services; Florida Journal Publications; Black Family Today; Central Florida Family; Central Florida Family Guide; Sentinel Signs; O'Arts; Orlando City Book; Relcon of Florida Neocomm, Inc. Delaware Sentinel Communications News Ventures, Inc. Delaware Tribune Interactive Delaware South Florida Interactive Delaware Orlando Interactive Delaware Hampton Roads Interactive Delaware Chicago Interactive Delaware The Daily Press, Inc. Delaware Daily Press Tribune National Marketing Company Delaware South Florida Newspaper Network, Inc. Delaware JDTV, Inc. Wisconsin UltimateTV, Inc. Wisconsin Premier DataVision, Inc. Colorado
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 Denver Radio, Inc. Delaware KOSI; KEZW; KKHK 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 Oak Brook Productions, Inc. Delaware Towering T Music Publishing Company Delaware Tribune (FN) Cable Ventures, Inc. Delaware KWGN Inc. Delaware KWGN-TV WGNO Inc. Delaware WGNO-TV KCPQ Inc. Delaware KCPQ-TV KTLA Inc. California KTLA-TV WPIX, Inc. Delaware WPIX-TV; Tribune New York Holdings WLVI Inc. Delaware WLVI-TV Tribune Network Holdings Company Delaware KSWB Inc. Delaware KSWB-TV KHTV Inc. Delaware KHTV-TV Tribune Television Company Delaware WPMT-TV; WXIN-TV; WTIC-TV; KDAF-TV; WPHL-TV Channel 20, Inc. Delaware Channel 40, Inc. Delaware KXTL-TV Channel 39, Inc. Delaware WBZL-TV Tribune Television Holdings, Inc. Delaware WXMI-TV Tribune California Properties, Inc. Delaware Chicago National League Ball Club, Inc. Delaware Chicago Cubs Diana-Quentin, Inc. Illinois Rockford Professional Baseball Club, Inc. Florida Rock River Concessions, Inc. Florida
2
Jurisdiction of Other names under which Incorporation subsidiary does business --------------- ------------------------ EDUCATION - --------- Tribune Education Company Delaware NTC/Contemporary Publishing Group, Inc. Illinois Contemporary Books; NTC Publishing Group; Country Roads Press; NTC Learning Works; National Textbook Company; Passport Books; VGM Career Horizons; The Quilt Digest Press; NTC Business Books; Masters Press; RGA Publishing Group; Lowell House; Peter Bedrick Books; Keats Publishing Wright Group Publishing, Inc. Delaware The Wright Group Breakthrough to Literacy, Inc. Delaware Mimosa Education, Inc. Delaware Mimosa Publications Pty Limited Australia Yarra Pty Limited Australia Carringbush Publications Pty Limited Australia Dragon Media International Pty Limited Australia Everyday Learning Corporation Illinois Educational Publishing Corporation Delaware Ideal/Instructional Fair Publishing Group, Inc. Delaware Instructional Fair.TS Denison; In Celebration; Ideal School Supply Company Creative Publications, Inc. Delaware Tribune Education Sales, Inc. Delaware Landoll, Inc. Ohio Landoll's Breakthrough Acquisition Corporation Delaware Applecross Enterprises Limited British Virgin Islands Shortland Publications, Inc. Delaware Lands End Publishing, Inc. Delaware Shortland Publications Limited New Zealand Lands End Publishing Limited New Zealand Shortland Publications (USA), Inc. Colorado Tribune Education (UK) Limited United Kingdom Living and Learning (Cambridge) Ltd. United Kingdom Kingscourt Publishing Limited United Kingdom Sunshine International, Inc. Delaware Great Wave Software California MISCELLANEOUS - ------------- Tribune Properties, Inc. Delaware New River Center Management Co. Riverwalk Center I Joint Venture Florida (Partnership) Tower Acquisition Company, Inc. Delaware
3 EX-23 7 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (File Nos. 333-18921 and 333-66077) 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 9, 1999, except to Note 2, which is as of March 1, 1999, appearing in the 1998 Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Chicago, Illinois March 22, 1999 EX-27 8 FDS
5 This schedule contains summary financial information extracted from the 1998 Consolidated Statements of Income and Consolidated Balance Sheets and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-27-1998 DEC-29-1997 DEC-27-1998 11,598 835 599,631 44,402 99,005 945,129 1,664,526 987,791 5,935,570 828,130 0 0 293,203 1,018 2,062,396 5,935,570 0 2,980,889 0 1,391,029 0 0 88,451 705,089 290,817 414,272 0 0 0 414,272 3.26 3.01 The information reported above under "EPS-PRIMARY" represents basic earnings per share for the year ended December 27, 1998.
-----END PRIVACY-ENHANCED MESSAGE-----