-----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, ACR5s7GjwhOGM1XhjgLmZLvOR7xRYCEvDk1/2gSjW76YkqH5d3mSziCsCZ5nz/wB /JTggkoyuqWsoOOOBuztaw== 0000950150-00-000185.txt : 20000320 0000950150-00-000185.hdr.sgml : 20000320 ACCESSION NUMBER: 0000950150-00-000185 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMES MIRROR CO /NEW/ CENTRAL INDEX KEY: 0000925260 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 954481525 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13492 FILM NUMBER: 572051 BUSINESS ADDRESS: STREET 1: TIMES MIRROR SQUARE STREET 2: 220 WEST FIRST STREET CITY: LOS ANGELES STATE: CA ZIP: 90053 BUSINESS PHONE: 2132373700 MAIL ADDRESS: STREET 1: TIMES MIRROR SQUARE STREET 2: 202 WEST 1ST ST CITY: LOS ANGELES STATE: CA ZIP: 90053 FORMER COMPANY: FORMER CONFORMED NAME: NEW TMC INC DATE OF NAME CHANGE: 19940613 10-K 1 FORM 10-K THE TIMES MIRROR COMPANY 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 1-13492 ------------------------ THE TIMES MIRROR COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4481525 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) TIMES MIRROR SQUARE LOS ANGELES, CALIFORNIA 90053 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 237-3700 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ---------------------------------------- --------------------------------------------------- Series A Common Stock New York Stock Exchange and Pacific Stock Exchange Premium Equity Participating Securities New York Stock Exchange
------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Series C Common Stock (TITLE OF CLASS) ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant on March 13, 2000 was approximately $2.9 billion. (For purposes of this calculation, the market value of a share of Series C Common Stock was assumed to be the same as a share of Series A Common Stock, into which it is convertible.) Number of shares of Series A Common Stock outstanding at March 13, 2000: 40,471,127, excluding 18,237,864 shares held by subsidiaries of the Registrant; 4,001,067 common shares held by TMCT, LLC, representing 80% of the common shares held by TMCT, LLC; 12,432,973 shares held by TMCT II, LLC, representing 80% of the shares held by TMCT II, LLC; 16,230,026 shares held by Eagle New Media Investments, LLC and 2,589,077 shares held as treasury shares. Number of shares of Series C Common Stock outstanding at March 13, 2000: 18,196,797. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III will be incorporated by reference from the Registrant's definitive Proxy Statement for the Company's 2000 Annual Meeting of Shareholders to be filed by the Company within 120 days after the end of the Company's fiscal year or will be filed under a Form 10-K/A. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS. GENERAL The Times Mirror Company ("Times Mirror" or the "Company") is engaged principally in the newspaper publishing, professional information and magazine publishing businesses. The Company publishes the Los Angeles Times, Newsday, The Baltimore Sun, The Hartford Courant, The Morning Call, The (Stamford) Advocate, Greenwich Time and several smaller newspapers. The Company also provides information to the aviation market and publishes magazines. During 1999, Times Mirror engaged in several strategic transactions including the acquisition by an investment affiliate of Newport Media, Inc., a publisher of shopper publications in the New York and New Jersey areas, ValuMail, Inc., a shared mail company that distributes preprinted advertising in Connecticut and Massachusetts, and Airspace Safety Analysis Corporation, a provider of airspace utilization and Federal Aviation Administration compliance services for the telecommunications and aviation industries. In addition, during 1999, the Company acquired New Mass. Media, Inc., a publisher of five weekly alternative newspapers in Connecticut, Massachusetts and New York, and sold Hollywood Online, Inc. and Apartment Search, Inc. In September 1999, Times Mirror, its affiliates and its largest stockholders, the Chandler Trusts, completed a transaction that, for financial reporting purposes, reduced Times Mirror's outstanding common stock by 12.4 million shares and reduced Times Mirror's then outstanding Series C Preferred Stock by 501,000 shares. In September 1999, Times Mirror also decided to sell AchieveGlobal, Inc., its professional training company, Allen Communication, a division of AchieveGlobal that develops and markets interactive software and training courseware, The StayWell Company, a health improvement company, and The Sporting News, a national sports weekly. In February 2000, Gilat Communications Ltd. acquired Allen Communication, Vulcan Ventures Inc. agreed to acquire The Sporting News and MediMedia USA, Inc., a subsidiary of Havas MediMedia S.A., agreed to acquire The StayWell Company. In the fourth quarter of 1999, Times Mirror formed a new Internet unit, Times Mirror interactive, focused on growing the Company's existing online franchises and developing new businesses that leverage existing capabilities. The Company continued to have an active share purchase program with a total of 3.2 million shares of Series A Common Stock acquired by the Company or its affiliates during 1999, not including shares effectively retired in the transaction with the Chandler Trusts. This more than offset the 2.0 million shares of Series A Common Stock issued as a result of the exercise of stock options. On March 13, 2000, Times Mirror and Tribune Company (Tribune) signed a definitive agreement for the merger of the two companies in a cash and stock transaction valued at approximately $8 billion based on the closing price of Tribune common stock on March 10, 2000. Under the terms of this agreement, Tribune will make a cash tender offer for up to 28 million shares of the Company's common stock, which represents approximately 48% of the shares of common stock outstanding as of March 13, 2000, at a price of $95 per share. Following completion of the tender offer, Times Mirror and Tribune will merge in a transaction in which each share of Times Mirror common stock is converted into 2.5 shares of Tribune common stock. In addition, if fewer than 28 million Times Mirror common shares are purchased in the tender offer, Times Mirror shareholders will be permitted to elect cash, at a price of $95 per share, in the merger, up to the balance of the 28 million shares. The merger is subject to the approval of the shareholders of both companies and other customary conditions, including regulatory approvals. Times Mirror expects the tender offer to be completed in mid-April and the merger to be completed in the second or third quarter of 2000. NEWSPAPER PUBLISHING SEGMENT Times Mirror publishes the Los Angeles Times, Newsday, The Baltimore Sun, The Hartford Courant, The Morning Call, The (Stamford) Advocate, Greenwich Time and several other daily and weekly newspapers. Local management operates each daily newspaper substantially independently in order to most effectively meet the needs of the area each newspaper serves. Editorial policies are also established by local management. The Company continues to move toward centralizing the back-office operations of its eastern 1 3 newspapers and certain of its other business units. Each daily newspaper is a member of Associated Press. The Los Angeles Times and Newsday also subscribe to other supplementary news services. Production of Times Mirror's newspapers is performed on presses owned by Times Mirror. LOS ANGELES TIMES The Los Angeles Times has been published continuously since 1881 and, in 1999, won a Pulitzer Prize for beat reporting. It is published every morning and, for the six-month period ended September 30, 1999, as reported by the Company to the Audit Bureau of Circulations, ranked as the largest metropolitan newspaper in the United States in circulation. In 1999, its annual average unaudited circulation was 1,106,749 for Monday through Friday, 1,000,140 for Saturday and 1,381,422 for Sunday, compared with 1,097,079, 1,017,398 and 1,385,145, respectively, in 1998. Approximately 71%, 76% and 77% of the Monday through Friday, Saturday and Sunday circulation, respectively, was home-delivered in 1999, compared with 75%, 79% and 78% of the circulation, respectively, in 1998. In 1999, the Los Angeles Times recorded full-run billed advertising volume of 3,387,845 standard advertising unit inches (hereinafter "inches"), part-run volume of 6,333,733 inches, and preprinted inserts of 1,156.0 million pieces, compared with 3,212,104 inches, 5,362,693 inches and 1,169.3 million pieces, respectively, in 1998. In addition, the Los Angeles Times derived revenue from advertising supplements distributed to non-subscribers equivalent to 1,469.2 million pieces in 1999, compared with 1,138.5 million pieces in 1998. In addition to the daily edition covering the Los Angeles metropolitan area, the Los Angeles Times publishes daily Orange County, San Fernando Valley and Ventura County editions. The Los Angeles Times also publishes a daily national edition that is distributed primarily in Northern California, New York and Washington, D.C. In an effort to provide targeted local news coverage, the Los Angeles Times inserts daily and semi-weekly community newspapers published by Times Community Newspapers. In 1999, the Los Angeles Times also inserted 12 daily and weekly community news sections under the banner Our Times. In 1999, the Los Angeles Times also established joint distribution agreements with La Opinion, the largest Spanish-language daily newspaper in Southern California, in which the Company owns a 50% equity interest, and other local native-language newspapers. Through E Z Buy & E Z Sell Recycler Corporation, Times Mirror publishes a collection of 19 alternative classified papers in Southern California including titles such as the Recycler, AutoBuys, CycleBuys and the Renter. In conjunction with the Washington Post, the Los Angeles Times operates a supplementary news service sold to newspapers in the United States and foreign countries. The Los Angeles Times also syndicates material to other newspapers throughout the world. Net revenues for the Los Angeles Times, including California Community News Corporation and E Z Buy & E Z Sell Recycler Corporation, were $1,205,665,000 in 1999, $1,137,521,000 in 1998 and $1,088,822,000 in 1997, representing 39.8%, 40.9%, and 41.2% of the Company's consolidated revenues from continuing operations for such years. NEWSDAY Newsday, which is published seven days a week, circulates primarily in Nassau and Suffolk counties on Long Island, New York and the borough of Queens in New York City. In 1999, Newsday ranked as the sixth largest metropolitan daily newspaper in the country for Monday through Friday circulation, and as the eleventh largest for Sunday circulation. In 1999, Newsday's annual average unaudited circulation was 568,697 for Monday through Friday, 450,451 for Saturday, and 663,534 for Sunday, compared with 567,227, 459,732 and 658,351, respectively, in 1998. Newsday also publishes Distinction, a bi-monthly magazine designed to serve Long Island's upscale community, which is supported by advertising revenues and paid subscriptions. In addition, Newsday's affiliated alternate distribution company, DSA Community Publishing, operates This Week, a free distribution shopper with 80 editions, Newport Media, a publisher of 135 pennysaver editions, and Hoy, a Spanish-language daily newspaper for the New York metropolitan area. Newsday has won sixteen Pulitzer Prizes. 2 4 In 1999, Newsday recorded full-run billed advertising volume of 1,739,541 inches, part-run volume of 1,650,799 inches, and preprinted inserts of 863.3 million pieces, compared with 1,644,283 inches, 1,495,782 inches, and 796.5 million pieces, respectively, in 1998. In addition, Newsday, together with DSA Community Publishing, derived revenue from advertising supplements distributed to non-subscribers equivalent to 1,122.3 million pieces in 1999, compared with 1,197.2 million pieces in 1998. THE BALTIMORE SUN The Baltimore Sun primarily serves the Baltimore-Annapolis metropolitan area, including Anne Arundel, Baltimore, Carroll, Harford and Howard counties. The Baltimore Sun publishes a morning newspaper seven days a week. In 1999, The Sun had an annual average unaudited circulation of 319,256 for Monday through Saturday, compared with 320,138 for 1998. Annual average unaudited circulation for Sunday was 479,090 in 1999 compared with 475,644 in 1998. In 1999, The Baltimore Sun newspapers recorded full-run billed advertising volume of 2,001,999 inches, part-run volume of 505,163 inches, and preprinted inserts of 667.0 million pieces, compared with 1,761,972 inches, 456,434 inches and 671.9 million pieces, respectively, in 1998. In addition, The Baltimore Sun newspapers derived revenues from advertising supplements delivered to non-subscribers equivalent to 147.3 million pieces in 1999, compared with 110.9 million pieces in 1998. The Baltimore Sun also publishes a variety of weekly newspapers throughout Anne Arundel, Baltimore, Carroll, Harford and Howard counties. THE HARTFORD COURANT The Hartford Courant, a morning daily and Sunday newspaper that was first published in 1764, is the oldest continuously published newspaper in the United States. It is published in Hartford, Connecticut, and serves the state's northern and central regions. The Hartford Courant publishes 12 regional editions on a daily basis, which provide local news and advertising. In 1999, the annual average unaudited circulation was 210,084 for Monday through Saturday, and 298,510 for Sunday, compared with 212,606 and 302,493, respectively, in 1998. In 1999, The Hartford Courant recorded full-run billed advertising volume of 1,423,862 inches, part-run volume of 591,946 inches, and preprinted inserts of 456.4 million pieces, compared with 1,435,662 inches, 610,391 inches and 446.2 million pieces, respectively, in 1998. In addition, The Hartford Courant derived revenues from advertising supplements distributed to non-subscribers equivalent to 84.3 million pieces in 1999, compared with 80.5 million pieces in 1998. In 1999, The Hartford Courant won a Pulitzer Price for breaking news reporting. In addition, in 1999, The Hartford Courant acquired New Mass. Media, Inc., a publisher of five weekly alternative newspapers in Connecticut, Massachusetts and New York, and an investment affiliate of the Company acquired ValuMail, Inc., a shared mail company that distributes advertising supplements to households in Connecticut, Massachusetts and Rhode Island. THE MORNING CALL The Morning Call in Allentown, Pennsylvania, is published daily and primarily services Lehigh and Northampton counties in eastern Pennsylvania. In 1999, annual average unaudited circulation was 125,498 for Monday through Friday, 140,114 for Saturday, and 171,030 for Sunday, compared with 127,561, 142,182 and 175,722, respectively, in 1998. In 1999, The Morning Call recorded full-run billed advertising volume of 1,291,892 inches, part-run volume of 379,782 inches, and preprinted inserts of 281.9 million pieces, compared with 1,410,190 inches, 254,436 inches and 264.2 million pieces, respectively, in 1998. In addition, The Morning Call derived revenues from advertising supplements distributed to non-subscribers equivalent to 21.8 million pieces in 1999, compared with 19.4 million pieces in 1998. 3 5 THE (STAMFORD) ADVOCATE AND GREENWICH TIME The (Stamford) Advocate and Greenwich Time are published every morning and serve the southern part of Fairfield County, Connecticut. The Advocate circulates primarily in Stamford, Connecticut and Greenwich Time circulates in Greenwich, Connecticut. In 1999, The Advocate had an annual average unaudited circulation of 28,002 for Monday through Saturday and 37,233 for Sunday, compared with 28,003 and 38,604, respectively, in 1998. In 1999, Greenwich Time had an annual average unaudited circulation of 12,416 for Monday through Saturday and 13,866 for Sunday, compared with 12,625 and 14,071, respectively, in 1998. In 1999, The Advocate recorded full-run billed advertising volume of 799,047 inches, and preprinted inserts of 41.8 million pieces, compared with 801,666 inches and 43.5 million pieces, respectively, in 1998. In 1999, Greenwich Time recorded full-run billed advertising volume of 808,609 inches and preprinted inserts of 13.9 million pieces, compared with 801,636 inches and 14.5 million pieces, respectively, in 1998. In addition, the newspapers derived revenues from advertising supplements distributed to non-subscribers equivalent to 22.0 million pieces in 1999, compared with 23.0 million pieces in 1998. ELECTRONIC PUBLISHING Times Mirror's newspapers offer numerous Web sites. The Los Angeles Times operates the Web site latimes.com, a leading online news and advertising service. Newsday (newsday.com), The Hartford Courant (ctnow.com), The Baltimore Sun (sunspot.net) and The Morning Call (mcall.com) each maintain Web sites that provide news and other information on a daily basis. The Advocate and Greenwich Time maintain an arts and entertainment Web site, goodtogo.com. During 1999, Times Mirror continued to support CareerPath.com, a national employment online service with an extensive listing of jobs on the Internet, and Classified Ventures, a company that seeks to use the Internet to expand the founding companies' positions as leading suppliers of classified advertising. Classified Ventures operates business units in the apartment (apartments.com), auto (cars.com), new home (newhomenetwork.com) and resale real estate (homehunter.com) categories. In addition to Times Mirror, the companies participating in Classified Ventures include Central Newspapers, Inc., Gannett Co., Inc., Knight-Ridder, Inc., The McClatchy Company, The New York Times Company, Tribune Company and The Washington Post Company. The Los Angeles Times, through Recycler, also provides extensive alternative classified listings on recycler.com. In the fourth quarter of 1999, Times Mirror formed Times Mirror interactive, a new business unit focused on growing and improving existing online initiatives and building new Internet business. COMPETITION The Company's newspapers compete for advertising and readership with other metropolitan, suburban and national newspapers as well as with other local and national sales promotion media such as radio, broadcast television, cable television, magazines, direct mail and the Internet. Competition for advertising is based upon, among other factors, the number of, and the demographics of, subscribers, readers or viewers, as the case may be, price, service and advertiser results. Competition for circulation is based upon, among other factors, the content of the medium, service and price. In its primary circulation areas of Los Angeles, Orange, Ventura, San Bernardino and Riverside counties, the Los Angeles Times competes for advertising and circulation with 17 local daily newspapers, with the largest having approximately 360,000 total average daily circulation, and three daily regional editions of national newspapers. In addition, there are also several hundred weekly, semiweekly and free distribution newspapers in the distribution area. Newsday competes with three major metropolitan newspapers and several daily regional editions of national newspapers. In addition, there are numerous daily, weekly, semiweekly local newspapers and free distribution newspapers in its distribution area. The Baltimore Sun competes with the Washington Post in Anne Arundel and Howard counties, with The Annapolis Capital in Anne Arundel County and with The Carroll County Times in Carroll County, as well as with daily regional editions of national newspapers. In addition, there are other daily and weekly local newspapers in its distribution area. The Hartford Courant competes with a number of daily newspapers, especially in metropolitan areas on the periphery of its trade area, as well as daily regional editions of national newspapers. In addition, there are other 4 6 weekly and local daily newspapers in its distribution area. The Morning Call competes with a few smaller daily and weekly newspapers, with its principal competitor being the Express Times in Easton, Pennsylvania. Both The Advocate and Greenwich Time compete with a number of larger daily newspapers which serve the New York City metropolitan area and outlying regions. In their respective primary markets, the Company's newspapers generally also compete for advertising and readership with hundreds of national magazines, dozens of radio, broadcast and cable television stations, at least several local magazines and numerous Internet content providers. The Company's newspapers generally also compete for advertising with numerous direct mail distributors, free-distribution shopping guides and outdoor billboard displays and Internet advertising vehicles. RAW MATERIALS The primary raw material used by the newspapers is newsprint. Times Mirror centrally purchases newsprint for all of its newspapers in order to achieve advantageous terms from its vendors. Newsprint for all Times Mirror newspapers is obtained from United States, Canadian and overseas sources unaffiliated with Times Mirror. Times Mirror believes that it has adequate newsprint available through its various suppliers and that it is not dependent on any one supplier. Times Mirror's newsprint expense for 1999 decreased by 6.3% from 1998. REVENUES AND SEASONALITY The Company's newspaper revenues are derived primarily from advertising and circulation. In 1999, the percentage of revenues attributable to advertising, circulation and other items were 80.7%, 17.1% and 2.2%, respectively. Advertising rates and revenues vary among the Company's newspapers depending on, among other things, circulation, type of advertising, local market conditions, time of publication and competition. Quarterly revenues of the Company's Newspaper Publishing segment vary slightly due to industry seasonality, with first and third quarters' results generally being minimally lower than those of the second and fourth quarters. In 1999, the quarterly revenues expressed as a percentage of total annual revenues for the Company's Newspaper Publishing segment were 22.8% for the first quarter, 25.2% for the second quarter, 24.1% for the third quarter and 27.9% for the fourth quarter. PROFESSIONAL INFORMATION SEGMENT Times Mirror publishes aeronautical charts, flight information and related information worldwide. In September 1999, Times Mirror decided to sell AchieveGlobal, Allen Communication and StayWell. In February 2000, Gilat Communications Ltd. acquired Allen Communication and MediMedia USA, Inc., a subsidiary of Havas MediMedia S.A., agreed to acquire StayWell. The results of AchieveGlobal, Allen Communication and StayWell are included in discontinued operations for all periods presented. JEPPESEN Through Jeppesen Sanderson, Inc. and its European sister company, Jeppesen & Co. GmbH, Times Mirror publishes aeronautical charts, flight information, pilot training materials and other navigational and operational information worldwide. Jeppesen DataPlan, Inc., a subsidiary of Jeppesen Sanderson, also provides computerized flight plans, weather information and other flight services. Jeppesen Sanderson offers a service called OnSight, a sophisticated operations control workstation combining its flight planning, weather and flight tracking display software. Jeppesen also delivers electronic aircraft maintenance information to air carriers. The Jeppesen companies serve all U.S. domestic airlines and the majority of airlines worldwide. During 1999, an investment affiliate of the Company acquired Airspace Safety Analysis Corporation, a provider of airspace utilization and Federal Aviation Administration compliance services for the telecommunications and aviation industries. The Jeppesen companies compete with various airline consortiums and governmental entities, as well as numerous vendors of training, maintenance, weather and flight planning information. 5 7 MAGAZINE PUBLISHING SEGMENT Times Mirror publishes a number of special interest and trade magazines through its subsidiary, Times Mirror Magazines, Inc. The approximate six-month average paid circulation figures per issue for the magazines for 1999 were 1,550,000 for Popular Science (a consumer-oriented magazine about science and related issues); 1,750,000 for Field & Stream (a magazine about fishing and outdoor recreation); 1,350,000 for Outdoor Life (a magazine about hunting and outdoor recreation that is published 10 times a year); 200,000 for Outdoor Explorer (a magazine about accessible outdoor activities that is published 3 times a year); 950,000 for Today's Homeowner (a magazine for homeowners about all aspects of maintaining and improving a home that is published 10 times a year); 1,400,000 for GOLF Magazine (a magazine for golf enthusiasts); 240,000 for Senior Golfer (a magazine for mature golf enthusiasts that is published 10 times a year); 425,000 for Ski Magazine (a magazine about skiing targeted at families that is published 8 times a year); 400,000 for Skiing (a magazine about skiing targeted at younger skiers that is published 7 times a year); 112,300 for TransWorld SNOWboarding (a magazine about snowboarding targeted at the 15 to 18 year old market that is published 8 times a year); 112,000 for TransWorld SKATEboarding (a magazine about skateboarding targeted at the 15 to 18 year old market that is published 12 times a year with 2 special editions); 40,000 for Warp (a magazine about skateboarding, snowboarding and music targeted at the 15 to 18 year old market that is published 6 times a year); 35,000 for Snap (a magazine about competitive racing for bike motor-cross that is published 11 times a year); 48,000 for Ride BMX (a magazine about tricks and stunts for bike motor-cross that is published 9 times a year); 25,000 for TransWorld SURF (a youth oriented magazine about surfing aggressively that is published 7 times a year); 65,000 for Snowboard Life (a magazine about snowboarding targeted at the 19 to 25 year old market that is published 6 times a year); 133,000 for Yachting (a magazine about yachting and boating); and 150,000 for Salt Water Sportsman (a magazine about salt-water fishing). Each of these magazines is published monthly unless otherwise noted. In addition, Times Mirror Magazines publishes The Sporting News, a national sports weekly that Times Mirror has agreed to sell to Vulcan Ventures Inc. The approximate six-month average paid circulation figure per issue for The Sporting News in 1999 was 540,000. Times Mirror Magazines also publishes Skiing Trade News, TransWorld SNOWboarding Business, TransWorld SKATEboarding Business, BMX Business News and Surf Business, controlled-circulation business magazines, and other related publications. These magazines are primarily intended for specialized markets. In addition to print media, Times Mirror magazines offers the following Web sites that are affiliated with its titles: GOLFOnline; TSNOnline; fieldandstream/outdoor life online; outdoor explorer online; todayshomeowner online; saltwatersportsman online; yachtingnet; popsci.com; skinet; snowboarding online; skateboarding online; transworldsurf.com and freeze online. The primary raw material used by Times Mirror Magazines is coated paper. For 1999, the prices for the grades of papers used by the Company's magazines decreased moderately. In 1999, Times Mirror Magazines centrally purchased coated paper for all of its magazines to obtain more favorable terms and reduced inventory levels due to the improved availability of coated paper. The Company believes that it has adequate coated paper available through its various suppliers and that it is not dependent on any one supplier. Times Mirror Magazines competes nationally with numerous special interest and trade magazines and related Web sites. In addition to competing with similar national media, Times Mirror Magazines must also compete for advertising revenues with other local and national sales promotion media such as radio, newspapers, broadcast television, direct mail and the Internet. Competition for advertising is based upon, among other factors, the number of, and the demographics of, subscribers, readers or viewers, as the case may be, price, service and advertiser results. Competition for circulation is based upon, among other factors, the content of the medium, service and price. As the Company's magazines are distributed nationally, they generally compete with hundreds of radio stations, cable and broadcast television stations, direct mailers and numerous competitors on the Internet. The Company's magazines also compete with other magazines that contain similar content. Popular Science competes with approximately 18 other magazine titles, Field & Stream with approximately 18 titles, Outdoor Life and Outdoor Explorer with approximately 8 titles, Today's Homeowner with approximately 15 titles, 6 8 GOLF Magazine and Senior Golfer with approximately 6 titles, Ski Magazine and Skiing with approximately 3 titles, TransWorld SNOWboarding, TransWorld SKATEboarding, TransWorld SURF and Snowboard Life with approximately 19 titles, Snap and Ride BMX with approximately 6 titles, Yachting with approximately 25 titles, Salt Water Sportsman with approximately 12 titles and The Sporting News with approximately 12 titles. The Company's magazine operating revenues are derived primarily from advertising and subscriptions. In 1999, the percentage of revenues attributable to advertising, subscriptions and other items were 66.7%, 27.0% and 6.3%, respectively. Advertising rates and revenues vary among the Company's magazines depending on, among other things, circulation, type of advertising, time of publication and competition. INTELLECTUAL PROPERTY In recognition of the fact that intellectual property (e.g., trademarks, copyrights, licenses and the like) is an important asset, the Company has dedicated internal resources to protect its intellectual property and develop these rights. The Company expects that these resources will support its ongoing efforts to grow its businesses internally, especially in the realm of electronic and online publishing activities. EMPLOYEES At December 31, 1999, the Company and its consolidated affiliates had 20,229 employees, 14,726 of whom were full-time employees. Approximately 3,592 employees were represented by collective bargaining agents. The Company believes that employee relations are good. Employees receive supplemental benefits ranging from various forms of group insurance coverage to retirement income programs. ADDITIONAL INFORMATION Prior to February 1, 1995, the Company also engaged in the ownership and operation of cable television systems, which business was divested by the merger of the Company's corporate predecessor ("Old Times Mirror") with and into Cox Communications, Inc. ("Cox"), resulting in the acquisition of Old Times Mirror's cable business by Cox (the "Cox Merger"). The Company was incorporated in the State of Delaware in June 1994 for the purpose of owning and operating Times Mirror's publishing and information businesses after the Cox Merger was completed on February 1, 1995. Old Times Mirror was incorporated in 1884 in the State of California and was reincorporated in the State of Delaware in 1986. All references to "Times Mirror" shall include the Company and the Company's subsidiaries, collectively, unless the context suggests otherwise. See Selected Financial Data -- Five-Year Summary of Business Segment Information and the Consolidated Financial Statements and notes thereto for financial information about industry segments. CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS Certain plans, objectives, projections and other information regarding future performance and outcomes discussed in this Annual Report on Form 10-K are forward-looking statements that are subject to risks and uncertainties. There can be no assurances that these future results will be achieved. Readers are cautioned that the achievement of such expectations, and other aspects of the Company's performance, could be adversely affected by a number of factors, including: (a) an increase in paper, printing and distribution costs over the levels anticipated; (b) increased consolidation among major retailers or other events depressing the level of display advertising; (c) an economic downturn in the Company's principal newspaper markets or other occurrences leading to decreased circulation and diminished revenues from both display and classified advertising; (d) an increase in the use of alternate media such as the Internet for classified and other advertising; (e) an increase in expenses related to new initiatives and product improvement efforts in the flight information operating unit; (f) unfavorable foreign currency fluctuations; (g) material changes in tax liability due to unfavorable review by taxing authorities; and (h) a general economic downturn resulting in decreased consumer and corporate spending on discretionary items such as magazines or newspapers. It is not possible to foresee or identify all such factors. The Company makes no commitment to update any forward-looking 7 9 statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statement. ITEM 2. PROPERTIES. The general character, location, terms of occupancy and approximate size of Times Mirror's principal plants and other materially important physical properties at December 31, 1999 are listed below.
APPROXIMATE AREA IN SQUARE FEET ------------------------- GENERAL CHARACTER OF PROPERTY OWNED LEASED(1)(2) ----------------------------- --------- ------------ NEWSPAPER PUBLISHING Printing plants, business and editorial offices, garages and warehouse space located in: Los Angeles, California........................ 1,714,724 2,150,761 Hartford, Connecticut.......................... 161,872 382,847 Baltimore, Maryland............................ 10,000 1,223,753 Melville, New York............................. -- 1,071,107 Other locations................................ 458,189 109,794 PROFESSIONAL INFORMATION Business offices and warehouses in California, Colorado, New York and other locations......... 235,208 181,980 MAGAZINE PUBLISHING Business and editorial offices in Connecticut, New York, Missouri and other locations............. -- 220,393 CORPORATE Corporate offices and garages located in California and New York........................ -- 500,880
- --------------- (1) Excludes 337,640 square feet of vacant land, 419,419 square feet of space sublet to unrelated third parties and 19,339 square feet of vacant space which is available for subleasing. (2) The Company's material lease agreements expire at various dates through 2011. In August 1997, the Company completed a transaction with its largest stockholders, the Chandler Trusts, pursuant to which, among other things, the Company contributed eight real properties with an aggregate market value of $225,850,000, constituting 3,030,000 square feet, to a limited liability company formed by the Company and the Chandler Trusts. The Company is leasing such properties from the limited liability company under a lease with an initial term of 12 years. ITEM 3. LEGAL PROCEEDINGS. Times Mirror and its subsidiaries are defendants in actions for various matters arising out of their business operations. In addition, from time to time, Times Mirror and its subsidiaries are involved as parties in various governmental and administrative proceedings. Times Mirror does not believe that any such proceedings currently pending will have a material adverse effect on its business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of 1999. 8 10 EXECUTIVE AND KEY OFFICERS OF THE REGISTRANT The executive and key officers of the Company as of March 8, 2000 are listed below. Executive and key officers are elected to serve until they resign or are removed, or are otherwise disqualified to serve, or until their successors are elected and qualified. Except as indicated below, all such officers were employed by the Company and its predecessor company, Old Times Mirror, for five years or more.
OFFICER NAME AGE POSITIONS AND OFFICES WITH TIMES MIRROR SINCE(1) ---- --- --------------------------------------- -------- Mark H. Willes......... 58 Chairman of the Board, President and Chief Executive 1995(2) Officer Horst A. Bergmann...... 61 Executive Vice President, and Chairman, President and 1996(3) Chief Executive Officer, Jeppesen Sanderson Kathryn M. Downing..... 46 Executive Vice President, and Publisher, President and 1996(4) Chief Executive Officer, Los Angeles Times Raymond A. Jansen...... 60 Executive Vice President, Eastern Newspapers, and 1996(5) Publisher, President and Chief Executive Officer, Newsday Efrem Zimbalist III.... 52 Executive Vice President and Chief Financial Officer, 1993(6) Chairman and Chief Executive Officer, Times Mirror Magazines and Chairman, AchieveGlobal Roger H. Molvar........ 44 Senior Vice President and Controller 1996(7) James R. Simpson....... 59 Senior Vice President, Human Resources 1983(8) Michael E. Waller...... 58 Senior Vice President, and Publisher and Chief 1996(9) Executive Officer, The Baltimore Sun John S. Carroll........ 58 Vice President, and Editor and Senior Vice President, 1998(10) The Baltimore Sun Janet Clayton.......... 44 Vice President, and Editor of the Editorial Pages and 1998(11) Vice President, Los Angeles Times Jason E. Klein......... 39 Vice President, and President and Chief Operating 2000(12) Officer, Times Mirror Magazines Robert G. Magnuson..... 48 Vice President, and Senior Vice President, Regions, Los 1998(13) Angeles Times Anthony Marro.......... 58 Vice President, and Editor and Executive Vice 1998(14) President, Newsday John C. McKeon......... 43 Vice President, and Senior Vice President of 1999(15) Advertising, Los Angeles Times Nancy W. O'Neill....... 40 Vice President, and President and Chief Executive 1999(16) Officer, The StayWell Company Michael Parks.......... 56 Vice President, and Editor and Executive Vice 1998(17) President, Los Angeles Times Marty Petty............ 47 Vice President, and Publisher and Chief Executive 1998(18) Officer, The Hartford Courant William J. Rowe........ 64 Vice President, and Publisher and Chief Executive 1998(19) Officer, The (Stamford) Advocate and Greenwich Time Hilary A. Schneider.... 38 Vice President, and President and Chief Executive 1999(20) Officer, Times Mirror interactive Edward L. Blood........ 54 Vice President, Strategic Planning 1997(21) Rajender K. Chandhok... 50 Vice President and Treasurer 1999(22) Debra A. Gastler....... 47 Vice President, Taxes 1994(23) Bonnie Guiton Hill..... 58 Vice President, and President and Chief Executive 1997(24) Officer, The Times Mirror Foundation and Senior Vice President, Community Relations, Los Angeles Times Stephen C. Meier....... 49 Vice President, Public and Government Affairs, and 1989(25) Corporate Secretary William A. Niese....... 63 Vice President, General Counsel and Assistant Secretary 1990(26)
9 11 - --------------- (1) The date indicated relates to the year in which such person first became an officer of Old Times Mirror unless the context suggests otherwise. (2) Mark H. Willes was elected as President and Chief Executive Officer of the Company effective June 1995 and Chairman of the Board effective January 1996. From September 1997 to June 1999, he was Publisher of the Los Angeles Times. Prior to joining the Company, Mr. Willes was an executive of General Mills, Inc. from 1980 to 1995, serving as Vice Chairman upon his departure. (3) Horst A. Bergmann was elected as an executive officer of the Company effective May 1996. After joining Jeppesen Sanderson in 1963, he was named Flight Information Services Director in 1974 and Managing Director, Jeppesen & Co. GmbH in 1977. In 1987, he was appointed Chairman, President and Chief Executive Officer of Jeppesen Sanderson. (4) Kathryn M. Downing was elected as an executive officer of the Company effective May 1996. In March 1998, she was named President and Chief Executive Officer of the Los Angeles Times, and, in June 1999, she was named Publisher of the Los Angeles Times. She was named President and Chief Executive Officer of Matthew Bender in 1995. Prior to that time, Ms. Downing was President and Chief Executive Officer of Lawyers Cooperative Publishing, a division of Thomson Legal Publishing, beginning in 1993. (5) Raymond A. Jansen was elected as an officer of the Company effective May 1996 and as an executive officer effective May 1999. He was named Executive Vice President, Eastern Newspapers, in 1999, and he was named Publisher, President and Chief Executive Officer of Newsday in November 1994. Prior to that time, he was Publisher and Chief Executive Officer of The Hartford Courant since 1990. (6) Efrem Zimbalist III was elected as an officer of Old Times Mirror effective March 1993 and as an executive officer effective May 1999. He became Chief Financial Officer of the Company in January 2000. From 1995 to 1999, he was President and Chief Executive Officer of Times Mirror Magazines. Mr. Zimbalist was Chairman and Chief Executive Officer of Correia Art Glass, Inc. from 1978 until he joined Old Times Mirror in July 1992. (7) Roger H. Molvar was elected as an executive officer of the Company effective May 1996. Prior to that time, he served as Senior Vice President and Comptroller of First Interstate Bank of California since 1989. (8) James R. Simpson was elected as an executive officer of the Company effective January 1995 and had served as an executive officer of Old Times Mirror prior to that time. (9) Michael E. Waller was elected as an officer of the Company effective May 1996. Mr. Waller was named Publisher and Chief Executive Officer of The Baltimore Sun in May 1996. He previously served as Editor and Vice President of The Hartford Courant since 1990, joining the newspaper in 1986 as Executive Editor and Vice President. (10) John S. Carroll was elected as an officer of the Company effective July 1998. He has been Editor and Senior Vice President of The Baltimore Sun since 1991. (11) Janet Clayton was elected as an officer of the Company effective July 1998. She has been Editor of the Editorial Pages of the Los Angeles Times since 1995 and a Vice President of the Los Angeles Times since 1997. From 1990 to 1995, she was Assistant Editor, Editorial Pages, of the Los Angeles Times. (12) Jason E. Klein was elected as an officer of the Company effective February 2000. He has been President and Chief Operating Officer of Times Mirror Magazines since December 1999. From February 1999 to December 1999, he was Executive Vice President of Times Mirror Magazines and President of Corporate Sales, The Outdoor Company and Today's Homeowner. From 1995 until 1999, he was Senior Vice President of Times Mirror Magazines. (13) Robert G. Magnuson was elected as an officer of the Company effective July 1998. He has been Senior Vice President, Regional Editions, of the Los Angeles Times since 1997. From 1990 to 1997, he was Vice President of the Los Angeles Times and President of the Orange County Edition of the Los Angeles Times. 10 12 (14) Anthony Marro was elected as an officer of the Company effective July 1998. He has been Editor of Newsday since 1987. (15) John C. McKeon was elected as an officer of the Company effective February 1999. He has been Senior Vice President of Advertising of the Los Angeles Times since November 1998. From 1994 to November 1998, he served as Senior Vice President of Advertising and Chief Innovation Officer at Newsday. From 1992 to 1994, he was Vice President of Advertising at Newsday. (16) Nancy W. O'Neill was elected as an officer of the Company effective February 1999. She has been President and Chief Executive Officer of The StayWell Company, the Company's health improvement unit, since February 1998. From 1997 until February 1998, she was Vice President and General Manger of Mosby Consumer Health. From 1995 to 1997, she held a variety of positions at Times Mirror Magazines. From 1990 to 1994, she served as crisis manager at Argus Management Corporation. (17) Michael Parks was elected as an officer of the Company in February 1998. He was named editor of the Los Angeles Times in October 1997. Prior to that time, he had been managing editor since 1996 after serving as deputy foreign editor and as a correspondent for the Los Angeles Times. (18) Marty Petty was elected as an officer of the Company in February 1998. She was named Chief Executive Officer and Publisher, The Hartford Courant, in September 1997. She had previously served as Senior Vice President and General Manager of that paper since 1994. From 1992 to 1994, she was Vice President, Sales and Marketing of The Hartford Courant. (19) William J. Rowe was elected as an officer of the Company effective July 1998. He has been Publisher and Chief Executive Officer of The (Stamford) Advocate and Greenwich Time since 1986. (20) Hilary A. Schneider was elected as an officer of the Company effective November 1999. From 1998 to 1999, she was general manager, The Baltimore Sun. Prior to that time, she served in several senior management positions at The Baltimore Sun directing a number of business activities, including sales, marketing, advertising and new business development. (21) Edward L. Blood was elected as an executive officer of the Company in July 1997. Prior to that time, he was Senior Vice President, Investor Relations and Strategic Planning at Darden Restaurants since 1995. Prior to that time, he had been Vice President, Strategic Planning and Analysis at General Mills. (22) Rajender K. Chandhok was elected as an executive officer of the Company effective May 1999. From 1998 to May 1999, he was staff Vice President, Investments and Risk Management. From 1997 to 1998, he was Assistant Treasurer, Investments and Risk Management and from 1995 to 1997, he was Assistant Treasurer, Pension and Investments. (23) Debra A. Gastler was elected as an executive officer of Old Times Mirror effective January 1994. Prior to that time, she had been Vice President, Taxes of Pacific Enterprises since 1990 and Director of Taxes of Pacific Enterprises since 1987. (24) Bonnie Guiton Hill was elected as an officer of the Company effective January 1997. From 1992 to 1996, she served as dean and professor of commerce at the McIntyre School of Commerce at the University of Virginia. (25) Stephen C. Meier was elected as an officer of the Company effective January 1995 and served as an officer of Old Times Mirror prior to that time. (26) William A. Niese was elected as an executive officer of the Company in July 1997. Prior to August 1998, he had been Senior Vice President and General Counsel of the Los Angeles Times since 1990. 11 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Series A Common Stock is traded principally on the New York Stock Exchange ("NYSE") and is also listed on the Pacific Stock Exchange. Times Mirror Series C Common Stock is not traded in an established public trading market but is convertible into Times Mirror Series A Common Stock. At March 8, 2000, there were approximately 3,000 record holders of the Company's Series A Common Stock and approximately 1,100 record holders of Series C Common Stock. The price ranges for the Company's Series A Common Stock and the quarterly cash dividends declared and paid on all Company Common Stock in 1999 and 1998 are listed below.
STOCK PRICE CASH DIVIDEND ------------- ---------------- HIGH LOW DECLARED PAID ---- --- -------- ---- 1999 First Quarter......................... $59 15/16 $53 5/16 $.20 $.20 Second Quarter........................ 63 5/16 53 3/8 .20 .20 Third Quarter......................... 66 13/16 57 1/4 .20 .20 Fourth Quarter........................ 72 5/8 62 15/16 .20 .20 1998 First Quarter......................... $64 9/16 $56 15/16 $.18 $.18 Second Quarter........................ 65 13/16 58 1/16 .18 .18 Third Quarter......................... 63 11/16 52 5/16 .18 .18 Fourth Quarter........................ 61 7/16 48 15/16 .18 .18
The payment of future dividends on common stock will depend on future earnings, capital requirements, financial condition and other factors. 12 14 ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data has been derived from the consolidated financial statements that have been audited by Ernst & Young LLP, independent auditors. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE, FINANCIAL RATIOS AND OTHER) 1999 1998 1997 1996 1995 -------------------------------- ----------- ----------- ----------- ------------ ------------ OPERATING RESULTS Revenues................................... $ 3,029,249 $ 2,783,988 $ 2,645,135 $ 2,551,002 $ 2,528,673 Restructuring and one-time charges......... -- 155,681 -- -- 412,778 Operating profit (loss).................... 470,506 247,798 391,278 310,685 (268,208) Net interest income (expense).............. (56,914) (28,595) (33,277) (13,939) 6,473 Income (loss) from continuing operations before income taxes...................... 439,291 245,004 396,499 300,254 (253,421) Income (loss) from continuing operations... 259,062 134,059 234,655 182,258 (209,367) Net income(1).............................. 259,086 1,417,338 250,312 206,444 1,226,751 PER COMMON SHARE Basic earnings (loss) from continuing operations............................... $ 3.53 $ 1.32 $ 2.18 $ 1.36 $ (2.61) Basic earnings............................. 3.53 16.46 2.35 1.59 10.02 Diluted earnings (loss) from continuing operations(2)............................ 3.38 1.29 2.12 1.32 (2.61) Diluted earnings........................... 3.38 16.06 2.29 1.54 10.02 Dividends declared(3)...................... .80 .72 .55 .30 .24 Dividends paid............................. .80 .72 .55 .36 .45 FINANCIAL DATA Current assets(4)(5)(6).................... $ 713,558 $ 1,543,486 $ 474,833 $ 544,335 $ 745,314 Property, plant and equipment, net......... 966,095 903,483 920,995 1,080,642 1,085,341 Total assets(5)(6)......................... 3,897,371 4,157,929 3,171,828 3,179,395 3,444,641 Long-term debt(6).......................... 1,562,240 941,423 925,404 459,007 247,062 Shareholders' equity(6).................... 399,729 1,342,453 875,999 1,498,810 1,806,236 Capital expenditures(7).................... 173,484 131,548 113,081 87,326 90,819 Operating profit margin(8)................. 15.5% 15.2% 15.5% 12.2% 7.5% Total debt as a % of adjusted capitalization(6)........................ 82.0% 48.3% 54.9% 23.5% 12.1% Shareholders' equity per common share(9)... $ 4.98 $ 13.45 $ 5.90 $ 9.54 $ 11.64 OTHER Adjusted price range of common stock(10)... $ 72 5/8 to $65 13/16 to $ 61 3/4 to $ 56 to $ 35 1/4 to 53 5/16 48 15/16 46 1/8 30 5/8 17 1/4 Number of employees at end of year......... 20,229 20,619 21,567 20,803 21,877 Weighted average shares: Basic.................................... 68,252,398 84,813,581 92,571,618 102,113,298 113,797,192 Diluted.................................. 73,090,497 86,927,815 97,013,301 105,372,495 113,797,192 Common shares outstanding at end of year(11).............................. 59,738,144 73,381,279 87,903,444 96,729,785 105,698,043
13 15 - --------------- This summary should be read in conjunction with the consolidated financial statements and notes thereto. (1) Includes the following after-tax gains (charges) related to discontinued operations (in thousands):
1998 1997 1996 1995 ---------- ------- -------- ---------- Restructuring, one-time and other charges......... $ (47,206) $(7,842) $(30,305) $ (210,381) Net gain on disposal.............................. 1,316,686 -- 32,047 1,634,294 ---------- ------- -------- ---------- $1,269,480 $(7,842) $ 1,742 $1,423,913 ========== ======= ======== ==========
(2) Includes the $.38 per share impact of the cash paid in excess of liquidation value on Series B preferred stock repurchases in 1995. (3) During 1996, the Company began declaring and paying common stock dividends in the same quarter; previously, dividends were declared in the quarter prior to payment. As a result, in the third quarter of 1996, no dividends were declared in order to change to the new procedure. (4) Excludes net assets of discontinued operations. (5) Includes proceeds from reorganization in 1998 as described in Notes 4 and 5 to the consolidated financial statements. (6) Includes reduction of $635 million in cash and cash equivalents, $600 million of debt issuance and an increase of $1 billion of treasury stock in connection with the 1999 recapitalization as described in Note 2 to the consolidated financial statements. (7) Excludes capital expenditures related to discontinued operations. (8) Excludes restructuring, one-time and other charges as follows (in thousands): 1998 -- $174,370; 1997 -- $18,000; 1995 -- $458,607. (9) Based on the common shares outstanding as described in (11) below. (10) On February 1, 1995, Times Mirror common shareholders received distributions having a value of $10.45 per Times Mirror common share. The trading prices prior to February 1, 1995 have been adjusted to reflect these distributions. (11) Excludes treasury shares of 52,387,120, 38,707,883 and 24,151,014 at December 31, 1999, 1998 and 1997, respectively. 14 16 FIVE-YEAR SUMMARY OF BUSINESS SEGMENT INFORMATION
(IN THOUSANDS) 1999 1998 1997 1996 1995 -------------- ---------- ---------- ---------- ---------- ---------- REVENUES Newspaper Publishing....... $2,514,325 $2,308,178 $2,179,244 $2,074,692 $2,057,596 Professional Information... 235,356 211,929 195,339 185,207 170,849 Magazine Publishing........ 278,930 262,683 248,712 234,192 242,864 Corporate and Other........ 638 1,198 21,845 56,938 57,928 Intersegment Revenues...... -- -- (5) (27) (564) ---------- ---------- ---------- ---------- ---------- $3,029,249 $2,783,988 $2,645,135 $2,551,002 $2,528,673 ========== ========== ========== ========== ========== OPERATING PROFIT (LOSS)(1) Newspaper Publishing....... $ 457,067 $ 297,433 $ 402,207 $ 307,512 $ (109,483) Professional Information... 64,789 43,858 55,659 55,517 55,742 Magazine Publishing........ 19,184 (14,232) 18,309 8,753 (73,904) Corporate and Other........ (70,534) (79,261) (84,897) (61,097) (140,563) ---------- ---------- ---------- ---------- ---------- $ 470,506 $ 247,798 $ 391,278 $ 310,685 $ (268,208) ========== ========== ========== ========== ========== IDENTIFIABLE ASSETS Newspaper Publishing....... $2,290,708 $1,999,880 $1,792,286 $1,836,158 $1,840,058 Professional Information... 125,670 96,765 87,354 85,866 77,524 Magazine Publishing........ 287,268 271,457 263,521 244,254 255,358 Corporate and Other........ 1,020,635 1,600,199 355,996 444,845 606,428 Discontinued Operations.... 173,090 189,628 672,671 568,272 665,273 ---------- ---------- ---------- ---------- ---------- $3,897,371 $4,157,929 $3,171,828 $3,179,395 $3,444,641 ========== ========== ========== ========== ========== DEPRECIATION AND AMORTIZATION Newspaper Publishing....... $ 125,019 $ 116,116 $ 106,919 $ 104,743 $ 110,299 Professional Information... 7,454 6,852 6,648 6,675 5,307 Magazine Publishing........ 8,667 7,740 7,040 6,050 8,112 Corporate and Other........ 3,815 4,467 3,457 2,990 2,824 ---------- ---------- ---------- ---------- ---------- $ 144,955 $ 135,175 $ 124,064 $ 120,458 $ 126,542 ========== ========== ========== ========== ========== CAPITAL EXPENDITURES Newspaper Publishing....... $ 151,807 $ 107,479 $ 78,760 $ 63,698 $ 63,014 Professional Information... 12,437 15,825 9,535 7,790 10,568 Magazine Publishing........ 3,768 1,651 2,243 10,849 1,060 Corporate and Other........ 5,472 6,593 22,543 4,989 16,177 ---------- ---------- ---------- ---------- ---------- $ 173,484 $ 131,548 $ 113,081 $ 87,326 $ 90,819 ========== ========== ========== ========== ==========
- --------------- (1) Includes restructuring, one-time and other charges as follows (in thousands):
1998 1997 1995 ---------- ---------- ---------- Newspaper Publishing................. $ 116,388 $ 18,000 $ 316,216 Professional Information............. 11,889 -- 1,913 Magazine Publishing.................. 29,072 -- 71,672 Corporate and Other.................. 17,021 -- 68,806 ---------- ---------- ---------- $ 174,370 $ 18,000 $ 458,607 ========== ========== ==========
The pretax charges in 1998 are comprised of restructuring and one-time charges of $155,681 and other charges that did not qualify for accounting classification as restructuring charges of $18,689. The pretax charges in 1995 are comprised of restructuring and one-time charges of $412,778 and other charges that did not qualify for accounting classification as restructuring charges of $45,829. 15 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company's 1999 earnings per share from continuing operations increased 24.7% to $3.23 per share on a diluted basis from $2.59 per share in the prior year, excluding a 1999 gain on the sale of Hollywood Online and 1998 restructuring, one-time and other charges. Including the gain on the sale and the restructuring, one-time and other charges, earnings per share for 1999 and 1998 were $3.38 and $1.29 per share, respectively. Earnings per share for 1999 increased primarily as a result of the effective retirement of shares previously held by the public and the Company's largest shareholders, the Chandler Trusts. In addition, the Company's business segments each achieved double-digit gains in operating profit for 1999 compared to the prior year, excluding the 1998 restructuring, one-time and other charges. Revenues rose 8.8% in 1999 compared to 1998, including the effects of acquisitions, with revenue growth at each of the Company's business segments. On March 13, 2000, Times Mirror and Tribune Company (Tribune) signed a definitive agreement for the merger of the two companies in a cash and stock transaction valued at approximately $8 billion based on the closing price of Tribune common stock on March 10, 2000. Under the terms of this agreement, Tribune will make a cash tender offer for up to 28 million shares of the Company's common stock, which represents approximately 48% of the shares of common stock outstanding as of March 13, 2000, at a price of $95 per share. Following completion of the tender offer, Times Mirror and Tribune will merge in a transaction in which each share of Times Mirror common stock is converted into 2.5 shares of Tribune common stock. In addition, if fewer than 28 million Times Mirror common shares are purchased in the tender offer, Times Mirror shareholders will be permitted to elect cash, at a price of $95 per share, in the merger, up to the balance of the 28 million shares. The merger is subject to the approval of the shareholders of both companies and other customary conditions, including regulatory approvals. Times Mirror expects the tender offer to be completed in mid-April and the merger to be completed in the second or third quarter of 2000. DISPOSITIONS In September 1999, Times Mirror announced its decision to sell AchieveGlobal, Inc., a professional training company, Allen Communication, an interactive software and training courseware developer, The StayWell Company, a health improvement information company, and The Sporting News, a sports magazine. The accompanying financial statements reflect AchieveGlobal, Allen Communication and StayWell as discontinued operations for all periods presented. The proposed sale of The Sporting News does not qualify for discontinued operations treatment and continues to be reported in the Magazine Publishing segment. While the Company previously expected to complete the sale of AchieveGlobal in the first quarter of 2000, the Company now believes that greater sales value can be realized by allowing AchieveGlobal to fully implement certain of its strategic initiatives. Currently, the Company anticipates selling AchieveGlobal by the end of 2000. In February 2000, the Company sold Allen Communication to Gilat Communications Ltd. The Company also entered into agreements in February 2000 to sell StayWell to a subsidiary of Havas MediMedia, S.A., and to sell The Sporting News to Vulcan Ventures Inc. These dispositions are expected to be completed in March 2000. 1999 RECAPITALIZATION In September 1999, the Company completed a recapitalization transaction with its largest shareholders, the Chandler Trusts, in which the Company, including certain of its affiliates, and the Chandler Trusts each contributed assets worth $1.24 billion to TMCT II, LLC, a newly formed limited liability company. The 1999 recapitalization resulted in a net effective reduction, for financial reporting purposes, in the number of shares of the Series A and C common stocks by 12.4 million shares and in the Company's Series C-1 and C-2 preferred stocks by 501,000 shares. Also, in connection with this recapitalization, the Company replaced the Series C-1 and C-2 preferred stocks with new Series D-1 and D-2 preferred stocks effective January 1, 2000. The Series D-1 and D-2 preferred stocks are identical to the Series C-1 and C-2 preferred stocks except that the increases in the dividend rate on the Series D-1 and D-2 preferred stocks are pursuant to a fixed and 16 18 certain schedule. As a result of the effective reduction of preferred stocks and the replacement of the preferred stocks, preferred stock dividends will be reduced to $8.1 million annually beginning in 2000. In connection with the recapitalization, the Company issued $200.0 million of 6.65% two-year notes due October 15, 2001 and $400.0 million of 7.45% ten-year notes due October 15, 2009 (see Note 2 to the consolidated financial statements for further information on the 1999 recapitalization). CONSOLIDATED RESULTS OF OPERATIONS The following table summarizes the Company's financial results (in millions, except share and per share amounts):
1999 1998 1997 -------- -------- -------- Revenues............................................. $3,029.2 $2,784.0 $2,645.1 Restructuring and one-time charges................... -- 155.7 -- Operating profit..................................... 470.5 247.8 391.3 Interest expense, net................................ (56.9) (28.6) (33.3) Other, net........................................... 25.7 25.8 38.5 Income from continuing operations.................... 259.1 134.1 234.7 Discontinued operations: Income (loss) from operations, net of taxes........ -- (33.4) 15.7 Net gain on disposal, net of taxes................. -- 1,316.7 -- Net income........................................... 259.1 1,417.3 250.3 Preferred stock dividends............................ 18.1 21.7 32.5 Earnings applicable to common shareholders........... 241.0 1,395.6 217.8 Basic earnings per share: Continuing operations.............................. $ 3.53 $ 1.32 $ 2.18 Discontinued operations............................ -- 15.14 .17 -------- -------- -------- Basic earnings per share............................. $ 3.53 $ 16.46 $ 2.35 ======== ======== ======== Diluted earnings per share: Continuing operations.............................. $ 3.38 $ 1.29 $ 2.12 Discontinued operations............................ -- 14.77 .17 -------- -------- -------- Diluted earnings per share........................... $ 3.38 $ 16.06 $ 2.29 ======== ======== ======== Weighted average shares (in thousands): Basic.............................................. 68,252 84,814 92,572 ======== ======== ======== Diluted............................................ 73,090 86,928 97,013 ======== ======== ========
1999 RESULTS Revenues for 1999 rose 8.8% compared to 1998 due to higher revenues at all of the Company's business segments, including the effects of acquisitions (see further discussion of segment results under the caption "Analysis by Segment"). Operating profit for 1999 increased 11.4% compared to the prior year, excluding 1998 restructuring, one-time and other charges, due to improvements at each of the Company's business segments (see further discussion of segment results under the caption "Analysis by Segment"). Pretax restructuring, one-time and other charges in 1998 were $174.4 million, or $112.4 million after applicable taxes. Operating profit for 1999 was impacted by lower pension income, primarily in the Newspaper Publishing segment, due to a $16.8 million reduction in the amortization of the unrecognized pension asset that existed upon the 1986 adoption of the Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions." Income from continuing operations for 1999 was $248.4 million, or $3.23 per share, compared to $246.5 million, or $2.59 per share, in the prior year, excluding a 1999 pretax gain on the sale of Hollywood 17 19 Online, Inc. of $17.2 million ($10.7 million after applicable taxes), or $.15 per share, and the 1998 restructuring, one-time and other charges. Net interest expense for 1999 increased compared to the prior year due primarily to higher debt levels resulting from the 1999 recapitalization (see Note 2). Earnings per share from continuing operations increased in 1999 compared to 1998 due to a reduction in the weighted average number of shares as well as lower preferred stock dividends resulting from the 1999 recapitalization, and an increase in operating profit, which was partially offset by the impact of higher net interest expense. 1998 RESULTS Revenues in 1998 increased 5.2% over the prior year due to higher revenues at each of the Company's business segments (see further discussion of segment results under the caption "Analysis by Segment"). The rate of growth slowed in the second half, reflecting some weakening in certain markets and advertising categories. Operating profit totaled $422.2 million in 1998 compared to $409.3 million in 1997, excluding restructuring, one-time and other charges in both years. The increase in 1998 operating profit was due primarily to reduced expense levels in Corporate and Other, which was partially offset by decreases in operating profit in the Newspaper and Magazine Publishing segments (see further discussion of segment results under the caption "Analysis by Segment"). Including restructuring, one-time and other charges, operating profit decreased to $247.8 million in 1998. Net interest expense declined in 1998 due to an increase in interest income resulting from investment activity of the affiliated limited liability companies created as a result of the divestitures of the Company's legal and medical publishing operations. Higher interest income more than offset a rise in interest expense due primarily to increased debt levels attributable to common stock purchases, a recapitalization in 1997 (see Note 3) and acquisitions. Earnings per share for 1998 benefited principally from the gains on divestitures, as well as a reduction in the average number of common shares and lower preferred stock dividends. Preferred stock dividends in 1998 declined due to the 1997 recapitalization and the Company's redemption of its Series B preferred stock. ANALYSIS BY SEGMENT The following sections discuss the segment results of the Company's principal lines of business, excluding restructuring, one-time and other charges of $174.4 million and $18.0 million for 1998 and 1997, respectively, unless specifically stated otherwise. NEWSPAPER PUBLISHING Newspaper Publishing revenues and operating profit were as follows (dollars in millions):
1999 CHANGE 1998 CHANGE 1997 -------- ------ -------- ------ -------- Revenues: Advertising..................... $2,029.0 11.4% $1,821.8 7.7% $1,691.6 Circulation..................... 430.3 (1.3) 435.9 -- 435.8 Other........................... 55.0 9.0 50.5 (2.7) 51.8 -------- -------- -------- $2,514.3 8.9% $2,308.2 5.9% $2,179.2 ======== ======== ======== Operating profit.................. $ 457.1 53.7% $ 297.4 (26.0)% $ 402.2 ======== ======== ======== Operating profit excluding restructuring, one-time and other charges................... $ 457.1 10.5% $ 413.8 (1.5)% $ 420.2 ======== ======== ========
18 20 1999 Results Newspaper Publishing revenues rose in 1999 compared to the prior year, including the addition of Newport Media, Inc., which was acquired in February 1999, and Recycler, acquired in April 1998. Excluding the impact of these acquisitions, 1999 revenues rose 5.7%, with the Los Angeles Times up 4.7% and the Eastern newspapers up 6.6% compared to 1998. Advertising revenue gains were achieved at each of the Company's newspapers in 1999 due primarily to strong gains in national advertising. Excluding the impact of acquisitions, advertising revenues for 1999 rose 7.4%, with The Times up 6.6% and the Eastern newspapers up 8.3% compared to 1998. Circulation revenues declined slightly as marketing strategies, largely at The Times, involving pricing and promotional discounts to stimulate circulation volume resulted in lower overall circulation revenues. Excluding the impact of acquisitions, 1999 circulation revenues for the Newspaper Publishing segment declined 1.9% compared to 1998. Segment operating profit for 1999 increased largely due to strong gains in national advertising and declines in newsprint expense. The 1999 improvement in operating profit was aided by a reduction in newsprint expense of 6.3% on a 7.2% decline in average newsprint prices. Newsprint expense was only partially affected by newsprint price declines due to the Company's use of newsprint hedging contracts (see further information under the caption "Liquidity and Capital Resources -- Market Risk"). Excluding newsprint and the impact of acquisitions, other expenses rose 7.6% in 1999 compared to 1998, due primarily to continuing circulation growth initiatives. 1998 Results In 1998, the Eastern Newspapers, including Newsday and The Baltimore Sun, achieved outstanding performance, but the Newspaper Publishing segment's operating profit overall was reduced by sluggish advertising revenues and higher expense levels at The Times related largely to ongoing growth initiatives. Accordingly, the Newspaper Publishing's operating profit margin decreased to 17.9% in 1998 from 19.3% in 1997. Newspaper Publishing revenues rose in 1998 due primarily to classified advertising revenue growth at the Eastern Newspapers as well as incremental revenues from acquisitions. Excluding the acquisitions of Recycler, Patuxent Publishing Company acquired in September 1997 and This Week acquired in October 1997, advertising revenues rose 4.4%. Circulation revenues for 1998 were essentially even compared to 1997 as marketing strategies involving pricing and promotional discounts resulted in circulation volume gains but reduced circulation revenues. For 1998, newsprint expense rose 15.1%, as average newsprint prices increased 8.1%. In addition, daily circulation gains at the Company's largest newspapers and acquisitions contributed to an increase in newsprint consumption of 6.5%. Non-newsprint expense rose 2.4% for 1998, excluding the impact of acquisitions as well as restructuring, one-time and other charges. In 1998, the Newspaper Publishing segment recorded $102.5 million of restructuring and one-time charges as well as $13.9 million of additional charges that did not qualify for accounting classification as restructuring charges. These charges consisted primarily of termination benefits, contract termination costs and asset write-offs. In 1997, the Newspaper Publishing segment's operating profit was impacted by $18.0 million of charges that were not classified as restructuring charges. These charges primarily related to the reorganization of the circulation department and the absorption of the corporate human resources and information systems functions by The Times. 19 21 PROFESSIONAL INFORMATION Professional Information revenues and operating profit were as follows (dollars in millions):
1999 CHANGE 1998 CHANGE 1997 ------ ------ ------ ------ ------ Revenues............................... $235.4 11.1% $211.9 8.5% $195.3 ====== ====== ====== Operating profit....................... $ 64.8 47.7% $ 43.9 (21.2)% $ 55.7 ====== ====== ====== Operating profit excluding restructuring, one-time and other charges.............................. $ 64.8 16.2% $ 55.7 .2% $ 55.7 ====== ====== ======
1999 Results The operating results for the Professional Information segment consist entirely of Jeppesen, the Company's flight information provider, after reflecting AchieveGlobal, Allen Communication and StayWell as discontinued operations for all periods presented. Jeppesen demonstrated outstanding performance in 1999 as revenues and operating profit rose as a result of strong product demand and growth in the commercial aviation market, as well as higher flight planning revenues. 1998 Results Revenues for 1998 increased primarily due to higher revenues for navigation and standard airway manual services. Operating profit was consistent with the prior year due to higher expenses related to chart revision activity and technology initiatives. In 1998, the Company recorded $8.2 million of restructuring and one-time charges, which consisted primarily of termination benefits, lease termination and other costs. The Company recorded additional charges of $3.7 million that did not qualify for accounting classification as restructuring charges. These charges were primarily to write-off capitalized software costs related to an abandoned project. MAGAZINE PUBLISHING Magazine Publishing revenues and operating profit (loss) were as follows (dollars in millions):
1999 CHANGE 1998 CHANGE 1997 ------ ------ ------ ------ ------ Revenues: Advertising......................... $185.9 8.1% $171.9 7.6% $159.7 Circulation......................... 75.3 (1.2) 76.2 1.1 75.4 Other............................... 17.7 21.8 14.6 7.3 13.6 ------ ------ ------ $278.9 6.2% $262.7 5.6% $248.7 ====== ====== ====== Operating profit (loss)............... $ 19.2 (100+)% $(14.2) (100+)% $ 18.3 ====== ====== ====== Operating profit excluding restructuring, one-time and other charges............................. $ 19.2 29.3% $ 14.8 (18.9)% $ 18.3 ====== ====== ======
1999 Results Magazine Publishing's 1999 operating profit increased significantly due primarily to advertising revenue gains at most of the titles as well as lower paper, printing and distribution costs. Excluding The Sporting News, 1999 operating profit was $25.9 million compared to $21.3 million in the prior year and revenues in 1999 were $241.7 million compared to $227.1 million in the prior year. Circulation revenues were consistent with the prior year. Other revenues increased in 1999 compared to 1998 due primarily to subscription list rental fees and television show sponsorships. 20 22 1998 Results Revenues increased in 1998 due to higher advertising revenues at most of the magazines. The acquisitions of TransWorld SKATEboarding and Warp in April 1997, Ride BMX and SNAP in January 1998, InterZine Productions, Inc. in February 1998 and Senior Golfer in October 1998 also contributed to higher advertising revenues. Excluding acquisitions, revenues rose 4.2%. Magazine Publishing segment's 1998 operating profit decreased from 1997 due to investment in the relaunch of The Sporting News, higher paper costs, as well as the acquisitions of InterZine and Senior Golfer. Magazine Publishing segment's 1998 restructuring and one-time charges totaled $29.1 million, which consisted primarily of goodwill impairment related to two titles acquired in 1977 and 1987. CORPORATE AND OTHER Corporate and Other revenues and operating losses were as follows (dollars in millions):
1999 CHANGE 1998 CHANGE 1997 ----- ------ ----- ------ ----- Revenues.................................. $ .6 (46.7)% $ 1.2 (94.5)% $21.8 ===== ===== ===== Operating loss............................ $70.5 (11.0)% $79.3 (6.6)% $84.9 ===== ===== ===== Operating loss excluding restructuring, one-time and other charges.............. $70.5 13.3% $62.2 (26.7)% $84.9 ===== ===== =====
1999 Results Operating loss was higher in 1999 due to implementation costs to consolidate financial and human resource applications at a central processing site, as well as costs related to Times Mirror interactive, the Company's recently formed Internet unit. 1998 Results For 1998, revenues declined due to the dispositions of Harry N. Abrams, Incorporated and National Journal, Inc. Operating loss decreased in 1998 from 1997 due primarily to lower employee benefit costs. Additionally, information systems costs were lower in 1998 due to substantial completion of the Company's conversion to common financial systems in 1997. Corporate and Other's 1998 restructuring and one-time charges totaled $15.9 million and $1.1 million for other charges that did not qualify for accounting classification as restructuring charges. These charges consisted primarily of termination benefits and lease termination costs. OTHER, NET 1999 Results The 1999 results included a net pretax gain on the sale of America Online, Inc. (AOL) shares and the purchase of the related 4 1/4% Premium Equity Participating Securities (PEPS), of $16.9 million, or $10.0 million after applicable taxes. The PEPS hedge the Company's investment in AOL. Such transactions may continue from time to time in the future. The Company also recorded a pretax gain on the sale of Hollywood Online, Inc. of $17.2 million, or $10.7 million after applicable taxes. In addition, the Company had other gains on non-operating items and reduced the carrying value of certain new media and other investments. The Company also recognized equity income of $4.1 million in 1999 from its investment in TMCT II which could experience significant variability in the future due to the nature of TMCT II's investments (see Note 2). 1998 Results In the second half of 1998, the Company sold 441,900 shares of Netscape Communications Corporation (Netscape), which was subsequently purchased by AOL, and purchased the related PEPS, for a net pretax 21 23 gain of $16.0 million, or $9.5 million after applicable taxes. Additionally, the Company recorded gains in 1998 on the disposition of excess real estate and other assets and recorded equity losses related to new media and other partnership investments. INCOME TAXES The effective income tax rates were 41.0%, 45.3% and 40.8% in 1999, 1998 and 1997, respectively. Goodwill impairment charges for which there were no tax benefit contributed to the higher tax rate in 1998. RESTRUCTURING, ONE-TIME AND OTHER CHARGES In 1998, the Company undertook a comprehensive review of its business operations to determine areas where operational efficiencies could be achieved through either product and/or facility consolidation, headcount reductions, product abandonments, contract terminations or other measures. The Company began this review in anticipation of the impact of its significant 1998 divestitures and to better align its overall cost structure and business configurations (see Note 7). A summary of the significant components of the 1998 restructuring program is as follows (dollars in millions):
NEWSPAPER PROFESSIONAL MAGAZINE CORPORATE PUBLISHING INFORMATION PUBLISHING AND OTHER TOTAL ---------- ------------ ---------- --------- ------ Termination benefits.......... $ 43.4 $2.0 $ .2 $10.2 $ 55.8 Contract terminations......... 51.4 -- 4.3 -- 55.7 Goodwill impairments.......... .3 -- 19.7 -- 20.0 Lease termination costs....... 2.3 2.8 1.5 3.1 9.7 Technology asset write-offs... 4.8 1.4 .1 1.5 7.8 Other costs................... .3 2.0 3.3 1.1 6.7 ------ ---- ----- ----- ------ Total............... $102.5 $8.2 $29.1 $15.9 $155.7 ====== ==== ===== ===== ======
The following table summarizes the 1999 activity in the 1998 restructuring liability balance as well as estimated cash flows for the following years (dollars in millions):
ESTIMATED CASH FLOWS --------------------- DECEMBER 31, 1999 DECEMBER 31, 2001 AND 1998 CASH PAYMENTS 1999 2000 THEREAFTER ------------ ------------- ------------ ------ ----------- Termination benefits...... $51.2 $(37.2) $14.0 $11.4 $2.6 Contract terminations..... 31.3 (22.7) 8.6 3.8 4.8 Lease termination costs... 6.2 (2.5) 3.7 2.6 1.1 Technology asset write-offs.............. .6 (.5) .1 .1 -- Other costs............... .7 (.3) .4 .4 -- ----- ------ ----- ----- ---- Total........... $90.0 $(63.2) $26.8 $18.3 $8.5 ===== ====== ===== ===== ====
As planned, annual expense reductions resulting from the 1998 restructuring program remain in line with management's expectations. The Company believes that cash flows from operations will be adequate to cover future cash outflows under the restructuring program. In addition to the 1998 charges listed above, the Company also recorded $18.7 million for certain asset write-offs that did not meet the accounting criteria for classification as "restructuring and one-time charges." These charges, which principally included other operating asset write-offs, were classified within "Selling, general and administrative expenses" in the Consolidated Statements of Income. In 1997, the Company recorded pretax charges of $18.0 million for specifically identified cost reduction programs that were not classified as restructuring charges. The Company also recorded restructuring, 22 24 impairment and one-time charges in 1995. A summary of the activity with respect to the 1995 restructuring liability is as follows (dollars in millions):
DECEMBER 31, 1999 DECEMBER 31, 1998 CASH PAYMENTS 1999 ------------ ------------- ------------ 1995 Restructuring.......................... $22.9 $(11.0) $11.9
The remaining 1995 restructuring liability relates primarily to lease payments on unoccupied properties, which will be paid over lease periods extending to 2010. The Company periodically assesses the adequacy of its remaining restructuring liabilities and makes adjustments, if required. The net change in the restructuring liabilities as a result of these reviews has been not significant. LIQUIDITY AND CAPITAL RESOURCES The Company's operating cash requirements are funded primarily by its operations. Cash generated from operating activities was used primarily to fund capital expenditures, investments in new media businesses, dividend payments and, to a lesser extent, share purchases. In 1999, funds from the Company's investment affiliates created as part of the 1998 divestitures of the Company's legal and medical publishing businesses, as well as proceeds from new debt issuances were used to finance the 1999 recapitalization and acquisitions. In the second half of 1998, the Company utilized a portion of the investment affiliates' resources for share purchases and acquisitions. During 2000, the Company plans to use proceeds from the planned dispositions of The Sporting News, StayWell, Allen Communication and AchieveGlobal to repay debt, fund acquisitions and, to a lesser extent, purchase the Company's common stock to offset the dilutive effect of stock option exercises. CASH FLOW The following table sets forth certain items from the Consolidated Statements of Cash Flows (dollars in millions):
1999 1998 --------- -------- Net cash provided by operating activities of continuing operations................................................ $ 349.7 $ 248.4 Capital expenditures........................................ (173.5) (131.5) Acquisitions, net of cash acquired.......................... (173.3) (200.8) Contribution to TMCT II, LLC................................ (1,235.3) -- Proceeds from reorganization as described in Notes 4 and 5......................................................... -- 2,022.2 Purchase of Times Mirror's common stock, including exercise of put options, net of premiums received.................. (211.9) (964.7) Net issuance of commercial paper, short-term borrowings and long-term debt............................................ 491.8 141.4
Cash generated by operating activities of continuing operations for 1999 was higher compared to 1998 due primarily to higher earnings. Capital expenditures for 1999 were higher compared to 1998 due primarily to the Company's continuing investments for future growth, which included facility renovations within the Newspaper Publishing segment and conversion to a 50-inch web at The Times. Additionally, the Company increased capital spending related to information technology projects, including Year 2000 requirements. Capital expenditures are currently expected to approximate $180.0 million for 2000, primarily for facility renovations and upgrading business systems. Cash and marketable securities decreased to $144.3 million at December 31, 1999 from $1.10 billion at December 31, 1998 and total debt at December 31, 1999 rose to $1.82 billion from $1.25 billion at December 31, 1998 due primarily to the 1999 recapitalization (see Note 2). At December 31, 1999, the Company had a $400.0 million long-term revolving line of credit through a group of domestic and international banks. This line of credit is used to support a commercial paper program, 23 25 which is available for short-term cash requirements. The Company had $241.4 million and $219.0 million of commercial paper outstanding at December 31, 1999 and March 8, 2000, respectively. At December 31, 1999, the Company had $400.0 million remaining under shelf registration statements that had not been utilized. There is no assurance that the Company will be able to utilize the amounts remaining under these shelf registration statements on terms acceptable to the Company. ACQUISITIONS In February 1999, Eagle New Media Investments, LLC acquired Newport Media, Inc., a publisher of shopper publications in the Long Island and New Jersey areas, for approximately $132.0 million. The Company made other acquisitions in 1999 for an aggregate consideration of $41.3 million. In April 1998, the Company acquired the Los Angeles area business of E Z Buy & E Z Sell Recycler Corporation (Recycler), consisting primarily of the Recycler publications in the Los Angeles, Orange, Riverside, San Bernardino and Ventura counties and a portion of Santa Barbara County for $188.7 million. The Company also invested in preferred stock and provided a term loan to Target Media Partners, a new entity that owns all of the non-Los Angeles area assets of Recycler, for a total amount of $34.8 million. The Company made other acquisitions in 1998 for an aggregate consideration of $12.1 million. DISPOSITIONS In May 1999, the Company completed an agreement to merge Hollywood Online, Inc., and its Web site, hollywood.com, into Hollywood.com, Inc. (formerly Big Entertainment, Inc.), in exchange for newly-issued restricted stock of Hollywood.com, Inc. and a note with a then combined current value of approximately $31.5 million. Additionally, the Company completed the sale of Apartment Search, Inc. in March 1999. The estimated loss on sale of Apartment Search, including a provision for operating losses through the date of disposal, was recorded in the third quarter of 1998. In July 1998, the Company completed the divestiture of Matthew Bender in a tax-free reorganization and the sale of the Company's 50% ownership interest in Shepard's to Reed Elsevier plc. The two transactions were valued at $1.65 billion in the aggregate. In October 1998, the Company completed the divestiture of Mosby, Inc. to Harcourt General, Inc. in a transaction valued at $415.0 million. Concurrently with the closing of the Matthew Bender and Mosby, Inc. transactions, the Company became the sole manager of Eagle New Media Investments, LLC (Eagle New Media) and Eagle Publishing Investments, LLC (Eagle Publishing). A substantial portion of the assets of Eagle New Media and Eagle Publishing were utilized in connection with the 1999 recapitalization (see Note 2). The Company intends to deploy the assets of both Eagle New Media and Eagle Publishing to finance acquisitions and investments, including purchases of the Company's common stock, and does not intend to use those funds for the Company's general working capital purposes. COMMON SHARE PURCHASES During 1999, the Company and Eagle New Media purchased 3.2 million shares of the Company's Series A common stock which more than offset 2.0 million shares issued as a result of the exercise of stock options (see Note 2 for further information on the effective retirement of shares resulting from the 1999 recapitalization). The Company believes that the purchase of shares of its common stock is an attractive investment for Eagle New Media which will also enhance Times Mirror shareholder value as well as offset dilution from shares of common stock issued under the Company's stock-based employee compensation and benefit programs. The Company and its affiliates expect to make share purchases primarily to offset stock option exercises, during the next two years in the open market or in private transactions, depending on market conditions, and such purchases may be discontinued at any time. In connection with this program, the Company from time to time sells put options on its common stock. As of December 31, 1999, the Company and its affiliates are authorized to purchase 3.9 million shares of Series A common stock. 24 26 DIVIDENDS Cash dividends of $.80 and $.72 per share of common stock were declared for the years ended December 31, 1999 and 1998, respectively. In February 2000, the Board of Directors approved an increase in the quarterly dividend on its common stock to $.22 per share, from $.20 per share, beginning with the March 10, 2000 payment date. MARKET RISK The Company enters into contractual agreements in the ordinary course of business to hedge its exposure to changes in interest rates, the value of foreign currencies relative to the U.S. dollar and newsprint prices. Counterparties to these agreements are major institutions. Such agreements are not entered into for trading purposes. The Company's debt portfolio is managed to maintain a balance of fixed and variable rate obligations. The Company utilizes interest rate swap agreements to help maintain the overall interest rate parameters set by management. As such, a hypothetical 10% change in interest rates would not have a material impact on the Company's results of operations or the fair values of its market risk sensitive financial instruments. The Company periodically enters into foreign exchange forward contracts or uses other hedging strategies to substantially limit its exposure to changes in foreign currency rates. As such, changes in currency rates would not have a material impact on the Company's results of operations. Newsprint expense represents a significant portion of the Company's operating costs. To manage the Company's exposure to newsprint price fluctuations, the Company has entered into newsprint hedging contracts not exceeding five years. These hedging arrangements have the effect of locking in for specified periods, the newsprint prices the Company will pay for the hedged volumes. As a result, while these hedging arrangements are structured to reduce the Company's exposure to increases in newsprint prices, they also limit the benefit the Company might otherwise have received from any newsprint price decreases. The Company's operating results typically can be adversely affected to the extent that such historically volatile newsprint prices increase materially. IMPACT OF YEAR 2000 The Company instituted a comprehensive program to address potential Year 2000 impacts and as a result, critical systems and infrastructure operated smoothly through the arrival of Year 2000 and leap year boundaries. Additionally, the Company experienced no Year 2000 related disruptions in the products and services provided by its significant suppliers or other third-party business relationships. Many of the improvements made in preparation for the Year 2000 are expected to provide the Company with long-term benefits. For example, many of the advancements in technology for the Company's editorial, advertising and circulation systems, e-mail, telephone switching, and network infrastructure are each expected to have a significant, lasting impact. YEAR 2000 COSTS The Company incurred costs of $39.7 million to prepare for the arrival of the Year 2000, excluding costs for employees working on the project, of which $30.5 million was capitalized and $9.2 million was expensed. These costs include 1999 capital expenditures of $14.7 million and expenses of $5.4 million. During 1999, an average of 104 employees worked on the project with related costs estimated at $8.4 million. These costs include both information technology and non-information technology systems, including capital costs associated with planned replacements previously budgeted which, incidentally, provided Year 2000 compliance. Year 2000 costs were funded through operating cash flows. DISCONTINUED BUSINESSES The above discussion of the Company's Year 2000 program does not include information with respect to AchieveGlobal, Allen Communication or StayWell, which are reflected as discontinued operations. However, 25 27 the information provided above would not be materially different if information regarding the discontinued businesses was included. The Company incurred costs of $2.6 million to prepare these businesses for the arrival of the Year 2000, excluding costs for employees working on the project, of which $1.6 million was capitalized and $1.0 million was expensed. These costs include 1999 capital expenditures and expenses of $.5 million each. CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS In 1998, the Company divested Matthew Bender & Company, Incorporated and Mosby, Inc. While the Company believes that these divestitures were completed on a tax-free basis, this position may be subject to review by the Internal Revenue Service. The Company estimated deferred taxes of $176.6 million based on its assessment of the risks inherent in a contested challenge by the Internal Revenue Service. To the extent that the estimate of such deferred taxes is adjusted in the course of resolving such a challenge, the adjustment will be recorded within discontinued operations. If it is ultimately determined that these transactions were not completed on a tax-free basis, the Company's results of operations, financial position and cash flow may be materially adversely affected. Certain statements set forth above and elsewhere in this Annual Report on Form 10-K are forward-looking in nature and related to trends and events that may affect the Company's future financial position and operating results. Such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The term "expect," "anticipate," and "intend" and similar words or expressions are intended to identify forward-looking statements. These statements speak only as of the date of this report. These statements are based on current expectations, are inherently uncertain, are subject to risks, and should be viewed with caution. For example, there can be no assurances that the statements contained herein with respect to expected dispositions of certain businesses, share purchases, capital expenditures or the satisfactory resolution of contingent liabilities will be achieved. Actual results and experience may differ materially from the forward-looking statements and could be adversely affected by a number of factors, including (a) an increase in paper, printing and distribution costs over the levels anticipated; (b) increased consolidation among major retailers or other events depressing the level of display advertising; (c) an economic downturn in the Company's principal newspaper markets or other occurrences leading to decreased circulation and diminished revenues from both display and classified advertising; (d) an increase in the use of alternate media such as the Internet for classified and other advertising; (e) an increase in expenses related to new initiatives and product improvement efforts in the flight information operating unit; (f) unfavorable foreign currency fluctuations; (g) material changes in tax liability due to unfavorable reviews by taxing authorities as described above; and (h) a general economic downturn resulting in decreased consumer and corporate spending on discretionary items such as magazines or newspapers. It is not possible to foresee or identify all such factors. The Company makes no commitment to update any forward-looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statement. DISCUSSIONS EXCLUDING RESTRUCTURING, ONE-TIME AND OTHER CHARGES Management's discussion and analysis of its results of operations presents information regarding operating profit as well as operating profit excluding the impact of restructuring, one-time and other charges. The Company believes that the financial information which excludes restructuring, one-time and other charges is necessary to an understanding of its operations and provides for a more comparable analysis of historical results as well as indications of future financial performance. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This information is presented in Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Liquidity and Capital Resources -- Market Risk." 26 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ---- Report of Ernst & Young LLP, Independent Auditors........... 28 Consolidated Statements of Income -- Years Ended December 31, 1999, 1998 and 1997................................... 29 Consolidated Balance Sheets -- December 31, 1999 and December 31, 1998......................................... 30 Consolidated Statements of Shareholders' Equity -- Years Ended December 31, 1999, 1998 and 1997.................... 32 Consolidated Statements of Cash Flows -- Years Ended December 31, 1999, 1998 and 1997.......................... 34 Notes to Consolidated Financial Statements.................. 35 Financial Statement Schedule: Schedule II -- Valuation and Qualifying Accounts and Reserves............................................... 65
All other schedules are omitted because they are not required by the regulations or related instructions or are not applicable. 27 29 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders and Board of Directors The Times Mirror Company We have audited the accompanying consolidated balance sheets of The Times Mirror Company as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also include the financial statement schedule listed in the Index to Financial Statements and Financial Statement Schedule. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Times Mirror Company at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Los Angeles, California February 2, 2000 28 30 THE TIMES MIRROR COMPANY CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31 -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- REVENUES: Advertising.......................................... $2,214,902 $1,993,750 $1,855,999 Circulation.......................................... 505,598 512,090 515,941 Other................................................ 308,749 278,148 273,195 ---------- ---------- ---------- Total revenues............................... 3,029,249 2,783,988 2,645,135 ---------- ---------- ---------- COSTS AND EXPENSES: Cost of sales........................................ 1,615,273 1,444,523 1,395,660 Selling, general and administrative expenses......... 943,470 935,986 858,197 Restructuring and one-time charges................... -- 155,681 -- ---------- ---------- ---------- Total costs and expenses..................... 2,558,743 2,536,190 2,253,857 ---------- ---------- ---------- OPERATING PROFIT....................................... 470,506 247,798 391,278 Interest expense....................................... (93,368) (68,275) (35,628) Interest income........................................ 36,454 39,680 2,351 Other, net............................................. 25,699 25,801 38,498 ---------- ---------- ---------- Income from continuing operations before income taxes................................................ 439,291 245,004 396,499 Income tax provision................................... 180,229 110,945 161,844 ---------- ---------- ---------- Income from continuing operations...................... 259,062 134,059 234,655 Discontinued operations: Income (loss) from operations, net of taxes....... 24 (33,407) 15,657 Net gain on disposal, net of taxes................ -- 1,316,686 -- ---------- ---------- ---------- NET INCOME............................................. $ 259,086 $1,417,338 $ 250,312 ========== ========== ========== Preferred stock dividends.............................. $ 18,066 $ 21,697 $ 32,481 ========== ========== ========== Earnings applicable to common shareholders............. $ 241,020 $1,395,641 $ 217,831 ========== ========== ========== Basic earnings per common share: Continuing operations............................. $ 3.53 $ 1.32 $ 2.18 Discontinued operations........................... -- 15.14 .17 ---------- ---------- ---------- Basic earnings per share............................... $ 3.53 $ 16.46 $ 2.35 ========== ========== ========== Diluted earnings per common share: Continuing operations............................. $ 3.38 $ 1.29 $ 2.12 Discontinued operations........................... -- 14.77 .17 ---------- ---------- ---------- Diluted earnings per share............................. $ 3.38 $ 16.06 $ 2.29 ========== ========== ==========
See notes to consolidated financial statements. 29 31 THE TIMES MIRROR COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31 ------------------------- 1999 1998 ----------- ---------- ASSETS Current assets: Cash and cash equivalents.............................. $ 144,319 $1,052,999 Marketable securities.................................. -- 49,438 Accounts receivable, less allowances for doubtful accounts and returns of $34,721 and $37,389........... 363,361 311,913 Inventories............................................ 35,082 28,438 Recoverable income taxes............................... 43,477 22,112 Deferred income taxes.................................. 33,314 32,279 Prepaid expenses....................................... 35,526 30,141 Net assets of discontinued operations.................. 173,090 189,628 Other current assets................................... 58,479 16,166 ----------- ---------- Total current assets.............................. 886,648 1,733,114 Property, plant and equipment: Land................................................... 49,937 45,065 Buildings.............................................. 454,751 433,860 Machinery and equipment................................ 1,389,855 1,321,501 Leasehold improvements................................. 37,248 27,848 Construction-in-progress............................... 42,375 41,362 ----------- ---------- 1,974,166 1,869,636 Less accumulated depreciation and amortization......... (1,008,071) (966,153) ----------- ---------- Property, plant and equipment, net................ 966,095 903,483 Goodwill, net of accumulated amortization of $126,875 and $105,976............................................... 602,148 501,463 Other intangibles, net of accumulated amortization of $74,612 and $61,657.................................... 192,593 100,373 Equity investments in TMCT I, LLC and TMCT II, LLC........ 332,846 96,416 Other investments......................................... 242,858 174,402 Prepaid pension costs..................................... 445,175 419,471 Other assets.............................................. 229,008 229,207 ----------- ---------- Total assets...................................... $ 3,897,371 $4,157,929 =========== ==========
See notes to consolidated financial statements. 30 32 THE TIMES MIRROR COMPANY CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31 -------------------------- 1999 1998 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable....................................... $ 179,461 $ 179,415 Short-term debt........................................ 254,834 312,610 Employees' compensation................................ 110,311 93,145 Unearned income........................................ 127,760 146,323 Restructuring.......................................... 25,795 91,903 Other current liabilities.............................. 167,969 98,106 ----------- ----------- Total current liabilities......................... 866,130 921,502 Long-term debt............................................ 1,562,240 941,423 Deferred income taxes..................................... 482,062 373,623 Postretirement benefits................................... 221,111 226,018 Other liabilities......................................... 338,808 330,350 ----------- ----------- Total liabilities................................. 3,470,351 2,792,916 Common stock subject to put options......................... 27,291 22,560 Commitments and contingencies Shareholders' equity: Preferred stock, $1 par value; stated at liquidation value, convertible to Series A common stock: Series A: 900,000 shares authorized; 824,000 shares issued and outstanding.............................. 411,784 411,784 Series B: 8,439,000 shares authorized; no shares issued or outstanding............................... -- -- Series C-1: 381,000 shares authorized, issued and outstanding......................................... 190,486 190,486 Series C-2: 245,000 shares authorized, issued and outstanding......................................... 122,550 122,550 Preferred stock, $1 par value; 23,035,000 shares authorized, no shares issued or outstanding............ -- -- Common stock, $1 par value: Series A: 500,000,000 shares authorized; 93,879,000 and 86,831,000 shares issued and outstanding.............. 93,879 86,831 Series B: 100,000,000 shares authorized; no shares issued or outstanding................................. -- -- Series C: Convertible to Series A common stock; 300,000,000 shares authorized, 18,246,000 and 25,258,000 shares issued and outstanding.............. 18,246 25,258 Additional paid-in capital................................ 1,299,931 1,278,916 Retained earnings......................................... 1,784,793 1,653,736 Accumulated other comprehensive income.................... 26,879 26,491 Less treasury stock, at cost: Series A common stock, 52,387,000 and 38,708,000 shares; Series A preferred stock, 735,000 shares; Series C-1 preferred stock, 305,000 and no shares; and Series C-2 preferred stock, 196,000 and no shares..... (3,548,819) (2,453,599) ----------- ----------- Total shareholders' equity........................ 399,729 1,342,453 ----------- ----------- Total liabilities and shareholders' equity........ $ 3,897,371 $ 4,157,929 =========== ===========
See notes to consolidated financial statements. 31 33 THE TIMES MIRROR COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE YEARS ENDED DECEMBER 31, 1999 - --------------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCK COMMON STOCK --------------------------------------------- ------------------- SERIES A SERIES B SERIES C-1 SERIES C-2 SERIES A SERIES C -------- -------- ---------- ---------- -------- -------- BALANCE AT DECEMBER 31, 1996................................ $411,784 $164,595 $ -- $ -- $69,757 $26,973 Comprehensive income: Net income.............................................. -- -- -- -- -- -- Other comprehensive income, net of income taxes: Change in net unrealized losses on securities......... -- -- -- -- -- -- Minimum pension liability adjustment.................. -- -- -- -- -- -- Foreign currency translation adjustments.............. -- -- -- -- -- -- Comprehensive income...................................... -- -- -- -- -- -- Conversion to Series A common related to: Series C common......................................... -- -- -- -- 11,127 (11,127) Series B preferred...................................... -- (164,595) -- -- 4,446 -- Merger with Chandis Securities............................ -- -- 190,486 122,550 6,582 9,656 Issuance/Purchase of shares: Stock options and restricted stock...................... -- -- -- -- 1,070 1 Acquisition............................................. -- -- -- -- 45 -- Stock purchase program.................................. -- -- -- -- (6,475) -- TMCT I, LLC contributed shares.......................... -- -- -- -- -- -- Put options: Sale.................................................... -- -- -- -- -- -- Exercise................................................ -- -- -- -- -- -- Change in redemption value.............................. -- -- -- -- -- -- Dividends declared: Common stock; $.55 per share............................ -- -- -- -- -- -- Preferred stock......................................... -- -- -- -- -- -- -------- -------- -------- -------- ------- ------- BALANCE AT DECEMBER 31, 1997................................ 411,784 -- 190,486 122,550 86,552 25,503 Comprehensive income: Net income.............................................. -- -- -- -- -- -- Other comprehensive income, net of income taxes: Change in net unrealized gains on securities.......... -- -- -- -- -- -- Minimum pension liability adjustment.................. -- -- -- -- -- -- Foreign currency translation adjustments.............. -- -- -- -- -- -- Comprehensive income...................................... -- -- -- -- -- -- Conversion of Series C common to Series A common.......... -- -- -- -- 245 (245) Issuance/Purchase of shares: Stock options and restricted stock...................... -- -- -- -- 34 -- Purchases of common stock............................... -- -- -- -- -- -- Put options: Sale.................................................... -- -- -- -- -- -- Exercise................................................ -- -- -- -- -- -- Change in redemption value.............................. -- -- -- -- -- -- Dividends declared: Common stock; $.72 per share............................ -- -- -- -- -- -- Preferred stock......................................... -- -- -- -- -- -- -------- -------- -------- -------- ------- ------- BALANCE AT DECEMBER 31, 1998................................ 411,784 -- 190,486 122,550 86,831 25,258 Comprehensive income: Net income.............................................. -- -- -- -- -- -- Other comprehensive income, net of income taxes: Change in net unrealized losses on securities......... -- -- -- -- -- -- Minimum pension liability adjustment.................. -- -- -- -- -- -- Foreign currency translation adjustments.............. -- -- -- -- -- -- Comprehensive income...................................... -- -- -- -- -- -- Conversion of Series C common to Series A common.......... -- -- -- -- 776 (776) Issuance/Purchase of shares: Stock options and restricted stock...................... -- -- -- -- 36 -- Purchases of common stock............................... -- -- -- -- -- -- TMCT II, LLC contributed shares......................... -- -- -- -- 6,236 (6,236) Put options: -- Sale.................................................... -- -- -- -- -- -- Exercise................................................ -- -- -- -- -- -- Change in redemption value.............................. -- -- -- -- -- -- Dividends declared: Common stock; $.80 per share............................ -- -- -- -- -- -- Preferred stock......................................... -- -- -- -- -- -- -------- -------- -------- -------- ------- ------- BALANCE AT DECEMBER 31, 1999................................ $411,784 $ -- $190,486 $122,550 $93,879 $18,246 ======== ======== ======== ======== ======= =======
See notes to consolidated financial statements. 32 34
- ------------------------------------------------------------------------ ACCUMULATED ADDITIONAL OTHER PAID-IN RETAINED COMPREHENSIVE TREASURY CAPITAL EARNINGS INCOME STOCK TOTAL ---------- ---------- ------------- ----------- ---------- $ 225,934 $ 546,881 $52,886 $ -- $1,498,810 -- 250,312 -- -- 250,312 -- -- (38,170) -- (38,170) -- -- 1,902 -- 1,902 -- -- (3,814) -- (3,814) ---------- -- -- -- -- 210,230 -- -- -- -- -- 160,119 (8) -- -- (38) 807,834 -- -- (1,125,064) 12,044 45,711 (17,509) -- 32,741 62,014 2,354 -- -- -- 2,399 (16,190) (309,734) -- (132,382) (464,781) -- -- -- (380,093) (380,093) 3,227 -- -- -- 3,227 (419) -- -- (6,527) (6,946) 24,572 -- -- -- 24,572 -- (50,885) -- -- (50,885) -- (34,554) -- -- (34,554) ---------- ---------- ------- ----------- ---------- 1,253,142 384,503 12,804 (1,611,325) 875,999 -- 1,417,338 -- -- 1,417,338 -- -- 16,106 -- 16,106 -- -- (1,169) -- (1,169) -- -- (1,250) -- (1,250) ---------- -- -- -- -- 1,431,025 -- -- -- -- -- 31,906 (65,952) -- 125,229 91,217 -- -- -- (947,203) (947,203) 2,891 -- -- -- 2,891 (63) -- -- (20,300) (20,363) (8,960) -- -- -- (8,960) -- (60,456) -- -- (60,456) -- (21,697) -- -- (21,697) ---------- ---------- ------- ----------- ---------- 1,278,916 1,653,736 26,491 (2,453,599) 1,342,453 -- 259,086 -- -- 259,086 -- -- (8,864) -- (8,864) -- -- (1,692) -- (1,692) -- -- 10,944 -- 10,944 ---------- -- -- -- -- 259,474 -- -- -- -- -- 22,823 (53,265) -- 120,442 90,036 -- -- -- (196,471) (196,471) -- -- -- (1,000,817) (1,000,817) 2,923 -- -- -- 2,923 -- -- -- (18,374) (18,374) (4,731) -- -- -- (4,731) -- (56,698) -- -- (56,698) -- (18,066) -- -- (18,066) ---------- ---------- ------- ----------- ---------- $1,299,931 $1,784,793 $26,879 $(3,548,819) $ 399,729 ========== ========== ======= =========== ==========
33 35 THE TIMES MIRROR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31 ------------------------------------- 1999 1998 1997 ----------- ---------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations......................... $ 259,062 $ 134,059 $234,655 Adjustments to derive cash flows from continuing operating activities: Depreciation and amortization........................... 144,955 135,175 124,064 Restructuring and other charges: Impairments and other asset write-offs................ -- 52,783 -- Net change in restructuring liability................. (74,228) 69,849 (15,764) Amortization of debt discount........................... 21,466 16,998 9,299 Gain on asset sales and writedowns, net................. (21,832) (31,564) (36,302) Provision for doubtful accounts......................... 18,643 19,240 22,307 Provision for deferred income taxes..................... 44,764 11,417 41,587 Changes in assets and liabilities: Accounts receivable................................... (68,541) (23,302) (36,625) Inventories........................................... (6,453) 2,755 (740) Prepaid pension costs................................. (25,704) (52,664) (39,872) Accounts payable...................................... (6,695) (21,557) 18,172 Income taxes.......................................... 18,777 (18,285) (31,826) Other, net.............................................. 45,517 (46,534) 66,098 ----------- ---------- -------- Net cash provided by continuing operating activities.... 349,731 248,370 355,053 Net cash provided by (used in) discontinued operating activities............................................ 31,495 72,906 (1,702) ----------- ---------- -------- Net cash provided by operating activities............. 381,226 321,276 353,351 ----------- ---------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures...................................... (173,484) (131,548) (113,081) Acquisitions, net of cash acquired........................ (173,337) (200,786) (37,580) Purchases of investments.................................. (84,270) (57,433) (10,811) Proceeds from sales of investments and other assets....... 71,455 38,473 120,774 Sale (purchase) of marketable securities, net............. 49,438 (49,438) -- Decreases (increases) in notes receivable, net............ 13,000 (69,120) -- Proceeds from reorganization as described in Notes 4 and 5....................................................... -- 2,022,224 -- Other, net................................................ (7,242) 10,211 8,520 ----------- ---------- -------- Net cash provided by (used in) investing activities of continuing operations................................. (304,440) 1,562,583 (32,178) Net cash used in investing activities of discontinued operations............................................ (10,232) (29,697) (153,335) ----------- ---------- -------- Net cash provided by (used in) investing activities... (314,672) 1,532,886 (185,513) ----------- ---------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Contribution to TMCT II, LLC.............................. (1,235,252) -- -- Purchases of Times Mirror common stock.................... (196,471) (947,203) (464,781) Dividends paid............................................ (74,764) (82,153) (85,439) Net proceeds (repayments) of commercial paper and short-term borrowings................................... (57,485) 212,983 92,187 Principal repayments of debt.............................. (46,567) (71,550) (5,769) Exercise of put options, net of premiums received......... (15,451) (17,472) (3,719) Proceeds from issuance of long-term debt.................. 595,896 -- 445,429 Proceeds from exercise of stock options................... 67,195 59,277 36,431 Contribution to TMCT I, LLC............................... -- -- (249,266) Other, net................................................ (12,335) 161 (17,098) ----------- ---------- -------- Net cash used in financing activities................. (975,234) (845,957) (252,025) ----------- ---------- -------- Increase (decrease) in cash and cash equivalents.......... (908,680) 1,008,205 (84,187) Cash and cash equivalents at beginning of year............ 1,052,999 44,794 128,981 ----------- ---------- -------- Cash and cash equivalents at end of year.................. $ 144,319 $1,052,999 $ 44,794 =========== ========== ========
See notes to consolidated financial statements. 34 36 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries as well as affiliates that are controlled by the Company, as described in Note 5, after elimination of all significant intercompany transactions and balances. Other affiliated companies in which the Company owns a 20% to 50% interest or has significant influence are accounted for by the equity method. Presentation. Certain amounts in previously issued financial statements have been reclassified to conform to the 1999 presentation. Financial information presented in the notes to consolidated financial statements excludes discontinued operations, except where noted. Use of Estimates. Financial statements prepared in accordance with generally accepted accounting principles require management to make estimates and judgments that affect amounts and disclosures reported in the financial statements. Actual results could differ from those estimates. Changes in Accounting Principles. As of January 1, 1999, the Company adopted the American Institute of Certified Public Accountants Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal use. In prior years, the Company's accounting policies for internal use software were generally consistent with the requirements of SOP 98-1. Accordingly, the adoption of this pronouncement did not have a material effect on the Company's financial position or results of operations. Cash and Cash Equivalents. Cash equivalents consist of investments that are readily convertible into cash and mature within three months from date of purchase. Cash equivalents of $113.9 million and $997.7 million at December 31, 1999 and 1998, respectively, consist of commercial paper, money market funds or certificates of deposit. The Company has an investment policy for short-term investments covering eligible types of instruments, maximum investment terms, credit quality and individual issuer limits. Under the Company's cash management system, the bank notifies the Company daily of checks presented for payment against its primary disbursement accounts. The Company transfers funds from other sources such as short-term investments or commercial paper issuance to cover the checks presented for payment. This program results in a book cash overdraft in the primary disbursement accounts as a result of checks outstanding. The book overdraft, which was reclassified to accounts payable, was $27.4 million and $41.3 million at December 31, 1999 and 1998, respectively. Marketable Securities. Marketable securities consist of investments in commercial paper that have maturities over three months but less than one year from date of purchase. Inventories. Inventories are stated at the lower of cost or market. Newsprint is valued under the last-in, first-out (LIFO) method and paper and certain finished products are valued primarily under the weighted average cost method. Property, Plant and Equipment. Property, plant and equipment is stated on the basis of cost. Maintenance and repairs are charged to expense as incurred. Additions, improvements and replacements are capitalized. Depreciation is provided on a straight-line basis over the estimated useful lives as follows: Buildings.................................... 10 - 45 years Machinery and equipment...................... 3 - 20 years Leasehold improvements....................... Lesser of useful life or lease term
Goodwill and Other Intangibles. Goodwill recognized in business combinations accounted for as purchases is being amortized on a straight-line basis primarily over periods of 15 to 40 years, with a weighted 35 37 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) average amortization period of 35 years. Goodwill amortization expense was $22.5 million, $18.0 million and $13.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. Other intangibles arising in connection with acquisitions are being amortized on a straight-line basis over their estimated useful lives ranging primarily from 5 to 30 years, with a weighted average life of 27 years. Amortization expense was $15.1 million, $9.9 million and $7.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. The Company assesses on an ongoing basis the recoverability of long-lived assets, including goodwill and other intangible assets, based on estimates of future undiscounted cash flows for the applicable business compared to net book value. If the future undiscounted cash flows estimate were less than net book value, net book value would then be reduced to fair value based on an estimate of discounted cash flows. The Company also evaluates the amortization periods of these assets to determine whether events or circumstances warrant revised estimates of useful lives. Deferred Charges. Magazine subscription procurement costs are charged to expense over the same period as the related revenue is earned. Derivative Financial Instruments. Interest rate swaps (see Note 9) are used to manage exposure to market risk associated with changes in interest rates. Interest rate swaps are accounted for on the accrual basis. Payments made or received are recognized as an adjustment to interest expense. Amounts received or paid in connection with initiating or terminating swaps are amortized on a straight-line basis as a reduction or increase in interest expense over the term of the swaps. Premium equity participating debt securities (see Note 12) are used to manage the Company's exposure to market risk associated with changes in the fair value of the Company's investment in the common stock of America Online, Inc. (AOL). The Company's exposure to market risk associated with fluctuations in the value of foreign currencies relative to the U.S. dollar may be managed with foreign currency forward contracts, currency options, currency swaps or other risk management instruments permitted by the Company's internal policy guidelines. The Company's forward contracts and other risk management instruments were not significant. Commodity price hedging contracts (see Note 9) are used to manage the Company's exposure to market risk associated with fluctuations in newsprint prices. These contracts are accounted for on the accrual basis. Periodic settlement payments made or received are recognized as an adjustment to the cost basis of newsprint inventory. Amounts paid in connection with initiating these contracts are amortized on a straight-line basis as an adjustment to the cost basis of newsprint inventory over the term of the contracts. Put options are used in conjunction with the Company's common stock purchase program. These contracts are entered into based on market conditions as well as other factors. The costs or benefits derived from these equity-based financial instruments are recorded in shareholders' equity on the date of the transaction. The potential obligation under these put options outstanding at December 31, 1999 and 1998 has been transferred from shareholders' equity to "Common stock subject to put options." Revenue Recognition. Revenues from certain products sold with the right of return, are recognized net of a provision for estimated returns. Revenues from newspaper and magazine subscriptions and annual subscriptions for aeronautical charts are deferred as unearned income at the time of the sale. A pro rata share of the newspaper and magazine subscription price is included in revenue as products are delivered to subscribers. Annual subscription revenues for aeronautical charts are recognized on a straight-line basis over the life of the subscription service. 36 38 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Advertising and Promotion Costs. Advertising and promotion costs, which are expensed as incurred, amounted to $70.9 million, $59.9 million and $64.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. Foreign Currency Translation. The assets and liabilities of foreign operations are translated at year-end exchange rates. Results of operations are translated at average exchange rates in effect during the year. Translation adjustments are included in "Accumulated other comprehensive income" in the Consolidated Balance Sheets and Statements of Shareholders' Equity. Stock-Based Compensation. Employee stock options (see Note 14) are accounted for under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which requires the recognition of expense when the option price is less than the fair value of the stock at the date of grant. The Company awards options for a fixed number of shares at an option price equal to the fair value at the date of grant. Accordingly, the financial statements do not include any expense related to employee stock option awards. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Future Accounting Requirement. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). Subsequently, the FASB issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133" which deferred the effective date of SFAS 133 for one year. This standard is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS 133 will require the Company to record all derivatives as assets or liabilities at fair value. Changes in derivative fair values will either be recognized in earnings, offset against changes in the fair value of the related hedged assets, liabilities and firm commitments or, for forecasted transactions, recorded as a component of accumulated other comprehensive income in shareholders' equity until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative's change in fair value will be recognized in earnings immediately. The impact of SFAS 133 on the Company's financial statements will depend on a variety of factors, including, the extent of the Company's hedging activities, the types of hedging instruments used and the effectiveness of such instruments. The effect of adopting SFAS 133 is currently being evaluated, however, management does not anticipate that the adoption of this standard will have a significant effect on earnings or the financial position of the Company. NOTE 2 -- 1999 RECAPITALIZATION In September 1999, the Company completed a transaction (1999 recapitalization) involving agreements with its largest shareholders, Chandler Trust No. 1 and Chandler Trust No. 2 (Chandler Trusts). The 1999 recapitalization resulted in the formation of a new limited liability company, TMCT II, LLC (TMCT II). Pursuant to the TMCT II contribution agreement, the Company, Eagle New Media Investments, LLC and Eagle Publishing Investments, LLC (Eagle Companies) and the Chandler Trusts made the following capital contributions to TMCT II: 1. The Company contributed preferred units issued by the operating partnerships of 8 unrelated real estate investment trusts (OP REIT Interests) with an aggregate purchase price of $600.0 million and $2.0 million in cash; 2. The Eagle Companies contributed a total of $633.3 million in cash or cash equivalents; and 3. The Chandler Trusts contributed 9.3 million shares of the Company's Series A common stock, 6.2 million shares of the Company's Series C common stock, 381 thousand shares of the Company's Series C-1 preferred stock and 245 thousand shares of the Company's Series C-2 preferred stock (TMCT II Contributed Shares). 37 39 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company's purchase of the OP REIT Interests was funded with the proceeds of a $550.0 million short-term bank line of credit provided by Citicorp and its commercial paper line. The Company refinanced this line of credit in October 1999 (see Note 12). The cash contributed by the Company and the Eagle Companies was used by TMCT II to purchase a portfolio of securities (TMCT II Portfolio). The Company, the Eagle Companies and the Chandler Trusts share in the cash flow of the various assets held by TMCT II. The cash flow from the OP REIT Interests and the TMCT II Portfolio is largely allocated to the Chandler Trusts with the remaining portion of the cash flow from the OP REIT Interests and the TMCT II Portfolio primarily allocated to the Eagle Companies. The cash flow from the TMCT II Contributed Shares is largely allocated to the Company with the remaining portion of the cash flow from the TMCT II Contributed Shares primarily allocated to the Chandler Trusts. Due to the allocations of the economic benefits in TMCT II, for financial reporting purposes, 80% of the TMCT II Contributed Shares are included in treasury stock, 80% of the preferred stock dividends on the Series C-1 and C-2 preferred stock are excluded from preferred stock dividends and 80% of the dividends on the common stock are effectively eliminated. The Company and the Eagle Companies account for their investment in the TMCT II OP REIT Interests and the TMCT II Portfolio under the equity method and this net investment was $246.8 million at December 31, 1999. During 1999, the Company and the Eagle Companies recognized $4.1 million of equity income related to this investment. At December 31, 1999, the assets of TMCT II, excluding the TMCT II Contributed Shares, consisted primarily of $600.0 million of OP REIT Interests, $475.6 million of fixed income investments, $93.0 million of private equity investments and $69.6 million of cash and cash equivalents. TMCT II may invest a total of $560.0 million in venture capital or private equity investments. TMCT II recognizes unrealized losses on its venture capital and private equity investments and defers the recognition of unrealized gains on these investments until realized. In the fourth quarter of 1999, the Company and Eagle New Media Investments, LLC sold certain venture capital investments with a cost basis of $16.2 million to TMCT II for proceeds of $31.4 million and has deferred recognition of any gain until these investments are sold by TMCT II to third parties unaffiliated with the Company. These proceeds are included in "Proceeds from sales of investments and other assets" in the Consolidated Statements of Cash Flows. In connection with the 1999 recapitalization, the Company replaced the Series C-1 and C-2 preferred stocks with Series D-1 and D-2 preferred stocks effective January 1, 2000. The Series D-1 and D-2 preferred stocks are identical to the Series C-1 and C-2 preferred stocks except that the increases in the dividend rate on the Series D-1 and D-2 preferred stocks are pursuant to a fixed and certain schedule. As a result of the 1999 recapitalization, for financial reporting purposes, the following number of shares have been included as treasury stock and excluded from earnings per share calculations: 1. 12.4 million shares of Series A and C common stocks; 2. 305 thousand shares of Series C-1 preferred stock; 3. 196 thousand shares of Series C-2 preferred stock. NOTE 3 -- 1997 RECAPITALIZATION During the third quarter of 1997, the Company completed a transaction (1997 recapitalization) involving agreements with its largest shareholders, the Chandler Trusts. The 1997 recapitalization consisted of two components: (a) the merger of Chandis Securities Company (Chandis), a holding company owned by Chandler Trust No. 2 and affiliated minority investors, into Chandis Acquisition Corporation (CAC), a Delaware corporation and wholly-owned subsidiary of the Company (Merger) and (b) the formation of a new limited liability company by the Chandler Trusts and the Company. 38 40 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) On August 8, 1997, Chandis merged with and into CAC. Pursuant to the Merger Agreement, the Chandis shareholders received 6.6 million shares of Series A common stock, 9.7 million shares of Series C common stock, 381 thousand shares of new Series C-1 preferred stock, and 245 thousand shares of new Series C-2 preferred stock. At the time of the Merger, Chandis owned 8.6 million shares of Series A common stock, 9.7 million shares of Series C common stock, and 381 thousand shares of Series A preferred stock as well as an interest in undeveloped real estate and certain other assets and liabilities. CAC is not a "permitted transferee" as defined in the Company's Certificate of Incorporation, therefore, the Series C common stock was converted to Series A common stock as a result of the Merger. The Company's shares owned by CAC are reported as treasury stock for financial reporting purposes. The Merger was a tax-free transaction. Concurrent with the consummation of the Merger, the Company (including certain of its subsidiaries) and the Chandler Trusts formed TMCT, LLC (TMCT I), a Delaware limited liability company, and the following capital contributions were made to TMCT I: 1. The Company contributed $249.3 million in cash and 8 real properties (Real Properties) with an aggregate market value of $225.9 million; 2. The Chandler Trusts contributed 5.0 million shares of Series A common stock and 443 thousand shares of Series A preferred stock (TMCT I Contributed Shares). The cash contributed by the Company was used by TMCT I to purchase a portfolio of securities (TMCT I Portfolio). The Company has leased the Real Properties from TMCT I under a lease with minimum lease payments equal to the fair values and with an initial term of 12 years. During 1999 and 1998, the Company made annual lease payments to TMCT I of $24.2 million. The lease is accounted for as a financing arrangement and, accordingly, the Real Properties' book value remains on the Company's consolidated balance sheet and continues to be depreciated at the rates in effect prior to the contribution of the Real Properties to TMCT I. The depreciation, along with a reduction of property, plant and equipment of $168.0 million, which represents the estimated net book value of the Real Properties at the end of the lease term, will result in a net book value of zero for the Real Properties at August 8, 2009. At that time, the Company has the option to purchase all the Real Properties for their fair market value. If the Real Properties are not purchased by the Company, they will remain the assets of TMCT I and may be leased by the Company at a fair value rent as provided for under the terms of the lease agreement. The lease provides for two additional 12-year lease terms with fair value purchase options at the end of each lease term. The lease is included as a property financing in the Company's outstanding debt obligations (see Note 12). The Company and the Chandler Trusts share in the cash flow of the various assets held by TMCT I. The cash flow from the Real Properties and the TMCT I Portfolio is largely allocated to the Chandler Trusts and the cash flow from the TMCT I Contributed Shares is largely allocated to the Company. Due to the allocations of the economic benefits in the TMCT I, 80% of the TMCT I Contributed Shares are included in treasury stock for financial reporting purposes and 80% of the preferred stock dividends on the Series A preferred stock are excluded from preferred stock dividends. The Company accounts for the investment in the TMCT I Portfolio under the equity method. This net investment was $86.0 million and $96.4 million at December 31, 1999 and 1998, respectively. During 1999 and 1998, the Company recognized an equity loss of $3.5 million and equity income of $3.7 million related to this investment, respectively. The assets of TMCT I, excluding the TMCT I Contributed Shares, primarily consist of Real Properties of $205.8 million and $214.0 million, fixed income investments of $207.3 million and $213.2 million, and equity investments of $46.2 million and $45.3 million at December 31, 1999 and 1998, respectively. 39 41 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As a result of the 1997 recapitalization, for financial reporting purposes, the following number of shares have been included as treasury stock and excluded from earnings per share calculations: 1. 6.0 million shares of Series A common stock; 2. 735 thousand shares of Series A preferred stock. NOTE 4 -- DISCONTINUED OPERATIONS In September 1999, Times Mirror announced its decision to sell AchieveGlobal, Inc., a professional training company, Allen Communication, an interactive software and training courseware developer, and The StayWell Company, a health improvement information company. The Company decided to sell these businesses in order to concentrate on its core strengths in newspaper publishing, flight information and magazine publishing. While the Company previously expected to complete the sale of AchieveGlobal in the first quarter of 2000, the Company now believes that greater sales value can be realized by allowing AchieveGlobal to fully implement certain of its strategic initiatives. Currently, the Company anticipates selling AchieveGlobal by the end of 2000. The accompanying financial statements reflect these businesses as discontinued operations for all periods presented. During the second quarter of 1998, the Company reached agreements to divest Matthew Bender & Company, Incorporated (Matthew Bender), the Company's legal publisher, in a tax-free reorganization (see Note 5) and its 50% ownership interest in legal citation provider Shepard's. The two transactions were valued at $1.65 billion in the aggregate and were completed in the third quarter of 1998. The disposition of the Company's 50% interest in Shepard's was consummated by a transfer of the respective partnership interests owned by two subsidiaries of the Company to affiliates of Reed Elsevier plc for a cash consideration of $274.7 million. The Company recorded a net gain on these two transactions in the amount of $1.11 billion, net of expenses and $163.6 million of income taxes, primarily consisting of tax reserves (see Note 11). Also during the second quarter of 1998, the Company reached an agreement to divest Mosby, Inc. (Mosby), the Company's health science/medical publisher, in a tax-free reorganization (see Note 5). The transaction was valued at $415.0 million and was completed in the fourth quarter of 1998. The Company recorded a net gain on this transaction in the amount of $239.0 million, net of expenses and $55.6 million of income taxes, primarily consisting of tax reserves (see Note 11). While the Company believes that the Matthew Bender and Mosby transactions were completed on a tax-free basis, this position may be subject to review by the Internal Revenue Service. These divestitures represent the final dispositions of the Company's professional and higher education publishing businesses and, as such, have been reflected as discontinued operations in the accompanying financial statements for all periods presented. During the third quarter of 1998, the Company decided to discontinue Apartment Search, Inc., its apartment location business. In 1998, the Company recorded an estimated loss on disposal including a provision for operating losses of $3.4 million during the phase-out period. The total estimated loss of $47.6 million, or $28.2 million after applicable tax benefit, is included in discontinued operations in "Net gain on disposal, net of taxes" in the Consolidated Statements of Income. The Company completed the sale of Apartment Search, Inc. in March 1999. 40 42 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of the combined results of operations and net gain on disposal for all discontinued entities are as follows (in thousands):
1999 1998 1997 -------- ---------- -------- Revenues.......................................... $186,578 $ 507,475 $673,393 ======== ========== ======== Income (loss) before income taxes(1).............. $ 2,271 $ (25,521) $ 20,808 Income tax provision.............................. 2,247 7,886 5,151 -------- ---------- -------- Income (loss) from discontinued operations........ 24 (33,407) 15,657 Net gain on disposal, net of taxes(2)............. -- 1,316,686 -- -------- ---------- -------- Total discontinued operations........... $ 24 $1,283,279 $ 15,657 ======== ========== ========
- --------------- (1) It is the Company's policy to allocate interest expense among business segments including discontinued operations. The allocation to discontinued operations is based on the ratio of net assets of discontinued operations plus consolidated debt, other than debt of the discontinued operations that will be assumed by the buyer and debt that can be directly attributed to the discontinued operations. Income (loss) before income taxes includes a charge for interest expense of $7.6 million, $18.1 million and $17.0 million for the years ended December 31, 1999, 1998 and 1997, respectively. The results of discontinued operations include pretax restructuring, one-time and other charges of $59.1 million and $12.8 million for the years ended December 31, 1998 and 1997, respectively. (2) Net of income taxes of $198.0 million in 1998. The assets and liabilities of discontinued operations have been classified in the Consolidated Balance Sheets as net assets of discontinued operations and consist of the following (in thousands):
DECEMBER 31 -------------------- 1999 1998 -------- -------- Accounts receivable, net.................................... $ 33,373 $ 58,256 Other current assets........................................ 27,289 49,310 Property, plant and equipment, net.......................... 12,638 14,838 Goodwill, net............................................... 57,236 62,861 Other intangibles, net...................................... 65,066 68,256 Other assets................................................ 18,213 21,986 -------- -------- Total assets...................................... 213,815 275,507 -------- -------- Current liabilities......................................... 32,922 77,164 Non-current liabilities..................................... 7,803 8,715 -------- -------- Total liabilities................................. 40,725 85,879 -------- -------- Net assets of discontinued operations....................... $173,090 $189,628 ======== ========
41 43 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The major components of cash flow for discontinued operations are as follows (in thousands):
1999 1998 1997 -------- -------- --------- Income (loss) from discontinued operations........ $ 24 $(33,407) $ 15,657 Depreciation and amortization..................... 9,620 25,572 31,319 Amortization of product costs..................... 4,796 16,550 22,655 Other, net........................................ 17,055 64,191 (71,333) -------- -------- --------- Net cash provided by (used in) discontinued operating activities......................... $ 31,495 $ 72,906 $ (1,702) ======== ======== ========= Capitalization of product costs................... $ (5,994) $(16,852) $ (21,490) Acquisitions, net of cash acquired................ -- -- (96,213) Capital expenditures.............................. (4,256) (11,485) (16,836) Other, net........................................ 18 (1,360) (18,796) -------- -------- --------- Net cash used in investing activities of discontinued operations...................... $(10,232) $(29,697) $(153,335) ======== ======== =========
NOTE 5 -- REORGANIZATION During the third quarter of 1998, the Company completed the disposition of Matthew Bender in a tax-free reorganization with Reed Elsevier plc. The disposition of Matthew Bender was accomplished through the merger of an affiliate of Reed Elsevier with and into Matthew Bender, with Matthew Bender as the surviving corporation in the merger. As a result of the merger, TMD, Inc., a wholly-owned subsidiary of Times Mirror, received all of the issued and outstanding common stock of CBM Acquisition Parent Co. (MB Parent). MB Parent is a holding company that owns controlling voting preferred stock of Matthew Bender with a stated value of $61.6 million and participating preferred stock of Matthew Bender. MB Parent is also the sole member of Eagle New Media Investments, LLC (Eagle New Media). Affiliates of Reed Elsevier own voting preferred stock of MB Parent with a stated value of $68.8 million which affords them voting control over MB Parent, subject to certain rights held by Times Mirror with respect to Eagle New Media. Concurrently, with the closing of the merger, the Company became the sole manager of Eagle New Media and controls its operations and assets. The consolidated financial statements of the Company include the accounts of Eagle New Media. During the fourth quarter of 1998, the Company completed the disposition of Mosby in a tax-free reorganization with Harcourt General, Inc. The disposition of Mosby was accomplished through the merger of an affiliate of Harcourt General, Inc. with and into Mosby, with Mosby as the surviving corporation in the merger. As a result of the merger, the Company received all of the issued and outstanding common stock of Mosby Parent Corp. (Mosby Parent). Mosby Parent is a holding company that owns controlling voting preferred stock of Mosby with a stated value of $48.3 million and participating preferred stock of Mosby. Mosby Parent is also the sole member of Eagle Publishing Investments, LLC (Eagle Publishing). An affiliate of Harcourt General, Inc. owns voting preferred stock of Mosby Parent with a stated value of $50.0 million which affords it voting control over Mosby Parent, subject to certain rights held by the Company with respect to Eagle Publishing. Concurrently with the closing of the merger, the Company became the sole manager of Eagle Publishing and controls its operations and assets. The consolidated financial statements of the Company include the accounts of Eagle Publishing. The Company intends to deploy the assets of both Eagle New Media and Eagle Publishing to finance acquisitions and investments, including purchases of the Company's common stock, and does not intend to use those funds for the Company's general working capital purposes. 42 44 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6 -- ACQUISITIONS, DISPOSITIONS AND WRITEDOWNS Acquisitions. In February 1999, Eagle New Media acquired Newport Media, Inc., a publisher of shopper publications in the Long Island and New Jersey areas, for approximately $132.0 million. This acquisition resulted in goodwill of $68.5 million and other intangible assets of $90.8 million, which are being amortized primarily over a period of 30 years. The Company also made other acquisitions during 1999 for an aggregate consideration of $41.3 million. These other acquisitions resulted in goodwill of $26.8 million and other intangible assets of $15.2 million, which are being amortized over periods of 5 to 25 years. In April 1998, the Company acquired the Los Angeles area business of E Z Buy & E Z Sell Recycler Corporation (Recycler), consisting primarily of the Recycler publications in the Los Angeles, Orange, Riverside, San Bernardino and Ventura counties and a portion of Santa Barbara county for $188.7 million. This acquisition resulted in goodwill of $147.5 million and other intangible assets of $69.4 million, which are being amortized primarily over 30 years. The Company also invested in preferred stock and provided a term loan to Target Media Partners, a new entity which owns all of the non-Los Angeles area assets of Recycler, for a total amount of $34.8 million. The Company also made other acquisitions during 1998 for an aggregate consideration of $12.1 million. Goodwill of $13.8 million related to these other acquisitions is being amortized primarily over 15 years. In 1997, the Company acquired Patuxent Publishing Company, a publisher of 13 community weeklies in Maryland and This Week Publications, Inc., a free weekly shopper distributed in Queens and Long Island, New York. These and other small acquisitions resulted in goodwill of $69.5 million, which is being amortized over periods of 15 to 30 years. These acquisitions were accounted for by the purchase method with the results of operations included in the Company's financial statements from the dates of acquisition. Pro forma results for 1999, 1998 and 1997, assuming these acquisitions occurred on January 1 of the respective year, are not materially different from the results reported. Dispositions and Writedowns. In September 1999, the Company announced its decision to sell the properties of The Sporting News, a sports magazine, including its Web site sportingnews.com. The assets and liabilities of The Sporting News have been classified as held for sale and are included in "Other current assets" and "Other current liabilities" in the Consolidated Balance Sheets. The assets of The Sporting News totaled $46.6 million at December 31, 1999 and consisted primarily of accounts receivable and deferred charges. The liabilities of The Sporting News totaled $54.0 million at December 31, 1999 and were comprised primarily of unearned income. During 1999, The Sporting News had revenues of $37.2 million and an operating loss of $6.7 million. In May 1999, the Company completed an agreement to merge Hollywood Online, Inc. and its Web site, hollywood.com, into Hollywood.com, Inc. (formerly Big Entertainment, Inc.) in exchange for newly-issued restricted stock of Hollywood.com, Inc. and a note with a then combined current value of approximately $31.5 million. The Company recorded a gain of $17.2 million, or $10.7 million after applicable income taxes, related to this disposition. During 1999, the Company sold 316 thousand shares of its holdings in AOL common stock and purchased an equal proportion of its 4 1/4% Premium Equity Participating Securities (PEPS) obligation in the open market. The PEPS hedge the Company's investment in AOL (see Note 12). These transactions resulted in a net gain of $16.9 million, or $10.0 million after applicable income taxes. Additionally, the Company recorded gains on other non-operating items and reduced the carrying value of certain new media and other investments. The total net gains of $27.1 million are included in "Other, net" in the Consolidated Statements of Income. 43 45 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During 1998, the Company sold 442 thousand shares of its holdings in Netscape Communications Corporation (Netscape) common stock (subsequently purchased by AOL) and purchased an equal proportion of its PEPS obligation in the open market. These transactions resulted in a net gain of $16.0 million, or $9.5 million after applicable income taxes. The Company also disposed of various excess real estate and other assets for an aggregate gain of $16.1 million, or $9.6 million after applicable income taxes. The total gains of $32.1 million are included in "Other, net" in the Consolidated Statements of Income. During 1997, the Company sold certain equity investments, including Tejon Ranch Co., WebTV Network, Inc., Netscape, Speedvision Network, LLC and Outdoor Life Network, LLC, for an aggregate gain of $75.6 million, or $47.7 million after applicable income taxes. Additionally, the Company had writedowns and expenses related to non-operating items as well as losses on the sale of Harry N. Abrams, Inc., National Journal, Inc. and other assets of $39.3 million, or $29.8 million after applicable income taxes. The total net gains of $36.3 million are included in "Other, net" in the Consolidated Statements of Income. NOTE 7 -- RESTRUCTURING, ONE-TIME AND OTHER CHARGES In 1998, the Company undertook a comprehensive review of its business operations to determine areas where operational efficiencies could be achieved through either product and/or facility consolidation, headcount reductions, product abandonments, contract terminations or other measures. The Company began this review in anticipation of the impact of its significant 1998 divestitures and to better align its overall cost structure and business configurations. The Company's review led to a major restructuring program that resulted in the recording of $155.7 million in 1998. A summary of the significant components of the 1998 restructuring program is as follows (in thousands):
NEWSPAPER PROFESSIONAL MAGAZINE CORPORATE PUBLISHING INFORMATION PUBLISHING AND OTHER TOTAL ---------- ------------ ---------- --------- -------- Termination benefits........ $ 43,406 $2,021 $ 156 $10,270 $ 55,853 Contract terminations....... 51,386 -- 4,330 -- 55,716 Goodwill impairments........ 324 -- 19,715 -- 20,039 Lease termination costs..... 2,307 2,764 1,500 3,045 9,616 Technology asset write-offs................ 4,772 1,378 100 1,504 7,754 Other costs................. 310 2,011 3,271 1,111 6,703 -------- ------ ------- ------- -------- $102,505 $8,174 $29,072 $15,930 $155,681 ======== ====== ======= ======= ========
A discussion of the specific restructuring activities follows: Termination Benefits. Staff reductions were implemented at substantially all operating units with the majority of these actions performed within the Newspaper Publishing segment. The Los Angeles Times recorded severance charges related to 358 full-time and 534 part-time employees through either voluntary or involuntary programs, primarily occurring in the fourth quarter of 1998. The Baltimore Sun's termination charges included 81 full-time employees and Newsday determined that 23 full-time and 26 part-time employees would be released. The staff reductions within the Newspaper Publishing segment were the result of identified efficiencies from outsourcing opportunities, elimination of duplicate functions and technological improvements to the Company's processes. In total, termination benefits, which were largely severance costs, covered 576 full-time and 578 part-time employees company-wide of which 189 employees had been released by the end of 1998 with the majority of employees released by the second quarter of 1999. Termination benefits for these employees were substantially paid by the end of 1999. However, certain employees will receive payments over an extended period of time. Contract Terminations. In reviewing the Company's processes, supply contracts and strategic alliances, the Company identified certain long-term contracts and relationships which were no longer providing benefits 44 46 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) to the Company's current operations. As a result, the Company recorded charges for contract terminations which included (i) the termination of a long-term contract related to Newsday's pre-print distribution business for $34.3 million, (ii) the termination of The Hartford Courant's long-standing bonus arrangement for $12.0 million and (iii) the termination of 56 distribution contracts with outside agents at the Los Angeles Times for $4.9 million. Goodwill Impairments. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," impairment charges were taken related to goodwill associated with two of the Company's magazine titles. These charges were taken as the result of disappointing market penetration and operating results and were based on discounted estimated cash flows from future operations. Lease Termination Costs. In connection with the Company's downsizing and/or relocation of offices primarily at the Los Angeles Times and at Jeppesen's German operation, the Company recorded charges for future operating lease payments and write-offs of leasehold improvements related to facilities it will vacate. The total lease payment accrual for periods through 2010 is net of estimated sublease income of $3.4 million. No amounts have been included for any period in which the operating units will continue to occupy the premises. Technology Asset Write-offs. During mid-1998, the Company determined that its long standing policy of allowing each operating unit to independently determine its technology requirements and make related equipment and software purchases was both inefficient as well as expensive in terms of maintenance, help desk, networking and other support costs. In connection with this decision, the Company established common hardware and software configurations to provide consistency across all business units. As a result, many operating units were required to dispose of a significant amount of technology resources to conform to the common platform. Total asset write-offs of technology-related equipment were taken in the quarter in which the equipment was replaced. Other Costs. In performing a review of its businesses and product offerings, expenses were recognized for the termination of an Internet venture in the Magazine Publishing segment, in addition to costs for the abandonment of certain projects at Jeppesen. Other Program Charges. In addition to the charges listed above, the Company also recorded $18.7 million for certain asset write-offs that did not meet the accounting criteria for classification as "restructuring and one-time charges." These charges, which principally included other operating asset write-offs, have been classified within "Selling, general and administrative expenses" in the Consolidated Statements of Income. 45 47 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of the activity in the restructuring liabilities is as follows (in thousands):
1998 1995 RESTRUCTURING RESTRUCTURING TOTAL ------------- ------------- -------- Balance at December 31, 1996.................... $ -- $ 58,819 $ 58,819 Cash payments................................. -- (24,483) (24,483) Other(1)...................................... -- 8,719 8,719 -------- -------- -------- Balance at December 31, 1997.................... -- 43,055 43,055 Charged to costs and expenses................. 155,681 -- 155,681 Cash payments................................. (31,654) (19,321) (50,975) Asset write-offs.............................. (35,204) -- (35,204) Other......................................... 1,176 (829) 347 -------- -------- -------- Balance at December 31, 1998.................... 89,999 22,905 112,904 Cash payments................................. (63,236) (10,992) (74,228) -------- -------- -------- Balance at December 31, 1999.................... $ 26,763 $ 11,913 $ 38,676 ======== ======== ========
- --------------- (1) Includes primarily transfers from discontinued operations for restructuring liabilities not assumed by purchasers of discontinued operations. The balance sheet classification of restructuring liabilities is as follows (in thousands):
DECEMBER 31 ------------------------ 1999 1998 ------------ -------- Restructuring -- current liabilities 1995 Restructuring........................................ $ 7,555 $ 15,722 1998 Restructuring........................................ 18,240 76,181 Other liabilities 1995 Restructuring........................................ 4,358 7,183 1998 Restructuring........................................ 8,523 13,818 ------- -------- $38,676 $112,904 ======= ========
The current portion of restructuring liabilities relates primarily to severance and lease payments while the non-current portion principally relates to contract terminations and extended payout of severance arrangements, as well as lease payments which will be paid over lease periods extending to 2010. The Company made severance payments under all programs which totaled $37.8 million, $7.5 million and $5.6 million during 1999, 1998 and 1997, respectively. At December 31, 1999, the remaining liability for severance costs aggregated $15.1 million. The Company periodically assesses the adequacy of its remaining restructuring liabilities and makes adjustments if required. During 1999 and 1998, these adjustments resulted in recoveries of prior year's restructuring reserves which were largely offset by restructuring requirements in those years. The net change in the restructuring liabilities as a result of these reviews has not been significant. 46 48 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 -- SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information is as follows (in thousands):
1999 1998 1997 -------- ------- ---------- Interest paid...................................... $ 65,383 $68,571 $ 33,545 Income taxes paid.................................. 104,630 47,406 138,567 Liabilities assumed in connection with acquisitions..................................... 53,793 9,910 17,194 Stock and notes receivable received from divestiture...................................... 31,503 -- -- Merger with Chandis: Times Mirror stock received...................... -- -- 1,116,058 Other assets received............................ -- -- 21,050 Times Mirror stock issued........................ -- -- 1,137,108 Fair value of properties contributed to TMCT I..... -- -- 225,850 Property financing obligation, net of original issue discount... -- -- 57,829 Notes issued in connection with an acquisition..... -- -- 39,209
NOTE 9 -- FINANCIAL INSTRUMENTS Financial instruments consist of the following (in thousands):
DECEMBER 31 ------------------------------------------------- 1999 1998 ----------------------- ----------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- Short-term assets....................... $ 507,680 $ 507,680 $1,414,350 $1,414,350 Long-term investments................... 185,299 185,299 129,364 129,364 Notes receivable........................ 91,056 91,056 74,082 74,082 Short-term liabilities.................. 434,295 434,295 492,025 492,025 Long-term debt.......................... 1,562,240 1,711,004 941,423 1,017,245 Unrealized net gain on interest rate swaps................................. -- 12,959 -- 43,246
Short-Term Assets and Liabilities. The fair values of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and short-term debt approximate their carrying values due to the short-term nature of these financial instruments. Long-Term Investments. Investments in publicly traded securities are classified as available-for-sale and are stated at fair value based on quoted market prices. All other investments are recorded at the lower of cost or estimated net realizable value. The cost of the investments was $81.1 million and $42.2 million at December 31, 1999 and 1998, respectively. Unrealized gains are included in "Accumulated other comprehensive income" (see Note 18). Notes Receivable. The carrying value of notes receivable is estimated to approximate fair values. Although there are no quoted market prices available for these instruments, the fair value estimates were based on the changes in interest rates and risk related interest rate spreads since the notes origination dates. Long-Term Debt. The fair value of long-term debt is based primarily on the Company's current refinancing rates for publicly issued fixed rate debt with comparable maturities, except for the PEPS whose fair value is based on the open market (see Note 12). Interest Rate Swaps. Interest rate swap agreements outstanding at December 31, 1999 were for notional amounts of $200.0 million, $170.1 million and $100.0 million expiring in 2001, 2002 and 2023, respectively, with $170.1 million and $100.0 million notional amounts also outstanding at December 31, 1998. In 1999, two 47 49 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) swaps which were outstanding as of December 31, 1998 with notional amounts of $148.0 million and $250.0 million expired during the year. The Company's swaps effectively convert a portion of the long-term fixed rate debt to a variable rate obligation based on LIBOR or the Commercial Paper rate. The fair values of the interest rate swaps are the amounts at which they could be settled based on estimates of market rates. Commodity Price Hedging Contracts. The Company enters into various commodity hedging contracts to manage the Company's exposure to fluctuations in newsprint prices. As of December 31, 1999, the Company had newsprint swap agreements for a total notional amount of 261 thousand metric tons per year expiring in 2001, 2002 and 2003 at a weighted average contract price of $609 per metric ton. Also, the Company has a newsprint option contract for a total notional amount of 30 thousand metric tons per year expiring in 2001 at a contract price of $585 per metric ton. This option contract limits the maximum payment to $115 per metric ton above the contract price on an annual basis. At December 31, 1999, the index rate used for these contracts was $515 per metric ton. In addition to the newsprint hedging contracts, the Company has a swap contract for coated paper used in its Magazine Publishing operations for a total notional amount of 5 thousand short tons per year expiring in 2000 at a contract price of $1,047 per short ton. As no liquid forward market for newsprint or coated paper exists, it was not practicable to estimate the fair value of the commodity hedging contracts. NOTE 10 -- INVENTORIES Inventories consist of the following (in thousands):
DECEMBER 31 ------------------ 1999 1998 ------- ------- Newsprint, paper and other raw materials.................... $28,125 $23,404 Finished products........................................... 5,894 4,051 Work-in-progress............................................ 1,063 983 ------- ------- $35,082 $28,438 ======= =======
Inventories determined by the last-in, first-out method were $18.1 million and $13.7 million at December 31, 1999 and 1998, respectively, and would have been higher by $15.6 million in 1999 and $16.1 million in 1998 had the first-in, first-out method (which approximates current cost) been used. NOTE 11 -- INCOME TAXES Income tax expense from continuing operations consists of the following (in thousands):
1999 1998 1997 -------- -------- -------- Current: Federal.......................................... $ 89,117 $ 77,412 $ 94,422 State............................................ 33,499 9,515 13,099 Foreign.......................................... 12,849 12,601 12,736 Deferred: Federal.......................................... 42,764 (716) 29,898 State............................................ 2,000 12,133 11,689 -------- -------- -------- $180,229 $110,945 $161,844 ======== ======== ========
48 50 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The difference between actual income tax expense and the U.S. Federal statutory income tax expense for continuing operations is reconciled as follows (in thousands):
1999 1998 1997 -------- -------- -------- Income from continuing operations before income taxes: United States.................................... $409,028 $220,235 $369,596 Foreign.......................................... 30,263 24,769 26,903 -------- -------- -------- $439,291 $245,004 $396,499 ======== ======== ======== Federal statutory income tax rate.................. 35% 35% 35% Federal statutory income tax expense............... $153,752 $ 85,751 $138,775 Increase (decrease) in income taxes resulting from: State and local income tax expense, net of Federal effect................................ 23,074 14,071 16,112 Goodwill amortization not deductible for tax purposes...................................... 6,007 5,979 4,424 Foreign tax differentials........................ 1,327 (1,474) 1,439 Basis difference in asset sales.................. (420) (2,193) 5,249 Writedown of assets.............................. -- 6,900 -- Other............................................ (3,511) 1,911 (4,155) -------- -------- -------- $180,229 $110,945 $161,844 ======== ======== ========
The tax effect of temporary differences results in deferred income tax assets (liabilities) and balance sheet classifications as follows (in thousands):
DECEMBER 31 ---------------------- 1999 1998 --------- --------- TEMPORARY DIFFERENCES Postretirement benefits..................................... $ 84,656 $ 86,534 Other employee benefits..................................... 65,873 54,872 State and local income taxes................................ 26,484 25,801 Restructuring and one-time charges.......................... 9,035 26,374 Valuation and other reserves................................ 5,657 6,092 Other deferred tax assets................................... 9,781 5,782 --------- --------- Total deferred tax assets.............................. 201,486 205,455 --------- --------- Transaction tax reserve..................................... (176,585) (176,585) Retirement and health benefits.............................. (176,505) (153,572) Depreciation and other property, plant and equipment differences............................................... (146,546) (158,950) Intangible asset differences................................ (73,313) (2,378) Unrealized investment gains................................. (25,946) (33,055) Other deferred tax liabilities.............................. (51,339) (22,259) --------- --------- Total deferred tax liabilities......................... (650,234) (546,799) --------- --------- $(448,748) $(341,344) ========= ========= BALANCE SHEET CLASSIFICATIONS Current deferred tax assets................................. $ 33,314 $ 32,279 Noncurrent deferred tax liabilities......................... (482,062) (373,623) --------- --------- $(448,748) $(341,344) ========= =========
In connection with the dispositions of Matthew Bender and Mosby as discussed in Notes 4 and 5, the Company has recorded a tax reserve of $176.6 million. While the Company believes that these transactions 49 51 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) were completed on a tax-free basis, this position may be subject to review by the Internal Revenue Service. The results of such a review are unpredictable and could result in a tax liability that is significantly higher or lower than that which has been provided by the Company. NOTE 12 -- DEBT Debt consists of the following (dollars in thousands):
DECEMBER 31 ---------------------- 1999 1998 ---------- -------- Short-term debt: Commercial paper at weighted average interest rates of 5.9% and 5.3%.......................................... $ 241,381 $298,603 Current maturities of long-term debt...................... 7,149 7,440 Other notes payable at interest rates of 6.4% and 5.4%.... 6,304 6,567 ---------- -------- Total short-term debt.................................. $ 254,834 $312,610 ========== ======== Long-term debt: 7.45% Notes due October 15, 2009, net of unamortized discount of $513....................................... $ 399,487 $ -- 6.61% Debentures due September 15, 2027, net of unamortized discount of $95 and $98.................... 249,905 249,902 4.75% Liquid Yield Option Notes due April 15, 2017, net of unamortized discount of $277,946 and $288,129.......... 222,054 211,871 6.65% Notes due October 15, 2001, net of unamortized discount of $123....................................... 199,877 -- 7 1/4% Debentures due March 1, 2013....................... 148,215 148,215 7 1/4% Debentures due November 15, 2096, net of unamortized discount of $553 and $559.................. 147,447 147,441 7 1/2% Debentures due July 1, 2023........................ 98,750 98,750 4 1/4% PEPS due March 15, 2001; 512,050 and 863,100 securities stated at fair value........................ 64,006 45,596 Property financing obligation expiring on August 8, 2009, net of unamortized discount of $149,932 and $158,080, with an effective interest rate of 4.3%................ 39,648 47,088 ---------- -------- 1,569,389 948,863 Less current maturities..................................... (7,149) (7,440) ---------- -------- Total long-term debt................................... $1,562,240 $941,423 ========== ========
Interest rate swaps converted the weighted average interest rate on the 6.61% Debentures, the Liquid Yield Option Notes (LYONs(TM)), the 6.65% Notes, the 7 1/4% Debentures due 2096, and the 7 1/2% Debentures from 6.4% to 6.0% for the year ended December 31, 1999. In connection with the 1999 recapitalization, the Company issued $200.0 million of 6.65% two-year notes maturing on October 15, 2001 and $400.0 million of 7.45% ten-year notes maturing on October 15, 2009. The Company also entered into a two-year interest rate swap agreement for a notional amount of $200.0 million expiring in October 2001. The swap agreement effectively converts the Company's $200.0 million fixed rate debt at 6.65% to a variable rate obligation based on LIBOR. In September 1997, the Company issued $250.0 million of 6.61% Debentures due September 15, 2027 (Debentures) with interest payable semiannually commencing March 15, 1998. The Debentures are redeemable at the option of the Company, in whole or in part, at any time after September 15, 2004 at a 50 52 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) redemption price equal to the greater of (a) 100% of the principal amount or (b) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the redemption date. The Debentures may be put to the Company on September 15, 2004 at 100% of face value plus accrued interest. In April 1997, the Company received gross proceeds of $195.5 million from the issuance of the LYONs. The LYONs are zero coupon subordinated notes with an aggregate face value of $500.0 million and a yield to maturity of 4.75%. Each LYON has a $1,000 face value and is convertible at the option of the holder any time prior to maturity. If conversion is elected, the Company will, at its option, deliver (a) 5.828 shares of Series A common stock per each LYON or (b) cash equal to the market value of such shares. On or after April 15, 2002, the LYONs may be redeemed at any time by the Company for cash equal to the issuance price plus accrued original discount through the date of redemption. In addition, each LYON may be redeemed for cash at the option of the holder on April 15, 2002, 2007 or 2012. The cash payable for each LYON at these redemption dates is approximately $495, $625 and $791, respectively, which is equal to the issuance price plus accrued original discount through the date of redemption. The Company has an interest rate swap agreement for a notional amount of $170.1 million, expiring April 15, 2002, to exchange a fixed interest rate of 4.75% for a variable rate based on six-month LIBOR less 2.458%. The 4 1/4% PEPS hedge the Company's investment in the common stock of AOL. The amount payable at maturity with respect to each PEPS will equal 1.8 times the average market price of one share of AOL common stock for the ten trading days ending on the second business day prior to the maturity date, subject to adjustment as a result of certain dilution events involving AOL. Holders of the PEPS bear the full risk of a decline in the value of AOL. The Company is not obligated to hold the AOL stock for any period or sell the AOL stock prior to the PEPS maturity or redemption date. The PEPS are redeemable at the option of the Company, in whole or in part, at any time after December 15, 2000. The redemption value of each PEPS is the product of (a) the redemption ratio, as defined below, (b) 1.8 and (c) the average market price of one share of AOL common stock for the ten trading days ending on the second business day prior to the redemption date, plus cash in an amount equal to all unpaid interest, whether or not accrued, that would have been payable on the PEPS through the maturity date. The redemption ratio will equal (a) 1.0, if the market value of one share of AOL common stock is less than $21.81, or (b) a fraction, the numerator of which is $21.81 and the denominator of which is the market value of AOL common stock, if such market value is equal to or exceeds $21.81 but less than or equal to $25.08, or (c) .8696, if the market value of AOL common stock exceeds $25.08. The PEPS are recorded at fair market value as determined in the open market and will generally move in tandem with changes in the fair market value of AOL common stock. The net unrealized loss on the PEPS at December 31, 1999 and 1998 is $26.0 million and $6.9 million, respectively, net of applicable income taxes, and is included in "Accumulated other comprehensive income." During 1999, the Company sold 316 thousand shares of AOL stock and purchased a proportionate share of its PEPS in the open market (see Note 6). The Company has an agreement with several domestic and foreign banks for unsecured long-term revolving lines of credit that expire in April 2002. This agreement provides for borrowings up to $400.0 million at interest rates based on, at the Company's option, the banks' base rates, Eurodollar rates or competitive bid rates. The commitment fee is approximately 0.065% per annum. The lines of credit are used to support a commercial paper program. The Company's revolving lines of credit contain restrictive provisions relating primarily to interest expense coverage. The Company's earnings before interest expense, income taxes, depreciation and amortization, divided by interest expense, must be greater than or equal to 5.0. The Company has $5.9 million of undrawn standby letters of credit at December 31, 1999. 51 53 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 1999, the aggregate principal maturities of the Company's debt are as follows (in thousands): 2000..................................................... $ 7,149 2001..................................................... 270,654 2002..................................................... 6,292 2003..................................................... 5,699 2004..................................................... 4,975 Thereafter............................................... 1,274,620 ---------- $1,569,389 ==========
NOTE 13 -- CAPITAL STOCK AND STOCK PURCHASE PROGRAM Preferred Stocks. Series A, Series C-1 and Series C-2 preferred stocks are cumulative, non-voting stocks with annual dividends of 8%, 5.8% and 5.8%, respectively, based on liquidation value. Series A preferred stock was entitled to dividends effective March 1, 1995. In connection with the 1999 recapitalization, the Company replaced the Series C-1 and C-2 preferred stocks with Series D-1 and D-2 preferred stocks effective January 1, 2000. Dividends on Series D-1 and Series D-2 preferred stocks will increase pursuant to a fixed and certain schedule. Series A, Series D-1 and Series D-2 preferred stocks are convertible into Series A common stock in 2025 at the earliest. The conversion factor is calculated by dividing $500 plus accrued and unpaid dividends by the average closing prices of Series A common stock for the 20 trading days immediately preceding the conversion date. The maximum number of shares of Series A common stock into which Series D-2 preferred stock can be converted is limited to 3.0 million shares. On February 28, 1997, the Series B preferred stock was called for redemption and was redeemed on April 2, 1997 for 4.4 million shares of Series A common stock. The conversion ratio, determined pursuant to the original terms of the Series B preferred stock, was .57083 of a share of Series A common stock. At the redemption date, the Company had forward purchase contracts for 3.9 million shares of Series B preferred stock with a weighted average forward price of $28.475 per share. These contracts provided for early termination and, in May 1997, the termination of the contract resulted in the purchase by the Company of 2.2 million shares of Series A common stock for an aggregate cost of $111.5 million. Preferred stock is issuable in series under such terms and conditions as the Board of Directors may determine. Common Stocks. Shares of Series A and Series C common stock are identical, except with respect to voting rights, restrictions on transfer of Series C common shares and the right to convert Series C common shares into Series A common shares. Series A common shares are entitled to one vote per share and Series C common shares are entitled to ten votes per share. Series C common shares are subject to mandatory conversion into Series A common shares upon transfer to any person other than a "Permitted Transferee" as defined in the Company's Certificate of Incorporation or upon the occurrence of certain regulatory events. Series B common stock is entitled to one-tenth vote per share and is available for common stock issuance transactions, such as underwritten public offerings and acquisitions. Cash dividends of $.80 and $.72 per share of common stock were declared for the years ended December 31, 1999 and 1998, respectively. In February 2000, the Board of Directors approved an increase in the quarterly dividend on its common stock to $.22 per share, from $.20 per share, beginning with the March 10, 2000 payment date. Treasury Stock. Treasury stock includes shares of Series A common stock and Series A, Series C-1 and Series C-2 preferred stock owned by affiliates as well as Series A common stock purchased by the Company as part of the stock purchase program. At December 31, 1999, 15.2 million, 4.0 million, 18.2 million and 52 54 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12.4 million shares of Series A common stock included in treasury stock are owned by Eagle New Media, TMCT I, CAC and TMCT II, respectively. Also, 354 thousand and 381 thousand shares of Series A preferred stock, which are owned by TMCT I and CAC, respectively, and 305 thousand and 196 thousand shares of Series C-1 and C-2 preferred stock, respectively, which are owned by TMCT II, are included in treasury stock at December 31, 1999. At December 31, 1998, 13.3 million, 4.0 million and 18.2 million shares of Series A common stock included in treasury stock are owned by Eagle New Media, TMCT I and CAC, respectively, and 354 thousand and 381 thousand shares of Series A preferred stock, which are owned by TMCT I and CAC, respectively, are included in treasury stock. Stock Purchases. During 1999, the Company and Eagle New Media purchased 2.9 million common shares for a total cost of $196.5 million. An additional 325 thousand common shares were purchased for $15.5 million, net of premiums received, as a result of the exercise of put options. At December 31, 1999, the Company had 400 thousand put options outstanding with a weighted average strike price of $68.23 per common share. The cash received from the issuance of put options during 1999 and 1998 was not significant. The put options entitle the holder to sell shares of Times Mirror Series A common stock to the Company at the strike price on the expiration date of the put option. The unexpired put options are at strike prices ranging from $67.09 to $69.69. These put options expire on various dates through March 2000. During 1998, the Company and Eagle New Media purchased 16.4 million common shares for a total cost of $947.2 million. An additional 350 thousand common shares were purchased for $17.5 million, net of premiums received, as a result of the exercise of put options. Included in the 1998 share purchases were 4.0 million shares that were purchased in the fourth quarter of 1998 as part of an accelerated purchase agreement. The shares were purchased at the closing price on the date of the agreement for $54.69 per share. The agreement provides for a purchase price adjustment based on a pro-rata settlement over a one-year period and was settled in December 1999. During 1997, the Company purchased 8.9 million shares of Series A common stock for a total cost of $464.8 million. An additional 120 thousand shares of Series A common stock were purchased for $3.7 million, net of premiums received, as a result of the exercise of put options. The aggregate remaining shares authorized for purchase at December 31, 1999 was approximately 3.9 million shares. The Company believes that the purchase of shares of its common stock is an attractive investment for Eagle New Media which will also enhance Times Mirror shareholder value as well as offset dilution from shares of common stock issued under the Company's stock-based employee compensation and benefit programs. NOTE 14 -- STOCK OPTION AND AWARD PLANS The Company has various stock option plans under which options may be granted to purchase shares of Series A common stock at a price equal to the fair market value at the date of grant. Options that are not exercised expire ten years from the date of grant. Options granted to key employees generally vest over a four-year period. Grants made under a broad-based stock option plan, for employees not eligible for other stock option grants, are fully vested three years after the date of grant. Restricted stock is also awarded to key employees. The number of restricted stock awards, including matching awards in connection with the annual incentive bonus program, is not material. 53 55 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Options granted, exercised and forfeited were as follows:
WEIGHTED NUMBER AVERAGE OF EXERCISE SHARES PRICE ---------- -------- Options outstanding December 31, 1996....................... 7,771,489 $26.12 Granted................................................... 4,686,643 47.85 Exercised................................................. (1,617,045) 22.47 Forfeited................................................. (571,732) 34.03 ---------- ------ Options outstanding December 31, 1997....................... 10,269,355 36.17 Granted................................................... 4,370,240 59.58 Exercised................................................. (2,145,260) 27.58 Forfeited................................................. (1,084,989) 50.00 ---------- ------ Options outstanding December 31, 1998....................... 11,409,346 45.44 Granted................................................... 4,739,378 55.46 Exercised................................................. (1,964,992) 34.08 Forfeited................................................. (1,520,628) 50.76 ---------- ------ Options outstanding December 31, 1999....................... 12,663,104 $50.31 ========== ======
Information regarding stock options outstanding and exercisable as of December 31, 1999 is as follows:
PRICE RANGE ------------------------------------------------------------- $11.43 $18.06 $30.06 $46.56 $58.03 TO $17.29 TO $23.94 TO $44.94 TO $57.94 TO $69.13 --------- --------- --------- --------- --------- Options outstanding: Number..................... 37,510 687,081 1,354,985 6,686,343 3,897,185 Weighted average exercise price................... $16.63 $18.51 $34.35 $52.11 $58.71 Weighted average remaining contractual life........ 2 years 4 years 6 years 8 years 8 years Options exercisable: Number..................... 37,510 687,081 1,307,569 986,416 613,425 Weighted average exercise price................... $16.63 $18.51 $34.11 $48.11 $58.52
At December 31, 1999 and 1998 shares reserved for future grants and awards were 6.4 million and 9.7 million, respectively. If the Company recognized employee stock option-related compensation expense in accordance with SFAS 123 and used the Black-Scholes option valuation model for determining the weighted average fair value of options granted after December 31, 1994, its net income and earnings per share would have been as follows (in thousands, except per share amounts):
1999 1998 1997 -------- ---------- -------- Net income -- as reported......................... $259,086 $1,417,338 $250,312 Pro forma stock compensation expense, net......... (23,207) (18,709) (13,000) -------- ---------- -------- Pro forma net income.............................. $235,879 $1,398,629 $237,312 ======== ========== ======== Pro forma basic earnings per share................ $ 3.19 $ 16.23 $ 2.21 ======== ========== ======== Pro forma diluted earnings per share.............. $ 3.07 $ 15.89 $ 2.16 ======== ========== ========
54 56 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For purposes of the pro forma expense, the weighted average fair value of the options is amortized over the vesting period. The pro forma effect on net income through 1998 may not be representative of future years' impact because options granted prior to 1995 are excluded from the pro forma calculations. Options are granted every year and the pro forma expense in future years will grow due to the added layers of amortization for succeeding grants. In 1999, however, the pro forma results include a full four years' worth of option grants. The weighted average fair value of stock options on the date of grant, and the assumptions used to estimate the fair value using the Black-Scholes option valuation model, were as follows:
1999 1998 1997 ------- ------- ------- Weighted average fair value of stock options granted.... $ 13.14 $ 12.78 $ 11.90 Risk-free interest rate................................. 5.2% 5.5% 6.2% Expected life........................................... 5 years 5 years 5 years Expected volatility..................................... .23 .20 .22 Expected dividend yield................................. 2.33% 2.33% 2.33%
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. The Company's employee stock options have characteristics significantly different from those of traded options such as vesting restrictions and lack of transferability. In addition, the assumptions used in option valuation models are highly subjective, particularly with respect to the expected stock price volatility for the underlying stock. Because changes in these subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not provide a reliable single measure of the fair value of its employee stock options. NOTE 15 -- PENSION PLANS AND POSTRETIREMENT BENEFITS The Company has defined benefit pension plans and various other contributory and noncontributory retirement plans covering substantially all employees. In general, benefits under the defined benefit plans are based on years of service and the employee's compensation during the last five years of employment. The majority of the Company's employees are covered by one defined benefit plan. Funding for this plan is not expected to be required in the near future as the plan is overfunded. Postretirement health care benefits provided by the Company are unfunded and cover certain employees hired before January 1, 1993. The various plans have significantly different provisions for lifetime maximums, retiree cost-sharing, health care providers, prescription drug coverage and other benefits. Postretirement life insurance benefits are generally insured by life insurance policies and cover employees who retired on or before December 31, 1993. Life insurance benefits vary by plan, ranging from $1,000 to $250,000. Certain employees become eligible for the postretirement health care benefits if they meet minimum age and service requirements and retire from full-time, active service. 55 57 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following information regarding pension and postretirement benefit plans includes discontinued operations. Changes in benefit obligations and in plan assets and the funded status of the plans are as follows (in thousands):
PENSION PLANS POSTRETIREMENT BENEFITS ----------------------- ----------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- CHANGE IN BENEFIT OBLIGATIONS Benefit obligations at January 1...... $ 787,091 $ 662,385 $ 141,678 $ 132,601 Service cost.......................... 40,683 37,377 3,331 3,052 Interest cost......................... 52,610 49,367 7,623 7,909 Plan amendments....................... -- 2,813 -- -- Participant contributions............. -- -- 2,042 2,073 Actuarial losses (gains)(1)........... (57,128) 86,647 (18,672) 4,996 Curtailment gains..................... -- (8,898) -- (327) Dispositions.......................... (7,000) -- -- -- Special termination benefits.......... -- -- 365 -- Benefits paid......................... (47,500) (42,600) (8,453) (8,626) ---------- ---------- --------- --------- Benefit obligations at December 31.... $ 768,756 $ 787,091 $ 127,914 $ 141,678 ========== ========== ========= ========= CHANGE IN PLAN ASSETS Fair value of plan assets at January 1................................... $1,146,168 $1,080,160 $ -- $ -- Actual return on plan assets.......... 277,703 102,355 -- -- Acquisitions.......................... 1,509 3,310 -- -- Dispositions.......................... (7,000) -- -- -- Company contributions................. 2,630 2,943 6,411 6,553 Participant contributions............. -- -- 2,042 2,073 Benefits paid......................... (47,500) (42,600) (8,453) (8,626) ---------- ---------- --------- --------- Fair value of plan assets at December 31.................................. $1,373,510 $1,146,168 $ -- $ -- ========== ========== ========= ========= FUNDED STATUS Funded status (underfunded) at December 31......................... $ 604,754 $ 359,077 $(127,914) $(141,678) Unrecognized net actuarial losses (gains)(2).......................... (185,134) 40,896 (50,739) (34,984) Unrecognized prior service cost....... (4,886) (4,309) (42,458) (49,356) Unrecognized net transition asset..... (869) (3,656) -- -- ---------- ---------- --------- --------- Net amount recognized................. $ 413,865 $ 392,008 $(221,111) $(226,018) ========== ========== ========= =========
- --------------- (1) The actuarial gains relate primarily to changes in the assumed discount rate. (2) The unrecognized net actuarial gains relate primarily to the higher actual return on plan assets than was assumed and changes in the assumed discount rate. Amounts applicable to the Company's pension plans with accumulated benefit obligations in excess of plan assets are (in thousands):
DECEMBER 31 ------------------ 1999 1998 ------- ------- Projected benefit obligations............................... $62,353 $61,044 Accumulated benefit obligations............................. 56,138 51,134 Fair value of plan assets................................... 13,420 13,348
56 58 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following sets forth the amounts recognized in the Consolidated Balance Sheets (in thousands):
PENSION PLANS POSTRETIREMENT BENEFITS -------------------- ------------------------ DECEMBER 31 DECEMBER 31 -------------------- ------------------------ 1999 1998 1999 1998 -------- -------- ---------- ---------- Prepaid pension cost.................. $445,175 $419,471 $ -- $ -- Accrued benefit liability............. (45,941) (40,319) (221,111) (226,018) Intangible asset...................... 4,593 5,545 -- -- Deferred income taxes................. 3,950 2,915 -- -- Accumulated other comprehensive income.............................. 6,088 4,396 -- -- -------- -------- --------- --------- Net amount recognized................. $413,865 $392,008 $(221,111) $(226,018) ======== ======== ========= =========
Net periodic benefit cost (income) is as follows (in thousands):
PENSION PLANS POSTRETIREMENT BENEFITS -------------------------------- --------------------------- 1999 1998 1997 1999 1998 1997 --------- --------- -------- ------- ------- ------- Service cost................. $ 40,683 $ 37,377 $ 33,164 $ 3,331 $ 3,052 $ 2,732 Interest cost................ 52,610 49,367 47,287 7,623 7,909 8,204 Expected return on plan assets..................... (110,815) (103,857) (93,753) -- -- -- Amortization of transition asset...................... (2,787) (21,560) (21,560) -- -- -- Amortization of prior service cost....................... 577 620 (44) (6,898) (6,992) (6,992) Recognized net actuarial loss (gain)..................... 528 241 (47) (2,918) (5,446) (3,218) Special termination benefits................... -- -- -- 365 -- -- --------- --------- -------- ------- ------- ------- Benefit cost (income)........ (19,204) (37,812) (34,953) 1,503 (1,477) 726 Curtailment gains............ -- (8,898) -- -- (327) -- --------- --------- -------- ------- ------- ------- Benefit cost (income) after curtailments............... $ (19,204) $ (46,710) $(34,953) $ 1,503 $(1,804) $ 726 ========= ========= ======== ======= ======= =======
Assumptions used in the actuarial computations were as follows:
PENSION PLANS POSTRETIREMENT BENEFITS -------------------- ----------------------- DECEMBER 31 DECEMBER 31 -------------------- ----------------------- 1999 1998 1997 1999 1998 1997 ---- ---- ---- ----- ----- ----- Discount rate............................ 7.25% 6.75% 7.50% 7.25% 6.75% 7.50% Expected return on plan assets........... 9.75% 9.75% 9.75% N/A N/A N/A Rate of compensation increase............ 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
At December 31, 1999, the health care trend rate of 8.0% was assumed to ratably decline to 4.75% by 2009 and remain at that level. The assumed health care cost trend rate can significantly affect postretirement expense and liabilities. A change of 1% in the health care cost trend rate would have the following effects (in thousands):
1-PERCENTAGE- 1-PERCENTAGE- POINT INCREASE POINT DECREASE -------------- -------------- Effect on total service and interest cost component...... $ 1,323 $(1,099) Effect on postretirement benefit obligation.............. 10,934 (9,372)
57 59 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Benefits provided by the Employee Stock Option Plan (ESOP) are coordinated with certain pension benefits and, as a result, the defined benefit plan obligations are net of the actuarially equivalent value of the benefits earned under the ESOP, with the maximum offset equal to the value of the benefits earned under the defined benefit plan. The fair value of the ESOP assets was $291.3 million and $264.7 million as of December 31, 1999 and 1998, respectively. At December 31, 1999, the ESOP held 2.9 million shares of Series A common stock and 1.4 million shares of Series C common stock. The final contribution to the ESOP was in 1994 and the ESOP has been amended to discontinue contributions by the Company. There are no unallocated shares in the ESOP at December 31, 1999. Substantially all employees over age 21 with one year of service are eligible to participate in the Company's Savings Plus Plan. Eligible employees may contribute from 1% to 15% of their basic compensation. The Company makes matching contributions equal to 50% of employee before-tax contributions from 1% to 6%. Employees may choose among twelve investment options, including a Company common stock fund, for investing their contributions and the Company's matching contribution. Defined contribution plan expense, primarily related to the Savings Plus Plan, was $15.1 million, $15.1 million and $15.5 million for the years ended December 31, 1999, 1998 and 1997, respectively. NOTE 16 -- SEGMENT INFORMATION The Company has three reportable business segments, Newspaper Publishing, Professional Information and Magazine Publishing. The reportable segments are each managed separately because they provide different products and services. The Newspaper Publishing segment publishes daily metropolitan newspapers in the east coast and west coast regions of the United States, as well as several weekly newspapers. The Professional Information segment publishes aeronautical charts and flight information. The Magazine Publishing segment publishes special interest and trade magazines. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1). The Company evaluates performance based on several factors, of which the primary financial measure is segment operating profit. Total revenue by industry segment includes sales to unaffiliated customers and intersegment sales, which are recorded at market price. Revenues are attributed to geographic areas based on the location of the assets producing the revenues. Corporate and Other includes operations not directly related to the operating segments and general corporate activities including corporate overhead expenses, corporate investment income, interest expense on corporate debt and the activities of the Company's affiliates, Eagle New Media and Eagle Publishing. The Corporate and Other assets are principally comprised of cash and cash equivalents, marketable securities and other investments. Substantially all of the Company's investments accounted for under the equity method are in Corporate and Other. 58 60 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Financial data for the Company's segments is as follows (in thousands):
1999 1998 1997 ---------- ---------- ---------- REVENUES Newspaper Publishing......................... $2,514,325 $2,308,178 $2,179,244 Professional Information..................... 235,356 211,929 195,339 Magazine Publishing.......................... 278,930 262,683 248,712 ---------- ---------- ---------- Total reportable segments................. 3,028,611 2,782,790 2,623,295 Corporate and Other.......................... 638 1,198 21,845 Intersegment Revenues........................ -- -- (5) ---------- ---------- ---------- $3,029,249 $2,783,988 $2,645,135 ========== ========== ========== OPERATING PROFIT (LOSS)(1) Newspaper Publishing......................... $ 457,067 $ 297,433 $ 402,207 Professional Information..................... 64,789 43,858 55,659 Magazine Publishing.......................... 19,184 (14,232) 18,309 ---------- ---------- ---------- Total reportable segments................. 541,040 327,059 476,175 Corporate and Other.......................... (70,534) (79,261) (84,897) ---------- ---------- ---------- $ 470,506 $ 247,798 $ 391,278 ========== ========== ========== IDENTIFIABLE ASSETS Newspaper Publishing......................... $2,290,708 $1,999,880 $1,792,286 Professional Information..................... 125,670 96,765 87,354 Magazine Publishing.......................... 287,268 271,457 263,521 ---------- ---------- ---------- Total reportable segments................. 2,703,646 2,368,102 2,143,161 Corporate and Other.......................... 1,020,635 1,600,199 355,996 Discontinued Operations...................... 173,090 189,628 672,671 ---------- ---------- ---------- $3,897,371 $4,157,929 $3,171,828 ========== ========== ========== DEPRECIATION AND AMORTIZATION Newspaper Publishing......................... $ 125,019 $ 116,116 $ 106,919 Professional Information..................... 7,454 6,852 6,648 Magazine Publishing.......................... 8,667 7,740 7,040 ---------- ---------- ---------- Total reportable segments................. 141,140 130,708 120,607 Corporate and Other.......................... 3,815 4,467 3,457 ---------- ---------- ---------- $ 144,955 $ 135,175 $ 124,064 ========== ========== ========== CAPITAL EXPENDITURES Newspaper Publishing......................... $ 151,807 $ 107,479 $ 78,760 Professional Information..................... 12,437 15,825 9,535 Magazine Publishing.......................... 3,768 1,651 2,243 ---------- ---------- ---------- Total reportable segments................. 168,012 124,955 90,538 Corporate and Other.......................... 5,472 6,593 22,543 ---------- ---------- ---------- $ 173,484 $ 131,548 $ 113,081 ========== ========== ==========
59 61 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - --------------- (1) Includes restructuring, one-time and other charges as follows (in thousands):
1998 1997 -------- ------- Newspaper Publishing........................................ $116,388 $18,000 Professional Information.................................... 11,889 -- Magazine Publishing......................................... 29,072 -- -------- ------- Total reportable segments................................. 157,349 18,000 Corporate and Other......................................... 17,021 -- -------- ------- $174,370 $18,000 ======== =======
The pretax charges in 1998 are comprised of restructuring and one-time charges of $155.7 million and other charges that did not qualify for accounting classification as restructuring charges of $18.7 million. Substantially all revenues and assets of the Company's reportable segments are attributed to or located in the United States. Non-U.S. revenues represent less than 3% of total revenues and are principally related to the Company's flight information business in Germany. The Company does not have a single external customer who represents 10% or more of its revenue. Significant non-cash items excluding depreciation and amortization, were non-cash restructuring, one-time and other charges in 1998 as follows (in thousands):
1998 ------- Newspaper Publishing....................................... $19,043 Professional Information................................... 6,967 Magazine Publishing........................................ 20,718 ------- Total reportable segments................................ 46,728 Corporate and Other........................................ 6,055 ------- $52,783 =======
A reconciliation of operating profit to income from continuing operations before income taxes is set forth in the Consolidated Statements of Income. 60 62 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17 -- EARNINGS PER SHARE The following table sets forth the calculation of basic and diluted earnings per share (in thousands, except per share amounts):
1999 1998 1997 -------- -------- -------- Earnings: Income from continuing operations................ $259,062 $134,059 $234,655 Preferred stock dividends........................ (18,066) (21,697) (32,481) -------- -------- -------- Earnings applicable to common shareholders for basic earnings per share...................... 240,996 112,362 202,174 Effect of dilutive securities: LYONs interest expense, net of tax............ 6,076 -- 3,925 -------- -------- -------- Earnings applicable to common shareholders for diluted earnings per share.................... $247,072 $112,362 $206,099 ======== ======== ======== Shares: Weighted average shares for basic earnings per share......................................... 68,252 84,814 92,572 Effect of dilutive securities: Stock options................................. 1,924 2,114 2,358 LYONs convertible debt........................ 2,914 -- 2,083 -------- -------- -------- 4,838 2,114 4,441 -------- -------- -------- Adjusted weighted average shares and assumed conversions for diluted earnings per share.... 73,090 86,928 97,013 ======== ======== ======== Basic earnings per share from continuing operations....................................... $ 3.53 $ 1.32 $ 2.18 ======== ======== ======== Diluted earnings per share from continuing operations....................................... $ 3.38 $ 1.29 $ 2.12 ======== ======== ========
The Company has convertible preferred stock and certain stock options outstanding which are not included in the calculation of diluted earnings per share because the effects are antidilutive. The convertible preferred stock, stock options and the LYONs are described in Note 13, Note 14 and Note 12, respectively. NOTE 18 -- OTHER COMPREHENSIVE INCOME Other comprehensive income primarily consists of unrealized gains (losses) on available-for-sale securities as follows (in thousands):
1999 1998 1997 -------- ------- -------- Unrealized gains (losses) arising during period, net of taxes of $3,555, $17,712 and $(12,929)......... $ 5,421 $25,753 $(18,850) Reclassification adjustments for gains realized in net income, net of taxes of $9,825, $6,703 and $13,398........................................... (14,285) (9,647) (19,320) -------- ------- -------- Change in net unrealized gains (losses) on securities........................................ $ (8,864) $16,106 $(38,170) ======== ======= ========
Accumulated other comprehensive income for each classification is as follows (in thousands):
DECEMBER 31 ------------------- 1999 1998 ------- -------- Net unrealized gains on securities, net of the change in PEPS fair value (see Note 12)............................................. $35,708 $ 44,572 Minimum pension liability adjustment........................ (6,088) (4,396) Foreign currency translation adjustments.................... (2,741) (13,685) ------- -------- $26,879 $ 26,491 ======= ========
61 63 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 -- COMMITMENTS AND CONTINGENCIES The future net minimum lease payments as of December 31, 1999 for all noncancelable operating leases, excluding future obligations included in the restructuring liabilities on the Consolidated Balance Sheets, are as follows (in thousands): 2000...................................................... $ 28,916 2001...................................................... 26,566 2002...................................................... 23,051 2003...................................................... 19,586 2004...................................................... 17,095 Thereafter................................................ 65,384 -------- Total........................................... $180,598 ========
Rental expense under operating leases was $38.5 million, $34.2 million and $36.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. Capital leases, contingent rentals and sublease income are not significant. To assure a long-term supply of newsprint, the Company has certain agreements with suppliers to purchase specified quantities of newsprint over terms not exceeding five years at prevailing market prices. The Company and its subsidiaries are defendants in various actions for matters arising out of their business operations. In addition, from time to time, the Company and its subsidiaries are involved as parties in various governmental and administrative proceedings. The Company does not believe that any such proceedings currently pending will have a material adverse effect on its consolidated financial position, although an adverse resolution in any reporting period of one or more of these matters could have a material impact on results of operations for that period. NOTE 20 -- SUBSEQUENT EVENTS (UNAUDITED) In February 2000, Gilat Communications Ltd. acquired Allen Communication. The Company also entered into agreements in February 2000 to sell StayWell to a subsidiary of Havas MediMedia S.A., and to sell The Sporting News to Vulcan Ventures Inc. These dispositions are expected to be completed in March 2000. On March 13, 2000, Times Mirror and Tribune Company (Tribune) signed a definitive agreement for the merger of the two companies in a cash and stock transaction valued at approximately $8 billion based on the closing price of Tribune common stock on March 10, 2000. Under the terms of this agreement, Tribune will make a cash tender offer for up to 28 million shares of the Company's common stock, which represents approximately 48% of the shares of common stock outstanding as of March 13, 2000, at a price of $95 per share. Following completion of the tender offer, Times Mirror and Tribune will merge in a transaction in which each share of Times Mirror common stock is converted into 2.5 shares of Tribune common stock. In addition, if fewer than 28 million Times Mirror common shares are purchased in the tender offer, Times Mirror shareholders will be permitted to elect cash, at a price of $95 per share, in the merger, up to the balance of the 28 million shares. The merger is subject to the approval of the shareholders of both companies and other customary conditions, including regulatory approvals. Times Mirror expects the tender offer to be completed in mid-April and the merger to be completed in the second or third quarter of 2000. 62 64 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) A summary of the unaudited quarterly results of operations is as follows (in thousands, except per share amounts):
1999 QUARTERS ENDED ------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ ----------- Revenues.................................. $699,207 $753,751 $739,730 $836,561 Costs and expenses: Cost of sales........................... 391,037 417,759 393,432 413,045 Selling, general and administrative expenses............................. 215,869 202,483 238,157 286,961 -------- -------- -------- -------- Operating profit.......................... 92,301 133,509 108,141 136,555 Interest expense, net..................... (6,301) (10,428) (13,910) (26,275) Other, net................................ 1,035 20,983 2,070 1,611 -------- -------- -------- -------- Income from continuing operations before income taxes............................ 87,035 144,064 96,301 111,891 Income tax provision...................... 36,986 59,505 39,366 44,372 -------- -------- -------- -------- Income from continuing operations......... 50,049 84,559 56,935 67,519 Discontinued operations, net.............. (1,236) 755 130 375 -------- -------- -------- -------- Net income................................ $ 48,813 $ 85,314 $ 57,065 $ 67,894 ======== ======== ======== ======== Basic earnings (loss) per common share(1): Continuing operations................... $ .61 $ 1.10 $ .76 $ 1.10 Discontinued operations................. (.02) .01 -- -- -------- -------- -------- -------- Basic earnings per share.................. $ .59 $ 1.11 $ .76 $ 1.10 ======== ======== ======== ======== Diluted earnings (loss) per common share(1): Continuing operations................... $ .60 $ 1.04 $ .73 $ 1.03 Discontinued operations................. (.02) .01 -- -- -------- -------- -------- -------- Diluted earnings per share................ $ .58 $ 1.05 $ .73 $ 1.03 ======== ======== ======== ========
63 65 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1998 QUARTERS ENDED ------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ ----------- Revenues.................................. $658,767 $698,007 $ 677,128 $750,086 Costs and expenses: Cost of sales........................... 366,130 369,804 368,140 340,449 Selling, general and administrative expenses............................. 206,812 206,789 216,303 306,082 Restructuring and one-time charges...... -- 34,850 46,262 74,569 -------- -------- ---------- -------- Operating profit.......................... 85,825 86,564 46,423 28,986 Interest expense, net..................... (8,001) (13,831) (5,008) (1,755) Other, net................................ (487) 7,811 9,173 9,304 -------- -------- ---------- -------- Income from continuing operations before income taxes............................ 77,337 80,544 50,588 36,535 Income tax provision...................... 31,915 31,928 31,293 15,809 -------- -------- ---------- -------- Income from continuing operations......... 45,422 48,616 19,295 20,726 Discontinued operations, net.............. (161) 585 1,057,254 225,601 -------- -------- ---------- -------- Net income................................ $ 45,261 $ 49,201 $1,076,549 $246,327 ======== ======== ========== ======== Basic earnings per common share(1): Continuing operations................... $ .45 $ .49 $ .16 $ .19 Discontinued operations................. -- .01 12.55 2.86 -------- -------- ---------- -------- Basic earnings per share.................. $ .45 $ .50 $ 12.71 $ 3.05 ======== ======== ========== ======== Diluted earnings per common share(1): Continuing operations................... $ .44 $ .48 $ .16 $ .19 Discontinued operations................. -- .01 12.26 2.80 -------- -------- ---------- -------- Diluted earnings per share................ $ .44 $ .49 $ 12.42 $ 2.99 ======== ======== ========== ========
- --------------- (1) Quarterly and annual earnings per share amounts are calculated independently based on the weighted average number of shares outstanding for each period. 64 66 THE TIMES MIRROR COMPANY SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
CHARGED TO BALANCE AT COSTS AND CHARGED DEDUCTIONS BALANCE AT BEGINNING EXPENSES OR TO OTHER FROM END OF OF PERIOD REVENUES ACCOUNTS RESERVES PERIOD ---------- ----------- -------- ---------- ---------- Year ended December 31, 1999 Allowance for doubtful accounts...... $25,956 $18,643 $ 2,423 $(20,741) $26,281 Allowance for returns................ 11,433 61,885 (2,160) (62,718) 8,440 ------- ------- -------- -------- ------- $37,389 $80,528 $ 263(A) $(83,459) $34,721 ======= ======= ======== ======== ======= Year ended December 31, 1998 Allowance for doubtful accounts...... $27,708 $19,240 $ 1,610 $(22,602) $25,956 Allowance for returns................ 11,131 59,191 (15) (58,874) 11,433 ------- ------- -------- -------- ------- $38,839 $78,431 $ 1,595(A) $(81,476) $37,389 ======= ======= ======== ======== ======= Year ended December 31, 1997 Allowance for doubtful accounts...... $25,659 $22,307 $ 836 $(21,094) $27,708 Allowance for returns................ 13,699 53,905 (1,506) (54,967) 11,131 ------- ------- -------- -------- ------- $39,358 $76,212 $ (670)(A) $(76,061) $38,839 ======= ======= ======== ======== =======
- --------------- (A) Primarily allowances of businesses acquired and sold. Note: A detailed schedule of restructuring liabilities has been provided in Note 7 to the consolidated financial statements. 65 67 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 required by this item will be provided pursuant to General Instruction G(3) of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item will be provided pursuant to General Instruction G(3) of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item will be provided pursuant to General Instruction G(3) of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item will be provided pursuant to General Instruction G(3) of Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) and (a)(2) Financial Statements and Financial Statement Schedules filed as part of this report: As listed in the Index to Financial Statements and Financial Statement Schedule on page 27 hereof. (a)(3) Exhibits filed as part of this report: As listed in the Exhibit Index beginning on page 69 hereof. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated October 12, 1999 filing a Statement of Eligibility of Trustee on Form T-1 of Citibank, N.A. The Company filed a Current Report on Form 8-K dated October 19, 1999 relating to the issuance of $200,000,000 of Times Mirror's 6.65% Notes due October 15, 2001 and of $400,000,000 of Times Mirror's 7.45% Notes due October 15, 2009. 66 68 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE TIMES MIRROR COMPANY By: /s/ MARK H. WILLES ------------------------------------ Mark H. Willes Chairman of the Board, President and Chief Executive Officer Dated: March 2, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ MARK H. WILLES Chairman of the Board, March 2, 2000 - ----------------------------------------------------- President, Chief Executive Mark H. Willes Officer and Director (Principal Executive Officer) /s/ EFREM ZIMBALIST III Executive Vice President and March 2, 2000 - ----------------------------------------------------- Chief Financial Officer Efrem Zimbalist III (Principal Financial and Accounting Officer) Director March 2, 2000 - ----------------------------------------------------- Susan Babcock /s/ DONALD R. BEALL Director March 2, 2000 - ----------------------------------------------------- Donald R. Beall /s/ JOHN E. BRYSON Director March 2, 2000 - ----------------------------------------------------- John E. Bryson Director March 2, 2000 - ----------------------------------------------------- Bruce Chandler /s/ CLAYTON W. FRYE, JR. Director March 2, 2000 - ----------------------------------------------------- Clayton W. Frye, Jr. /s/ ROGER GOODAN Director March 2, 2000 - ----------------------------------------------------- Roger Goodan /s/ SHERRY LANSING Director March 2, 2000 - ----------------------------------------------------- Sherry Lansing /s/ DAWN GOULD LEPORE Director March 2, 2000 - ----------------------------------------------------- Dawn Gould Lepore /s/ ALFRED E. OSBORNE, JR. Director March 2, 2000 - ----------------------------------------------------- Alfred E. Osborne, Jr. /s/ ROBERT W. SCHULT Director March 2, 2000 - ----------------------------------------------------- Robert W. Schult
67 69
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM STINEHART, JR. Director March 2, 2000 - ----------------------------------------------------- William Stinehart, Jr. /s/ WARREN B. WILLIAMSON Director March 2, 2000 - ----------------------------------------------------- Warren B. Williamson /s/ EDWARD ZAPANTA Director March 2, 2000 - ----------------------------------------------------- Edward Zapanta
68 70 EXHIBIT INDEX Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by Times Mirror, or its predecessor Old Times Mirror, with the Securities and Exchange Commission, as indicated. All other documents listed are filed with this report, unless otherwise indicated.
EXHIBIT NO. - ------- *2.1 Contribution Agreement among Times Mirror, certain subsidiaries thereof, Chandler Trust No. 1 and Chandler Trust No. 2, dated August 8, 1997 (Exhibit 10.2 to Current Report on Form 8-K, dated August 8, 1997) *2.2 Amended and Restated Agreement and Plan of Merger, dated as of April 27, 1998, by and among Reed Elsevier U.S. Holdings Inc., Reed Elsevier Overseas BV, CBM Acquisition Parent Co., CBM MergerSub Corp., Times Mirror, TMD, Inc. and Matthew Bender Company, Incorporated (Exhibit 2.1 to Times Mirror's Current Report on Form 8-K, dated July 31, 1998) *2.3 Partnership Interest Purchase Agreement, dated as of April 26, 1998, by and among Times Mirror, Shepard's Inc., TM ShepCo, Inc., Reed Elsevier Inc. and Reed Books Inc. (Exhibit 2.2 to Times Mirror's Current Report on Form 8-K dated July 31, 1998) *2.4 Amended and Restated Agreement and Plan of Merger, dated as of October 8, 1998 by and among Harcourt Brace & Company, Mosby Parent Corp., Mosby Acquisition Corp., Times Mirror and Mosby, Inc. (Exhibit 2.1 to Times Mirror's Current Report on Form 8-K, dated October 9, 1998) *2.5 Contribution Agreement among Times Mirror, certain subsidiaries thereof, Eagle New Media Investments, LLC, Eagle Publishing Investments, LLC and Chandler Trust No. 1 and Chandler Trust No. 2, dated September 3, 1999 (Exhibit 10.2 to Times Mirror's Current Report on Form 8-K, dated September 3, 1999 and filed with the Securities and Exchange Commission on September 7, 1999) *2.6 Agreement and Plan of Merger dated as of March 13, 2000 between Tribune Company and Times Mirror (Exhibit 2.1 to Times Mirror's Current Report on Form 8-K, dated October 13, 2000) *2.7 Voting Agreement dated as of March 13, 2000 by and among Tribune Company and the other parties set forth on the signature pages thereto (Exhibit 2.2 to Times Mirror's Current Report on Form 8-K, dated October 13, 2000) *3.1 Restated Certificate of Incorporation of Times Mirror, as filed with the Secretary of State of the State of Delaware on January 23, 1995 (Exhibit to Times Mirror's Registration Statement on Form S-4 (File No. 33-87482)) *3.2 Certificate of Amendment to Certificate of Incorporation of Times Mirror, as filed with the Secretary of State of the State of Delaware on February 1, 1995 (Exhibit to Times Mirror's Registration Statement on Form S-4 (File No. 33-87482)) *3.3 Certificate of Designations of Series C Common Stock, as filed with the Secretary of State of the State of Delaware on January 23, 1995 (Exhibit to Times Mirror's Registration Statement on Form S-4 (File No. 33-87482)) *3.4 Amended and Restated Bylaws of Times Mirror (Exhibit 3.4 to Times Mirror's 1998 Annual Report on Form 10-K) *3.5 Certificate of Designations of Series A Preferred Stock (Exhibit 3.5 to Times Mirror's 1995 Annual Report on Form 10-K) *3.6 Certificate of Designations of Series B Preferred Stock (Exhibit 3.6 to Times Mirror's 1995 Annual Report on Form 10-K) *3.7 Certificate of Designation of Series C-1 Preferred Stock (Exhibit 4.1 to Times Mirror's Current Report on Form 8-K, dated August 8, 1997)
69 71
EXHIBIT NO. - ------- *3.8 Certificate of Designation of Series C-2 Preferred Stock (Exhibit 4.2 to Times Mirror's Current Report on Form 8-K, dated August 8, 1997) 3.9 Certificate of Designation of Series D-1 Preferred Stock 3.10 Certificate of Designation of Series D-2 Preferred Stock *4.1 Indenture by and between New TMC Inc. (subsequently changed to The Times Mirror Company) and Wells Fargo Bank (successor to First Interstate Bank of California), as Trustee for the 7 1/4% Debentures due 2013 and 7 1/2% Debentures due 2023, dated January 30, 1995 (Exhibit 4.1 to Times Mirror's 1995 Annual Report on Form 10-K) *4.2 Specimen Note for 7 1/4% Debenture due March 1, 2013 (New TMC Inc., subsequently changed to The Times Mirror Company) (Exhibit 4.2 to Times Mirror's 1995 Annual Report on Form 10-K) *4.3 Specimen Note for 7 1/2% Debenture due July 1, 2023 (New TMC Inc., subsequently changed to The Times Mirror Company) (Exhibit 4.3 to Times Mirror's 1995 Annual Report on Form 10-K) *4.4 Indenture dated March 19, 1996, by and between The Times Mirror Company and Citibank, N.A., as Trustee for the 4 1/4% PEPS due March 15, 2001 and the 7 1/4% Debentures due November 15, 2096 (Exhibit 4.1 to Times Mirror's Current Report on Form 8-K, dated March 19, 1996) *4.5 Officers' Certificate dated as of March 19, 1996 establishing the terms of the PEPS and attaching the Specimen Certificate for the 4 1/4% PEPS due March 15, 2001 and the Specimen Certificate of Global PEPS (Exhibit 4.2 to Times Mirror's Current Report on Form 8-K, dated March 19, 1996) *4.6 Officers' Certificate dated November 13, 1996 establishing the terms of the 7 1/4% Debentures due November 15, 2096 and attaching the specimen Form of Debenture (Exhibit 4.2 to Times Mirror's Current Report on Form 8-K, dated November 13, 1996) *4.7 Indenture dated April 15, 1997 between Times Mirror and Citibank, N.A., as trustee (Exhibit 4.1 to Times Mirror's Current Report on Form 8-K, dated April 9, 1997) *4.8 Officer's Certificate dated September 9, 1997 establishing the terms of the 6.61% Debentures due September 15, 2027 and attaching the specimen Form of Debenture (Exhibit 4.2 to Times Mirror's Current Report on Form 8-K, dated September 9, 1997) *4.9 Officers' Certificate dated October 19, 1999 establishing the terms of the 6.65% Notes due October 15, 2001 and the 7.45% Notes due October 15, 2009 and attaching specimen Forms of Notes (Exhibit 4.2 to Times Mirror's Current Report on Form 8-K, dated October 19, 1999) *4.10 First Supplemental Indenture dated as October 19, 1999 between Times Mirror and Citibank, N.A., as trustee (Exhibit 4.3 to Times Mirror's Current Report on Form 8-K, dated October 19, 1999) *10.1 Deferred Compensation Plan for Executives (Exhibit 10.1 to Times Mirror's 1994 Annual Report on Form 10-K) *10.2 1987 Restricted Stock Plan (Exhibit II to Old Times Mirror's definitive Proxy Statement, dated March 27, 1987) *10.3 1984 Executive Stock Option Plan (Exhibit A to Old Times Mirror's definitive Proxy Statement, dated April 23, 1984) *10.4 1988 Executive Stock Option Plan (Exhibit A to Old Times Mirror's Proxy Statement, dated March 30, 1988)
70 72
EXHIBIT NO. - ------- *10.5 Deferral Plan for Directors' Fees (Exhibit 10.8 to Old Times Mirror's 1981 Annual Report on Form 10-K) *10.6 The Times Mirror Pension Plan for Directors, as Amended and Restated on March 5, 1987 (Exhibit 10.11 to Old Times Mirror's 1986 Annual Report on Form 10-K) *10.7 Deferred Compensation Plan for Non-Employee Directors (Exhibit 10.7 to Times Mirror's 1994 Annual Report on Form 10-K) *10.8 Non-Employee Director Stock Option Plan (Appendix A to Old Times Mirror's definitive Proxy Statement, dated March 21, 1994) *10.9 Agreement dated April 29, 1985 between Old Times Mirror and Otis Chandler (Exhibit 10.10 to Old Times Mirror's 1985 Annual Report on Form 10-K) *10.10 Letter Agreement amended and restated as of August 28, 1995 between Times Mirror and Mark H. Willes (Exhibit 10.10 to Times Mirror's 1995 Annual Report on Form 10-K) *10.11 1992 Key Employee Long-Term Incentive Plan (Appendix A to Old Times Mirror's Proxy Statement, dated March 20, 1992) *10.12 1996 Management Incentive Plan (Exhibit 10.12 to Times Mirror's 1995 Annual Report on Form 10-K) *10.13 Non-Employee Directors Stock Plan (Exhibit 10.13 to Times Mirror's 1995 Annual Report on Form 10-K) *10.14 The Times Mirror Company Non-Employee Directors Stock Plan as amended and restated effective January 1, 1997 (Exhibit 10.14 to Times Mirror's 1996 Annual Report on Form 10-K) *10.15 The Times Mirror Company 1997 Directors Stock Option Plan (Exhibit 10.15 to Times Mirror's 1996 Annual Report on Form 10-K) *10.16 Limited Liability Company Agreement of TMCT, LLC, dated August 8, 1997 (Exhibit 10.1 to Times Mirror's Current Report on Form 8-K, dated August 8, 1997) *10.17 Lease Agreement between TMCT, LLC and Times Mirror, dated August 8, 1997 (Exhibit 10.4 to Times Mirror's Current Report on Form 8-K, dated August 8, 1997) *10.18 Amended and Restated Limited Liability Company Agreement of TMCT II, LLC, dated September 3, 1999 (Exhibit 10.1 to Times Mirror's Current Report on Form 8-K, dated September 3, 1999 and filed with the Securities and Exchange Commission on September 7, 1999) 10.19 Letter Agreement between Times Mirror and Mary E. Junck dated April 5, 1999 10.20 Letter Agreement between Times Mirror and Thomas Unterman dated December 22, 1999 11 Computation of Earnings Per Share 12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends 21 Subsidiaries of the Registrant 23 Consent of Ernst & Young LLP, Independent Auditors 27 Financial Data Schedule
71 EX-3.9 2 CERT. OF DESIGNATION OF SERIES D-1 PREFERRED STOCK 1 CERTIFICATE OF DESIGNATION OF THE PREFERRED STOCK, SERIES D-1 (PAR VALUE $1.00 PER SHARE) OF THE TIMES MIRROR COMPANY ------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------- The undersigned duly authorized officer of The Times Mirror Company, a corporation organized and existing under the General Corporation Law (the "DGCL") of the State of Delaware (the "Company"), in accordance with the provisions of Section 103 thereof, and pursuant to Section 151 thereof, DOES HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Company, the Board of Directors of the Company (the "Board" or "Board of Directors") on October 28, 1999 adopted the following resolution creating 380,972 shares of Preferred Stock, Series D-1 (in addition to the shares of Preferred Stock, Series D-2, which were also created on such date), par value $1.00 per share, each designated as set forth below: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors by provisions of the Restated Certificate of Incorporation of the Company (the "Certificate of Incorporation"), and the DGCL, the issuance of a series of the Company's preferred stock, par value $1.00 per share (the "Preferred Stock"), which shall consist of 380,972 shares of Preferred Stock, be, and the same hereby is, authorized, and the Board of Directors hereby fixes the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions, of the shares of such series (in addition to the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions, set forth in the Certificate of Incorporation that may be applicable to the Preferred Stock) as follows: 1. Designation and Rank. The designation of such series of the Preferred Stock authorized by this resolution shall be the Preferred Stock, Series D-1 (the "Series D-1 Preferred Stock"). The number of shares of Series D-1 Preferred Stock shall be 380,972. The Series D-1 Preferred Stock shall rank prior to the Common Stock (as hereinafter defined) of the Company and to all other classes and series of equity securities of the Company now or hereafter 1 2 authorized, issued or outstanding (the Common Stock and such other classes and series of equity securities not expressly designated as ranking on a parity with or senior to the Series D-1 Preferred Stock collectively may be referred to herein as the "Junior Stock") as to dividend rights and rights upon liquidation, winding up or dissolution of the Company, other than (a) the Company's (i) 8% Cumulative Convertible Preferred Stock, Series A (the "Series A Preferred Stock") and (ii) Series D-2 Preferred Stock (the "Series D-2 Preferred Stock"), with respect to which the Series D-1 Preferred Stock is expressly designated as ranking on a parity as to dividend rights and rights upon liquidation, winding up or dissolution of the Company; and (b) any other classes or series of equity securities of the Company expressly designated as ranking on a parity with (collectively with the Series A Preferred Stock and the Series D-2 Preferred Stock, the "Parity Stock") or senior to (the "Senior Stock") the Series D-1 Preferred Stock as to dividend rights and rights upon liquidation, winding up or dissolution of the Company. The Series D-1 Preferred Stock shall be subject to creation of Senior Stock, Parity Stock and Junior Stock, to the extent not expressly prohibited by the Certificate of Incorporation or Section 5(c)(i) or 5(c)(ii) hereof, with respect to the payment of dividends and upon liquidation. 2. Cumulative Dividends; Priority. (a) Payment of Dividends. (i) The holders of record of shares of Series D-1 Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative cash dividends from the date of issuance of such shares at the rate per annum per share of 5.8% (i.e., $29 per annum) (the "Dividend Rate"), as adjusted from time to time pursuant to Section 2(c) hereof. Dividends shall be payable quarterly on the tenth day of March, June, September and December in each year (or if such day is a non-business day, on the next business day) with respect to the quarter ending on the last day of such month, commencing on March 10, 2000 (each of such dates a "Dividend Payment Date"). No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series D-1 Preferred Stock that may be in arrears. Notwithstanding the foregoing, for purposes of calculating the dividend to be paid with respect to the period (the "Initial Dividend Period") from the date of issuance of such shares through March 31, 2000 (payable on March 10, 2000), it shall be assumed that the shares of Series D-1 Preferred Stock were issued on January 1, 2000. (ii) Each declared dividend shall be payable to holders of record as they appear on the stock books of the Company at the close of business on such record dates, not more than 60 calendar days preceding the applicable Dividend Payment Dates therefor, as are determined by the Board of Directors (each of such dates a "Record Date"). Quarterly dividend periods (each a "Dividend Period") shall commence on and include the first day of January, April, July, and October of each year and shall end on and include the last day of March, June, September and December, respectively of such year. Dividends on the shares of Series D-1 Preferred Stock shall be fully cumulative and shall accrue (whether or not declared) from the first day of each Dividend Period; provided, however, that the amount of any dividend payable for any Dividend Period shorter than a full Dividend Period (other than the Initial Dividend Period, which shall be calculated as set forth in Section 2(a)(i) hereof), shall be computed on the 2 3 basis of a 360-day year composed of twelve 30-day months and the actual number of days elapsed in the relevant Dividend Period. (b) Priority as to Dividends. (i) Subject to the provisions hereof, no cash dividend or other distribution (other than in Common Stock or other Junior Stock) shall be declared or paid or set apart for payment on Preferred Stock that constitutes Parity Stock or Junior Stock with respect to dividends for any Dividend Period unless full dividends on the Series D-1 Preferred Stock for the immediately preceding Dividend Period have been or contemporaneously are declared and paid (or declared and a sum sufficient for the payment thereof set apart for such payment). When dividends are not paid in full (or declared and a sum sufficient for such full payment not so set apart) upon the Series D-1 Preferred Stock and any Parity Stock, all dividends declared upon shares of Series D-1 Preferred Stock and any Parity Stock shall be declared pro rata with respect thereto, so that in all cases the amount of dividends declared per share on the Series D-1 Preferred Stock and such Parity Stock shall bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on the shares of Series D-1 Preferred Stock (which shall include any accumulation in respect of unpaid dividends for prior Dividend Periods) and dividends, including accumulations, if any, of such Parity Stock, bear to each other. (ii) Except as provided in the preceding paragraph, full dividends on the Series D-1 Preferred Stock must be declared and paid or set apart for payment for the immediately preceding Dividend Period before (A) any cash dividend or other distribution (other than in Common Stock or other Junior Stock) shall be declared or paid or set aside for payment upon the Common Stock or any other Junior Stock of the Company or (B) any Common Stock or any other Junior Stock is redeemed, purchased or otherwise acquired by the Company for any consideration (or any moneys are paid to or made available for a sinking fund for the redemption of any shares of any such stock), except by redemption into or exchange for Junior Stock or (C) any Series D-1 Preferred Stock or Parity Stock is redeemed, purchased or otherwise acquired by the Company for any consideration (or any moneys are paid to or made available for a sinking fund for the redemption of any shares of any such stock). The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company if under the preceding sentence, the Company would be prohibited from purchasing or otherwise acquiring such shares at such time and in such manner. (iii) No dividend shall be paid or set aside for holders of the Series D-1 Preferred Stock for any Dividend Period unless full dividends on any Preferred Stock that constitutes Senior Stock with respect to dividends for that period have been or contemporaneously are declared and paid (or declared and a sum sufficient for the payment thereof set apart for such payment). (c) Adjustment to Dividend Rate. (i) The Dividend Rate shall not be adjusted prior to the end of the Dividend Period ending on December 31, 2001. 3 4 (ii) The Dividend Rate for each subsequent year (commencing with the year that begins on January 1, 2002) shall be adjusted upward in accordance with Schedule A attached hereto. (iii) Increases in the Dividend Rate are subject to the following limitation: the Dividend Rate shall, under no circumstances, exceed 8.4% per annum. 3. Conversion at Option of the Company. (a) General. (i) The shares of the Series D-1 Preferred Stock shall not be convertible at the option of the Company except upon the later to occur of (x) the date on which a written notice has been mailed or otherwise distributed by the Company to each record holder of the Series D-1 Preferred Stock stating that the assets of either Chandler Trust No. 1 or Chandler Trust No. 2 have been distributed to the beneficiaries thereof and (y) February 1, 2025 (such later date being the "Convertibility Date"). Subject to and upon compliance with the provisions of this Section 3, shares of Series D-1 Preferred Stock may be converted, in whole or in part, at the election of the Company by resolution of the Board of Directors, upon notice as provided in Section 3(b), at any time or from time to time on or after the Convertibility Date. Conversion shall be made by delivering to the holders of Series D-1 Preferred Stock, in respect of the conversion of each share of Series D-1 Preferred Stock so converted, certificates representing the number of fully paid and non-assessable shares (the "Conversion Shares") of Series A Common Stock, par value $1.00 per share, of the Company ("Series A Common Stock," which, together with the Series B Common Stock, par value $1.00 per share, and Series C Common Stock, par value $1.00 per share, of the Company are referred to herein as the "Common Stock") equal to the quotient of (1) $500 plus accrued and unpaid dividends on such shares of Series D-1 Preferred Stock to the Conversion Date (as hereinafter defined) divided by (2) the Common Share Value (as hereinafter defined). The aggregate number of shares of Common Stock that a holder of shares of Series D-1 Preferred Stock that have been converted is entitled to receive pursuant to this Section 3 or Section 4 is hereinafter referred to as the "Aggregate Conversion Shares." (ii) The "Common Share Value" shall mean the average of the closing prices of the Series A Common Stock for the 20 days during which trades of Series A Common Stock occurred immediately preceding the Valuation Date (as defined below), as reported in The Wall Street Journal, Western Edition, or, if no closing prices were so reported, the average of the mean between the high bid and low asked price per share of Series A Common Stock for each of the 20 days during which trades of Series A Common Stock occurred immediately preceding the Valuation Date in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use, or, if the Series A Common Stock is not then quoted by any such organization, the average of the mean between the closing bid and asked prices per share of Series A Common Stock for each of the 20 days during which trades of Series A Common Stock occurred immediately preceding the Valuation Date, as furnished by a professional market maker making a market in the Series A Common Stock, or, if there is no such market maker, the fair market value of a share of Series A Common Stock determined by whatever method the Board of Directors reasonably determines to 4 5 use. In the case of a conversion pursuant to this Section 3, the "Valuation Date" shall mean the Conversion Notice Date (as defined in Section 3(b)), and in the case of any conversion pursuant to Section 4, the "Valuation Date" shall mean the Conversion Time (as hereinafter defined). (b) Notice of Conversion. Notice of any conversion, setting forth (i) the Conversion Date (as defined in Section 3(c) hereof), (ii) a statement that dividends on the shares of Series D-1 Preferred Stock to be converted will cease to accrue on such Conversion Date, and (iii) the method(s) by which the holders may surrender the certificates representing shares of Series D-1 Preferred Stock that have been converted and obtain the Conversion Shares therefor, shall be mailed, postage prepaid, on a date (the "Conversion Notice Date") that is at least 15 days but not more than 45 days prior to said Conversion Date to each holder of record of the Series D-1 Preferred Stock to be converted at his, her or its address as the same shall appear on the books of the Company. If less than all the shares of the Series D-1 Preferred Stock owned by such holder are then to be converted, the notice shall specify the number of shares thereof that are to be converted and the numbers of the certificates representing such shares. (c) Method of Conversion. The surrender of any certificate evidencing shares of Series D-1 Preferred Stock that have been converted shall be made by the holder thereof by the surrender of the certificate or certificates formerly representing the shares of Series D-1 Preferred Stock converted (with proper endorsement or instruments of transfer) to the Company at the principal office of the Company (or such other office or agency of the Company as the Company may designate in writing to the holder or holders of the Series D-1 Preferred Stock) at any time during its usual business hours. Shares of Series D-1 Preferred Stock called for conversion shall be deemed to have been converted, and the shares of Series A Common Stock to be issued in respect of the shares of Series D-1 Preferred Stock converted shall be deemed to have been issued, as of the close of business on the date fixed for conversion (the "Conversion Date"), without regard to when certificates evidencing such Series D-1 Preferred Stock are surrendered pursuant to this Section 3(c) or certificates evidencing such Series A Common Stock are issued pursuant to Section 3(d). The rights of the holder of Series D-1 Preferred Stock that has been converted, except for the right to receive the Aggregate Conversion Shares therefor in accordance herewith (and any cash payments to which such holder is entitled pursuant to Section 3(e) hereof), shall cease on the Conversion Date. In the case of lost or destroyed certificates evidencing ownership of shares of Series D-1 Preferred Stock that have been converted, the holder shall submit proof of loss or destruction and such indemnity as shall be required by the Company. (d) Issuance of Certificates for Series A Common Stock. As soon as practicable after its receipt of any certificate or certificates formerly evidencing ownership of shares of Series D-1 Preferred Stock that have been converted, the Company shall issue and shall deliver to the person for whose account such certificates formerly representing shares of Series D-1 Preferred Stock were so surrendered, or on his, her or its written order, a certificate or certificates for the number of full shares of Series A Common Stock issuable upon the conversion of such shares of Series D-1 Preferred Stock and a check or cash payment (if any) to which such holder is entitled with respect to fractional shares as determined by the Company, in accordance with Section 3(e) hereof. 5 6 (e) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any shares of Series D-1 Preferred Stock, but the holder thereof will receive in cash an amount equal to the value of such fractional share of Series A Common Stock based on the Common Share Value. If more than one share of Series D-1 Preferred Stock shall be converted at one time for the account of the same holder, the number of full shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of such shares so surrendered. (f) Payment of Taxes. The Company shall pay any tax in respect of the issuance of stock certificates on conversion of shares of Series D-1 Preferred Stock. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of stock in any name other than that of the holder of the shares converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issuance thereof shall have paid to the Company the amount of any such tax or shall have established to the satisfaction of the Company that such tax has been paid. (g) Common Stock Reserved for Conversion. The Company shall at all times from and after the Conversion Date reserve and keep available out of its authorized and unissued Series A Common Stock the full number of shares of Series A Common Stock deliverable upon the conversion of all outstanding shares of Series D-1 Preferred Stock and shall take all such action as may be required from time to time in order that it may validly and legally issue fully paid and non-assessable shares of Series A Common Stock upon conversion of the Series D-1 Preferred Stock. 4. Conversion at the Option of Holders. (a) General. After the later to occur of (i) the date on which a written notice has been mailed or otherwise distributed by the Company to each record holder of the Series D-1 Preferred Stock stating that the assets of either Chandler Trust No. 1 or Chandler Trust No. 2 have been distributed to the beneficiaries thereof and (ii) February 1, 2025, the holder of any Series D-1 Preferred Stock may convert pursuant to this Section 4 all or any part (in whole number of shares only) of the Series D-1 Preferred Stock held by such holder into fully paid and non-assessable shares of Series A Common Stock. The number of shares of Series A Common Stock into which a share of Series D-1 Preferred Stock may be converted shall be equal to the quotient of (1) $500 plus accrued and unpaid dividends on such share of Series D-1 Preferred Stock to the Conversion Time divided by (2) the Common Share Value. (b) Method of Conversion. Each conversion of Series D-1 Preferred Stock shall be effected by the surrender of the certificate or certificates representing the shares of Series D-1 Preferred Stock to be converted (with proper endorsement or instruments of transfer) to the Company at the principal office of the Company (or such other office or agency of the Company as the Company may designate in writing to the holder or holders of the Series D-1 Preferred Stock) at any time during its usual business hours, together with written notice by the holder of such Series D-1 Preferred Stock stating that such holder desires to convert the shares of Series D-1 Preferred Stock, or a stated number of such shares, represented by such certificate or certificates, which notice shall also specify the name or names (with addresses) and 6 7 denominations in which the certificate or certificates for the Series A Common Stock shall be issued and shall include instructions for delivery thereof. Any conversion pursuant to this Section 4 shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates shall have been surrendered and such notice shall have been received, and at such time (the "Conversion Time") the rights of the holder of Series D-1 Preferred Stock (or specified portion thereof) as such holder shall cease and the person or persons in whose name or names any certificate or certificates for shares of Series A Common Stock are to be issued upon conversion shall be deemed to have become the holder or holders of record of the shares of Series A Common Stock represented thereby. In the case of lost or destroyed certificates evidencing ownership of shares of Series D-1 Preferred Stock to be converted, the holder shall submit proof of loss or destruction and such indemnity as shall be required by the Company. (c) Issuance of Certificates for Series A Common Stock. As soon as practicable after its receipt of any certificate or certificates evidencing ownership of shares of Series D-1 Preferred Stock to be converted pursuant to this Section 4, the Company shall issue and shall deliver to the person for whose account such shares of Series D-1 Preferred Stock were so surrendered, or on his, her or its written order, a certificate or certificates for the number of full shares of Series A Common Stock issuable upon the conversion of such shares of Series D-1 Preferred Stock and a check or cash payment (if any) to which such holder is entitled with respect to fractional shares as determined by the Company, in accordance with Section 4(d) hereof. (d) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any shares of Series D-1 Preferred Stock, but the holder thereof will receive in cash an amount equal to the value of such fractional share of Series A Common Stock based on the Common Share Value. If more than one share of Series D-1 Preferred Stock shall be converted at one time for the account of the same holder, the number of full shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of such shares so surrendered. (e) Payment of Taxes. The Company shall pay any tax in respect of the issuance of stock certificates on conversion of shares of Series D-1 Preferred Stock. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of stock in any name other than that of the holder of the shares converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issuance thereof shall have paid to the Company the amount of any such tax or shall have established to the satisfaction of the Company that such tax has been paid. (f) Common Stock Reserved for Conversion. The Company shall at all times from and after the Conversion Time reserve and keep available out of its authorized and unissued Series A Common Stock the full number of shares of Series A Common Stock deliverable upon the conversion of all outstanding shares of Series D-1 Preferred Stock and shall take all such action as may be required from time to time in order that it may validly and legally issue fully paid and non-assessable shares of Series A Common Stock upon conversion of the Series D-1 Preferred Stock. 7 8 5. Voting Rights. (a) General Voting Rights. Except as expressly provided hereinafter in this Section 5, or as otherwise from time to time required by applicable law, the Series D-1 Preferred Stock shall have no voting rights. (b) Voting Rights Upon Dividend Arrears. (i) Right to Elect Directors. In the event that an amount equal to six quarterly dividend payments on the Series D-1 Preferred Stock shall have accrued and be unpaid (the occurrence of such contingency marking the beginning of a period herein referred to as the "Default Period," which shall extend until such time as all accrued and unpaid dividends for all previous Dividend Periods and for the current Dividend Period on all shares of Series D-1 Preferred Stock then outstanding shall have been declared and paid or declared and a sum sufficient for such full payment set apart for payment), the holders of the Series D-1 Preferred Stock shall have the right, voting separately as a class together with holders of shares of the Series D-2 Preferred Stock and any other Parity Stock upon which like voting rights have been conferred and are exercisable (such shares of Series D-1 Preferred Stock, shares of Series D-2 Preferred Stock, and other shares of Parity Stock are hereinafter referred to as "Voting Parity Stock"), to elect two members of the Board of Directors, each member to be in addition to the then authorized number of directors, at the next annual meeting of stockholders or at a special meeting called as described below and thereafter until the Default Period shall have ended. (ii) Special Meeting; Written Consent. Whenever such voting right shall vest, it may be exercised initially by the vote of the holders of a plurality of the voting power of Series D-1 Preferred Stock and Voting Parity Stock present and voting as a single class, in person or by proxy, at a special meeting of holders of the Series D-1 Preferred Stock and Voting Parity Stock or at the next annual meeting of stockholders. A special meeting for the exercise of such right shall be called by the Secretary of the Company as promptly as possible, and in any event within 10 days after receipt of a written request signed by the holders of record of at least 25% of the outstanding shares of the Series D-1 Preferred Stock and Voting Parity Stock, subject to any applicable notice requirements imposed by law or regulation. Notwithstanding the provisions of this paragraph, no such special meeting shall be required to be held during the 90-day period preceding the date fixed for the annual meeting of stockholders. Any action required or permitted to be taken at any such special meeting of such holders may be taken by a consent or consents in writing of such stockholders, setting forth the action so taken, which consent or consents shall be signed by the holders of Series D-1 Preferred Stock and Voting Parity Stock representing a majority of the voting power of shares of such Series D-1 Preferred Stock and Voting Parity Stock and shall be delivered to the Company in the manner set forth from time to time in the DGCL. (iii) Term of Office of Directors. Any director who shall have been elected by holders of the Series D-1 Preferred Stock and Voting Parity Stock entitled to vote in accordance with this subparagraph (b) shall hold office for a term expiring (subject to the earlier expiry of such term, as set forth below) at the annual meeting of stockholders at which the term of office of his class shall expire and during such term may be removed at any time, only for cause, by, and only by, the affirmative vote of the holders of record of a majority of the voting 8 9 power of the Series D-1 Preferred Stock and Voting Parity Stock present and voting as a single class, in person or by proxy, at a special meeting of such stockholders called for such purpose, and any vacancy created by such removal may also be filled at such meeting. A meeting for the removal of a director elected by the holders of the Series D-1 Preferred Stock and Voting Parity Stock and the filling of the vacancy created thereby shall be called by the Secretary of the Company as promptly as possible and in any event within 10 days after receipt of a request therefor signed by the holders of not less than 25% of the aggregate outstanding voting power of the Series D-1 Preferred Stock and Voting Parity Stock, subject to any applicable notice requirements imposed by law or regulation. Such meeting shall be held at the earliest practicable date thereafter, provided that no such meeting shall be required to be held during the 90-day period preceding the date fixed for the annual meeting of stockholders. Simultaneously with the expiration of the Default Period, the terms of office of all directors elected by the holders of the shares of Series D-1 Preferred Stock and the Voting Parity Stock pursuant hereto then in office shall, without further action, thereupon terminate unless otherwise required by law. Upon such termination the number of directors constituting the Board of Directors of the Company shall, without further action, be reduced by two, subject always to the increase of the number of directors pursuant to the foregoing provisions in the case of the future right of holders of the shares of Series D-1 Preferred Stock and Voting Parity Stock to elect directors as provided above. (iv) Vacancies. Any vacancy caused by the death, resignation or removal of a director who shall have been elected in accordance with this subparagraph (b) may be filled by the remaining director so elected or, if not so filled, by a vote of holders of a plurality of the voting power of the Series D-1 Preferred Stock and Voting Parity Stock present and voting as a single class, in person or by proxy, at a meeting called for such purpose. Unless such vacancy shall have been filled by the remaining director as aforesaid, such meeting shall be called by the Secretary of the Company at the earliest practicable date after such death or resignation, and in any event within 10 days after receipt of a written request signed by the holders of record of at least 25% of the outstanding shares of the Series D-1 Preferred Stock and Voting Parity Stock, subject to any applicable notice requirements imposed by law or regulation. Notwithstanding the provisions of this paragraph, no such special meeting shall be required to be held during the 90-day period preceding the date fixed for the annual meeting of stockholders. (v) Stockholders' Right to Call Meeting. If any meeting of the holders of the Series D-1 Preferred Stock and Voting Parity Stock required by this subparagraph (b) to be called shall not have been called within 30 days after personal service of a written request therefor upon the Secretary of the Company or within 30 days after mailing the same within the United States of America by registered mail addressed to the Secretary of the Company at its principal executive offices, subject to any applicable notice requirements imposed by law or regulation, then the holders of record of at least 25% of the outstanding shares of the Series D-1 Preferred Stock and Voting Parity Stock may designate in writing one of their number to call such meeting at the expense of the Company, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders or such shorter notice (but in no event shorter than permitted by law or regulation) as may be acceptable to the holders of a majority of the total voting power of the Series D-1 Preferred Stock and Voting Parity Stock. Any holder of Series D-1 Preferred Stock and Voting Parity Stock so designated shall have 9 10 access to the Series D-1 Preferred Stock and Voting Parity Stock books of the Company for the purpose of causing such meeting to be called pursuant to these provisions. (vi) Quorum. At any meeting of the holders of the Series D-1 Preferred Stock called in accordance with the provisions of this subparagraph (b) for the election or removal of directors, the presence in person or by proxy of the holders of a majority of the total voting power of the Series D-1 Preferred Stock and Voting Parity Stock shall be required to constitute a quorum; in the absence of a quorum, the holders of a majority of the total number of votes present in person or by proxy shall have power to adjourn the meeting from time to time without notice other than an announcement at the meeting, until a quorum shall be present. (c) Voting Rights on Extraordinary Matters. (i) So long as any shares of Series D-1 Preferred Stock shall be outstanding, the holders of the Series D-1 Preferred Stock shall have the right, voting separately as a class together with holders of shares of any Voting Parity Stock (with two-thirds of the voting power of such stock at the time outstanding given in person or by proxy at a meeting at which the holders of such shares shall be entitled to vote separately as a class, or by a consent or consents in writing setting forth such approval, which consent shall be delivered to the Company in the manner set forth from time to time in the DGCL, required for approval by such holders), to vote on: (i) the liquidation or dissolution of the Company; (ii) any proposal to authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock ranking pari passu with, or prior to, the shares of the Series D-1 Preferred Stock in powers, rights or preferences upon the liquidation, dissolution or winding up of the affairs of the Company or as to dividends; and (iii) any proposal to amend by merger, amendment or otherwise (or otherwise alter or repeal) the Certificate of Incorporation (or this resolution) if such amendment, alteration or repeal would increase or decrease the aggregate number of authorized shares of Series D-1 Preferred Stock or any Voting Parity Stock, increase or decrease the par value of the shares of Series D-1 Preferred Stock or any Voting Parity Stock, or alter or change the powers, preferences, or special rights of the shares of Series D-1 Preferred Stock or any Voting Parity Stock so as to affect them adversely. An amendment that increases the number of authorized shares of any class or series of Preferred Stock or authorizes the creation or issuance of other classes or series of Preferred Stock, in each case ranking junior to the Series D-1 Preferred Stock with respect to the payment of dividends and distribution of assets upon liquidation, dissolution or winding up shall not be considered to be such an adverse change. (ii) So long as any shares of Series D-1 Preferred Stock shall be outstanding and unless the consent or approval of a greater number of shares shall then be required by applicable law, without first obtaining the approval of the holders of at least two-thirds of the voting power of the Series D-1 Preferred Stock at the time outstanding (voting separately as a class together with the holders of shares of Voting Parity Stock) given in person or by proxy at a meeting at which the holders of such shares shall be entitled to vote separately as a class (or by a consent or consents in writing setting forth such approval, which consent shall be delivered to the Company in the manner set forth from time to time in the DGCL), the Company shall not either directly or indirectly or through merger or consolidation with any other entity, (i) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock that would place or have the effect of placing restrictions on the obligation 10 11 of the Company to pay dividends to the holders of Series D-1 Preferred Stock or to perform any of its obligations to the holders of Series D-1 Preferred Stock at any time; or (ii) authorize, enter into or permit to exist any covenant or agreement that would place or have the effect of placing restrictions on the obligations of the Company to pay dividends to holders of Series D-1 Preferred Stock or to perform any of its other obligations to the holders of Series D-1 Preferred Stock at any time; provided, however, that notwithstanding the foregoing, the Company may from time to time enter into credit agreements and indentures that provide for limitations on the ability of the Company to pay dividends on its capital stock generally, so long as the Board of Directors determines, in its sole discretion, that such limitation is necessary in order to obtain financing on commercially reasonable terms. (d) One Vote Per Share. In connection with any matter on which holders of the Series D-1 Preferred Stock are entitled to vote as provided in subparagraphs (b) and (c) above, or any other matter on which the holders of the Series D-1 Preferred Stock are entitled to vote as one class or otherwise pursuant to applicable law or the provisions of the Certificate of Incorporation, each holder of Series D-1 Preferred Stock shall be entitled to one vote for each share of Series D-1 Preferred Stock held by such holder. (e) Except as otherwise required by law, the holders of Series D-1 Preferred Stock and holders of Series D-2 Preferred Stock will vote together as a single class. 6. No Sinking Fund. No sinking fund will be established for the retirement or redemption of shares of Series D-1 Preferred Stock. 7. Liquidation Rights: Priority. (a) In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Company, the holders of shares of the Series D-1 Preferred Stock shall be entitled to receive, out of the assets of the Company, whether such assets are capital or surplus and whether or not any dividends as such are declared, $500 per share plus an amount equal to all accrued and unpaid dividends for the then-current plus all prior Dividend Periods, and no more, before any distribution shall be made to the holders of the Common Stock or any other class of stock or series thereof ranking junior to the Series D-1 Preferred Stock with respect to the distribution of assets upon liquidation, dissolution or winding up of the Company. The Series D-2 Preferred Stock and, unless specifically designated as junior or senior to the Series D-1 Preferred Stock with respect to the liquidation, dissolution or winding up of the affairs of the Company or as to dividends, all other series or classes of Preferred Stock of the Company shall rank on a parity with the Series D-1 Preferred Stock with respect to the distribution of assets. (b) Nothing contained in this Section 7 shall be deemed to prevent conversion of shares of the Series D-1 Preferred Stock by the Company in the manner provided in Section 3. Neither the merger nor consolidation of the Company into or with any other entity, nor the merger or consolidation of any other entity into or with the Company, nor a sale, transfer or lease of all or any part of the assets of the Company, shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section 7. 11 12 (c) Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than 30 days prior to the payment date stated therein, to the holders of record of the Series D-1 Preferred Stock at their respective addresses as the same shall appear on the books of the Company. (d) If the amounts available for distribution with respect to the Series D-1 Preferred Stock and all other outstanding stock of the Company ranking on a parity with the Series D-1 Preferred Stock upon liquidation, dissolution or winding up are not sufficient to satisfy the full liquidation rights of all the outstanding Series D-1 Preferred Stock and stock ranking on a parity therewith, then the holders of each series of such stock will share ratably in any such distribution of assets in proportion to the full respective preferential amount (which in the case of the Series D-1 Preferred Stock shall mean the amounts specified in Section 7(a) and in the case of any other series of preferred stock may include accumulated dividends if contemplated by such series) to which they are entitled. 8. Status of Shares Converted. Shares of Series D-1 Preferred Stock converted or purchased or otherwise acquired for value by the Company, shall, after such event, have the status of authorized and unissued shares of Preferred Stock without designation and may be reissued by the Company at any time as shares of any series of Preferred Stock. 12 13 IN WITNESS WHEREOF, The Times Mirror Company has caused this Certificate to be signed by Roger H. Molvar, its Senior Vice President and Controller, this 28th day of December, 1999. THE TIMES MIRROR COMPANY, a Delaware corporation By: /s/ Roger H. Molvar Name: Roger H. Molvar Title: Senior Vice President and Controller 13 14 Schedule A Dividend Rates
Year Dividend Rate ---- ------------- 2000 5.80% 2001 5.80% 2002 6.01% 2003 6.22% 2004 6.44% 2005 6.67% 2006 6.91% 2007 7.15% 2008 7.41% 2009 7.67% 2010 7.95% 2011 8.23% 2012 and thereafter 8.40%
14 EX-3.10 3 CERT. OF DESIGNATION OF SERIES D-2 PREFERRED STOCK 1 CERTIFICATE OF DESIGNATION OF THE PREFERRED STOCK, SERIES D-2 (PAR VALUE $1.00 PER SHARE) OF THE TIMES MIRROR COMPANY ------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------- The undersigned duly authorized officer of The Times Mirror Company, a corporation organized and existing under the General Corporation Law (the "DGCL") of the State of Delaware (the "Company"), in accordance with the provisions of Section 103 thereof, and pursuant to Section 151 thereof, DOES HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Company, the Board of Directors of the Company (the "Board" or "Board of Directors") on October 28, 1999 adopted the following resolution creating 245,100 shares of Preferred Stock, Series D-2 (in addition to the shares of Preferred Stock, Series D-1, which were also created on such date), par value $1.00 per share, each designated as set forth below: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors by provisions of the Restated Certificate of Incorporation of the Company (the "Certificate of Incorporation"), and the DGCL, the issuance of a series of the Company's preferred stock, par value $1.00 per share (the "Preferred Stock"), which shall consist of 245,100 shares of Preferred Stock, be, and the same hereby is, authorized, and the Board of Directors hereby fixes the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions, of the shares of such series (in addition to the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions, set forth in the Certificate of Incorporation that may be applicable to the Preferred Stock) as follows: 1. Designation and Rank. The designation of such series of the Preferred Stock authorized by this resolution shall be the Preferred Stock, Series D-2 (the "Series D-2 Preferred Stock"). The number of shares of Series D-2 Preferred Stock shall be 245,100. The Series D-2 Preferred Stock shall rank prior to the Common Stock (as hereinafter defined) of the Company and to all other classes and series of equity securities of the Company now or hereafter 1 2 authorized, issued or outstanding (the Common Stock and such other classes and series of equity securities not expressly designated as ranking on a parity with or senior to the Series D-2 Preferred Stock collectively may be referred to herein as the "Junior Stock") as to dividend rights and rights upon liquidation, winding up or dissolution of the Company, other than (a) the Company's (i) 8% Cumulative Convertible Preferred Stock, Series A (the "Series A Preferred Stock") and (ii) Series D-1 Preferred Stock (the "Series D-1 Preferred Stock"), with respect to which the Series D-2 Preferred Stock is expressly designated as ranking on a parity as to dividend rights and rights upon liquidation, winding up or dissolution of the Company; and (b) any other classes or series of equity securities of the Company expressly designated as ranking on a parity with (collectively with the Series A Preferred Stock and the Series D-1 Preferred Stock, the "Parity Stock") or senior to (the "Senior Stock") the Series D-2 Preferred Stock as to dividend rights and rights upon liquidation, winding up or dissolution of the Company. The Series D-2 Preferred Stock shall be subject to creation of Senior Stock, Parity Stock and Junior Stock, to the extent not expressly prohibited by the Certificate of Incorporation or Section 5(c)(i) or 5(c)(ii) hereof, with respect to the payment of dividends and upon liquidation. 2. Cumulative Dividends; Priority. (a) Payment of Dividends. (i) The holders of record of shares of Series D-2 Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative cash dividends from the date of issuance of such shares at the rate per annum per share of 5.8% (i.e., $29 per annum) (the "Dividend Rate"), as adjusted from time to time pursuant to Section 2(c) hereof. Dividends shall be payable quarterly on the tenth day of March, June, September and December in each year (or if such day is a non-business day, on the next business day) with respect to the quarter ending on the last day of such month, commencing on March 10, 2000 (each of such dates a "Dividend Payment Date"). No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series D-2 Preferred Stock that may be in arrears. Notwithstanding the foregoing, for purposes of calculating the dividend to be paid with respect to the period (the "Initial Dividend Period") from the date of issuance of such shares through March 31, 2000 (payable March 10, 2000) it shall be assumed that the shares of the Series D-2 Preferred Stock were issued on January 1, 2000. (ii) Each declared dividend shall be payable to holders of record as they appear on the stock books of the Company at the close of business on such record dates, not more than 60 calendar days preceding the applicable Dividend Payment Dates therefor, as are determined by the Board of Directors (each of such dates a "Record Date"). Quarterly dividend periods (each a "Dividend Period") shall commence on and include the first day of January, April, July, and October of each year and shall end on and include the last day of March, June, September and December, respectively of such year. Dividends on the shares of Series D-2 Preferred Stock shall be fully cumulative and shall accrue (whether or not declared) from the first day of each Dividend Period; provided, however, that the amount of any dividend payable for any Dividend Period shorter than a full Dividend Period (other than the Initial Dividend Period, which shall be calculated as set forth in Section 2(a)(i) hereof) shall be computed on the 2 3 basis of a 360-day year composed of twelve 30-day months and the actual number of days elapsed in the relevant Dividend Period. (b) Priority as to Dividends. (i) Subject to the provisions hereof, no cash dividend or other distribution (other than in Common Stock or other Junior Stock) shall be declared or paid or set apart for payment on Preferred Stock that constitutes Parity Stock or Junior Stock with respect to dividends for any Dividend Period unless full dividends on the Series D-2 Preferred Stock for the immediately preceding Dividend Period have been or contemporaneously are declared and paid (or declared and a sum sufficient for the payment thereof set apart for such payment). When dividends are not paid in full (or declared and a sum sufficient for such full payment not so set apart) upon the Series D-2 Preferred Stock and any Parity Stock, all dividends declared upon shares of Series D-2 Preferred Stock and any Parity Stock shall be declared pro rata with respect thereto, so that in all cases the amount of dividends declared per share on the Series D-2 Preferred Stock and such Parity Stock shall bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on the shares of Series D-2 Preferred Stock (which shall include any accumulation in respect of unpaid dividends for prior Dividend Periods) and dividends, including accumulations, if any, of such Parity Stock, bear to each other. (ii) Except as provided in the preceding paragraph, full dividends on the Series D-2 Preferred Stock must be declared and paid or set apart for payment for the immediately preceding Dividend Period before (A) any cash dividend or other distribution (other than in Common Stock or other Junior Stock) shall be declared or paid or set aside for payment upon the Common Stock or any other Junior Stock of the Company or (B) any Common Stock or any other Junior Stock is redeemed, purchased or otherwise acquired by the Company for any consideration (or any moneys are paid to or made available for a sinking fund for the redemption of any shares of any such stock), except by redemption into or exchange for Junior Stock or (C) any Series D-2 Preferred Stock or Parity Stock is redeemed, purchased or otherwise acquired by the Company for any consideration (or any moneys are paid to or made available for a sinking fund for the redemption of any shares of any such stock). The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company if under the preceding sentence, the Company would be prohibited from purchasing or otherwise acquiring such shares at such time and in such manner. (iii) No dividend shall be paid or set aside for holders of the Series D-2 Preferred Stock for any Dividend Period unless full dividends on any Preferred Stock that constitutes Senior Stock with respect to dividends for that period have been or contemporaneously are declared and paid (or declared and a sum sufficient for the payment thereof set apart for such payment). (c) Adjustment to Dividend Rate. (i) The Dividend Rate shall not be adjusted prior to the end of the Dividend Period ending on December 31, 2001. 3 4 (ii) The Dividend Rate for each subsequent year (commencing with the year that begins on January 1, 2002) shall be adjusted upward in accordance with Schedule A attached hereto. (iii) Increases in the Dividend Rate are subject to the following limitation: the Dividend Rate shall, under no circumstances, exceed 8.4% per annum. 3. Conversion at Option of the Company. (a) General. (i) The shares of the Series D-2 Preferred Stock shall not be convertible at the option of the Company except upon the later to occur of (x) the date on which a written notice has been mailed or otherwise distributed by the Company to each record holder of the Series D-2 Preferred Stock stating that the assets of either Chandler Trust No. 1 or Chandler Trust No. 2 have been distributed to the beneficiaries thereof and (y) February 1, 2025 (such later date being the "Convertibility Date"). Subject to and upon compliance with the provisions of this Section 3, shares of Series D-2 Preferred Stock may be converted, in whole or in part, at the election of the Company by resolution of the Board of Directors, upon notice as provided in Section 3(b), at any time or from time to time on or after the Convertibility Date. Conversion shall be made by delivering to the holders of Series D-2 Preferred Stock, in respect of the conversion of each share of Series D-2 Preferred Stock so converted, certificates representing the number of fully paid and non-assessable shares (the "Conversion Shares") of Series A Common Stock, par value $1.00 per share, of the Company ("Series A Common Stock," which, together with the Series B Common Stock, par value $1.00 per share, and Series C Common Stock, par value $1.00 per share, of the Company are referred to herein as the "Common Stock") equal to (subject to Section 3(h) hereof) the quotient of (1) $500 plus accrued and unpaid dividends on such shares of Series D-2 Preferred Stock to the Conversion Date (as hereinafter defined) divided by (2) the Common Share Value (as hereinafter defined). The aggregate number of shares of Common Stock (and, if applicable, "Conversion Preferred," as such term is defined below) that a holder of shares of Series D-2 Preferred Stock that have been converted is entitled to receive pursuant to this Section 3 or Section 4 is hereinafter referred to as the "Aggregate Conversion Shares." (ii) The "Common Share Value" shall mean the average of the closing prices of the Series A Common Stock for the 20 days during which trades of Series A Common Stock occurred immediately preceding the Valuation Date (as defined below), as reported in The Wall Street Journal, Western Edition, or, if no closing prices were so reported, the average of the mean between the high bid and low asked price per share of Series A Common Stock for each of the 20 days during which trades of Series A Common Stock occurred immediately preceding the Valuation Date in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use, or, if the Series A Common Stock is not then quoted by any such organization, the average of the mean between the closing bid and asked prices per share of Series A Common Stock for each of the 20 days during which trades of Series A Common Stock occurred immediately preceding the Valuation Date, as furnished by a professional market maker making a market in the Series A Common Stock, or, if there is no such market maker, the fair market value of a share of Series A 4 5 Common Stock determined by whatever method the Board of Directors reasonably determines to use. In the case of a conversion pursuant to this Section 3, the "Valuation Date" shall mean the Conversion Notice Date (as defined in Section 3(b)), and in the case of any conversion pursuant to Section 4, the "Valuation Date" shall mean the Conversion Time (as hereinafter defined). (b) Notice of Conversion. Notice of any conversion, setting forth (i) the Conversion Date (as defined in Section 3(c) hereof), (ii) a statement that dividends on the shares of Series D-2 Preferred Stock to be converted will cease to accrue on such Conversion Date, and (iii) the method(s) by which the holders may surrender the certificates representing shares of Series D-2 Preferred Stock that have been converted and obtain the Conversion Shares therefor, shall be mailed, postage prepaid, on a date (the "Conversion Notice Date") that is at least 15 days but not more than 45 days prior to said Conversion Date to each holder of record of the Series D-2 Preferred Stock to be converted at his, her or its address as the same shall appear on the books of the Company. If less than all the shares of the Series D-2 Preferred Stock owned by such holder are then to be converted, the notice shall specify the number of shares thereof that are to be converted and the numbers of the certificates representing such shares. If applicable, the notice shall also specify the "Maximum Number" applicable to, and the amount of "Conversion Cash" to be received by (absent an election pursuant to Section 3(h)(v) hereof to receive "Conversion Preferred") such holder (as such terms are defined below). (c) Method of Conversion. The surrender of any certificate evidencing shares of Series D-2 Preferred Stock that have been converted shall be made by the holder thereof by the surrender of the certificate or certificates formerly representing the shares of Series D-2 Preferred Stock converted (with proper endorsement or instruments of transfer) to the Company at the principal office of the Company (or such other office or agency of the Company as the Company may designate in writing to the holder or holders of the Series D-2 Preferred Stock) at any time during its usual business hours. Shares of Series D-2 Preferred Stock called for conversion shall be deemed to have been converted, and the shares of Series A Common Stock (and, if applicable, Conversion Preferred) to be issued in respect of the shares of Series D-2 Preferred Stock converted shall be deemed to have been issued, as of the close of business on the date fixed for conversion (the "Conversion Date"), without regard to when certificates evidencing such Series D-2 Preferred Stock are surrendered pursuant to this Section 3(c) or certificates evidencing such Series A Common Stock (and, if applicable, Conversion Preferred) are issued pursuant to Section 3(d). The rights of the holder of Series D-2 Preferred Stock that has been converted, except for the right to receive the Aggregate Conversion Shares therefor in accordance herewith (and any cash payments to which such holder is entitled pursuant to Sections 3(e) and (h) hereof), shall cease on the Conversion Date. In the case of lost or destroyed certificates evidencing ownership of shares of Series D-2 Preferred Stock that have been converted, the holder shall submit proof of loss or destruction and such indemnity as shall be required by the Company. (d) Issuance of Certificates for Series A Common Stock. As soon as practicable after its receipt of any certificate or certificates formerly evidencing ownership of shares of Series D-2 Preferred Stock that have been converted, the Company shall issue and shall deliver to the person for whose account such certificates formerly representing shares of Series D-2 Preferred Stock were so surrendered, or on his, her or its written order, a certificate or certificates for the number of full shares of Series A Common Stock (and, if applicable, 5 6 Conversion Preferred) issuable upon the conversion of such shares of Series D-2 Preferred Stock and a check or cash payment (if any) to which such holder is entitled with respect to fractional shares or Conversion Cash as determined by the Company, in accordance with Sections 3(e) and (h) hereof, respectively. (e) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any shares of Series D-2 Preferred Stock, but the holder thereof will receive in cash an amount equal to the value of such fractional share of Series A Common Stock based on the Common Share Value. If more than one share of Series D-2 Preferred Stock shall be converted at one time for the account of the same holder, the number of full shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of such shares so surrendered. (f) Payment of Taxes. The Company shall pay any tax in respect of the issuance of stock certificates on conversion of shares of Series D-2 Preferred Stock. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of stock in any name other than that of the holder of the shares converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issuance thereof shall have paid to the Company the amount of any such tax or shall have established to the satisfaction of the Company that such tax has been paid. (g) Common Stock Reserved for Conversion. The Company shall at all times from and after the Conversion Date reserve and keep available out of its authorized and unissued Series A Common Stock the full number of shares of Series A Common Stock deliverable upon the conversion of all outstanding shares of Series D-2 Preferred Stock and shall take all such action as may be required from time to time in order that it may validly and legally issue fully paid and non-assessable shares of Series A Common Stock upon conversion of the Series D-2 Preferred Stock. (h) Limitation of the Number of Shares of Series A Common Stock (i) The number of shares of Series A Common Stock into which the Series D-2 Preferred Stock may be converted into shall be limited, as set forth herein. (ii) The maximum number of shares of Series A Common Stock into which the Series D-2 Preferred Stock may be converted into is, in the aggregate, 2,956,942 shares of Series A Common Stock (the "Maximum Number"). If the Company in any manner subdivides or combines the outstanding shares of Series A Common Stock, then the Maximum Number shall be adjusted appropriately. (iii) On conversion, no holder shall be entitled to receive more shares of Series A Common Stock than its pro rata share of the Maximum Number (a holder's "Pro Rata Number"), which shall be calculated by dividing (A) the number of shares of Series D-2 Preferred Stock held by such holder which are then being converted, by (B) 245,100. (iv) If, as a result of Section 3(h)(iii), immediately above, a holder's Pro Rata Number is less than the number of shares of Series A Common Stock to which such 6 7 holder would otherwise be entitled (a holder's "Unrestricted Number"), then, such holder shall be entitled to receive from the Company a cash payment ("Conversion Cash") equal to: (A) the Common Share Value, multiplied by (B) the positive difference between (a) such holder's Unrestricted Number minus (b) such holder's Pro Rata Number. (v) In lieu of Conversion Cash, a holder may elect, by providing written notice to the Company, which notice must be received by the Company at least five days prior to the Conversion Date, to exchange, in lieu of conversion, the number of shares of Series D-2 Preferred Stock held by such holder which as a result of Section 3(h)(iii) cannot be fully converted into such holder's Unrestricted Number, for a like number of shares of a new series of preferred stock of the Company (the "Conversion Preferred") which shall be identical to the Series D-2 Preferred Stock, except that it shall (A) not be convertible into or exchangeable for Common Stock and (B) be redeemable, at liquidation value plus accrued but unpaid dividends, by the Company at any time. 4. Conversion at the Option of Holders. (a) General. After the later to occur of (i) the date on which a written notice has been mailed or otherwise distributed by the Company to each record holder of the Series D-2 Preferred Stock stating that the assets of either Chandler Trust No. 1 or Chandler Trust No. 2 have been distributed to the beneficiaries thereof and (ii) February 1, 2025, the holder of any Series D-2 Preferred Stock may convert pursuant to this Section 4 all or any part (in whole number of shares only) of the Series D-2 Preferred Stock held by such holder into fully paid and non-assessable shares of Series A Common Stock. Subject to Section 4(g) below, the number of shares of Series A Common Stock into which a share of Series D-2 Preferred Stock may be converted shall be equal to the quotient of (1) $500 plus accrued and unpaid dividends on such share of Series D-2 Preferred Stock to the Conversion Time divided by (2) the Common Share Value. (b) Method of Conversion. Each conversion of Series D-2 Preferred Stock shall be effected by the surrender of the certificate or certificates representing the shares of Series D-2 Preferred Stock to be converted (with proper endorsement or instruments of transfer) to the Company at the principal office of the Company (or such other office or agency of the Company as the Company may designate in writing to the holder or holders of the Series D-2 Preferred Stock) at any time during its usual business hours, together with written notice by the holder of such Series D-2 Preferred Stock stating that such holder desires to convert the shares of Series D-2 Preferred Stock, or a stated number of such shares, represented by such certificate or certificates, which notice shall also specify the name or names (with addresses) and denominations in which the certificate or certificates for the Series A Common Stock (and, if applicable, Conversion Preferred) shall be issued and shall include instructions for delivery thereof. If such holder desires to receive Conversion Preferred in lieu of any Conversion Cash that may be payable to such holder, the notice shall so state. Any conversion pursuant to this Section 4 shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates shall have been surrendered and such notice shall have been 7 8 received, and at such time (the "Conversion Time") the rights of the holder of Series D-2 Preferred Stock (or specified portion thereof) as such holder shall cease and the person or persons in whose name or names any certificate or certificates for shares of Series A Common Stock (and, if applicable, Conversion Preferred) are to be issued upon conversion shall be deemed to have become the holder or holders of record of the shares of Series A Common Stock (and, if applicable, Conversion Preferred) represented thereby. In the case of lost or destroyed certificates evidencing ownership of shares of Series D-2 Preferred Stock to be converted, the holder shall submit proof of loss or destruction and such indemnity as shall be required by the Company. (c) Issuance of Certificates for Series A Common Stock. As soon as practicable after its receipt of any certificate or certificates evidencing ownership of shares of Series D-2 Preferred Stock to be converted pursuant to this Section 4, the Company shall issue and shall deliver to the person for whose account such shares of Series D-2 Preferred Stock were so surrendered, or on his, her or its written order, a certificate or certificates for the number of full shares of Series A Common Stock (and, if applicable, Conversion Preferred) issuable upon the conversion of such shares of Series D-2 Preferred Stock and a check or cash payment (if any) to which such holder is entitled with respect to fractional shares or Conversion Cash as determined by the Company, in accordance with Sections 4(d) and (g) hereof, respectively. (d) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any shares of Series D-2 Preferred Stock, but the holder thereof will receive in cash an amount equal to the value of such fractional share of Series A Common Stock based on the Common Share Value. If more than one share of Series D-2 Preferred Stock shall be converted at one time for the account of the same holder, the number of full shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of such shares so surrendered. (e) Payment of Taxes. The Company shall pay any tax in respect of the issuance of stock certificates on conversion of shares of Series D-2 Preferred Stock. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of stock in any name other than that of the holder of the shares converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issuance thereof shall have paid to the Company the amount of any such tax or shall have established to the satisfaction of the Company that such tax has been paid. (f) Common Stock Reserved for Conversion. The Company shall at all times from and after the Conversion Time reserve and keep available out of its authorized and unissued Series A Common Stock the full number of shares of Series A Common Stock deliverable upon the conversion of all outstanding shares of Series D-2 Preferred Stock and shall take all such action as may be required from time to time in order that it may validly and legally issue fully paid and non-assessable shares of Series A Common Stock upon conversion of the Series D-2 Preferred Stock. 8 9 (g) Limitation of the Number of Shares of Series A Common Stock (i) The number of shares of Series A Common Stock into which the Series D-2 Preferred Stock may be converted into shall be limited, as set forth herein. (ii) On conversion, no holder shall be entitled to receive more shares of Series A Common Stock than its Pro Rata Number. (iii) If, as a result of Section 4(g)(ii), immediately above, a holder's Pro Rata Number is less than such holder's Unrestricted Number, then such holder shall be entitled to receive from the Company the Conversion Cash. (iv) In lieu of Conversion Cash, a holder may elect, by providing notice of such election in the notice of conversion delivered pursuant to Section 4(b), to exchange, in lieu of conversion, the number of shares of Series D-2 Preferred Stock held by such holder which as a result of Section 4(g)(iii) cannot be fully converted into such holder's Unrestricted Number, for a like number of shares of Conversion Preferred. 5. Voting Rights. (a) General Voting Rights. Except as expressly provided hereinafter in this Section 5, or as otherwise from time to time required by applicable law, the Series D-2 Preferred Stock shall have no voting rights. (b) Voting Rights Upon Dividend Arrears. (i) Right to Elect Directors. In the event that an amount equal to six quarterly dividend payments on the Series D-2 Preferred Stock shall have accrued and be unpaid (the occurrence of such contingency marking the beginning of a period herein referred to as the "Default Period," which shall extend until such time as all accrued and unpaid dividends for all previous Dividend Periods and for the current Dividend Period on all shares of Series D-2 Preferred Stock then outstanding shall have been declared and paid or declared and a sum sufficient for such full payment set apart for payment), the holders of the Series D-2 Preferred Stock shall have the right, voting separately as a class together with holders of shares of the Series D-2 Preferred Stock and any other Parity Stock upon which like voting rights have been conferred and are exercisable (such shares of Series D-2 Preferred Stock, shares of Series D-2 Preferred Stock, and other shares of Parity Stock are hereinafter referred to as "Voting Parity Stock"), to elect two members of the Board of Directors, each member to be in addition to the then authorized number of directors, at the next annual meeting of stockholders or at a special meeting called as described below and thereafter until the Default Period shall have ended. (ii) Special Meeting; Written Consent. Whenever such voting right shall vest, it may be exercised initially by the vote of the holders of a plurality of the voting power of Series D-2 Preferred Stock and Voting Parity Stock present and voting as a single class, in person or by proxy, at a special meeting of holders of the Series D-2 Preferred Stock and Voting Parity Stock or at the next annual meeting of stockholders. A special meeting for the exercise of such right shall be called by the Secretary of the Company as promptly as possible, and in any event within 10 days after receipt of a written request signed by the holders of record 9 10 of at least 25% of the outstanding shares of the Series D-2 Preferred Stock and Voting Parity Stock, subject to any applicable notice requirements imposed by law or regulation. Notwithstanding the provisions of this paragraph, no such special meeting shall be required to be held during the 90-day period preceding the date fixed for the annual meeting of stockholders. Any action required or permitted to be taken at any such special meeting of such holders may be taken by a consent or consents in writing of such stockholders, setting forth the action so taken, which consent or consents shall be signed by the holders of Series D-2 Preferred Stock and Voting Parity Stock representing a majority of the voting power of shares of such Series D-2 Preferred Stock and Voting Parity Stock and shall be delivered to the Company in the manner set forth from time to time in the DGCL. (iii) Term of Office of Directors. Any director who shall have been elected by holders of the Series D-2 Preferred Stock and Voting Parity Stock entitled to vote in accordance with this subparagraph (b) shall hold office for a term expiring (subject to the earlier expiry of such term, as set forth below) at the annual meeting of stockholders at which the term of office of his class shall expire and during such term may be removed at any time, only for cause, by, and only by, the affirmative vote of the holders of record of a majority of the voting power of the Series D-2 Preferred Stock and Voting Parity Stock present and voting as a single class, in person or by proxy, at a special meeting of such stockholders called for such purpose, and any vacancy created by such removal may also be filled at such meeting. A meeting for the removal of a director elected by the holders of the Series D-2 Preferred Stock and Voting Parity Stock and the filling of the vacancy created thereby shall be called by the Secretary of the Company as promptly as possible and in any event within 10 days after receipt of a request therefor signed by the holders of not less than 25% of the aggregate outstanding voting power of the Series D-2 Preferred Stock and Voting Parity Stock, subject to any applicable notice requirements imposed by law or regulation. Such meeting shall be held at the earliest practicable date thereafter, provided that no such meeting shall be required to be held during the 90-day period preceding the date fixed for the annual meeting of stockholders. Simultaneously with the expiration of the Default Period, the terms of office of all directors elected by the holders of the shares of Series D-2 Preferred Stock and the Voting Parity Stock pursuant hereto then in office shall, without further action, thereupon terminate unless otherwise required by law. Upon such termination the number of directors constituting the Board of Directors of the Company shall, without further action, be reduced by two, subject always to the increase of the number of directors pursuant to the foregoing provisions in the case of the future right of holders of the shares of Series D-2 Preferred Stock and Voting Parity Stock to elect directors as provided above. (iv) Vacancies. Any vacancy caused by the death, resignation or removal of a director who shall have been elected in accordance with this subparagraph (b) may be filled by the remaining director so elected or, if not so filled, by a vote of holders of a plurality of the voting power of the Series D-2 Preferred Stock and Voting Parity Stock present and voting as a single class, in person or by proxy, at a meeting called for such purpose. Unless such vacancy shall have been filled by the remaining director as aforesaid, such meeting shall be called by the Secretary of the Company at the earliest practicable date after such death or resignation, and in any event within 10 days after receipt of a written request signed by the holders of record of at least 25% of the outstanding shares of the Series D-2 Preferred Stock and Voting Parity Stock, subject to any applicable notice requirements imposed by law or regulation. 10 11 Notwithstanding the provisions of this paragraph, no such special meeting shall be required to be held during the 90-day period preceding the date fixed for the annual meeting of stockholders. (v) Stockholders' Right to Call Meeting. If any meeting of the holders of the Series D-2 Preferred Stock and Voting Parity Stock required by this subparagraph (b) to be called shall not have been called within 30 days after personal service of a written request therefor upon the Secretary of the Company or within 30 days after mailing the same within the United States of America by registered mail addressed to the Secretary of the Company at its principal executive offices, subject to any applicable notice requirements imposed by law or regulation, then the holders of record of at least 25% of the outstanding shares of the Series D-2 Preferred Stock and Voting Parity Stock may designate in writing one of their number to call such meeting at the expense of the Company, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders or such shorter notice (but in no event shorter than permitted by law or regulation) as may be acceptable to the holders of a majority of the total voting power of the Series D-2 Preferred Stock and Voting Parity Stock. Any holder of Series D-2 Preferred Stock and Voting Parity Stock so designated shall have access to the Series D-2 Preferred Stock and Voting Parity Stock books of the Company for the purpose of causing such meeting to be called pursuant to these provisions. (vi) Quorum. At any meeting of the holders of the Series D-2 Preferred Stock called in accordance with the provisions of this subparagraph (b) for the election or removal of directors, the presence in person or by proxy of the holders of a majority of the total voting power of the Series D-2 Preferred Stock and Voting Parity Stock shall be required to constitute a quorum; in the absence of a quorum, the holders of a majority of the total number of votes present in person or by proxy shall have power to adjourn the meeting from time to time without notice other than an announcement at the meeting, until a quorum shall be present. (c) Voting Rights on Extraordinary Matters. (i) So long as any shares of Series D-2 Preferred Stock shall be outstanding, the holders of the Series D-2 Preferred Stock shall have the right, voting separately as a class together with holders of shares of any Voting Parity Stock (with two-thirds of the voting power of such stock at the time outstanding given in person or by proxy at a meeting at which the holders of such shares shall be entitled to vote separately as a class, or by a consent or consents in writing setting forth such approval, which consent shall be delivered to the Company in the manner set forth from time to time in the DGCL, required for approval by such holders), to vote on: (i) the liquidation or dissolution of the Company; (ii) any proposal to authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock ranking pari passu with, or prior to, the shares of the Series D-2 Preferred Stock in powers, rights or preferences upon the liquidation, dissolution or winding up of the affairs of the Company or as to dividends; and (iii) any proposal to amend by merger, amendment or otherwise (or otherwise alter or repeal) the Certificate of Incorporation (or this resolution) if such amendment, alteration or repeal would increase or decrease the aggregate number of authorized shares of Series D-2 Preferred Stock or any Voting Parity Stock, increase or decrease the par value of the shares of Series D-2 Preferred Stock or any Voting Parity Stock, or alter or change the powers, preferences, or special rights of the shares of Series D-2 Preferred Stock or any Voting Parity Stock so as to affect them adversely. An amendment that increases the number of authorized 11 12 shares of any class or series of Preferred Stock or authorizes the creation or issuance of other classes or series of Preferred Stock, in each case ranking junior to the Series D-2 Preferred Stock with respect to the payment of dividends and distribution of assets upon liquidation, dissolution or winding up shall not be considered to be such an adverse change. (ii) So long as any shares of Series D-2 Preferred Stock shall be outstanding and unless the consent or approval of a greater number of shares shall then be required by applicable law, without first obtaining the approval of the holders of at least two-thirds of the voting power of the Series D-2 Preferred Stock at the time outstanding (voting separately as a class together with the holders of shares of Voting Parity Stock) given in person or by proxy at a meeting at which the holders of such shares shall be entitled to vote separately as a class (or by a consent or consents in writing setting forth such approval, which consent shall be delivered to the Company in the manner set forth from time to time in the DGCL), the Company shall not either directly or indirectly or through merger or consolidation with any other entity, (i) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock that would place or have the effect of placing restrictions on the obligation of the Company to pay dividends to the holders of Series D-2 Preferred Stock or to perform any of its obligations to the holders of Series D-2 Preferred Stock at any time; or (ii) authorize, enter into or permit to exist any covenant or agreement that would place or have the effect of placing restrictions on the obligations of the Company to pay dividends to holders of Series D-2 Preferred Stock or to perform any of its other obligations to the holders of Series D-2 Preferred Stock at any time; provided, however, that notwithstanding the foregoing, the Company may from time to time enter into credit agreements and indentures that provide for limitations on the ability of the Company to pay dividends on its capital stock generally, so long as the Board of Directors determines, in its sole discretion, that such limitation is necessary in order to obtain financing on commercially reasonable terms. (d) One Vote Per Share. In connection with any matter on which holders of the Series D-2 Preferred Stock are entitled to vote as provided in subparagraphs (b) and (c) above, or any other matter on which the holders of the Series D-2 Preferred Stock are entitled to vote as one class or otherwise pursuant to applicable law or the provisions of the Certificate of Incorporation, each holder of Series D-2 Preferred Stock shall be entitled to one vote for each share of Series D-2 Preferred Stock held by such holder. (e) Except as otherwise required by law, the holders of Series D-2 Preferred Stock and holders of Series D-2 Preferred Stock will vote together as a single class. 6. No Sinking Fund. No sinking fund will be established for the retirement or redemption of shares of Series D-2 Preferred Stock. 7. Liquidation Rights: Priority. (a) In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Company, the holders of shares of the Series D-2 Preferred Stock shall be entitled to receive, out of the assets of the Company, whether such assets are capital or surplus and whether or not any dividends as such are declared, $500 per share plus an 12 13 amount equal to all accrued and unpaid dividends for the then-current plus all prior Dividend Periods, and no more, before any distribution shall be made to the holders of the Common Stock or any other class of stock or series thereof ranking junior to the Series D-2 Preferred Stock with respect to the distribution of assets upon liquidation, dissolution or winding up of the Company. The Series D-2 Preferred Stock and, unless specifically designated as junior or senior to the Series D-2 Preferred Stock with respect to the liquidation, dissolution or winding up of the affairs of the Company or as to dividends, all other series or classes of Preferred Stock of the Company shall rank on a parity with the Series D-2 Preferred Stock with respect to the distribution of assets. (b) Nothing contained in this Section 7 shall be deemed to prevent conversion of shares of the Series D-2 Preferred Stock by the Company in the manner provided in Section 3. Neither the merger nor consolidation of the Company into or with any other entity, nor the merger or consolidation of any other entity into or with the Company, nor a sale, transfer or lease of all or any part of the assets of the Company, shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section 7. (c) Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than 30 days prior to the payment date stated therein, to the holders of record of the Series D-2 Preferred Stock at their respective addresses as the same shall appear on the books of the Company. (d) If the amounts available for distribution with respect to the Series D-2 Preferred Stock and all other outstanding stock of the Company ranking on a parity with the Series D-2 Preferred Stock upon liquidation, dissolution or winding up are not sufficient to satisfy the full liquidation rights of all the outstanding Series D-2 Preferred Stock and stock ranking on a parity therewith, then the holders of each series of such stock will share ratably in any such distribution of assets in proportion to the full respective preferential amount (which in the case of the Series D-2 Preferred Stock shall mean the amounts specified in Section 7(a) and in the case of any other series of preferred stock may include accumulated dividends if contemplated by such series) to which they are entitled. 8. Status of Shares Converted. Shares of Series D-2 Preferred Stock converted or purchased or otherwise acquired for value by the Company, shall, after such event, have the status of authorized and unissued shares of Preferred Stock without designation and may be reissued by the Company at any time as shares of any series of Preferred Stock. 13 14 IN WITNESS WHEREOF, The Times Mirror Company has caused this Certificate to be signed by Roger H. Molvar, its Senior Vice President and Controller, this 28th day of December, 1999. THE TIMES MIRROR COMPANY, a Delaware corporation By: /s/ Roger H. Molvar Name: Roger H. Molvar Title: Senior Vice President and Controller 15 Schedule A Dividend Rates Year Dividend Rate ---- ------------- 2000 5.80% 2001 5.80% 2002 6.01% 2003 6.22% 2004 6.44% 2005 6.67% 2006 6.91% 2007 7.15% 2008 7.41% 2009 7.67% 2010 7.95% 2011 8.23% 2012 and thereafter 8.40%
14 EX-10.19 4 LETTER AGRMNT BETWEEN TIMES MIRROR/MARY E. JUNCK 1 EXHIBIT 10.19 [TIMES MIRROR LETTERHEAD] April 5, 1999 PERSONAL AND CONFIDENTIAL Ms. Mary E. Junck 1001 St. Georges Road Baltimore, Maryland 21210 Dear Mary: This letter will confirm our previous discussions and shall constitute the agreement ("Agreement") reached with you concerning the terms and conditions under which you resign your employment with The Times Mirror Company ("Times Mirror") and its wholly owned subsidiary, The Baltimore Sun, Inc. ("The Baltimore Sun"), (both of which are collectively referred to in this Agreement as the "Companies") and the benefits and payments which you will receive from the Companies in consideration of the termination of your employment. This Agreement and the benefits and payments described in it are conditioned upon your execution of and complying with the terms and conditions set forth in this Agreement. 1. Employment Status: (a) By the execution of this Agreement, as of April 9, 1999, you will relinquish the title and duties of Executive Vice President, as well as any other positions you may hold within the Companies and any of their respective subsidiaries and affiliates. (b) Effective the close of business on June 30, 1999, (the "Effective Date") regardless of whether you become disabled prior to such date, your active employment with the Companies will terminate and you will be placed on a leave of absence ("Leave of Absence"). Regardless of whether you accept employment with another employer, your employment with the Companies, as well as the Leave of Absence, will terminate on the earlier of (i) the date you elect to terminate employment by providing written notice to either the Senior Vice President of Human Resources or the Secretary of Times Mirror or (ii) July 1, 2001 ("Termination Date"). In the event that you accept employment with another employer not within the Times Mirror group of companies before your Termination Date, your employment status under this Agreement and the terms of this Agreement will not change other than as specified herein. (Notwithstanding the foregoing, if you do not execute this Agreement, your employment will terminate as of June 30, 1999.) 2 Ms. Mary E. Junck April 5, 1999 Page 2 2. Paid Leave of Absence/Special Payment: (a) From April 9, 1999 through the Effective Date, you will be paid $8,653.85 per week, less required withholdings, on regular payroll intervals. Thereafter, during the Leave of Absence, subject to the terms and conditions of this Agreement and regardless of your death or disability, you will receive a special payment equal to $100,000, which represents one-half of your annual target bonus incentive award in effect on the date of this Agreement, payable as set forth below. Such special payment is in lieu of any bonus award otherwise payable for 1999 and constitutes severance payments to you during the Leave of Absence. (b) During the Leave of Absence through your Termination Date, this special payment will be paid to you, less appropriate withholdings, in equivalent quarterly installments of $12,500, the first payroll period of each calendar quarter, commencing with the third calendar quarter of 1999 (i.e., on or about July 1, 1999). In the event your Termination Date is prior to July 1, 2001 (as provided for in paragraph 1(b) of this Agreement), then upon such earlier Termination Date, you or your heirs or assigns will receive the remaining special payments (if any) in a single special payment equal to the difference of (i) $100,000, less (ii) the special payments received during the Leave of Absence. The single sum special payment, if any, less appropriate withholdings, will be payable within 30 days after your earlier Termination Date. (c) For purposes of Regulation S-K of the Securities Exchange Act of 1934 ("Regulation S-K"), all payments made to you under this Agreement shall be deemed to be severance payments and not salary or bonus. 3. Annual Bonus Incentive Award/Matching Bonus Restricted Stock: On the Effective Date you will cease participation in the Times Mirror bonus incentive plan with respect to 1999 and thereafter. Since you will not be receiving a 1999 bonus incentive award, your election to place on deposit shares of Times Mirror stock equal in value to 25% of your 1999 bonus will be canceled. 4. Group Benefits: (a) While you are still actively employed, all group health care and group insurance benefits offered to active full-time employees to which you are currently entitled and/or enrolled will continue in accordance with your enrollment elections and the terms of the plans. While on your Leave of Absence, for a maximum period of one year, you will remain eligible for The Baltimore Sun's group insurance programs offered to active employees, except as noted below. Your contributions for these coverages will be at the same rate paid by active employees and will, be deducted from the periodic severance payments being made to you under this Agreement. (b) As of the Effective Date, which is the date that your active employment terminates, your coverage under business travel and the short and long term disability programs, if enrolled, will cease. You have the option to convert all or part of your business travel 3 Ms. Mary E. Junck April 5, 1999 Page 3 insurance to an individual policy, subject to established rules and plan limitations. Further, if you are enrolled in the long-term disability plan ("LTD") and you have been covered under the plan for 12 months or more, you may, subject to plan terms, convert your LTD coverage to an individual policy. If you wish to take advantage of either or both of these conversion options, your application(s) must be received by the respective insurance carrier(s) within 31 days from the date your coverage terminates; otherwise, you will waive your right to convert. (c) Upon the earlier of the end of the first year of your Leave of Absence or your Termination Date, all other employee benefit plan coverages will cease. You have the option, subject to established rules and plan limitations, to convert all or part of your basic life and, if enrolled, voluntary accidental death and dismemberment coverages to individual policies. If you wish to take advantage of this option, your application(s) must be received by the insurance carrier(s) within 31 days from the date your coverages terminate, otherwise you will waive your right to convert. If you are enrolled in the Group Universal Life Insurance Program, you will hear from Prudential directly concerning the portability and conversion options available under that Plan. In addition, if you or any of your qualified family members currently have coverage under the long-term care plan, the coverage may be continued. The John Hancock Company will contact the covered individuals directly concerning the continuation of coverage. (d) If you are covered under one of the Baltimore Sun-sponsored health care plans, upon termination of your health care coverage (at the earlier of the end of the first year of your Leave of Absence or your Termination Date), you may elect to continue the coverage currently in effect for you and your covered dependents under the Consolidated Omnibus Budget Reconciliation Act (COBRA) as specified by that statute. COBRA coverage may be continued for up to 18 months (up to 29 months for any eligible individual who is disabled as determined by the Social Security Administration during the first 60 days of COBRA coverage) or until the individual is covered, after COBRA is elected, under another group health plan with no pre-existing condition limitation affecting his or her coverage or is entitled to Medicare, whichever occurs first. The COBRA election notice and form will be mailed to you upon the termination of coverage. If you and/or your eligible dependents wish to elect COBRA continuation coverage, the completed election form must be returned to The Baltimore Sun within 60 days from the date the notice is sent or the date your coverage terminated, whichever is later. You are not automatically enrolled in COBRA coverage. If you do not wish to extend health coverage under COBRA, you may, subject to established rules, convert your group medical coverage to an individual policy without proof of good health. The converted policy may not provide the same coverage as the group plan. The levels of coverage may be less and an overall lifetime maximum benefit may apply. If you are interested in converting your group coverage to an individual policy, you must apply and pay your first premiums to the health care carrier within 31 days from the date coverage ceased. Application may be 4 Ms. Mary E. Junck April 5, 1999 Page 4 obtained directly from the carriers by contacting Member Services or, if you are covered under the Aetna plan, from Employee Benefits at (213) 237-5732. If COBRA continuation coverage is elected for the medical coverage, and coverage ends because the maximum coverage period expires, you have another opportunity to convert to an individual medical policy during the 180-day period that ends on the expiration date. 5. Retirement Benefits: (a) Prior to and during your Leave of Absence, you will continue to be eligible to participate in the Times Mirror and The Baltimore Sun's retirement plans in accordance with the respective terms and limitations of each plan. You will accrue benefits as described under the retirement plans, and you may continue to participate in the Savings Plus Plan at your selected savings rate (subject to any election you wish to make) as a result of the amounts paid to you prior to and during your Leave of Absence, subject to plan maximums and provisions. (The retirement plans provide for a maximum of one year of benefit accrual service or salary credit for the combination of your salary continuation/periodic severance payments during the Leave of Absence and any lump sum severance payments, subject to statutory limits in the Internal Revenue Code.) (b) You are currently vested in your benefits earned under the retirement plans and Savings Plus Plan. In addition, you are also vested in your benefits earned under the Time Mirror Supplemental Executive Retirement Plan ("SERP"). As of your Termination Date, you will be entitled to receive any vested accrued benefits under retirement plans, Savings Plus Plan and SERP in accordance with the terms of the plans and any elections you make under the plans. Distributions under each plan shall be made in accordance with the terms and procedures of each respective plan based on your participation and vesting under the plans. 6. Stock Options: (a) You presently hold options to purchase shares of stock under the Times Mirror Company stock option plans (the "Plans"). Prior to and during your Leave of Absence, options will continue to vest in accordance with the grants and the terms of the Plans, and to the extent that options are vested and exercisable during your Leave of Absence, they may be exercised in accordance with the terms of the Plans. You will not be eligible for any future stock option grants. (b) To the extent that options are vested and exercisable as of your Termination Date, they may be exercised in accordance with the terms of the Plans for a period of up to 30 days following your Termination Date. Options not exercisable will be canceled on your Termination Date. (c) Subject to the provisions of paragraph 17, your acceptance of employment with another employer not within the Times Mirror group of companies before your Termination Date will not affect your rights with respect to the Plans. Options will continue to vest in accordance with the grants and the terms of the Plans, and to the extent 5 Ms. Mary E. Junck April 5, 1999 Page 5 that options are vested and exercisable prior to July 1, 2001, they may be exercised in accordance with the terms of the Plans. (d) The Companies acknowledge that as of April 9, 1999, you will no longer be an "officer as that term is defined in Rule 16a-1(f) of the rules and regulations promulgated under the Securities and Exchange Act of 1934, as amended. (e) Specific details on your personal vesting, exercise rights, and procedures may be obtained from the Executive Compensation and Stock Benefits group of Human Resources at Times Mirror (213) 237-3973. 7. Restricted Stock: During your Leave of Absence, restrictions will lapse on your shares of restricted stock in accordance with the provisions of the restricted stock program. Upon your Termination Date, any shares of restricted stock still subject to restriction will be canceled. 8. Matching Bonus Restricted Stock: During your Leave of Absence, you will continue to vest in your matching bonus restricted stock provided you leave your personal shares on deposit with Times Mirror. Upon your Termination Date, in accordance with the terms of the matching bonus restricted stock program, any shares of matching bonus restricted stock still subject to restrictions will be canceled and their corresponding personal shares on deposit with Times Mirror will be returned to you. 9. Club Dues: Within 10 days of the Effective Date, Times Mirror will pay you a single lump sum amount for your actual 1998 and 1999 club membership dues. No further payments for membership fees, club dues or any other special purposes will be payable after the Effective Date. 10. Other Perquisites and Benefits: All other perquisites and employee benefits and your participation in all other employee benefit programs not described herein will terminate on your Effective Date. You will continue to participate in the Times Mirror Matching Gifts Program which will cease as of your Termination Date. In addition, you will continue to be eligible for one annual physical exam provided at Times Mirror expense during the first year of your Leave of Absence, and the Companies will reimburse you up to $5,000 for financial counseling expenses incurred during the first year of your Leave of Absence. If applicable, you will cease to accrue vacation and personal days after the Effective Date, when your active employment ceases. Any accumulated but unused vacation and personal days will be paid to you as of your Termination Date. 11. Withholding and Taxes: All payments required to be made by the Companies hereunder shall be subject to any and all applicable withholdings, including any withholdings for any related federal, state or local taxes. You shall be responsible for any and all income 6 Ms. Mary E. Junck April 5, 1999 Page 6 taxes or other taxes incurred by you as a result of your receipt of any payments from the Companies. 12. Company Property: (a) Your privileges under all of the Companies' credit cards will cease on the Effective Date. On that date, you will return all such credit cards. The Companies will prepare an accounting of your expense account and credit card balances as of that date. All business expenses through the Effective Date are to be submitted within 30 days of the Effective Date. The net amount due between you and the Companies may be added to or subtracted from the payments described above if no other reimbursement method is used. (b) In addition, you will return to the Companies all property of the Companies, including, without limitation, all equipment, tangible proprietary information documents, books, records, reports, contracts, lists, computer disks (or other computer-generated files or data), or copies thereof, created on any medium, prepared or obtained by you or the Companies in the course of or incident to your employment with the Companies. 13. Confidentiality: You agree to keep the terms of this Agreement strictly confidential and you agree that you will not disclose its terms to anyone other than your legal or financial advisor(s), relevant taxing authorities, and appropriate family members, and except as required by law. Further, to the extent to which information contained in this Agreement is disclosed to any other person, you agree to obtain from them the promise not to disclose this information unless required to do so by law, a court or governmental authority. The Companies agrees to keep the terms of this Agreement confidential except to the extent that disclosure of the terms is required in the ordinary course of business operations necessary or advisable to effect the terms of this Agreement or as required by relevant taxing authorities or as required by law. 14. No Claims: You represent and warrant to the Companies that you have not instituted any complaints, charges or other proceedings against the Companies, or any of its subsidiaries with any governmental agency, any court, or any arbitration agency or tribunal, and that, as a condition of this Agreement, you hereby waive any right to recovery in any such action or proceeding if you should file at any time hereafter; provided, however, that this shall not limit you from instituting such proceedings as may be necessary for the sole purpose of enforcing your rights under this Agreement or your rights to payment of benefits under any benefit plan sponsored by the Companies in which you participated on the date of this Agreement. 15. Company Information: (a) You acknowledge that in the course of your employment with the Companies, certain confidential factual and strategic information specifically related to the Companies, and its subsidiaries has been disclosed to you in confidence which was for the use of the Companies, or any or all of their respective subsidiaries ("Company 7 Ms. Mary E. Junck April 5, 1999 Page 7 Information"). You understand and agree that you (i) will keep such Company Information confidential at all times during and after your employment with the Companies, (ii) will not disclose or communicate Company Information to any third party, and (iii) will not make use of Company Information on your own behalf, or on behalf of any third party; provided that this Agreement does not apply to information that becomes publicly available. (b) In view of the nature of your employment and the nature of Company Information which you received during the course of your employment, you agree that any unauthorized disclosure to third parties of Company Information or other violation, or threatened violation, of this Agreement would cause irreparable damage to the confidential status of Company Information and to the Companies, or any and all of their respective subsidiaries, and that therefore, the Companies shall be entitled to an injunction prohibiting you from any such disclosure, attempted disclosure, violation, or threatened violation. When specific Company Information becomes generally available to the public other than by your acts or omissions, it is no longer subject to restrictions in this paragraph. However, Company Information shall not be deemed to come under this exception merely because it is embraced by more general information which is or becomes generally available to the public. (c) The undertaking set forth in this paragraph 15 shall survive the termination of this Agreement. 16. Director and Officer Liability Coverage: During your period of employment as an officer of the Companies, under the bylaws of Times Mirror, you were covered under The Times Mirror Company's directors' and officers' liability coverage. This coverage will continue in effect with respect to the period of time during which you served as an officer of the Companies and with respect to your actions related to your employment as an officer of the Companies. In any event, Times Mirror will indemnify you, in the manner and to the extent permitted by law, from any claims, demands, lawsuits, judgments and related expenses arising from your good faith performance as an officer of the Companies during the period of your active employment with the Companies. 17. Restrictive Covenant: (a) During your employment with the Companies you have held high executive positions and responsibilities. Major operating units of Times Mirror have been under your control. As a result, you have had access to and direct responsibility for the means by which such operating units conduct their businesses, including, but not limited to, trade secrets, confidential information and future plans. The interests of the Companies require that certain reasonable limitations be imposed upon the extent to which you may become employed by competitors of the Companies. Accordingly, from the date of this Agreement through July 1, 2001, the period during which you will receive consideration from the Companies, and subject to the provisions of subparagraph (b) 8 Ms. Mary E. Junck April 5, 1999 Page 8 below, you agree that you shall not, without the express prior written consent of the Chief Executive Officer of Times Mirror, directly or indirectly, and whether as a principal, partner, officer, director, employee, consultant, venturer, agent or otherwise, alone or in association with any person, carry on, be engaged or take part in or render services to any newspaper publishing entity or business engaged in competition with (i) The Baltimore Sun, The Times Mirror Company or any of its subsidiaries in the Baltimore Metropolitan Area which is defined as Baltimore City and the counties of Baltimore, Harford, Caroll, Anne Arundel, and Howard, Maryland, or (ii) Times Mirror or any division or subsidiary of Times Mirror in the Southern California region (consisting of the counties of Los Angeles, Orange, Ventura, San Bernardino, San Diego or Riverside, California (referred to below as the "Six Counties"). Included within the meaning of an indirect interest would be, by way of example only, an interest in a trust, corporation, venture, or partnership which in turn owns an interest in any such competitive business, or an interest in any such competitive business held through a nominee, agent, option or other device. The foregoing provisions do not apply to an investment in stock of any publicly held corporation if the market value of such investment when acquired does not exceed $500,000 or to any investment in a mutual fund. (b) Provided further however, that you shall not be in violation of the provisions of subparagraph (a), above, by taking a position with or becoming employed by any of the following businesses: (i) television or radio; (ii) cable television; (iii) a national newspaper group so long as your responsibilities do not include being solely responsible for the performance of a newspaper owned by such group which is distributed in the Six Counties or the Baltimore Metropolitan Area; (iv) magazine publishing; (v) an online service which does not directly compete with the content of any online service offered by the Companies or any division, subsidiary or affiliate of the Companies; (vi) weekly newspapers or shoppers; or (vii) direct mail or marketing so long as none of the businesses referred to in subparagraph (vi) above or this subparagraph (vii), distribute or circulate any publication or product in the Baltimore Metropolitan Area or in the Six Counties. (c) You further agree that you will not, until July 1, 2001, without the express prior written consent of the Chief Executive Officer of Times Mirror, whether for your own account or for the account of any other person, directly or through an agent, initiate contact for the purpose of enticing away from the Companies, or any of its subsidiaries any person who is an officer, employee, customer, vendor or supplier of, or an author, who is currently under contract with, the Companies, or any of their respective subsidiaries. (d) It is understood by and between us that the covenants and restrictions set forth in this paragraph are essential elements of our Agreement and that, but for your agreement to comply with such covenants, the Companies would not have entered into this Agreement. 9 Ms. Mary E. Junck April 5, 1999 Page 9 (e) Notwithstanding any election which you may make resulting in the receipt by you of any portion of any remaining severance payments in a single payment under the provisions of paragraph 2, the covenants and restrictions set forth in this paragraph 17 shall remain in full force and effect to the same extent as though such severance payments had been made to you over the 24 month period set forth in paragraph 2. (f) Further, you may at any time request the express prior written consent of the Chief Executive Officer of Times Mirror regarding any actions you intend to take in order to avoid inadvertently breaching such provisions. 18. Termination of Benefits: You agree that the benefits to be provided to you by the Companies under this Agreement are subject to termination, reduction or cancellation in the event that you take any action or engage in any conduct in material violation of this Agreement. The Companies agree to notify you if you are believed to be engaging in conduct in violation of this Agreement and provide you with a thirty-day grace period to cure your breach if it consists of an act that can be cured. Notwithstanding anything in this Agreement to the contrary, if you fail to cure such breach during such period or if the breach is not one that is susceptible of being cured, the benefits provided to you under this Agreement will cease, but only to the extent they are in addition to those benefits to which you would otherwise be entitled. 19. Public Commentary/Acknowledgement: Each of the parties hereto agrees that such party shall not respond to or in any way participate in or contribute to any public discussion, notice, or other publicity concerning or in any way relating to the execution or the terms of this Agreement, the other parties hereto, or the business or prospects of the parties in any way that would defame, hold in a negative light or otherwise injure any other party hereto. The Companies acknowledge that your resignation was completely voluntary, that your job performance has been consistently exemplary, and that you have been an outstanding executive. 20. Release: (a) In exchange for the additional benefits to be provided to you from the Companies under this Agreement, you, on behalf of yourself, your heirs, executors, administrators and assigns, hereby waive, release, and forever discharge the Companies, their shareholders, directors, officers, employees, successors and assigns completely from any and all claims, actions, rights, demands, liabilities and causes of any action of every kind and character, known or unknown, mature or unmatured, which you had or now have, arising from or relating to your employment your termination, or any act of the Companies, or their directors, officers, and employees occurring up to and including the date of this release, including, but not limited to, any claim to reinstatement of, or future employment with, the Companies, any claim for breach of contract or wrongful termination, any claim for additional salary, severance pay, or other compensation or 10 Ms. Mary E. Junck April 5, 1999 Page 10 employee, fringe or retiree benefits, any claim under the Employee Retirement Income Security Act of 1974, as amended, the Americans with Disabilities Act, as amended, or the Family and Medical Leave Act, as amended, and any claim based on tort, contract (expressed or implied), or any federal, state or local law, rule or regulation prohibiting employment discrimination, including, but not limited to, any claims of unlawful discrimination, any rights under the Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefit Protection Act ("Age Discrimination Act"), which prohibits age discrimination in employment, any rights under Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment based on race, color, national origin, religion, or sex, or any other claim, action, cause of action, or liability arising under any other federal, state, municipal, or local statute, law, ordinance, or regulation. (b) You also agree not to sue the Companies, or any of the other related parties or participate in a lawsuit or otherwise file or pursue a claim or initiate a proceeding of any sort on the basis of any claim of any type whatsoever in any way, directly or indirectly, arising out of or related to your employment, or the termination of that employment, with the Companies. You further acknowledge and agree in the event that you breach the provisions of the preceding sentence (i) the Companies shall be entitled to apply for and receive an injunction to restrain any violation of said provision, (ii) the Companies shall not be obliged to continue payment of enhanced benefits under the Agreement to you, (iii) you shall be obliged to pay to the Companies or any one of the Companies its costs and expenses in enforcing this release and defending against such lawsuit (including court costs, expenses and reasonable legal fees), and (iv) you shall be obliged upon demand to repay to the Companies all but $1,000 of the value of the benefits under this Agreement paid or provided to you and the foregoing shall not affect the validity of this release. (c) This release does not release the Companies from any obligation or claim for any amount payable under this Agreement or any employee benefit plan nor does it apply to any rights under the Age Discrimination Act which occur after the date this release is signed. 21. Company Release: (a) In exchange for the consideration contained in this Agreement, the Companies, their respective directors, officers, employees, successors and assigns (collectively referred to in this paragraph 21 as the "Companies") hereby completely releases you, your successors, affiliates, agents, attorneys, heirs, representatives and assigns (collectively referred to in this paragraph 21 as "you" or "your") from any claims actions or causes of action the Companies had, now has or in the future may have, arising from or relating to your employment, your termination of employment or any act of yours prior to your Termination Date, expressly including, but not limited to, any claim arising under any Federal, State or local statute, rule or regulation, unless your actions represented gross negligence or were criminal in nature. 11 Ms. Mary E. Junck April 5, 1999 Page 11 (b) The Companies agree that the Companies will not participate in a lawsuit or otherwise file or pursue a claim or initiate a proceeding of any sort on the basis of any claim which has been released by the Companies under the provisions of subparagraph (a), above. The Companies further acknowledge and agree in the event that the Companies or any one of the Companies breach the provisions of the preceding sentence (i) you shall be entitled to apply for an injunction to restrain any violation of said provision, and (ii) the Companies shall be obliged to pay the costs and expenses which you incur in enforcing his release and defending against such lawsuit (including court costs, expenses and reasonable legal fees). (c) This release by the Companies does not release you from any obligation you may have under this Agreement nor does it apply to any acts which occur after the date this release is signed, 22. Revocation Period: (a) You acknowledge that you have been given a period of at least twenty-one (21) days to review and consider this Agreement before signing it. You further understand that you may use as much of the 21-day period as you wish before signing it. If you do not execute and deliver this Agreement to the Companies within the time provided, none of the payments or benefits under this Agreement will be made by the Companies to you. (b) You also understand that you may revoke this Agreement within seven (7) days after signing this Agreement. Revocation may be made by delivering a written notice of revocation to me. For this revocation to be effective, I must receive written notice no later than the close of business on the seventh day after you have signed this Agreement. However, if you elect to revoke this Agreement, the rights and obligations of both you and the Companies under this Agreement shall in all respects terminate, it will not be effective or enforceable, you will not receive the benefits and payment described in this Agreement and your employment with the Companies will terminate on June 30, 1999. (c) Provided that you have complied with all of the terms and conditions of this Agreement, and provided further that you have not exercised your revocation rights, it shall become effective on the day which immediately follows the expiration of the above seven day revocation period described in the preceding paragraph. (d) You acknowledge that in the event that you do not execute and deliver all the documents required by this Agreement or in the event that you revoke the required releases, you will be obligated to return, and you expressly agree that you will return upon demand of the Companies, all payments made to you by the Companies pursuant to this Agreement, and this obligation to return all such payments shall survive any such actions by you. 12 Ms. Mary E. Junck April 5, 1999 Page 12 23. Advice of Counsel: You represent and agree that you fully understand your right to discuss, and that the Companies have advised you to discuss, all aspects of this Agreement with your private attorney, that you have carefully read and fully understand all of the provisions of this Agreement, and that you are voluntarily entering into this Agreement. 24. Entire Agreement: Except for other documents referred to herein, this Agreement contains the entire agreement and understanding between you and the Companies regarding your employment with and termination of employment from the Companies, and totally replaces any and all prior agreements, arrangements, representations, and understandings, written or oral, express or implied. Neither you nor the Companies shall be bound or liable for any representation, promise or inducement not contained herein or therein. This Agreement cannot be amended, modified, supplemented or altered in a manner that would change the economic value of the Agreement, except by written amendment or supplement signed by you and the Companies. 25. Binding on Successors and Assigns: This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Companies and shall inure to the benefit of and be binding upon your heirs, executors, administrators, successors and assigns. Should the Companies merge or consolidate with another company or sell substantially all of their respective assets to another company or entity, this Agreement shall become an obligation of the surviving or acquiring company or entity. 26. Severability: Should any provision of this Agreement be found, held, declared, determined, or deemed by any court of competent jurisdiction to be void, illegal, invalid or unenforceable under any applicable statute or controlling law, the legality, validity, and enforceability of the remaining provisions will not be affected and the illegal, invalid, or unenforceable provision will be deemed not to be a part of the Agreement. 27. Arbitration: In exchange for the additional benefits to be provided to you under this Agreement and the mutual promises contained herein, the parties hereto agree that any dispute, controversy or claim arising out of or relating to this Agreement or any payment required to be made hereunder or arising out of or in connection with your employment relationship with the Companies shall be resolved through final and binding arbitration as set forth below, and such arbitration shall be the sole and exclusive remedy for resolving any such claims or disputes. The parties understand that by agreeing to arbitration as an exclusive remedy, they are waiving any rights they may have to litigate their rights under this Agreement in a court of law, including but not limited to, any right to a jury trial; provided, however, the parties are not waiving the right to bring suit to enforce the provisions of this paragraph. This binding arbitration provided for under this Agreement with respect to this Agreement shall take place in Maryland and be in compliance with 13 Ms. Mary E. Junck April 5, 1999 Page 13 and governed by the provisions of the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. 28. Governing Law: This Agreement shall be construed and interpreted in accordance with Maryland law. 29. Acknowledgment: You acknowledge and agree the release in this Agreement is an essential and material term of this Agreement and that if you do not agree to this release, you will not receive any of the benefits under this Agreement. Further, you recognize and agree that you are voluntarily signing this Agreement with the full knowledge and consent that, as a consequence thereof, arbitration is the sole and exclusive remedy for resolving any dispute, controversy or claim arising out of this Agreement or your employment relationship with the Companies. Please sign below and return this letter to me within 21 days to indicate your agreement to these terms. Sincerely, /s/ JAMES R. SIMPSON James R. Simpson Senior Vice President, Human Resources I have read the terms of this Agreement, including the waiver and release, and I understand and agree to its provisions. I have been provided with a fully executed copy of same. I understand that it contains a release of all known and unknown claims and I voluntarily sign this Agreement. /s/ MARY E. JUNCK Date: 4-29-99 - --------------------------- ------------------------------- Mary E. Junck EX-10.20 5 LETTER AGRMNT BETWEEN TIMES MIRROR/THOMAS UNTERMAN 1 EXHIBIT 10.20 [TIMES MIRROR LETTERHEAD] December 22, 1999 PERSONAL AND CONFIDENTIAL Thomas Unterman 1451 Amalfi Drive Pacific Palisades, CA 90272 Dear Tom: This letter will confirm our previous discussions and shall constitute the agreement ("Agreement") reached with you concerning the terms and conditions under which your active status with The Times Mirror Company (the "Company") will cease, and the benefits and payments which you will receive from the Company during a leave of absence and upon the termination of your employment. This Agreement and the benefits and payments described in it are conditioned upon your execution of and compliance with the terms and conditions set forth in this Agreement. 1. Employment Status: Before the end of 1999, by executing a letter of resignation, you will relinquish the titles and duties of Executive Vice President and Chief Financial Officer, as well as any other positions you may hold within the Company, any of its subsidiaries and affiliates, including assignments to any committees, and any positions you may hold with other entities in which you are acting on behalf of the Company. Effective the close of business on December 27, 1999 (the "Effective Date") regardless of whether you become disabled prior to such date, your active employment with the Company will terminate and you will be placed on an unpaid leave of absence ("Leave of Absence"). Regardless of your employment with another employer, your employment with the Company, as well as the Leave of Absence, will terminate on the earlier of (i) the date you elect to terminate employment by providing written notice to either the Senior Vice President of Human Resources or the Secretary of Times Mirror or (ii) December 31, 2004 ("Termination Date"). 2. Special Payments for Consulting Services: (a) Provided you are available to provide the consulting assistance and special services to the Company's management as described in the attached memo from you dated October 4, 1999, or such other services as may be requested and agreed to, commencing in 2000, an amount of $50,000 (less appropriate withholdings) will be payable prior to December 31 of each year of your Leave of Absence. If your employment terminates before the end of the Leave of Absence or if you are no longer available to provide the consulting assistance and requested special services, these payments will cease. 2 Thomas Unterman December 22, 1999 Page 2 (b) In lieu of paying these special payments to you in cash, each annual special payment of $50,000, less appropriate withholdings, will be credited to a special deferral account in the Times Mirror Company Deferred Compensation Plan for Executives as of October 1 of each year of the Leave of Absence. The balance in these special deferral accounts will be paid to you in accordance with your election to be completed by you when you execute this Agreement. Attached is an election form to be used for this purpose and your election will apply to all your special deferral accounts resulting from these special payments. (c) For purposes of Regulation S-K of the Securities Exchange Act of 1934 ("Regulation S-K"), these special payments made to you under this Agreement shall be deemed to be severance payments and not salary or bonus. 3. Annual Bonus Incentive Award: In consideration of the provisions of this Agreement, you and the Company agree that you will not receive any payment under the Company's 1999 bonus incentive plan, and you will cease participation in the Company's bonus incentive plans with respect to 2000 and thereafter. 4. (a) Payment: In consideration of the terms and provisions of this Agreement, you will receive a payment of $675,000. This amount will be paid and/or deferred as follows: $350,000, less appropriate withholdings, will be paid to you in cash in February, 2000 and $325,000, less appropriate withholdings, will be credited to a special deferral account under the Times Mirror Company Deferred Compensation Plan for Executives as of February 15, 2000. The balance of the special deferral account will be paid to you commencing in the January following your Termination Date in fifteen annual installments. For purposes of Regulation S-K, this special payment shall be deemed to be a severance payment and not bonus. (b) Matching Bonus Restricted Stock: You will be eligible to participate in the matching bonus restricted stock program relative to the payment described in paragraph 4(a). Provided you place on deposit shares of Times Mirror stock equal in value to 25% of the payment described in paragraph 4(a), you will receive an equal number of shares of matching bonus restricted stock. The restrictions on these shares will lapse in accordance with the terms of the matching bonus restricted stock program. 5. Group Benefits: (a) While you are still actively employed, all group health care and group insurance benefits offered to active full-time employees to which you are currently entitled and/or enrolled will continue in accordance with your enrollment elections and the terms of the plans. While on your Leave of Absence, for a maximum period of one year, you will remain eligible for the Company's group insurance programs offered to active employees, except as noted below. Your contributions for these coverages will be at the same rate paid by active employees and since your Leave of Absence will be unpaid, you will be required to make your contributions for benefit coverages through direct payments to the Company. These coverages will cease at such time as you become eligible for coverage under another employer's group health care plans. 3 Thomas Unterman December 22, 1999 Page 3 (b) As of the Effective Date, which is the date that your active employment terminates, your coverage under business travel and the short and long term disability programs will cease. You have the option to convert part of your business travel insurance to an individual policy, subject to established rules and plan limitations. In addition, as a participant in the long-term disability plan ("LTD"), you may convert part of your LTD coverage to a trust policy. If you apply for an LTD monthly benefit amount in excess of $4,000, you must complete a Statement Relating to Insurability form and a blood test will be required. Additional information regarding LTD conversion is attached for your reference. If you wish to take advantage of either or both of these conversion options, your application(s) must be received by the respective insurance carrier(s) within 31 days from the date your coverage terminates; otherwise, you will waive your right to convert. (c) Upon the earlier of the end of the first year of your Leave of Absence, the date you become eligible for other health care coverage or your Termination Date, all other employee benefit plan coverages, including but not limited to health care coverage as well as participation in the Tax-Saver HealthCare account, will cease. You have the option, subject to established rules and plan limitations, to convert all or part of your basic life and voluntary accidental death and dismemberment coverages to individual policies. If you wish to take advantage of this option, your application(s) must be received by the insurance carrier(s) within 31 days from the date your coverages terminate, otherwise you will waive your right to convert. Prudential will contact you directly concerning the portability and conversion options available under the Group Universal Life Insurance program. Our records indicate that you are not enrolled in the long-term care plan. (d) If you are covered under one of the Company-sponsored health care plans or if you participate in the Tax-Saver HealthCare account, upon termination of your health care coverage (at the earlier of the end of the first year of your Leave of Absence, the date you become eligible for other health care coverage or your Termination Date), you may elect to continue the coverage currently in effect for you and your covered dependents under the Consolidated Omnibus Budget Reconciliation Act (COBRA) as specified by that statute. COBRA coverage may be continued for up to 18 months (up to 29 months for any eligible individual who is disabled as determined by the Social Security Administration during the first 60 days of COBRA coverage -- this eleven-month extension is also available to nondisabled family members who are entitled to COBRA continuation coverage) or until the individual is covered, after COBRA is elected, under another group health plan with no pre-existing condition limitation affecting his or her coverage or is entitled to Medicare, whichever occurs first. The COBRA election notice and form will be mailed to you upon the termination of coverage. If you and/or your eligible dependents wish to elect COBRA continuation coverage, the completed election form must be returned to the Company within 60 days from the date the notice is sent or the date your coverage terminated, whichever is later. You are not automatically enrolled in COBRA coverage. In addition, you will be eligible for any conversion privileges available under the terms of any of the plans in which you are enrolled and/or participate. If you do not wish to extend health coverage under COBRA, you may, subject to established rules, convert your group medical 4 Thomas Unterman December 22, 1999 Page 4 coverage to an individual policy without proof of good health. The converted policy may not provide the same coverage as the group plan. The levels of coverage may be less and an overall lifetime maximum benefit may apply. If you are interested in converting your group coverage to an individual policy, you must apply and pay your first premiums to the health care carrier within 31 days from the date coverage ceased. Application may be obtained directly from the carriers by contacting their member services department or, if you are covered under the Aetna plan, from the Company's employee benefits representative, If COBRA continuation coverage is elected for the medical coverage, and coverage ends because the maximum coverage period expires, you have another opportunity to covert to an individual policy during the 180-day period that ends on the expiration date. (e) Your participation in the Tax-Saver HealthCare account will cease upon the earlier of the end of the first year of your Leave of Absence, the date you become eligible for other health care coverage or your Termination Date. If you are enrolled in the Tax-Saver HealthCare Account when your coverage ceases, you may continue to access the account for expenses incurred before your participation ceases. You may only access the account for expenses incurred beyond that date if you continue to make the elected contributions through COBRA. Our records indicate that you have not enrolled in the Tax-Saver Dependent Care Account. 6. Retirement Benefits: You are currently vested in your benefits earned under the Company's retirement plans, including the Times Mirror Pension Plan, Employee Stock Ownership Plan ("ESOP"), Savings Plus Plan and the Supplemental Executive Retirement Plan, (these plans are referred to collectively as the "Retirement Plans"). After the Effective Date, you will not accrue any further benefits under the Times Mirror Pension Plan and the Supplemental Executive Retirement Plan, nor will there be any further deferrals under the Savings Plus Plan. Your account balances under the ESOP and the Savings Plus Plan will remain invested in accordance with plan terms until they are distributed. After your Termination Date, you will be entitled to receive any vested accrued benefits under these Retirement Plans in accordance with the terms of the Retirement Plans and any elections you make under the Retirement Plans. Distributions under each Retirement Plan shall be made in accordance with the terms and procedures of each respective Retirement Plan based on your participation and vesting under the Retirement Plans. 7. Stock Options: (a) You presently hold options to purchase shares of stock under the Times Mirror Company stock option plans (the "Option Plans"). Prior to and during your Leave of Absence, options will continue to vest in accordance with the grants and the terms of the Option Plans, and to the extent that options are vested and exercisable during your Leave of Absence, they may be exercised in accordance with the terms of the Option Plans. You will not be eligible for any future stock option grants. 5 Thomas Unterman December 22, 1999 Page 5 (b) Management grants: For purposes of the Option Plans, as of your Termination Date, you will be considered an early retiree and the rules regarding the vesting and exercise of your stock options will be determined under the terms of the Option Plans. For options granted prior to 1998, a portion of your options which are not otherwise exercisable prior to your Termination Date may become exercisable in accordance with the formula set forth in the Option Plans based on your service since the grant date. To the extent that such options are vested and exercisable as of your Termination Date, they may be exercised in accordance with the terms of the Option Plans for a period of three years following your Termination Date or through the term of the option, depending upon the grant. Options not exercisable will be canceled on your Termination Date. Options granted after 1997 will continue to vest in accordance with their terms after your Termination Date and will be exercisable through the term of the options, provided your Termination Date is on or after the first anniversary of each respective grant date. (c) Specific details on your personal vesting, exercise rights, and procedures may be obtained from the Executive Compensation and Stock Benefits group of Human Resources at Times Mirror (213) 237-3973. 8. Restricted Stock: During your Leave of Absence, restrictions will continue to lapse on your shares of restricted stock in accordance with the provisions of the restricted stock program. Upon your Termination Date, any shares of restricted stock still subject to restrictions will be canceled. 9. Matching Bonus Restricted Stock: For purposes of applying the provisions of the matching bonus restricted stock program, you will be considered an early retiree. The restrictions on your shares of matching bonus restricted stock will lapse four years after the award provided you leave the appropriate number of your personal shares on deposit with the Company during that period. Upon the lapse of the restrictions, your personal shares will be returned to you and the matching bonus restricted stock will be issued to you with no restrictions. 10. Deferred Compensation Plan: Any amounts you have deferred into the Times Mirror Company Deferred Compensation Plan for Executives will be paid to you in accordance with your prior elections. 11. Other Perquisites and Benefits: All other perquisites and employee benefits and your participation in all other employee benefit programs not described herein will terminate on the Effective Date, except for your participation in the Times Mirror Matching Gifts Program which will cease as of your Termination Date unless you are considered a retiree under that program. The Company payment of dues to the California Club, as well as any other club dues including the Admiral's Club, and for various subscriptions will cease on the Effective Date. Further, you will repay the Company an amount of $6,000 which represents about one-half of the initiation fee in the California Club paid by the Company on your behalf. 6 Thomas Unterman December 22, 1999 Page 6 12. Timing of Payments: The special payments to be made or deferred pursuant to this Agreement will be paid or deferred as specified in the Agreement only following your execution of this Agreement and the expiration of the seven (7) day revocation period (and provided you have not exercised any of your revocation rights) unless otherwise indicated in this Agreement. 13. Withholding and Taxes: All payments required to be made by the Company hereunder shall be subject to any and all applicable withholdings, including any withholdings for any related federal, state or local taxes. You shall be responsible for any and all income taxes or other taxes incurred by you as a result of your receipt of any payments from the Company. 14. Company Property: (a) Your privileges under all Company credit cards will cease on the Effective Date. On that date, you will return all such credit cards. The Company will prepare an accounting of your expense account and credit card balances as of that date. All business expenses through the Effective Date are to be submitted within 30 days of the Effective Date. The net amount due between you and the Company may be added to or subtracted from the payments described above if no other reimbursement method is used. (b) In addition, as of the Effective Date, you will return to the Company all property of the Company, including, without limitation, all equipment, tangible proprietary information documents, books, records, reports, contracts, lists, computer disks (or other computer-generated files or data), or copies thereof, created on any medium, prepared or obtained by you or the Company in the course of or incident to your employment with the Company. 15. Confidentiality: You agree to keep the terms of this Agreement strictly confidential and you agree that you will not disclose its terms to anyone other than your legal or financial advisor(s), relevant taxing authorities, and appropriate family members, and except as required by law. Further, to the extent to which information contained in this Agreement is disclosed to any other person, you agree to obtain from them the promise not to disclose this information unless required to do so by law, a court or governmental authority. The Company agrees to keep the terms of this Agreement confidential except to the extent that disclosure of the terms is required in the ordinary course of business operations necessary or advisable to effect the terms of this Agreement or as required by relevant taxing authorities or as required by law. 16. No Claims: You represent and warrant to the Company that you have not instituted any complaints, charges or other proceedings against the Company or any of its subsidiaries and affiliates with any governmental agency, any court, or any arbitration agency or tribunal, and that, as a condition of this Agreement, you hereby waive any right to recovery in any such action or proceeding if you should file at any time hereafter; provided, however, that this shall not limit you from instituting such proceedings as may be necessary for the sole purpose of enforcing your rights under this Agreement or your rights 7 Thomas Unterman December 22, 1999 Page 7 to payment of benefits under any benefit plan sponsored by the Company in which you participated on the date of this Agreement. 17. Company Information: (a) You acknowledge that in the course of your employment with the Company, certain factual and strategic information specifically related to the Company and its subsidiaries and affiliates has been disclosed to you in confidence which was for the use of the Company or any or all of its subsidiaries and affiliates ("Company Information"). You understand and agree that you (i) will keep such Company Information confidential at all times during and after your employment with the Company, (ii) will not disclose or communicate Company Information to any third party, and (iii) will not make use of Company Information on your own behalf, or on behalf of any third party; provided that this Agreement does not apply to information that becomes publicly available. (b) In view of the nature of your employment and the nature of Company Information which you received during the course of your employment, you agree that any unauthorized disclosure to third parties of Company Information or other violation, or threatened violation, of this Agreement would cause irreparable damage to the confidential status of Company Information and to the Company or any and all of its subsidiaries and affiliates, and that therefore, the Company shall be entitled to an injunction prohibiting you from any such disclosure, attempted disclosure, violation, or threatened violation. When specific Company Information becomes generally available to the public other than by your acts or omissions, it is no longer subject to restrictions in this paragraph. However, Company Information shall not be deemed to come under this exception merely because it is included within more general information which is or becomes generally available to the public. The undertaking set forth in this paragraph shall survive the termination of this Agreement. 18. Director and Officer Liability Coverage: During your period of active employment as an officer of the Company, under the bylaws of the Company, you were covered under The Times Mirror Company's directors' and officers' liability coverage. This coverage will continue in effect with respect to the period of time during which you served as an officer of the Company and with respect to your actions related to your employment as an officer of the Company. In any event, the Company will indemnify you, in the manner and to the extent permitted by law, from any claims, demands, lawsuits, judgments and related expenses arising from your good faith performance as an officer of the Company during the period of your active employment with the Company. 19. Restrictive Covenant: (a) During your employment with the Company, you have held high executive positions and responsibilities. As a result, you have had access to the means by which the Company's operating units and affiliates conduct their businesses, including, but not limited to, trade secrets, confidential information and future plans. The interests of the Company require that certain reasonable limitations be imposed upon the extent to which you may become employed by competitors of the Company. Accordingly, for the period represented by the special payments and Leave of Absence under this Agreement, and subject to the provisions of subparagraph (b) below, you agree that you shall not directly or 8 Thomas Unterman Includes change in December 22, 1999 subparagraph 19(a)(iii) Page 8 (as revised) agreed to on l/10/2000 indirectly, and whether as a principal, partner, officer, director, employee, consultant, venturer, agent or otherwise, alone or in association with any person, carry on, be engaged or take part in or render services to any entity or business which is engaged in competition with the Company or any of its subsidiaries and affiliates in any area in the United States or in any foreign country in which the Company or any such subsidiary or affiliate engages in business during the term of this Agreement. Included within the meaning of an indirect interest would be, by way of example only, an interest in a trust, corporation, venture, or partnership which in turn owns an interest in any such competitive business, or an interest in any such competitive business held through a nominee, agent, option or other device. The foregoing provisions do not apply to: (i) an investment in stock of any publicly held corporation if the market value of such investment when acquired does not exceed $1,000,000 or to any investment in a mutual fund; (ii) any investment held by TMCT Ventures, L.P. which the Company's representatives on the investment committee of TMCT Ventures, L.P. have voted to approve; or (iii) the holding of any interest in any Investment Company, as defined in subparagraph (c), below, acquired at a point in time when the Company or any of its subsidiaries or affiliates are not engaged in the business in which the Investment Company is engaged. (b) You further agree that you will not, until December 31, 2004, without the express prior written consent of the Chief Executive Officer of the Company, whether for your own account or for the account of any other person, directly or through an agent, (i) attempt to persuade any officer or employee of the Company or any of its subsidiaries or affiliates to leave such employment, or (ii) interfere with the relationship between the Company or any its subsidiaries or affiliates and any of their respective customers, vendors, suppliers or contractors. (c) The Company understands and agrees that you are or may be providing services or furnishing advice to (i) TMCT Ventures, L.P., (ii) TMCT II, LLC (the limited partner in TMCT Ventures, L.P.), (iii) Chandler Trust No. 1 or (iv) Chandler Trust No. 2 and the Company agrees that providing such services or furnishing such advice does not contravene any provision of this Agreement. However, you may also be providing services and furnishing advice to companies in which the entities described in subparagraphs (i) through (iv) have acquired or may acquire an interest or business relationship (the "Investment Company(s)"), and any such activities engaged in by you shall be subject to the provisions of paragraphs 17 and 19 of this Agreement. (d) It is understood by and between us that the promises made by you in this paragraph 19 are essential elements of our Agreement and that, but for your agreement to comply with such covenants, the Company would not have entered into this Agreement. (e) You may at any time consult with the Chief Executive Officer of the Company regarding any actions you intend to take, or transactions which you intend to engage, in order to avoid inadvertently breaching the provisions of paragraphs 17 or 19, or any other provision, of this Agreement. 9 Thomas Unterman December 22, 1999 Page 9 20. Termination of Benefits: You agree that the benefits to be provided to you by the Company under this Agreement are subject to termination, reduction or cancellation in the event that you take any action or engage in any conduct in violation of this Agreement. The Company agrees to notify you if you are believed to be engaging in conduct in violation of this Agreement and provide you with a thirty-day grace period to cure your breach if it consists of an act that can be cured. Notwithstanding anything in this Agreement to the contrary, if you fail to cure such breach during such period or if the breach is not one that is susceptible of being cured, the benefits provided to you under this Agreement will be canceled, but only to the extent they are in addition to those benefits to which you would otherwise be entitled. 21. Further Assurances: Each of the parties to this Agreement agrees that neither party shall, directly or indirectly, participate in or contribute to any discussion, or other publicity concerning or relating to the terms of this Agreement. Further, the parties agree that neither will make any statements, orally or in writing and directly or indirectly, that in any way would reflect negatively upon or be injurious to the reputation of the other party. 22. Release: (a) In exchange for the additional benefits to be provided to you from the Company under this Agreement, you, on behalf of yourself, your heirs, executors, administrators and assigns, hereby waive, release, and forever discharge the Company, its shareholders, directors, officers, employees, successors and assigns completely from any and all claims, actions, rights, demands, liabilities and causes of any action of every kind and character, known or unknown, mature or unmatured, which you had or now have, arising from or relating to your active employment, your Leave of Absence, your termination of employment, or any act of the Company, or its directors, officers, and employees occurring up to and including the date of this release, including, but not limited to, any claim to reinstatement of, or future employment with, the Company, any claim for breach of contract or wrongful termination, any claim for additional salary, severance pay, or other compensation or employee, fringe or retiree benefits, any claim under the Employee Retirement Income Security Act of 1974, as amended, the Americans with Disabilities Act, as amended, or the Family and Medical Leave Act, as amended, and any claim based on tort, contract (expressed or implied), or any federal, state or local law, rule or regulation prohibiting employment discrimination, including, but not limited to, any claims of unlawful discrimination, any rights under the Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefit Protection Act ("Age Discrimination Act"), which prohibits age discrimination in employment, any rights under Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment based on race, color, national origin, religion, or sex, or any other claim, action, cause of action, or liability arising under any other federal, state, municipal, or local statute, law, ordinance, or regulation. (b) You also agree not to sue the Company or any of the other related parties or participate in a lawsuit or otherwise file or pursue a claim or initiate a proceeding of any sort on the basis of any claim of any type whatsoever in any way, directly or indirectly, arising out of 10 Thomas Unterman December 22, 1999 Page 10 or related to your active employment, your Leave of Absence, or the termination of your employment, with the Company. You further acknowledge and agree in the event that you breach the provisions of the preceding sentence (i) the Company shall be entitled to apply for and receive an injunction to restrain any violation of said provision, (ii) the Company shall not be obliged to continue payment of enhanced benefits under the Agreement to you, (iii) you shall be obliged to pay to the Company its costs and expenses in enforcing this release and defending against such lawsuit (including court costs, expenses and reasonable legal fees), and (iv) you shall be obliged upon demand to repay to the Company all but $1,000 of the value of the benefits under this Agreement paid or provided to you, and the foregoing shall not affect the validity of this release. (c) This release does not release the Company from any obligation or claim for any amount payable under this Agreement or any employee benefit plan nor does it apply to any rights under the Age Discrimination Act which occur after the date this release is signed. 23. Additional Waiver for California: In addition, you expressly waive and relinquish all rights and benefits afforded by Section 1542 of the California Civil Code, and do so understanding and acknowledging the significance of such specific waiver of Section 1542, which states as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Thus, notwithstanding the provisions of Section 1542, and for the purpose of implementing a full and complete release and discharge of the Company, you expressly acknowledge that this, Agreement is intended to include in its effect, without limitation, all claims which you do not know or suspect to exist in your favor at the time of execution of this Agreement, and that this Agreement contemplates the extinguishment of any such claim or claims. 24. Revocation Period: (a) You acknowledge that you have been given a period of at least twenty-one (21) days to review and consider this Agreement before signing it. You further understand that you may use as much of the 2l-day period as you wish before signing it. If you do not execute and deliver this Agreement to the Company within the time provided, none of the payments or benefits under this Agreement will be made by the Company to you and your employment will terminate as of December 27, 1999. (b) You also understand that you may revoke this Agreement within seven (7) days after signing this Agreement. Revocation may be made by delivering a written notice of revocation to me. For this revocation to be effective, I must receive written notice no later than the close of business on the seventh day after you have signed this Agreement. However, if you elect to revoke this Agreement, the rights and obligations of both you and the Company under this Agreement shall in all respects terminate, it will not be effective or enforceable, you will not receive the benefits and payments described in this Agreement, and your employment will terminate as of December 27, 1999. 11 Thomas Unterman December 22, 1999 Page 11 (c) Provided that you have complied with all of the terms and conditions of this Agreement, and provided further that you have not exercised your revocation rights, it shall become effective on the day which immediately follows the expiration of the above seven day revocation period described in the preceding paragraph. (d) You acknowledge that in the event that you do not execute and deliver all the documents required by this Agreement or in the event that you revoke the required releases, you will be obligated to return, and you expressly agree that you will return upon demand of the Company, all payments made to you by the Company pursuant to this Agreement, and this obligation to return all such payments shall survive any such actions by you. 25. Advice of Counsel: You represent and agree that you fully understand your right to discuss, and that the Company has advised you to discuss, all aspects of this Agreement with your private attorney, that you have carefully read and fully understand all of the provisions of this Agreement, and that you are voluntarily entering into this Agreement. 26. Entire Agreement: This Agreement contains the entire agreement and understanding between you and the Company regarding your active employment, Leave of Absence, and termination of employment from the Company, and totally replaces any and all prior agreements, arrangements, representations, and understandings, written or oral, express or implied, including, without limitation, obligations under the Company's regular severance pay policy. Neither you nor the Company shall be bound or liable for any representation, promise or inducement not contained herein or therein. This Agreement cannot be amended, modified, supplemented or altered in a manner that would change the economic value of the Agreement, except by written amendment or supplement signed by you and the Company. 27. Binding on Successors and Assigns: This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company and shall inure to the benefit of and be binding upon your heirs, executors, administrators, successors and assigns. Should the Company merge or consolidate with another company or sell substantially all of its assets to another company or entity, this Agreement shall become an obligation of the surviving or acquiring company or entity, 28. Severability: Should any provision of this Agreement be found, held, declared, determined, or deemed by any court of competent jurisdiction to be void, illegal, invalid or unenforceable under any applicable statute or controlling law, the legality, validity, and enforceability of the remaining provisions will not be affected and the illegal, invalid, or unenforceable provision will be deemed not to be a part of the Agreement. 29. Arbitration: In exchange for the additional benefits to be provided to you under this Agreement, the parties hereto agree that any dispute, controversy or claim arising out of or relating to this Agreement or any payment required to be made hereunder or arising out of or in connection with your employment relationship with the Company shall be resolved 12 Thomas Unterman December 22, 1999 Page 12 through final and binding arbitration as set forth below, and such arbitration shall be the sole and exclusive remedy for resolving any such claims or disputes. You understand that by agreeing to arbitration as an exclusive remedy, you are waiving any rights you may have to litigate your rights under this Agreement or in connection with your employment with the Company or any of its subsidiaries and affiliates in a court of law, including but not limited to, any right to a jury trial. This binding arbitration provided for under this Agreement with respect to this Agreement and your employment shall take place in California and be in compliance with and governed by the provisions of the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. 30. Governing Law: This Agreement shall be construed and interpreted in accordance with California law. 31. Acknowledgment: You acknowledge and agree the release in this Agreement is an essential and material term of this Agreement and that if you do not agree to this release, you will not receive any of the benefits under this Agreement. Further, you recognize and agree that you are voluntarily signing this Agreement with the full knowledge and consent that, as a consequence thereof, arbitration is the sole and exclusive remedy for resolving any dispute, controversy or claim arising out of this Agreement or your employment relationship with the Company. Please sign below and return this letter to me within 21 days to indicate your agreement to these terms. Sincerely, /s/ MARK H. WILLES Mark H. Willes on behalf of the The Times Mirror Company I have read the terms of this Agreement, including the waiver and release, and I understand and agree to its provisions. I have been provided with a fully executed copy of same. I understand that it contains a release of all known and unknown claims and I voluntarily sign this Agreement. /s/ THOMAS UNTERMAN Date: 12/23/99 - --------------------------- ------------------------------- Thomas Unterman Attachments - October 4, 1999 memo - Special Deferral Election Form - LTD conversion information EX-11 6 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 THE TIMES MIRROR COMPANY COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOURTH QUARTER ENDED DECEMBER 31 ------------------- 1999 1998 ------- -------- BASIC Weighted average shares for basic earnings per share........ 59,931 78,923 ======= ======== Income from continuing operations........................... $67,519 $ 20,726 Preferred stock dividends................................... (1,794) (5,425) ------- -------- Earnings applicable to common shareholders from continuing operations................................................ 65,725 15,301 Income from discontinued operations......................... 375 225,601 ------- -------- Total earnings applicable to common shareholders....... $66,100 $240,902 ======= ======== Basic earnings per common share: Continuing operations..................................... $ 1.10 $ .19 Discontinued operations................................... -- 2.86 ------- -------- Basic earnings per share.................................... $ 1.10 $ 3.05 ======= ======== DILUTED Weighted average shares for basic earnings per share........ 59,931 78,923 Effect of dilutive securities: Stock options............................................. 2,679 1,649 LYONs convertible debt.................................... 2,914 -- Series C-1, convertible preferred stock................... 589 -- Series C-2, convertible preferred stock................... 379 -- ------- -------- Weighted average shares for diluted earnings per share...... 66,492 80,572 ======= ======== Income from continuing operations........................... $67,519 $ 20,726 Preferred stock dividends................................... (1,794) (5,425) LYONs interest expense, net of tax.......................... 1,583 -- Series C-1, preferred dividends............................. 552 -- Series C-2, preferred dividends............................. 355 -- ------- -------- Earnings applicable to common shareholders from continuing operations................................................ 68,215 15,301 Income from discontinued operations......................... 375 225,601 ------- -------- Total earnings applicable to common shareholders....... $68,590 $240,902 ======= ======== Diluted earnings per common share: Continuing operations..................................... $ 1.03 $ .19 Discontinued operations................................... -- 2.80 ------- -------- Diluted earnings per share.................................. $ 1.03 $ 2.99 ======= ========
EX-12 7 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 THE TIMES MIRROR COMPANY RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (DOLLARS IN THOUSANDS)
1999 1998 1997 1996 1995 -------- -------- -------- -------- --------- Fixed charges: Interest expense......................... $ 93,439 $ 68,473 $ 35,713 $ 19,362 $ 20,216 Capitalized interest..................... -- -- -- -- 485 Portion of rents deemed to be interest... 12,929 11,533 12,406 12,637 14,205 Amortization of debt expense............. 2,264 2,151 1,417 529 411 -------- -------- -------- -------- --------- Total fixed charges.............. 108,632 82,157 49,536 32,528 35,317 Preferred stock dividends.................. 30,634 39,653 54,883 71,901 74,581 -------- -------- -------- -------- --------- Fixed charges and preferred stock dividends................................ $139,266 $121,810 $104,419 $104,429 $ 109,898 ======== ======== ======== ======== ========= Earnings (loss): Income (loss) from continuing operations before income taxes................... $439,291 $245,004 $396,499 $300,254 $(253,421) Fixed charges, less capitalized interest.............................. 108,632 82,157 49,536 32,528 34,832 Amortization of capitalized interest..... 3,862 3,902 3,966 4,094 4,475 Distributed income from less than 50% owned unconsolidated affiliates....... -- -- 92 191 191 Equity loss (income) from less than 50% owned unconsolidated affiliates....... 3,783 13,146 4,690 (115) (1,917) -------- -------- -------- -------- --------- Total earnings (loss)............ $555,568 $344,209 $454,783 $336,952 $(215,840) ======== ======== ======== ======== ========= Ratio of earnings to fixed charges......... 5.1x 4.2x 9.2x 10.4x (a) Ratio of earnings to fixed charges and preferred stock dividends................ 4.0x 2.8x 4.4x 3.2x (b)
- --------------- (a) Earnings are approximately $251 million lower than the amount needed to cover fixed charges in this year, as earnings were impacted by approximately $502 million in restructuring charges. (b) Earnings are approximately $326 million lower than the amount needed to cover fixed charges and preferred stock dividends in this year, as earnings in 1995 were impacted by approximately $502 million in restructuring charges. EX-21 8 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE TIMES MIRROR COMPANY AS OF DECEMBER 31, 1999*
STATE (OR COUNTRY) NAME OF INCORPORATION ---- ------------------ AchieveGlobal, Inc.......................................... Florida The Baltimore Sun Company................................... Maryland Eagle New Media Investments, LLC**.......................... Delaware Eagle Publishing Investments, LLC**......................... Delaware E Z Buy & E Z Sell Recycler Corporation..................... Delaware The Hartford Courant Company................................ Connecticut Jeppesen & Co., GmbH***..................................... Germany Jeppesen Sanderson, Inc..................................... Delaware The Morning Call, Inc....................................... Pennsylvania Newsday, Inc.***............................................ New York The StayWell Company........................................ Delaware Times Mirror Magazines, Inc.***............................. New York
- --------------- * The names of certain other subsidiaries have been omitted because, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary. The Los Angeles Times is a division of The Times Mirror Company. ** Affiliates that are controlled by the Registrant as described in Note 5 to the consolidated financial statements. *** 100% owned by a wholly-owned subsidiary of the Registrant. (All other subsidiaries listed above are directly wholly-owned by the Registrant.) EX-23 9 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-3 Nos. 333-38605, 333-34691, 333-30773 and 333-86807) and in the Registration Statements (Form S-8 Nos. 333-32773 and 33-65259) of our report dated February 2, 2000, with respect to the consolidated financial statements and schedule of The Times Mirror Company included in its Annual Report (Form 10-K) for the year ended December 31, 1999. ERNST & YOUNG LLP Los Angeles, California March 13, 2000 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31, 1999 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 144,319 0 398,082 34,721 35,082 886,648 1,974,166 1,008,071 3,897,371 866,130 1,562,240 0 724,820 112,125 (437,216) 3,897,371 3,029,249 3,029,249 1,615,273 1,615,273 0 18,643 93,368 439,291 180,229 259,062 24 0 0 259,086 3.53 3.38
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