-----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, NWNWq7/dkYEHwcc6X+ndyilr/ejE+V6ORibYqxdGENyEhyGKktbCQlpIB/MA7c/i UTNVhxKnzsXbpCydJSjxbg== 0000726513-98-000011.txt : 19980326 0000726513-98-000011.hdr.sgml : 19980326 ACCESSION NUMBER: 0000726513-98-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980325 SROS: CSX SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIBUNE CO CENTRAL INDEX KEY: 0000726513 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 361880355 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08572 FILM NUMBER: 98573404 BUSINESS ADDRESS: STREET 1: 435 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3122229100 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 1997 Commission file number 1-8572 TRIBUNE COMPANY (Exact name of registrant as specified in its charter) Delaware 36-1880355 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 435 North Michigan Avenue, Chicago, Illinois 60611 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (312) 222-9100 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock (without par value) New York Stock Exchange Preferred Share Purchase Rights Chicago Stock Exchange Pacific Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the Company's voting and non-voting common equity held by non-affiliates on March 10, 1998, based upon the closing price of the Company's Common Stock as reported on the New York Stock Exchange Composite Transactions list for such date: approximately $6,584,000,000. At March 10, 1998 there were 122,614,705 shares of the Company's Common Stock outstanding. The following documents are incorporated by reference, in part: 1997 Annual Report to Shareholders (Parts I and II, to the extent described therein). Definitive Proxy Statement for the May 5, 1998 Annual Meeting of Stockholders (Part III, to the extent described therein). ================================================================================ PART I ITEM 1. BUSINESS. Tribune Company (the "Company") is a media company. Through its subsidiaries, the Company is engaged in the publishing of newspapers, books, educational materials and information in print and digital formats and the broadcasting, production and syndication of information and entertainment in metropolitan areas in the United States. The Company was founded in 1847 and incorporated in Illinois in 1861. As a result of a corporate restructuring in 1968, the Company became a holding company incorporated in Delaware. References in this report to "the Company" include Tribune Company and its subsidiaries, unless the context otherwise indicates. The information in this Item 1 should be read in conjunction with the information contained under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's 1997 Annual Report to Shareholders, which information is incorporated herein by reference. Certain prior year amounts have been reclassified to conform with the 1997 presentation. All share and per share data have been restated to reflect a two-for-one common stock split effective January 15, 1997. This Annual Report on Form 10-K contains certain forward-looking statements that are based largely on the Company's current expectations and are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and uncertainties are changes in advertising demand, newsprint prices, interest rates, regulatory rulings and other economic conditions and the effect of acquisitions, investments and dispositions on the Company's results of operations or financial condition. The words "believe," "expect," "anticipate" and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are as of the date of this filing. BUSINESS SEGMENTS The Company's operations are divided for reporting purposes into three industry segments: publishing, broadcasting and entertainment, and education. These segments operate primarily in the United States. The following table sets forth operating revenues and profit information for each segment of the Company (in thousands).
Fiscal Year Ended December -------------------------------------------- 1997 1996 1995 ---------- ---------- ---------- Operating Revenues(1): Publishing ......................................... $1,436,718 $1,336,639 $1,312,767 Broadcasting and Entertainment ..................... 1,057,529 876,750 828,806 Education........................................... 225,533 192,316 103,101 ---------- ---------- ---------- Total Operating Revenues....................... $2,719,780 $2,405,705 $2,244,674 ---------- ---------- ---------- Operating Profit (2)(3): Publishing ......................................... $ 354,585 $ 291,257 $ 272,093 Broadcasting and Entertainment ..................... 285,896 203,531 171,618 Education........................................... 35,976 39,504 4,608 Corporate Expenses.................................. (34,426) (30,935) (29,899) ---------- ---------- ---------- Total Operating Profit......................... $ 642,031 $ 503,357 $ 418,420 ---------- ---------- ---------- - ----- (1) Includes revenues earned outside the United States which were not significant. (2) In 1997, the Company began reporting separately equity earnings and losses. These amounts are shown as net loss on equity investments in the consolidated statements of income and were previously included in operating profit. Prior years' equity results have been reclassified to conform to the current presentation. The reclassification had no effect on net income or earnings per share. (3) Operating profit for each segment excludes interest income and expense, non-operating gains and losses, equity income and losses and income taxes.
1 The following table sets forth asset information for each industry segment (in thousands).
Fiscal Year Ended December --------------------------------------------- 1997 1996 1995 ---------- ---------- ---------- Assets: Publishing...................................... $ 668,532 $ 686,730 $ 693,853 Broadcasting and Entertainment.................. 2,923,663 1,616,797 1,405,213 Education....................................... 717,301 544,226 211,510 Corporate (1)................................... 468,058 853,147 977,679 ---------- ---------- ---------- Total Assets............................... $4,777,554 $3,700,900 $3,288,255 ---------- ---------- ---------- - ----- (1) Corporate assets include the investment in and advances to QUNO in 1995.
Prior to 1993, the Company also owned a newsprint segment, which consisted entirely of QUNO Corporation ("QUNO") and operated in Canada. In 1993 and 1994, the Company reduced its ownership holdings in QUNO and in March 1996, the Company completed the sale of its holdings in QUNO as part of QUNO's merger with Donohue Inc. Since 1993, the Company has accounted for its investment in QUNO using the equity method. QUNO has been accounted for as a discontinued operation in the consolidated financial statements. The Company's results of operations, when examined on a quarterly basis, reflect the seasonality of the Company's revenues. In both publishing and broadcasting and entertainment, second and fourth quarter advertising revenues are typically higher than first and third quarter revenues. Results for the second quarter usually reflect spring advertising, while the fourth quarter includes advertising related to the holiday season. In education, second and third quarter revenues are typically higher than first and fourth quarter revenues. Results for the second and third quarters generally reflect the timing of purchases in advance of the upcoming school year, which begins in September. Fiscal years 1997 and 1996 comprised 52 weeks. Fiscal year 1995 comprised 53 weeks. The effect of the additional week in 1995 on the comparisons of the financial statements taken as a whole is generally not significant. PUBLISHING The publishing segment represented 53% of the Company's consolidated operating revenues in 1997. The twelve-month combined average circulation in 1997 of the Company's daily newspapers was approximately 1.3 million daily and 1.9 million Sunday. The Company's primary newspapers are the Chicago Tribune, the South Florida-based Sun-Sentinel, The Orlando Sentinel and the Hampton Roads (VA.)-based Daily Press. The Company formerly owned two daily newspapers and a weekly newspaper located in suburban areas in the San Diego, California market that were sold in July 1995 for approximately $16 million in cash. The Company recorded a $7.5 million pretax loss on this sale in 1995. For 1997, the portion of total publishing operating revenues represented by each of the Company's newspaper subsidiaries was as follows: Chicago Tribune Company--55%; Sun-Sentinel Company--21%; Orlando Sentinel Communications Company--18%; and The Daily Press, Inc.--4%. In addition, the Company owns a newspaper syndication and media marketing company and other publishing-related businesses. Each of the Company's newspapers operates independently to most effectively meet the needs of the area it serves. Editorial policies are established by local management. The Company coordinates certain aspects of operations and resources in order to provide greater operating efficiency and economies of scale. The Company's newspapers compete for readership and advertising in varying degrees with other metropolitan, suburban and national newspapers, as well as with television, radio and other media. Competition for newspaper advertising is based upon circulation levels, readership demographics, price, service and advertiser results, while competition for circulation is based upon the content of the newspaper, service and price. 2 The Company's newspapers are printed in Company-owned production facilities. The principal raw material is newsprint. In 1997, the Company's newspapers consumed approximately 376,000 metric tons of newsprint. In 1995, the North American newsprint industry increased newsprint prices several times due to higher demand for newsprint in the U.S. and overseas. The Company's publishing operations offset most of the 1995 increase through cost controls, a decrease in newsprint consumption and revenue increases. Newsprint prices peaked in the first quarter of 1996 and then declined throughout the remainder of 1996 and the beginning of 1997. Although newsprint prices increased moderately after the first quarter of 1997, average newsprint transaction prices for the year decreased 15% in 1997 from 1996. Several of the Company's newsprint suppliers have announced price increases effective April 1998. If these price increases occur, the Company expects to offset the additional expense through cost controls and revenue increases. The Company is party to a contract with Donohue Inc., expiring in 2007, to supply newsprint based on market prices. Under the contract, the Company has agreed to purchase specified minimum amounts of newsprint each year subject to certain limitations. The specified minimum annual volume is 250,000 metric tons in years 1998 and 1999, 225,000, 200,000 and 175,000 metric tons in years 2000 to 2002, respectively, and 150,000 metric tons in each of years 2003 to 2007. In 1997, approximately 70% of the newspapers' newsprint supply was purchased from Donohue. The following table provides a breakdown of revenues for the publishing segment for the last three years. Operating Revenues (In thousands) Fiscal Year Ended December ----------------------------------------- 1997 1996 1995 ---------- ---------- ---------- Advertising Retail.................... $ 455,104 $ 433,373 $ 450,141 General................... 149,681 140,741 130,680 Classified................ 510,753 456,912 429,961 ---------- ---------- ---------- Total................ 1,115,538 1,031,026 1,010,782 Circulation................. 250,558 252,263 249,860 Other (1)................... 70,622 53,350 52,125 ---------- ---------- ---------- Total................ $1,436,718 $1,336,639 $1,312,767 ---------- ---------- ---------- - ----- (1) Primarily includes revenues from advertising placement services; the syndication of columns, features, information and comics to newspapers; commercial printing operations; delivery of other publications; direct mail operations; non-advertising revenues from Internet/electronic projects; and other publishing-related activities. Total advertising revenues improved in 1997 due to both linage and rate increases. The increase in retail advertising revenues was primarily due to improvements in the movie and electronics categories in Chicago and the department store and healthcare categories in Orlando and Fort Lauderdale. General advertising increased mainly due to growth in the resorts, transportation and hi-tech categories in Chicago and the telecommunications, movie and transportation categories in Fort Lauderdale. Classified advertising revenues were up mainly due to increases in help wanted advertising at all of the newspapers. 3 Chicago Tribune Company Founded in 1847, the Chicago Tribune is published daily, including Sunday, and primarily serves an eight-county market in northern Illinois and Indiana. This market ranks third in the United States in number of households. For the six months ended September 1997, the Chicago Tribune ranked 7th in average daily circulation and 4th in average Sunday circulation in the nation, based on ABC averages. Approximately 76% of the paper's daily and 58% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. The daily edition's newsstand price increased by $.15 to $.50 in September 1992. The Sunday edition's newsstand price increased by $.25 to $1.75 in October 1995. In September 1997, the weekly home delivery price increased $.10 to $4.10. The following tables set forth selected information for the Chicago Tribune daily newspaper and other related activities.
Averages for the Twelve Months Ended December --------------------------------------------------- 1997 1996 1995 --------- --------- --------- Circulation: Daily................................... 656,000 674,000 683,000 Sunday.................................. 1,028,000 1,052,000 1,085,000
Fiscal Year Ended December -------------------------------------------------- 1997 1996 1995 -------- -------- -------- Advertising Inches (in thousands): Full Run (all zones) Retail................................ 923 953 1,123 General............................... 361 354 314 Classified............................ 1,406 1,330 1,339 -------- -------- -------- Total.............................. 2,690 2,637 2,776 Part Run................................ 5,445 4,877 5,160 Preprinted Inserts...................... 3,347 2,967 3,045 -------- -------- -------- Total Inches....................... 11,482 10,481 10,981 -------- -------- -------- Operating Revenues (in thousands)......... $788,577 $735,158 $723,344 -------- -------- --------
The 1997 improvement in advertising volume was mainly due to higher full run and part run classified help wanted inches and increases in preprinted inserts for retailers. Based on ABC averages for the six months ended September 1997, the Chicago Tribune had a 35% lead in total daily paid circulation and a 142% lead in Sunday paid circulation over its principal competitor, the Chicago Sun-Times. The Chicago Tribune's total advertising volume and operating revenues are estimated to be substantially greater than those of the Sun-Times. The Chicago Tribune also competes with other city, suburban and national daily newspapers, direct mail operations and other media. In September 1993, the Chicago Tribune began publishing Exito!, a weekly newspaper targeted to Spanish-speaking households. The Chicago Tribune owns Chicago Tribune Direct, a direct mail operation. The Chicago Tribune also operates audiotex services and publications targeted to specific consumer market segments. In January 1995, the Chicago Tribune acquired RELCON, Inc. for approximately $8 million in cash, which publishes free apartment and new home guides and provides apartment rental referral services to prospective renters. 4 Sun-Sentinel Company (Fort Lauderdale) The Sun-Sentinel is published daily, including Sunday, and leads the Broward/South Palm Beach market in circulation. Approximately 71% of the paper's daily and 65% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. The paper's principal competition comes from the Miami Herald and national and local publications, as well as other media. The Miami/Fort Lauderdale market ranks 16th in the nation in terms of households. The daily Broward edition's newsstand price increased by $.10 to $.35 in May 1995. The daily South Palm Beach edition's newsstand price increased $.15 to $.50 in January 1996. The newsstand price of all Sunday editions was increased by $.25 to $1.00 in November 1989. In January 1992, the newsstand price of the South Palm Beach Sunday edition increased by $.25 to $1.25. In March 1996, the weekly home delivery price for the Broward edition increased $.15 to $2.75. In November 1996, the weekly home delivery price for the South Palm Beach edition increased $.25 to $3.00. The following tables set forth selected information for the Sun-Sentinel daily newspaper and other related activities.
Averages for the Twelve Months Ended December ------------------------------------------------- 1997 1996 1995 ------- ------- ------- Circulation: Daily.................................. 257,000 256,000 262,000 Sunday................................. 372,000 371,000 370,000
Fiscal Year Ended December -------------------------------------------------- 1997 1996 1995 -------- -------- -------- Advertising Inches (in thousands)(1): Full Run (all zones) Retail............................... 1,190 1,161 1,203 General.............................. 245 240 226 Classified........................... 2,417 2,425 2,451 -------- -------- -------- Total............................. 3,852 3,826 3,880 Part Run............................... 2,938 2,980 2,967 Preprinted Inserts..................... 1,754 1,521 1,748 -------- -------- -------- Total Inches...................... 8,544 8,327 8,595 -------- -------- -------- Operating Revenues (in thousands)........ $308,023 $292,248 $284,838 -------- -------- -------- - ----- (1) Excludes inches for Gold Coast Shopper and other targeted publications.
The 1997 improvement in advertising volume was mainly due to higher preprinted inserts for retailers. Higher classified help wanted inches were offset by lower real estate inches. The Sun-Sentinel Company owns Gold Coast Shopper, a publication located in Deerfield Beach. In 1991, two weekly publications, City Link (formerly known as XS) and Exito!, targeted to young adults and Spanish-speaking households, respectively, were launched; Exito! ceased publication in December 1997. The Sun-Sentinel also offers delivery of other publications, audiotex services and publications targeted to specific consumer market segments, such as South Florida Parenting, acquired in 1994. 5 Orlando Sentinel Communications Company The Orlando Sentinel is published daily, including Sunday, and serves primarily a five-county area in Central Florida. It is the only major daily newspaper in the Orlando market, although it competes with other Florida and national newspapers, as well as other media. Approximately 77% of the paper's daily and 67% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. In March 1992, the newsstand price of the daily edition increased $.15 to $.50, except for most Thursday editions, which had been priced at $.50 since February 1991. The newsstand price of the Sunday edition was increased to $1.50 from $1.25 at the end of 1990. In October 1995, the weekly home delivery price was increased by $.10 to $3.85. The Orlando/Daytona Beach/Melbourne market ranks 22nd among U.S. markets in terms of households. The following tables set forth selected information for The Orlando Sentinel daily newspaper and other related activities.
Averages for the Twelve Months Ended December -------------------------------------------------- 1997 1996 1995 ------- ------- ------- Circulation: Daily..................................... 259,000 261,000 268,000 Sunday.................................... 382,000 383,000 389,000
Fiscal Year Ended December --------------------------------------------------- 1997 1996 1995 -------- -------- -------- Advertising Inches (in thousands): Full Run (all zones) Retail.................................. 964 914 930 General................................. 158 133 137 Classified.............................. 1,720 1,728 1,848 -------- -------- -------- Total................................ 2,842 2,775 2,915 Part Run ................................. 1,481 1,387 1,506 Preprinted Inserts........................ 3,155 2,764 2,787 -------- -------- -------- Total Inches......................... 7,478 6,926 7,208 -------- -------- -------- Operating Revenues (in thousands)........... $253,570 $232,874 $221,786 -------- -------- --------
The 1997 improvement in advertising volume was mainly due to higher preprinted inserts for retailers and full run retail inches for the department store and healthcare categories. Higher classified help wanted inches were offset by lower automotive inches as a result of auto dealer consolidations. The Orlando Sentinel also publishes US/Express, a free weekly entertainment publication that is used to distribute advertising to non-subscribers, which is syndicated nationally, a group of central Florida parenting magazines, and the RELCON apartment guide for the central Florida market. In 1997, The Orlando Sentinel began publishing New Homes and Auto Finder, which are free publications distributed in the Central Florida market. The Daily Press, Inc. (Newport News, Virginia) The Daily Press is published daily, including Sunday, and serves the Hampton Roads market. The Daily Press constitutes the only major daily newspaper in the market, although it competes with other regional and national newspapers, as well as other media. The Hampton Roads market includes Newport News, Hampton, Williamsburg and eight other cities and counties in Virginia. This market area is also commonly called the Virginia Peninsula and, together with Norfolk, Portsmouth and Virginia Beach, is the 39th largest U.S. market in terms of households. The newsstand price of the daily edition increased by $.15 to $.50 in July 1996. The Sunday edition newsstand price was increased to $1.50 from $1.25 in October 1995. The weekly home delivery price was increased by $.30 to $3.05 in 6 October 1995. Approximately 82% of the paper's daily and 77% of its Sunday circulation is sold through home delivery, with the remainder sold at newsstands and vending boxes. The following tables set forth selected information for the Daily Press.
Averages for the Twelve Months Ended December -------------------------------------------------- 1997 1996 1995 ------- ------- ------- Circulation: Daily..................................... 98,000 100,000 103,000 Sunday.................................... 118,000 121,000 126,000
Fiscal Year Ended December -------------------------------------------------- 1997 1996 1995 ------- ------- ------- Advertising Inches (in thousands): Full Run (all zones) Retail.................................. 630 610 674 General................................. 35 28 18 Classified.............................. 926 858 887 ------- ------- ------- Total................................ 1,591 1,496 1,579 Part Run ................................. 150 125 110 Preprinted Inserts ....................... 1,282 1,184 1,185 ------- ------- ------- Total Inches......................... 3,023 2,805 2,874 ------- ------- ------- Operating Revenues (in thousands)........... $55,721 $52,618 $51,555 ------- ------- -------
The 1997 improvement in advertising volume was mainly due to higher preprinted inserts for retailers and full run classified inches, primarily in the automotive and help wanted categories. Related Businesses The Company is also involved in syndication activities, advertising placement services, Internet and other online-related businesses and other publishing-related activities. The syndication activities, conducted primarily through Tribune Media Services ("TMS"), involve the marketing of columns, features, information and comic strips to newspapers. TMS is also engaged in advertising placement services for television listings in newspapers and the development of news products and services for electronic and print media. Internet and other online-related businesses include the electronic publishing of each of the Company's daily newspapers with enhanced content on the Internet. In addition, the Company owns and operates the Digital City affiliate in each of the Company's markets. See "Investments" for a discussion of the Company's investment in Digital City. Total operating revenues for these publishing-related businesses are shown below, net of intercompany revenues. Operating Revenues (In thousands) Fiscal Year Ended December -------- 1997................................ $30,827 1996................................ 23,741 1995................................ 22,739 Other revenues rose in 1997 primarily due to increased revenues from Internet/electronic projects. 7 BROADCASTING AND ENTERTAINMENT The broadcasting and entertainment segment represented 39% of the Company's consolidated operating revenues in 1997. At December 28, 1997, the segment included WB television affiliates located in New York, Los Angeles, Chicago, Philadelphia, Boston, Dallas, Houston, Miami, Denver and San Diego; Fox television affiliates in Sacramento, Indianapolis, Hartford and Harrisburg; a CBS television affiliate (effective December 1994) in Atlanta; an ABC television affiliate (effective January 1996) in New Orleans; and four radio stations, one located in Chicago and three located in Denver. In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WDZL-Miami, KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The Federal Communications Commission ("FCC") order granting the Company's application to acquire the Renaissance stations contained waivers of two FCC rules. First, the FCC temporarily waived its duopoly rule relating to the overlap of WTIC's and WPMT's broadcast signals with those of other Tribune stations. The temporary waivers were granted subject to the outcome of pending FCC rulemaking that is expected to make such duopoly waivers unnecessary. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The Company appealed the FCC's ruling and filed a petition with the FCC requesting a rulemaking procedure. Although the Court of Appeals affirmed the FCC's order requiring divestiture of either the Miami television station or the Sun-Sentinel newspaper, the FCC subsequently issued a rule review to consider modifying its cross-ownership rule. In March 1998, the FCC granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Sun-Sentinel newspaper until the rule review has concluded. The Company cannot predict the outcome of the FCC duopoly rulemaking or cross-ownership rule review. In May 1997, the Company reached an agreement with Emmis Broadcasting Corporation regarding the sale or exchange of the Company's WQCD radio station in New York. Effective July 1, 1997 and in connection with the agreement, Emmis assumed responsibility for certain operations of the station for up to three years for an annual fee of approximately $8 million, after which Emmis has the right to purchase the station. In December 1997, the Company signed an agreement with Emmis to exchange substantially all of the assets of WQCD, with a fair market value of approximately $160 million, and cash for the assets of television stations KTZZ-Seattle (WB) and WXMI-Grand Rapids (Fox). Emmis has agreed to acquire these television stations as part of its acquisition of Dudley Communications Corporation. The transaction, pending FCC approval, is expected to close during the second quarter of 1998. In January 1996, the Company acquired television station KHTV-Houston for $102 million in cash. In February 1996, the Company acquired the remaining minority interest in WPHL-Philadelphia for $23 million in cash. In April 1996, the Company acquired television station KSWB-San Diego for $72 million in cash. In November 1995, the Company swapped its two Sacramento radio stations, KYMX and KCTC, for $3 million in cash and a Denver radio station. The Company acquired television station WLVI-Boston in April 1994, for $25 million in cash. In June 1994, the Company acquired Farm Journal Inc., publisher of The Farm Journal, a leading farm magazine, for $17 million in cash. Farm Journal results were reported in radio until March 1997, when it was sold by the Company for approximately $17 million in cash. The acquisitions were accounted for as purchases. In entertainment/other, the Company owns the Chicago Cubs baseball team, produces and syndicates television programming and owns CLTV News, a Chicago-area news cable channel. 8 The following table shows sources of revenue for the broadcasting and entertainment segment for the last three years. Operating Revenues (In thousands)
Fiscal Year Ended December --------------------------------------------- 1997 1996 1995 ---------- -------- -------- Television (1)................................ $ 861,434 $680,504 $629,502 Radio (2)..................................... 71,641 89,260 88,435 Entertainment/other (3)....................... 124,454 106,986 110,869 ---------- -------- -------- Total..................................... $1,057,529 $876,750 $828,806 ---------- -------- -------- - ----- (1) Includes the six Renaissance stations since their acquisition in March 1997, KHTV-Houston since its acquisition in January 1996 and KSWB-San Diego since its acquisition in April 1996. (2) Includes Farm Journal until its sale in March 1997 and WQCD, which transferred station operations to Emmis Broadcasting Corporation effective July 1, 1997 in return for an annual management fee. (3) 1996 reflects the impact of the cancellation of two Tribune Entertainment syndicated programs, "Charles Perez" and "The Road." 1995 reflects the impact of the Major League baseball strike which began August 12, 1994 and ended in April 1995.
Television In 1997, television contributed 81% of broadcasting and entertainment operating revenues. The Company's television stations compete for audience and advertising with other television and radio stations, cable television and other media serving the same markets. Competition for audience and advertising is based upon various interrelated factors including programming content, audience acceptance and price. Selected data for the Company's television stations is shown in the following table.
Market (1) Major --------------------------- Commercial Expiration National % of U.S. FCC Stations in of FCC When Rank Households % Channel Affiliation Market (2) License (3) Acquired -------- ---------- --- ------- ----------- ----------- ----------- -------- WPIX - New York, NY........... 1 6.9 6.9 11-VHF WB 6 1999 1948 KTLA - Los Angeles, CA........ 2 5.1 5.1 5-VHF WB 7 1998 (4) 1985 WGN - Chicago, IL............ 3 3.2 3.2 9-VHF WB 7 1997 (5) 1948 WPHL - Philadelphia, PA....... 4 2.7 1.3 17-UHF WB 6 1999 1992 WLVI - Boston, MA............. 6 2.2 1.1 56-UHF WB 7 1999 1994 KDAF - Dallas, TX ............ 8 1.9 1.0 33-UHF WB 8 1998 (6) 1997 WGNX - Atlanta, GA............ 10 1.7 0.9 46-UHF CBS 7 2005 1984 KHTV - Houston, TX ........... 11 1.7 0.8 39-UHF WB 6 1998 (6) 1996 WDZL - Miami, FL.............. 16 1.4 0.7 39-UHF WB 6 2005 (7) 1997 KWGN - Denver, CO............. 18 1.2 1.2 2-VHF WB 6 1998 (8) 1966 KTXL - Sacramento, CA......... 20 1.2 0.6 40-UHF Fox 6 1998 (4) 1997 WXIN - Indianapolis, IN....... 25 1.0 0.5 59-UHF Fox 6 2005 1997 KSWB - San Diego, CA.......... 26 1.0 0.5 69-UHF WB 6 1998 (4) 1996 WTIC - Hartford, CT........... 27 0.9 0.5 61-UHF Fox 6 1999 1997 WGNO - New Orleans, LA........ 41 0.6 0.3 26-UHF ABC 6 2005 1983 WPMT - Harrisburg, PA......... 45 0.6 0.3 43-UHF Fox 5 1999 1997 - ----- (1) Source: Nielsen Station Index (DMA Market and Demographic Rank Report, September 1997). Ranking of markets is based on number of television households in DMA (Designated Market Area). (2) Source: Nielsen Station Index (Viewers in Profile Reports, 1997). Major commercial stations program for a broad, general audience and have a large viewership in the market. (3) See "Governmental Regulation." (4) Expires December 1998. Renewal application will be filed. (5) Expired December 1997. Renewal application filed in August 1997 is pending. (6) Expires August 1998. Renewal application will be filed.
9 (7) The FCC has granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper until the FCC has completed a review of the newspaper/television cross-ownership rule. See "Item 3, Legal Proceedings" for a discussion of the cross-ownership rule. (8) Expires April 1998. Renewal application filed in December 1997 is pending. Programming emphasis at the Company's WB affiliated stations is placed on syndicated series, feature motion pictures, local and regional sports coverage, news and children's programs. The stations acquire most of their programming from outside sources, including The WB Television Network ("The WB Network"), although a significant amount is produced locally or supplied by Tribune Entertainment (see "Entertainment/Other"). The Company's stations affiliated with other major networks acquire most of their programming from those networks. Contracts for purchased programming generally cover a period of one to five years, with payment also typically made over several years. The expense for amortization of television broadcast rights in 1997 was $250 million, which represented approximately 29% of total television operating revenues. Average audience share information for the Company's television stations for the past three years is shown in the following table.
Average Audience Share (1) Year Ended December ---------------------------------------- 1997 1996 1995 ------ ------ ------ WPIX - New York, NY......................... 10.0% 11.0% 10.0% KTLA - Los Angeles, CA...................... 8.3 8.5 10.0 WGN - Chicago, IL.......................... 10.0 10.0 10.8 WPHL - Philadelphia, PA..................... 4.5 4.8 5.3 WLVI - Boston, MA........................... 4.5 4.3 4.5 KDAF - Dallas, TX........................... 8.3 8.3 10.0 WGNX - Atlanta, GA.......................... 8.3 8.3 9.3 KHTV - Houston, TX.......................... 6.5 5.8 6.3 WDZL - Miami, FL............................ 6.3 6.5 6.8 KWGN - Denver, CO........................... 8.0 8.8 9.0 KTXL - Sacramento, CA....................... 9.0 9.3 10.0 WXIN - Indianapolis, IN..................... 8.0 7.8 9.3 KSWB - San Diego, CA........................ 4.0 3.3 2.5 WTIC - Hartford, CT......................... 7.5 8.3 8.8 WGNO - New Orleans, LA...................... 9.8 7.3 9.0 WPMT - Harrisburg, PA....................... 7.8 7.3 6.8 - ----- (1) Represents the estimated number of television households tuned to a specific station as a percent of total viewing households in a defined area. The percentages shown reflect the average Nielsen ratings shares for the February, May, July and November measurement periods for 7 a.m. to 1 a.m. daily.
Radio In 1997, the Company's radio operations contributed 7% of broadcasting and entertainment operating revenues. The largest radio station owned by the Company, measured in terms of operating revenues, is WGN. Radio operations include Tribune Radio Networks (which produces and distributes farm and sports programming to radio stations, primarily in the Midwest); WQCD (which transferred station operations to Emmis Broadcasting through a management agreement in July 1997); and Farm Journal (until its sale in March 1997). 10 Selected information for the Company's radio operations is shown in the following table.
Number of National Operating Market Stations in Audience Format Frequency Rank (1) Market (2) Share (3) ------------------------ --------- -------- ----------- ---------- WGN - Chicago, IL Personality/Infotainment /Sports 720-AM 3 40 6.0% KOSI - Denver, CO Adult Contemporary 101.1-FM 22 24 6.5% KEZW - Denver, CO Nostalgia/Big Band 1430-AM 22 24 3.2% KKHK - Denver, CO All Rock & Roll Hits 99.5-FM 22 24 4.6% - ----- (1) Source: Radio markets ranked by Arbitron Metro Survey Area, Arbitron Company 1997. (2) Source: Arbitron Company 1997. (3) Source: Average of Winter, Spring, Summer and Fall 1997 Arbitron shares for persons 12 years old and over, 6 a.m. to midnight daily during the period measured.
Entertainment/Other In 1997, entertainment/other contributed 12% of the segment's operating revenues. This portion of the broadcasting and entertainment segment includes Tribune Entertainment Company, the Chicago Cubs baseball team, one minor league baseball team and CLTV News. Tribune Entertainment Company was formed to acquire and develop weekly programming for Company television stations and for syndication. Tribune Entertainment participates in the production or distribution of first-run programming, including television shows, music and variety shows, one daily talk show, movies and specials. In 1997, Tribune Entertainment successfully launched two weekly action shows: "Earth: Final Conflict," which is aired on 177 stations that cover 96% of U.S. television households; and "Nightman," which is aired on 156 stations that cover 92% of U.S. television households. In addition, Tribune Entertainment produces and syndicates "The Geraldo Rivera Show," a one-hour, daily talk show, which is aired on 113 stations that cover 80% of U.S. television households. Mr. Rivera has announced his intention to end the show after the 1997-1998 television season. During the 1997-1998 television season, Tribune Entertainment originated or syndicated approximately 12.5 hours of first-run programs per week. On average, the Company's 16 television stations utilized approximately seven hours per week of programming furnished by Tribune Entertainment. The Company owns the Chicago Cubs baseball team. In addition to providing local sports entertainment, the Cubs represent an important source of live programming for the Company's Chicago-based broadcasting operations and regional cable programming service. The Company also owns a Class A Midwest League franchise in Rockford, Illinois. Agreement on a new five-year contract between the Major League Baseball Players Association ("MLBPA") and Major League Baseball was reached in December 1996. The previous contract expired on December 31, 1993. The MLBPA initiated a strike on August 12, 1994, and on August 28, 1994, the owners canceled the remainder of the 1994 Major League Baseball season. In April 1995, the National Labor Relations Board invalidated the owners' posted rules, and the players ended their strike. The 1995 baseball season began April 26, 1995. The strike shortened the 1995 season by 18 games and continued to impact attendance throughout the season. The new contract has not had a material impact on the Company's results of operations. CLTV News, a regional 24-hour cable news programming service, was launched in January 1993 and currently is available to more than 1.7 million cable households in the Chicago-area market. 11 EDUCATION The education segment represented 8% of the Company's consolidated operating revenues in 1997. Education operating revenues in 1997 were $226 million, up 17% from 1996 due primarily to improvements at all of the education businesses except Educational Publishing Corporation's Creative Publications division. Education revenues are derived from publishing supplemental and core curriculum education materials and adult education and trade books. The education market consists primarily of two components, core curriculum education products and supplemental education materials. The Company's education segment has become one of the nation's largest supplemental publishers for grades K-12. In September 1997, the Company acquired Shortland Publications Limited for $32 million in cash. Shortland is a New Zealand-based company that publishes reading, language arts, science and social studies materials for several international elementary school markets. In December 1997, the Company acquired approximately 80% of Landoll, Inc. for $77 million in cash. Landoll publishes children's books for the mass market. In March 1996, the Company acquired Educational Publishing Corporation for $205 million in cash and NTC Publishing Group for $83 million in cash. Educational Publishing publishes supplemental and core curriculum education materials through its Creative Publications and Ideal/Instructional Fair divisions. NTC Publishing publishes trade books and educational products for the school and consumer markets. In August 1995, the Company acquired Everyday Learning Corporation, a publisher of mathematics materials for grades kindergarten through 6, for $25 million in cash. In February 1994, the Company acquired The Wright Group, a publisher of supplemental education materials for the elementary school market, for $96 million in cash. In July 1993, the Company acquired Contemporary Books, Inc., a publisher of nonfiction trade titles and educational books and materials, for $22 million in cash and $18.5 million in common stock. In September 1993, the Company acquired Compton's Multimedia Publishing Group for $57 million in cash. The Company sold Compton's to The Learning Company, Inc. in December 1995. The acquisitions were accounted for as purchases. INVESTMENTS The Company has investments in several public and private companies. See Note 6 to the Company's Consolidated Financial Statements in the 1997 Annual Report to Shareholders for a discussion of the Company's cost and equity method investments. The principal equity method investments include Digital City, The WB Network and Qwest Broadcasting. In 1996, the Company purchased a 20% equity interest in Digital City, a venture with America Online to develop a national network of local interactive services. The Company acquired a 13% equity interest in The WB Network in 1995, and exercised options to increase its ownership interest to 22% in 1997 and 25% in March 1998. The WB is a growing network that provides the Company's WB affiliate television stations with original prime-time and kids' programming. In 1995, the Company acquired a 33% equity interest in Qwest Broadcasting, which owns WB affiliate television stations in Atlanta and New Orleans. NON-RECURRING ITEMS In 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. In 1996, the Company recorded non-recurring equity income representing the Company's interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station. In 1995, the Company sold a portion of its investment in America Online common stock, a publishing subsidiary and an education subsidiary. See Note 3 to the Company's Consolidated Financial Statements in the 1997 Annual Report to Shareholders for a discussion of these non-recurring items. 12 DISCONTINUED OPERATIONS (QUNO CORPORATION) In March 1996, the Company completed the sale of its holdings in QUNO Corporation, a Canadian newsprint company, as part of QUNO's merger with Donohue Inc. The Company owned approximately 34% of QUNO's common stock plus $138.8 million in convertible debt. The sale resulted in a 1996 after-tax gain of $89.3 million, or $.66 per diluted share. The gross proceeds from the sale were approximately $427 million in cash, Donohue stock and short-term notes. Immediately after the sale, the Company sold the Donohue stock and notes for cash. After-tax proceeds were approximately $331 million. QUNO has been accounted for as a discontinued operation in the Company's consolidated financial statements. QUNO newsprint sales to affiliated (Tribune) and unaffiliated customers for 1995 were 251,000 metric tons and 585,000 metric tons, respectively. See "Publishing" for a discussion of the supply contract between the Company and Donohue. GOVERNMENTAL REGULATION Various aspects of the Company's operations are subject to regulation by governmental authorities in the United States. The Company's television and radio broadcasting operations are subject to Federal Communications Commission jurisdiction under the Communications Act of 1934, as amended. FCC rules, among other things, govern the term, renewal and transfer of radio and television broadcasting licenses, and limit concentrations of broadcasting control inconsistent with the public interest. Federal law also regulates the rates charged for political advertising and the quantity of advertising within children's programs. The Company is permitted to own both newspaper and broadcast operations in the Chicago market by virtue of "grandfather" provisions in the FCC regulations. National limits on the number of broadcast stations a licensee may own were removed by Congress in 1996. However, federal law continues to limit the number of radio and television stations a single owner may own in a local market, and the percentage of the national television audience that may be reached by a licensee's television stations in the aggregate. Television and radio broadcasting licenses are subject to renewal by the FCC, at which time they may be subject to competing applications for the licensed frequencies. At December 28, 1997, the Company had FCC authorization to operate 16 television stations and two AM and three FM radio stations. The FCC has approved technical standards and channel assignments for digital television ("DTV") service. DTV will permit broadcasters to transmit video images with higher resolution than existing analog signals. Operators of full-power television stations (including those owned by the Company) have each been assigned a second channel for DTV while they continue analog broadcasts on the original channel. After the transition is complete, broadcasters will be required to return one of the two channels to the FCC and transmit exclusively in digital format. By law, the transition to DTV is to occur by December 31, 2006, subject to extension under certain circumstances. Conversion to digital transmission will require all television broadcasters, including those owned by the Company, to invest in digital equipment and facilities. The Company does not believe that the required capital expenditures will have a material effect on its consolidated financial position or results of operations. The FCC has not yet issued regulations governing some aspects of DTV operation. These include the obligations of cable television systems and other multichannel video providers to carry DTV signals, additional "public interest" obligations that may be imposed on broadcasters' use of DTV, and fees to be paid by broadcasters to the government for transmitting subscription-based services over the DTV channel. From time to time, the FCC revises existing regulations and policies in ways that could affect the Company's broadcasting operations. In addition, Congress from time to time considers and adopts substantive amendments to the governing communications legislation. The Company cannot predict what regulations or legislation may be proposed or finally enacted or what effect, if any, such regulations or legislation could have on the Company's broadcasting operations. See "Item 3, Legal Proceedings" for a discussion of pending FCC rulemaking and rule review. 13 EMPLOYEES The average number of full-time equivalent employees of the Company in 1997 was 11,600, approximately 900 more than the average for 1996. The increase was due to the net impact of the 1996 and 1997 acquisitions and dispositions and the growth of the Company's Internet/online businesses. Pension and other employee benefit plans are provided for substantially all employees of the Company. Eligible employees also participate in the Company's Employee Stock Ownership Plan. During 1997, the Company's publishing segment employed approximately 7,700 full-time equivalent employees, about 7% of whom were represented by a total of five unions. Contracts with unionized employees of the publishing segment expire at various times through September 1999. Broadcasting and entertainment had an average of 3,000 full-time equivalent employees in 1997. Approximately 22% of these employees were represented by a total of 21 unions. Contracts with unionized employees of the broadcasting and entertainment segment expire at various times through December 1999. Education had an average of 900 full-time equivalent employees in 1997. Approximately 9% of these employees were represented by one union. The contract with the unionized employees of the education segment expires in October 1998. EXECUTIVE OFFICERS OF THE COMPANY Information with respect to the executive officers of the Company as of March 10, 1998 is set forth below. The descriptions of the business experience of these individuals include the principal positions held by them since March 1993. Robert D. Bosau (51) President since May 1997 and Executive Vice President from August 1994 to May 1997 of Tribune Education Company*; Vice President/Administration of Tribune Publishing Company* until August 1994. James C. Dowdle (64) Executive Vice President of the Company; President and Chief Executive Officer of Tribune Broadcasting Company* until May 1997; President of Tribune Publishing Company* from August 1994 to May 1997; Director of the Company since 1985. Dennis J. FitzSimons (47) President since May 1997 and Executive Vice President from August 1994 until May 1997 of Tribune Broadcasting Company*; President of Tribune Television Company* until August 1994. Jack W. Fuller (51) President since May 1997 of Tribune Publishing Company*; President and Publisher from September 1993 to May 1997 and Vice President/Editor until September 1993 of Chicago Tribune Company*. Donald C. Grenesko (49) Senior Vice President/Finance and Administration since August 1996, Senior Vice President and Chief Financial Officer from March 1993 to August 1996 and Vice President and Chief Financial Officer until March 1993 of the Company. - ----- * A subsidiary of the Company. 14 David D. Hiller (44) Senior Vice President/Development since November 1993, Senior Vice President and General Counsel from March to November 1993 of the Company; Partner, Sidley & Austin until November 1993. Crane H. Kenney (35) Vice President/General Counsel and Secretary since August 1996, Vice President/Chief Legal Officer from February 1996 to August 1996, Senior Counsel from March 1995 to January 1996 and Counsel from February 1994 to February 1995 of the Company; Associate, Schiff, Harden & Waite until January 1994. Luis E. Lewin (49) Vice President/Human Resources since October 1996 and Director of Human Resources from March 1994 to October 1996 of the Company; Acting Publisher of Exito! in Chicago from December 1995 to September 1996; Vice President/Human Resources of Sun-Sentinel Company* until March 1994. John W. Madigan (60) Chairman since January 1996, Chief Executive Officer since May 1995, President since May 1994, Chief Operating Officer from May 1994 to May 1995 and Executive Vice President of the Company until May 1994; President of Tribune Publishing Company* until May 1994; Publisher of the Chicago Tribune until May 1994 and President and Chief Executive Officer of Chicago Tribune Company* until September 1993; Director of the Company since 1975. Ruthellyn Musil (46) Vice President/Corporate Relations since March 1995 and Director of Communications until March 1995 of the Company. Jeff R. Scherb (40) Senior Vice President/Chief Technology Officer since August 1996 of the Company; Chief Technology Officer and Senior Vice President, Dun & Bradstreet Software from March 1995 to August 1996; Vice President/Systems Development, Turner Broadcasting from 1994 to 1995; Senior Vice President/Product Development, Delphi Information Systems until 1994. - ----- * A subsidiary of the Company. 15 ITEM 2. PROPERTIES. The corporate headquarters of the Company are located at 435 North Michigan Avenue, Chicago, Illinois. The general character, location and approximate size of the principal physical properties used by the Company on December 28, 1997 are listed below. In addition to those listed, the Company owns or leases transmitter sites, parking lots and other properties aggregating approximately 624 acres in 55 separate locations, and owns or leases an aggregate of approximately 1,552,000 square feet of space in 193 locations. The Company also owns the 39,000-seat stadium used by the Chicago Cubs baseball team. The Company considers its various properties to be in good condition and suitable for the purposes for which they are used.
Approximate Area in Square Feet ------------------------------- General Character of Property Owned Leased ----------------------------- --------- --------- Publishing: Printing plants, business and editorial offices and warehouse space located in: Chicago, Illinois................................................. 1,327,000 (1) 161,000 Orlando, Florida.................................................. 424,000 98,000 Deerfield Beach, Florida.......................................... 386,000 - Northlake, Illinois............................................... - 216,000 Newport News, Virginia............................................ 207,000 - Fort Lauderdale, Florida.......................................... - (2) 128,000 Broadcasting and Entertainment: Business offices, studios and transmitters located in: Los Angeles, California........................................... 253,000 - New York, New York................................................ - 131,000 Chicago, Illinois................................................. 99,000 4,000 Oak Brook, Illinois............................................... - 69,000 Denver, Colorado.................................................. 44,000 11,000 Houston, Texas.................................................... 36,000 - Indianapolis, Indiana............................................. 5,000 31,000 Dallas, Texas..................................................... 33,000 - Boston, Massachusetts............................................. 28,000 - Philadelphia, Pennsylvania........................................ 22,000 2,500 Sacramento, California............................................ 24,000 - Chula Vista, California........................................... 22,000 - Hartford, Connecticut............................................. - 22,000 New Orleans, Louisiana............................................ - 22,000 Atlanta, Georgia.................................................. - 21,000 Miami, Florida.................................................... 20,000 - York, Pennsylvania................................................ 20,000 - Education: Printing plants, business offices and warehouse space located in: Ashland, Ohio..................................................... - 716,000 Chicago, Illinois................................................. 185,000 29,000 Alsip, Illinois................................................... - 171,000 Kirkland, Washington.............................................. - 126,000 Lincolnwood, Illinois............................................. - 71,000 Bothell, Washington............................................... - 60,000 Grand Rapids, Michigan............................................ - 53,000 Mountain View, California......................................... - 28,000 Denver, Colorado.................................................. - 9,700 Oakdale, Iowa..................................................... - 5,800 - ----- (1) Includes Tribune Tower, an approximately 630,000 square foot office building in downtown Chicago, and Freedom Center, the approximately 697,000 square foot production center of the Chicago Tribune. Tribune Tower houses the Company's corporate headquarters, the Chicago Tribune's business and editorial offices, offices of various subsidiary companies and approximately 70,000 square feet of space leased to unaffiliated tenants. Freedom Center houses the Chicago Tribune's printing, packaging and distribution operations. (2) In 1997, the Company sold New River Center, an office building in downtown Fort Lauderdale. The Sun-Sentinel newspaper subsidiary currently leases approximately 35% of the building.
16 ITEM 3. LEGAL PROCEEDINGS. The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WDZL-Miami, KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The Federal Communications Commission ("FCC") order granting the Company's application to acquire the Renaissance stations contained waivers of two FCC rules. First, the FCC temporarily waived its duopoly rule relating to the overlap of WTIC's and WPMT's broadcast signals with those of other Tribune stations. The temporary waivers were granted subject to the outcome of pending FCC rulemaking that is expected to make such duopoly waivers unnecessary. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. The Company appealed the FCC's ruling and filed a petition with the FCC requesting a rulemaking procedure. Although the Court of Appeals affirmed the FCC's order requiring divestiture of either the Miami television station or the Sun-Sentinel newspaper, the FCC subsequently issued a rule review to consider modifying its cross-ownership rule. In March 1998, the FCC granted the Company a waiver extension to allow continued ownership of both the Miami television station and the Sun-Sentinel newspaper until the rule review has concluded. The Company cannot predict the outcome of the FCC duopoly rulemaking or cross-ownership rule review. The Company does not believe that any of the matters or proceedings presently pending will have a material adverse effect on its consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is presently listed on the New York, Chicago and Pacific stock exchanges. Per share data have been restated to reflect a two-for-one common stock split effective January 15, 1997. The high and low sales prices of the Common Stock by fiscal quarter for the two most recent fiscal years, as reported on the New York Stock Exchange Composite Transactions list, were as follows: 1997 1996 --------------------- -------------------- Quarter High Low High Low ------- --------- -------- ------- -------- First.................. $42 3/8 $35 1/2 $34 1/2 $28 5/16 Second................. 50 5/16 39 3/4 38 1/8 32 1/16 Third.................. 54 13/16 48 39 1/2 31 5/8 Fourth................. 61 1/2 51 9/16 44 1/8 37 7/8 At March 10, 1998, there were 5,678 holders of record of the Company's Common Stock. Quarterly cash dividends declared on Common Stock were $.16 per share in 1997 and $.15 per share in 1996. Total cash dividends declared on Common Stock by the Company were $78,646,000 for 1997 and $73,742,000 for 1996. During 1997, the Company did not sell any of its equity securities in transactions that were not registered under the Securities Act of 1933, as amended. 17 ITEM 6. SELECTED FINANCIAL DATA. The information for the years 1993 through 1997 contained under the heading "Eleven Year Financial Summary" in the Company's 1997 Annual Report to Shareholders is incorporated herein by reference. The following table shows basic earnings per share for the last 11 years. Basic Earnings (Loss) per Share (1)
Continuing Operations ------------------------------ Before Non-Recurring Discontinued Net Items Total (2) Operations Income ------------- --------- ------------ ------ 1997 $2.49 $3.05 $ - $3.05 1996 2.10 2.15 .73 2.88 1995 1.68 1.75 .25 2.00 1994 1.60 1.60 .06 1.66 1993 1.40 1.40 (.12) 1.28 1992 (3) 1.24 1.24 (.33) .78 1991 1.09 1.09 (.12) .97 1990 1.44 (.49) (.12) (.61) 1989 1.38 1.38 .21 1.59 1988 .99 .99 .40 1.39 1987 .73 .60 .30 .90
- ----- (1) All per share data have been restated for the two-for-one common stock split effective January 15, 1997. (2) Includes non-recurring items as follows: gain on the sales of investments, net of write-downs, totaling $.56 per share in 1997; equity income related to Qwest Broadcasting of $.05 per share in 1996; gain on the sale of investment and subsidiaries totaling $.07 per share in 1995; and charges relating to the New York Daily News totaling $1.93 per share in 1990 and $.13 per share in 1987. (3) The adoption of new accounting rules for retiree benefits, income taxes and postemployment benefits decreased net income per share by $.13 per share in 1992. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information contained under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's 1997 Annual Report to Shareholders is incorporated herein by reference. The Company is currently evaluating the Year 2000 issue concerning the ability of its operational and financial reporting systems to properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause system failures. Both internal and external resources are being utilized to test the Company's systems. The Company has determined that it will be required to modify or, in certain cases, replace portions of its systems in order to address the Year 2000 issue and such system remediations are being effected. The Company believes that with modifications to its existing systems and conversions to new systems, the Year 2000 issue can be mitigated. However, if such modifications and conversions are not made, or are not completed in a timely manner, the Year 2000 issue could impact the operations of the Company. The Company has also initiated communications with its significant suppliers and large customers to determine their plans to address the Year 2000 issue. While the Company expects a successful resolution of all issues, there can be no guarantee that the systems of other companies will be converted in a timely manner. Management believes the cost of addressing these issues will not have a material effect on the financial position or the results of operations of the Company. 18 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The information provided below about the Company's market sensitive financial information contains forward-looking statements. Interest rate risks. The Company's long-term debt is subject to changes in interest rates in the United States. All of the Company's borrowings are denominated in U.S. dollars. The Company's policy is to manage interest rate risk through the use of a combination of medium-term notes and commercial paper. The Company currently does not use derivative financial instruments.
Fixed Rate Weighted Avg. Variable Rate Weighted Avg. Maturities (in thousands) Debt Interest Rate Debt Interest Rate - ------------------------ ---------- ------------- ------------- ------------- 1998 (1) $ 37,098 8.4% $476,375 5.9% 1999 61,914 7.5% - - 2000 80,052 7.4% - - 2001 (1) 36,166 8.4% - - 2002 92,827 7.1% - - Thereafter 770,369 6.5% - - ---------- -------- Total $1,078,426 $476,375 ---------- -------- Fair Value at Dec. 28, 1997 (2) $1,099,046 $476,375 ---------- --------
- ----- (1) As discussed in Note 7 to the Company's Consolidated Financial Statements in the 1997 Annual Report to Shareholders, medium-term notes (fixed rate debt) of $3.8 million and promissory notes (variable rate debt) of $476.4 million scheduled to mature in 1998 were presented as maturing in 2001 for financial statement presentation because of the Company's ability and intent to refinance these maturities. (2) Fair value was determined based on quoted market prices for similar issues or on current rates available to the Company for debt of the same remaining maturities and similar terms. Equity price risks. The Company has common stock investments in several publicly traded companies which are subject to market price volatility. These investments are classified as available for sale and are recorded on the balance sheet at fair value with unrealized gains or losses, net of related tax effects, reported in a separate component of shareholders' equity. The following analysis presents the hypothetical change in the fair value of the Company's common stock investments in publicly traded companies arising from selected hypothetical changes in each stock's price. The fair value of the Company's common stock investments in publicly traded companies assuming stock price fluctuations of plus or minus 10%, 20% and 30% would be as follows (in thousands):
Valuation of Investments Valuation of Investments Assuming Indicated Decrease in Assuming Indicated Increase in Each Stock's Price Each Stock's Price -------------------------------- Dec. 28, 1997 -------------------------------- -30% -20% -10% Fair Value +10% +20% +30% -------- -------- -------- ------------- -------- -------- -------- Common stock investments in public companies $184,329 $210,661 $236,994 $263,327 $289,659 $315,992 $342,325
During the last 12 quarters, market price movements have caused the fair value of the Company's common stock investments in publicly traded companies to change by 10% or more in nine of the quarters, by 20% or more in five of the quarters and by 30% or more in three of the quarters. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's Consolidated Financial Statements and Notes thereto appearing on pages 51 through 71 of the Company's 1997 Annual Report to Shareholders, together with the report thereon of Price Waterhouse LLP dated February 10, 1998, appearing on page 50 of such Annual Report, the information contained under the heading "Quarterly Results (Unaudited)" on pages 72 and 73, and the information contained under the heading "Business Segments" appearing on page 76 are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information contained under the heading "Executive Officers of the Company" in Item 1 hereof, and the information contained under the heading "Election of Directors" and contained under the subheading "Section 16(a) Beneficial Ownership Reporting Compliance" under the heading "Ownership Information" in the definitive Proxy Statement for the Company's May 5, 1998 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information contained under the heading "Executive Compensation" (except those portions relating to Item 13, below) in the definitive Proxy Statement for the Company's May 5, 1998 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under the subheadings "Principal Stockholders" and "Management Ownership" under the heading "Ownership Information" in the definitive Proxy Statement for the Company's May 5, 1998 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained under the heading "Executive Compensation" (except those portions relating to Item 11, above) and contained under the subheadings "Compensation of Directors" and "Other Transactions" under the heading "Election of Directors" in the definitive Proxy Statement for the Company's May 5, 1998 Annual Meeting of Stockholders is incorporated herein by reference. 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1)&(2) Financial Statements and Financial Statement Schedule filed as part of this report As listed in the Index to Financial Statements and Financial Statement Schedule on page 24 hereof. (a)(3) Index to Exhibits filed as part of this report As listed in the Exhibit Index beginning on page 27 hereof. (b) Reports on Form 8-K The Company filed one report on Form 8-K during the last quarter of the period covered by this report. o The Company filed a Form 8-K Current Report dated December 12, 1997, which reported under Item 5 the declaration of a dividend of one preferred share purchase right for each outstanding share of common stock, without par value, of the Company. The dividend was paid to stockholders of record at the close of business on January 5, 1998. No financial statements were filed as part of the report. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 24, 1998. TRIBUNE COMPANY (Registrant) /s/ John W. Madigan ------------------- John W. Madigan Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 24, 1998. Signature Title --------- ----- /s/ John W. Madigan ------------------- John W. Madigan Chairman, President and Chief Executive Officer and Director (principal executive officer) /s/ James C. Dowdle ------------------- James C. Dowdle Executive Vice President and Director /s/ Donald C. Grenesko ---------------------- Donald C. Grenesko Senior Vice President/Finance and Administration (principal financial officer) /s/ R. Mark Mallory ------------------- R. Mark Mallory Vice President and Controller (principal accounting officer) 22 Signature Title --------- ----- /s/ Diego E. Hernandez ---------------------- Diego E. Hernandez Director /s/ Robert E. La Blanc ---------------------- Robert E. La Blanc Director /s/ Nancy Hicks Maynard ----------------------- Nancy Hicks Maynard Director /s/ Dudley S. Taft ------------------ Dudley S. Taft Director /s/ Arnold R. Weber ------------------- Arnold R. Weber Director 23 TRIBUNE COMPANY INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page ---- Consolidated Statements of Income for each of the three fiscal years in the period ended December 28, 1997........................ * Consolidated Balance Sheets at December 28, 1997 and December 29, 1996..................................................... * Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended December 28, 1997.................. * Consolidated Statements of Shareholders' Equity for each of the three fiscal years in the period ended December 28, 1997........................ * Notes to Consolidated Financial Statements................................... * Report of Independent Accountants on Consolidated Financial Statements...................................................... * Report of Independent Accountants on Financial Statement Schedule........................................................ 25 Financial Statement Schedule for each of the three fiscal years in the period ended December 28, 1997............................................ 26 Schedule II Valuation and qualifying accounts and reserves. - ----- * Incorporated by reference to the Company's 1997 Annual Report to Shareholders. See Item 8 of this Annual Report on Form 10-K. ----- All other schedules required under Regulation S-X are omitted because they are not applicable or not required. 24 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Tribune Company Our audits of the consolidated financial statements referred to in our report dated February 10, 1998 appearing in the 1997 Annual Report to Shareholders of Tribune Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP - ------------------------ PRICE WATERHOUSE LLP Chicago, Illinois February 10, 1998 25
SCHEDULE II TRIBUNE COMPANY SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands of dollars) Additions Additions Balance at Charged to Recorded Balance Beginning Costs and Upon at End of Description of Period Expenses Acquisitions Deductions Period ----------- ---------- ---------- ------------ ---------- --------- Valuation accounts deducted from assets to which they apply: Year ended December 28, 1997 Accounts receivable allowances: Bad debts.................................... $24,445 $19,135 $4,158 $16,029 $31,709 Rebates, volume discounts and other.......... 9,961 19,945 633 19,043 11,496 ------- ------- ------ ------- ------- Total.................................. $34,406 $39,080 $4,791 $35,072 $43,205 ======= ======= ====== ======= ======= Year ended December 29, 1996 Accounts receivable allowances: Bad debts.................................... $23,078 $19,846 $ 992 $19,471 $24,445 Rebates, volume discounts and other.......... 7,076 20,313 1,331 18,759 9,961 ------- ------- ------ ------- ------- Total.................................. $30,154 $40,159 $2,323 $38,230 $34,406 ======= ======= ====== ======= ======= Year ended December 31, 1995 Accounts receivable allowances: Bad debts.................................... $24,464 $19,745 - $21,131 $23,078 Rebates, volume discounts and other.......... 9,534 27,754 - 30,212 7,076 ------- ------- ------ ------- ------- Total.................................. $33,998 $47,499 - $51,343 (1) $30,154 ======= ======= ====== ======= ======= - ----- (1) For 1995, $9,389 represents deductions pertaining to Compton's NewMedia and Times Advocate Company, sold in 1995.
26 TRIBUNE COMPANY EXHIBIT INDEX Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by Tribune Company with the Securities and Exchange Commission, as indicated. Exhibits marked with a circle (o) are management contracts or compensatory plan contracts or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K. All other documents listed are filed with this Report. Number Description ------ ----------- 2 * Pre-Amalgamation Agreement among Donohue Inc., Tribune Company and QUNO Corporation, dated as of December 22, 1995 (Exhibit 99.2 to Form 8-K Current Report dated January 8, 1996); Pre-Amalgamation Amendment Agreement thereto dated as of December 28, 1995 (Exhibit 99.3 to Form 8-K Current Report dated January 8, 1996). 2.1 * Agreement and Plan of Merger among Tribune Company, Tower Acquisition Company, Inc. and Renaissance Communications Corp. dated as of July 1, 1996 (Exhibit 99.1 to Form 8-K Current Report dated July 9, 1996). 3.1 * Restated Certificate of Incorporation of Tribune Company, dated April 21, 1987; Certificate of Designations of Series B Convertible Preferred Stock, dated April 4, 1989 (Exhibit 3.1 to Annual Report on Form 10-K for 1991). 3.1a Amended Certificate of Designation of Series A Junior Participating Preferred stock, dated December 2, 1997. 3.2 * By-Laws of Tribune Company As Amended and In Effect on December 10, 1996. (Exhibit 3.2 to Annual Report on Form 10-K for 1996). 4 * Rights Agreement between Tribune Company and First Chicago Trust Company of New York, as Rights Agent, dated as of December 12, 1997 (Exhibit 1 to Form 8-K Current Report dated December 12, 1997). 4.1 * Indenture, dated as of March 1, 1992 between Tribune Company and Continental Bank, National Association (Incorporated by reference to Registration Statement on Form S-3, Registration No. 333-02831). 4.2 * Indenture, dated as of January 1, 1997 between Tribune Company and Bank of Montreal Trust Company (Incorporated by reference to Registration Statement on Form S-3, Registration No. 333-18921). 10.1 o* Chicago Tribune Company Split-Dollar Insurance Plan dated June 29, 1978, together with first amendment dated August 28, 1981, covering certain employees of Tribune Company and Chicago Tribune Company (Exhibit 10.4 in File No. 2-86087). 10.2 o* Tribune Company Supplemental Retirement Plan, as amended and restated on January 1, 1989 (Exhibit 10.6 to Annual Report on Form 10-K for 1988). 27 Number Description ------ ----------- 10.2a o* First Amendment of Tribune Company Supplemental Retirement Plan, effective January 1, 1994 (Exhibit 10.4b to Annual Report on Form 10-K for 1993). 10.3 o* Tribune Company Directors' Deferred Compensation Plan, as amended and restated on July 1, 1994 (Exhibit 10.7 to Annual Report on Form 10-K for 1994). 10.4 o* Tribune Company Bonus Deferral Plan, dated as of December 14, 1993 (Exhibit 10.8 to Annual Report on Form 10-K for 1993). 10.4a o* First Amendment of Tribune Company Bonus Deferral Plan, effective December 1, 1996 (Exhibit 10.4a to Annual Report on Form 10-K for 1996). 10.5 o* Tribune Company Management Incentive Plan, dated as of January 1, 1991 (Exhibit 10.10 to Annual Report on Form 10-K for 1990). 10.5a o* Amendment effective January 1, 1992 to the Tribune Company Management Incentive Plan dated as of January 1, 1991 (Exhibit 10.9b to Annual Report on Form 10-K for 1991). 10.6 o* Tribune Company Amended and Restated 1984 Long-Term Performance Plan, effective as of July 25, 1989 (Exhibit 19.2 to Form 10-Q Quarterly Report for the quarter ended June 25, 1989); Forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreements for Tribune Company Amended and Restated 1984 Long-Term Performance Plan (Exhibit 19.2 to Form 10-Q Quarterly Report for the quarter ended July 1, 1990). 10.7 o* Tribune Company 1992 Long-Term Incentive Plan, dated as of April 29, 1992 and as amended and in effect on April 19, 1994 (Exhibit 10.11 to Annual Report on Form 10-K for 1994). 10.8 o* Tribune Company Executive Financial Counseling Plan, dated October 19, 1988 and as amended effective January 1, 1994 (Exhibit 10.13 to Annual Report on Form 10-K for 1993). 10.9 o* Tribune Company Amended and Restated Transitional Compensation Plan for Executive Employees, effective as of January 1, 1995 (Exhibit 10.14 to Annual Report on Form 10-K for 1994). 10.10 o* Tribune Company Supplemental Defined Contribution Plan, effective as of January 1, 1994 (Exhibit 10.15 to Annual Report on Form 10-K for 1993). 10.11 o* Tribune Company Amended and Restated Employee Stock Purchase Plan, dated October 22, 1996 (Exhibit 10.20 to Form 10-Q Quarterly Report for the quarter ended September 29, 1996). 10.12 o* 1988 Restricted Stock Plan For Outside Directors, dated February 16, 1988 (Exhibit 10.12 to Annual Report on Form 10-K for 1992). 10.12a o* Amendment effective April 28, 1992 to the 1988 Restricted Stock Plan For Outside Directors (Exhibit 10.12b to Annual Report on Form 10-K for 1993). 10.13 o* Tribune Company Amended and Restated 1995 Nonemployee Director Stock Option Plan, dated October 22, 1996 (Exhibit 10.19 to Form 10-Q Quarterly Report for the quarter ended September 29, 1996). 28 Number Description ------ ----------- 10.14 o Tribune Company Amended and Restated 1996 Nonemployee Director Stock Compensation Plan, dated as of February 17, 1998. 10.15 o* Tribune Company 1997 Incentive Compensation Plan effective December 29, 1996 (Exhibit 10.15 to Form 10-Q Quarterly Report for the quarter ended March 30, 1997). 11 Statements of Computation of Basic and Diluted Earnings Per Share. 12 Computation of Ratios of Earnings to Fixed Charges. 13 The portions of the Company's 1997 Annual Report to Shareholders which are specifically incorporated herein by reference. 21 Table of subsidiaries of Tribune Company. 23 Consent of Independent Accountants. 27 Financial Data Schedule. 27.1 Restated Financial Data Schedules (1997). 27.2 Restated Financial Data Schedules (1996 and 1995). 99 Form 11-K financial statements for the Tribune Company Savings Incentive Plan (to be filed by amendment). 29 EX-3.1A 2 SERIES A JUNIOR PARTICIPATING PREFERRED STOCK Exhibit 3.1a AMENDED CERTIFICATE OF DESIGNATION of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of TRIBUNE COMPANY (Pursuant to Section 151 of the Delaware General Corporation Law) --------------------------------- TRIBUNE COMPANY, a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on December 2, 1997: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Certificate of Incorporation, the Board of Directors hereby amends, effective as of January 5, 1998, the Certificate of Designations establishing the Series A Junior Participating Preferred Stock, filed on December 31, 1987 (the "Certificate") by amending and restating the designation and number of shares, and the relative rights, preferences, and limitations of such Series A Junior Participating Preferred Stock, no shares of which have been issued, as follows: Series A Junior Participating Preferred Stock: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 2,000,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, without par value (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on 2 such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 3 Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section II are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set 4 forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 5 Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock. Section 10. Amendment. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. 6 IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Chairman of the Board and attested by its Secretary this 21st day of January, 1998. /s/ John W. Madigan -------------------- John W. Madigan Chairman, President and Chief Executive Officer Attest: /s/ Crane H. Kenney - ------------------- Crane H. Kenney Vice President, General Counsel 7 EX-10.14 3 1996 NONEMPLOYEE DIRECTOR STOCK COMPENSATION PLAN Exhibit 10.14 TRIBUNE COMPANY 1996 NONEMPLOYEE DIRECTOR STOCK COMPENSATION PLAN Updated February 17, 1998 ARTICLE I GENERAL I.1 Purpose. Tribune Company, a Delaware corporation (the "Company"), hereby adopts this 1996 Nonemployee Director Stock Compensation Plan (the "Plan"). The purpose of the Plan is to increase the stock ownership of nonemployee directors, to further align their interests with those of the Company's other stockholders and to foster and promote the long-term financial success of the Company by attracting and retaining outstanding nonemployee directors by enabling them to participate in the Company's growth through stock ownership. I.2 Participation. Only directors of the Company who at the time an award is made meet the following criteria ("Directors") shall receive awards under the Plan: (a) the director is not an employee of the Company or any subsidiary of the Company and (b) the director is a "disinterested person" as such term is defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") or any similar rule which may subsequently be in effect ("Rule 16b-3"). I.3 Shares Subject to the Plan. Shares of stock covered by awards under the Plan may be in whole or in part authorized and unissued or treasury shares of the Company's common stock or such other shares as may be substituted pursuant to Section 4.2 ("Common Stock"). The maximum number of shares of Common Stock which may be issued for all purposes under the Plan shall be 300,000 (subject to adjustment pursuant to Section 4.2). ARTICLE II 2.1 Basic Stock Awards. Effective on the day after the date of each annual meeting of the stockholders of the Company at which Directors are elected ("Annual Meeting"), commencing with the Annual Meeting in 1998, each Director in office on adjournment of said meeting will automatically be awarded shares of Common Stock which on the date of the Annual Meeting have a Fair Market Value of $50,000 (the "Basic Stock Award"). A Director who is not initially elected at the Annual Meeting shall receive an award for a pro rata portion of the Basic Stock Award on the day following his or her becoming a Director based on the number of months remaining from such date until the anniversary date for the most recent Annual Meeting of the Company divided by twelve. 2.2 Supplemental Stock Awards. Effective on the date of the Basic Stock Award, each Director who is serving as a chairman of a standing committee or subcommittee of the Board will automatically be awarded additional shares of Common Stock which on the date of the Annual Meeting have a Fair Market Value of $6,000. 2.3 Definition of Fair Market Value. The term "Fair Market Value" unless otherwise required by any applicable provision of the Internal Revenue Code of 1986, as amended, or any regulations issued 1 thereunder shall mean, as of any date, the closing price of the Common Stock as reported on the New York Stock Exchange Composite Transactions List (or such other consolidated transaction reporting system on which the Common Stock is primarily traded) for such day, or if the Common Stock was not traded on such day, then the next preceding day on which the stock was traded, as reported by such source as the Board of Directors may select. If the Common Stock is not readily tradeable on a national securities exchange or other market system, its Fair Market Value shall be set under procedures established by the Board of Directors on the advice of an investment advisor. ARTICLE III DEFERRAL OF STOCK AWARDS III.1 Deferral. Each Director may elect to defer receipt of part or all of any stock awards hereunder. Any such election must be made not less than 30 days prior to the date on which an award is made. The deferred award will be credited to an account established in the Director's name and held subject to the following terms and conditions: (a) If the Company pays a cash dividend with respect to its Common Stock at any time while there is a balance in the Director's account, the Company will determine the cash dividend which the Director would have received had the Director been the actual owner of the number of shares shown in the account at the time of the dividend payment. The Company will then determine the additional shares of Common Stock that could have been purchased with the dividend at the fair market value of the stock on the date of dividend payment and add this number to the Director's account. (b) The number of whole shares in a Director's account at the time the Director terminates service on the Board shall be delivered in a lump sum upon termination of service or in no more than ten equal annual installments commencing upon termination in accordance with the Director's original deferral election. The value of any fractional shares shall be paid in cash upon termination. A Director may amend an election with respect to the manner of the delivery of shares at any time up to six months prior to the date of termination of service. (c) If a Director dies or becomes legally incapacitated, the Company will deliver the shares to the persons designated by the Director by a writing filed with the Company. (d) The Company's obligations with respect to the deferred stock awards shall not be funded or secured in any manner nor shall the Director's right to receive shares be assignable or transferable voluntarily or involuntarily except as expressly provided herein. However, nothing shall prevent the Company from establishing a rabbi trust to provide a Director additional assurance that the shares subject to a deferred award will be delivered in a timely fashion in accordance with the Director's election. 2 ARTICLE IV MISCELLANEOUS PROVISIONS 4.1 Nontransferability. No shares awarded under the Plan shall be sold for a period of six months and one day after the date of the award. 4.2 Adjustments Upon Certain Changes. If any of the events described in Sections 4.4(a) or (b) of the Company's 1992 Long-Term Incentive Plan shall occur, the number of shares authorized by the Plan, shall be automatically adjusted on the same basis to give the proper effect to such change so as to prevent the dilution or enlargement of the shares available under Section 1.3 hereof. 4.3 Amendment or Discontinuation of Plan. The Board of Directors may amend the Plan at any time or suspend or discontinue the Plan at any time, but no such action shall adversely affect any prior award; provided that this Plan may not be amended more frequently than once every six months and no amendment shall be adopted which would result in any Director losing his or her status as a "disinterested" administrator under Rule 16b-3 with respect to any employee benefit plan of the Company or result in the Plan losing its status as a protected plan under Rule 16b-3. 4.4 Plan Not Exclusive. The adoption of the Plan does not supersede the 1995 Nonemployee Director Stock Option Plan and shall not preclude the adoption by appropriate means of any other stock or other compensation plan for Directors. 4.5 Other Provisions; Securities Registration. The grant of any award under the Plan may also be subject to other provisions as counsel to the Company deems appropriate, including, without limitation, such provisions as may be appropriate to comply with federal or state securities laws and stock listing requirements. 4.6 Rights of Directors. Nothing in the Plan shall confer upon any Director any right to serve as a Director for a period of time or to continue his or her present or any other rate of compensation. 4.7 Requirements of Law; Governing Law. The awarding and the issuance of shares of Common Stock shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware. 4.8 Effective Date. The Plan shall, subject to the approval of the holders of a majority of the votes of all shares present, or represented, and entitled to be cast on the matter at the 1996 Annual Meeting, be deemed effective as of such Annual Meeting. No grants shall be made hereunder after May 31, 2006. 3 EX-11 4 EXHIBIT 11 EXHIBIT 11 TRIBUNE COMPANY STATEMENTS OF COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE (A) (In thousands, except per share amounts)
Fiscal Year Ended December ---------------------------------------- BASIC 1997 1996 1995 - ----- -------- -------- -------- Income from continuing operations $393,625 $282,750 $245,458 Discontinued operations of QUNO, net of tax - 89,317 32,707 -------- -------- -------- Net income 393,625 372,067 278,165 Preferred dividends, net of tax (18,798) (18,786) (18,841) -------- -------- -------- Net income attributable to common shares $374,827 $353,281 $259,324 -------- -------- -------- Weighted average common shares outstanding 122,879 122,842 129,580 -------- -------- -------- Basic earnings per share: Continuing operations (B) $ 3.05 $ 2.15 $ 1.75 Discontinued operations - .73 .25 -------- -------- -------- Total $ 3.05 $ 2.88 $ 2.00 ======== ======== ======== DILUTED - ------- Income from continuing operations $393,625 $282,750 $245,458 Additional ESOP contribution required assuming all preferred shares were converted, net of tax (13,141) (13,498) (14,759) -------- -------- -------- Adjusted income from continuing operations 380,484 269,252 230,699 Discontinued operations of QUNO, net of tax - 89,317 32,707 -------- -------- -------- Adjusted net income $380,484 $358,569 $263,406 -------- -------- -------- Weighted average common shares outstanding 122,879 122,842 129,580 Assumed conversion of preferred shares into common shares 11,093 11,407 11,774 Assumed exercise of stock options, net of common shares assumed repurchased with the proceeds 1,491 1,816 1,470 -------- -------- -------- Adjusted weighted average common shares outstanding 135,463 136,065 142,824 -------- -------- -------- Diluted earnings per share: Continuing operations $ 2.81 $ 1.98 $ 1.61 Discontinued operations - .66 .23 -------- -------- -------- Total $ 2.81 $ 2.64 $ 1.84 ======== ======== ========
(A) All share and per share data have been restated to reflect a two-for-one common stock split effective January 15, 1997. (B) Basic earnings per share from continuing operations is computed by deducting preferred dividends, net of tax, from income from continuing operations and then dividing by weighted average common shares outstanding. EX-12 5 EXHIBIT 12 EXHIBIT 12 TRIBUNE COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (In thousands, except ratios)
Fiscal Year Ended December ---------------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Income from continuing operations $393,625 $282,750 $245,458 $233,149 $204,646 Add: Income tax expense 265,375 191,663 167,076 158,698 142,212 Losses on equity investments 34,696 13,281 13,209 9,739 1,857 -------- -------- -------- -------- -------- Subtotal 693,696 487,694 425,743 401,586 348,715 -------- -------- -------- -------- -------- Fixed charge adjustments Add: Interest expense 86,502 47,779 21,814 20,585 24,660 Amortization of capitalized interest 2,076 2,108 2,253 2,362 2,392 Interest component of rental expense (A) 10,416 9,362 8,200 8,236 8,732 -------- -------- -------- -------- -------- Earnings, as adjusted $792,690 $546,943 $458,010 $432,769 $384,499 ======== ======== ======== ======== ======== Fixed charges: Interest expense $ 86,502 $ 47,779 $ 21,814 $ 20,585 $ 24,660 Interest capitalized 224 168 610 - 1,099 Interest component of rental expense (A) 10,416 9,362 8,200 8,236 8,732 Interest related to guaranteed ESOP debt (B) 17,901 20,134 22,057 24,017 25,742 -------- -------- -------- -------- -------- Total fixed charges $115,043 $ 77,443 $ 52,681 $ 52,838 $ 60,233 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 6.9 7.1 8.7 8.2 6.4 ======== ======== ======== ======== ========
(A) Represents a portion of rental expense incurred by the Company, which is a reasonable approximation of the interest cost component of such expense. (B) Tribune Company guarantees the debt of its Employee Stock Ownership Plan (ESOP). EX-13 6 ANNUAL REPORT EXHIBIT 13 Tribune Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion presents the significant factors that have affected the businesses of Tribune Company and its subsidiaries (the "Company") over the last three years. This commentary should be read in conjunction with the Company's consolidated financial statements and Eleven Year Financial Summary, which are also presented in this annual report. Certain prior year amounts have been reclassified to conform with the 1997 presentation. All share and per share data have been restated to reflect a two-for-one common stock split effective January 15, 1997. This Management's Discussion and Analysis of Results of Operations and Financial Condition contains certain forward-looking statements that are based largely on the Company's current expectations and are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and uncertainties are changes in advertising demand, newsprint prices, interest rates, regulatory rulings and other economic conditions and the effect of acquisitions, investments and dispositions on the Company's results of operations and financial condition. The words "believe," "expect," "anticipate" and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are as of the date of this filing. ................................................................................ SIGNIFICANT EVENTS ................................................................................ [Introductory language appearing in large bold face type reads as follows:] IN 1997, THE COMPANY COMPLETED THE RENAISSANCE ACQUISITION - THE LARGEST IN ITS HISTORY. In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WDZL-Miami, KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The FCC order granting the Company's application to acquire the Renaissance stations contained waivers of two FCC rules. First, the FCC temporarily waived its duopoly rule relating to the overlap of WTIC's and WPMT's broadcast signals with those of other Tribune stations. The temporary waivers were granted subject to the outcome of pending FCC rulemaking that is expected to make such duopoly waivers unnecessary. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. Since the time of the FCC's order, the FCC issued a notice of inquiry to consider modifying its cross-ownership rule. The Company expects the FCC to grant a waiver extension to allow continued ownership of the Miami television station until the rule review has concluded. The Company cannot predict the outcome of the FCC duopoly or cross-ownership rulemaking. In May 1997, the Company reached an agreement with Emmis Broadcasting Corporation regarding the sale or exchange of the Company's WQCD radio station in New York ("WQCD"). Effective July 1, 1997 and in connection with the agreement, Emmis assumed responsibility for certain operations of the station for up to three years for an annual fee of approximately $8 million, after which Emmis has the right to purchase the station. In December 1997, the Company signed an agreement with Emmis to exchange substantially all of the assets of WQCD, with a fair market value of approximately $160 million, and cash for the assets of television stations KTZZ-Seattle and WXMI-Grand Rapids. Emmis has agreed to acquire these television stations as part of its acquisition of Dudley Communications Corporation. The transaction, pending FCC approval, is expected to close during the second quarter of 1998. 39 In March 1996, the Company completed the sale of its holdings in QUNO Corporation, a Canadian newsprint company, as part of QUNO's merger with Donohue Inc. The Company owned approximately 34% of QUNO's common stock plus $138.8 million in convertible debt. The sale resulted in a 1996 after-tax gain of $89.3 million, or $.66 per diluted share. The gross proceeds from the sale were approximately $427 million in cash, Donohue stock and short-term notes. Immediately after the sale, the Company sold the Donohue stock and notes for cash. After-tax proceeds were approximately $331 million. QUNO has been accounted for as a discontinued operation in the Company's consolidated financial statements. ................................................................................ RESULTS OF OPERATIONS ................................................................................ The Company's fiscal year ends on the last Sunday in December. Fiscal years 1997 and 1996 comprised 52 weeks. Fiscal year 1995 comprised 53 weeks. The effect of the additional week in 1995 on the comparisons of the financial statements taken as a whole is generally not significant. ACQUISITIONS AND INVESTMENTS The Company completed several acquisitions in 1997, including Renaissance Communications Corp. in March, Shortland Publications Limited in September and approximately 80% of Landoll, Inc. in December. In 1996, the Company acquired television station KHTV-Houston in January, Educational Publishing Corporation and NTC Publishing Group in March, and television station KSWB-San Diego in April. In 1995, the Company purchased Everyday Learning Corporation in August. The results of these businesses have been included in the consolidated financial statements since their respective dates of acquisition. The Company has also made equity investments in several businesses including The WB Television Network ("The WB Network") in 1997, The WB Network and Digital City in 1996 and The WB Network, Qwest Broadcasting and Interealty in 1995. The Company's share of these companies' results of operations has been included in the consolidated financial statements since their respective investment dates. In 1997, the Company began reporting separately equity earnings and losses. These amounts are shown as net loss on equity investments in the consolidated statements of income and were previously included in operating profit. Prior years' equity results have been reclassified to conform to the current presentation. The reclassification had no effect on net income or earnings per share. NON-RECURRING ITEMS In 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. These sales of investments, net of write-downs, resulted in a pretax gain of $112 million and increased diluted earnings per share by $.51. These non-recurring items are summarized as follows:
Shares Pretax Diluted 1997 (in millions, except per share data) Sold Proceeds Gain (Loss) EPS ========================================================================================================= Sales of stock America Online 2.6 $134 $131 $.60 CheckFree 2.2 46 35 .16 Open Market 1.0 14 11 .05 Gemstar International .7 17 10 .05 The Learning Company Sale of convertible notes 123 7 .03 Write-down of stock - (77) (.35) Other sales of investments, net of write-downs 9 (5) (.03) - --------------------------------------------------------------------------------------------------------- Sales of investments, net of write-downs $343 $112 $.51 - ---------------------------------------------------------------------------------------------------------
40 In March 1997, the Company sold its Farm Journal subsidiary for approximately $17 million in cash. The Company had acquired Farm Journal in 1994 for approximately $17 million. In June 1997, the Company completed the sale of a building in Fort Lauderdale, which is approximately 35% occupied by the Company's Sun-Sentinel newspaper subsidiary. The Company received proceeds of approximately $43 million and deferred, under sale and leaseback accounting rules, the pretax gain of approximately $11 million, which will be amortized over the Sun-Sentinel's 14 year lease term. In December 1996, the Company recorded non-recurring equity income of $10 million, representing the Company's equity interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station. This income increased diluted earnings per share by $.04. In 1995, the Company sold .8 million shares of its America Online investment in March, its Compton's NewMedia subsidiary in December and its Times Advocate subsidiary in July. In the aggregate, these sales resulted in a pretax gain of $14.7 million and increased diluted earnings per share by $.06. They are summarized in the table below:
Pretax Diluted 1995 (in millions, except per share data) Proceeds Gain (Loss) EPS =============================================================================================== America Online stock sale $17 $15 $.06 Sale of subsidiaries Compton's NewMedia n/a 7 .03 Times Advocate 16 (7) (.03) - ----------------------------------------------------------------------------------------------- Sales of investment and subsidiaries $33 $15 $.06 - -----------------------------------------------------------------------------------------------
The Company sold Compton's NewMedia to The Learning Company in December 1995 for $123.5 million of The Learning Company common stock. In connection with the Compton's sale, the Company also invested $150 million in The Learning Company in exchange for five-year, 5.5% notes, convertible into common stock at $53 per share. The notes were recorded at $100 million, representing their estimated fair value at the time of the transaction. Until the sale of the notes in December 1997, the $50 million difference between fair value and face value was being amortized into interest income over the five-year term of the notes, with an effective interest rate of 15.5%. CONSOLIDATED The Company's consolidated financial results for 1997, 1996 and 1995 were as follows:
CHANGE ------------------ (In millions, except per share data) 1997 1996 1995 97-96 96-95 ======================================================================================================== Operating revenues $2,720 $2,405 $2,244 + 13% + 7% Operating profit 642 503 418 + 28% + 20% Net loss on equity investments (35) (13) (13) + 161% + 1% Sales of investments and subsidiaries, net of write-downs 112 - 15 * * Income Continuing operations Before non-recurring items 325 277 237 + 17% + 17% Non-recurring items 69 6 8 * * Total 394 283 245 + 39% + 15% Discontinued operations - 89 33 * + 173% Net income 394 372 278 + 6% + 34% Diluted earnings per share Continuing operations Before non-recurring items 2.30 1.94 1.55 + 19% + 25% Non-recurring items .51 .04 .06 * * Total 2.81 1.98 1.61 + 42% + 23% Discontinued operations - .66 .23 * + 187% Net income 2.81 2.64 1.84 + 6% + 43% - -------------------------------------------------------------------------------------------------------- * Not meaningful
41 EARNINGS PER SHARE -- Diluted earnings per share from continuing operations in 1997 was $2.30, up 19% from $1.94 in 1996, excluding non-recurring items. The improvement was primarily due to gains in broadcasting and entertainment and publishing, partially offset by higher net interest expense. Diluted earnings per share from continuing operations in 1996 was $1.94, up 25% from $1.55 in 1995, excluding non-recurring items. The improvement was mainly due to solid gains in all three business segments. In the aggregate, non-recurring items increased diluted earnings per share from continuing operations by $.51 in 1997, $.04 in 1996 and $.06 in 1995. Average common shares outstanding were flat in 1997 and decreased 5% in 1996. OPERATING PROFIT AND REVENUES -- Consolidated operating revenues, EBITDA and operating profit by business segment were as follows:
CHANGE ---------------- (In millions) 1997 1996 1995 97-96 96-95 ================================================================================================= Operating revenues Publishing $1,437 $1,336 $1,312 + 7% + 2% Broadcasting and Entertainment 1,057 877 829 + 21% + 6% Education 226 192 103 + 17% + 87% - ------------------------------------------------------------------------------------------------- Total operating revenues $2,720 $2,405 $2,244 + 13% + 7% - ------------------------------------------------------------------------------------------------- EBITDA (1) Publishing $ 430 $ 372 $ 346 + 15% + 8% Broadcasting and Entertainment 363 249 209 + 46% + 19% Education 54 54 13 + 1% + 308% Corporate expenses (32) (29) (29) - 12% + 1% - ------------------------------------------------------------------------------------------------- Total EBITDA $ 815 $ 646 $ 539 + 26% + 20% - ------------------------------------------------------------------------------------------------- Operating profit Publishing $ 354 $ 291 $ 272 + 22% + 7% Broadcasting and Entertainment 286 204 171 + 40% + 19% Education 36 39 5 - 9% + 757% Corporate expenses (34) (31) (30) - 11% - 3% - ------------------------------------------------------------------------------------------------- Total operating profit $ 642 $ 503 $ 418 + 28% + 20% - -------------------------------------------------------------------------------------------------
(1) EBITDA is defined as earnings before interest, taxes, depreciation, amortization, equity results and non-recurring items. The Company has presented EBITDA because it is comparable to the data provided by other companies in the industry and is a common alternative measure of performance. EBITDA does not represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flows, is not a measure of financial performance under generally accepted accounting principles ("GAAP") and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Consolidated 1997 operating revenues were up 13%, or $315 million, from 1996; and 1996 revenues were up 7%, or $161 million, from 1995, with all three segments reporting improvements in both years. 42 [Introductory language appearing in large bold face type reads as follows:] CONSOLIDATED OPERATING PROFIT ROSE TO A RECORD $642 MILLION IN 1997, THE SEVENTH CONSECUTIVE YEAR OF GROWTH. Consolidated operating profit increased 28%, or $139 million, in 1997 due to increases in broadcasting and entertainment and publishing. Broadcasting and entertainment operating profit was up 40% as a result of significant growth in television due to the March acquisition of Renaissance Communications and improvements at existing stations. Publishing operating profit was up 22% primarily due to higher advertising revenues and lower newsprint expense. Education operating profit decreased 9% due to lower sales at Educational Publishing Corporation's Creative Publications division, partially offset by improvements at the other education companies. Consolidated operating profit increased 20%, or $85 million, in 1996 due to gains in all three business segments. Publishing was up 7% due primarily to lower newsprint costs, broadcasting and entertainment was up 19% mainly due to a full season of baseball which benefited both television and the Chicago Cubs, and education was up $34 million due to the 1996 acquisitions. Consolidated 1997 EBITDA was up 26%, or $169 million, and 1996 EBITDA was up 20%, or $107 million, with all three segments reporting gains in both years. OPERATING EXPENSES -- Consolidated operating expenses were as follows:
CHANGE ---------------- (In millions) 1997 1996 1995 97-96 96-95 ===================================================================================================== Cost of sales $1,255 $1,195 $1,177 + 5% + 1% Selling, general and administrative 650 564 528 + 15% + 7% Depreciation and amortization of intangible assets 173 143 121 + 21% + 18% - ----------------------------------------------------------------------------------------------------- Total operating expenses $2,078 $1,902 $1,826 + 9% + 4% - -----------------------------------------------------------------------------------------------------
Cost of sales increased 5%, or $60 million, in 1997 due to the 1996 and 1997 acquisitions. Excluding the acquisitions and dispositions ("on a comparable basis"), cost of sales increased 1%, or $14 million, due to higher compensation costs, increased newspaper manufacturing and distribution costs (including increased costs for supplies, outside services and delivery of other products) and increased expenses for development activities, partially offset by lower newsprint and ink expense and reduced broadcast rights amortization. Compensation costs increased 8%, or $29 million, and newspaper manufacturing and distribution costs were up 10%, or $16 million. Newsprint and ink expense decreased 10%, or $25 million, as average newsprint transaction prices declined 15% while consumption increased 5%. Broadcast rights amortization decreased 6%, or $15 million. Cost of sales increased 1%, or $18 million, in 1996. On a comparable basis, cost of sales decreased 1%, or $16 million. Lower newsprint and ink expense and lower programming costs from the cancellation of "Charles Perez" and "The Road" were partially offset by increased expenses for development activities. Newsprint and ink expense decreased 6%, or $15 million, as average newsprint transaction prices decreased 1% while consumption declined 7%. Entertainment programming costs were down $17 million in 1996. Selling, general and administrative ("SG&A") expense increased 15%, or $86 million, in 1997 partially due to the 1996 and 1997 acquisitions. On a comparable basis, SG&A expense increased 10%, or $49 million, in 1997 primarily due to higher compensation expense of 15%, or $35 million, increased promotion expenses at the Company's newspapers and higher expenses for development activities. SG&A expense increased 7%, or $36 million, in 1996 mainly due to the acquisitions. On a comparable basis, SG&A expense increased 3%, or $15 million, in 1996 primarily due to higher expenses for development activities of $5 million and increased expenses in education in support of revenue growth. The increase in depreciation and amortization of intangible assets in both 1997 and 1996 was principally due to acquisitions and capital expenditures. 43 PUBLISHING OPERATING PROFIT AND REVENUES -- The following tables and discussion exclude Times Advocate Company, which was sold in July 1995. The following table presents publishing operating revenues, EBITDA and operating profit for daily newspapers and other publications/services/development. The latter category includes syndication of editorial products, advertising placement services, niche publications, direct mail operations and Internet/electronic products.
CHANGE ---------------- (In millions) 1997 1996 1995 97-96 96-95 ============================================================================================================ Operating revenues Daily newspapers $1,359 $1,266 $1,238 + 7% + 2% Other publications/services/development 78 70 66 + 11% + 6% - ------------------------------------------------------------------------------------------------------------ Total operating revenues $1,437 $1,336 $1,304 + 7% + 2% - ------------------------------------------------------------------------------------------------------------ EBITDA Daily newspapers $ 435 $ 383 $ 350 + 13% + 10% Other publications/services/development (5) (11) (3) + 55% - 219% - ------------------------------------------------------------------------------------------------------------ Total EBITDA $ 430 $ 372 $ 347 + 15% + 7% - ------------------------------------------------------------------------------------------------------------ Operating profit Daily newspapers $ 367 $ 310 $ 281 + 19% + 10% Other publications/services/development (13) (19) (7) + 29% - 143% - ------------------------------------------------------------------------------------------------------------ Total operating profit $ 354 $ 291 $ 274 + 22% + 6% - ------------------------------------------------------------------------------------------------------------
Publishing operating revenues increased 7%, or $101 million, in 1997 due principally to higher advertising revenues of 8%, or $85 million. Publishing operating revenues increased 2%, or $32 million, in 1996 due principally to higher advertising revenues of 3%, or $27 million. Operating profit increased 22%, or $63 million, in 1997 as all four newspapers reported higher advertising revenues and newsprint and ink expense decreased 10%, or $25 million. Operating profit increased 6%, or $17 million, in 1996 due to a 10% increase at the four daily newspapers, partially offset by increased spending for the development of Internet and other online-related businesses. The daily newspapers benefited from a 6%, or $15 million, decrease in newsprint and ink expense and higher revenues. Daily newspaper operating margins were 27.1% in 1997, compared to 24.5% in 1996 and 22.7% in 1995. The increase in 1997 was mainly due to increased advertising revenues and lower newsprint costs, while the increase in 1996 was primarily due to lower newsprint costs. Total publishing operating revenues by classification were as follows:
CHANGE ---------------- (In millions) 1997 1996 1995 97-96 96-95 =========================================================================================== Advertising Retail $ 455 $ 433 $ 447 + 5% - 3% General 150 141 130 + 6% + 8% Classified 511 457 427 + 12% + 7% - ------------------------------------------------------------------------------------------- Total advertising 1,116 1,031 1,004 + 8% + 3% Circulation 250 252 249 - 1% + 1% Other 71 53 51 + 32% + 3% - ------------------------------------------------------------------------------------------- Total operating revenues $1,437 $1,336 $1,304 + 7% + 2% - -------------------------------------------------------------------------------------------
44 [Introductory language appearing in large bold face type reads as follows:] PUBLISHING REVENUES INCREASED PRIMARILY DUE TO HIGHER CLASSIFIED ADVERTISING AT ALL DAILY NEWSPAPERS. Advertising revenues were higher in 1997 due to both linage and rate increases. The increase in retail advertising revenues was primarily due to improvements in the movie and electronics categories in Chicago, and the department store and healthcare categories in Orlando and Fort Lauderdale. The increase in general advertising revenues was mainly due to growth in the resorts, transportation and hi-tech categories in Chicago and the telecommunications, movie and transportation categories in Fort Lauderdale. Classified advertising revenues were up mainly due to increases in help wanted advertising at all of the newspapers. Advertising revenues increased in 1996 due to rate increases. The 3% decline in retail advertising revenues was mainly due to a decrease in the food and drug, hardware and department store categories, primarily in Chicago. General advertising revenues rose at all of the newspapers and climbed 8% in total due to higher advertising in the transportation, hi-tech and other categories. Classified advertising revenues also rose at each of the newspapers due primarily to increases in help wanted advertising. Advertising linage for 1997, 1996 and 1995 was as follows:
CHANGE ----------------- (Inches in thousands) 1997 1996 1995 97-96 96-95 =========================================================================================== Full run Retail 3,707 3,638 3,930 + 2% - 7% General 799 755 695 + 6% + 9% Classified 6,469 6,341 6,525 + 2% - 3% - ------------------------------------------------------------------------------------------- Total full run 10,975 10,734 11,150 + 2% - 4% Part run 10,014 9,369 9,743 + 7% - 4% Preprint 9,538 8,436 8,765 + 13% - 4% - ------------------------------------------------------------------------------------------- Total inches 30,527 28,539 29,658 + 7% - 4% - -------------------------------------------------------------------------------------------
Total advertising linage increased 7% in 1997 due to increases at all four of the newspapers. Full run retail advertising linage was up 2% due to increases at Orlando, Fort Lauderdale and Newport News. Full run general advertising linage increased 6% due to increases at all of the newspapers. Full run classified advertising linage increased 2% due to increases at Chicago and Newport News. Part run advertising linage increased 7% in 1997 mainly due to increased classified in Chicago. Preprint advertising linage increased 13% due to increases at all four newspapers. Total advertising linage decreased 4% in 1996 due to declines at all four of the newspapers. Full run retail advertising linage was down 7% due to decreases at all of the newspapers. Full run general linage increased 9% due to increases at Chicago, Fort Lauderdale and Newport News. Part run advertising linage was down 4% in 1996 due primarily to decreases in retail and classified in Chicago and retail in Orlando. Preprint advertising linage decreased 4% in 1996 due primarily to lower linage in Fort Lauderdale. Circulation revenues decreased 1% in 1997 due primarily to lower copy sales. Circulation revenues increased 1% in 1996 primarily due to selective price increases. Total average daily circulation was down 2% in 1997 to 1,270,000 from 1,291,000 copies in 1996, and total average Sunday circulation was down 1% to 1,900,000 from 1,927,000 copies in 1996. Total average daily circulation was down 2% in 1996 to 1,291,000 from 1,316,000 copies in 1995, and total average Sunday circulation was down 2% to 1,927,000 from 1,970,000 copies in 1995. Other revenues are derived from advertising placement services; the syndication of columns, features, information and comics to newspapers; commercial printing operations; delivery of other publications; direct mail operations; revenues from Internet/electronic projects; and other publishing-related activities. Other revenues rose in 1997 primarily due to increased revenues from the delivery of other publications, higher commercial printing and direct mail revenues and increased revenues from Internet/electronic projects. The 1996 increase in other revenues was due primarily to higher advertising placement services. 45 OPERATING EXPENSES -- Publishing operating expenses increased 4%, or $37 million, in 1997. This growth was due to higher compensation expenses of 9%, or $33 million, higher newspaper manufacturing and distribution costs of $16 million, increased expenses for development activities of $11 million and higher promotion costs. These increases were partially offset by a decline in newsprint and ink expense of 10%, or $25 million, as average newsprint prices were down 15% while consumption increased 5%. Publishing operating expenses increased 1%, or $15 million, in 1996. This growth was due to a $16 million increase in costs associated with the development of Internet and other online-related businesses, an additional $5 million of depreciation and amortization expense at the daily newspapers and increased compensation of $4 million. These increases were partially offset by a decline in newsprint and ink expense of 6%, or $15 million, as average newsprint prices were down 1% while consumption declined 7%. BROADCASTING AND ENTERTAINMENT OPERATING PROFIT AND REVENUES -- The following table presents operating revenues, EBITDA and operating profit for television, radio and entertainment/ other. Entertainment/other includes Tribune Entertainment and the Chicago Cubs.
CHANGE ---------------- (In millions) 1997 1996 1995 97-96 96-95 =========================================================================================== Operating revenues Television $ 861 $681 $630 + 27% + 8% Radio 72 89 88 - 20% + 1% Entertainment/other 124 107 111 + 16% - 4% - ------------------------------------------------------------------------------------------ Total operating revenues $1,057 $877 $829 + 21% + 6% - ------------------------------------------------------------------------------------------ EBITDA Television $ 336 $228 $214 + 48% + 6% Radio 24 16 15 + 44% + 11% Entertainment/other 3 5 (20) - 37% * - ------------------------------------------------------------------------------------------- Total EBITDA $ 363 $249 $209 + 46% + 19% - ------------------------------------------------------------------------------------------- Operating profit Television $ 268 $191 $185 + 40% + 3% Radio 20 13 11 + 61% + 8% Entertainment/other (2) - (25) - 704% + 99% - ------------------------------------------------------------------------------------------- Total operating profit $ 286 $204 $171 + 40% + 19% - ------------------------------------------------------------------------------------------- * Not meaningful
[Introductory language appearing in large bold face type reads as follows:] BROADCASTING & ENTERTAINMENT REVENUES PASSED THE BILLION DOLLAR MARK IN 1997. Broadcasting and entertainment revenues increased 21%, or $180 million, in 1997 due mainly to increases in television. Television revenues were up 27%, or $180 million, due largely to the acquisition of the six Renaissance stations in March 1997. Excluding Renaissance, television revenues were up 4%. Radio revenues decreased 20% mainly due to the sale of Farm Journal in March 1997 and the management agreement which transferred station operations of WQCD to Emmis Broadcasting in July 1997. Excluding Farm Journal and WQCD, radio revenues increased 2%. Entertainment/other increased due to higher Cubs revenues and more programs in syndication at Tribune Entertainment. Broadcasting and entertainment revenues increased 6%, or $48 million, in 1996 due mainly to increases in television. Television revenues increased 8%, or $51 million, due primarily to the acquisition of stations KHTV-Houston and KSWB-San Diego and to improvements at WPIX-New York, WGN-Chicago and KWGN-Denver. Excluding KHTV-Houston and KSWB-San Diego, television revenues were up 3%, or $19 million, in 1996. Entertainment/other revenues decreased 4% due to lower Tribune Entertainment revenues as a result of the cancellation of "Charles Perez" and "The 46 Road," partially offset by higher Cubs revenues due to a full season of baseball. A baseball strike shortened the 1995 season by 18 games and continued to impact attendance throughout the season. Broadcasting and entertainment operating profit was a record $286 million, up 40% in 1997 due primarily to increases in television. Television operating profit increased 40%, or $77 million, mainly from the acquisition of Renaissance and gains at KTLA-Los Angeles, WGN-Chicago and WPIX-New York. Excluding Renaissance, television operating profit was up 14%. Radio operating profit increased 61%, or $7 million, due to gains at all of the radio stations. Operating profit was up 19% in 1996 to $204 million. The increase was due primarily to improvements at the Chicago Cubs, Tribune Entertainment and in television. The Chicago Cubs benefited from a full season of baseball in 1996, and Tribune Entertainment improved due to the cancellation of the "Charles Perez" syndicated program. Television operating profit increased 3%, or $6 million, due primarily to the acquisition of stations KHTV-Houston and KSWB-San Diego and improvements at WGN-Chicago and WPIX-New York. Excluding the acquisitions, television operating profit was up 1%. OPERATING EXPENSES -- Broadcasting and entertainment operating expenses increased 15%, or $98 million, in 1997 primarily due to the acquisition of Renaissance. Excluding Renaissance, KSWB-San Diego, Farm Journal and WQCD, broadcasting and entertainment operating expenses increased 2%, or $12 million, due to higher compensation expense of 11%, or $22 million, partially offset by lower broadcast rights amortization. The increase in compensation expense was partially due to higher player salaries at the Cubs. Broadcast rights amortization decreased $15 million, primarily due to lower amortization for syndicated and feature programming and lower sports rights at KTLA-Los Angeles. Broadcasting and entertainment operating expenses increased 2%, or $16 million, in 1996 due primarily to the acquisition of television stations KHTV-Houston and KSWB-San Diego. Excluding the acquisitions, operating expenses were down 2%, or $13 million, due to lower expenses at Tribune Entertainment from the cancellation of "Charles Perez" and "The Road," offset partially by a $3 million increase in television broadcast rights amortization. EDUCATION OPERATING PROFIT AND REVENUES -- The following table and discussion excludes Compton's NewMedia, which was sold in December 1995. Operating revenues, EBITDA and operating profit for the education segment were as follows: CHANGE ---------------- (In millions) 1997 1996 1995 97-96 96-95 ============================================================================ Operating revenues $226 $192 $77 + 17% + 151% EBITDA 54 54 22 + 1% + 149% Operating profit 36 39 17 - 9% + 136% - ---------------------------------------------------------------------------- [Introductory language appearing in large bold face type reads as follows:] EDUCATION REVENUE GROWTH REFLECTS MOMENTUM OF EXISTING BUSINESSES. Education revenues are derived primarily from publishing supplemental and curriculum education materials and adult education and trade books. Education operating revenues in 1997 were up 17% to $226 million due primarily to improvements at all of the education businesses except Educational Publishing Corporation's Creative Publications division. Education operating revenues in 1996 were up 151% to $192 million primarily due to the acquisitions of Everyday Learning, Educational Publishing and NTC Publishing and growth in the existing business units. Excluding the acquisitions and Compton's, revenues were up 9%, or $6 million, in 1996. Education operating profit was $36 million in 1997, down $3 million from 1996. The decline in operating profit was due to lower sales at Creative Publications, which more than offset improvements at the other education companies. Education operating profit was $39 million in 1996, up $22 million from 1995. The improvement was due to the acquisitions of Everyday Learning, Educational Publishing and NTC Publishing. 47 OPERATING EXPENSES -- Education operating expenses were up 24%, or $37 million, in 1997 primarily due to the 1996 and 1997 acquisitions. Excluding acquisitions, operating expenses were up 13%, or $11 million, as a result of higher compensation expense and increased cost of sales expense at Everyday Learning due to increased sales. Education expenses were up 155%, or $93 million, in 1996 primarily due to the acquisitions. Excluding the acquisitions of Everyday Learning, Educational Publishing and NTC Publishing, operating expenses were up 13%, or $8 million, as a result of higher sales and expenses for a new warehouse/distribution facility at The Wright Group. EQUITY RESULTS CHANGE --------------- (In millions) 1997 1996 1995 97-96 96-95 ============================================================================= Net loss on equity investments $(35) $(13) $(13) + 161% + 1% - ----------------------------------------------------------------------------- Net loss on equity investments increased 161% to $35 million in 1997, largely due to increased losses from The WB Network. The Company increased its ownership interest in The WB Network from 13% to 22% in 1997. In addition, 1996 included non-recurring income of $10 million, representing the Company's equity interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station. Net loss on equity investments increased 1% in 1996, primarily due to increased losses from The WB Network, partially offset by the non-recurring Qwest gain. INTEREST INCOME AND EXPENSE CHANGE ---------------- (In millions) 1997 1996 1995 97-96 96-95 ============================================================================= Interest income $ 26 $ 32 $ 14 - 18% + 122% Interest expense (86) (48) (21) + 81% + 119% - ----------------------------------------------------------------------------- Net interest expense $(60) $(16) $ (7) + 284% + 113% - ----------------------------------------------------------------------------- Interest income consists primarily of interest on The Learning Company convertible debentures (sold in December 1997), the Qwest Broadcasting convertible debentures, a mortgage note receivable from a real estate affiliate (repaid in October 1996) and short-term marketable securities. Interest income decreased 18% in 1997 primarily due to the repayment of the mortgage note receivable in 1996. Interest income increased 122% in 1996 mainly due to the addition of The Learning Company convertible debentures at the end of 1995. Interest expense increased 81% in 1997 and 119% in 1996 mainly due to higher average debt levels resulting from acquisitions and stock repurchases. Average debt levels increased $622 million in 1997 to $1.5 billion and increased $412 million in 1996 to $913 million. Outstanding debt increased to $1.6 billion at year-end 1997 from $1.0 billion at year-end 1996 and $786 million at year-end 1995. 48 ................................................................................ LIQUIDITY AND CAPITAL RESOURCES ................................................................................ Cash flow generated from operations is the Company's primary source of liquidity. Net cash provided by operations was $384 million in 1997 and $337 million in 1996. The increase was mainly due to higher net income from continuing operations. The Company normally expects to fund dividends, capital expenditures and other operating requirements with net cash provided by operations. Funding required for share repurchases and acquisitions is financed by available cash flow from operations and, if necessary, by the issuance of debt. Net cash used for investments totaled $982 million in 1997 compared to $146 million in 1996. In 1997, the Company spent approximately $1.2 billion for acquisitions, including Renaissance Communications Corp., Shortland Publications Limited and Landoll, Inc. and $48 million for investments. Capital spending totaled $104 million in 1997. Proceeds of $402 million from the sale of investments, Farm Journal and a building in Fort Lauderdale partially offset these cash outflows. Net cash provided from financing activities was $391 million in 1997 compared to $61 million in 1996. Proceeds from the issuance of long-term debt and the sale of stock to employees were partially offset by purchases of treasury stock, dividends and repayments of long-term debt. In 1997, the Company issued $150 million of medium-term notes with an average interest rate of 6.5% and repurchased 2.8 million shares of its common stock for $140 million. At December 28, 1997, the Company had authorization to acquire an additional 7.2 million shares. Dividends on common and preferred shares were $97 million in 1997. Dividends on common stock increased 7% in 1997 to $.64 per share. At December 28, 1997, the Company had commercial paper outstanding of $476 million with a weighted average interest rate of 5.9%. The Company has revolving credit agreements with banks in the aggregate amount of $1.2 billion that extend to December 31, 2001. These agreements are fully available to support the issuance of commercial paper. The Company's cash and short-term investments balance at December 28, 1997 was $67 million. Capital spending for 1998 is expected to total approximately $125 to $150 million for a variety of normal replacement projects, as well as for press enhancements and editorial and pagination systems at the newspapers and the purchase of digital equipment at the television stations. The Company is addressing the impact of Year 2000 issues on the operational and financial reporting systems of the Company. Management believes the cost of addressing these issues will not have a material effect on the financial position or the results of operations of the Company. 49 Tribune Company and Subsidiaries ................................................................................ MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS ................................................................................ FINANCIAL STATEMENTS Management is responsible for the preparation, integrity and fair presentation of the Company's consolidated financial statements and related financial information included in this annual report to shareholders. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include certain amounts that are based on management's best estimates and judgments. The consolidated financial statements were audited by Price Waterhouse LLP, independent accountants, and their report is shown below. Price Waterhouse LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders, the Board of Directors and committees of the Board. The Company believes that all representations made to the independent accountants during their audits were valid and appropriate. INTERNAL CONTROL SYSTEM Management is also responsible for establishing and maintaining a system of internal control, designed to provide reasonable assurance to the Company's management and Board of Directors regarding the preparation of reliable published financial statements. The system of internal controls is continually reviewed for its effectiveness and is augmented by written policies and procedures, the careful selection and training of qualified personnel and a program of internal audit. Each year, the Company's independent accountants conduct a review of internal accounting controls to the extent required by generally accepted auditing standards and perform such tests and related procedures as they deem necessary to arrive at an opinion on the fairness of the financial statements. The Audit Committee of the Board of Directors is responsible for reviewing and monitoring the Company's financial reporting and accounting practices. The Audit Committee consists of five independent directors. The Committee meets with representatives of management, the independent accountants and internal auditors to discuss financial reporting, accounting and internal control matters. Price Waterhouse LLP and the internal auditors have direct access to the Audit Committee. /s/ John W. Madigan - ------------------- John W. Madigan Chairman, President and Chief Executive Officer /s/ Donald C. Grenesko - ---------------------- Donald C. Grenesko Senior Vice President/Finance and Administration ................................................................................ REPORT OF INDEPENDENT ACCOUNTANTS ................................................................................ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TRIBUNE COMPANY In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Tribune Company and its subsidiaries at December 28, 1997 and December 29, 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP - ------------------------ Chicago, Illinois February 10, 1998 50
Tribune Company and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (In thousands of dollars, except per share data) Year Ended Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995 ========================================================================================================================== OPERATING Publishing REVENUES Advertising $1,115,538 $1,031,026 $1,010,782 Circulation 250,558 252,263 249,860 Other 70,622 53,350 52,125 ------------------------------------------------------------------------------------------------------- Total 1,436,718 1,336,639 1,312,767 Broadcasting and Entertainment 1,057,529 876,750 828,806 Education 225,533 192,316 103,101 ------------------------------------------------------------------------------------------------------- Total operating revenues 2,719,780 2,405,705 2,244,674 - -------------------------------------------------------------------------------------------------------------------------- OPERATING Cost of sales (exclusive of items shown below) 1,254,981 1,195,161 1,177,507 EXPENSES Selling, general and administrative 650,255 564,294 527,761 Depreciation and amortization of intangible assets 172,513 142,893 120,986 ------------------------------------------------------------------------------------------------------- Total operating expenses 2,077,749 1,902,348 1,826,254 - -------------------------------------------------------------------------------------------------------------------------- OPERATING PROFIT 642,031 503,357 418,420 Net loss on equity investments (34,696) (13,281) (13,209) Sales of investments and subsidiaries, net of write-downs 111,824 - 14,672 Interest income 26,343 32,116 14,465 Interest expense (86,502) (47,779) (21,814) - -------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 659,000 474,413 412,534 Income taxes (265,375) (191,663) (167,076) - -------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 393,625 282,750 245,458 DISCONTINUED OPERATIONS OF QUNO, NET OF TAX - 89,317 32,707 - -------------------------------------------------------------------------------------------------------------------------- NET INCOME 393,625 372,067 278,165 Preferred dividends, net of tax (18,798) (18,786) (18,841) - -------------------------------------------------------------------------------------------------------------------------- NET INCOME ATTRIBUTABLE TO COMMON SHARES $ 374,827 $ 353,281 $ 259,324 - -------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE Basic: Continuing operations $ 3.05 $ 2.15 $ 1.75 Discontinued operations - .73 .25 ------------------------------------------------------------------------------------------------------- Net income $ 3.05 $ 2.88 $ 2.00 ------------------------------------------------------------------------------------------------------- Diluted: Continuing operations $ 2.81 $ 1.98 $ 1.61 Discontinued operations - .66 .23 ------------------------------------------------------------------------------------------------------- Net income $ 2.81 $ 2.64 $ 1.84 - -------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
51
CONSOLIDATED BALANCE SHEETS ASSETS (In thousands of dollars, except share data) Dec. 28, 1997 Dec. 29, 1996 ================================================================================================================== CURRENT ASSETS Cash and short-term investments $ 66,618 $ 274,170 Accounts receivable (less allowances of $43,205 and $34,406) 442,332 350,773 Inventories 99,491 80,525 Broadcast rights 190,339 154,904 Prepaid expenses and other 48,969 26,349 ------------------------------------------------------------------------------------------------- Total current assets 847,749 886,721 - ------------------------------------------------------------------------------------------------------------------ PROPERTIES Machinery, equipment and furniture 1,061,208 965,739 Buildings and leasehold improvements 382,820 377,682 ------------------------------------------------------------------------------------------------- 1,444,028 1,343,421 Accumulated depreciation (900,450) (813,501) ------------------------------------------------------------------------------------------------- 543,578 529,920 Land 54,731 56,951 Construction in progress 52,138 55,837 ------------------------------------------------------------------------------------------------- Net properties 650,447 642,708 - ------------------------------------------------------------------------------------------------------------------ OTHER ASSETS Broadcast rights 162,096 173,552 Intangible assets (less accumulated amortization of $294,179 and $232,557) 2,503,069 1,251,470 Investments 481,544 629,129 Other 132,649 117,320 ------------------------------------------------------------------------------------------------- Total other assets 3,279,358 2,171,471 ------------------------------------------------------------------------------------------------- Total assets $4,777,554 $3,700,900 - ------------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Financial Statements.
52
Tribune Company and Subsidiaries LIABILITIES AND SHAREHOLDERS' EQUITY Dec. 28, 1997 Dec. 29, 1996 ================================================================================================================== CURRENT Long-term debt due within one year $ 33,348 $ 31,073 LIABILITIES Accounts payable 138,897 119,605 Employee compensation and benefits 122,007 98,331 Contracts payable for broadcast rights 210,565 178,589 Deferred income 53,065 51,591 Income taxes 31,367 83,467 Accrued liabilities 116,971 110,445 ------------------------------------------------------------------------------------------------- Total current liabilities 706,220 673,101 - ------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT (less portions due within one year) 1,521,453 979,754 - ------------------------------------------------------------------------------------------------------------------ OTHER Deferred income taxes 363,186 189,673 NON-CURRENT Contracts payable for broadcast rights 230,832 209,754 LIABILITIES Compensation and other obligations 129,859 109,112 ------------------------------------------------------------------------------------------------- Total other non-current liabilities 723,877 508,539 - ------------------------------------------------------------------------------------------------------------------ COMMITMENTS (see Note 12) - - - ------------------------------------------------------------------------------------------------------------------ SHAREHOLDERS' Series B convertible preferred stock (without par value) EQUITY Authorized: 1,600,000 shares Issued and outstanding: 1,386,572 shares in 1997 and 1,425,842 shares in 1996 (liquidation value $220 per share) 303,864 312,470 Common stock (without par value) Authorized: 400,000,000 shares; 163,543,316 shares issued 1,018 1,018 Additional paid-in capital 201,401 149,861 Retained earnings 2,506,292 2,210,024 Treasury stock (at cost) 41,012,883 shares in 1997 and 40,598,300 shares in 1996 (1,159,832) (1,034,012) Unearned compensation related to ESOP (188,380) (218,668) Unrealized gain on investments 161,641 118,813 ------------------------------------------------------------------------------------------------- Total shareholders' equity 1,826,004 1,539,506 ------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $4,777,554 $3,700,900 - ------------------------------------------------------------------------------------------------------------------
53
Tribune Company and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995 ================================================================================================================================== OPERATIONS Net income $ 393,625 $ 372,067 $ 278,165 Adjustments to reconcile net income to net cash provided by operations: Discontinued operations of QUNO, net of tax - (89,317) (32,707) Gain on sales of investments and subsidiaries, net of write-downs (111,824) - (14,672) Depreciation and amortization of intangible assets 172,513 142,893 120,986 Deferred income taxes (13,959) (24,503) (883) Net loss on equity investments 34,696 13,281 13,209 (Increase) decrease in working capital items excluding effects from acquisitions: Accounts receivable (43,957) (34,917) 20,455 Inventories, prepaid expenses and other current assets (3,671) (12,920) (15,585) Accounts payable, employee compensation and benefits, deferred income and accrued liabilities 36,322 3,653 10,678 Income taxes (46,356) (20,298) (13,939) Change in broadcast rights, net of liabilities (11,862) 7,554 20,998 Other, net (21,449) (20,973) 6,962 -------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 384,078 336,520 393,667 - ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENTS Capital expenditures (103,845) (93,324) (117,863) Acquisitions (1,239,612) (501,375) (39,817) Investments (48,342) (72,127) (271,939) Proceeds from sale of QUNO - 426,828 - Proceeds from mortgage note receivable from affiliate - 83,313 - Proceeds from sales of investments and subsidiary stock 402,473 - 32,729 Other, net 7,008 10,851 4,291 -------------------------------------------------------------------------------------------------------------------- Net cash used for investments (982,318) (145,834) (392,599) - ---------------------------------------------------------------------------------------------------------------------------------- FINANCING Proceeds from issuance of long-term debt 626,375 470,000 383,876 Repayments of long-term debt (55,437) (219,803) (12,826) Sale of common stock to employees, net 57,145 51,256 40,794 Purchase of treasury stock (140,038) (148,445) (314,667) Dividends (97,357) (92,423) (91,202) Redemption of preferred stock - - (5,968) -------------------------------------------------------------------------------------------------------------------- Net cash provided by financing 390,688 60,585 7 - ---------------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (207,552) 251,271 1,075 Cash and short-term investments at the beginning of year 274,170 22,899 21,824 -------------------------------------------------------------------------------------------------------------------- Cash and short-term investments at the end of year $ 66,618 $ 274,170 $ 22,899 - ---------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL Cash paid for: CASH FLOW Interest (net of amounts capitalized) $ 84,456 $ 44,324 $ 20,646 INFORMATION Income taxes $ 285,656 $ 206,371 $ 165,675 - ---------------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
54
Tribune Company and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Series B Stock and Treasury Stock Convertible Additional ----------------- Unearned Cumulative Unrealized (In thousands, Preferred Paid-In Retained Amount Compensation Translation Gain on except per share data) Stock Capital (1) Earnings Shares - at cost (ESOP) Adjustment Investments Total =================================================================================================================================== BALANCE AT DECEMBER 25, 1994 $329,286 $113,642 $1,743,417 (30,140)$ (636,561) $(274,101) $(20,675) $ 77,972 $1,332,980 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 278,165 278,165 Translation adjustment 1,487 1,487 Change in unrealized gain 111,500 111,500 Redemptions of convertible preferred stock (6,746) 171 28 607 (5,968) Dividends declared Common-$.56/share (72,524) (72,524) Preferred-$17.05/share (25,094) (25,094) Tax benefit on dividends paid to the ESOP (2) 6,416 6,416 Repayment of ESOP debt 26,820 26,820 Purchase of treasury stock (10,378) (314,667) (314,667) Shares issued under option and stock plans 14,001 3,936 86,018 100,019 Stock tendered as payment for options exercised (1,886) (59,225) (59,225) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 322,540 127,814 1,930,380 (38,440) (923,828) (247,281) (19,188) 189,472 1,379,909 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 372,067 372,067 Translation adjustment (3) 19,188 19,188 Change in unrealized gain (70,659) (70,659) Redemptions of convertible preferred stock (10,070) 1,120 368 8,950 - Dividends declared Common-$.60/share (73,742) (73,742) Preferred-$17.05/share (24,311) (24,311) Tax benefit on dividends paid to the ESOP (2) 5,630 5,630 Repayment of ESOP debt 28,613 28,613 Purchase of treasury stock (4,531) (148,445) (148,445) Shares issued under option and stock plans 21,945 3,410 82,243 104,188 Stock tendered as payment for options exercised (1,405) (52,932) (52,932) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 29, 1996 312,470 150,879 2,210,024 (40,598) (1,034,012) (218,668) - 118,813 1,539,506 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 393,625 393,625 Change in unrealized gain 42,828 42,828 Redemptions of convertible preferred stock (8,606) 535 314 8,071 - Dividends declared Common-$.64/share (78,646) (78,646) Preferred-$17.05/share (23,641) (23,641) Tax benefit on dividends paid to the ESOP (2) 4,930 4,930 Repayment of ESOP debt 30,288 30,288 Purchase of treasury stock (2,842) (140,038) (140,038) Shares issued under option and stock plans 51,005 3,805 91,221 142,226 Stock tendered as payment for options exercised (1,692) (85,074) (85,074) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 28, 1997 $303,864 $202,419 $2,506,292 (41,013)$(1,159,832) $(188,380) - $161,641 $1,826,004 - ----------------------------------------------------------------------------------------------------------------------------------- (1) Issued shares of common stock totaled 163,543,316 for all dates presented. (2) Excludes the tax benefit on allocated preferred shares held by the ESOP, which is credited to income tax expense. (3) Represents the write-off of the cumulative translation adjustment as a result of the sale of QUNO in 1996. See Notes to Consolidated Financial Statements.
55 Tribune Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The significant accounting policies of Tribune Company and subsidiaries (the "Company"), as summarized below, conform with generally accepted accounting principles and reflect practices appropriate to the businesses in which they operate. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. Certain prior year amounts have been reclassified to conform with the 1997 presentation. All share and per share data have been restated to reflect a two-for-one common stock split effective January 15, 1997. ................................................................................ NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ................................................................................ FISCAL YEAR -- The Company's fiscal year ends on the last Sunday in December. Fiscal years 1997 and 1996 comprised 52 weeks. Fiscal year 1995 comprised 53 weeks. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of Tribune Company and all majority-owned subsidiaries. Investments comprising 20 to 50 percent of the voting stock of companies and joint ventures and certain partnership interests are accounted for using the equity method. All other investments are generally accounted for using the cost method. All significant intercompany transactions are eliminated. SHORT-TERM INVESTMENTS -- Short-term investments are stated at cost, which approximates market value. For purposes of the consolidated statements of cash flows, investments with maturities of three months or less at the time of purchase are considered to be cash equivalents. INVENTORIES -- Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out ("LIFO") basis for newsprint and on the first-in, first-out ("FIFO") or average basis for all other inventories. BROADCAST RIGHTS -- Broadcast rights consist principally of rights to broadcast syndicated programs, sports and feature films and are stated at the lower of cost or estimated net realizable value. The total cost of these rights is recorded as an asset and a liability when the program becomes available for broadcast. Broadcast rights that have limited showings are generally amortized using an accelerated method as programs are aired. The current portion of broadcast rights represents those rights available for broadcast that are expected to be amortized in the succeeding year. PROPERTIES -- Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the properties' estimated useful lives, ranging from 3 to 40 years. INTANGIBLE ASSETS -- Intangible assets primarily represent the excess of cost over the fair market value of tangible net assets acquired. The excess cost related to net assets acquired since 1971 is being amortized on a straight-line basis over various periods. These periods range from 5 to 40 years for goodwill (with the majority being amortized over 40 years), 40 years for Federal Communication Commission ("FCC") licenses, and from 5 to 40 years for other intangible assets. Intangible assets of $23.5 million related to pre-1971 acquisitions are not being amortized as the Company believes there has been no diminution of value. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted cash flows of the related businesses. 56 INVESTMENTS -- The Company records its investments in debt and equity securities at their fair value, except for debt securities that the Company intends to hold to maturity and equity securities that are accounted for under the equity method or that are issued by private companies. All investments recorded at fair value have been classified as available for sale. The difference between cost and fair value, net of related tax effects, is recorded in a separate component of shareholders' equity. The cost of securities sold is determined on an average cost basis. PENSION PLANS -- The Company contributes to pension plans that provide retirement benefits for substantially all employees. These plans are sponsored either by the Company or by unions. Under the Company-sponsored plans, pension benefits are primarily a function of both the years of service and the level of compensation for a specified number of years, depending on the plan. It is the Company's policy to fund the minimum for Company-sponsored pension plans as required by ERISA. Contributions made to union-sponsored plans are based upon collective bargaining agreements. STOCK-BASED COMPENSATION -- The Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25 and related Interpretations. In 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which requires companies to either record the estimated fair value of stock-based compensation over the applicable vesting period in their financial statements or disclose the unrecorded pro forma effect on net income in the notes to their financial statements. The Company chose not to change its method of accounting for stock-based compensation plans and has included the required pro forma disclosures in Note 14. This standard does not apply to employee stock ownership plans. NEW ACCOUNTING PRINCIPLES (EFFECTIVE IN 1998) -- In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," effective for fiscal year 1998. The statement will require the Company to report comprehensive income, which includes net income and certain items that are reported as separate components of shareholders' equity, in its financial statements. Also in 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," effective for fiscal year 1998. The statement will require the Company to report certain financial and other descriptive information about its reportable operating segments. The Company will adopt both standards in fiscal year 1998. The adoption will have no effect on the financial position or the results of operations of the Company. EARNINGS PER SHARE -- In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings per Share," which requires presentation on the face of the income statement of both basic and diluted earnings per share. Basic and diluted earnings per share have replaced the previously presented primary and fully diluted earnings per share. Prior years have been restated. Basic earnings per share is computed by dividing net income attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based on the assumption that all of the convertible preferred shares held by the Company's Employee Stock Ownership Plan ("ESOP") are converted into common shares (see Note 14). For purposes of calculating diluted earnings per share, net income is reduced by the additional ESOP contribution that would be required for ESOP debt service, and the weighted average number of shares outstanding is increased by (i) the additional common shares that would be issued upon conversion of the preferred shares based on the stated conversion rate plus any additional common shares that would have to be issued to meet the redemption price guarantee for all preferred shares that have been allocated to participants, and (ii) the effect of stock options. The numbers of common shares used in the computations of basic and diluted earnings per share are shown in the table below: Shares (In thousands) 1997 1996 1995 ==================================================================== Basic 122,879 122,842 129,580 Diluted 135,463 136,065 142,824 - -------------------------------------------------------------------- 57 The computations of basic and diluted earnings per share from continuing operations were as follows:
(In thousands, except per share data) 1997 1996 1995 ================================================================================================ BASIC Income from continuing operations $393,625 $282,750 $245,458 Preferred dividends, net of tax (18,798) (18,786) (18,841) - ------------------------------------------------------------------------------------------------ Net income from continuing operations attributable to common shares $374,827 $263,964 $226,617 Weighted average common shares outstanding 122,879 122,842 129,580 - ------------------------------------------------------------------------------------------------ Basic earnings per share from continuing operations $ 3.05 $ 2.15 $ 1.75 - ------------------------------------------------------------------------------------------------ DILUTED Income from continuing operations $393,625 $282,750 $245,458 Additional ESOP contribution required assuming all preferred shares were converted, net of tax (13,141) (13,498) (14,759) - ------------------------------------------------------------------------------------------------ Adjusted income from continuing operations $380,484 $269,252 $230,699 - ------------------------------------------------------------------------------------------------ Weighted average common shares outstanding 122,879 122,842 129,580 Assumed conversion of preferred shares into common shares 11,093 11,407 11,774 Assumed exercise of stock options, net of common shares assumed repurchased with the proceeds 1,491 1,816 1,470 - ------------------------------------------------------------------------------------------------ Adjusted weighted average common shares outstanding 135,463 136,065 142,824 - ------------------------------------------------------------------------------------------------ Diluted earnings per share from continuing operations $ 2.81 $ 1.98 $ 1.61 - ------------------------------------------------------------------------------------------------
................................................................................ NOTE 2: DISCONTINUED OPERATIONS (QUNO CORPORATION) ................................................................................ In March 1996, the Company completed the sale of its holdings in QUNO Corporation, a Canadian newsprint company, as part of QUNO's merger with Donohue Inc. The Company owned approximately 34% of QUNO's common stock plus $138.8 million in convertible debt. The sale resulted in a 1996 after-tax gain of $89.3 million, or $.66 per diluted share. The gross proceeds from the sale were approximately $427 million in cash, Donohue stock and short-term notes. Immediately after the sale, the Company sold the Donohue stock and notes for cash. After-tax proceeds were approximately $331 million. The Company's consolidated financial statements reflect the 1996 gain on the sale of QUNO stock, equity earnings from QUNO and interest income from the QUNO convertible debenture, net of income tax, as discontinued operations. Income tax expense related to discontinued operations was $82.7 million in 1996 and $5.1 million in 1995. QUNO's sales of newsprint to the Company's newspapers, at market prices, were $161.4 million in 1995, which represented 66% of their total newsprint consumption. ................................................................................ NOTE 3: CHANGES IN OPERATIONS AND NON-RECURRING ITEMS ................................................................................ ACQUISITIONS -- The Company completed acquisitions totaling approximately $1.2 billion in 1997, $501.4 million in 1996 and $39.8 million in 1995. These acquisitions were accounted for as purchases. The results of these operations are included in the consolidated statements of income from their respective dates of acquisition. In March 1997, the Company acquired Renaissance Communications Corp., a publicly traded company that owned six television stations, for $1.1 billion in cash. The stations acquired were KDAF-Dallas, WDZL-Miami, KTXL-Sacramento, WXIN-Indianapolis, WTIC-Hartford and WPMT-Harrisburg. The Dallas and Miami stations are affiliated with The WB Television Network ("The WB Network"). The other four stations are affiliated with the Fox Television Network. 58 The FCC order granting the Company's application to acquire the Renaissance stations contained waivers of two FCC rules. First, the FCC temporarily waived its duopoly rule relating to the overlap of WTIC's and WPMT's broadcast signals with those of other Tribune stations. The temporary waivers were granted subject to the outcome of pending FCC rulemaking that is expected to make such duopoly waivers unnecessary. Second, the FCC granted a 12-month waiver of its rule prohibiting television/newspaper cross-ownership in the same market, which relates to the Miami television station and the Fort Lauderdale Sun-Sentinel newspaper. Since the time of the FCC's order, the FCC issued a notice of inquiry to consider modifying its cross-ownership rule. The Company expects the FCC to grant a waiver extension to allow continued ownership of the Miami television station until the rule review has concluded. The Company cannot predict the outcome of the FCC duopoly or cross-ownership rulemaking. In September 1997, the Company acquired Shortland Publications Limited for $32 million in cash. Shortland is a New Zealand-based company that publishes reading, language arts, science and social studies materials for several international elementary school markets. In December 1997, the Company acquired approximately 80% of Landoll, Inc. for $77 million in cash. Landoll publishes children's books for the mass market. Acquisitions in 1996 were all completed for cash and included Houston television station KHTV (in January for $102 million); the remaining minority interest in Philadelphia television station WPHL (in February for $23 million); Educational Publishing Corporation, a publisher of supplemental and curriculum education materials through its Creative Publications and Ideal/Instructional Fair divisions, (in March for $205 million); NTC Publishing Group, a publisher of trade books and educational products, (in March for $83 million); and San Diego television station KSWB (in April for $72 million). Acquisitions in 1995 included Everyday Learning Corporation, a publisher of educational mathematics materials, (in August for $25 million in cash). Supplemental cash flow information for the 1997, 1996 and 1995 acquisitions is summarized in the table below: Acquisitions (in thousands) 1997 1996 1995 =============================================================================== Fair value of assets acquired (1) $1,396,753 $547,044 $45,903 Liabilities assumed (157,141) (45,669) (6,086) - ------------------------------------------------------------------------------- Net cash paid $1,239,612 $501,375 $39,817 - ------------------------------------------------------------------------------- (1) Includes intangible assets, net of acquisition-related deferred taxes. In May 1997, the Company reached an agreement with Emmis Broadcasting Corporation regarding the sale or exchange of the Company's WQCD radio station in New York. Effective July 1, 1997 and in connection with the agreement, Emmis assumed responsibility for certain operations of the station for up to three years for an annual fee of approximately $8 million, after which Emmis has the right to purchase the station. In December 1997, the Company signed an agreement with Emmis to exchange substantially all of the assets of WQCD, with a fair market value of approximately $160 million, and cash for the assets of television stations KTZZ-Seattle (WB) and WXMI-Grand Rapids (Fox). Emmis has agreed to acquire these television stations as part of its acquisition of Dudley Communications Corporation. The transaction, pending FCC approval, is expected to close during the second quarter of 1998. INVESTMENTS -- The Company invested cash in several businesses totaling $48.3 million in 1997, $72.1 million in 1996 and $271.9 million in 1995. The 1997 investments included $33 million in The WB Network. The 1996 investments included $18 million in The WB Network, $15 million in Digital City, Inc., $10 million in The Lightspan Partnership, Inc. and $7 million in Excite, Inc. The 1995 investments included $150 million in The Learning Company, Inc. convertible notes, $70 million in Qwest Broadcasting LLC and $8 million in The WB Network. The Company's current investment in Qwest Broadcasting is comprised of a 33% equity interest and $71 million in convertible notes and accrued interest. The notes bear interest at 6%, are convertible into an additional 47% equity interest and may only be converted when and if FCC regulations permit such conversion. In December 1995, Qwest Broadcasting acquired television stations in Atlanta (WATL) and New Orleans (WNOL) for approximately $167 million. 59 NON-RECURRING ITEMS -- In 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. These sales of investments, net of write-downs, resulted in a pretax gain of $111.8 million and increased diluted earnings per share by $.51. They are summarized as follows:
Shares Pretax Diluted 1997 (in thousands, except per share data) Sold Proceeds Gain (Loss) EPS ========================================================================================================== Sales of stock America Online 2,560 $134,259 $131,107 $.60 CheckFree 2,158 46,161 35,294 .16 Open Market 1,010 13,825 11,313 .05 Gemstar International 680 16,478 10,027 .05 The Learning Company Sale of convertible notes 123,000 6,641 .03 Write-down of stock - (77,266) (.35) Other sales of investments, net of write-downs 9,000 (5,292) (.03) - ---------------------------------------------------------------------------------------------------------- Sales of investments, net of write-downs $342,723 $111,824 $.51 - ----------------------------------------------------------------------------------------------------------
In June 1997, the Company concluded that the decline in the value of its $123.5 million investment in The Learning Company common stock was other than temporary and wrote down the investment to fair market value in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As shown in the above table, the write-down resulted in a non-cash, pretax loss of $77 million, or $.35 per diluted share. In December 1997, the Company completed the sale of The Learning Company convertible notes for $123 million in cash. In March 1997, the Company sold its Farm Journal subsidiary for approximately $17 million in cash. The Company had acquired Farm Journal in 1994 for approximately $17 million. In June 1997, the Company completed the sale of a building in Fort Lauderdale, which is approximately 35% occupied by the Company's Sun-Sentinel newspaper subsidiary. The Company received proceeds of approximately $43 million and deferred, under sale and leaseback accounting rules, the pretax gain of approximately $11 million, which will be amortized over the Sun-Sentinel's 14 year lease term. In December 1996, the Company recorded non-recurring equity income of $10 million, representing the Company's equity interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station. This income increased diluted earnings per share by $.04. In October 1996, the Company received $83 million as prepayment of a mortgage note receivable from an affiliate. The Company held the mortgage note on a building in which the Company had an equity interest. The note had an interest rate of 13% plus contingent interest based upon the building's cash flow and appreciation. In 1995, the Company sold .8 million shares of its America Online investment, its Compton's NewMedia subsidiary and its Times Advocate subsidiary. In the aggregate, these sales resulted in a pretax gain of $14.7 million and increased diluted earnings per share by $.06. They are summarized in the table below:
Pretax Diluted 1995 (in thousands, except per share data) Proceeds Gain (Loss) EPS ========================================================================================= America Online stock sale $16,729 $15,272 $.06 Sale of subsidiaries Compton's NewMedia n/a 6,900 .03 Times Advocate 16,000 (7,500) (.03) - ----------------------------------------------------------------------------------------- Sales of investment and subsidiaries $32,729 $14,672 $.06 - -----------------------------------------------------------------------------------------
The Company sold Compton's NewMedia to The Learning Company in December 1995 for $123.5 million of The Learning Company common stock. In connection with the Compton's sale, the Company also invested $150 million in The Learning Company in exchange for five-year, 5.5% notes, convertible into common stock at $53 per share. The notes were recorded at $100 million, representing their estimated fair value at the time of the transaction. Until the sale of the notes in December 1997, the $50 million difference between fair value and face value was being amortized into interest income over the five-year term of the notes, with an effective interest rate of 15.5%. The 1995 consolidated statement of income included operating revenues of $26.4 million and operating losses of $12.1 million for Compton's. 60 The Company sold Times Advocate Company, a California newspaper subsidiary, in July 1995, for approximately $16 million in cash. The 1995 consolidated statement of income included operating revenues of $8.5 million and operating losses of $1.4 million for Times Advocate. PRO FORMA INFORMATION -- Unaudited 1997 and 1996 pro forma results of operations are shown below. The pro forma information was prepared assuming the 1997 and 1996 acquisitions, investments and dispositions of subsidiaries discussed above had occurred as of the beginning of each year. The pro forma results may not be indicative of the results that would have been reported if the transactions had actually occurred at the beginning of each year presented, or of results that may be attained in the future. The unaudited pro forma results do not reflect any synergies anticipated by the Company as a result of the acquisitions.
1997 1996 (In thousands, except per share data) As Reported Pro Forma As Reported Pro Forma =========================================================================================================== Operating revenues $2,719,780 $2,822,036 $2,405,705 $2,661,238 Income from continuing operations 393,625 380,448 282,750 244,664 Diluted earnings per share from continuing operations $2.81 $2.71 $1.98 $1.70 - -----------------------------------------------------------------------------------------------------------
................................................................................ NOTE 4: INVENTORIES ................................................................................ Inventories (in thousands) Dec. 28, 1997 Dec. 29, 1996 ============================================================================= Finished goods $78,058 $60,341 Newsprint (at LIFO) 11,653 10,186 Supplies and other 9,780 9,998 - ----------------------------------------------------------------------------- Total inventories $99,491 $80,525 - ----------------------------------------------------------------------------- Newsprint inventories are valued under the LIFO method and were less than current cost by approximately $10.5 million at December 28, 1997 and $8.2 million at December 29, 1996. Finished goods primarily include books and supplemental educational materials. ................................................................................ NOTE 5: INTANGIBLE ASSETS ................................................................................ Intangible assets consisted of the following: (In thousands) Dec. 28, 1997 Dec. 29, 1996 ========================================================================== Goodwill $1,720,622 $ 927,253 FCC licenses 450,024 168,853 Other 626,602 387,921 - -------------------------------------------------------------------------- Total intangible assets 2,797,248 1,484,027 Less accumulated amortization (294,179) (232,557) - -------------------------------------------------------------------------- Net intangible assets $2,503,069 $1,251,470 - -------------------------------------------------------------------------- 61 ................................................................................ NOTE 6: INVESTMENTS ................................................................................ Investments consisted of the following: (In thousands) Dec. 28, 1997 Dec. 29, 1996 ============================================================================= Cost method investments $283,826 $336,707 Equity method investments 58,153 72,009 Debt securities 139,565 220,413 - ----------------------------------------------------------------------------- Total investments $481,544 $629,129 - ----------------------------------------------------------------------------- At December 28, 1997, the Company's cost and equity method investments consisted primarily of the following:
COST METHOD INVESTMENTS EQUITY METHOD INVESTMENTS - ---------------------------------------------------------------------------- ---------------------------------- Public % Private % Private % Companies Owned Companies Owned Companies Owned ================================================================================================================== America Online, Inc. 1.5% CareerPath.com 16% Central Florida News 13 50% CheckFree Holdings Corp. 1.0% Discourse Technologies, Inc. 14% Classified Ventures LLC 33% Excite, Inc. 4.3% iVillage, Inc. 8% Digital City, Inc. 20% The Learning Company, Inc. 10.5% The Lightspan Partnership, Inc. 7% ImageBuilder Software, Inc. 23% Open Market, Inc. 2.6% InfoBeat, Inc. 13% Interealty Corp. 25% Peapod, Inc. 10.7% Qwest Broadcasting LLC 33% TV Food Network 31% The WB Television Network 22% - ------------------------------------------------------------------------------------------------------------------
Beginning in 1997, the Company is reporting separately equity earnings and losses. These amounts are shown as net loss on equity investments in the consolidated statements of income and were previously included in operating profit. Prior years' equity results have been reclassified to conform to the current presentation. The reclassification had no effect on net income or earnings per share. For investments recorded at fair value under SFAS No. 115, the aggregate cost basis, net unrealized gain and fair value were as follows:
December 28, 1997 December 29, 1996 ---------------------------------- ------------------------------------ Cost Unrealized Fair Cost Unrealized Fair (In thousands) Basis Gain Value Basis Gain Value ============================================================================================================== Marketable equity securities $64,465 $198,862 $263,327 $160,660 $151,695 $312,355 Debt securities 72,460 67,105 139,565 176,611 43,802 220,413 - --------------------------------------------------------------------------------------------------------------
In June 1997, the Company concluded that the decline in the value of its $123.5 million investment in The Learning Company common stock was other than temporary and wrote down the investment to the then fair market value of $46.2 million in accordance with SFAS No. 115. The write-down resulted in a non-cash, pretax loss of $77.3 million and is included in "Sales of investments, net of write-downs" in the 1997 consolidated statement of income (see Note 3). The investment had a fair value of $73.9 million and $76.2 million at December 28, 1997 and December 29, 1996, respectively. The difference between cost and fair value, net of related tax effects, is recorded in a separate component of shareholders' equity and amounted to a net gain of $161.6 million at December 28, 1997 and $118.8 million at December 29, 1996. 62 ................................................................................ NOTE 7: LONG-TERM DEBT ................................................................................ Long-term debt consisted of the following: (In thousands) Dec. 28, 1997 Dec. 29, 1996 =============================================================================== Promissory notes, weighted average interest rate of 5.9% in 1997 $ 476,375 $ - Medium-term notes, weighted average interest rate of 6.6%, due 1997-2006 786,300 667,300 6.25% notes due 2026, putable to the Company at par in 2001 100,000 100,000 8.4% guaranteed ESOP notes, due 1997-2003 184,187 210,606 8.19% guaranteed ESOP note, due 1997-1998 4,193 8,062 Other notes and obligations 3,746 24,859 - ------------------------------------------------------------------------------- Total debt 1,554,801 1,010,827 Less portions due within one year (33,348) (31,073) - ------------------------------------------------------------------------------- Long-term debt $1,521,453 $ 979,754 - ------------------------------------------------------------------------------- MEDIUM-TERM NOTES -- The Company has issued all of its $200 million Series B, $500 million Series C and $500 million Series D medium-term notes. Notes issued under this program generally have maturities from 2 to 30 years and may not be redeemed by the Company prior to maturity. As part of the Series D medium-term note program, the Company sold $100 million of 6.25% notes in 1996 that mature in 2026. These notes may be put back to the Company in 2001 at 100% of the principal amount, plus accrued interest. The proceeds from the sale of the notes have been used for general corporate purposes, including the funding of acquisitions. In 1997, the Company's registration statement for $500 million of Series E medium-term notes was declared effective by the Securities and Exchange Commission. No Series E medium-term notes were issued during 1997. ESOP NOTES -- The notes issued by the Company's ESOP are unconditionally guaranteed by the Company as to payment of principal and interest (see Note 14). Therefore, the unpaid balance of these borrowings is reflected in the accompanying consolidated balance sheets as long-term debt. An amount equivalent to the unpaid balance of these borrowings, representing unearned employee compensation, is recorded as a reduction of shareholders' equity. OTHER -- In 1998, the Company intends to refinance $476.4 million of promissory notes and $3.8 million of Series B medium-term notes scheduled to mature in 1998 and has the ability to do so on a long-term basis through existing revolving credit agreements. Accordingly, these notes were classified as long-term and treated as maturing in fiscal year 2001. The Company has revolving credit agreements with a number of banks in an aggregate amount of $1.2 billion, extending to December 31, 2001, which are fully available to support the issuance of promissory notes. These agreements contain various interest rate options and provide for annual fees based on a percentage of the commitment. Such fees totaled approximately $1.0 million in 1997 and $.5 million in 1996 and 1995. Certain debt agreements limit the amount of secured debt the Company can incur without equally and ratably securing additional borrowings under those agreements. MATURITIES -- Debt at December 28, 1997 matures as follows: Maturities (in thousands) Amount =================================================== 1998 $ 33,348 1999 61,914 2000 80,052 2001 516,291 2002 92,827 Thereafter 770,369 - --------------------------------------------------- Total $1,554,801 - --------------------------------------------------- 63 ................................................................................ NOTE 8: CONTRACTS PAYABLE FOR BROADCAST RIGHTS ................................................................................ Contracts payable for broadcast rights are classified as current or long-term liabilities in accordance with the payment terms of the contracts. Required payments under contractual agreements for broadcast rights recorded at December 28, 1997 are shown in the table below: (In thousands) Amount ========================================= 1998 $210,565 1999 139,993 2000 62,171 2001 17,072 2002 8,359 Thereafter 3,237 - ----------------------------------------- Total $441,397 - ----------------------------------------- ................................................................................ NOTE 9: FAIR VALUE OF FINANCIAL INSTRUMENTS ................................................................................ Estimated fair values and carrying amounts of the Company's financial instruments were as follows:
December 28, 1997 December 29, 1996 ------------------------- ------------------------- Fair Carrying Fair Carrying (In thousands) Value Amount Value Amount ========================================================================================================= Cost method investments Practicable to estimate fair value $282,081 $283,826 $340,011 $331,413 Not practicable - - - 5,294 Debt securities 139,565 139,565 220,413 220,413 Debt 1,575,421 1,554,801 1,039,385 1,010,827 Contracts payable for broadcast rights 403,588 441,397 350,498 388,343 - ---------------------------------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of each category of financial instruments. COST METHOD INVESTMENTS AND DEBT SECURITIES -- Cost method investments in public companies and debt securities were recorded at fair value in the consolidated balance sheets (see Notes 1 and 6). Cost method investments in private companies were recorded at cost, and fair value was generally estimated based on prices recently paid for shares in that company. For certain investments, it was not practicable to estimate fair value at December 29, 1996. DEBT -- Fair value was determined based on quoted market prices for similar issues or on current rates available to the Company for debt of the same remaining maturities and similar terms. CONTRACTS PAYABLE FOR BROADCAST RIGHTS -- Fair value was estimated using the discounted cash flow method. ................................................................................ NOTE 10: CONTINGENCIES AND LEGAL PROCEEDINGS ................................................................................ The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. In addition, the Company and its subsidiaries are involved from time to time as parties in various regulatory, environmental and other proceedings with governmental authorities and administrative agencies. The Company does not believe that any of the matters or proceedings presently pending will have a material adverse effect on its consolidated financial position or results of operations. 64 ................................................................................ NOTE 11: INCOME TAXES ................................................................................ The following is a reconciliation of income taxes computed at the U.S. federal statutory rate to income taxes from continuing operations reported in the consolidated statements of income:
(In thousands) 1997 1996 1995 ======================================================================================================== Income from continuing operations before income taxes $659,000 $474,413 $412,534 - -------------------------------------------------------------------------------------------------------- Federal income taxes at 35% $230,650 $166,045 $144,387 State and local income taxes, net of federal tax benefit 34,653 27,747 24,344 Other 72 (2,129) (1,655) - --------------------------------------------------------------------------------------------------------- Income taxes reported $265,375 $191,663 $167,076 Effective tax rate 40.3% 40.4% 40.5% - ---------------------------------------------------------------------------------------------------------
Components of income tax expense charged to income from continuing operations were as follows:
(In thousands) 1997 1996 1995 =========================================================================================== Currently payable: U.S. federal $233,640 $165,169 $137,420 State and local 57,060 47,491 37,389 - ------------------------------------------------------------------------------------------- 290,700 212,660 174,809 - ------------------------------------------------------------------------------------------- Deferred: U.S. federal (21,577) (18,360) (7,617) State and local (3,748) (2,637) (116) - ------------------------------------------------------------------------------------------- (25,325) (20,997) (7,733) - ------------------------------------------------------------------------------------------- Total $265,375 $191,663 $167,076 - -------------------------------------------------------------------------------------------
Significant components of the Company's net deferred tax liabilities were as follows:
(In thousands) Dec. 28, 1997 Dec. 29, 1996 ========================================================================================= Net properties $ 80,229 $ 84,807 Net intangible assets 296,369 103,268 Pensions 8,278 8,849 Unrealized gain on investments 104,326 76,684 Other investments - 7,634 Other future taxable items 7,922 7,310 - ----------------------------------------------------------------------------------------- Total deferred tax liabilities 497,124 288,552 - ----------------------------------------------------------------------------------------- Broadcast rights (26,122) (15,538) Postretirement and postemployment benefits other than pensions (16,685) (20,132) Deferred compensation (20,086) (20,759) Disposition of New York Daily News (10,005) (12,905) Other accrued liabilities (25,834) (18,047) Accrued employee compensation and benefits (25,010) (18,831) Federal benefit on deferred state taxes (43,348) (23,517) Accounts receivable (18,428) (14,786) Other investments (17,047) - Other future deductible items (9,775) (15,242) - ----------------------------------------------------------------------------------------- Total deferred tax assets (212,340) (159,757) - ----------------------------------------------------------------------------------------- Net deferred tax liability $284,784 $128,795 - -----------------------------------------------------------------------------------------
65 ................................................................................ NOTE 12: COMMITMENTS ................................................................................ The Company has entered into commitments for broadcast rights that are not currently available for broadcast and are therefore not included in the financial statements. These commitments totaled $383 million at December 28, 1997. Payments for broadcast rights generally commence when the programs become available for broadcast. The Company had commitments totaling $97 million at December 28, 1997 related to the purchase of inventory, property, plant and equipment and talent contracts. The Company leases certain equipment and office and production space under various operating leases. Rental expense totaled $36.5 million in 1997, $28.1 million in 1996 and $24.6 million in 1995. Future minimum rental commitments under non-cancelable operating leases are shown in the table below: Lease Commitments (in thousands) Amount ==================================================== 1998 $ 31,360 1999 27,696 2000 22,489 2001 17,958 2002 16,609 Thereafter 55,914 - ---------------------------------------------------- Total $172,026 - ---------------------------------------------------- The Company has guaranteed certain obligations of affiliates totaling $22.3 million at December 28, 1997. ................................................................................ NOTE 13: CAPITAL STOCK ................................................................................ PREFERRED STOCK -- Under the Company's Restated Certificate of Incorporation, 5 million shares of preferred stock are authorized. In 1989, the Company established a series of 1.6 million shares of Series B Convertible Preferred Stock of which 1.59 million shares were issued to the Company's ESOP. Each share of such preferred stock pays a cumulative dividend of 7.75% annually, has a liquidation value of $220 per share, is convertible into eight shares of the Company's common stock and is voted with the common stock with an entitlement to 9.16 votes per preferred share. COMMON STOCK -- In December 1996, the Board of Directors declared a two-for-one common stock split effective January 15, 1997, to holders of record on December 27, 1996. All share and per share data have been restated to reflect the stock split. The Board from time to time has authorized the repurchase of shares of the Company's common stock in the open market or through private transactions to be used for employee benefit programs and other purposes. At December 28, 1997, the Company had authorization to repurchase 7.2 million shares of its common stock. There were approximately 5,600 holders of record of the Company's common stock at February 10, 1998. SHARE PURCHASE RIGHTS PLAN -- In December 1997, the Company adopted a Share Purchase Rights Plan to replace a similar agreement that expired in January 1998. The plan provides for a dividend of one right on each outstanding share of the Company's common stock. Each right will entitle stockholders to buy one one-hundredth of a share of Series A Junior Participating preferred stock at an exercise price of $250. These rights expire January 5, 2008. The rights have no voting rights and are not exercisable until 10 days after the occurrence of certain triggering events, upon which the holders of the rights are entitled to purchase either the common stock of an acquiror or additional common stock of the Company at a discounted price. The rights are redeemable at the option of the Company for $.01 per right. The Company has established a series of 2 million shares of Series A Junior Participating Preferred Stock in connection with the plan, none of which have been issued. 66 ................................................................................ NOTE 14: INCENTIVE COMPENSATION AND STOCK PLANS ................................................................................ EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) -- In 1988, the Company established an ESOP as a long-term employee benefit plan to supplement the Company's employee pension plan. In connection therewith, the ESOP purchased, in 1988 and 1989, approximately 1.6 million common shares and 1.59 million Series B convertible preferred shares for an aggregate of $375 million. The ESOP provides for the awarding of shares of the Company's preferred and common stock on a noncontributory basis to eligible employees of the Company not covered by a collective bargaining agreement. At December 28, 1997, 11.1 million shares of common stock were reserved for issuance in connection with this plan. Shares of stock held by the ESOP have been placed with the ESOP Trustee and are allocated to eligible employees annually. These common and preferred shares are allocated in the same proportion that the current year's principal and interest payments bear to the total principal and interest to be paid over the lives of the related borrowings. Each preferred share is convertible into eight shares of the Company's common stock. The ESOP Trustee must convert the preferred shares when making distributions to participants upon their withdrawal from the ESOP. If at the time of such conversion the price of the Company's common stock is below $27.50 per share, the Company must, at its option, either pay the difference in cash or issue additional common stock. At December 28, 1997, preferred shares allocated and committed to be released were 659,740 and 112,799, respectively, and common shares allocated and committed to be released were 1,032,991 and 154,036. The Company recognizes expense for this plan based upon cash contributions it makes to the ESOP. The ESOP services its debt requirements with amounts received from preferred dividends, a portion of the common dividends and Company contributions. The table below summarizes ESOP debt service activity for the three years ended December 28, 1997: ESOP Debt (in thousands) 1997 1996 1995 ============================================================================== Debt Requirements Principal $30,288 $28,613 $26,820 Interest 18,274 20,676 22,927 - ------------------------------------------------------------------------------ Total $48,562 $49,289 $49,747 - ------------------------------------------------------------------------------ Debt Service Dividends $24,460 $24,589 $25,439 Company cash contributions 24,102 24,700 24,308 - ------------------------------------------------------------------------------ Total $48,562 $49,289 $49,747 - ------------------------------------------------------------------------------ SAVINGS INCENTIVE PLAN -- The Company maintains various qualified 401(k) savings plans, which permit eligible employees to make voluntary contributions on a pretax basis. The Savings Incentive Plan provides for uniform employer contributions to eligible employees of $.25 for each $1.00 contributed by participants up to 4% of the participants' eligible compensation. This plan allows participants to invest their savings in various investments including the Company's common stock. Company contributions to this plan for 1997, 1996 and 1995 were $3.3 million, $3.0 million and $2.6 million, respectively. The Company had 800,000 shares of common stock reserved for possible issuance under this plan at December 28, 1997. EMPLOYEE STOCK PURCHASE PLAN -- This plan permits eligible employees to purchase up to 8 million shares of the Company's common stock at 85% of market price. The Company's only expense relating to this plan is for its administration. During 1997, 1996 and 1995, 215,424, 230,688 and 222,034 shares, respectively, were sold to employees under this plan. As of December 28, 1997, a total of 3.9 million shares were available for sale. The weighted average fair value of shares sold in 1997 was $48.68. 1997 INCENTIVE COMPENSATION PLAN -- In 1997, the 1992 Long-Term Incentive Plan was terminated and replaced with the 1997 Incentive Compensation Plan. At December 28, 1997, remaining options outstanding under the 1992 plan totaled 6.3 million shares, of which 2.9 million shares were exercisable. No further awards will be made under the 1992 plan and remaining options will vest in 1998. The 1997 plan provides for the granting of awards to eligible employees in any one or combination of stock options, performance equity program awards and annual management incentive program bonuses. At December 28, 1997, a total of 15.5 million shares were available for award under the 1997 plan. 67 Under the stock option portion of the 1997 plan, the option price may not be less than the market value of the Company's common stock at the time the option is granted. Options are exercisable not less than six months or more than 10 years after the date the option is granted. General awards under the 1997 plan vest in annual 25% increments beginning one year from the date of the grant. Replacement options may be granted under the 1997 plan in connection with a participant's payment of part or all of the exercise price of a stock option or related tax withholding obligations with previously acquired shares of common stock. The performance equity portion of the 1997 plan provides for the awarding of common stock to key employees if certain financial goals are met over a period not less than two years. The Company recorded $4.2 million of expense in 1997 related to this portion of the plan. A combined summary of stock option activity and weighted average prices follows:
1997 1996 1995 Weighted Avg. Weighted Avg. Weighted Avg. (Shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price ===================================================================================================================== Outstanding, beginning of year 8,406 $30.68 8,906 $27.30 10,090 $24.27 Granted 3,902 $51.89 2,965 $36.46 2,950 $31.67 Exercised (3,973) $31.12 (3,370) $26.88 (3,908) $22.70 Canceled (147) $37.67 (95) $31.12 (226) $28.17 - -------------------------------------------------------------------------------------------------------------------- Outstanding, end of year 8,188 $40.50 8,406 $30.68 8,906 $27.30 - -------------------------------------------------------------------------------------------------------------------- Exercisable, end of year 2,930 $27.74 4,017 $26.05 5,092 $25.31 - --------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding and options exercisable at December 28, 1997 (shares in thousands):
Options Outstanding Options Exercisable -------------------------------------------------- ------------------------------- Range of Number Weighted Avg. Weighted Avg. Number Weighted Avg. Exercise Prices Outstanding Remaining Life Exercise Price Exercisable Exercise Price ================================================================================================================ $19.31 - $26.63 1,645 5.32 $24.25 1,621 $24.25 $27.00 - $43.69 3,037 7.07 $34.65 1,289 $32.58 $44.13 - $60.94 3,506 7.44 $53.03 20 44.50 - ----------------------------------------------------------------------------------------------------------------
STOCK PLANS PRO FORMA DISCLOSURE -- The Company's 1997 Compensation Plan, 1992 Long-Term Incentive Plan and Employee Stock Purchase Plan are accounted for under APB Opinion No. 25. Accordingly, no compensation cost related to options has been recognized in the consolidated statements of income. Under SFAS No. 123, compensation cost is measured at the grant date based on the fair value of the award and is recognized as compensation expense over the vesting or service period. Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
(In thousands, except 1997 1996 1995 per share data) As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma =============================================================================================================== Net income $393,625 $377,262 $372,067 $361,116 $278,165 $272,469 Net income attributable to common shares 374,827 358,464 353,281 342,330 259,324 253,628 Diluted earnings per share 2.81 2.69 2.64 2.55 1.84 1.80 - ---------------------------------------------------------------------------------------------------------------
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to 1995, the pro forma compensation cost in 1996 and 1995 is not representative of such cost in future years. 68 In determining the pro forma compensation cost, the weighted average fair value of options granted at date of grant was estimated to be $11.70 in 1997, $8.06 in 1996 and $7.47 in 1995, using the Black-Scholes option pricing model. The following weighted-average assumptions were used for general awards and replacement options:
1997 1996 1995 General Replacement General Replacement General Replacement Awards Options Awards Options Awards Options ============================================================================================================== Risk-free interest rate 6.1% 5.8% 6.7% 6.5% 6.2% 6.2% Expected dividend yield 1.6% 1.6% 1.7% 1.7% 1.7% 1.7% Expected stock price volatility 22.5% 21.3% 22.2% 18.9% 26.0% 20.9% Expected life (in years) 6 2 5 3 5 3 - --------------------------------------------------------------------------------------------------------------
................................................................................ NOTE 15: EMPLOYEE PENSION PLANS ................................................................................ In connection with the establishment of the ESOP, the Company amended, effective January 1989, its Company-sponsored pension plan for employees not covered by a collective bargaining agreement. The pension plan will continue to provide substantially the same pension benefits as under the pre-amended plan until December 1998. After that date, the plan provides that the pension benefit credits be frozen in terms of pay and service. In addition, the Company maintains several small plans for other employees. Net pension expense (credit) for Company-sponsored plans in 1997, 1996 and 1995 included the following components:
Pension Expense (in thousands) 1997 1996 1995 =================================================================================================== Benefits earned during the period (service costs) $ 9,149 $ 10,093 $ 8,256 Interest cost on projected benefit obligation 22,656 21,783 20,302 Recognized return on plan assets (31,299) (29,199) (27,857) Amortization, net (1,604) (971) (531) - --------------------------------------------------------------------------------------------------- Net pension expense (credit) $ (1,098) $ 1,706 $ 170 - ---------------------------------------------------------------------------------------------------
Actual returns on plan assets were gains of $70.5 million in 1997, $57.2 million in 1996 and $57.9 million in 1995. The funded status of the Company-sponsored pension plans as of year-end 1997 and 1996 was as follows:
(In thousands) Dec. 28, 1997 Dec. 29, 1996 ============================================================================================================== Plans' assets at fair value $418,856 $365,740 Actuarial present value of benefit obligations Vested benefits 318,213 286,720 Non-vested benefits 13,390 10,841 - -------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation 331,603 297,561 Projected future salary increases 2,884 8,231 - -------------------------------------------------------------------------------------------------------------- Projected benefit obligation 334,487 305,792 - -------------------------------------------------------------------------------------------------------------- Plans' assets in excess of projected benefit obligation 84,369 59,948 Unrecognized net asset at transition being amortized through 2003 (8,979) (10,550) Unrecognized net gain due to actual experience varying from actuarial assumptions (41,703) (17,113) Unrecognized prior service costs 213 (26) - -------------------------------------------------------------------------------------------------------------- Pension asset recognized in the consolidated balance sheets $ 33,900 $ 32,259 - --------------------------------------------------------------------------------------------------------------
69 The plans' assets consist primarily of listed common stocks and bonds. In determining the projected benefit obligation for the plans, the weighted average assumed discount rate used was 7.25% in 1997 and 7.75% in 1996, while the assumed average rate of increase in future salary levels was 5.0% for 1997 and 1996. The weighted average expected long-term rate of return on assets used in determining net pension expense or credit was 9.5% in 1997, 1996 and 1995. Total pension expense for union-sponsored pension plans was $6.1 million in 1997, $5.7 million in 1996 and $5.6 million in 1995. The Company's portion of assets and liabilities for multi-employer union pension plans is not determinable. ................................................................................ NOTE 16: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS ................................................................................ The Company provides postretirement health care and life insurance benefits to eligible employees under a variety of plans. Employees become eligible for these benefits if they meet age and service requirements. Effective January 1991, the Company provides a fixed medical contribution to participants who retire between the age of 55 to 65 and have 10 or more years of service. Medical coverage for these participants ends when they reach age 65. Retirees are also eligible for life insurance benefits, which are primarily a function of both the years of service and the level of compensation at retirement. The cost of postretirement medical and life benefits is accrued over the active service periods of employees to the date they attain full eligibility for such benefits. It is the Company's policy to fund postretirement benefits as claims are incurred. Postretirement benefit cost for 1997, 1996 and 1995 included the following components:
(In thousands) 1997 1996 1995 ================================================================================================== Service cost of benefits earned during the year $ 316 $ 265 $ 222 Interest cost on accumulated postretirement benefit obligation ("APBO") 3,302 3,244 3,437 - -------------------------------------------------------------------------------------------------- Postretirement benefit cost $3,618 $3,509 $3,659 - --------------------------------------------------------------------------------------------------
The plans' APBO and the Company's postretirement liability were as follows:
(In thousands) Dec. 28, 1997 Dec. 29, 1996 ==================================================================================================== Actuarial present value of benefit obligations Retirees $41,477 $40,391 Active participants, fully eligible 1,909 1,466 Active participants, not eligible 2,677 2,592 - ---------------------------------------------------------------------------------------------------- APBO 46,063 44,449 Unrecognized net gain (loss) due to actual experience varying from actuarial assumptions (196) 317 - ---------------------------------------------------------------------------------------------------- Postretirement benefit liability $45,867 $44,766 - ----------------------------------------------------------------------------------------------------
In determining the APBO, the weighted average assumed discount rate used was 7.25% in 1997 and 7.75% in 1996. Increases of 9.0% in the cost of covered health care benefits were assumed for fiscal 1998. These rates were assumed to decrease ratably to 7.0% after four years and remain at that level thereafter. The effect of a one percentage point increase in the assumed health care cost trend rate for each future year would increase the total APBO at year-end 1997 by $3.3 million and the 1997 net benefit cost by $.3 million. 70 ................................................................................ NOTE 17: SEGMENT INFORMATION ................................................................................ Tribune Company is a media company comprising three business segments as of December 28, 1997. PUBLISHING -- The Company's publishing segment consists of four daily newspapers, Internet and other online publishing businesses and related publications and services. The newspapers are the Chicago Tribune, the South Florida-based Sun-Sentinel, The Orlando Sentinel and the Hampton Roads (Va.)-based Daily Press. BROADCASTING AND ENTERTAINMENT -- The Company's broadcasting operations consist of WB television affiliates in New York, Los Angeles, Chicago, Philadelphia, Boston, Dallas, Houston, Miami, Denver and San Diego; Fox television affiliates in Sacramento, Indianapolis, Hartford and Harrisburg; an ABC television affiliate in New Orleans; a CBS television affiliate in Atlanta; and four radio stations. In entertainment, the Company owns the Chicago Cubs baseball team and produces and syndicates television programming. EDUCATION -- The Company's education segment consists of The Wright Group, Everyday Learning/Creative Publications, NTC/Contemporary Publishing, Landoll and Ideal/Instructional Fair Publishing. In 1995, the Company sold Times Advocate Company, its California newspaper subsidiary, and Compton's NewMedia, an education software company (see Note 3). Financial data for each of the Company's business segments is presented on page 76. In determining operating profit for each segment, none of the following items have been added or deducted: interest income and expense, equity earnings and losses, non-recurring items or income taxes. Assets represent those tangible and intangible assets used in the operations of each segment. The Company's cost of sales by business segment was as follows:
(In thousands) 1997 1996 1995 ================================================================================================= Publishing $ 692,390 $ 679,963 $ 691,935 Broadcasting and Entertainment 490,269 454,828 451,749 Education 72,322 60,370 33,823 - ------------------------------------------------------------------------------------------------- Total cost of sales $1,254,981 $1,195,161 $1,177,507 - -------------------------------------------------------------------------------------------------
71
QUARTERLY RESULTS (UNAUDITED) QUARTERS -------------------------------------------- 1997 (In thousands of dollars, except per share data) First Second Third Fourth TOTAL =========================================================================================================================== OPERATING Publishing $355,126 $360,131 $341,516 $379,945 $1,436,718 REVENUES Broadcasting and Entertainment 201,390 300,267 274,020 281,852 1,057,529 Education 37,403 59,344 79,750 49,036 225,533 -------------------------------------------------------------------------------------------------------- Total operating revenues $593,919 $719,742 $695,286 $710,833 $2,719,780 - --------------------------------------------------------------------------------------------------------------------------- OPERATING Publishing $ 97,185 $ 94,328 $ 73,035 $ 90,037 $ 354,585 PROFIT (1) Broadcasting and Entertainment 39,399 84,839 70,958 90,700 285,896 Education (160) 11,481 24,098 557 35,976 Corporate expenses (8,312) (7,950) (8,613) (9,551) (34,426) -------------------------------------------------------------------------------------------------------- Total operating profit 128,112 182,698 159,478 171,743 642,031 - --------------------------------------------------------------------------------------------------------------------------- Net loss on equity investments (1) (11,703) (5,666) (8,590) (8,737) (34,696) Sales of investments, net of write-downs (2) - 28,529 41,496 41,799 111,824 Net interest expense (6,144) (19,303) (17,426) (17,286) (60,159) - --------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 110,265 186,258 174,958 187,519 659,000 Income taxes (45,760) (75,326) (70,180) (74,109) (265,375) - --------------------------------------------------------------------------------------------------------------------------- NET INCOME 64,505 110,932 104,778 113,410 393,625 Preferred dividends, net of tax (4,699) (4,700) (4,700) (4,699) (18,798) - --------------------------------------------------------------------------------------------------------------------------- NET INCOME ATTRIBUTABLE TO COMMON SHARES $ 59,806 $106,232 $100,078 $108,711 $ 374,827 - --------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE (3) Basic $ .49 $ .86 $ .81 $ .88 $ 3.05 -------------------------------------------------------------------------------------------------------- Diluted $ .45 $ .80 $ .75 $ .81 $ 2.81 - --------------------------------------------------------------------------------------------------------------------------- COMMON DIVIDENDS PER SHARE $ .16 $ .16 $ .16 $ .16 $ .64 - --------------------------------------------------------------------------------------------------------------------------- COMMON STOCK PRICE (HIGH-LOW) $42 3/8- $50 5/16- $54 13/16- $61 1/2- 35 1/2 39 3/4 48 51 9/16 - --------------------------------------------------------------------------------------------------------------------------- Notes to Quarterly Results: (1) Beginning in the fourth quarter of 1997, the Company is reporting separately equity earnings and losses. These amounts are shown as net earnings (loss) on equity investments and were previously included in operating profit. Prior quarters' and years' equity results have been reclassified to conform to the current presentation. The reclassification had no effect on net income or earnings per share. (2) During 1997, the Company sold a portion of its investment portfolio and wrote down certain investments. In the aggregate, these non-recurring transactions increased full year 1997 net income by $68.9 million and diluted earnings per share by $.51. By quarter, they increased net income and diluted earnings per share as follows: $17.6 million and $.13 in the second quarter; $25.5 million and $.19 in the third quarter; and $25.8 million and $.19 in the fourth quarter. (3) Quarterly and full year earnings per share amounts are calculated independently based on the weighted average number of common shares outstanding for each period. (4) In December 1996, the Company recorded non-recurring equity income of $10.0 million, or $6.0 million after taxes ($.04 per diluted share), representing the Company's equity interest in a gain recorded by Qwest Broadcasting for the cancellation of an option to purchase a television station. (5) In March 1996, the Company sold its holdings in QUNO Corporation as part of QUNO's merger with Donohue Inc. The sale resulted in an after-tax gain of $89.3 million, or $.66 per diluted share.
72
Tribune Company and Subsidiaries QUARTERS -------------------------------------------- 1996 (In thousands of dollars, except per share data) First Second Third Fourth TOTAL =========================================================================================================================== OPERATING Publishing $327,333 $330,495 $322,784 $356,027 $1,336,639 REVENUES Broadcasting and Entertainment 187,195 253,280 222,905 213,370 876,750 Education 22,594 58,152 72,638 38,932 192,316 -------------------------------------------------------------------------------------------------------- Total operating revenues $537,122 $641,927 $618,327 $608,329 $2,405,705 - --------------------------------------------------------------------------------------------------------------------------- OPERATING Publishing $ 65,442 $ 74,364 $ 63,778 $ 87,673 $ 291,257 PROFIT (1) Broadcasting and Entertainment 32,373 66,722 45,184 59,252 203,531 Education 2,248 13,865 21,828 1,563 39,504 Corporate expenses (7,349) (7,576) (7,899) (8,111) (30,935) -------------------------------------------------------------------------------------------------------- Total operating profit 92,714 147,375 122,891 140,377 503,357 - --------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) on equity investments (1) (4) (5,639) (2,502) (6,578) 1,438 (13,281) Net interest expense (2,405) (3,208) (4,992) (5,058) (15,663) - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 84,670 141,665 111,321 136,757 474,413 Income taxes (34,291) (57,375) (45,085) (54,912) (191,663) - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 50,379 84,290 66,236 81,845 282,750 DISCONTINUED OPERATIONS OF QUNO, NET OF TAX (5) 89,317 - - - 89,317 - --------------------------------------------------------------------------------------------------------------------------- Net Income 139,696 84,290 66,236 81,845 372,067 Preferred dividends, net of tax (4,696) (4,697) (4,697) (4,696) (18,786) - --------------------------------------------------------------------------------------------------------------------------- Net Income Attributable to Common Shares $135,000 $ 79,593 $ 61,539 $ 77,149 $ 353,281 - --------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE (3) Basic: Continuing operations $ .37 $ .65 $ .50 $ .63 $ 2.15 Discontinued operations .72 - - - .73 -------------------------------------------------------------------------------------------------------- Net income $ 1.09 $ .65 $ .50 $ .63 $ 2.88 -------------------------------------------------------------------------------------------------------- Diluted: Continuing operations $ .34 $ .60 $ .46 $ .57 $ 1.98 Discontinued operations .66 - - - .66 -------------------------------------------------------------------------------------------------------- Net income $ 1.00 $ .60 $ .46 $ .57 $ 2.64 - --------------------------------------------------------------------------------------------------------------------------- COMMON DIVIDENDS PER SHARE $ .15 $ .15 $ .15 $ .15 $ .60 - --------------------------------------------------------------------------------------------------------------------------- COMMON STOCK PRICE (HIGH-LOW) $34 1/2- $38 1/8- $39 1/2- $44 1/8- 28 5/16 32 1/16 31 5/8 37 7/8 - ---------------------------------------------------------------------------------------------------------------------------
73
ELEVEN YEAR FINANCIAL SUMMARY (In thousands of dollars, except per share data) 1997 1996 1995 1994 ================================================================================================================================= OPERATING RESULTS OPERATING REVENUES Publishing excluding Daily News $1,436,718 1,336,639 1,312,767 1,246,377 New York Daily News $ - - - - Broadcasting and Entertainment $1,057,529 876,750 828,806 764,197 Education $ 225,533 192,316 103,101 102,082 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING REVENUES $2,719,780 2,405,705 2,244,674 2,112,656 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING PROFIT Publishing excluding Daily News $ 354,585 291,257 272,093 291,323 New York Daily News $ - - - - Broadcasting and Entertainment $ 285,896 203,531 171,618 138,213 Education $ 35,976 39,504 4,608 2,829 Corporate expenses $ (34,426) (30,935) (29,899) (26,001) - --------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING PROFIT $ 642,031 503,357 418,420 406,364 - --------------------------------------------------------------------------------------------------------------------------------- Net loss on equity investments $ (34,696) (13,281) (13,209) (9,739) Sales of investments and subsidiaries, net of write-downs $ 111,824 - 14,672 - Net interest expense $ (60,159) (15,663) (7,349) (4,778) - --------------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $ 659,000 474,413 412,534 391,847 Income taxes $ (265,375) (191,663) (167,076) (158,698) - --------------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS $ 393,625 282,750 245,458 233,149 DISCONTINUED OPERATIONS OF QUNO, NET OF TAX $ - 89,317 32,707 8,898 Cumulative effects of changes in accounting principles (1) $ - - - - - --------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) (2) $ 393,625 372,067 278,165 242,047 - --------------------------------------------------------------------------------------------------------------------------------- SHARE INFORMATION (3) Diluted earnings (loss) per share Continuing operations Before non-recurring items $ 2.30 1.94 1.55 1.48 Total (2) $ 2.81 1.98 1.61 1.48 Discontinued operations $ - .66 .23 .06 Net income $ 2.81 2.64 1.84 1.54 Common dividends per share $ .64 .60 .56 .52 Weighted average common shares outstanding (000's) 122,879 122,842 129,580 134,426 FINANCIAL RATIOS Operating profit margin 23.6% 20.9% 18.6% 19.2% Net income margin 14.5% 15.5% 12.4% 11.5% Net income as a percentage of average shareholders' equity 23.4% 25.5% 20.5% 19.9% Debt to capital 41% 37% 33% 23% FINANCIAL POSITION AND OTHER DATA Total assets $4,777,554 3,700,900 3,288,255 2,785,825 Long-term debt $1,521,423 979,754 757,437 411,200 Shareholders' equity $1,826,004 1,539,506 1,379,909 1,332,980 Capital expenditures $ 103,845 93,324 117,863 91,626 Dividends $ 97,357 92,423 91,202 88,325 Employees (full-time equivalents) 11,600 10,700 10,500 10,500 - --------------------------------------------------------------------------------------------------------------------------------- (1) The adoption of new accounting rules for retiree benefits, income taxes and postemployment benefits decreased net income by $16.8 million, or $.12 per share in 1992. (2) Includes non-recurring items as follows: gain on the sales of investments, net of write-downs, totaling $68.9 million, or $.51 per share in 1997; equity income related to Qwest Broadcasting of $6.0 million, or $.04 per share in 1996; gain on the sale of investment and subsidiaries totaling $8.7 million, or $.06 per share in 1995; and charges relating to New York Daily News totaling $255.0 million, or $1.93 per share in 1990, and $21.1 million, or $.13 per share in 1987. (3) All share and per share data have been restated for a two-for-one common stock split effective January 15, 1997.
74
Tribune Company and Subsidiaries 1993 1992 1991 1990 1989 1988 1987 ================================================================================================================ 1,163,116 1,136,619 1,122,434 1,183,177 1,197,077 1,117,487 1,043,310 - - - 321,823 422,024 436,843 419,853 727,213 684,051 617,514 623,981 584,326 505,729 485,276 21,209 - - - - - - - ---------------------------------------------------------------------------------------------------------------- 1,911,538 1,820,670 1,739,948 2,128,981 2,203,427 2,060,059 1,948,439 - ---------------------------------------------------------------------------------------------------------------- 252,412 226,412 218,138 280,587 301,303 250,709 241,254 - - - (114,468) (2,179) 15,167 (47,357) 127,984 121,267 100,175 107,528 96,803 77,754 62,858 2,071 - - - - - - (24,207) (23,465) (21,499) (22,362) (21,900) (22,699) (25,815) - ---------------------------------------------------------------------------------------------------------------- 358,260 324,214 296,814 251,285 374,027 320,931 230,940 - ---------------------------------------------------------------------------------------------------------------- (1,857) (2,081) (1,864) (2,285) (2,221) (2,142) (1,896) - - - (295,000) 3,133 - - (9,545) (22,510) (30,387) (23,478) (12,040) (33,341) (33,414) - ---------------------------------------------------------------------------------------------------------------- 346,858 299,623 264,563 (69,478) 362,899 285,448 195,630 (142,212) (120,089) (106,514) 22,055 (150,948) (135,135) (101,349) - ---------------------------------------------------------------------------------------------------------------- 204,646 179,534 158,049 (47,423) 211,951 150,313 94,281 (16,040) (42,909) (16,068) (16,110) 30,470 60,093 47,256 - (16,800) - - - - - - ---------------------------------------------------------------------------------------------------------------- 188,606 119,825 141,981 (63,533) 242,421 210,406 141,537 - ---------------------------------------------------------------------------------------------------------------- 1.30 1.16 1.02 1.44 1.30 .99 .73 1.30 1.16 1.02 (.49) 1.30 .99 .60 (.11) (.30) (.11) (.12) .20 .40 .30 1.19 .74 .91 (.61) 1.50 1.39 .90 .48 .48 .48 .48 .44 .38 .32 132,742 130,036 128,728 132,064 144,780 151,272 157,072 18.7% 17.8% 17.1% 11.8% 17.0% 15.6% 11.9% 9.9% 6.6% 8.2% (3.0)% 11.0% 10.2% 7.3% 18.8% 13.6% 17.6% (6.9)% 21.4% 18.4% 12.9% 31% 46% 47% 51% 41% 32% 30% 2,536,410 2,751,570 2,795,298 2,826,099 3,013,537 2,905,382 2,738,484 510,838 740,979 897,835 998,962 880,686 650,118 551,651 1,095,627 911,889 851,699 764,512 1,077,996 1,188,480 1,094,943 75,620 130,232 93,931 148,897 238,307 213,596 191,895 81,927 80,407 78,415 80,110 75,298 57,416 50,025 9,900 12,400 12,900 16,100 17,100 16,800 16,800 - ----------------------------------------------------------------------------------------------------------------
75
Tribune Company and Subsidiaries BUSINESS SEGMENTS (In thousands of dollars) 1997 1996 1995 ============================================================================================================ OPERATING Publishing $1,436,718 $1,336,639 $1,312,767 REVENUES Broadcasting and Entertainment 1,057,529 876,750 828,806 Education 225,533 192,316 103,101 --------------------------------------------------------------------------------------------- Total operating revenues $2,719,780 $2,405,705 $2,244,674 - ------------------------------------------------------------------------------------------------------------ OPERATING Publishing $ 354,585 $ 291,257 $ 272,093 PROFIT Broadcasting and Entertainment 285,896 203,531 171,618 Education 35,976 39,504 4,608 Corporate expenses (34,426) (30,935) (29,899) --------------------------------------------------------------------------------------------- Total operating profit $ 642,031 $ 503,357 $ 418,420 - ------------------------------------------------------------------------------------------------------------ DEPRECIATION Publishing $ 70,417 $ 73,379 $ 68,123 Broadcasting and Entertainment 32,034 24,873 21,384 Education 4,153 2,693 2,818 Corporate 2,410 2,265 1,048 --------------------------------------------------------------------------------------------- Total depreciation $ 109,014 $ 103,210 $ 93,373 - ------------------------------------------------------------------------------------------------------------ AMORTIZATION Publishing $ 4,647 $ 7,564 $ 5,675 OF INTANGIBLE Broadcasting and Entertainment 44,922 20,567 16,188 ASSETS Education 13,930 11,552 5,750 --------------------------------------------------------------------------------------------- Total amortization of intangible assets $ 63,499 $ 39,683 $ 27,613 - ------------------------------------------------------------------------------------------------------------ CAPITAL Publishing $ 60,494 $ 58,686 $ 65,676 EXPENDITURES Broadcasting and Entertainment 23,747 27,233 38,025 Education 5,526 6,153 4,883 Corporate 14,078 1,252 9,279 --------------------------------------------------------------------------------------------- Total capital expenditures $ 103,845 $ 93,324 $ 117,863 - ------------------------------------------------------------------------------------------------------------ ASSETS Publishing $ 668,532 $ 686,730 $ 693,853 Broadcasting and Entertainment 2,923,663 1,616,797 1,405,213 Education 717,301 544,226 211,510 Corporate 468,058 853,147 977,679 --------------------------------------------------------------------------------------------- Total assets $4,777,554 $3,700,900 $3,288,255 - ------------------------------------------------------------------------------------------------------------
76 EX-21 7 TABLE OF SUBSIDIARIES OF TRIBUNE COMPANY
EXHIBIT 21 TRIBUNE COMPANY TABLE OF SUBSIDIARIES Jurisdiction of Other names under which Incorporation subsidiary does business PUBLISHING --------------- ------------------------ - ---------- Tribune Publishing Company Delaware Chicago Tribune Company Illinois Chicago Tribune Newspapers, Inc. Illinois Chicago Tribune; Exito! Chicago Tribune Press Service, Inc. Illinois Tribune Newspaper Network Newspaper Readers Agency, Inc. Illinois Tribune Direct Marketing, Inc. Delaware Chicago Tribune Direct RELCON, Inc. Delaware Tribune Media Services, Inc. Delaware TV Log; TV Week; TV Listings; TMS Stocks Sun-Sentinel Company Delaware Sun-Sentinel; Gold Coast Labeling; Signs by Sun-Sentinel; Gold Coast Publications, Inc. Delaware Gold Coast Shopper; Vital Signs; South Florida Parenting; City Link New River Center Maintenance Association, Inc. Florida Orlando Sentinel Communications Company Delaware The Orlando Sentinel; US Express; Magic Magazine; Tribune Interactive Network Services; Downtown Orlando Magazine; Florida Journal Publications; Black Family Today; Central Florida Family; Tampa Bay Family; Jacksonville Family; Sentinel Signs Neocomm, Inc. Delaware Neocomm of Delaware, Inc.; Relcon of Florida Sentinel Communications News Ventures, Inc. Delaware Tribune Interactive Delaware South Florida Interactive Delaware Orlando Interactive Delaware Hampton Roads Interactive Delaware Chicago Interactive Delaware The Daily Press, Inc. Delaware Daily Press Hampton Roads Newspapers, Inc. Virginia Tribune National Marketing Company Delaware
1
Jurisdiction of Other names under which Incorporation subsidiary does business BROADCASTING AND ENTERTAINMENT --------------- ------------------------ - ------------------------------ Tribune Broadcasting Company Delaware Tribune Plus; Tribune Plus Corporate Sales; Tribune Creative Services Group Tribune Broadcasting News Network, Inc. Delaware TribNet ChicagoLand Television News, Inc. Delaware ChicagoLand Television/CLTV News Oak Brook Productions, Inc. Delaware ChicagoLand Microwave Licensee, Inc. Delaware Tribune Regional Programming, Inc. Delaware Tribune New York Radio, Inc. Delaware WQCD-FM Tribune Denver Radio, Inc. Delaware KOSI; KEZW; KKHK Tribune Denver Direct Mail, Inc. Delaware WGN Continental Broadcasting Company Delaware WGN-TV; WGN Radio; Tribune Radio Networks Tribune Entertainment Company Delaware Magic T Music Publishing Company Delaware Tribune Entertainment Production Company Delaware Chicago River Production Company Delaware 435 Production Company Delaware 5800 Sunset Productions Inc. Delaware North Michigan Production Company Delaware Oak Brook Productions, Inc. Delaware Towering T Music Publishing Company Delaware Tribune (FN) Cable Ventures, Inc. Delaware KWGN Inc. Delaware KWGN-TV WGNO Inc. Delaware WGNO-TV WGNX Inc. Delaware WGNX-TV KTLA Inc. California KTLA-TV WPHL-TV, Inc. Pennsylvania WPHL-TV WPIX Inc. New York WPIX-TV; Tribune New York Holdings WLVI Inc. Delaware WLVI-TV Tribune Network Holdings Company Delaware KSWB Inc. Delaware KSWB-TV KHTV Inc. Delaware KHTV-TV Tribune Television Company Delaware WPMT-TV; WXIN-TV; WTIC-TV; KDAF-TV Channel 20, Inc. Delaware Channel 40, Inc. Delaware KXTL-TV Channel 39, Inc. Delaware WDZL-TV Interstate Radio Network, Inc. Illinois Tribune California Properties, Inc. Delaware Chicago National League Ball Club, Inc. Delaware Chicago Cubs Diana-Quentin, Inc. Illinois Rockford Professional Baseball Club, Inc. Florida Rockford Cubbies Rock River Concessions, Inc. Florida
2
Jurisdiction of Other names under which Incorporation subsidiary does business EDUCATION --------------- ------------------------ - --------- Tribune Education Company Delaware NTC/Contemporary Publishing Group, Inc. Illinois Contemporary Books; NTC Publishing Group; Country Roads Press; NTC Learning Works; National Textbook Company; Passport Books; VGM Career Horizons; The Quilt Digest Press; NTC Business Books Wright Group Publishing, Inc. Delaware The Wright Group NewMedia Source, Inc. California Jamestown Publishers, Inc. Rhode Island Everyday Learning Corporation Illinois Janson Publications, Inc. Rhode Island Educational Publishing Corporation Delaware Ideal/Instructional Fair Publishing Group, Inc. Delaware Instructional Fair . TS Denison; In Celebration; Ideal School Supply Company Creative Publications, Inc. Delaware Tribune Education Sales, Inc. Delaware Landoll, Inc. Ohio Landoll's Breakthrough Acquisition Corporation Delaware Applecross Enterprises Limited British Virgin Islands Shortland Publications Limited New Zealand Lands End Publishing Limited New Zealand Kingscourt Publishing Limited United Kingdom Shortland Publications (USA), Inc. Colorado MISCELLANEOUS - ------------- Tribune Properties, Inc. Delaware New River Center Management Co. Tribune New York Properties, Inc. Delaware Riverwalk Center I Joint Venture Florida (Partnership) Tower Acquisition Company, Inc. Delaware
3 EX-23 8 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (File No. 333-18921) and in the Registration Statements on Form S-8 (File Nos. 2-90727, 33-21853, 33-26239, 33-47547, 33-59233, 333-00575, 333-03245 and 333-18269) of Tribune Company of our report dated February 10, 1998 appearing in the 1997 Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears in this Form 10-K. /s/ Price Waterhouse LLP - ------------------------ PRICE WATERHOUSE LLP Chicago, Illinois March 24, 1998 EX-27 9 FDS
5 This schedule contains summary financial information extracted from the 1997 Consolidated Statements of Income and Consolidated Balance Sheets and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-28-1997 DEC-30-1996 DEC-28-1997 0 66,618 485,537 43,205 99,491 847,749 1,550,897 900,450 4,777,554 706,220 0 0 303,864 1,018 1,521,122 4,777,554 0 2,719,780 0 1,254,981 0 0 86,502 659,000 265,375 393,625 0 0 0 393,625 3.05 2.81 Per share data reflects the adoption of Statement of Financial Accounting Standards No. 128, "Earnings per Share" and a two-for-one common stock split effective January 15, 1997 to holders of record on December 27, 1996. Financial data schedules prior to year-end 1995 have not been restated.
EX-27.1 10 RESTATED FINANCIAL DATA SCHEDULE-1997
5 This schedule contains restated financial information extracted from the 1997 annual report for fiscal year 1997 and is qualified in its entirety by reference to such report. The previously filed financial data schedules have been restated to conform to revised financial statement presentation. The restatement had no effect on net income. 1,000 3-MOS 6-MOS 9-MOS DEC-28-1997 DEC-28-1997 DEC-28-1997 DEC-30-1996 DEC-30-1996 DEC-30-1996 MAR-30-1997 JUN-29-1997 SEP-28-1997 7,383 0 0 14,656 816 599 412,904 459,442 470,475 37,372 39,584 38,533 83,580 80,967 80,483 718,615 692,384 728,444 1,496,382 1,488,522 1,506,643 832,656 855,842 881,373 4,752,231 4,642,043 4,788,056 774,097 717,689 700,237 0 0 0 0 0 0 304,094 303,864 303,864 1,018 1,018 1,018 1,224,599 1,357,580 1,460,316 4,752,231 4,642,043 4,788,056 0 0 0 593,919 1,313,661 2,008,947 0 0 0 278,724 605,071 938,594 0 0 0 0 0 0 15,574 40,634 63,994 110,265 296,523 471,481 45,760 121,086 191,266 64,505 175,437 280,215 0 0 0 0 0 0 0 0 0 64,505 175,437 280,215 .49 1.35 2.17 .45 1.25 2.00
EX-27.2 11 RESTATED FINANCIAL DATA SCHEDULE-1996 AND 1995
5 This schedule contains restated financial information extracted from the 1997 annual report for fiscal years 1996 and 1995 and is qualified in its entirety by reference to such report. The previously filed financial data schedules have been restated to conform to revised financial statement presentation. The restatement had no effect on net income. 1,000 3-MOS 6-MOS 9-MOS YEAR YEAR DEC-29-1996 DEC-29-1996 DEC-29-1996 DEC-29-1996 DEC-31-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 DEC-26-1994 MAR-31-1996 JUN-30-1996 SEP-29-1996 DEC-29-1996 DEC-31-1995 12,900 16,145 10,685 0 10,631 1,491 40,194 3,355 274,170 12,268 324,621 378,274 402,061 385,179 326,517 30,373 31,700 36,338 34,406 30,154 90,076 94,500 76,804 80,525 45,348 602,165 661,218 642,536 886,721 545,600 1,398,601 1,419,048 1,433,592 1,456,209 1,366,741 748,186 769,255 793,487 813,501 725,995 3,432,989 3,547,114 3,521,812 3,700,900 3,288,255 733,668 608,866 608,667 673,101 557,153 0 0 0 0 0 1,018 0 0 0 0 0 312,470 312,470 312,470 322,540 312,470 1,018 1,018 1,018 1,018 1,072,460 1,111,896 1,139,851 1,226,018 1,056,351 3,432,989 3,547,114 3,521,812 3,700,900 3,288,255 0 0 0 0 0 537,122 1,179,049 1,797,376 2,405,705 2,244,674 0 0 0 0 0 286,880 606,849 917,451 1,195,161 1,177,507 0 0 0 0 0 0 0 0 0 0 10,955 21,988 34,680 47,779 21,814 84,670 226,335 337,656 474,413 412,534 34,291 91,666 136,751 191,663 167,076 50,379 134,669 200,905 282,750 245,458 89,317 89,317 89,317 89,317 32,707 0 0 0 0 0 0 0 0 0 0 139,696 223,986 290,222 372,067 278,165 1.09 1.75 2.25 2.88 2.00 1.00 1.60 2.06 2.64 1.84
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