-----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, ApxwjFkYgfPOgyoGF7SIbQsIsq2vCw8n71hv9btxKn89rbdQIBhNrYhpXzTGsUTk kTwg/4egBbn9s5VIvP38Yg== 0000898430-97-001038.txt : 19970319 0000898430-97-001038.hdr.sgml : 19970319 ACCESSION NUMBER: 0000898430-97-001038 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970318 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMES MIRROR CO /NEW/ CENTRAL INDEX KEY: 0000925260 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 954481525 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13492 FILM NUMBER: 97558217 BUSINESS ADDRESS: STREET 1: TIMES MIRROR SQUARE STREET 2: 220 WEST FIRST STREET CITY: LOS ANGELES STATE: CA ZIP: 90053 BUSINESS PHONE: 2132373700 MAIL ADDRESS: STREET 1: TIMES MIRROR SQUARE STREET 2: 202 WEST 1ST ST CITY: LOS ANGELES STATE: CA ZIP: 90053 FORMER COMPANY: FORMER CONFORMED NAME: NEW TMC INC DATE OF NAME CHANGE: 19940613 10-K 1 ANNUAL REPORT FOR THE FISCAL YEAR ENDED 12/31/96 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-13492 ---------------- THE TIMES MIRROR COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4481525 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) TIMES MIRROR SQUARE LOS ANGELES, CALIFORNIA 90053 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 237-3700 ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- New York Stock Exchange and Pacific Series A Common Stock Stock Exchange Conversion Preferred Stock, Series B New York Stock Exchange
---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Series C Common Stock (TITLE OF CLASS) ---------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant on March 13, 1997 was approximately $3.1 billion. (For purposes of this calculation, the market value of a share of Series C Common Stock was assumed to be the same as a share of Series A Common Stock, into which it is convertible.) Number of shares of the Registrant's Series A Common Stock outstanding at March 13, 1997: 66,801,511 Number of shares of the Registrant's Series C Common Stock outstanding at March 13, 1997: 26,679,236 DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference: In Part III, portions of the Registrant's definitive Proxy Statement for the Company's 1997 Annual Meeting of Shareholders to be filed by the Company within 120 days after the end of the Company's fiscal year. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. GENERAL The Times Mirror Company ("Times Mirror" or the "Company") is engaged principally in the newspaper publishing, professional information and consumer media businesses. The Company publishes the Los Angeles Times, Newsday, The Baltimore Sun, The Hartford Courant, The Morning Call, The (Stamford) Advocate, Greenwich Time and several smaller newspapers. Through its subsidiaries, the Company also provides professional information to the legal, aviation, health science and consumer health markets, publishes books, journals and magazines and also provides training information and services. In early 1996, the Company announced its plan to explore its strategic alternatives for its higher education publishing businesses and CRC Press, Inc., both of which were included in the Professional Information segment. As described below under "Professional Information Segment," in the fourth quarter of 1996 the Company exchanged its college publishing businesses for Shepard's, the nation's premier legal citation service, and signed an agreement for the sale of CRC Press, which was completed in the first quarter of 1997. CRC Press and the college publishing businesses accounted for less than 10% of the Company's revenues and total assets in 1995 as well as 1996. Prior to February 1, 1995, the Company also engaged in the ownership and operation of cable television systems, which business was divested by the merger of the Company's corporate predecessor ("Old Times Mirror") with and into Cox Communications, Inc. ("Cox"), resulting in the acquisition of Old Times Mirror's cable business by Cox (the "Cox Merger"). The Company was incorporated in the State of Delaware in June 1994 for the purpose of owning and operating the Publishing and Information Businesses after the Cox Merger was completed on February 1, 1995. Old Times Mirror was incorporated in 1884 in the State of California and was reincorporated in the State of Delaware in 1986. All references to "Times Mirror" shall include the Company and the Company's subsidiaries, collectively, unless the context suggests otherwise. NEWSPAPER PUBLISHING SEGMENT Times Mirror publishes the Los Angeles Times, Newsday, The Baltimore Sun, The Hartford Courant, The Morning Call, The (Stamford) Advocate and Greenwich Time. In addition, Times Mirror publishes several other daily and weekly newspapers. Each daily newspaper operates independently in order to meet most effectively the needs of the area it serves. Editorial policies and business practices are established by local management. Each daily newspaper is a member of Associated Press. The Los Angeles Times and Newsday also subscribe to other supplementary news services. Production of Times Mirror's newspapers is performed on presses owned by Times Mirror. National Journal, Inc., publisher of key information for decision makers in and around the nation's capital, is also managed as part of the Newspaper Publishing Segment. LOS ANGELES TIMES The Los Angeles Times has been published continuously since 1881. It is published every morning, and in 1996 ranked as the second largest metropolitan newspaper in the United States in weekday circulation based on five-day averages, and the second largest in Sunday circulation. During 1996, the Los Angeles Times ran a new multimedia brand advertising campaign, and cut its street sales price from 50 cents to 25 cents marketwide, which increased single-copy sales. In 1996, its annual average unaudited circulation was 1,047,370 for Monday through Friday, 985,600 for Saturday and 1,368,875 for Sunday, compared with 1,026,697, 966,291, and 1,420,755, respectively, in 1995. Approximately 78% of the Monday through Saturday circulation was home- delivered in 1996, compared with 80% of the circulation in 1995. In 1996, the Los Angeles Times recorded full-run billed advertising volume of 3,053,103 standard advertising unit inches (hereafter "inches"), part-run volume of 3,959,024 inches, and preprinted inserts of 1,128.9 million pieces, compared with 3,211,952 inches, 4,025,315 inches and 1,086.5 million pieces, respectively, in 1995. In addition, the Los Angeles Times derived revenue from advertising supplements 1 distributed to non-subscribers equivalent to 923.0 million pieces in 1996, compared with 865.7 million pieces in 1995. Net revenues for the Los Angeles Times were $1,044,543,000 in 1996, $1,029,277,000 in 1995, and $1,033,486,000 in 1994, representing 30.7%, 29.8% and 30.8% of the Company's consolidated revenues for such years. The Los Angeles Times serves a five-county region in Southern California that includes Los Angeles, Orange, Riverside, San Bernardino and Ventura counties. In addition to the daily edition covering the Los Angeles metropolitan area, the Los Angeles Times publishes daily Orange County, San Fernando Valley and Ventura County editions. The Los Angeles Times also publishes an edition which is distributed Monday through Friday in the Washington, D.C. area. In conjunction with the Washington Post, the Los Angeles Times operates a supplementary news service sold to newspapers in the United States and foreign countries. The Los Angeles Times also sells syndicated features to other newspapers throughout the world. The Los Angeles Times and La Opinion, the largest Spanish-language daily newspaper in Southern California of which the Company owns a 50% equity interest, publish a Spanish-language weekly paper, Para Ti, targeted at Latino households in Southern California. Times Mirror also owns California Community News, which publishes daily newspapers including the Daily Pilot and the Independent, which are distributed in Orange County, and the Glendale News Press, which is distributed in Los Angeles County, and the Foothill Leader and the Burbank Leader, which are biweekly newspapers distributed in Los Angeles County. In its primary markets of Los Angeles and Orange counties, the Los Angeles Times competes with 12 local daily newspapers, with the largest having approximately 350,000 total average daily circulation, and three daily regional editions of national newspapers. In addition, there are over 300 weekly, semiweekly and free distribution newspapers. NEWSDAY Newsday, which is published seven days a week, circulates primarily in Nassau and Suffolk counties on Long Island, New York and the borough of Queens in New York City, and prior to being discontinued on July 17, 1995, New York Newsday circulated in New York City. In 1996, Newsday ranked as the sixth largest metropolitan daily newspaper in the country for Monday through Friday circulation, and as the thirteenth largest for Sunday circulation. In 1996, Newsday's annual average unaudited circulation was 557,145 for Monday through Friday, 505,983 for Saturday, and 648,070 for Sunday, compared with 619,019, 558,187 and 694,781, respectively, in 1995, which included New York Newsday for a partial year before its discontinuation. In 1995, New York Newsday's annual average unaudited circulation prior to its discontinuation was 161,271 for Monday through Friday, 115,040 for Saturday, and 150,476 for Sunday. In 1996, Newsday introduced Distinction, a bimonthly magazine designed to serve Long Island's upscale community, which is supported by advertising revenues and paid subscriptions. In 1996, Newsday recorded full-run billed advertising volume of 1,364,967 inches, part-run volume of 1,172,773 inches, and preprinted inserts of 675.0 million pieces, compared with 1,347,412 inches, 995,092 inches, and 726.3 million pieces, respectively, in 1995. The 1995 part-run volume and pieces of preprinted inserts included New York Newsday for a partial year before its discontinuation. In addition, Newsday, together with its alternate distribution company, derived revenue from advertising supplements distributed to non-subscribers equivalent to 986.0 million pieces in 1996, compared with 975.7 million pieces in 1995. Newsday competes with three major metropolitan newspapers and daily regional editions of national newspapers. In addition, there are numerous daily, weekly and semiweekly local newspapers in its distribution area. 2 THE BALTIMORE SUN The Baltimore Sun primarily serves the Baltimore-Annapolis metropolitan area, including Anne Arundel, Baltimore, Carroll, Harford and Howard counties. Prior to September 1995, The Baltimore Sun published three editions, including The Sun, a morning newspaper published Monday through Saturday; The Evening Sun, an afternoon paper published Monday through Friday; and The Sunday Sun, published Sunday mornings. In September 1995, The Baltimore Sun ceased publishing The Evening Sun and completely redesigned The Sun. In 1996, The Sun had an annual average unaudited circulation of 316,074 for Monday through Saturday, compared with 341,692 in 1995. In 1996, The Sunday Sun had an annual average unaudited circulation of 477,292, compared with 489,706 in 1995. In 1996, The Baltimore Sun newspapers recorded full-run billed advertising volume of 1,656,736 inches, part-run volume of 371,903 inches, and preprinted inserts of 576.1 million pieces, compared with 1,765,391 inches, 418,920 inches and 560.7 million pieces, respectively, in 1995. In addition, The Baltimore Sun newspapers derived revenues from advertising supplements delivered to non-subscribers equivalent to 67.8 million pieces in 1996, compared with 86.5 million pieces in 1995. The Baltimore Sun also publishes weekly newspapers, including The Aegis and the Record which are distributed in Harford County, and four other weeklies that serve the Aberdeen Proving Ground and certain zip codes in Harford County. The Baltimore Sun competes with the Washington Post in Carroll and Howard counties, with the Annapolis Capital in Anne Arundel County, as well as with daily regional editions of national newspapers. In addition, there are other daily and weekly local newspapers in the distribution area. THE HARTFORD COURANT The Hartford Courant, a morning daily and Sunday newspaper that was first published in 1764, is the oldest continuously published newspaper in the United States. It is published in Hartford, Connecticut, and serves the state's northern and central regions. The Hartford Courant publishes nine regional editions on a daily basis, which provide local news and advertising. In 1996, the annual average unaudited circulation was 210,876 for Monday through Saturday, and 303,502 for Sunday, compared with 214,751 and 310,490, respectively, in 1995. In 1996, The Hartford Courant recorded full-run billed advertising volume of 1,504,667 inches, part-run volume of 649,684 inches, and preprinted inserts of 415.0 million pieces, compared with 1,414,188 inches, 686,328 inches and 431.7 million pieces, respectively, in 1995. In addition, The Hartford Courant derived revenues from advertising supplements distributed to non-subscribers equivalent to 63.6 million pieces in 1996, compared with 43.1 million pieces in 1995. The Hartford Courant competes with a number of larger daily newspapers, especially in metropolitan areas on the periphery of its trade area, as well as daily regional editions of national newspapers. In addition, there are other weekly and local daily newspapers in the distribution area. THE MORNING CALL The Morning Call in Allentown, Pennsylvania, is published daily and primarily services Lehigh and Northampton counties in eastern Pennsylvania. In 1996, annual average unaudited circulation was 128,927 for Monday through Friday, 142,482 for Saturday, and 183,119 for Sunday, compared with 131,628, 145,158 and 186,733, respectively, in 1995. In 1996, The Morning Call recorded full-run billed advertising volume of 1,347,395 inches, part-run volume of 251,185 inches, and preprinted inserts of 223.1 million pieces, compared with 1,378,005 inches, 281,236 inches and 229.3 million pieces, respectively, in 1995. In addition, The Morning Call derived revenues from advertising supplements distributed to non-subscribers equivalent to 16.3 million pieces in 1996, compared with 13.5 million pieces in 1995. 3 The Morning Call competes with a few smaller daily and weekly newspapers, with its principal competitor being the Express Times in Easton, Pennsylvania. THE (STAMFORD) ADVOCATE AND GREENWICH TIME The (Stamford) Advocate and Greenwich Time are published every morning, and serve the southern part of Fairfield County, Connecticut. The Advocate circulates primarily in Stamford, Connecticut and Greenwich Time circulates in Greenwich, Connecticut. In 1996, The Advocate had an annual average unaudited circulation of 27,854 for Monday through Saturday, and 39,465 for Sunday, compared with 28,840 and 40,489, respectively, in 1995. In 1996, Greenwich Time had an annual average unaudited circulation of 12,584 for Monday through Saturday, and 14,021 for Sunday, compared with 12,797 and 14,184, respectively, in 1995. In 1996, The Advocate recorded full-run billed advertising volume of 783,368 inches, and preprinted inserts of 37.4 million pieces, compared with 769,193 inches and 39.5 million pieces in 1995. In 1996, Greenwich Time recorded full- run billed advertising volume of 758,567 inches and preprinted inserts of 12.8 million pieces, compared with 738,802 inches and 12.8 million pieces in 1995. In addition, the newspapers derived revenues from advertising supplements distributed to non-subscribers equivalent to 17.8 million pieces in 1996, compared with 17.6 million pieces in 1995. Both The Advocate and Greenwich Time compete with a number of larger daily newspapers which serve the New York City metropolitan area. APARTMENT SEARCH, INC. During the third quarter of 1996, Times Mirror acquired Apartment Search, Inc., the nation's largest apartment locator service, expanding the services provided by its newspapers to the apartment rental market. At the time of the acquisition, Apartment Search served the Minneapolis/St. Paul, Kansas City, Detroit, Washington, D.C. and Baltimore areas through 37 retail offices, and has been expanding into other markets since the acquisition. ELECTRONIC PUBLISHING In the spring of 1996, the Los Angeles Times moved its "TimesLink" service, a regional online interactive information service, from the Prodigy network to the World Wide Web under the name of LATimes.com due to the wider audience provided by the Internet. LATimes.com has become Southern California's leading online news and advertising service. Newsday also moved from Prodigy to the World Wide Web in early 1996 under the name of newsday.com. The Hartford Courant expanded and redesigned its courant.com site to provide more news and information daily. During 1996, The Baltimore Sun launched a new site on the World Wide Web, sunspot.net, and The Morning Call launched its site, mcall.com. Times Mirror newspaper web sites experienced increased traffic in 1996. During 1996, the Los Angeles Times continued to build CareerPath.com, a national employment online service with an extensive listing of jobs on the Internet. CareerPath.com, founded by the Los Angeles Times and five other leading newspapers, now has 26 affiliate newspapers, including The Baltimore Sun and The Hartford Courant, and runs over four million job searches per month. In January 1996, Times Mirror acquired Hollywood Online Inc., a leading online provider of award-winning entertainment information for consumers about the latest in movies, television and music. In addition, Hollywood Online offers turnkey creative, design, production and distribution services for the Internet to leading motion picture studios, television networks and record labels. During 1996, Times Mirror invested in ListingLink, the leading resale real estate site for California on the Internet. Times Mirror also invested in PointCast, a provider of network news on the Internet, and the Los Angeles Times now offers regional news, information and advertising to viewers on The PointCast Network(TM). 4 OTHER COMPETITION Besides competing vigorously with similar media in their respective markets, the Company's newspapers compete for advertising revenues with other local and national sales promotion media such as radio, broadcast television, cable television, magazines and direct mail. RAW MATERIALS The primary raw material used by the newspapers is newsprint. Times Mirror centrally purchases newsprint for all of its newspapers in order to achieve advantageous terms from its vendors. The newsprint requirements for all Times Mirror newspapers are obtained from United States and Canadian sources unaffiliated with Times Mirror. In 1996, average newsprint prices were essentially unchanged from 1995. For 1996, Times Mirror's newsprint costs declined moderately due largely to lower consumption following the 1995 closing of certain editions and conservation efforts. SEASONALITY Quarterly revenues of the Company's Newspaper Publishing Segment vary slightly due to industry seasonality, with first and third quarters' results generally being minimally lower than those of the second and fourth quarters. In 1996, the quarterly revenues expressed as a percentage of total annual revenues for the Company's Newspaper Publishing Segment were 23.8% for the first quarter, 24.8% for the second quarter, 24.2% for the third quarter and 27.2% for the fourth quarter. PROFESSIONAL INFORMATION SEGMENT Times Mirror produces a variety of books and other information products in the areas of legal information, aeronautical charts and flight information, health information products and services, professional training, and, prior to January 1997, technical and scientific publishing. In October 1996, Times Mirror and its subsidiary Mosby-Year Book, Inc. completed an exchange in which The McGraw-Hill Companies, Inc. sold its subsidiary Shepard's/McGraw-Hill, Inc. to the Company for (i) the stock of Times Mirror Higher Education Group, Inc., (ii) the assets and related liabilities of Mosby's college-level life and physical science text business, (iii) certain assets and liabilities of Times Mirror International Publishers U.S., Inc. and affiliated entities relating to the Company's college textbook business, and (iv) certain cash consideration. Revenues of these college publishing businesses sold to McGraw-Hill represented approximately 5% and 7% of the Company's consolidated revenues in 1996 and 1995, respectively, with the 5% figure for 1996 representing revenues through October 1996 when these businesses were sold. In late November 1996, the Company commenced operating Shepard's as a 50/50 joint venture with Reed Elsevier Inc. as part of a broader strategic alliance between Matthew Bender and LEXIS(R)/NEXIS(R), a Reed subsidiary and a provider of full-text online information services in the legal, news, business and government areas. The Company received $242,500,000 from Reed for the 50% interest in the Shepard's joint venture. Books, journals and other materials published by Times Mirror, many of which are distributed worldwide, are sold through a variety of means, including the use of Times Mirror sales forces, wholesalers, retailers, jobbers, direct-to- the-customer selling and direct mail. In the fourth quarter of 1996, the Company closed Times Mirror International Publishers, the Company's unprofitable international book distributor, and appointed Harcourt Brace & Co. as its exclusive international distributor of Mosby professional medical publications in most international markets. The Company also disposed of Doyma Libros, the Company's Spanish-language medical book publisher. Printing and binding are performed primarily by outside suppliers in the United States and abroad. In accordance with publishing industry practice, softcover and hardcover books, as well as CD-ROM products, are generally sold on a returnable basis. The primary raw material used by the book publishing businesses is paper. In 1996, paper prices for the book publishing industry declined slightly from 1995 levels. On an annual basis, the Company enters into various 5 centralized, volume-purchasing agreements with a number of unaffiliated primary paper suppliers to obtain beneficial volume discounts for the book publishing operations of Times Mirror. Volume discounts for the book publishing operations are expected to decline slightly in 1997 because of the sale of the college textbook business in October 1996. LEGAL INFORMATION PRODUCTS AND SERVICES Matthew Bender & Company, Incorporated, a legal information company, offers an array of legal products and services, including treatises in the areas of bankruptcy, intellectual property, federal practice and immigration law, as well as law school textbooks. Matthew Bender offers its core products in print as well as on CD-ROM and is developing electronic practice tools for lawyers. Matthew Bender provides its publications to approximately 119,000 accounts, including each of the 100 largest law firms in the United States. In 1996, Matthew Bender introduced six additional CD-ROM library versions of its print titles, bringing the total to 24 libraries. In early 1996, Matthew Bender launched a new brand of CD-ROM products distributed under the trademark "Authority From Matthew Bender(TM)," which employs the industry-standard search engine FOLIO(R), and introduced new case law collections in four states and three legal practice specialties on CD-ROM under license from LEXIS/NEXIS. During 1996, Matthew Bender established its bender.com site containing its catalogue and other information about Matthew Bender legal products. Matthew Bender competes with various legal information providers, including LEXIS/NEXIS, Thomson Legal Publishing and its affiliate West Publishing Group, The Bureau of National Affairs, Inc., Commerce Clearing House, Inc. (owned by Wolters Kluwer) and several other smaller legal information publishers. In the past three years, the consolidation of the legal publishing industry has accelerated dramatically. As this consolidation is likely to continue, the Company anticipates that competitive pressures will increase and that publishers whose revenues principally come from proprietary information may fare better than those organizations whose sales are derived from repackaging public domain information. The Company's acquisition of Shepard's during 1996 and subsequent joint venture with Reed for the ownership and management of Shepard's, together with the alliance with Reed's subsidiary LEXIS/NEXIS, significantly strengthen Matthew Bender's position as a legal information provider. FLIGHT INFORMATION SERVICES Through Jeppesen Sanderson, Inc. and its European sister company, Jeppesen & Co. GmbH, Times Mirror publishes aeronautical charts, flight information, pilot training materials and navigational aids worldwide. Jeppesen DataPlan, Inc., a subsidiary of Jeppesen Sanderson, also provides computerized online flight plans, weather information and other flight services. Jeppesen Sanderson offers a service called OnSight, a sophisticated operations control workstation combining its aviation, flight planning and weather display information. In early 1996, Jeppesen Sanderson commenced delivery of an electronic aircraft maintenance service to airline carriers. The Jeppesen Sanderson companies serve all U.S. domestic airlines and the majority of airlines worldwide. The Jeppesen companies compete with various airline consortiums and governmental entities, as well as numerous vendors of training, maintenance, weather and flight planning information. HEALTH INFORMATION SERVICES Mosby-Year Book, Inc. publishes medical, dental, nursing and allied health books and journals and, prior to the October 1996 exchange transaction described above, college-life and physical science textbooks. In addition, Mosby provides consumer health and wellness information, online health information for professionals and medical cost-containment information. In connection with its electronic publishing efforts, Mosby has published a multimedia catalogue of more than 250 products including "Mosby's Medical Encyclopedia for the Health Consumer," "Physician's GenRx" and "The Interactive Skeleton." In December 1996, Mosby entered into a joint venture to launch an Internet-based medical online service for physicians, using Mosby's content as well as content from a select group of other health information publishers. This joint venture, known as MD Consult(TM), is expected to commence operations in the second quarter of 1997. As discussed above, Mosby changed its method of international distribution in the fourth quarter of 1996 when Times Mirror closed Times Mirror International Publishers and now primarily uses an unaffiliated distributor, Harcourt Brace. 6 Mosby competes with several larger health information companies, including J.B. Lippincott Co., W.B. Saunders Company, Williams & Wilkins and an assortment of smaller publishers. Third and fourth quarter revenues at Mosby tend to be higher than earlier quarters, because medical and nursing school adoptions are heaviest during the third and fourth quarters. Mosby's reference publication schedule is also strongest in the fourth quarter, generating substantial sales due to strong pre-publication direct marketing efforts. TIMES MIRROR HIGHER EDUCATION GROUP In October 1996, the Company transferred to McGraw-Hill, in the exchange transaction described above, the Times Mirror Higher Education Group, which Times Mirror formed in 1994 by combining Richard D. Irwin, publisher of business, economics and higher education information products; Wm. C. Brown Communications, publisher of science and mathematics textbooks; Brown & Benchmark, publisher of social sciences and humanities; and Irwin Professional, publisher of broad-based business products. TIMES MIRROR TRAINING Times Mirror provides sales, customer service and management training programs for professionals in business and industry throughout the world through Times Mirror Training: Zenger Miller, Learning International and Kaset International. These divisions were operated as separate corporations prior to January 1, 1996, when they were merged and consolidated into Times Mirror Training, Inc. In 1996, dramatic revenue growth from Kaset International products, supported by revenue increases at Zenger Miller and Learning International, highlighted a year in which Times Mirror Training launched several new products and began to unify its domestic marketing and sales efforts. Other significant accomplishments in 1996 included the launch of Zenger Miller's integrated call center for customer service and outbound sales, the ramp-up of the group's shared service provider, ServiceOne, and several global initiatives through Times Mirror Training's international arm. In addition, Allen Communication produces interactive software to create multimedia training courses. Generally, quarterly revenues for Times Mirror Training vary only slightly; fourth quarter revenues may tend to be stronger when customers finish the year by spending the balance of their budgets on more discretionary items such as training. Times Mirror Training competes with many organizations worldwide, including such enterprises as Development Dimensions International, Forum Corporation, Wilson Learning Corporation and a myriad of smaller local and national businesses. CONSUMER MEDIA SEGMENT Times Mirror publishes a number of special interest and trade magazines through its subsidiary, Times Mirror Magazines, Inc., as well as art books through its subsidiary, Harry N. Abrams, Inc. In September 1996, the Company announced its intention to sell Abrams, with the transaction expected to close in the first half of 1997 (see Recent Developments below). The six-month average unaudited circulation figures per issue for the magazines, for the year ended December 31, 1996, were 1,793,200 for Popular Science; 1,750,200 for Field & Stream; 1,353,100 for Outdoor Life; 901,300 for Today's Homeowner (previously named Home Mechanix) (published 10 times a year); 1,293,000 for Golf Magazine; 407,400 for Ski Magazine (published 8 times a year); 404,500 for Skiing (published 7 times a year); 205,000 for Transworld SNOWboarding (published 8 times a year); 131,400 for Yachting; 7 146,200 for Salt Water Sportsman; and 160,000 for Snowboard Life (published 4 times a year). Each of these magazines is published monthly unless otherwise noted. In 1996, the magazines had several major accomplishments, including the launch of a new series called Popular Science's Essential Guides, with the first guide covering the subject of Sports Utility Vehicles, and a single- sponsored thirteenth issue of Field & Stream. In addition, Home Mechanix was changed to Today's Homeowner and the publication was completely redesigned to appeal to a wider audience. Verge, a quarterly men's magazine, and Freeze, the first skier publication targeted at the 12 to 24 year old market, are scheduled to be introduced in 1997. In addition, Times Mirror Magazines publishes The Sporting News, a national sports weekly; Skiing Trade News and TransWorld SNOWboarding Business, controlled-circulation business magazines; and other related publications. These magazines are primarily intended for specialized markets. The primary raw material used by Times Mirror Magazines is paper. For 1996, the prices for the grades of papers used by its magazines declined moderately. In 1996, Times Mirror Magazines centrally purchased paper for all of its magazines to obtain more favorable terms and reduced inventory levels due to the improved availability of paper. Capitalizing on the expertise of its magazines, in 1996 Times Mirror Magazines entered into an agreement with America Online, making the content of its publications, including The Sporting News, Golf Magazine, Popular Science and Ski Magazine, available to America Online subscribers. In 1996 Times Mirror Magazines also introduced World Wide Web sites which feature articles and other information from its various publications; the sites include sportingnews.com, skinet.com, outdoorlife.com, twsnow.com, swsfish.com, popsci.com, todayshomeowner.com, golfonline.com, fieldandstream.com and yachtingnet.com. Times Mirror Magazines competes nationally with numerous special interest and trade magazines. While Times Mirror Magazines not only competes with similar national media, it must also compete for advertising revenues with other local and national sales promotion media such as radio, broadcast television and direct mail. INTELLECTUAL PROPERTY In recognition of the fact that intellectual property (e.g. trademarks, copyrights, licenses and the like) is fast becoming one of its most important assets, the Company added internal resources in 1996 to intensify its effort to protect its intellectual property and capitalize on these rights. The Company expects that this undertaking, which will continue indefinitely, will support its ongoing efforts to grow its businesses internally, especially in the realm of electronic and online publishing activities. EMPLOYEES At December 31, 1996, Times Mirror's businesses had 20,803 employees, 15,330 of whom were full-time employees. Approximately 2,655 employees were represented by collective bargaining agents. The Company believes that its employee relations are good. Employees receive supplemental benefits ranging from various forms of group insurance coverage to retirement income programs. RECENT DEVELOPMENTS As part of its previously announced plan to explore strategic alternatives for CRC Press, Inc., the Company sold the assets and certain liabilities of CRC Press in January 1997. The Company also announced in September 1996 its intention to sell Harry N. Abrams, Inc., the premier publisher of art and illustrated books in the United States and a publisher of textbooks, children's books and calendars, in order to concentrate on its core businesses. The transaction is expected to close in the first half of 1997. Revenues from Abrams and CRC Press accounted for 2% of the consolidated revenues of Times Mirror in both 1996 and 1995. 8 On February 28, 1997, the Company announced that it would redeem all of its outstanding Series B preferred stock on April 2, 1997. In the redemption, each share of Series B preferred stock will be exchanged for approximately .57083 of a share of the Company's Series A common stock. CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS Certain plans, objectives, projections and other information regarding future performance and outcomes discussed in this Form 10-K are forward- looking statements that are subject to risks and uncertainties. There can be no assurances that these future results will be achieved. Potential risks and uncertainty which could adversely affect the Company's ability to obtain these results include, without limitation, the following factors: (a) an increase in paper, printing and distribution costs over the levels anticipated; (b) increased consolidation among major retailers or other events depressing the level of display advertising; (c) an economic downturn in the Company's principal newspaper markets or other occurrences leading to decreased circulation and diminished revenues from both display and classified advertising; (d) competitive pressures arising from increased consolidation in the legal information industry; (e) an increase in expenses related to new initiatives and product improvement efforts in the legal information, flight information and health information operating units; (f) unfavorable foreign currency fluctuations; and (g) a general economic downturn resulting in decreased professional or corporate spending on discretionary items such as information or training and in decreased consumer spending on discretionary items such as newspapers or magazines. ITEM 2. PROPERTIES. The general character, location, terms of occupancy and approximate size of Times Mirror's principal plants and other materially important physical properties at December 31, 1996 are listed below.
APPROXIMATE AREA IN SQUARE FEET ---------------------- GENERAL CHARACTER OF PROPERTY OWNED(1) LEASED(2)(3) ----------------------------- --------- ------------ NEWSPAPER PUBLISHING Printing plants, business and editorial offices, garages and warehouse space located in: Los Angeles, California.......................... 2,096,000 305,000 Hartford, Connecticut............................ 568,000 Baltimore, Maryland.............................. 632,000 6,000 Melville, New York............................... 716,000 Other locations.................................. 1,202,000 1,643,000 PROFESSIONAL INFORMATION Business and editorial offices and warehouses in California, Colorado, Missouri, New York and other locations......................................... 982,000 981,000 CONSUMER MEDIA Business and editorial offices in Connecticut, New York, Missouri, Washington, D.C. and other locations......................................... 29,000 225,000 CORPORATE Corporate offices and garages located in California and New York...................................... 185,000 24,000
- -------- (1) Excludes 648,000 square feet of undeveloped land, primarily in Connecticut; 598,000 square feet of office/plant space in Maryland and Colorado available for sale or lease; and 48,000 square feet of office space in Los Angeles leased to unrelated third parties. (2) Excludes 472,000 square feet of space sublet to unrelated third parties and 53,000 square feet of vacant space which is available for subleasing. (3) The Company's material lease agreements expire at various dates through 2011. 9 ITEM 3. LEGAL PROCEEDINGS. Times Mirror and its subsidiaries are defendants in actions for libel and other matters arising out of their business operations. In addition, from time to time, Times Mirror and its subsidiaries are involved as parties in various governmental and administrative proceedings, including environmental matters. Times Mirror does not believe that any such proceedings currently pending will have a material adverse effect on its business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of 1996. EXECUTIVE AND KEY OFFICERS OF THE REGISTRANT The executive and key officers of the Company as of March 10, 1997 are listed below. Executive and key officers are elected to serve until they resign or are removed, or are otherwise disqualified to serve, or until their successors are elected and qualified. Except as indicated below, all such officers were employed by the Company and its predecessor company, Old Times Mirror, for five years or more.
OFFICER NAME AGE POSITIONS AND OFFICES WITH TIMES MIRROR SINCE(1) ---- --- --------------------------------------- -------- Mark H. Willes.......... 55 Chairman of the Board, President and Chief 1995(2) Executive Officer Richard T. Schlosberg 52 Executive Vice President and Publisher Los 1990 III.................... Angeles Times Patrick A. Clifford..... 54 Senior Vice President, Chairman Mosby-Year 1990 Book James R. Simpson........ 56 Senior Vice President, Human Resources 1983 Thomas Unterman......... 52 Senior Vice President and Chief Financial 1992(3) Officer Donald F. Wright........ 62 Senior Vice President, Eastern Newspapers 1988 Horst A. Bergmann....... 58 Vice President, President Jeppesen Sanderson, 1996(4) President Times Mirror Training, Inc. Shelby Coffey III....... 50 Vice President, Editor Los Angeles Times 1996(5) Kathryn M. Downing...... 43 Vice President, President Matthew Bender 1996(6) Debra A. Gastler........ 44 Vice President, Taxes 1994(7) Raymond A. Jansen....... 57 Vice President, Publisher Newsday 1996(8) Mary E. Junck........... 49 Vice President, Publisher The Baltimore Sun 1996(9) Kathleen G. McGuinness.. 48 Vice President, Secretary and General Counsel 1995(10) Stephen C. Meier........ 46 Vice President, Public and Government Affairs 1989 Roger H. Molvar......... 41 Vice President and Controller 1996(11) Steven J. Schoch........ 38 Vice President and Treasurer 1995(12) Michael E. Waller....... 55 Vice President, Publisher The Hartford 1996(13) Courant Efrem Zimbalist III..... 49 Vice President, President Times Mirror 1993(14) Magazines
- -------- (1) The date indicated relates to the year in which such person first became an officer of Old Times Mirror unless the context suggests otherwise. All of the executive officers of the Company, other than Mark H. Willes, Thomas Unterman, Horst A. Bergmann, Shelby Coffey III, Kathryn M. Downing, Raymond A. Jansen, Mary E. Junck, Kathleen G. McGuinness, Roger H. Molvar, Steven J. Schoch and Michael E. Waller, were elected executive officers of the Company effective January 30, 1995 and had served as executive officers of Old Times Mirror prior to that time. Mr. Unterman was elected an executive officer of the Company effective June 3, 1994 and had served as an executive officer of Old Times Mirror prior to that time. (2) Mark H. Willes was elected as President and Chief Executive Officer of the Company effective June 1, 1995 and Chairman of the Board effective January 1, 1996. Prior to joining the Company, Mr. Willes was an executive of General Mills, Inc. from 1980 to 1995, serving as Vice Chairman upon his departure. (3) Thomas Unterman was elected as an executive officer of Old Times Mirror effective October 1, 1992. Prior to that time, he had been a partner at the law firm of Morrison & Foerster since 1986. 10 (4) Horst A. Bergmann was elected as an executive officer of the Company effective May 9, 1996. After joining Jeppesen Sanderson in 1963, he was named Flight Information Services Director in 1974 and Managing Director, Jeppesen & Co. GmbH in 1977. In 1987, he was appointed Chairman, President and Chief Executive Officer of Jeppesen Sanderson, and was also named Chief Executive Officer of Times Mirror Training, Inc. in 1996. (5) Shelby Coffey III was elected as an executive officer of the Company effective May 9, 1996. He joined the Los Angeles Times in 1986 as Deputy Associate Editor, became Executive Editor in 1988 and was named Editor and Executive Vice President in 1989. (6) Kathryn M. Downing was elected as an executive officer of the Company effective May 9, 1996. She was named President and Chief Executive Officer of Matthew Bender in 1995. Prior to that time, Ms. Downing was President and Chief Executive Officer of Lawyers Cooperative Publishing, a division of Thomson Legal Publishing, beginning in 1993. From 1990 to 1993, she was President and Chief Operating Officer of Electronic Publishing, a division of Thomson Professional Publishing. (7) Debra A. Gastler was elected as an executive officer of Old Times Mirror effective January 3, 1994. Prior to that time, she had been Vice President, Taxes of Pacific Enterprises since 1990 and Director of Taxes of Pacific Enterprises since 1987. (8) Raymond A. Jansen was elected as an officer of the Company effective May 9, 1996. He was named Publisher, President and Chief Executive Officer of Newsday in November 1994. Prior to that time, he was Publisher and Chief Executive Officer of The Hartford Courant since 1990. (9) Mary E. Junck was elected as an officer of the Company effective May 9, 1996. She was named Publisher and Chief Executive Officer of The Baltimore Sun in 1993. Prior to that time, she joined the St. Paul Pioneer Press in 1985 and was named Publisher and President of the newspaper in 1990. (10) Kathleen G. McGuinness was elected as an executive officer of the Company effective November 1, 1995. Prior to that time, she had been a partner at the law firm of O'Melveny & Myers since 1985. (11) Roger H. Molvar was elected as an executive officer of the Company effective May 9, 1996. Prior to that time, he served as Senior Vice President and Comptroller of First Interstate Bank of California since 1989. (12) Steven J. Schoch was elected as an executive officer of the Company effective December 11, 1995. Prior to that time, he had been Vice President, Treasurer at EuroDisney S.C.A. from 1994 to 1995 and Vice President, Assistant Treasurer of The Walt Disney Company from 1992 to 1994. Prior to that time, he was Director of Corporate Finance of The Walt Disney Company from 1991 to 1992. (13) Michael E. Waller was elected as an officer of the Company effective May 9, 1996. Mr. Waller was named Publisher and Chief Executive Officer of The Hartford Courant in 1994. He joined The Hartford Courant in 1986 as Executive Editor and Vice President, and was named Editor in 1990. (14) Efrem Zimbalist III was elected as an executive officer of Old Times Mirror effective March 4, 1993. Mr. Zimbalist was Chairman and Chief Executive Officer of Correia Art Glass, Inc. from 1978 until he joined Old Times Mirror in July 1992. 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY STOCK AND RELATED STOCKHOLDER MATTERS. Prior to February 1, 1995, Old Times Mirror Series A Common Stock was traded principally on the New York Stock Exchange, Inc. ("NYSE") and was also listed on the Pacific Stock Exchange. The Company's Series A Common Stock is traded principally on the NYSE and is also listed on the Pacific Stock Exchange. Old Times Mirror Series C Common Stock was not traded in an established public trading market but was convertible into Old Times Mirror Series A Common Stock. Upon the effectiveness of the Cox Merger on February 1, 1995, each share of Old Times Mirror Series A Common Stock outstanding immediately prior to the Cox Merger and held by non-controlling shareholders of the Company, which excludes all Chandler Trust shareholders, was converted into one share of the Company's Series A Common Stock and a portion of a share of Cox's Class A Common Stock, par value $1.00 per share ("Cox Class A Common Stock"). In addition, each share of Old Times Mirror Series C Common Stock outstanding immediately prior to the Cox Merger and held by non-controlling shareholders of the Company, which excludes all Chandler Trust shareholders, was converted into one share of the Company's Series C Common Stock and a portion of a share of Cox Class A Common Stock. At March 13, 1997, there were approximately 2,367 record holders of the Company's Series A Common Stock and 1,381 record holders of Series C Common Stock. The price ranges for Old Times Mirror Series A Common Stock and the Company's Series A Common Stock and the quarterly cash dividend declared and paid on all Old Times Mirror and Company Common Stock in 1996 and 1995 are listed below.
STOCK PRICE(1) CASH DIVIDEND --------------- -------------- HIGH LOW DECLARED PAID ------- ------- -------- ---- 1996 First Quarter............................ $40 1/8 $30 5/8 $.10 $.06 Second Quarter........................... 46 36 3/4 .10 .10 Third Quarter............................ 45 1/4 39 1/2 - (2) .10 Fourth Quarter........................... 56 43 1/2 .10 .10 1995 First Quarter............................ $33 1/2 $17 1/4 $.06 $.27 Second Quarter........................... 24 3/4 17 5/8 .06 .06 Third Quarter............................ 32 5/8 23 1/4 .06 .06 Fourth Quarter........................... 35 1/4 28 .06 .06
- -------- (1) On February 1, 1995, the Times Mirror common shareholders received distributions having a value of $10.45 per Times Mirror common share. The trading prices indicated for the first month of 1995 have not been adjusted to reflect these distributions. (2) During 1996, the Company began declaring and paying common stock dividends in the same quarter; previously, dividends were declared in the quarter prior to payment. As a result, in the third quarter of 1996, no dividends were declared in order to change to the new procedure. On October 10, 1994 as part of the settlement of certain shareholders' litigation with respect to the Cox Merger, the Company agreed to pay an annual dividend to Series A and Series C common shareholders of no less than 24 cents per share, beginning in June 1995 and continuing for a period of three years, subject to the fiduciary duties of its Board of Directors. Thereafter, the payment of dividends on common stock will depend on future earnings, capital requirements, financial condition and other factors. The Company declared a quarterly dividend on the common stock of 10 cents per share payable on March 10, 1997 to stockholders of record as of February 21, 1997. 12 Pursuant to the Company's acquisition of Apartment Search, Inc. in the third quarter of 1996, eight shareholders of Apartment Search were issued on August 12, 1996 an aggregate amount of 211,794 shares of the Company's Series A Common Stock in exchange for 95,899 shares of Apartment Search common stock, $.01 par value per share. Under the Agreement and Plan of Merger dated as of July 24, 1996, by and among the Company, Times Mirror Acquisition, Inc., Apartment Search and certain of the shareholders of Apartment Search, the number of shares of the Series A Common Stock to be issued in the acquisition was based on the closing price of the Series A Common Stock during the period immediately prior to the closing of the acquisition and on the attainment by Apartment Search of certain performance objectives. The Company is also required under the Agreement to issue an additional amount of Series A Common Stock with a value of approximately $3.6 million on or before March 31, 1997, based on the achievement of certain 1996 performance measures. The Company claimed an exemption from registration for the shares of Series A Common Stock issued for the Apartment Search acquisition under Section 4(2) of the Securities Act of 1933, as amended (the "Act"), on the basis that the issuance did not involve any public offering. The Company also filed a Form D pursuant to Regulation D of the Act on the basis that the offering met the terms and conditions of Rule 506 of the Act. ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data has been derived from the Consolidated Financial Statements that have been audited by Ernst & Young LLP, independent auditors. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto included elsewhere in this Form 10-K. 13 SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
(IN THOUSANDS OF DOLLARS EXCEPT PER COMMON SHARE, FINANCIAL RATIOS AND 1996 1995 1994 1993 1992 OTHER) ----------- ----------- ------------ ------------ ------------ OPERATING RESULTS Revenues............... $ 3,400,984 $ 3,448,287 $ 3,355,761 $ 3,243,749 $ 3,155,430 Restructuring, impairment and one- time charges.......... 50,924 634,077 80,164 202,700 Operating profit (loss)................ 312,455 (455,379) 302,508 189,042 63,759 Net interest expense... 20,904 2,230 66,805 81,366 71,481 Income (loss) from continuing operations before income taxes... 403,989 (455,013) 257,899 109,785 (7,102) Income (loss) from continuing operations(1)......... 206,444 (338,983) 132,223 51,669 (18,369) Net income (loss)(2)... 206,444 1,226,751 173,117 317,159 (66,601) PER COMMON SHARE Primary earnings (loss) from continuing operations(1)......... $1.55 $(3.74) $1.03 $ .40 $(.14) Primary earnings (loss)................ 1.55 10.02 1.35 2.46 (.52) Fully diluted earnings (loss)................ 1.53 9.40 1.35 2.46 (.52) Fully diluted earnings from continuing operations excluding restructuring charges and other special items(3).............. 1.51 .84 .95 .77 .82 Dividends declared(4).. .30 .24 1.08 1.08 1.08 Dividends paid......... .36 .45 1.08 1.08 1.08 FINANCIAL DATA Current assets(5)...... $ 870,472 $ 1,248,037 $ 851,594 $ 1,178,880 $ 952,593 Property, plant and equipment--net........ 1,177,077 1,174,831 1,311,130 1,308,628 1,345,320 Total assets........... 3,529,862 3,817,159 4,287,208 4,521,047 4,255,196 Long-term debt......... 459,007 247,934 246,462 795,454 1,114,367 Shareholders' equity... 1,498,810 1,806,236 1,957,043 1,899,275 1,700,646 Additions to property, plant and equipment(6).......... 146,919 128,612 128,167 102,093 110,110 Operating profit margin(7)............. 10.7% 7.8% 9.0% 8.3% 8.4% Total debt as a % of adjusted capitalization........ 23.5% 12.1% 31.3% 37.3% 41.7% Long-term debt as a % of shareholders' equity................ 30.6% 13.7% 12.6% 41.9% 65.5% Shareholders' equity per common share...... $9.54 $11.64 $15.06 $14.76 $13.23 OTHER Adjusted price range of $56 to $35 1/4 to $26 11/16 to $24 11/16 to $27 15/16 to common stock(8)....... 30 5/8 17 1/4 18 5/16 17 13/16 18 1/16 Number of employees at end of year........... 20,803 21,877 26,902 26,936 28,313 Weighted average common and common equivalent shares: Primary............... 105,085,182 113,797,192 128,807,156 128,740,904 128,818,449 Fully diluted......... 113,583,401 123,001,445 128,807,156 128,846,720 128,729,990 Common shares outstanding at end of year.................. 96,729,785 105,698,043 128,617,570 128,609,051 128,572,566
- -------- This summary should be read in conjunction with the consolidated financial statements and notes thereto. (1) Includes the following after-tax gains (charges) related to continuing operations (in thousands except per share amounts):
1996 1995 1994 1993 1992 -------- ---------- ------- -------- --------- Restructuring, impairment and one-time charges and nonrecurring costs...... $(30,305) $ (463,667) $(47,724) $(123,248) Writedowns of assets..... (12,954) (40,687) Gains on sales of assets. 45,001 25,821 $10,646 -------- ---------- ------- -------- --------- $ 1,742 $ (478,533) $10,646 $(47,724) $(123,248) ======== ========== ======= ======== ========= Earnings (loss) per share................... $ .02 $ (4.20) $ .08 $ (.37) $ (.96) ======== ========== ======= ======== ========= (2) Includes the following after-tax gains (charges) related to discontinued operations (in thousands): Discontinuation costs... $ (49,627) Gain on disposal........ 1,634,294 $131,702 ---------- -------- $1,584,667 $131,702 ========== ========
14 (3) Excludes the gains (charges) set forth in (1) above as well as, for 1995, the $.38 per share impact of the cash paid in excess of liquidation value on Series B preferred stock repurchases. Earnings per share for 1995 are presented on a primary share basis as the fully diluted earnings per share was antidilutive. (4) During 1996, the Company began declaring and paying common stock dividends in the same quarter; previously, dividends were declared in the quarter prior to payment. As a result, in the third quarter of 1996, no dividends were declared in order to change to the new procedure. (5) Excludes the net assets of the discontinued cable television operations in 1994. (6) Excludes capital assets acquired in business combinations accounted for as purchases and capital assets acquired by discontinued operations. (7) Excludes restructuring charges as follows (in thousands): 1996--$50,924; 1995--$724,107; 1993--$80,164; 1992--$202,700. (8) On February 1, 1995, Times Mirror common shareholders received distributions having a value of $10.45 per Times Mirror common share. The trading prices prior to February 1, 1995 have been adjusted to reflect these distributions. 15 FIVE-YEAR SUMMARY OF BUSINESS SEGMENT INFORMATION
1996 1995 1994 1993 1992 (IN THOUSANDS OF DOLLARS) ---------- ---------- ---------- ---------- ---------- REVENUES Newspaper Publishing.... $2,080,199 $2,057,596 $2,062,954 $1,980,717 $1,943,229 Professional Information............ 1,031,206 1,091,017 1,005,335 992,220 935,448 Consumer Media.......... 289,904 300,723 288,144 271,176 277,757 Intersegment Revenues... (325) (1,049) (672) (364) (1,004) ---------- ---------- ---------- ---------- ---------- $3,400,984 $3,448,287 $3,355,761 $3,243,749 $3,155,430 ========== ========== ========== ========== ========== OPERATING PROFIT (LOSS)(1) Newspaper Publishing.... $ 304,666 $ (109,483) $ 194,772 $ 107,346 $ 19,126 Professional Information............ 58,666 (131,429) 173,951 174,855 114,348 Consumer Media.......... 5,864 (75,887) 3,279 (3,785) (3,527) Corporate and Other..... (56,741) (138,580) (69,494) (89,374) (66,188) ---------- ---------- ---------- ---------- ---------- $ 312,455 $ (455,379) $ 302,508 $ 189,042 $ 63,759 ========== ========== ========== ========== ========== IDENTIFIABLE ASSETS Newspaper Publishing.... $1,859,506 $1,840,058 $1,987,752 $2,012,623 $2,036,453 Professional Information............ 1,045,104 1,151,830 1,018,357 1,030,586 971,833 Consumer Media.......... 307,117 308,098 382,768 309,955 360,746 Corporate and Other..... 318,135 517,173 255,954 563,686 317,423 Discontinued Operations Cable Television....... 642,377 606,678 495,036 Broadcast Television... 285 123,439 Eliminations............ (2,766) (49,734) ---------- ---------- ---------- ---------- ---------- $3,529,862 $3,817,159 $4,287,208 $4,521,047 $4,255,196 ========== ========== ========== ========== ========== DEPRECIATION AND AMORTIZATION Newspaper Publishing.... $ 105,961 $ 110,299 $ 114,115 $ 113,877 $ 105,939 Professional Information............ 47,077 51,462 42,928 44,490 40,092 Consumer Media.......... 7,340 8,780 8,761 10,816 10,705 Corporate and Other..... 1,285 2,156 1,684 1,795 1,753 ---------- ---------- ---------- ---------- ---------- $ 161,663 $ 172,697 $ 167,488 $ 170,978 $ 158,489 ========== ========== ========== ========== ========== CAPITAL EXPENDITURES Newspaper Publishing.... $ 64,726 $ 63,014 $ 79,397 $ 66,429 $ 88,226 Professional Information............ 67,316 48,361 43,910 33,006 19,984 Consumer Media.......... 11,078 1,308 1,606 1,718 1,579 Corporate and Other..... 3,799 15,929 3,254 940 321 ---------- ---------- ---------- ---------- ---------- 146,919 128,612 128,167 102,093 110,110 ---------- ---------- ---------- ---------- ---------- Discontinued Operations Cable Television....... 11,283 118,948 116,914 82,333 Other(2)............... 409 264 3,464 ---------- ---------- ---------- ---------- ---------- $ 146,919 $ 140,304 $ 247,379 $ 219,007 $ 195,907 ========== ========== ========== ========== ========== - -------- (1) Includes restructuring-related charges as follows (in thousands): 1996 1995 1993 1992 ---------- ---------- ---------- ---------- Newspaper Publishing... $ 316,216 $ 33,080 $ 106,700 Professional Information........... $ 50,924 267,413 25,300 96,000 Consumer Media......... 74,875 Corporate and Other.... 65,603 21,784 ---------- ---------- ---------- ---------- $ 50,924 $ 724,107 $ 80,164 $ 202,700 ========== ========== ========== ==========
The pre-tax charges of $724,107 in 1995 are comprised of restructuring, impairment and one-time charges of $634,077 and nonrecurring operating costs of $90,030. In addition, other pre-tax restructuring program charges in 1995 of $69,755 related to discontinued operations and $43,851 related to investment writedowns are described in Notes 2 and 4 to the financial statements. (2) Expenditures in 1995 and 1994 are for the discontinued consumer multimedia and cable programming operations. Expenditures in 1992 are for the discontinued broadcast television operations. 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CONSOLIDATED RESULTS OF OPERATIONS During 1996, Times Mirror achieved significant improvement in operating results led by the outstanding performance in Newspaper Publishing, the Company's largest business segment. The following table summarizes the Company's financial results (dollars in millions, except per share amounts):
1996 1995 1994 -------- -------- -------- Revenues...................................... $3,401.0 $3,448.3 $3,355.8 Restructuring, impairment and one-time charges...................................... 50.9 634.1 Operating profit (loss)....................... 312.5 (455.4) 302.5 Interest expense, net......................... (20.9) (2.2) (66.8) Asset sales and writedowns, net............... 104.9 (2.4) 22.1 Equity income (loss), net..................... 4.4 1.5 (1.9) Income (loss) from continuing operations...... 206.4 (339.0) 132.2 Net income (loss) from discontinued opera- tions........................................ (55.8) 53.1 Net gain on disposal of discontinued opera- tions........................................ 1,634.3 Extraordinary loss from early retirement of debt......................................... (12.2) Cumulative effect of changes in accounting principles................................... (12.7) Net income.................................... 206.4 1,226.8 173.1 Preferred dividend requirements............... 43.6 44.0 Cash paid in excess of liquidation value for Series B preferred stock repurchases......... 43.1 Earnings applicable to common shareholders.... $ 162.8 $1,139.7 $ 173.1 Primary earnings (loss) per share from contin- uing operations.............................. $ 1.55 $ (3.74) $ 1.03 Primary earnings per share.................... $ 1.55 $ 10.02 $ 1.35 Fully diluted earnings per share.............. $ 1.53 $ 9.40 $ 1.35 Earnings per share from continuing operations excluding restructuring charges and other special items................................ $ 1.51 $ .84 $ .95
1996 COMPARED WITH 1995 For 1996, the Company reported operating profit of $312.5 million, compared to an operating loss of $455.4 million in the prior year. Excluding the impact of restructuring charges and other special items in both years, operating profit in 1996 increased to $363.4 million, up 35.2 percent from $268.7 million in 1995. The significant improvement in operating profit margin and overall performance was due largely to cost savings from the 1995 restructuring program as well as ongoing cost control efforts. Newspaper Publishing achieved higher operating profit in 1996, partially offset by reduced operating profit in Professional Information stemming from organizational and distribution system changes undertaken at Mosby-Year Book. Times Mirror's consolidated revenues declined 1.4 percent to $3.40 billion in 1996, compared with $3.45 billion in the prior year, mainly due to the disposition of the Company's college publishing businesses and the reorganization of distribution channels in health science publishing (see Professional Information segment for further discussion). The closure of certain newspaper editions in mid-1995 also contributed to the revenue decline in 1996. Newspaper Publishing's revenues rose modestly to a record high level of $2.08 billion for 1996, as improving economic trends in Southern California contributed to growth at the Los Angeles Times. Looking toward 1997, year-to- year comparison of revenues may mask revenue growth in the Company's present businesses due to the recent disposition of the Company's college publishing and other businesses with approximately $250 million in total revenues. 17 Net income in 1996 of $206.4 million, or $1.53 per share, included the after-tax gain of $32.0 million on the sale of the college publishing businesses and certain other professional information companies, largely offset by after-tax restructuring charges of $30.3 million in that segment. Earnings applicable to common shareholders were reduced by preferred dividend requirements of $43.6 million in 1996, and by $44.0 million in 1995. In addition, earnings applicable to common shareholders in 1995 were further reduced by $43.1 million for cash paid in excess of liquidation value for the repurchases of Series B preferred stock. Excluding the impact of gains on sale, restructuring and other similar charges in both years and the cash paid in excess of liquidation value for preferred stock repurchases in 1995, earnings per common share from continuing operations rose to $1.51 in 1996 compared to $.84 per share for 1995. Earnings per share in 1996 benefited from the lower average number of shares outstanding. Net interest expense in 1996 rose to $20.9 million from $2.2 million in 1995, reflecting increased 1996 debt levels and reductions in interest earning investments. RESTRUCTURING CHARGES The following summarizes restructuring charges and related costs included in each business segment (dollars in millions):
1996 1995 ------------- -------------------------------------- RESTRUCTURING, IMPAIRMENT AND NON- TOTAL ONE-TIME RECURRING RESTRUCTURING RESTRUCTURING CHARGES COSTS PROGRAM ------------- -------------- --------- ------------- Newspaper Publishing.... $291.5 $24.7 $316.2 Professional Informa- tion................... $50.9 222.8 44.6 267.4 Consumer Media.......... 70.4 4.5 74.9 Corporate and Other..... 49.4 16.2 65.6 ----- ------ ----- ------ $50.9 $634.1 $90.0 $724.1 ===== ====== ===== ======
During 1996, the Company recorded pre-tax restructuring charges of $50.9 million, or $30.3 million after-tax, as discussed in further detail in the Professional Information segment. Based on a comprehensive review of its operations, the Company recorded charges of $724.1 million, or $463.7 million after-tax, in 1995 for actions which included closure and discontinuation of certain operations and product lines, staff reductions, union renegotiations, consolidation of selected offices and asset writedowns. Additional pre-tax charges of $69.8 million related to discontinued operations and $43.9 million related to investment writedowns were part of the Company's 1995 restructuring program. 1995 CABLE MERGER AND RELATED TRANSACTIONS In the first quarter of 1995, the Company completed the disposal of its cable television operations and also completed related transactions, including the issuance of two new series of preferred stock and the retirement of nearly 75 percent of total debt outstanding at year end 1994. Results for 1995 benefited from the $1.63 billion gain on the disposal of the cable television operations as well as from lower interest expense due to debt reductions and higher interest income from the investment of the cash proceeds from the disposal. FOURTH QUARTER 1996 COMPARED WITH FOURTH QUARTER 1995 Revenues for the fourth quarter of 1996 declined 9.9 percent to $871.4 million from $966.7 million in the prior year's quarter due to the disposition of the college publishing businesses and changes in distribution channels at Mosby. Fourth quarter year-over-year comparisons were also affected by the 1996 Newspaper Publishing segment fiscal calendar, which contained five fewer days of operations in 1996's fourth quarter compared to the 1995 fourth quarter. (The first quarter of 1996 had benefited from six extra days due to the calendar difference.) 18 In the fourth quarter of 1996, the Company reported operating profit of $67.7 million reflecting strong profit growth in Newspaper Publishing, offset by Professional Information's restructuring charges of $50.9 million and lower overall operating profit. In the 1995 fourth quarter, the Company reported an operating loss of $206.3 million as a result of the restructuring program charges. Excluding restructuring charges in the fourth quarter of both years, the fourth quarter 1996 operating profit would have risen to $118.6 million or 5.5 percent, from $112.4 million in the prior year. Net income for the 1996 fourth quarter was $78.7 million, or $.64 per share, compared with the fourth quarter 1995 net loss of $141.6 million, or $1.62 per share. Excluding restructuring charges, asset sales and writedowns and other special items in both years, 1996 fourth quarter earnings per share would have been $.63 per share compared with $.42 per share in the 1995 fourth quarter. Earnings per share in the fourth quarter of 1996 also benefited from the lower average number of shares outstanding. For the fourth quarter of 1996, Newspaper Publishing's operating profit rose 31.8 percent to $105.5 million, excluding restructuring program charges, benefited by ongoing cost controls and significantly lower newsprint expense for the quarter. The segment's operating profit margin increased to 18.7 percent for the quarter, the highest profit margin level achieved since the fourth quarter of 1987. Revenues in the 1996 fourth quarter declined to $565.2 million from $568.5 million in the prior year, largely due to the difference in the number of days in the fourth quarters. Advertising revenue in the 1996 fourth quarter was virtually unchanged from the prior year's quarter at $434.5 million. Circulation revenues declined 7.0 percent for the 1996 fourth quarter to $111.1 million, as circulation growth in Southern California and Long Island, New York was more than offset by pricing and promotional actions. In Professional Information, 1996 fourth quarter revenues declined 27.4 percent to $233.2 million, primarily reflecting the absence of the college publishing businesses, the closure of the international distribution division and the changes in Mosby's domestic distribution channels. The decline in revenues was partially offset by revenue increases in the fourth quarter at Matthew Bender, Jeppesen Sanderson and Times Mirror Training. Operating profit, excluding restructuring charges in both years, declined significantly to $19.8 million from $56.6 million in 1995, due principally to changes in Mosby's international and domestic distribution channels. In Consumer Media, revenues declined 5.3 percent to $73.1 million in the 1996 fourth quarter from $77.3 million in 1995, as a reduction in advertising pages and lower subscription revenues at Times Mirror Magazines affected segment results overall. However, the segment reported operating profit for the 1996 fourth quarter of $2.0 million compared to an operating loss of $1.0 million in 1995, excluding restructuring program charges, due to overall expense reductions at Times Mirror Magazines. 1995 COMPARED WITH 1994 Times Mirror's consolidated revenues rose 2.8 percent in 1995 compared with the prior year, reflecting growth in the Professional Information and Consumer Media segments of the Company's businesses. Growth in health information services (including international sales and consumer medical information), the flight information business and magazine advertising, coupled with additional revenues from acquisitions made early in 1995, contributed to the revenue increase. These improvements were partially offset by a slight decline in Newspaper Publishing revenues, reflecting the closure of certain newspaper editions. An operating loss of $455.4 million was reported for the full year 1995 as a result of the Company's restructuring program. Operating profit, excluding the 1995 restructuring program charges, was $268.7 million, a decrease of 11.2 percent from $302.5 million in 1994. This decline was largely due to reduced profits at Matthew Bender as well as considerably higher expense levels at higher education and the training companies due to marketing and product improvement efforts while the impact of higher newsprint prices was offset by cost reductions in the Newspaper Publishing segment. In 1995, Consumer Media reported an operating loss of $1.0 million, excluding restructuring charges, compared to an operating profit of $3.3 million in 1994 as a result of increased promotional and marketing costs and overall higher paper and postage costs. 19 The 1995 loss from continuing operations reflects an after-tax restructuring program charge of $504.4 million and after-tax gains on asset sales of $25.8 million. Income from continuing operations in 1994 included after-tax gains on asset sales of $10.6 million. Excluding the impact of restructuring program charges and the cash paid in excess of liquidation value for preferred stock repurchases in 1995, as well as net gains on asset sales and writedowns in both years, earnings per share from continuing operations was $.84 per share for 1995, compared to $.95 per share in 1994. Earnings per share in 1995 benefited from the lower average number of shares outstanding. Net income of $1.23 billion for 1995 includes the $1.63 billion gain on the disposition of the Company's discontinued cable television operations, which more than offset charges for the Company's 1995 restructuring program. In addition, 1994 net income of $173.1 million included an extraordinary loss of $12.2 million, net of taxes from the early retirement of debt. Net interest expense in 1995 declined to $2.2 million from $66.8 million in 1994. Debt levels were reduced early in the year, using proceeds from the disposition of the Company's cable television operations, and interest income was generated from the investment of the remaining proceeds. ANALYSIS BY SEGMENT The following sections discuss the segment results of the Company's principal lines of businesses excluding restructuring charges of $50.9 million and $724.1 million for 1996 and 1995, respectively. NEWSPAPER PUBLISHING Newspaper Publishing revenue and operating profit (loss) were as follows (dollars in millions):
1996 CHANGE 1995 CHANGE 1994 -------- ------ -------- ------ -------- Revenues Advertising....................... $1,574.4 1.0 % $1,558.2 (.4)% $1,564.1 Circulation....................... 447.6 (1.5) 454.5 .9 450.3 Other............................. 58.2 29.4 44.9 (7.6) 48.6 -------- -------- -------- $2,080.2 1.1 % $2,057.6 (.3)% $2,063.0 ======== ======== ======== Operating profit (loss)............ $ 304.7 100+ % $ (109.5) (100+)% $ 194.8 ======== ======== ======== Operating profit excluding restruc- turing charges.................... $ 304.7 47.4 % $ 206.7 6.1 % $ 194.8 ======== ======== ========
1996 RESULTS Newspaper Publishing's revenues rose in 1996 as strength in key advertising categories, including classified help-wanted and national advertising, more than offset continued soft retail advertising in certain markets and revenues lost from edition closures in 1995. Overall, advertising revenue gains at The Times, Hartford Courant, Morning Call and the Southern Connecticut newspapers more than offset declines in advertising revenues at Newsday and The Baltimore Sun primarily associated with edition closures at both papers in 1995. Advertising growth was restrained by weak retail advertising volume in major markets, due in part to department store and supermarket consolidations and store closures, most notably affecting the Southern California market. Circulation revenues declined slightly due largely to edition closures in 1995 as well as competitive pricing and other promotional activities undertaken during 1996. At The Times, a mid-year price decrease on daily single-copy sales affected about 10 percent of the total daily circulation base. These aggressive marketing and promotional campaigns contributed to circulation gains by year end 1996, with The Times and Newsday reporting daily circulation growth in core markets for the first time in five years. Other revenues benefited from new media products and services and new businesses such as Apartment Search, a consumer-oriented real estate rental information business. 20 Driven by substantial cost reductions, the segment's 1996 operating profit increased due to savings achieved from the 1995 restructuring program, ongoing cost controls and a moderate decline in newsprint expense. In 1996, the segment's operating profit margin improved, reaching 14.6 percent, the highest annual margin achieved since 1989. While the 1996 average price per ton of newsprint was nearly the same as the 1995 average, newsprint expense declined somewhat due largely to lower consumption following the closure of certain editions. Newsprint consumption declined to 552,000 metric tons in 1996 from 582,000 in 1995. 1995 RESULTS Newspaper Publishing's revenues in 1995 fell slightly from 1994 due primarily to the closure of New York Newsday and the sluggish advertising environment in Southern California, which continued to impact The Times. Advertising revenues declined in 1995, as increases at most of the Company's eastern newspapers were more than offset by declines due to lost revenues resulting from the closure of New York Newsday as well as a drop in retail and national advertising revenues at The Times. Circulation revenues rose slightly as higher street and home delivery prices at certain newspapers offset a year- over-year decline in total circulation. Higher operating profit and profit margins were achieved despite slightly lower revenues and a sharp increase in newsprint expense of nearly 30 percent, largely through productivity improvements and a reduction in other operating costs. Excluding newsprint expense, all other expenses declined about 10 percent in 1995. PROFESSIONAL INFORMATION Professional Information revenue and operating profit (loss) were as follows (dollars in millions):
1996 CHANGE 1995 CHANGE 1994 -------- ------ -------- ------ -------- Revenues........................... $1,031.2 (5.5)% $1,091.0 8.5 % $1,005.3 ======== ======== ======== Operating profit (loss)............ $ 58.7 100+% $ (131.4) (100+)% $ 174.0 ======== ======== ======== Operating profit excluding restruc- turing charges.................... $ 109.6 (19.4)% $ 136.0 (21.8)% $ 174.0 ======== ======== ========
1996 RESULTS Through a series of strategic moves in 1996, the Professional Information segment was refocused on businesses in which the Company has a leadership position: Matthew Bender, the country's leading analytical legal publisher; Jeppesen Sanderson, the world's foremost flight information company; Mosby- Year Book, the world's largest health science publisher; and Times Mirror Training, the country's largest skills training company. During the 1996 fourth quarter, the Company completed the exchange of its college publishing businesses for Shepard's, the nation's premier legal citation service, and established a joint venture with Reed Elsevier, Inc. for the ownership and management of Shepard's. This venture as well as a broader strategic alliance with Reed Elsevier's subsidiary, LEXIS-NEXIS, significantly strengthens Matthew Bender's position in the legal publishing market. In the fourth quarter of 1996, the Company also completed the disposition of Doyma Libros, its Spanish language medical book publisher; closed Times Mirror International Publishers, the Company's unprofitable international book distributor; and signed an agreement for the sale of CRC Press, Inc., which was completed on January 10, 1997. Giving effect to the fourth quarter items, the Company recorded a pre-tax gain of $104.9 million which, due to differences in the book and tax basis of the assets, resulted in an after-tax gain of $32.0 million. Partially offsetting the gain were restructuring efforts in the segment, which resulted in pre-tax charges of $50.9 million, or $30.3 million after-tax. These charges included the establishment of reserves related to replacement of Mosby's third party domestic distribution arrangements with direct distribution to book stores, consolidation, closure and downsizing of selected offices, as well as additional fourth quarter restructuring efforts undertaken at Times Mirror Training to further integrate Kaset International, Learning International and Zenger Miller. Additionally, during the 1996 third quarter, the Company appointed Harcourt Brace as its exclusive distributor of Mosby's professional medical publications in most international markets. 21 Professional Information revenues in 1996 declined reflecting the Company's strategic decision to exchange its college publishing businesses for Shepard's. The revenue decline was partially offset by revenue growth at Jeppesen Sanderson and Times Mirror Training. Pro forma revenues for the Professional Information segment, excluding the Company's college publishing businesses, Doyma Libros, and CRC Press, Inc. are as follows (dollars in millions):
1996 CHANGE 1995 CHANGE 1994 ------ ------ ------ ------ ------ Pro forma revenues for ongoing businesses.... $809.1 1.8% $795.1 8.1% $735.5 ====== ====== ======
Operating profit for the segment declined substantially to $109.6 million in 1996 from $136.0 million in 1995 primarily due to the realignment of domestic and international distribution channels in health science publishing mentioned above. Segment operating profit does not include $3.2 million of equity income from the Shepard's partnership. The Company continues to pursue cost reductions and re-engineering opportunities at Mosby and its international training locations. 1995 RESULTS Professional Information revenues in 1995 increased, reflecting double-digit revenue growth in professional and academic health science publishing, consumer health information and flight information, as well as the revenues from several small health science information companies which were acquired early in 1995. These revenue gains were tempered by a revenue decline at Matthew Bender due to subscriber attrition in print products. Operating profit for the segment declined from the prior year largely reflecting the lower revenues at Matthew Bender. Higher education publishing and the Company's health science information businesses had lower operating profit due to higher expenses in key areas including: increasing international sales and marketing efforts in Southeast Asia, the development of new products and product improvement efforts in health information services, including an online medical service, and the costs associated with expanding product lists in the higher education businesses. These investment efforts increased costs faster than revenues and reduced profitability for the health science and higher education companies. Times Mirror Training reported reduced operating profit in 1995 due to weaknesses in certain markets, as well as higher marketing, acquisition and other costs. Jeppesen Sanderson, the Company's flight information publisher, reported strong operating profit growth for the 1995 year, further benefiting from favorable foreign currency fluctuations. CONSUMER MEDIA Consumer Media revenue and operating profit (loss) were as follows (dollars in millions):
1996 CHANGE 1995 CHANGE 1994 ------ ------ ------ ------ ------ Revenues.................................. $289.9 (3.6)% $300.7 4.4 % $288.1 ====== ====== ====== Operating profit (loss)................... $ 5.9 100+% $(75.9) (100+)% $ 3.3 ====== ====== ====== Operating profit (loss) excluding restruc- turing charges........................... $ 5.9 100+% $ (1.0) (100+)% $ 3.3 ====== ====== ======
1996 RESULTS For 1996, Consumer Media revenues declined modestly, due to lower advertising and circulations revenues at Times Mirror Magazines as well as a weakness in the art book market which affected Harry N. Abrams, a prestigious art book publisher. In September 1996, the Company announced its plan to explore divestiture alternatives for Abrams in order to concentrate on its core businesses in newspapers, professional information 22 and magazines. Despite lower revenues, the segment reported improved operating results, as lower paper and printing costs, staff reductions, office space consolidation and overall cost controls more than offset the revenue shortfall. 1995 RESULTS Each of the companies in the Consumer Media segment reported higher revenues in 1995 compared with 1994. These revenue gains were generated largely from new titles and publications, fees related to the licensing of certain magazine titles and an acquisition made in the latter part of 1994. For the year, the magazines reported a 6.6 percent increase in advertising revenue over 1994, reflecting improved advertising trends industry-wide. This increase was mostly offset by lower circulation revenues at some of the magazines. Consumer Media reported an operating loss for 1995 due to increased year end promotional and marketing expenses at the magazines and overall higher paper and postage costs. CORPORATE AND OTHER Corporate and Other operating costs were as follows (dollars in millions):
1996 CHANGE 1995 CHANGE 1994 ------ ------ ------- ------ ------ Operating Costs........................ $(56.7) 59.1% $(138.6) (99.4)% $(69.5) ====== ======= ====== Operating Costs Excluding Restructuring Charges............................... $(56.7) 22.2% $ (73.0) (5.0)% $(69.5) ====== ======= ======
1996 RESULTS Operating costs in this segment primarily reflect the ongoing expenses associated with corporate administrative functions, including executive office, legal and treasury operations among other costs. For 1996, Corporate and Other operating expenses declined substantially from the prior year as a result of staff reductions and other restructuring efforts undertaken in 1995. 1995 RESULTS Operating costs for the Corporate and Other segment increased slightly in 1995 due to the development of a company-wide digital network of product, marketing and administrative data bases. This project was abandoned in the third quarter of 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's operating cash requirements are funded by its operations. In 1996, the Company's major cash inflows totaled over $800 million, consisting of cash generated from its continuing operating activities, issuance of long- term debt, and proceeds from the fourth quarter 1996 sale of a 50 percent interest in Shepard's. These funds were used primarily to fund common share repurchases and costs related to a strategic realignment of the Professional Information segment. At year end 1996, the Company had a $400 million long- term revolving line of credit, available through a group of domestic and international banks. This line of credit is used to support a commercial paper program which is available for short-term cash requirements. Additionally, a shelf registration statement for $250 million of securities is expected to be filed in the near future. In 1997, the Company announced that it will redeem the remaining 7.8 million outstanding shares of Series B preferred stock, which have been called for conversion into common stock on April 2, 1997 at an exchange ratio pursuant to the original terms of the Series B preferred stock. In addition, forward purchase contracts for 3.9 million shares of Series B preferred stock were outstanding on February 28, 1997, largely due to contracts for approximately 3.3 million shares entered into subsequent to December 31, 1996. These contracts, which mature in 1998 but may be terminated prior to maturity, may be settled on a net share basis in Series B preferred stock or in Series A common stock if the Series B preferred stock is redeemed prior to the maturity of the contracts. 23 The following table sets forth certain items from the Consolidated Statements of Cash Flows (in millions):
1996 1995 ------- -------- Net cash provided by operating activities of continuing operations............................................. $ 388.8 $ 262.8 Proceeds from disposal of cable television operations... 1,225.0 Proceeds from sales of assets........................... 190.4 83.3 Capital expenditures.................................... (146.9) (128.6) Repurchases of common stock............................. (496.8) (218.1) Net issuances (repayments) of debt...................... 194.5 (588.8)
Cash generated by operating activities of continuing operations in 1996 increased approximately 48 percent from the prior year due largely to higher operating profit partially offset by restructuring-related expenditures. In addition to restructuring expenditures, 1995 cash flow from continuing operations was impacted by substantial expenditures for newsprint as higher inventory levels were established to mitigate the 1995 newsprint price increases. During 1996, capital expenditures were higher as a result of increased capital costs associated with consolidation and relocation of offices. Capital expenditures in 1997 are expected to decrease somewhat as capital costs associated with real estate relocations are expected to be lower. Total debt at December 31, 1996 increased to $459.0 million from $248.2 million in 1995. Proceeds from the issuance of debt securities as well as funds generated from operations and cash received from the exercise of stock options were used for share repurchases. The Company repurchased 11.4 million and 7.0 million shares of its common stock during 1996 and 1995, respectively. Common share repurchases are intended to offset dilution from the shares of common stock issued under the Company's stock-based employee compensation and benefit programs as well as to enhance shareholder value. The remaining aggregate repurchase authorization at year end 1996 totaled approximately 10.8 million shares. Repurchases are expected to be made in the open market or in private transactions, depending on market conditions, and may be discontinued at any time. In connection with this program, the Company from time to time sells put options on its common stock. These contracts have been entered into based on market conditions as well as other factors. DIVIDENDS Cash dividends of $.30 and $.24 per share of common stock were declared for the years ended December 31, 1996 and 1995, respectively. FORWARD-LOOKING STATEMENTS The forward-looking statements set forth above and elsewhere in this Annual Report on Form 10-K are subject to uncertainty and could be adversely affected by a number of factors. Some of these factors are described in Note 17 to the consolidated financial statements. 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE ---- Report of Ernst & Young LLP, Independent Auditors......................... 26 Consolidated Statements of Operations--Years Ended December 31, 1996, 1995 and 1994................................................................. 27 Consolidated Balance Sheets--December 31, 1996 and December 31, 1995...... 28 Consolidated Statements of Shareholders' Equity--Years Ended December 31, 1996, 1995 and 1994...................................................... 29 Consolidated Statements of Cash Flows--Years Ended December 31, 1996, 1995 and 1994................................................................. 30 Notes to Consolidated Financial Statements................................ 31 Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts and Reserves............. 54
All other schedules are omitted because they are not required by the regulations or related instructions or are not applicable. 25 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders and Board of Directors The Times Mirror Company We have audited the accompanying consolidated balance sheets of The Times Mirror Company as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index to Financial Statements and Financial Statement Schedules. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Times Mirror Company at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Notes 1 and 5 to the consolidated financial statements, in 1995 the Company changed its method of accounting for the impairment of long- lived assets and for long-lived assets to be disposed of. ERNST & YOUNG LLP Los Angeles, California February 5, 1997 26 THE TIMES MIRROR COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 ---------------------------------- (IN THOUSANDS OF DOLLARS 1996 1995 1994 EXCEPT PER SHARE AMOUNTS) ---------- ---------- ---------- REVENUES.................................... $3,400,984 $3,448,287 $3,355,761 ---------- ---------- ---------- COSTS AND EXPENSES Cost of sales.............................. 1,782,711 1,843,475 1,778,205 Selling, general and administrative expenses.................................. 1,254,894 1,426,114 1,275,048 Restructuring, impairment and one-time charges................................... 50,924 634,077 ---------- ---------- ---------- Total costs and expenses.................. 3,088,529 3,903,666 3,053,253 ---------- ---------- ---------- OPERATING PROFIT (LOSS)..................... 312,455 (455,379) 302,508 Interest expense........................... (27,047) (29,467) (69,322) Interest income............................ 6,143 27,237 2,517 Asset sales and writedowns, net............ 104,921 (2,416) 22,099 Equity income (loss)....................... 4,379 1,515 (1,858) Other, net................................. 3,138 3,497 1,955 ---------- ---------- ---------- Income (loss) from continuing operations before income tax provision (benefit)..... 403,989 (455,013) 257,899 Income tax provision (benefit)............. 197,545 (116,030) 125,676 ---------- ---------- ---------- Income (loss) from continuing operations... 206,444 (338,983) 132,223 Discontinued operations: Net income (loss) from operations......... (55,836) 53,126 Net gain on disposal...................... 1,634,294 Extraordinary loss on early retirement of debt, net of income tax benefit of $8,517. (12,232) Cumulative effect of changes in accounting principles, net of income tax benefit of $8,817.................................... (12,724) ---------- ---------- ---------- NET INCOME.................................. $ 206,444 $1,226,751 $ 173,117 ========== ========== ========== Preferred dividend requirements............. $ 43,645 $ 44,003 ========== ========== ========== Cash paid in excess of liquidation value for Series B preferred stock repurchases....... $ 43,085 ========== ========== ========== Earnings applicable to common shareholders.. $ 162,799 $1,139,663 $ 173,117 ========== ========== ========== Primary earnings (loss) per share: Continuing operations...................... $ 1.55 $ (3.74) $ 1.03 Discontinued operations: Net income (loss) from operations......... (.49) .41 Net gain on disposal...................... 14.36 Extraordinary loss......................... (.09) ---------- ---------- ---------- Income before cumulative effect of changes in accounting principles.................. 1.55 10.13 1.35 Cumulative effect of changes in accounting principles................................ (.11) ---------- ---------- ---------- Primary earnings per share.................. $ 1.55 $ 10.02 $ 1.35 ========== ========== ========== Fully diluted earnings per share: Income before cumulative effect of changes in accounting principles.................. $ 1.53 $ 9.50 $ 1.35 Cumulative effect of changes in accounting principles................................ (.10) ---------- ---------- ---------- Fully diluted earnings per share............ $ 1.53 $ 9.40 $ 1.35 ========== ========== ==========
See notes to consolidated financial statements 27 THE TIMES MIRROR COMPANY CONSOLIDATED BALANCE SHEETS
DECEMBER 31 --------------------- 1996 1995 (IN THOUSANDS OF DOLLARS) ---------- ---------- ASSETS Current Assets Cash and cash equivalents.................................. $ 145,105 $ 182,901 Marketable securities...................................... 31,740 72,806 Accounts receivable, less allowances for doubtful accounts and returns of $79,540 and $79,536........................ 488,572 561,828 Recoverable income taxes................................... 916 56,792 Inventories................................................ 103,648 173,568 Deferred income taxes...................................... 49,248 134,395 Prepaid expenses........................................... 42,630 44,066 Other current assets....................................... 8,613 21,681 ---------- ---------- Total current assets..................................... 870,472 1,248,037 Property, plant and equipment............................... 1,177,077 1,174,831 Goodwill.................................................... 530,142 651,745 Other intangibles........................................... 46,039 84,186 Deferred charges............................................ 153,454 199,188 Equity investments.......................................... 273,349 27,254 Prepaid pension cost........................................ 326,935 296,492 Other assets................................................ 152,394 135,426 ---------- ---------- Total assets............................................. $3,529,862 $3,817,159 ========== ========== LIABILITIES Current Liabilities Accounts payable........................................... $ 304,983 $ 395,292 Employees' compensation.................................... 112,570 118,111 Unearned income............................................ 233,021 222,893 Other current liabilities.................................. 158,573 298,894 ---------- ---------- Total current liabilities................................ 809,147 1,035,190 Long-term debt.............................................. 459,007 247,934 Deferred income taxes....................................... 129,491 140,087 Postretirement benefits..................................... 240,397 243,331 Unearned income............................................. 59,112 60,412 Other liabilities........................................... 295,726 283,969 ---------- ---------- Total liabilities........................................ 1,992,880 2,010,923 Common stock subject to put options......................... 38,172 Commitments and contingencies SHAREHOLDERS' EQUITY Series A preferred stock, $1 par value; 900,000 shares authorized; 824,000 shares issued and outstanding; stated at liquidation value....................................... 411,784 411,784 Series B preferred stock, $1 par value; 25,000,000 shares authorized; 7,789,000 shares issued and outstanding; stated at liquidation value; convertible to Series A common stock. 164,595 164,595 Preferred stock, $1 par value; 7,100,000 shares authorized; no shares issued or outstanding Common stock Series A, $1 par value; 500,000,000 shares authorized; 69,757,000 and 77,765,000 shares issued and outstanding... 69,757 77,765 Series B, $1 par value; 100,000,000 shares authorized; no shares issued or outstanding Series C, convertible, $1 par value, 300,000,000 shares authorized; 26,973,000 and 27,933,000 shares issued and outstanding............................................... 26,973 27,933 Additional paid-in capital.................................. 225,934 192,266 Retained earnings........................................... 533,131 875,981 Net unrealized gain on securities........................... 66,636 55,912 ---------- ---------- Total shareholders' equity............................... 1,498,810 1,806,236 ---------- ---------- Total liabilities and shareholders' equity............... $3,529,862 $3,817,159 ========== ==========
See notes to consolidated financial statements 28 THE TIMES MIRROR COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1996 -------------------------------------------------------------------------------------------------------- (IN THOUSANDS OF DOLLARS NET EXCEPT PER SHARE PREFERRED STOCK COMMON STOCK ADDITIONAL UNREALIZED AMOUNTS) ----------------- ------------------ PAID-IN RETAINED GAIN ON TREASURY GUARANTEED SERIES A SERIES B SERIES A SERIES C CAPITAL EARNINGS SECURITIES STOCK ESOP DEBT TOTAL -------- -------- -------- -------- ---------- ---------- ---------- -------- ---------- ---------- BALANCE AT DECEMBER 31, 1993........... $97,588 $32,366 $167,490 $1,687,574 $(61,543) $(24,200) $1,899,275 Conversion of Series C shares to Series A shares........ 1,442 (1,442) Transactions related to stock option and restricted stock plans... (6) 15 408 417 Dividends on common stock; $1.08 per share......... (138,904) (138,904) Net income..... 173,117 173,117 Reduction of guaranteed ESOP debt..... 24,200 24,200 Translation gains and other......... (1,062) (1,062) -------- -------- ------- ------- -------- ---------- ------- -------- -------- ---------- BALANCE AT DECEMBER 31, 1994........... 99,024 30,939 167,898 1,720,725 (61,543) 1,957,043 Conversion of Series C shares to Series A shares........ 1,462 (1,462) Exchange of common stock for Series B preferred stock......... $349,954 (14,965) (1,596) (333,393) Retirement of treasury stock......... (1,345) (60,198) 61,543 Issuance of Series A preferred stock......... $411,784 (411,784) Repurchases of stock......... (185,359) (7,023) (19) (254,135) (446,536) Partial redemption of certain shareholder interests..... (932,000) (932,000) Transactions related to stock option and restricted stock plans... 612 71 24,368 25,051 Dividends on common stock; $.24 per share......... (26,524) (26,524) Dividends on preferred stock......... (52,921) (52,921) Net income..... 1,226,751 1,226,751 Net unrealized gain on securities.... $55,912 55,912 Translation losses and other......... (540) (540) -------- -------- ------- ------- -------- ---------- ------- -------- -------- ---------- BALANCE AT DECEMBER 31, 1995........... 411,784 164,595 77,765 27,933 192,266 875,981 55,912 1,806,236 Conversion of Series C shares to Series A shares........ 871 (871) Stock issued for acquisition... 212 6,900 7,112 Repurchases of common stock.. (11,236) (126) (484,546) (872) (496,780) Transactions related to stock option and restricted stock plans... 2,190 37 61,325 872 64,424 Sale of put options....... 3,645 3,645 Exercise of put options....... (45) (30) (1,879) (1,954) Redemption value of put options....... (38,172) (38,172) Dividends on common stock; $.30 per share......... (30,067) (30,067) Dividends on preferred stock......... (32,734) (32,734) Net income..... 206,444 206,444 Change in net unrealized gain on securities.... 10,724 10,724 Translation losses and other......... (68) (68) -------- -------- ------- ------- -------- ---------- ------- -------- -------- ---------- BALANCE AT DECEMBER 31, 1996........... $411,784 $164,595 $69,757 $26,973 $225,934 $ 533,131 $66,636 $1,498,810 ======== ======== ======= ======= ======== ========== ======= ======== ======== ==========
See notes to consolidated financial statements 29 THE TIMES MIRROR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 -------------------------------- 1996 1995 1994 (IN THOUSANDS OF DOLLARS) --------- ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) from continuing operations..... $ 206,444 $ (338,983) $ 132,223 Adjustments to derive cash flows from contin- uing operating activities: Depreciation and amortization............... 161,663 172,697 167,488 Restructuring: Impairments and other non-cash charges..... 39,113 386,447 Net change in restructuring liability...... (64,943) 188,175 (64,492) Amortization of product costs............... 52,906 61,526 59,574 Gains on asset sales, net................... (121,649) (41,435) (22,099) Provision for doubtful accounts............. 30,180 25,184 20,554 Provision (benefit) for deferred income taxes...................................... 58,648 (144,740) 14,978 Changes in assets and liabilities: Trade accounts receivable.................. (2,115) (50,688) (43,648) Inventories................................ 19,869 (23,401) 6,039 Accounts payable........................... (6,074) 28,284 11,812 Income taxes............................... 59,451 (21,553) 3,790 Other, net.................................. (44,650) 21,299 35,072 --------- ---------- --------- Net cash provided by continuing operating activities................................. 388,843 262,812 321,291 Net cash provided by (used in) discontinued operating activities....................... (28,354) (13,066) 164,725 --------- ---------- --------- Net cash provided by operating activities.. 360,489 249,746 486,016 --------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of cable television operations.................................. 1,225,013 Capital expenditures......................... (146,919) (128,612) (128,167) Capitalization of product costs.............. (78,686) (90,903) (66,817) Proceeds from sales of assets................ 190,424 83,345 340,035 Marketable and noncurrent securities, net.... 79,845 (79,845) Acquisitions, net of cash acquired........... (17,841) (64,070) (25,368) Other, net................................... (4,324) (26,295) (16,851) --------- ---------- --------- Net cash provided by investing activities of continuing operations...................... 22,499 918,633 102,832 Net cash used in investing activities of discontinued operations.................... (31,497) (155,649) --------- ---------- --------- Net cash provided by (used in) investing activities................................ 22,499 887,136 (52,817) --------- ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Repurchase of common stock................... (496,780) (218,091) Repurchase of Series B preferred stock....... (91,182) (137,263) Proceeds from issuance of debt............... 194,877 363,680 Dividends paid............................... (80,001) (96,972) (138,901) Proceeds from exercise of stock options...... 51,178 5,122 Principal repayments of other debt........... (363) (100,792) (344,357) Repayment of commercial paper and short-term borrowings, net............................. (488,010) (233,901) Repayment of guaranteed ESOP debt............ (24,200) Other, net................................... 1,487 81 (20,332) --------- ---------- --------- Net cash used in financing activities...... (420,784) (1,035,925) (398,011) --------- ---------- --------- Increase (decrease) in cash and cash equivalents.................................. (37,796) 100,957 35,188 Cash and cash equivalents at beginning of year......................................... 182,901 81,944 46,756 --------- ---------- --------- Cash and cash equivalents at end of year...... $ 145,105 $ 182,901 $ 81,944 ========= ========== =========
See notes to consolidated financial statements 30 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all significant intercompany transactions and balances. Affiliated companies in which the Company owns a 20 percent to 50 percent interest are accounted for by the equity method. Presentation. Certain amounts in previously issued financial statements have been reclassified to conform to the 1996 presentation. Financial information for 1995 and 1994, presented in the Notes to Consolidated Financial Statements, excludes discontinued operations except where noted. Changes in Accounting Principles. Effective January 1, 1995, the Company changed its method of accounting for certain contract-related revenues from the licensing and sale of training programs and related materials. Prior to 1995, revenues were recognized for licensing fees, as well as the sale of training products and seminars. However, the majority of these contract- related revenues were recognized as licensing fees on the date a non- cancelable agreement was signed and a master copy of the training materials was delivered to the customer. As of January 1, 1995, revenues are recognized either when the training products are delivered or the seminars presented, with no revenues recognized for licensing fees. The Company believes that this provides for consistent accounting treatment among its professional training companies. The Company recorded a cumulative charge of $7,372,000 ($4,511,000 net of taxes) as of January 1, 1995. The effect of this change on 1995 net income before cumulative effect of changes in accounting principles was not significant. Effective January 1, 1995, the Company adopted the Financial Accounting Standards Board's Practice Bulletin 13, "Direct Response Advertising and Probable Future Benefits," which clarified the accounting for direct response advertising costs. The Company's accounting practice prior to 1995 was to capitalize magazine subscription-related direct response advertising costs to the extent that such costs did not exceed estimated future revenues from magazine subscriptions and advertising for the specific direct response efforts. Under the Practice Bulletin 13 interpretation, future estimated advertising revenues may not be included in estimating probable future revenues for purposes of determining whether direct response advertising costs should be capitalized or expensed. The Company recorded a cumulative charge of $14,169,000 ($8,213,000 net of taxes) as of January 1, 1995. The effect of this change on 1995 net income before cumulative effect of changes in accounting principles was not significant. Effective July 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). Long-lived assets, such as plant and equipment, identifiable intangibles and goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the net book value of these assets may not be recoverable. As a result of the adoption of SFAS 121, the Company has changed its methodology for assessing the recoverability of long-lived assets, including goodwill. Prior to SFAS 121, the Company recognized the difference between future undiscounted cash flows and net book value as an impairment loss. Impairment losses under SFAS 121 are determined based on the difference between fair value, which would generally approximate estimated future cash flows discounted at the Company's cost of capital, and net book value. An impairment loss on certain assets, as described in Note 5, was recorded in 1995. Prior period financial statements were not affected by the adoption of SFAS 121. Cash and Cash Equivalents. Cash equivalents consist of investments that are readily convertible into cash and have original maturities of three months or less. Cash equivalents of $91,796,000 and $129,471,000 at December 31, 1996 and 1995, respectively, were primarily commercial paper, money market funds and repurchase agreements. Under the Company's cash management system, the bank notifies the Company daily of checks presented for payment against its primary disbursing accounts. The Company transfers funds from other sources such as 31 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) short-term investments or commercial paper issuance to cover the checks presented for payment. This program results in a book cash overdraft in the primary disbursing accounts as a result of checks outstanding. The book overdraft, which was reclassified to accounts payable, was $37,897,000 and $33,009,000 at December 31, 1996 and 1995, respectively. Inventories. Inventories are carried at the lower of cost or market and are determined under the first-in, first-out method for books and certain finished products, and under the last-in, first-out method for newsprint, paper and certain other inventories. Property, Plant and Equipment. Property, plant and equipment are carried on the basis of cost. Maintenance and repairs are charged to expense as incurred. Additions, improvements and replacements are capitalized. Depreciation is provided on a straight-line basis over the estimated useful lives as follows: Buildings........................... 15-45 years Machinery and equipment............. 3-20 years Leasehold improvements.............. Lesser of useful life or lease term
Goodwill and Other Intangibles. Goodwill recognized in business combinations accounted for as purchases subsequent to October 31, 1970 ($516,689,000 at December 31, 1996 and $638,292,000 at December 31, 1995 net of accumulated amortization of $158,506,000 and $167,399,000, respectively) is being amortized primarily over 15 to 40 years, with a weighted average amortization period of 37 years. Goodwill arising from business combinations consummated prior to November 1, 1970 is not being amortized because, in the opinion of management, it has not diminished in value. Goodwill amortization expense amounted to $23,259,000 for 1996, $25,219,000 for 1995 and $22,330,000 for 1994. Other intangibles arising in connection with acquisitions are being amortized on a straight-line basis over their estimated useful lives ranging from 2 to 21 years, with a weighted average life of 13 years. Amortization expense amounted to $14,055,000 for 1996, $20,753,000 for 1995 and $22,387,000 for 1994. Accumulated amortization was $60,309,000 and $95,105,000 at December 31, 1996 and 1995, respectively. The Company assesses on an ongoing basis the recoverability of goodwill, based on estimates of future undiscounted cash flows for the applicable business compared to net book value. If the future undiscounted cash flow estimate were less than net book value, net book value would then be reduced to fair value based on an estimate of discounted cash flow. The Company also evaluates the amortization periods of assets, including goodwill and other intangible assets, to determine whether events or circumstances warrant revised estimates of useful lives. Deferred Charges. Certain expenses for books and training materials are capitalized and charged to expense over the estimated product life as the products are sold. Magazine subscription procurement costs are charged to expense over the same period as the related revenue is earned. Derivative Financial Instruments. Interest rate swaps and forward interest rate swaps are used to manage exposure to market risk associated with changes in interest rates. Interest rate swaps are accounted for on the accrual basis. Payments made or received are recognized as an adjustment to interest expense related to the debt. Amounts received in connection with forward swaps and terminated swaps are amortized on a straight-line basis as a reduction in interest expense over the term of the swaps. The Company's exposure to market risk associated with fluctuations in the value of foreign currencies relative to the U.S. dollar may be managed with foreign currency forward contracts, currency options, currency 32 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) swaps or other risk management instruments permitted by the Company's internal policy guidelines. The Company's practice over the last few years has been to enter into forward contracts at the beginning of each year, with maturities occurring at various times during the year. The gains and losses on the forward contracts, which have not qualified as accounting hedges, are recognized currently in earnings. Put options are used as an alternative to open market purchases in connection with the Company's common stock repurchase program. Forward purchase contracts for the Company's Series B preferred stock are used to commit holders to make future sales to the Company of shares of its Series B preferred stock (or additional common stock, once the Series B stock is converted into common shares). See Note 21. These contracts are entered into based on market conditions as well as other factors. The costs or benefits derived from these equity-based financial instruments are recorded in equity on the date of the transaction. Revenue Recognition. Revenues from certain products sold with the right of return, principally books, are recognized net of a provision for estimated returns. Revenues from newspaper and magazine subscriptions and professional service fee annual subscriptions are deferred as unearned income at the time of the sale. A pro rata share of the newspaper and magazine subscription price is included in revenue as products are delivered to subscribers. Professional service fee annual subscription revenues are recognized on a straight-line basis over the life of the subscription service. Earnings Per Share. Primary earnings per share is computed by dividing net income, less preferred dividend requirements and, for 1995, cash paid in excess of liquidation value on Series B preferred stock repurchases, by the weighted average number of shares of common stock and common stock equivalents outstanding during the period, except when the common stock equivalents are antidilutive. The weighted average number of shares used for primary earnings per share totaled 105,085,000 and 113,797,000 for the years ended December 31, 1996 and 1995, respectively. Fully diluted earnings per share is computed by dividing net income, less preferred dividend requirements for Series A preferred stock and, for 1995, cash paid in excess of liquidation value for Series B preferred stock repurchases, by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding, assuming that the Series B preferred stock outstanding at December 31, 1996 and 1995 was converted to common stock on a one-for-one basis on January 1, 1996 and March 1, 1995, respectively. The weighted average number of shares used for fully diluted earnings per share is 113,583,000 and 123,001,000 for the years ended December 31, 1996 and 1995, respectively. Stock Options. Employee stock options are accounted for under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which requires the recognition of expense when the option price is less than the fair value of the stock at the date of grant. The Company awards options for a fixed number of shares at an option price equal to the fair value at the date of grant. Accordingly, the financial statements do not include any expense related to employee stock option awards. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." See Note 13. Retirement Plans and Postretirement Benefits. The Company has defined benefit pension plans and various other contributory and noncontributory retirement plans covering substantially all employees. In general, benefits under the defined benefit plans are based on years of service and the employee's compensation during the last five years of employment. Effective January 1, 1996, pension plan benefits for most employees will be limited to 30 years of benefit service beginning January 1, 2006. In determining net periodic pension expense (income), prior service costs are amortized on a straight-line basis over 10 years. The defined benefit plans are generally funded on a current basis in accordance with the Employee Retirement Income Security Act of 1974. The majority of the Company's employees are covered by one defined benefit plan. Funding is not expected to be 33 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) required for this plan in the near future as this plan is overfunded. An Employee Stock Ownership Plan (ESOP), which was frozen effective January 1, 1995, provides benefits in conjunction with certain defined benefits. The fair value of ESOP assets is recognized as an offset to required funding. Postretirement health care benefits provided by the Company are unfunded and cover certain employees hired before January 1, 1993, or approximately half of the Company's current employees. The various plans have significantly different provisions for lifetime maximums, retiree cost-sharing, health care providers, prescription drug coverage and other benefits. Postretirement life insurance benefits are generally insured by life insurance policies and cover employees who retired on or before December 31, 1993. Life insurance benefits vary by plan, ranging from $1,000 to $250,000. Certain employees become eligible for the postretirement health care benefits if they meet minimum age and service requirements and retire from full-time, active service. NOTE 2--ACQUISITIONS, DISPOSITIONS AND WRITEDOWNS During the fourth quarter of 1996, the Company recognized a gain of $121,649,000 on the exchange of its college publishing businesses and the sale of its Spanish language medical book publisher, Doyma Libros, and recorded a writedown of $16,728,000 for the January 1997 disposal of certain net assets of CRC Press, Inc. The net gain of $104,921,000 was $32,047,000 after applicable income taxes, primarily due to permanent differences related to goodwill. Revenues of these businesses represented approximately 7% and 9% of consolidated revenues of the Company for the years ended December 31, 1996 and 1995. On October 15, 1996, the Company and Mosby-Year Book, Inc. (Mosby), a wholly-owned subsidiary of the Company, completed an exchange pursuant to which The McGraw-Hill Companies, Inc. sold all of the outstanding shares of the capital stock of its subsidiary, Shepard's/McGraw-Hill, Inc. (Shepard's), to the Company in exchange for (i) the stock of Times Mirror Higher Education Group, Inc., (ii) the assets and related liabilities of Mosby's college-level life and physical science text business, (iii) certain assets and liabilities of Times Mirror International Publishers U.S., Inc. and affiliated entities relating to the Company's college text business and (iv) certain cash consideration expected to be less than 10% of the fair value of the exchange transaction. In late November 1996, Shepard's was contributed to a new 50/50 joint venture between the Company and Reed Elsevier Inc. (Reed) as part of a broader strategic alliance between Matthew Bender, Times Mirror's legal publisher, and LEXIS-NEXIS, a Reed subsidiary and a provider of full-text online information services in the legal, news, business and government areas. The Company received $242,500,000 from Reed for the 50% interest in the Shepard's joint venture. This transaction did not result in a gain or loss. During 1996, the Company had several other small acquisitions which were accounted for by the purchase method. The operations of these companies are reflected in the Company's financial statements from the date of acquisition. These acquisitions resulted in goodwill of $21,399,000, which is being amortized from 8 to 15 years. During 1995, asset sales resulted in a gain of $41,435,000, or $25,821,000 after applicable income taxes. Gains on the sale of securities, including equity securities in Graphic Holdings, Inc. and a newsprint manufacturer, were partially offset by losses on the disposal of newspaper-related equipment, the sale of The Sporting Goods Dealer and the sale of a small book printing business. Restructuring-related writedowns and charges of $43,851,000, or $40,687,000 after applicable income taxes, were recorded in 1995 to state certain investments at their net realizable value and record certain investment-related commitments. During 1994, the Company recognized a gain of $22,099,000, or $10,646,000 after applicable income taxes, on the divestiture of a small elementary-high school book publishing operation and the sale of preferred stock and common stock warrants, obtained as part of the 1992 settlement of a note receivable related to the 1987 sale of the Denver Post. 34 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--REORGANIZATION New TMC, Inc. was an entity formed, in connection with the 1995 tax-free reorganization, to facilitate the merger of the Company's cable television operations with Cox Communications, Inc. (Cox). The Company's corporate predecessor transferred all of its non-cable operations to New TMC, Inc. simultaneously with the February 1, 1995 merger of its cable television operations with Cox. Subsequent to the merger, New TMC, Inc. was renamed The Times Mirror Company. Financial statement references to the Company apply to New TMC, Inc.'s predecessor for events and transactions occurring prior to the merger. As a result of the merger, Cox assumed approximately $1.36 billion of debt, of which $1.31 billion was borrowed by the Company shortly before the merger. New TMC, Inc. received cash proceeds of $1.23 billion, primarily from the debt issuance, and used the funds to retire $588,010,000 of commercial paper, short-term borrowings and other debt. As additional consideration, Cox issued 54,904,000 shares of its Class A common stock to the non-controlling shareholders of the Company, which group excludes all Chandler Trust shareholders. This stock had a fair value of $932,000,000. Due to certain constraints imposed by the terms of the Chandler Trusts, in lieu of common stock of Cox, the Chandler Trusts received Series A preferred stock. In connection with the settlement of reorganization-related litigation, all non-controlling shareholders were offered the opportunity to exchange shares of Series A or Series C common stock for shares of Series B preferred stock. Accordingly, 16,561,178 shares of Series B preferred stock were issued pursuant to this settlement offer. As a result of this reorganization and merger, the Company recognized a nontaxable gain of $1.63 billion on the disposal of its cable television operations. NOTE 4--DISCONTINUED OPERATIONS Discontinued operations include cable programming, consumer multimedia, an electronic shopping joint venture and cable television. The cable programming business, consumer multimedia business and the joint venture were discontinued during the third quarter of 1995. The cable television operations were disposed of on February 1, 1995. The combined results of operations of these businesses have been reported as discontinued operations for all periods presented. The income (loss) from discontinued operations is as follows (in thousands):
1995 1994 ---------- -------- Revenues............................................ $ 42,673 $499,775 ---------- -------- Income (loss) before income tax provision (bene- fit)(1)............................................ (77,507) 96,592 Income tax provision (benefit)...................... (21,671) 43,466 ---------- -------- Income (loss) after taxes(1)........................ (55,836) 53,126 Net gain on disposal................................ 1,634,294 ---------- -------- Total discontinued operations....................... $1,578,458 $ 53,126 ========== ========
- -------- (1) Included in the loss before income taxes and loss after taxes for 1995 were estimated operating costs during the exit period, writedowns of assets to net realizable value, and severance and other closure costs aggregating $69,755,000, or $49,627,000 after income tax benefits, related to the discontinuance of cable programming, consumer multimedia and a joint venture. 35 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) During the year ended December 31, 1996, expenditures for prior commitments related to discontinued cable programming and consumer multimedia companies aggregated $28,354,000. The major components of cash flow for discontinued operations for the years ended December 31, 1995 and 1994 are as follows (in thousands):
1995 1994 -------- --------- Income (loss) from discontinued operations............. $(55,836) $ 53,126 Depreciation and amortization.......................... 8,459 99,714 Other, net............................................. 34,311 11,885 -------- --------- Net cash provided by (used in) discontinued operating activities............................................ $(13,066) $ 164,725 ======== ========= Capital expenditures................................... $(11,692) $(119,212) Acquisitions, net of cash acquired..................... (10,442) (22,308) Other, net............................................. (9,363) (14,129) -------- --------- Net cash used in investing activities of discontinued operations............................................ $(31,497) $(155,649) ======== =========
NOTE 5--RESTRUCTURING During 1996, the Company recorded restructuring charges of $50,924,000, or $30,305,000 after applicable income taxes, which included reserves related to changing the domestic distribution channels and consolidating and closing selected offices for the medical publishing operations as well as costs and asset writeoffs to further integrate the training companies. The remaining 1996 restructuring liability at December 31, 1996 was $10,205,000. During 1995, the Company recorded restructuring, impairment and one-time charges of $634,077,000, or $410,623,000 after applicable income taxes. Additional charges of $90,030,000 were also included in 1995 results. These charges did not meet the accounting criteria for inclusion in restructuring charges, but were part of the Company's 1995 restructuring program, along with additional pre-tax charges of $69,755,000 related to discontinued operations (see Note 4) and $43,851,000 related to investment writedowns (see Note 2). The remaining 1995 restructuring liability at December 31, 1996 was $148,520,000. The 1995 charges were comprised of the following: Restructuring: Restructuring costs aggregating $409,238,000 consisted of $153,764,000 for termination benefit costs, $126,412,000 for estimated sublease and lease abandonment losses, $117,152,000 for asset write-offs and $11,910,000 for other costs. The termination benefits were largely severance costs that covered approximately 2,700 full-time equivalent employees company- wide, of which 1,900 were in the Newspaper Publishing segment. Severance payments were $45,846,000 and $92,755,000 during 1996 and 1995, respectively. Some terminated employees are receiving severance payments over time. The remaining liability for severance costs at December 31, 1996 aggregated $18,230,000. The sublease and lease abandonment losses primarily covered office space in New York City, largely related to the closure of New York Newsday on July 17, 1995 and the consolidation of office space. Approximately 268,000 square feet has been abandoned and 21,000 square feet has been subleased. The asset write-offs were primarily goodwill and other intangibles related to the closure of Baltimore's Evening Sun on September 15, 1995, the abandonment of the magazines' sports marketing business and the abandonment of other products or product lines, primarily in the health sciences and college publishing businesses. Impairment: In connection with the restructuring of operations at Times Mirror Magazines, magazine titles that historically had operating losses, and that did not have the estimated future earnings necessary to recover asset values, were reviewed for impairment in accordance with SFAS 121 (see Note 1). The net book value of 36 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) the primary long-lived asset, goodwill, exceeded the undiscounted estimated future cash flows for certain magazine titles. The $36,096,000 difference between the net book value and the fair value was recorded as an impairment loss in 1995. The fair value was based on estimated future cash flows discounted at the Company's cost of capital. In connection with the 1995 restructuring of its college publishing business, the Company recorded an impairment loss of $24,797,000 on certain printing, fulfillment and distribution facilities. One-Time Charges: One-time charges aggregating $163,946,000 were primarily related to employee benefit costs incurred in the renegotiation of union agreements at Newsday and the writedown of certain idle facilities and equipment. The balance sheet classification of restructuring liabilities is as follows (in thousands):
DECEMBER 31 ----------------- 1996 1995 -------- -------- Other current liabilities 1995 Restructuring.................................... $ 69,111 $151,165 1996 Restructuring.................................... 7,341 Other liabilities 1995 Restructuring.................................... 79,409 106,584 1996 Restructuring.................................... 2,864 -------- -------- $158,725 $257,749 ======== ========
The current portion of the restructuring liabilities relates primarily to severance and other employee benefit-related costs while the noncurrent portion principally relates to lease payments which will be paid over lease periods extending to 2004. NOTE 6--INTEREST, SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION Cash payments during the years ended December 31, 1996, 1995 and 1994 included interest, net of amounts capitalized, of $24,609,000, $29,218,000 and $71,654,000, respectively, and income taxes of $74,164,000, $84,968,000 and $107,865,000, respectively. Interest capitalized during the years ended December 31, 1996, 1995 and 1994 was not significant. Non-cash transactions were as follows (in thousands):
1996 1995 -------- -------- Exchange of college publishing businesses for Shepard's... $457,839 Liabilities assumed in connection with acquisitions....... 14,618 Fair value of Cox Class A common stock issued to noncontrolling shareholders and accounted for as a partial redemption of certain shareholder interests...... $932,000 Transfer of debt, related interest and other liabilities to Cox................................................... 133,257 Exchange of debentures.................................... 246,965 Issuance of Series A preferred stock...................... 411,784 Exchange of common stock for Series B preferred stock..... 349,954 Retirement of treasury stock.............................. 61,543
Advertising and promotion costs, which are expensed as incurred, amounted to $107,832,000 for 1996, $106,420,000 for 1995 and $98,557,000 for 1994. 37 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7--FINANCIAL INSTRUMENTS Financial instruments consist of the following (in thousands):
DECEMBER 31 ----------------------------------- 1996 1995 ----------------- ----------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- -------- -------- -------- Assets Short-term assets...................... $665,417 $665,417 $817,535 $817,535 Long-term equity securities............ 102,415 102,415 102,663 102,663 Liabilities Short-term liabilities................. 304,983 304,983 395,292 395,292 Long-term debt......................... 459,007 463,788 247,934 273,582 Off Balance Sheet Unrealized net gain on interest rate swaps................................. 12,182 19,478
Short-Term Assets and Liabilities: The fair value of cash and cash equivalents, marketable securities, accounts receivable and accounts payable approximates their carrying value due to the short-term nature of these financial instruments. Marketable securities at December 31, 1996 are available-for-sale equity securities with a cost of $4,050,000. The unrealized gain is included as a separate component of shareholders' equity, net of applicable income taxes. Long-Term Equity Securities: Available-for-sale equity securities which are classified as long-term are stated at fair value based on estimated or quoted market prices and are included in "Other assets" in the consolidated balance sheets. The cost of the securities was $4,000,000 and $7,937,000 at December 31, 1996 and 1995, respectively. The unrealized gain is included as a separate component of shareholders' equity, net of applicable income taxes. Long-Term Debt: The fair value of long-term debt is based primarily on the Company's current refinancing rates for publicly issued fixed rate debt with comparable maturities except for the premium equity participating securities whose fair value is the current maturity value determined by a formula based on quoted market prices of the underlying common stock. Interest Rate Swap: An interest rate swap agreement for a notional amount of $100,000,000, expiring in 2023, effectively converts a portion of the Company's long-term fixed rate debt to a variable rate obligation based on LIBOR. The fair value of the swap is the amount at which it could be settled based on estimates of market rates. In May 1996, the Company terminated an interest rate swap as well as its two forward swap agreements. NOTE 8--INVENTORIES Inventories consist of the following (in thousands):
DECEMBER 31 ----------------- 1996 1995 -------- -------- Newsprint, paper and other raw materials.................. $ 36,822 $ 53,051 Books and other finished products......................... 46,508 91,206 Work-in-progress.......................................... 20,318 29,311 -------- -------- $103,648 $173,568 ======== ========
Inventories determined on the last-in, first-out method were $24,104,000 and $31,137,000 at December 31, 1996 and 1995, respectively, and would have been higher by $10,929,000 in 1996 and $27,647,000 in 1995 had the first-in, first- out method (which approximates current cost) been used. 38 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 9--PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following (in thousands):
DECEMBER 31 --------------------- 1996 1995 ---------- ---------- Land.................................................. $ 90,283 $ 91,118 Buildings............................................. 560,846 550,057 Machinery and equipment............................... 1,376,435 1,334,916 Leasehold improvements................................ 40,340 36,006 Construction-in-progress.............................. 50,976 66,342 ---------- ---------- 2,118,880 2,078,439 Less accumulated depreciation and amortization........ 941,803 903,608 ---------- ---------- $1,177,077 $1,174,831 ========== ==========
NOTE 10--INCOME TAXES Income tax expense (benefit) from continuing operations consists of the following (in thousands):
1996 1995 1994 -------- --------- -------- Current Federal........................................ $ 92,892 $ 12,617 $ 74,675 State.......................................... 32,887 1,048 23,762 Foreign........................................ 13,118 15,045 12,261 Deferred Federal........................................ 50,116 (106,660) 6,375 State.......................................... 8,240 (37,171) 8,579 Foreign........................................ 292 (909) 24 -------- --------- -------- $197,545 $(116,030) $125,676 ======== ========= ========
The difference between actual income tax expense (benefit) and the U.S. Federal statutory income tax expense for continuing operations is reconciled as follows (in thousands):
1996 1995 1994 -------- --------- -------- Income (loss) from continuing operations be- fore income taxes: United States............................... $423,240 $(469,310) $231,684 Foreign..................................... (19,251) 14,297 26,215 -------- --------- -------- $403,989 $(455,013) $257,899 ======== ========= ======== Federal statutory income tax rate............ 35% 35% 35% Federal statutory income tax expense (bene- fit)........................................ $141,396 $(159,255) $ 90,265 Increase (decrease) in income taxes resulting from: State and local income tax expense (benefit), net of Federal effect........... 26,732 (23,421) 21,021 Basis difference in asset sales............. 28,203 (6,391) 3,017 Goodwill amortization not deductible for tax purposes................................... 7,294 7,947 7,569 Writedown of assets......................... 44,291 Foreign tax differentials................... 4,490 7,147 416 Other....................................... (10,570) 13,652 3,388 -------- --------- -------- $197,545 $(116,030) $125,676 ======== ========= ========
39 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The tax effect of temporary differences results in deferred income tax assets (liabilities) and balance sheet classifications as follows (in thousands):
DECEMBER 31 -------------------- TEMPORARY DIFFERENCES 1996 1995 --------------------- --------- --------- Depreciation and other property, plant and equipment differences......................................... $(167,547) $(172,308) Retirement and health benefits....................... (150,359) (132,226) Postretirement benefits.............................. 110,701 111,954 Valuation and other reserves......................... 38,449 61,717 Other employee benefits.............................. 59,746 62,918 Unrealized investment gains.......................... (46,152) (38,805) State and local income taxes......................... 33,483 29,798 Restructuring charges................................ 32,683 83,645 Intangible asset differences......................... 12,178 12,615 Other deferred tax assets............................ 31,123 19,045 Other deferred tax liabilities....................... (33,769) (40,038) --------- --------- $ (79,464) $ (1,685) ========= =========
DECEMBER 31 -------------------- BALANCE SHEET CLASSIFICATIONS 1996 1995 ----------------------------- --------- --------- Current deferred tax assets........................... $ 49,248 $ 134,395 Noncurrent deferred tax assets........................ 779 4,007 Noncurrent deferred tax liabilities................... (129,491) (140,087) --------- --------- $ (79,464) $ (1,685) ========= =========
Noncurrent deferred tax assets are included in "Other assets." NOTE 11--DEBT Long-term debt consists of the following (in thousands):
DECEMBER 31 ------------------ 1996 1995 -------- -------- 7 1/4% Debentures due March 1, 2013..................... $148,215 $148,215 7 1/2% Debentures due July 1, 2023...................... 98,750 98,750 7 1/4% Debentures due November 15, 2096................. 148,000 4 1/4% PEPS due March 15, 2001; 1,305,000 securities stated at current maturity value. 64,543 Others at various interest rates, maturing through 2001. 84 1,222 -------- -------- 459,592 248,187 Unamortized discount.................................... (570) Less current maturities................................. (15) (253) -------- -------- $459,007 $247,934 ======== ========
In March 1996, the Company issued 1,305,000 securities, designated as 4 1/4% Premium Equity Participating Securities (PEPS), for gross proceeds of $51,221,000 or $39.25 per security. This obligation hedges a significant portion of the Company's investment in the common stock of Netscape Communications Corporation (Netscape). 40 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The amount payable at maturity is determined by reference to the fair market value of the Netscape stock. As a result, the maturity value will generally move in tandem with changes in the fair market value of the Netscape stock. The PEPS obligation is recorded (a) at the issuance price of $39.25 if the fair market value of Netscape common stock is between $39.25 and $45.13 or (b) at 86.96% of the fair market value when the Netscape common stock exceeds $45.13. At December 31, 1996, the fair market value of Netscape common stock was $56.875 per share, resulting in a maturity value of approximately $49.46 per security at that date. Changes in the maturity value of the PEPS are included as a separate component of shareholders' equity, net of applicable income taxes. Interest rate swaps converted the weighted average interest rate on the debentures due in 2013 and 2023 from 7.35% to 6.09% for the year ended December 31, 1996. The unamortized discount at December 31, 1996 relates to the 100-year debentures issued in 1996. The Company has an agreement with several domestic and foreign banks for unsecured long-term revolving lines of credit that expire in September 2000. This agreement provides for borrowings up to $400,000,000 at interest rates based on, at the Company's option, the banks' base rates, Eurodollar rates or competitive bid rates. The commitment fee is approximately 8/100 of one percent per annum. The lines of credit are used to support a commercial paper program. Commercial paper was issued during the last half of 1996 but was repaid prior to December 31, 1996. During 1996, the weighted average interest rate and weighted average commercial paper borrowings were 5.40% and $63,959,000, respectively. In addition, the Company has $69,078,000 of undrawn standby letters of credit at December 31, 1996. The Company's revolving lines of credit contain restrictive provisions relating primarily to the level of consolidated net worth. At December 31, 1996, consolidated net worth was required to be not less than approximately $1.37 billion. The Company completed a tender offer in December 1994 for $345,179,000 of its Medium-Term Notes and its three other notes due 1999 thru 2001. The premium and related costs of the tender, aggregating $20,749,000, or $12,232,000 after taxes, were recorded as an extraordinary loss in 1994. At December 31, 1996, the aggregate principal maturities of the Company's debt are as follows (in thousands): 1997-2000........................................................ $ 67 2001............................................................. 64,560 Thereafter....................................................... 394,395
NOTE 12--CAPITAL STOCK AND STOCK REPURCHASE PROGRAM The Series A preferred stock is cumulative, non-voting stock and has an annual dividend rate of 8% of its liquidation value of $411,784,000. The Series B preferred stock is cumulative, voting stock and has an annual dividend rate of $1.374 per share. Both series of preferred stock were entitled to dividends effective March 1, 1995. The Series B preferred stock is mandatorily convertible into the Company's Series A common stock on April 1, 1998, or earlier under certain circumstances (see Note 21). The conversion rate fluctuates with the value of the common stock, but it will not exceed a one-for-one conversion rate. Preferred stock is issuable in series under such terms and conditions as the Board of Directors may determine. Shares of Series A and Series C common stock are identical, except with respect to voting rights, restrictions on transfer of Series C shares and the right to convert Series C shares into Series A shares. Series A shares are entitled to one vote per share and Series C shares are entitled to ten votes per share. Series C shares are subject 41 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) to mandatory conversion into Series A shares upon transfer to any person other than a "Permitted Transferee" as defined in the Company's Certificate of Incorporation or upon the occurrence of certain regulatory events. Series B common stock is entitled to one-tenth vote per share and is available for common stock issuance transactions, such as underwritten public offerings and acquisitions. During 1996, the Company repurchased 11,362,000 common shares for a total cost of $496,780,000. An additional 45,000 common shares were repurchased for $1,954,000 as a result of the exercise of a put option. There were 2,500,000 put options issued by the Company during 1996 with a weighted average strike price of $43.15 per common share. The cash received from the issuance of these put options was not significant. The put options entitle the holder to sell shares of Times Mirror Series A common stock to the Company at the strike price on the expiration date of the put option. The potential obligation under the 800,000 put options outstanding at December 31, 1996 has been transferred from shareholders' equity to "Common stock subject to put options." The unexpired put options are at strike prices ranging from $44.54 to $52.48. These put options expire at various times thru April 1997. Also in 1996, as part of its share repurchase efforts, the Company entered into a series of forward purchase agreements on 552,000 shares of its Series B preferred stock. These contracts, which mature in 1998 but may be terminated prior to maturity, may be settled on a net share basis in Series B preferred stock or in Series A common stock if the Series B preferred stock is redeemed prior to maturity of the contracts. The Company may also elect to settle the contracts in cash. See Note 21. During 1995, the Company repurchased 7,042,000 common shares and 8,772,000 Series B preferred shares for a total cost of $446,536,000. Some of the Series B preferred shares were acquired through a tender offer which ended on December 29, 1995. "Other current liabilities" in the consolidated balance sheet at December 31, 1995 include $91,182,000 for settlement of the tender offer on January 6, 1996. In connection with the Company's ongoing stock repurchase program, in October 1996, the Company's Board of Directors authorized the repurchase over the next three years of an additional 12 million shares of common stock and Series B preferred stock. The aggregate remaining shares authorized for repurchase at December 31, 1996 is approximately 10.8 million shares. The common shares purchased under this program are intended to offset dilution from shares of common stock issued under the Company's stock-based employee compensation and benefit program as well as to enhance shareholder value. NOTE 13--STOCK OPTION AND AWARD PLANS The Company has various stock option plans under which options may be granted to purchase shares of Series A common stock at a price equal to the fair market value at the date of grant. Options that are not exercised expire ten years from the date of grant. Options granted to key employees generally vest over a four-year period. Grants made under a broad-based stock option plan, for employees not eligible for other stock option grants, are fully vested three years after the date of grant. Restricted stock is also awarded to key employees. The number of restricted stock awards, including matching awards in connection with the annual incentive bonus program, is not material. 42 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Options granted, exercised and forfeited were as follows:
WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE ---------- -------- Options Outstanding December 31, 1993................. 4,011,548 $31.14 Granted.............................................. 961,255 30.91 Exercised............................................ (134,135) 26.26 Forfeited............................................ (306,011) 31.85 ---------- ------ Options Outstanding December 31, 1994................. 4,532,657 31.16 Adjustment due to reorganization..................... 3,065,245 Granted.............................................. 2,845,649 33.62 Exercised............................................ (1,207,180) 17.71 Forfeited............................................ (584,714) 15.68 ---------- ------ Options Outstanding December 31, 1995................. 8,651,657 23.29 Granted.............................................. 1,613,851 33.22 Exercised............................................ (1,911,082) 18.86 Forfeited............................................ (582,937) 26.61 ---------- ------ Options Outstanding December 31, 1996................. 7,771,489 $26.12 ========== ======
In connection with the reorganization described in Note 3, the number of options and the option price were adjusted in 1995 based on the average market price for the five days before and after the reorganization was completed. The adjustment increased the number of options outstanding and decreased the option exercise price in order to preserve the economic value of the then outstanding options. Information regarding stock options outstanding and exercisable as of December 31, 1996 is as follows:
PRICE RANGE -------------------------------------- $11.43 $17.70 $30.06 TO $17.29 TO $23.94 TO $44.94 $52.06 --------- --------- --------- -------- Options Outstanding: Number............................ 305,288 3,595,330 3,865,671 5,200 Weighted average exercise price... $16.62 $18.77 $33.68 $52.06 Weighted average remaining contractual life................. 4 years 7 years 9 years 10 years Options Exercisable: Number............................ 305,288 1,778,557 587,574 Weighted average exercise price... $16.62 $19.15 $33.95
At December 31, 1996 and 1995, there were 16,800,309 shares and 18,389,660 shares, respectively, reserved for future grants and awards under the various plans. If the Company recognized employee stock option-related compensation expense in accordance with SFAS 123 and used the Black-Scholes option valuation model for determining the weighted average fair value of options granted after December 31, 1994, its net income and earnings per share would have been as follows (in thousands, except per share amounts):
1996 1995 -------- ---------- Net income........................................... $206,444 $1,226,751 Pro forma stock compensation expense, net............ (4,959) (456) -------- ---------- Pro forma net income................................. $201,485 $1,226,295 ======== ========== Pro forma primary earnings per share................. $ 1.49 $ 10.01 ======== ========== Pro forma fully diluted earnings per share........... $ 1.48 $ 9.40 ======== ==========
43 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) For purposes of the pro forma expense, the weighted average fair value of the options is amortized over the vesting period. The pro forma effect on net income for 1995 through 1998 will not be representative of future years' impact because options granted prior to 1995 are excluded from the pro forma calculations. Options are granted every year and the pro forma expense in future years will grow due to the added layers of amortization for succeeding grants. By 1999, however, the pro forma results will include a full four years' worth of option grants. The weighted average fair values of $8.87 for 1996 stock option grants and $8.72 for 1995 stock option grants were estimated at the date of grant using the following assumptions and the Black-Scholes option valuation model:
1996 1995 ------- ------- Risk-free interest rate.................................. 5.4% 6.0% Expected life............................................ 5 years 7 years Expected volatility...................................... .26 .27 Expected dividend yield.................................. 2.00% 2.93%
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. The Company's employee stock options have characteristics significantly different from those of traded options such as vesting restrictions and lack of transferability. In addition, the assumptions used in option valuation models are highly subjective, particularly the expected stock price volatility for the underlying stock. Because changes in these subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not provide a reliable single measure of the fair value of its employee stock options. NOTE 14--RETIREMENT PLANS AND POSTRETIREMENT BENEFITS Net periodic pension income for the defined benefit plans is as follows (in thousands):
1996 1995 1994 -------- -------- -------- Service cost--benefits earned during period... $(36,866) $(39,448) $(45,777) Interest cost on projected benefit obligation. (47,552) (61,225) (58,613) Return on plan assets......................... 88,731 92,626 98,223 Net amortization and deferral................. 19,995 14,619 14,480 -------- -------- -------- Net periodic pension income................... $ 24,308 $ 6,572 $ 8,313 ======== ======== ========
Curtailment gains in 1996 and 1995 did not exceed the net unrecognized loss in the defined benefit plans and, as a result, were not recognized in earnings. Assumptions used in the actuarial computations were as follows:
DECEMBER 31 ---------------- 1996 1995 1994 ---- ---- ---- Discount rate.............................................. 8.0 % 7.5 % 8.25% Rate of increase in compensation levels.................... 5.0 % 5.0 % 6.0 % Expected long-term rate of return on assets................ 9.75% 9.75% 9.5 %
44 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following sets forth the plans' funded status and amounts recognized in the consolidated balance sheets (in thousands):
DECEMBER 31, 1996 ----------------------- ASSETS ACCUMULATED EXCEED BENEFITS ACCUMULATED EXCEED BENEFITS ASSETS ----------- ----------- Actuarial present value of benefit obligations: Vested............................................. $467,063 $ 40,947 Nonvested.......................................... 4,422 360 -------- -------- Accumulated benefit obligations..................... $471,485 $ 41,307 ======== ======== Projected benefit obligations....................... $555,036 $ 45,541 Plan assets at fair value........................... 965,057 10,327 -------- -------- Plan assets greater (less) than projected benefit obligations........................................ 410,021 (35,214) Unrecognized net (gain) loss from past experience different from that assumed........................ (19,058) 4,863 Prior service cost not yet recognized............... (17,252) 7,350 Unrecognized net transition asset................... (46,776) Adjustment to recognize additional minimum liability.......................................... (8,558) -------- -------- Prepaid pension cost (liability).................... $326,935 $(31,559) ======== ======== DECEMBER 31, 1995 ----------------------- ASSETS ACCUMULATED EXCEED BENEFITS ACCUMULATED EXCEED BENEFITS ASSETS ----------- ----------- Actuarial present value of benefit obligations: Vested............................................. $480,991 $ 35,840 Nonvested.......................................... 2,632 447 -------- -------- Accumulated benefit obligations..................... $483,623 $ 36,287 ======== ======== Projected benefit obligations....................... $606,467 $ 42,723 Plan assets at fair value........................... 897,462 9,681 -------- -------- Plan assets greater (less) than projected benefit obligations........................................ 290,995 (33,042) Unrecognized net loss from past experience different from that assumed.................................. 68,529 6,116 Prior service cost not yet recognized............... 2,765 8,687 Unrecognized net transition asset................... (65,797) Adjustment to recognize additional minimum liability.......................................... (10,107) -------- -------- Prepaid pension cost (liability).................... $296,492 $(28,346) ======== ========
Projected benefit obligations decreased by approximately $76,286,000 and $19,123,000 at December 31, 1996 due to the change in the discount rate and the 30-year limitation on years of benefit service, respectively. Plan assets include the Company's common and Series B preferred stocks, other listed stocks, and corporate and government fixed-income securities. The plan assets at December 31, 1996 include 632,000 shares of the Company's Series C common stock and 270,000 shares of Series B preferred stock with an aggregate fair value of $38,951,000. Benefits provided by the ESOP are coordinated with certain pension benefits and, as a result, the defined benefit plan obligations are net of the actuarially equivalent value of the benefits earned under the ESOP, with the maximum offset equal to the value of the benefits earned under the defined benefit plan. The fair value of the 45 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) ESOP assets was $273,753,000 and $221,576,000 as of December 31, 1996 and 1995, respectively. At December 31, 1996, the ESOP held 2,536,000 shares of Series A common stock, 1,753,000 shares of Series C common stock, and 2,570,000 shares of Cox Class A common stock. The Cox common stock, which was received in connection with the reorganization described in Note 3, is expected to be sold by the end of 1997 and the proceeds will be reinvested. The ESOP currently covers approximately one-half of the Company's employees. The last contribution to the ESOP was in 1994 and the plan has been amended to eliminate contributions by the Company. There are no unallocated shares in the ESOP at December 31, 1996. Substantially all employees over age 21 with one year of service are eligible to participate in the Company's Savings Plus Plan. Eligible employees may contribute from 1 percent to 13 percent of their basic compensation. The Company makes matching contributions equal to 50 percent of employee before- tax contributions from 1 percent to 6 percent. Employees may choose among five investment options, including a Company common stock fund, for investing their contributions and the Company's matching contribution. Defined contribution plan expense, primarily related to the Savings Plus Plan, was $20,293,000 for 1996, $21,347,000 for 1995, and $21,553,000 for 1994. Net periodic postretirement benefit expense is as follows (in thousands):
1996 1995 1994 ------- ------- ------- Service cost--benefits earned during period...... $ 3,190 $ 3,315 $ 3,307 Interest cost on accumulated projected benefit obligation...................................... 9,361 12,707 12,431 Net amortization................................. (8,396) (8,627) (7,712) ------- ------- ------- Net periodic postretirement benefit expense...... $ 4,155 $ 7,395 $ 8,026 ======= ======= =======
In addition, curtailment gains related to postretirement benefit plans totaling $12,044,000 were recorded in 1995 as a result of the workforce reductions. These gains reduced the reported restructuring charges. Assumptions used in the actuarial computations were as follows:
DECEMBER 31 ----------------- 1996 1995 1994 ---- ---- ----- Discount rate............................................. 8.0% 7.5% 8.25% Health care cost trend rate............................... 9.0% 10.0% 11.0 %
At December 31, 1996, the health care cost trend rate of 9.0 percent was assumed to ratably decline to 5.5 percent by 2008 and remain at that level. The following table sets forth the plans' unfunded obligations and amounts recognized in the consolidated balance sheets (in thousands):
DECEMBER 31 ----------------- 1996 1995 -------- -------- Actuarial present value of benefit obligations: Retirees................................................. $ 92,694 $ 97,690 Other fully eligible participants........................ 6,309 8,039 Other active participants................................ 30,289 37,259 -------- -------- Accumulated postretirement benefit obligations............ 129,292 142,988 Unrecognized net decrease in prior service cost........... 63,708 74,753 Unrecognized net gain from past experience different from that assumed............................................. 47,397 25,590 -------- -------- Postretirement benefit liability.......................... $240,397 $243,331 ======== ========
46 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The assumed health care cost trend rate can significantly affect postretirement expense and liabilities. An increase of 1 percent in the health care cost trend rate would increase 1996 net periodic postretirement expense by $1,496,000 and increase the accumulated postretirement benefit obligations as of December 31, 1996 by $9,712,000. A Voluntary Employee Beneficiary Association (VEBA) trust funds certain health care benefits. Funding of the VEBA is generally made on a pay-as-you- go-basis, which leaves minimal cash in the VEBA trust. NOTE 15--LEASES Rental expense under operating leases was $58,909,000, $66,539,000 and $61,440,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Capital leases, contingent rentals and sublease income are not significant. The future net minimum lease payments as of December 31, 1996 for all noncancelable operating leases, excluding future obligations included in the restructuring liabilities on the consolidated balance sheets, are as follows (in thousands): 1997............................................................. $ 39,548 1998............................................................. 35,476 1999............................................................. 32,892 2000............................................................. 28,316 2001............................................................. 25,082 Later years...................................................... 137,487 -------- Total............................................................ $298,801 ========
NOTE 16--BUSINESS SEGMENTS Financial data for the Company's three business segments, Newspaper Publishing, Professional Information and Consumer Media, presented on page 16 of this report, are incorporated herein by reference. Revenues derived from these business segments represent approximately 61%, 30% and 9%, respectively, of the Company's consolidated 1996 revenues. The Newspaper Publishing segment publishes daily metropolitan newspapers in the east coast and west coast regions of the United States, as well as several weekly newspapers. The Professional Information segment publishes various books and other media, including legal and health information services publications, aeronautical charts and flight information, sales and management training programs and, prior to October 15, 1996, higher education textbooks. The Consumer Media segment publishes special interest and trade magazines and art books (see Note 20). Total revenue by industry segment includes sales to unaffiliated customers and intersegment sales, which are accounted for at market price. NOTE 17--USE OF ESTIMATES AND OTHER UNCERTAINTIES Financial statements prepared in accordance with generally accepted accounting principles require management to make estimates and judgments that affect amounts and disclosures reported in the financial statements. Actual results could differ from those estimates, although management does not believe that any differences would materially affect the Company's financial position or reported results. The Company's future results could be adversely affected by a number of factors, including (a) an increase in paper, printing and distribution costs over the levels anticipated; (b) increased consolidation among major retailers or other events depressing the level of display advertising; (c) an economic downturn in the Company's principal newspaper markets or other occurrences leading to decreased circulation and diminished revenues from both display and classified advertising; (d) competitive pressures arising from increased consolidation in the legal information industry; (e) an increase in expenses related to new initiatives and product improvement efforts in the legal information, flight information and health information operating units; (f) unfavorable foreign currency fluctuations; and (g) a general economic downturn resulting in decreased professional or corporate spending on discretionary items such as information or training and in decreased consumer spending on discretionary items such as magazines or newspapers. 47 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 18--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) A summary of the unaudited quarterly results of operations follows (in thousands, except per share amounts):
1996 QUARTERS ENDED ------------------------------------------ MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ---------- -------- --------- --------- Revenues........................... $ 806,759 $837,295 $ 885,561 $ 871,369 Costs and expenses Cost of sales..................... 446,276 434,746 456,237 445,452 Selling, general and administra- tive expenses.................... 310,255 318,260 319,044 307,335 Restructuring charges............. 50,924 ---------- -------- --------- --------- Operating profit................... 50,228 84,289 110,280 67,658 Interest income (expense), net..... (5,451) (7,408) (12,277) 4,232 Asset sales and writedowns, net.... 104,921 Equity income (loss)............... 626 (245) (237) 4,235 Other, net......................... 2,668 2,839 780 (3,149) ---------- -------- --------- --------- Income from continuing operations before income taxes............... 48,071 79,475 98,546 177,897 Income tax provision............... 22,034 33,452 42,841 99,218 ---------- -------- --------- --------- Net income......................... $ 26,037 $ 46,023 $ 55,705 $ 78,679 ========== ======== ========= ========= Primary earnings per share......... $ .14 $ .33 $ .43 $ .67 ========== ======== ========= ========= Fully diluted earnings per share... * * $ .42 $ .64 ========== ======== ========= ========= - -------- *Antidilutive 1995 QUARTERS ENDED ------------------------------------------ MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ---------- -------- --------- --------- Revenues........................... $ 773,670 $843,078 $ 864,797 $ 966,742 Costs and expenses Cost of sales..................... 422,200 458,419 473,127 489,729 Selling, general and administra- tive expenses.................... 321,989 329,533 342,651 431,941 Restructuring, impairment and one- time charges..................... 3,223 379,451 251,403 ---------- -------- --------- --------- Operating profit (loss)............ 26,258 55,126 (330,432) (206,331) Interest income (expense), net..... (2,340) 3,483 (534) (2,839) Asset sales and writedowns, net.... 7,163 (3,645) 2,825 (8,759) Other, net......................... 371 997 2,499 1,145 ---------- -------- --------- --------- Income (loss) from continuing oper- ations before income tax provision (benefit)......................... 31,452 55,961 (325,642) (216,784) Income tax provision (benefit)..... 15,102 26,750 (82,730) (75,152) ---------- -------- --------- --------- Income (loss) from continuing oper- ations............................ 16,350 29,211 (242,912) (141,632) Discontinued operations, net....... 1,637,642 (3,165) (56,019) Cumulative effect of accounting changes, net...................... (12,724) ---------- -------- --------- --------- Net income (loss).................. $1,641,268 $ 26,046 $(298,931) $(141,632) ========== ======== ========= ========= Primary earnings (loss) per share.. $ 13.26 $ .11 $ (2.98) $ (1.62) ========== ======== ========= ========= Fully diluted earnings per share... $ 12.70 * * * ========== ======== ========= =========
- -------- *Antidilutive 48 THE TIMES MIRROR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 19--COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are defendants in actions for libel and other matters arising out of their business operations. In addition, from time to time, the Company and its subsidiaries are involved as parties in various governmental and administrative proceedings, including environmental matters. The Company does not believe that any such proceedings currently pending will have a material adverse effect on its consolidated financial position, although an adverse resolution in any reporting period of one or more of these matters could have a material impact on results of operations for that period. To assure a long-term supply of newsprint for the Los Angeles Times, the Company has an agreement with a supplier to purchase specified quantities of newsprint at prevailing market prices. The specified quantities represent a majority of The Times' newsprint requirements. NOTE 20--PENDING SALE OF ASSETS On September 4, 1996, the Company announced its intention to sell Harry N. Abrams, Inc., which completes the Company's plan to exit the trade book business. Harry N. Abrams is the premier publisher of art and illustrated books in the U.S. and also publishes textbooks, children's books and calendars. The sale is expected to close in the first half of 1997. NOTE 21--EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT On February 28, 1997, the Company announced that it would redeem all of its outstanding Series B preferred stock on April 2, 1997. Each share of Series B preferred stock will be exchanged for .57083 of a share of Series A common stock. The exchange ratio was determined pursuant to the original terms of the Series B preferred stock. Forward purchase contracts for 3,900,000 shares of Series B preferred stock were outstanding on February 28, 1997, largely due to contracts for 3,348,000 shares entered into subsequent to December 31, 1996. The Company expects that these forward contracts will be settled in net shares of Series A common stock as they mature. At February 28, 1997, the forward purchase contracts had a weighted average forward price of $28.475 per Series B share and, if settled in Series A common shares based on the exchange ratio, the Company would be entitled to receive approximately 2,226,000 Series A common shares. 49 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Company's principal officers, including executive officers, are listed in Part I hereof. The information under the heading "Election of Directors" in the definitive Proxy Statement for the Company's 1997 Annual Meeting of Shareholders to be filed by the Company with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information contained under the headings "Compensation of Directors" and "Executive Compensation" in the definitive Proxy Statement for the Company's 1997 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under the heading "Ownership of Voting Securities" in the definitive Proxy Statement for the Company's 1997 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained under the headings "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation" in the definitive Proxy Statement for the Company's 1997 Annual Meeting of Shareholders is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) and (2) Financial Statements and Financial Statement Schedules filed as part of this report: As listed in the Index to Financial Statements and Financial Statement Schedules on page 25 hereof. (a)(3) Exhibits filed as part of this report: As listed in the Exhibit Index beginning on page 55 hereof. (b) Reports on Form 8-K: During the last quarter of 1996, Times Mirror filed current reports on Form 8-K as follows: (1)Current Report on Form 8-K dated October 30, 1996, relating to the acquisition by Times Mirror of Shepard's from McGraw-Hill in exchange for all of the stock of Times Mirror Higher Education Group and certain additional consideration, and the contribution by Times Mirror of the assets of Shepard's to a new joint venture and the anticipated sale of a 50% interest in the joint venture to Reed. (2) Current Report on Form 8-K dated November 13, 1996, relating to the issuance of $148,000,000 of Times Mirror's 7 1/4% Debentures due November 15, 2096, and including as exhibits under Item 7 the Purchase Agreement, an officers' certificate and an opinion of counsel. (3) Current Report on Form 8-K/A dated December 30, 1996, providing the pro forma financial information required by Item 7(b) of the Current Report on Form 8-K dated October 30, 1996 previously filed by Times Mirror. 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE TIMES MIRROR COMPANY By /s/ Mark H. Willes _____________________________________ Mark H. Willes Chairman of the Board, President and Chief Executive Officer Dated: March 17, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Mark H. Willes Chairman of the Board, March 17, 1997 ____________________________________ President, Chief Executive Mark H. Willes Officer and Director (Principal Executive Officer) /s/ Thomas Unterman Senior Vice President and March 17, 1997 ____________________________________ Chief Financial Officer Thomas Unterman (Principal Financial and Accounting Officer) /s/ Richard T. Schlosberg III Executive Vice President and March 17, 1997 ____________________________________ Director Richard T. Schlosberg III /s/ C. Michael Armstrong Director March 17, 1997 ____________________________________ C. Michael Armstrong /s/ Gwendolyn Garland Babcock Director March 17, 1997 ____________________________________ Gwendolyn Garland Babcock
51
SIGNATURE TITLE DATE --------- ----- ---- /s/ Donald R. Beall Director March 17, 1997 ____________________________________ Donald R. Beall /s/ John E. Bryson Director March 17, 1997 ____________________________________ John E. Bryson /s/ Bruce Chandler Director March 17, 1997 ____________________________________ Bruce Chandler /s/ Otis Chandler Director March 17, 1997 ____________________________________ Otis Chandler /s/ Robert F. Erburu Director March 17, 1997 ____________________________________ Robert F. Erburu /s/ Clayton W. Frye, Jr. Director March 17, 1997 ____________________________________ Clayton W. Frye, Jr. /s/ David Laventhol Director March 17, 1997 ____________________________________ David Laventhol /s/ Alfred E. Osborne, Jr. Director March 17, 1997 ____________________________________ Alfred E. Osborne, Jr. /s/ Joan A. Payden Director March 17, 1997 ____________________________________ Joan A. Payden
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SIGNATURE TITLE DATE --------- ----- ---- /s/ William Stinehart, Jr. Director March 17, 1997 ____________________________________ William Stinehart, Jr. /s/ Harold M. Williams Director March 17, 1997 ____________________________________ Harold M. Williams /s/ Warren B. Williamson Director March 17, 1997 ____________________________________ Warren B. Williamson /s/ Edward Zapanta Director March 17, 1997 ____________________________________ Edward Zapanta
53 THE TIMES MIRROR COMPANY SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS OF DOLLARS)
ADDITIONS/(DEDUCTIONS) ------------------------ BALANCE AT CHARGED TO CHARGED DEDUCTIONS BALANCE BEGINNING COSTS AND TO OTHER FROM AT END OF OF PERIOD EXPENSES ACCOUNTS RESERVES PERIOD ---------- ------------ ----------- ---------- --------- Year ended 12/31/96 Allowance for doubtful accounts.............. $32,187 $ 30,180 $ (1,270) $(25,054) $36,043 Allowance for returns.. 47,349 6,019 (9,871) 43,497 ------- ---------- ----------- -------- ------- $79,536 $ 36,199 $ (11,141)(A) $(25,054) $79,540 ======= ========== =========== ======== ======= Year ended 12/31/95 Allowance for doubtful accounts.............. $29,249 $ 25,184 $ 49 $(22,295) $32,187 Allowance for returns.. 43,068 4,528 (247) 47,349 ------- ---------- ----------- -------- ------- $72,317 $ 29,712 $ (198) $(22,295) $79,536 ======= ========== =========== ======== ======= Year ended 12/31/94 Allowance for doubtful accounts.............. $29,666 $ 20,554 $ 694 $(21,665) $29,249 Allowance for returns.. 41,200 517 1,351 43,068 ------- ---------- ----------- -------- ------- $70,866 $ 21,071 $ 2,045(B) $(21,665) $72,317 ======= ========== =========== ======== =======
- -------- (A) Primarily allowances of businesses sold. (B) Primarily acquisitions of businesses accounted for as purchase business combinations. 54 EXHIBIT INDEX Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by Times Mirror, or its predecessor Old Times Mirror, with the Securities and Exchange Commission, as indicated. All other documents listed are filed with this report, unless otherwise indicated.
EXHIBIT NO. ------- *2.1 Agreement and Plan of Merger by and among Old Times Mirror, New TMC Inc. (subsequently changed to The Times Mirror Company), Cox Cable Communications, Inc. and Cox Enterprises, Inc., dated as of June 5, 1994 (Annex IV to Old Times Mirror's definitive Proxy Statement for Special Meeting of Stockholders, dated December 16, 1994) *2.2 Contribution and Assumption Agreement by and between Old Times Mirror and New TMC Inc. (subsequently changed to The Times Mirror Company) as of February 1, 1995 *2.3 Amendment No. 1 to Agreement and Plan of Merger by and among Old Times Mirror, New TMC Inc. (subsequently changed to The Times Mirror Company), Cox Communications, Inc. and Cox Enterprises, Inc. dated as of December 16, 1994 (Annex V to Old Times Mirror's definitive Proxy Statement for Special Meeting of Stockholders, dated December 16, 1994) *2.4 Exchange Agreement dated as of July 3, 1996, and Amendment to Exchange Agreement dated as of October 15, 1996, by and among Times Mirror, Mosby-Year Book, Inc. and The McGraw-Hill Companies, Inc. (Exhibits 2.1 and 2.2, respectively, to Times Mirror's Current Report on Form 8- K, dated October 30, 1996) *3.1 Restated Certificate of Incorporation of Times Mirror, as filed with the Secretary of State of the State of Delaware on January 23, 1995 (Exhibit to Times Mirror's Registration Statement on Form S-4 (File No. 33-87482)) *3.2 Certificate of Amendment to Certificate of Incorporation of Times Mirror, as filed with the Secretary of State of the State of Delaware on February 1, 1995 (Exhibit to Times Mirror's Registration Statement on Form S-4 (File No. 33-87482)) *3.3 Certificate of Designations of Series C Common Stock, as filed with the Secretary of State of the State of Delaware on January 23, 1995 (Exhibit to Times Mirror's Registration Statement on Form S-4 (File No. 33-87482)) *3.4 Bylaws of Times Mirror (Exhibit 3.4 to Times Mirror's 1995 Annual Report on Form 10-K) *3.5 Certificate of Designations of Series A Preferred Stock (Exhibit 3.5 to Times Mirror's 1995 Annual Report on Form 10-K) *3.6 Certificate of Designations of Series B Preferred Stock (Exhibit 3.6 to Times Mirror's 1995 Annual Report on Form 10-K) *4.1 Indenture by and between New TMC Inc. (subsequently changed to The Times Mirror Company) and Wells Fargo Bank (successor to First Interstate Bank of California), as Trustee for the 7 1/4% Debentures due 2013 and 7 1/2% Debentures due 2023, dated January 30, 1995 (Exhibit 4.1 to Times Mirror's 1995 Annual Report on Form 10-K) *4.2 Specimen Note for 7 1/4% Debenture due March 1, 2013 (New TMC Inc., subsequently changed to The Times Mirror Company) (Exhibit 4.2 to Times Mirror's 1995 Annual Report on Form 10-K) *4.3 Specimen Note for 7 1/2% Debenture due July 1, 2023 (New TMC Inc., subsequently changed to The Times Mirror Company) (Exhibit 4.3 to Times Mirror's 1995 Annual Report on Form 10-K) *4.4 Indenture dated March 19, 1996, by and between The Times Mirror Company and Citibank, N.A., as Trustee for the 4 1/4% PEPS due March 15, 2001 and the 7 1/4% Debentures due November 15, 2096 (Exhibit 4.1 to Times Mirror's Current Report on Form 8-K, dated March 19, 1996)
55
EXHIBIT NO. ------- *4.5 Officers' Certificate dated as of March 19, 1996 establishing the terms of the PEPS and attaching the Specimen Certificate for the 4 1/4% PEPS due March 15, 2001 and the Specimen Certificate of Global PEPS (Exhibit 4.2 to Times Mirror's Current Report on Form 8-K, dated March 19, 1996) *4.6 Officers' Certificate dated November 13, 1996 establishing the terms of the 7 1/4% Debentures due November 15, 2096 and attaching the specimen Form of Debenture (Exhibit 4.2 to Times Mirror's Current Report on form 8-K, dated November 13, 1996) *10.1 Deferred Compensation Plan for Executives (Exhibit 10.1 to Times Mirror's 1994 Annual Report on Form 10-K) *10.2 1987 Restricted Stock Plan (Exhibit II to Old Times Mirror's definitive Proxy Statement, dated March 27, 1987) *10.3 1984 Executive Stock Option Plan (Exhibit A to Old Times Mirror's definitive Proxy Statement, dated April 23, 1984) *10.4 1988 Executive Stock Option Plan (Exhibit A to Old Times Mirror's Proxy Statement, dated March 30, 1988) *10.5 Deferral Plan for Director's Fees (Exhibit 10.8 to Old Times Mirror's 1981 Annual Report on Form 10-K) *10.6 The Times Mirror Pension Plan for Directors, as Amended and Restated on March 5, 1987 (Exhibit 10.11 to Old Times Mirror's 1986 Annual Report on Form 10-K) *10.7 Deferred Compensation Plan for Non-Employee Directors (Exhibit 10.7 to Times Mirror's 1994 Annual Report on Form 10-K) *10.8 Non-Employee Director Stock Option Plan (Appendix A to Old Times Mirror's definitive Proxy Statement, dated March 21, 1994) *10.9 Agreement dated April 29, 1985 between Old Times Mirror and Otis Chandler (Exhibit 10.10 to Old Times Mirror's 1985 Annual Report on Form 10-K) *10.10 Letter Agreement amended and restated as of August 28, 1995 between Times Mirror and Mark H. Willes (Exhibit 10.10 to Times Mirror's 1995 Annual Report on Form 10-K) *10.11 1992 Key Employee Long-Term Incentive Plan (Appendix A to Old Times Mirror's Proxy Statement, dated March 20, 1992) *10.12 1996 Management Incentive Plan (Exhibit 10.12 to Times Mirror's 1995 Annual Report on Form 10-K) *10.13 Non-Employee Directors Stock Plan (Exhibit 10.13 to Times Mirror's 1995 Annual Report on Form 10-K) 10.14 The Times Mirror Company Non-Employee Directors Stock Plan As Amended and Restated Effective January 1, 1997 10.15 The Times Mirror Company 1997 Directors Stock Option Plan 11 Computation of Earnings Per Share 12 Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends 21 Subsidiaries of the Registrant 23 Consent of Ernst & Young LLP, Independent Auditors 27 Financial Data Schedule
56 EX-10.14 2 NON-EMPLOYEE DIRECTORS STOCK PLAN EXHIBIT 10.14 THE TIMES MIRROR COMPANY NON-EMPLOYEE DIRECTORS STOCK PLAN As Amended and Restated Effective January 1, 1997 1. Purpose of the Plan. Under this Non-Employee Directors Stock Plan (the "Directors Plan") of The Times Mirror Company, a Delaware corporation (the "Company"), shares of the Company's Series A Common Stock, $1.00 par value ("Common Stock"), shall be issued to participants in partial compensation for their service as directors of the Company. This Directors Plan is designed to promote the long-term growth and financial success of the Company by enabling the Company to attract, retain and motivate such persons by providing for or increasing their proprietary interest in the Company and by aligning the economic interests of such persons with those of the Company's stockholders. 2. Definitions. For purposes of this Directors Plan: (a) The term "Board" shall mean the Company's Board of Directors. (b) The term "Fair Market Value" shall mean, as of any date, and unless the Committee shall specify otherwise, the mean between the high and the low market prices for the Common Stock reported for that date on the composite tape for securities listed on the New York Stock Exchange or, if the Common Stock did not trade on the New York Stock Exchange on the date in question, then for the next preceding date on which the Common Stock traded on the New York Stock Exchange. (c) The term "Meeting Date Market Price" shall mean, with respect to any Payment Date, the Fair Market Value of the Common Stock of the Company over the five business days ending on the Friday preceding the Payment Date. (d) The term "Participant" shall mean any person who on a Payment Date is a member of the Board of Directors of the Company and is not an employee of the Company or a subsidiary of the Company. For purposes of this Section 2(d), unless the Board provides otherwise, a person shall not be considered an employee solely by reason of serving as Chairman of the Board. (e) The term "Payment Date" shall mean the date on which each director's retainer fees are paid by the Company. Unless the Board specifies otherwise, the Payment Date for each Participant shall be the first Board meeting of the calendar year. (f) The term "Retainer Shares" shall mean the aggregate number of Shares declared by the Board to be payable as a directors' retainer during a calendar year, including any retainer for chairing the Board or a Committee of the Board, to each non-employee director of the Company, as determined from time to time by the Board. (g) The term "Shares" shall mean shares of Common Stock granted under this Plan. 3. Effective Date. This Directors Plan initially became effective after its approval at the May 1996 annual stockholders' meeting. This Directors Plan was amended and restated effective as of January 1, 1997, subject to the approval of the Board, to reflect the Board's determination to denominate retainers in terms of shares and to pay retainers on a calendar year basis. Common Stock may not be issued under this Directors Plan after termination of this Directors Plan by the Board, after issuance of all of the Shares authorized for issuance under this Directors Plan or more than ten years after the date of stockholder approval of this Directors Plan, whichever is earlier. However, the ten year limitation would not apply with respect to shares held in a deferred account which were deferred within the ten year period. 4. Plan Operation. This Directors Plan is intended to operate in a manner that meets the requirements of a formula plan under Rule 16b-3 (or its successor) adopted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Subject to the express authority of the Board hereunder, this Plan shall be administered by the Compensation Committee of the Board, and all decisions, determinations and interpretations by the Committee regarding the Plan shall be final and binding on all current, future and former Participants. 2 Such Committee may delegate to one or more of its members or to any person or persons such ministerial duties as it may deem advisable. To the extent any provision of this Directors Plan or action taken hereunder fails to qualify for an exemption under Rule 16b-3, such provision or action shall be deemed null and void and shall be conformed so as to so operate, to the extent permitted by law and deemed advisable by the Board. 5. Stock Subject to Directors Plan. The maximum number of Shares that may be issued hereunder shall be 500,000, subject to adjustments under Section 6. 6. Adjustments. If the outstanding securities of the class then subject to this Plan are increased, decreased or exchanged for or converted into cash, property or a different number or kind of shares or securities, or if cash, property or shares or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger, consolidation, recapitalization, restructuring, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split, spin-off or the like, or if substantially all of the property and assets of the Company are sold, then, unless the terms of such transaction shall provide otherwise, the Board shall make an appropriate adjustment in the number and/or type of shares or securities which may thereafter be issued under this Directors Plan. 7. Participant Retainers. Commencing on the first Payment Date after this amendment and restatement of the Directors Plan becomes effective, and on each Payment Date thereafter during the term of this Directors Plan, each Participant shall be granted (a) the number of Retainer Shares as specified by the Board, and (b) an amount in cash (the "Cash Retainer") equal to the Meeting Date Market Price of the Retainer Shares. If a director becomes a Participant after the Payment Date, at the first Board meeting he or she attends as a Participant, he or she shall receive a pro-rata amount of the Retainer Shares and of the Cash Retainer, based upon the number of months (rounded up to the nearest whole month) remaining in the calendar year. In addition, a Participant may elect to receive all or any portion of the Cash Retainer in Shares under this Directors Plan. If on any date upon which Shares are to be granted under this Directors Plan the number of Shares remaining available under the Directors Plan is less than the number of Shares required for all grants to be made on such date, then any election to receive all or any portion of the Cash Retainer in Shares shall be void, and a proportionate amount of such available number of Shares shall be granted to each Participant, and in lieu of the Shares that otherwise would be issuable, the Participants shall be paid an amount in cash equal to the (a) the difference between the number of Retainer Shares that otherwise would have been issued to the Participant, and the number of Shares actually issued to the Participant, multiplied by (b) the Meeting Date Market Price. 3 8. Deferral of Shares. A Participant may elect to defer receipt of all or any portion of the Retainer under this Directors Plan. This deferral shall be denominated in Common Stock (in the case of a deferred Cash Retainer, determined on the basis on the Meeting Date Market Price) as if the Participant had elected to receive such portion of the Retainer in Shares, and thereafter such deferral shall be valued in Common Stock. The number of Shares subject to such deferral shall be increased by the value of any dividends declared with respect to Common Stock, which value shall be deemed to be reinvested in additional deferred Shares, based on the Fair Market Value on the date the dividend would be payable. The aggregate number of deferred Shares credited on behalf of a Participant under this Directors Plan shall be paid to a Participant in Shares under this Directors Plan, in accordance with an election made by the Participant under rules established for this purpose under the Deferred Compensation Plan for Directors or as specified by the Compensation Committee. 9. Amendment and Termination. The Board may alter, amend, suspend, or terminate this Directors Plan, provided that no such action shall deprive any Participant, without his or her consent, of any Shares theretofore issued under this Directors Plan, or deferred under this Directors Plan and provided further that the provisions of this Directors Plan designating persons eligible to participate in the Directors Plan and specifying the Retainer Amount and the amount and timing of grants under this Directors Plan shall not be amended more than once every six months other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder, unless such restriction on amendments to this Directors Plan is not necessary in order for the Participants to remain "disinterested administrators" under Exchange Act Rule 16b-3. 10. Taxes. The Board may make such provisions or impose such conditions as it may deem appropriate for the withholding or payment by a Participant of any taxes which it determines are necessary or appropriate in connection with any issuance of Shares under this Plan, and a Participant's rights in any Shares are subject to satisfaction of such conditions. The Company and any affiliate of the Company shall not be liable to a Participant or any other persons as to any tax consequence expected, but not realized, by any Participant or other person due to the receipt of any Shares granted hereunder. 11. Compliance with Law. Shares shall not be issued under this Directors Plan unless and until counsel for the Company shall be satisfied that any conditions necessary for such issuance to comply with applicable federal, 4 state or local tax, securities or other laws or rules or applicable securities exchange requirements have been fulfilled. 12. Governing Law; Miscellaneous. This Directors Plan and any rights hereunder shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. Neither this Directors Plan nor any action taken pursuant thereto shall be construed as giving any Participant any right to be retained in the service of the Company or nominated for re-election to the Board. 13. Arbitration. Any claim, dispute or other matter in question of any kind relating to this Plan shall be settled by arbitration in accordance with the Rules of the American Arbitration Association, which proceedings shall be held in the city in which the Company's executive offices are located. Notice of demand for arbitration shall be made in writing to the opposing party and to the American Arbitration Association within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall a demand for arbitration be made after the date when the applicable statute of limitations would bar the institution of a legal or equitable proceeding based on such claim, dispute or other matter in question. The decision of the arbitrators shall be final and may be enforced in any court of competent jurisdiction. 5 EX-10.15 3 1997 DIRECTORS STOCK OPTION PLAN EXHIBIT 10.15 THE TIMES MIRROR COMPANY 1997 DIRECTORS STOCK OPTION PLAN 1. PURPOSE ------- The purpose of The Times Mirror Company 1997 Directors Stock Option Plan (the "Plan") is to advance the interests of The Times Mirror Company, a Delaware corporation (hereinafter the "Company"), by enabling the Company to attract, retain and motivate qualified individuals to serve on the Company's Board of Directors and to align the financial interests of such individuals with those of the Company's stockholders by providing for or increasing their proprietary interest in the Company. The stock options granted pursuant to this Plan are not qualified under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. DEFINITIONS ----------- "Board" means the Board of Directors of the Company. "Committee" means the Board and/or a committee of the Board acting pursuant to its authorization to administer this Plan under Section 4. "Common Stock" means the Company's Series A Common Stock, par value $1.00, as presently constituted, subject to adjustment as provided in Section 9. "Fair Market Value" means, as of any date, and unless the Board shall specify otherwise, the mean between the high and the low market prices for the Common Stock reported for that date on the composite tape for securities listed on the New York Stock Exchange or, if the Common Stock did not trade on the New York Stock Exchange on the date in question, then for the next preceding date for which the Common Stock traded on the New York Stock Exchange. 1 "Non-Employee Director" means a member of the Board who is not at the time also an employee of the Company or a subsidiary of the Company. For purposes of this Plan, the Chairman of the Board's status as an employee shall be determined by the Board. "Plan" means The Times Mirror Company 1997 Directors Stock Option Plan. 3. SHARES SUBJECT TO THE PLAN AND TO OPTIONS ----------------------------------------- Subject to adjustment as provided in Section 9, the maximum number of shares of Common Stock which may be issued pursuant to this Plan shall not exceed 500,000. Shares issued under this Plan may be authorized and unissued shares of Common Stock or shares of Common Stock reacquired by the Company. All or any shares of Common Stock subject to an option which for any reason are not issued under an option may again be made subject to an option under the Plan. 4. PARTICIPANTS ------------ Any person who is a Non-Employee Director shall be eligible for the grant of options hereunder. 5. NON-EMPLOYEE DIRECTOR OPTION GRANTS ----------------------------------- The Board may provide for options to be granted to Non-Employee Directors in consideration for their service to the Company. The Board shall determine to which Non-Employee Directors options shall be granted hereunder (any such person, a "Participant"). The Board shall specify the number of shares subject to each option grant provided for under this Section 5, or the formula pursuant to which such number shall be determined, the Participants to receive any such grant, the date of grant and the vesting and expiration terms applicable to such options. The grant of options hereunder may, but need not, be conditioned on the Non-Employee Director electing to forego his or her right to all or any part of his or her cash retainer or other fees. Subject to adjustment pursuant to Section 9, the maximum number of shares of Common Stock subject to 2 options granted under this Plan during any calendar year to any person on account of his or her service as a Non-Employee Director, other than options that a Non-Employee Director has elected to receive in lieu of cash retainers or other fees, shall not exceed 50,000 shares. 6. GRANT, TERMS AND CONDITIONS OF OPTIONS -------------------------------------- Options granted pursuant to the Plan need not be identical but each option shall be subject to the following terms and conditions: Price: The exercise price for each option shall be established by the ----- Board. The exercise price shall not be less than the Fair Market Value of the Common Stock on the date of grant. The exercise price shall be paid in full at the time of exercise. The exercise price shall be payable in cash, by payment under an arrangement with a broker where payment is made pursuant to an irrevocable direction to the broker to deliver all or part of the proceeds from the sale of the option shares to the Company, by the surrender of shares of Common Stock owned by the optionholder exercising the option and having a fair market value on the date of exercise equal to the exercise price, or by any combination of the foregoing. In addition, the exercise price shall be payable in such other form(s) of consideration as the Committee in its discretion shall specify, including without limitation by loan (as described in Section 8). 7. ADMINISTRATION OF THE PLAN -------------------------- The Plan shall be administered by the Board, except that as provided herein the Plan may be administered by a Committee of the Board, as appointed from time to time by the Board. The Board shall fill vacancies on and from time to time may remove or add members to the Committee. The Committee shall act pursuant to a majority vote or unanimous written consent. Subject to the express provisions of this Plan, the Committee shall be authorized and empowered to do all things necessary or desirable in connection with the administration of this Plan, including, without 3 limitation: (a) to prescribe, amend and rescind rules relating to this Plan and to define terms not otherwise defined herein; (b) to prescribe the form of documentation used to evidence any option granted hereunder, including to provide for such terms as it considers necessary or desirable, not inconsistent with the terms established by the Board; (c) to establish and verify the extent of satisfaction of any conditions to exercisability applicable to options; (d) to determine whether, and the extent to which, adjustments are required pursuant to Section 9 hereof; and (e) to interpret and construe this Plan, any rules and regulations under the Plan and the terms and conditions of any option granted hereunder, and to make exceptions to any procedural provisions in good faith and for the benefit of the Company. Notwithstanding any provision of this Plan, the Board may at any time limit the authority of the Committee to administer this Plan. All decisions, determinations and interpretations by the Board or, except as to the Board, the Committee regarding the Plan, any rules and regulations under the Plan and the terms and conditions of any option granted hereunder, shall be final and binding on all Participants and optionholders. The Board or the Committee may consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants and accountants as it may select. 8. LOANS ----- The Company may, if authorized by the Board, make loans for the purpose of enabling a Participant to exercise options granted under the Plan and to pay the tax liability resulting from an option exercise under the Plan. The Board shall have full authority to determine the terms and conditions of Terms of Options and Restrictions Upon Option Shares: ---------------------------------------------------- The Board may provide that the shares of Common Stock issued upon exercise of an option shall be subject to such further conditions or agreements as the Board in its discretion may specify prior to the exercise of such option, including without limitation, deferrals on 4 issuance, conditions on vesting or transferability, and forfeiture or repurchase provisions. Transferability of Option: Unless otherwise provided by the Committee, ------------------------- each option shall be transferable only by will or the laws of descent and distribution. Other Terms and Conditions: No optionholder shall have any rights as a -------------------------- stockholder with respect to any shares of Common Stock subject to an option hereunder until said shares have been issued. Options may also contain such other provisions, which shall not be inconsistent with any of the foregoing terms, as the Board or the Committee shall deem appropriate. The Board may waive conditions to and/or accelerate exercisability of an option, either automatically upon the occurrence of specified events (including in connection with a change of control of the Company) or otherwise in its discretion. No option, however, nor anything contained in the Plan, shall confer upon any Participant any right to serve as a director of the Company. Such loans may be secured by the shares of Common Stock received upon exercise of such option. 9. ADJUSTMENT OF AND CHANGES IN THE STOCK -------------------------------------- If the outstanding securities of the class then subject to this Plan are increased, decreased or exchanged for or converted into cash, property or a different number or kind of shares or securities, or if cash, property or shares or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split, spin-off or the like, or if substantially all of the property and assets of the Company are sold, then, unless the terms of such transaction shall provide otherwise, the maximum number and type of shares or other securities that may be issued under this Plan shall be appropriately adjusted. The Committee shall determine in its sole discretion the appropriate adjustment to be effected pursuant to the immediately preceding sentence. In addition, in connection with any such change in the class of securities then subject to this Plan, the Committee may make appropriate and 5 proportionate adjustments in the number and type of shares or other securities or cash or other property that may be acquired pursuant to options theretofore granted under this Plan and the exercise price of such options. No right to purchase fractional shares shall result from any adjustment in options pursuant to this Section. In case of any such adjustment, the shares subject to the option shall be rounded up to the nearest whole share of Common Stock. 10. REGISTRATION, LISTING OR QUALIFICATION OF STOCK ----------------------------------------------- In the event that the Board or the Committee determines in its discretion that the registration, listing or qualification of the shares of Common Stock issuable under the Plan on any securities exchange or under any applicable law or governmental regulation is necessary as a condition to the issuance of such shares under the option, the option shall not be exercisable or exercised in whole or in part unless such registration, listing, qualification, consent or approval has been unconditionally obtained. 11. TAXES ----- The Board or Committee may make such provisions or impose such conditions as it may deem appropriate for the withholding or payment by a Participant of any taxes which it determines are necessary or appropriate in connection with any issuance of shares under this Plan, and an optionholder's rights in any shares are subject to satisfaction of such conditions. The Company shall not be required to issue shares of Common Stock or to recognize the disposition of such shares until such obligations are satisfied. At the Participant's election, any such obligations may be satisfied by having the Company withhold a portion of the shares of Common Stock that otherwise would be issued to the optionholder upon exercise of the option or by tendering shares of Common Stock previously acquired. The Company and any affiliate of the Company shall not be liable to a Participant or any other persons as to any tax consequence expected, but not realized, by any Participant or other person due to the receipt of any shares granted hereunder. 6 12. ARBITRATION AND APPLICABLE LAW ------------------------------ Any claim, dispute or other matter in question of any kind relating to this Plan shall be settled by arbitration in accordance with the Rules of the American Arbitration Association, which proceedings shall be held in the city in which the Company's executive offices are located. Notice of demand for arbitration shall be made in writing to the opposing party and to the American Arbitration Association within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall a demand for arbitration be made after the date when the applicable statute of limitations would bar the institution of a legal or equitable proceeding based on such claim, dispute or other matter in question. The decision of the arbitrators shall be final and may be enforced in any court of competent jurisdiction. This Plan and any rights hereunder shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. 13. EFFECTIVE DATE, AMENDMENT AND TERMINATION OF PLAN ------------------------------------------------- This Plan shall become effective upon its approval by a majority of the outstanding shares of the Company present, or represented by proxy, and entitled to vote at a meeting of the Company's stockholders at the 1997 annual meeting of stockholders. Any options granted prior to such date shall be contingent on such approval and, if such approval is not obtained, shall be null and of no effect. Unless earlier suspended or terminated by the Board, no options may be granted after the tenth anniversary of the date the Plan is approved by the Company's stockholders. The Board may periodically amend the Plan as determined appropriate, without further action by the Company's stockholders except to the extent required by applicable law. Notwithstanding the foregoing, subject to adjustment pursuant to Section 9, the Plan may not be amended to materially increase the number of shares of Common Stock authorized for issuance under the Plan or the number of shares of Common Stock that may be subject to options granted to any one Participant during any calendar year, unless any such amendment is approved by the Company's stockholders. The Plan may be earlier terminated at such earlier time as the Board may determine. 7 Termination and expiration of the Plan will not affect the rights and obligations arising under options theretofore granted and then in effect. 8 EX-11 4 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 PAGE 1 OF 2 THE TIMES MIRROR COMPANY COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31 ------------------------------------ 1996 1995 1994 ----------- ----------- ----------- PRIMARY Average shares outstanding............... 102,113,298 113,797,192 128,611,404 Dilutive stock options based on the treasury stock method using average market price............................ 2,971,884 * 195,752 ----------- ----------- ----------- Total................................ 105,085,182 113,797,192 128,807,156 =========== =========== =========== Income (loss) from continuing operations. $ 206,444 $ (338,983) $ 132,223 Discontinued operations.................. 1,578,458 53,126 Extraordinary loss on early retirement of debt, net of income taxes............... (12,232) ----------- ----------- ----------- Income before cumulative effect of changes in accounting principles........ 206,444 1,239,475 173,117 Cumulative effect of changes in accounting principles................... (12,724) ----------- ----------- ----------- Net income............................... $ 206,444 $ 1,226,751 $ 173,117 =========== =========== =========== Preferred dividends...................... $ 43,645 $ 44,003 =========== =========== Cash paid in excess of liquidation value for Series B preferred stock repurchases............................. $ 43,085 =========== Earnings applicable to common shareholders............................ $ 162,799 $ 1,139,663 $ 173,117 =========== =========== =========== Primary earnings (loss) per common share: Continuing operations.................. $ 1.55 $ (3.74) $ 1.03 Discontinued operations................ 13.87 .41 Extraordinary loss..................... (.09) Cumulative effect of changes in accounting principles................. (.11) ----------- ----------- ----------- Primary earnings per common share........ $ 1.55 $ 10.02 $ 1.35 =========== =========== =========== FULLY DILUTED Average shares outstanding............... 102,113,298 113,797,192 128,611,404 Common shares assumed issued upon conversion of Series B preferred stock.. 7,789,276 6,491,063 Dilutive stock options based on the treasury stock method using year end market price, if higher than average market price............................ 3,680,827 2,713,190 195,752 ----------- ----------- ----------- Total................................ 113,583,401 123,001,445 128,807,156 =========== =========== =========== Income (loss) from continuing operations. $ 206,444 $ (338,983) $ 132,223 Discontinued operations.................. 1,578,458 53,126 Extraordinary loss on early retirement of debt, net of income taxes............... (12,232) ----------- ----------- ----------- Income before cumulative effect of changes in accounting principles........ 206,444 1,239,475 173,117 Cumulative effect of changes in accounting principles................... (12,724) ----------- ----------- ----------- Net income............................... $ 206,444 $ 1,226,751 $ 173,117 =========== =========== =========== Preferred dividends...................... $ 32,943 $ 27,452 =========== =========== Cash paid in excess of liquidation value for Series B preferred stock repurchases............................. $ 43,085 =========== Earnings applicable to common shareholders............................ $ 173,501 $ 1,156,214 $ 173,117 =========== =========== =========== Fully diluted earnings (loss) per common share: Income before cumulative effect of changes in accounting principles...... $ 1.53 $ 9.50 $ 1.35 Cumulative effect of changes in accounting principles................. (.10) ----------- ----------- ----------- Fully diluted earnings per common share.. $ 1.53 $ 9.40 $ 1.35 =========== =========== ===========
- ------- * Less than 3% dilution: common stock equivalents of 1,653,088 are not added to weighted average shares. EXHIBIT 11 PAGE 2 OF 2 THE TIMES MIRROR COMPANY COMPUTATION OF EARNINGS PER SHARE (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FOURTH QUARTER ENDED DECEMBER 31 ----------------------- 1996 1995 ----------- ----------- PRIMARY Average shares outstanding............................ 98,183,269 108,164,728 Dilutive stock options based on the treasury stock method using average market price.................... 3,595,123 * ----------- ----------- Total............................................. 101,778,392 108,164,728 =========== =========== Net income (loss)..................................... $ 78,679 $ (141,632) =========== =========== Preferred dividends................................... $ 10,912 $ 12,052 =========== =========== Cash paid in excess of liquidation value for Series B preferred stock repurchases.......................... $ 21,818 =========== Earnings (loss) applicable to common shareholders..... $ 67,767 $ (175,502) =========== =========== Primary earnings (loss) per common share.............. $ .67 $ (1.62) =========== =========== FULLY DILUTED Average shares outstanding............................ 98,183,269 108,164,728 Common shares assumed issued upon conversion of Series B preferred stock.................................... 7,789,276 7,789,276 Dilutive stock options based on the treasury stock method using year end market price, if higher than average market price................................. 3,682,785 2,713,190 ----------- ----------- Total............................................. 109,655,330 118,667,194 =========== =========== Net income (loss)..................................... $ 78,679 $ (141,632) =========== =========== Preferred dividends................................... $ 8,236 $ 8,236 =========== =========== Cash paid in excess of liquidation value for Series B preferred stock repurchases.......................... $ 21,818 =========== Earnings (loss) applicable to common shareholders..... $ 70,443 $ (171,686) =========== =========== Fully diluted earnings per common share............... $ .64 $ * =========== ===========
- ------- * Antidilutive due to loss: common stock equivalents of 2,388,829 are not added to weighted average shares. EX-12 5 COMPUTATION OF RATIOS AND PREFERRED STOCK EXHIBIT 12 PAGE 1 OF 2 THE TIMES MIRROR COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31 ---------------------------------------------- 1996 1995 1994 1993 1992 -------- --------- -------- -------- -------- Fixed Charges Interest expense.............. $ 27,047 $ 29,467 $ 69,322 $ 84,054 $ 74,281 Interest related to ESOP(a)... 1,376 2,611 4,113 Capitalized interest.......... 485 1,142 391 3,963 Portion of rents deemed to be interest..................... 19,636 22,180 20,418 21,007 21,857 Amortization of debt expense.. 529 411 339 995 600 -------- --------- -------- -------- -------- Total Fixed Charges........ $ 47,212 $ 52,543 $ 92,597 $109,058 $104,814 ======== ========= ======== ======== ======== Earnings (Loss) Income (loss) from continuing operations before income taxes........................ $403,989 $(455,013) $257,899 $109,785 $ (7,102) Fixed charges, less capitalized interest and interest related to ESOP(a).. 47,212 52,058 90,079 106,056 96,738 Amortization of capitalized interest..................... 4,102 4,475 4,229 4,222 5,963 Distributed income from less than 50% owned unconsolidated affiliates................... 191 352 292 281 214 Subtract: Equity loss (income) from less than 50% owned unconsolidated affiliates.... 14 (615) 1,158 1,067 2,025 -------- --------- -------- -------- -------- Total Earnings (Loss)...... $455,508 $(398,743) $353,657 $221,411 $ 97,838 ======== ========= ======== ======== ======== Ratio of earnings to fixed charges....................... 9.6x (b) 3.8x 2.0x (c)
- -------- (a) The Company guaranteed repayment of debt of the Employee Stock Ownership Plan and, accordingly, included the related interest in fixed charges. This debt was repaid on December 15, 1994. (b) Earnings are approximately $451 million lower than the amount needed to cover fixed charges in this year, as earnings in 1995 were impacted by approximately $768 million in restructuring charges. (c) Earnings are approximately $7 million lower than the amount needed to cover fixed charges in this year, as earnings in 1992 were impacted by over $200 million in restructuring charges. EXHIBIT 12 PAGE 2 OF 2 THE TIMES MIRROR COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31 ------------------ 1996 1995 -------- --------- Fixed Charges Interest expense......................................... $ 27,047 $ 29,467 Capitalized interest..................................... 485 Portion of rents deemed to be interest................... 19,636 22,180 Amortization of debt expense............................. 529 411 -------- --------- Total Fixed Charges.................................... 47,212 52,543 Preferred Stock Dividend Requirements...................... 85,578 74,581 -------- --------- Fixed Charges and Preferred Stock Dividends............ $132,790 $ 127,124 ======== ========= Earnings (Loss) Loss from continuing operations before income taxes...... $403,989 $(455,013) Fixed charges, less capitalized interest................. 47,212 52,058 Amortization of capitalized interest..................... 4,102 4,475 Distributed income from less than 50% owned unconsolidated affiliates............................... 191 352 Subtract: Equity loss (income) from less than 50% owned unconsolidated affiliates............................... 14 (615) -------- --------- Total Earnings (Loss).................................. $455,508 $(398,743) ======== ========= Ratio of earnings to fixed charges and preferred stock dividends................................................. 3.4x (a)
- -------- (a) Earnings are approximately $526 million lower than the amount needed to cover fixed charges and preferred stock dividends in this year, as earnings were impacted by approximately $768 million in restructuring charges. EX-21 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE TIMES MIRROR COMPANY AS OF DECEMBER 31, 1996*
STATE (OR COUNTRY) OF NAME INCORPORATION ---- ------------- The Baltimore Sun Company................................... Maryland The Hartford Courant Company................................ Connecticut Jeppesen & Co., GmbH**...................................... Germany Jeppesen Sanderson, Inc. ................................... Delaware Matthew Bender & Company, Incorporated**.................... New York The Morning Call, Inc. ..................................... Pennsylvania Mosby-Year Book, Inc. ...................................... Missouri Newsday, Inc.**............................................. New York Times Mirror Magazines, Inc.**.............................. New York Times Mirror Training, Inc. ................................ Florida
- -------- * The names of certain other subsidiaries have been omitted because, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary. The Los Angeles Times is operated as a division of The Times Mirror Company. ** 100% owned by a wholly-owned subsidiary of the Registrant. (All other subsidiaries listed above are directly wholly-owned by the Registrant.) EX-23 7 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-65259) pertaining to The Times Mirror Company 1996 Management Incentive Plan; The Times Mirror Company 1996 Employee Stock Option Plan; The Times Mirror Company 1996 Employee Stock Purchase Plan; and The Times Mirror Company Non-Employee Directors Stock Plan of our report dated February 5, 1997, with respect to the consolidated financial statements and schedule of The Times Mirror Company included in its Annual Report (Form 10-K) for the year ended December 31, 1996. ERNST & YOUNG LLP Los Angeles, California March 14, 1997 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31, 1996 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 145,105 0 568,112 79,540 103,648 870,472 2,118,880 941,803 3,529,862 809,147 459,007 0 576,379 96,730 825,701 3,529,862 3,400,984 3,400,984 1,782,711 1,782,711 50,924 30,180 27,047 403,989 197,545 206,444 0 0 0 206,444 1.55 1.53
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