0000950150-95-000515.txt : 19950815 0000950150-95-000515.hdr.sgml : 19950815 ACCESSION NUMBER: 0000950150-95-000515 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13492 FILM NUMBER: 95563336 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-Q 1 FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-13492 THE TIMES MIRROR COMPANY DELAWARE 95-4481525 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
TIMES MIRROR SQUARE LOS ANGELES, CALIFORNIA 90053 TELEPHONE: (213) 237-3700 ------------------------ 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 --- --- Number of shares of Series A Common Stock outstanding at August 8, 1995: 83,919,021 Number of shares of Series C Common Stock outstanding at August 8, 1995: 28,389,280 ================================================================================ 2 THE TIMES MIRROR COMPANY PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Financial information herein, and management's discussion thereof, include consolidated data for The Times Mirror Company ("Registrant" or "Times Mirror") and its subsidiaries. Registrant and its subsidiaries are sometimes herein referred to collectively as the "Company". 1 3 THE TIMES MIRROR COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
SECOND QUARTER ENDED YEAR-TO-DATE ENDED ------------------- ----------------------- JUNE 30, JUNE 26, JUNE 30, JUNE 26, 1995 1994 1995 1994 -------- -------- ---------- ---------- REVENUES........................................... $843,293 $807,636 $1,617,304 $1,541,342 -------- -------- ---------- ---------- COSTS AND EXPENSES: Cost of sales.................................... 459,339 432,345 881,897 837,219 Selling, general and administrative expenses..... 333,210 309,992 657,298 605,895 Restructuring charge............................. 3,223 -------- -------- ---------- ---------- 792,549 742,337 1,542,418 1,443,114 -------- -------- ---------- ---------- OPERATING PROFIT................................... 50,744 65,299 74,886 98,228 Interest expense................................... (5,044) (16,603) (13,816) (34,312) Interest income.................................... 8,490 413 14,882 834 Gain (loss) on sale of assets...................... (3,645) 10,227 3,518 10,227 Other, net......................................... 27 81 398 1,138 -------- -------- ---------- ---------- Income from continuing operations before income taxes............................................ 50,572 59,417 79,868 76,115 Income taxes....................................... 24,526 27,327 38,735 36,524 -------- -------- ---------- ---------- Income from continuing operations.................. 26,046 32,090 41,133 39,591 Discontinued operations............................ 13,279 1,638,905 28,504 Cumulative effect of change in accounting principle, net of income tax benefit of $2,861... (4,511) -------- -------- ---------- ---------- NET INCOME......................................... $ 26,046 $ 45,369 $1,675,527 $ 68,095 ======== ======== ========== ========== Preferred dividends................................ $ 13,836 $ 18,566 ======== ========== Earnings available to common shareholders.......... $ 12,210 $ 45,369 $1,656,961 $ 68,095 ======== ======== ========== ========== Primary earnings per common share: Continuing operations............................ $ .11 $ .25 $ .19 $ .31 Discontinued operations.......................... .10 13.84 .22 Cumulative effect of change in accounting principle..................................... (.04) -------- -------- ---------- ---------- Primary earnings per common share.................. $ .11 $ .35 $ 13.99 $ .53 ======== ======== ========== ========== Fully diluted earnings per common share: Income before cumulative effect of change in accounting principle.......................... * $ .35 $ 12.81 $ .53 Cumulative effect of change in accounting principle..................................... (.03) -------- -------- ---------- ---------- Fully diluted earnings per common share............ * $ .35 $ 12.78 $ .53 ======== ======== ========== ==========
--------------- * Per share amount on a fully diluted basis has been omitted as the amount is antidilutive in relation to the primary per share amount. See notes to condensed consolidated financial statements 2 4 THE TIMES MIRROR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 1995 1994 ----------- ------------ (UNAUDITED) ASSETS Current Assets Cash and cash equivalents........................................................ $ 176,019 $ 81,944 Marketable securities............................................................ 292,035 Accounts receivable, less allowance for doubtful accounts and returns of $58,219 and $72,317.................................................................... 499,794 535,982 Inventories...................................................................... 185,004 153,017 Deferred income taxes............................................................ 53,444 Net assets of discontinued cable television operations........................... 642,377 Prepaid expenses................................................................. 59,673 75,245 Other current assets............................................................. 48,188 5,406 ---------- ---------- Total Current Assets...................................................... 1,314,157 1,493,971 Property, plant and equipment, at cost less accumulated depreciation of $876,343 and $828,711..................................................................... 1,299,376 1,311,130 Goodwill........................................................................... 769,894 732,293 Other intangibles.................................................................. 116,494 124,082 Deferred charges................................................................... 245,811 216,205 Other assets....................................................................... 507,876 409,527 ---------- ---------- $4,253,608 $4,287,208 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable................................................................. $ 344,502 $ 362,139 Accrued liabilities.............................................................. 21,528 43,741 Short-term debt.................................................................. 273 645,870 Deferred income taxes............................................................ 36,681 Dividends payable................................................................ 9,356 34,727 Other current liabilities........................................................ 311,719 379,632 ---------- ---------- Total Current Liabilities................................................. 687,378 1,502,790 Long-term debt..................................................................... 247,571 246,462 Deferred income taxes.............................................................. 148,904 131,163 Other liabilities.................................................................. 496,423 449,750 ---------- ---------- Total Liabilities......................................................... 1,580,276 2,330,165 ---------- ---------- Commitments and contingencies Shareholders' Equity Series A preferred stock, $1 par value; 900,000 shares authorized; 824,000 shares issued; stated at liquidation value............................................ 411,784 Series B preferred stock, $1 par value; 25,000,000 shares authorized; 16,561,000 shares issued; stated at liquidation value; convertible to Series A common stock.......................................................................... 349,954 Preferred stock, $1 par value; 7,100,000 shares authorized; no shares issued Common stock Series A, $1 par value; 500,000,000 shares authorized; 83,778,000 and 99,024,000 issued............................................................ 83,778 99,024 Series B, $1 par value; 100,000,000 shares authorized; no shares issued Series C, convertible, $1 par value; 300,000,000 shares authorized; 28,427,000 and 30,939,000 issued........................................................ 28,427 30,939 Additional paid-in capital....................................................... 169,278 167,898 Retained earnings................................................................ 1,630,111 1,720,725 ---------- ---------- 2,673,332 2,018,586 ---------- ---------- Less treasury stock, at cost; 1,345,000 Series A shares.......................... 61,543 ---------- ---------- Total Shareholders' Equity................................................ 2,673,332 1,957,043 ---------- ---------- $4,253,608 $4,287,208 ========== ==========
See notes to condensed consolidated financial statements 3 5 THE TIMES MIRROR COMPANY STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS (IN THOUSANDS) (UNAUDITED)
YEAR-TO-DATE ENDED ------------------------ JUNE 30, JUNE 26, 1995 1994 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by continuing operating activities.............. $ 56,776 $ 155,142 Net cash provided by discontinued cable television operations..... 6,693 67,938 ---------- --------- Net cash provided by operating activities................... 63,469 223,080 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of cable television operations............. 1,225,013 Investment in marketable and long-term securities, net............ (368,195) Acquisitions, net of cash acquired................................ (58,413) (29,606) Capital expenditures.............................................. (58,050) (54,176) Additions to product development costs............................ (39,943) (30,983) Proceeds from sales of assets..................................... 5,428 310,420 Other, net........................................................ (17,642) (1,519) ---------- --------- Net cash provided by continuing investing activities.............. 688,198 194,136 Net cash used in investing activities from discontinued cable television operations.......................................... (13,268) (70,192) ---------- --------- Net cash provided by investing activities................... 674,930 123,944 CASH FLOWS FROM FINANCING ACTIVITIES Repayment of commercial paper and short-term borrowings, net...... (488,010) (368,110) Principal repayments of other short-term debt..................... (100,360) Proceeds from issuance of debt.................................... 99,732 Dividends paid.................................................... (57,482) (69,449) Other, net........................................................ 1,528 (183) ---------- --------- Net cash used in financing activities....................... (644,324) (338,010) ---------- --------- Increase in cash and cash equivalents............................... 94,075 9,014 Cash and cash equivalents at beginning of year...................... 81,944 46,756 ---------- --------- Cash and cash equivalents at end of period.......................... $ 176,019 $ 55,770 ========== =========
See notes to condensed consolidated financial statements 4 6 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PREPARATION The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the fiscal year. For further information, refer to the consolidated financial statements and accompanying notes incorporated in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. Certain amounts in previously issued financial statements have been reclassified to conform to the second quarter 1995 presentation. Financial information in the Notes to Condensed Consolidated Financial Statements excludes discontinued operations, except where noted. NOTE 2 -- ACCOUNTING CHANGE 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 the 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, or 4 cents per share) as of January 1, 1995. The effect of this change on second quarter and first half 1995 net income before cumulative effect of the change in accounting principle was not significant. NOTE 3 -- SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION Cash payments during the periods ended June 30, 1995 and June 26, 1994 included interest, net of amounts capitalized, of $16,044,000 and $30,904,000 and income taxes of $37,524,000 and $24,443,000 respectively. The reorganization described in Note 14 resulted in the following non-cash transactions during the six months ended June 30, 1995 (in thousands): 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
In June 1995, the Company implemented a broad-based company-owned life insurance program which will be used to fund various employee benefits. The cash surrender value of approximately $112,000,000 is reported in the consolidated balance sheet net of the $106,480,000 in borrowings against these policies. 5 7 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Interest on the borrowings is recorded as interest expense while increases in the cash surrender value are recognized as tax free income. NOTE 4 -- DISCONTINUED OPERATIONS On February 1, 1995, the Company completed the merger of its cable television operations with Cox Communications, Inc. (Cox). The Company received cash proceeds of $1,225,013,000 and recognized a gain of $1,634,294,000, or $13.80 per share, related to the merger. The cable television operations are reported as discontinued operations for all periods presented. Income from discontinued operations is summarized as follows (in thousands):
SECOND YEAR-TO-DATE ENDED QUARTER ENDED ----------------------- JUNE 26, JUNE 30, JUNE 26, 1994 1995 1994 ------------- ---------- -------- Revenues............................... $124,193 $ 41,919 $247,161 -------- ---------- -------- Income before income taxes............. 24,343 7,730 51,518 Income taxes........................... 11,064 3,119 23,014 -------- ---------- -------- Net income............................. 13,279 4,611 28,504 Net gain on disposal................... 1,634,294 -------- ---------- -------- Total discontinued operations.......... $ 13,279 $1,638,905 $ 28,504 ======== ========== ========
The net assets of the cable television operations transferred to Cox, which were comprised primarily of property, plant and equipment and intangible assets, were classified as net assets of discontinued cable television operations as of December 31, 1994. NOTE 5 -- SALES OF ASSETS Assets sold in the first quarter of 1995 resulted in a gain of $7,163,000, or $4,500,000 (4 cents per share) after taxes. Second quarter 1995 asset sales resulted in a loss of $3,645,000, or $2,149,000 (2 cents per share) after taxes. NOTE 6 -- INVENTORIES Inventories are summarized as follows (in thousands):
JUNE 30, DECEMBER 31, 1995 1994 -------- ------------ Newsprint, paper, and other raw materials............ $ 50,884 $ 33,789 Books and other finished products.................... 110,439 94,290 Work-in-process...................................... 23,681 24,938 -------- -------- $185,004 $153,017 ======== ========
6 8 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 7 -- DEBT Short-term debt is summarized as follows (in thousands):
JUNE 30, DECEMBER 31, 1995 1994 -------- ------------ Commercial paper..................................... $124,330 Short-term borrowings................................ 363,680 8 7/8% Notes due February 1, 1998, called on February 1, 1995............................................ 100,000 Debt assumed by Cox Communications, Inc.............. 57,349 Current maturities of long-term debt................. $ 273 511 -------- -------- $ 273 $645,870 ======== ========
Long-term debt is summarized as follows (in thousands):
JUNE 30, DECEMBER 31, 1995 1994 -------- ------------ 7 1/4% Debentures due March 1, 2013.................. $148,215 7 1/2% Debentures due July 1, 2023................... 98,750 7 1/8% Debentures due March 1, 2013.................. $148,215 7 3/8% Debentures due July 1, 2023................... 98,750 Others at various interest rates, maturing through 2001............................................... 879 1,539 -------- -------- 247,844 248,504 Unamortized discount................................. (1,531) Less current maturities.............................. (273) (511) -------- -------- $247,571 $246,462 ======== ========
Commercial paper and short-term borrowings carried a weighted average interest rate of 6.1% at December 31, 1994. In January 1995, the Company completed an exchange offer for $246,965,000 of the 7 1/8% and 7 3/8% Debentures for similar debentures bearing interest rates of 7 1/4% and 7 1/2%, respectively. The publicly held notes of $57,349,000 at December 31, 1994 were assumed by Cox on February 1, 1995 as part of the reorganization described in Note 14. Part of the proceeds received from the reorganization transactions were used to retire all of the Company's commercial paper and short-term borrowings and to redeem the 8 7/8% Notes on February 1, 1995. In addition, the Company has $46,919,000 of unused standby letters of credit at June 30, 1995. NOTE 8 -- EARNINGS AND DIVIDENDS PER COMMON SHARE Primary earnings per common share is computed by dividing net income, less preferred dividend requirements, by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. The weighted average number of shares for primary earnings per share totaled 113,192,000 and 128,737,000 for the quarter ended June 30, 1995 and June 26, 1994, respectively. The weighted average number of shares is 118,386,000 and 128,870,000 for the year-to-date ended June 30, 1995 and June 26, 1994, respectively. Fully diluted earnings per common share for the quarter and year-to-date ended June 30, 1995 is computed by dividing net income, less preferred dividend requirements for Series A preferred stock, by the weighted average number of shares of common stock and common stock equivalents outstanding, assuming that the Series B preferred stock was converted to common stock on a one for one basis on March 1, 1995. The 7 9 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) weighted average number of shares for fully diluted earnings per share is 130,320,000 and 130,282,000 for the quarter and year-to-date ended June 30, 1995, respectively. Fully diluted earnings per share for the quarter and year-to-date ended June 26, 1994 are the same as the primary earnings per share indicated. Cash dividends of 6 cents and 27 cents per share of common stock were declared in the second quarter ended June 30, 1995 and June 26, 1994, respectively. NOTE 9 -- CASH MANAGEMENT SYSTEM 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 short-term investments to cover the checks presented for payment. This program results in a book cash overdraft in the primary disbursing accounts as a result of the checks outstanding. The book overdraft, which was reclassified to accounts payable, was approximately $50,752,000 and $54,263,000 at June 30, 1995 and December 31, 1994, respectively. NOTE 10 -- FAIR VALUE OF FINANCIAL INSTRUMENTS The Company enters into interest rate swaps and foreign currency forward contracts to manage exposures associated with interest rate and foreign currency fluctuations. The Company has two interest rate swap agreements, one for $150,000,000 expiring in 2010 and one for $100,000,000 expiring in 2023. These agreements exchange payments to the Company at fixed rates of 7 1/8% and 7 3/8%, respectively, for payments by the Company at a variable rate based generally on LIBOR. These payments are recognized as an adjustment to interest expense related to the debt. The fair value of these swaps is the amount at which they could be settled, based on estimates of mark-to-market rates. At June 30, 1995, the Company would have received approximately $22,385,000 to terminate its interest rate swap agreements. This amount is not recognized in the financial statements. See the subsequent event in Note 16. The Company has forward contracts maturing in 1995 to sell approximately $14,745,000 of foreign currency. Gains and losses on the forward contracts, which do not qualify as accounting hedges, are recognized currently in earnings. The fair value of the forward contracts was not significant at June 30, 1995. The fair value of long-term debt at June 30, 1995, based primarily on the Company's current refinancing rates for publicly issued fixed rate debt with comparable maturities, approximates its carrying value of $247,571,000. The carrying value of short-term debt approximates fair value due to the short maturity period for these instruments. NOTE 11 -- STOCK OPTION PLANS As described in Note 12 to the Consolidated Financial Statements in the Company's 1994 Annual Report, the Company has various stock option plans. In connection with the reorganization (see Note 14), the number of options and the option price were adjusted in order to preserve the economic value of the outstanding options. 8 10 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The following table sets forth information relative to the stock option plans:
NUMBER OF OPTION PRICE SHARES PER SHARE --------- ------------------ Options Outstanding at December 31, 1994....... 4,532,657 $19.46 to $37.93 Adjustment due to reorganization............. 3,065,245 Granted...................................... 198,040 $18.88 to $23.19 Exercised.................................... (353,193) $11.43 to $32.13 Canceled..................................... (324,575) $14.54 to $36.94 --------- Options Outstanding at June 30, 1995........... 7,118,174 $11.43 to $23.19 ========= Options Exercisable at June 30, 1995........... 1,997,843 $11.43 to $22.28 =========
At June 30, 1995, there were 510,507 options outstanding with purchase prices equal to 75 percent of the fair market value on the date of grant. At June 30, 1995, there were 8,759,000 shares reserved for future grants under the various plans. The Company's restricted stock plan provides for the sale of approximately 942,000 shares of common stock to key employees, including officers, at a price equal to par value. At June 30, 1995, there were 265,000 shares of Series A common stock reserved for future sales. The Company expects that future sales will not be significant. NOTE 12 -- INCOME TAXES The Company's effective tax rate for continuing operations exceeds the federal statutory income tax rate due principally to state taxes and permanent state and federal tax differences related to the non-deductible amortization of goodwill. NOTE 13 -- CONTINGENT LIABILITIES 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. NOTE 14 -- REORGANIZATION On February 1, 1995, the Company completed the merger of its cable television operations with Cox Communications, Inc. (Cox) and related transactions. The transactions involved in the reorganization included the merger of the cable television operations with Cox, the retirement of approximately 75% of total debt outstanding at December 31, 1994, the issuance of two new series of preferred stock, and a partial redemption of certain shareholder interests through the distribution of Cox common stock. See Note 18 to the Consolidated Financial Statements in the Company's 1994 Annual Report for a detailed discussion of these transactions. 9 11 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 15 -- PREFERRED STOCK DIVIDEND REQUIREMENTS The Series A preferred stock has a dividend rate of 8% of its liquidation value of $411,784,000. The Series B preferred stock has a dividend rate of $1.374 per share. Both series of preferred stock are entitled to cumulative dividends effective March 1, 1995. NOTE 16 -- SUBSEQUENT EVENTS The Company entered into two interest rate swap agreements which begin in 1997 and expire in 2007. These agreements exchange payments to the Company at a variable rate based generally on LIBOR, for payments by the Company at fixed rates. The fixed rates are 7 1/4% and 7 1/2% on notional amounts of $148,215,000 and $98,750,000, respectively. These payments will be recognized as an adjustment to interest expense related to the debt. In connection with these interest rate swaps, the Company received a payment of $12,275,000 which will be recognized as a reduction to interest expense over the 10 year term of the swap. The Company outlined a series of carefully designed actions to refocus its resources on its core newspaper, professional information and magazine businesses to improve its financial performance. These actions, which are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations and are expected to be completed in the second half of the year, will result in substantial restructuring, impairment and other one-time charges. In connection with these efforts, the Company is reviewing the recently-issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This accounting standard must be adopted by the Company on January 1, 1996, although earlier adoption is permitted. The Company announced a program to repurchase in the open market up to 12.8 million shares of common stock. The shares purchased under this program are intended, in part, to offset dilution from shares of common stock issued under the Company's stock-based employee compensation and benefit programs. The Company does not anticipate that the stock repurchases will have a significant effect on 1995 earnings per share. 10 12 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW COST REDUCTION AND REVENUE ENHANCEMENT OPPORTUNITIES In mid-July, the Company outlined a series of carefully designed actions to refocus resources on its core newspaper, professional information and magazine businesses and to improve its financial performance. These actions include: - Staff reductions in the Newspaper Publishing segment, in conjunction with overall cost reductions at each of the newspapers, and the closure of New York Newsday, the Washington Edition of the Los Angeles Times, other weekly and specialized sections of the Los Angeles Times, and the Baltimore Evening Sun. Most of the anticipated 1,700 full-time equivalent staff reductions are expected to occur in the last half of the year. - A review of the Professional Information segment operations to identify opportunities to streamline, consolidate and restructure the businesses. - A major profit improvement program at Times Mirror Magazines, where past operating results were well below industry averages. - Discontinuation of Times Mirror Multimedia, the Company's consumer multimedia business. - Reduction of the Company's ownership interest in the Outdoor Life channel and Speedvision to 10 percent. Comcast Corporation and Continental Cablevision, Inc. have agreed in principle to join Times Mirror and Cox Communications, Inc. in a cable programming partnership which owns these two channels. - A thorough review of the Company's other non-core business assets and new initiatives. Various corporate functions are being eliminated, including closing the Washington, D.C. office and discontinuing the funding, by year-end, of the People & The Press polling service. Further corporate staff reductions are under active review. These actions, which are expected to be completed in the second half of the year, will result in substantial restructuring, impairment and other one-time charges. In connection with these efforts, the Company is reviewing the recently-issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This accounting standard must be adopted by the Company on January 1, 1996, although earlier adoption is permitted. OUTLOOK FOR 1995 The outlook for revenue growth in 1995 has changed, as further economic slowdowns are expected in the Company's major newspaper markets. Revenues will be adversely impacted by the shut-down of New York Newsday and Baltimore's Evening Sun, while Matthew Bender expects its year-over-year sales decline to continue. Although modest revenue growth is still anticipated for 1995, it may not be sufficient to offset the impact of higher newsprint prices and increased paper and postage costs. In addition, as noted above, substantial restructuring, impairment and other one-time charges are expected in the third and fourth quarters. STOCK REPURCHASE PROGRAM In mid-July the Company announced a program to repurchase in the open market up to 10 percent of its common equivalent shares, or approximately 12.8 million shares. The shares purchased under this program are intended, in part, to offset dilution from shares of common stock issued under the Company's stock-based employee compensation and benefit program. Repurchases are expected to be made from time-to-time in the 11 13 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) open market or in private transactions, depending on market conditions, and may be discontinued at any time. The Company does not anticipate that this program will have a significant effect on 1995 earnings per share. CABLE MERGER AND RELATED TRANSACTIONS In the first quarter of 1995, the Company completed the merger of its cable television operations with Cox Communications, Inc. (Cox) 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. Note 18 to the Consolidated Financial Statements in the Company's 1994 Annual Report provides a detailed discussion of these transactions. The first quarter 1995 results included a gain of $1.634 billion on the merger, and first half 1995 results benefited from lower interest expense due to debt reduction and higher interest income from the investment of cash proceeds from the merger. Dividend requirements on the new preferred shares in the first half of 1995 reduced earnings available to common shareholders by $18.6 million. The full-year impact of the preferred dividend requirements on earnings available to common shareholders is expected to total approximately $47 million, although this impact is expected to be partially offset by the net benefit from higher interest income and lower interest expense. NEWSPAPER PUBLISHING OUTLOOK In the second quarter of 1995, the economic recovery in Southern California and New York slowed further, lagging the pace of other U.S. regions, and holding the newspaper group's advertising revenue growth to 1.9 percent compared to the industry average of 6.0 percent. The closure of New York Newsday on July 17, 1995, and the closure of Baltimore's Evening Sun on September 15, 1995, will impact both circulation and advertising revenues in the last half of the year. New York Newsday's daily circulation was 216,000, or approximately 32% of Newsday/New York Newsday's total daily circulation, and the Evening Sun circulation is 86,000, or approximately 25% of Baltimore's total daily circulation. New York Newsday subscribers in Queens are being offered the Queens Edition of Newsday, while subscribers to the Evening Sun are being offered the morning newspaper, The Sun. These marketing efforts are expected to curtail circulation losses. Further slowdowns in the economies of the Company's major newspaper markets led to an advertising revenue decline in June on a year-over-year basis, the first monthly decline this year. If this economic trend continues, advertising revenues may remain flat or decline in the last half of the year. The average price per ton of newsprint in 1995 is expected to rise by more than 45 percent over the 1994 level. Newsprint expense in 1994 represented approximately 15 percent of the segment's total operating costs. Overall, 1995 newsprint price increases are expected to be partially offset by declines in consumption due to waste reduction efforts, editorial product changes and lower circulation levels. In addition, the 1995 segment results are expected to be reduced by spending for new initiatives, including electronic on-line services of The Times and Newsday. The Company's net income will also be reduced by equity losses related to the electronic and shopping joint venture between The Times and Pacific Telesis. PROFESSIONAL INFORMATION OUTLOOK Higher revenues are expected for most of the professional information businesses in 1995. However, Matthew Bender, the largest profit contributor in the segment, is expected to again show declines in revenues and operating profit in 1995. In addition, the segment's full-year results are expected to be reduced by costs associated with the development of new electronic products, including the recently announced medical on-line service, and costs to expand international sales. Acquisitions in the Professional Information segment in the first half of 1995 totaled approximately $58 million, including the first-quarter purchases of Madison Publishing Corporation and StayWell Health Management Systems for the Company's consumer health information business. 12 14 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSUMER MEDIA OUTLOOK Consumer Media revenues in 1995 are expected to improve over the prior year, largely due to the acquisition of Transworld Snowboarding last August and the 1995 publication of the official magazine for the Smithsonian Institution's "Ocean Planet" traveling exhibition. However, the segment is expected to generate operating losses mainly from costs associated with the now discontinued consumer multimedia business and the Company's cable television programming partnership. CONSOLIDATED RESULTS OF OPERATIONS The following table summarizes Times Mirror's financial results (in thousands except per share amounts):
SECOND QUARTER FIRST HALF --------------------- ------------------------- 1995 1994 1995 1994 -------- -------- ---------- ---------- Revenues..................................... $843,293 $807,636 $1,617,304 $1,541,342 Restructuring charge......................... 3,223 Impact of new initiatives on operating profit..................................... 10,610 1,960 18,043 1,960 Operating profit............................. 50,744 65,299 74,886 98,228 Gain (loss) on sale of assets................ (3,645) 10,227 3,518 10,227 Interest expense............................. 5,044 16,603 13,816 34,312 Interest income.............................. 8,490 413 14,882 834 Income from continuing operations............ 26,046 32,090 41,133 39,591 Discontinued operations...................... 13,279 1,638,905 28,504 Net income................................... 26,046 45,369 1,675,527 68,095 Primary earnings per share: Continuing operations...................... .11 .25 .19 .31 Discontinued operations.................... .10 13.84 .22 Net income................................. .11 .35 13.99 .53 Effective tax rate for continuing operations................................. 48.5% 46.0% 48.5% 48.0%
The following sections discuss the revenues and operating profit of the Company's principal lines of business. All comments, except as noted, apply to both the second quarter and first half of 1995 compared to the same prior year period. Consolidated revenues rose 4.4 percent in the second quarter of 1995, a somewhat slower pace of growth than the first quarter. Slightly lower demand for advertising at the newspapers and magazines was more than offset by higher revenues in health information services and higher education, partially reflecting revenues from businesses acquired in the last half of 1994 and the first quarter of 1995. Consolidated operating profit in the second quarter and first half of 1995 fell 22.3 percent and 23.8 percent, respectively, from the prior year periods, due primarily to continued declines at Matthew Bender and costs in the consumer multimedia and cable television programming businesses. For the first half of 1995, operating profit was also reduced by a $3.2 million restructuring charge. Income from continuing operations in the second quarter of 1995 was 18.8 percent lower than the comparable 1994 period, as the decline in operating profit more than offset an increase in net interest income. Asset sales during both periods also affected the year-over-year results, with an after-tax loss of $2.1 million reported in the second quarter of 1995, compared with an after-tax gain of $6.4 million in 1994's second 13 15 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) quarter. First-half 1995 income from continuing operations was 3.9 percent higher than 1994's first-half, primarily as a result of net interest income in 1995 compared with net interest expense in 1994. Net income for the second quarter was 42.6 percent lower than the prior year quarter, reflecting the absence of discontinued operations, which were disposed of in the first quarter of 1995, as well as the lower continuing operating results described above. Net income for the first half of 1995 was significantly higher than the first half of 1994 due to the gain of $1.634 billion on the merger of the cable television operations in February. The 1995 results also include a $4.5 million charge for an accounting change, which is discussed in Note 2 to the Condensed Consolidated Financial Statements. Earnings per share for the second quarter and first half of 1995 were reduced by preferred dividend requirements of $13.8 million and $18.6 million, respectively, for two series of preferred stocks. The preferred stocks began accruing dividends on March 1, 1995. The preferred dividend impact on earnings per share was somewhat reduced by a lower average number of shares outstanding during 1995, reflecting the exchange of about 13 percent of the Company's outstanding common stock for one series of the preferred. ANALYSIS BY SEGMENT NEWSPAPER PUBLISHING Newspaper Publishing revenues and operating profit were as follows (dollars in thousands):
SECOND QUARTER FIRST HALF --------------------- ----------------------- 1995 1994 CHANGE 1995 1994 CHANGE -------- -------- ------ ---------- -------- ------ Revenues Advertising................... $401,737 $394,103 1.9% $ 758,698 $747,262 1.5% Circulation................... 114,072 113,370 .6 223,975 222,131 .8 Other......................... 10,778 9,841 9.5 20,066 19,042 5.4 -------- -------- ---------- -------- $526,587 $517,314 1.8 $1,002,739 $988,435 1.4 ======== ======== ========== ======== Operating Profit................ $ 53,093 $ 52,856 .4 $ 88,438 $ 89,016 (.6) ======== ======== ========== ======== Impact of New Initiatives on Operating Profit.............. $ (1,272) $ (847) $ (3,958) $ (847) ======== ======== ========== ========
Newspaper Publishing's second-quarter 1995 revenues were slightly higher than last year's second quarter, increasing by nearly 2 percent. Advertising revenues for the second quarter of 1995 rose 1.9 percent, as increases in preprint and part-run revenues were only partially offset by declines in full-run advertising. Most of the newspapers reported higher advertising revenues, including a 2.4 percent increase at The Times, although these gains were partially offset by declines at Newsday and the Southern Connecticut newspapers. Circulation revenues for the 1995 second quarter were flat with the prior-year second quarter, as price increases at most of the newspapers offset declines in circulation levels. Circulation price increases were primarily responsible for the lower circulation levels. For the first half of 1995, Newspaper Publishing revenues rose 1.4 percent, with advertising revenues up 1.5 percent. Operating profit was nearly level with 1994's second quarter, as a 43 percent increase in newsprint prices between years was offset by increased revenues, lower newsprint consumption and a 3.1 percent reduction in other operating costs. For the first half of 1995, operating profit was less than 1 percent lower than the first half of 1994, despite a $3.2 million restructuring charge in the first quarter of 1995. Excluding the restructuring charge, 1995 first half operating profit would have increased 3.0 percent over 1994's first half. The segment's first half operating margin, excluding the 1995 restructuring charge, would have been 9.1 percent as compared to 9.0 percent for the same period of 1994. 14 16 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) PROFESSIONAL INFORMATION Professional Information revenues and operating profit were as follows (dollars in thousands):
SECOND QUARTER FIRST HALF --------------------- --------------------- 1995 1994 CHANGE 1995 1994 CHANGE -------- -------- ------ -------- -------- ------ Revenues......................... $250,101 $222,685 12.3% $473,439 $420,782 12.5% ======== ======== ======== ======== Operating Profit................. $ 22,981 $ 30,067 (23.6) $ 31,719 $ 45,361 (30.1) ======== ======== ======== ======== Impact of New Initiatives on Operating Profit............... $ (2,085) $ (3,387) ======== ========
Professional Information revenues in the 1995 second quarter increased 12.3 percent over the prior-year quarter, despite a continuing revenue decline at Matthew Bender. Significant increases in domestic and international health information services and higher education sales were due partly to acquisitions made since July 1994. Operating profit in the second quarter of 1995 fell 23.6 percent compared to the prior year quarter, due primarily to the revenue declines at Matthew Bender, higher seasonal losses associated with expanding product lists in the higher education businesses, and costs related to new initiatives in the health information services and legal publishing businesses. CONSUMER MEDIA Consumer Media revenues and operating losses were as follows (dollars in thousands):
SECOND QUARTER FIRST HALF ------------------- --------------------- 1995 1994 CHANGE 1995 1994 CHANGE ------- ------- ------ -------- -------- ------ Revenues........................... $66,933 $67,767 (1.2)% $141,668 $132,404 7.0% ======= ======= ======== ======== Operating Loss..................... $(7,095) $(1,286) $(12,031) $ (4,638) ======= ======= ======== ======== Impact of New Initiatives on Operating Loss................... $(4,629) $(1,113) $ (6,795) $ (1,113) ======= ======= ======== ========
Second-quarter 1995 revenues for the Consumer Media segment decreased 1.2 percent from the prior year quarter, as lower circulation revenues at the magazines reflected the absence of revenues from 1994's World Cup Soccer publications. Operating losses in the second quarter of 1995 rose to $7.1 million from $1.3 million in 1994's second quarter. The higher loss is due to development spending on consumer multimedia, which has since been discontinued, as well as costs for the start-up of the cable television programming business. For the first half, group revenues rose 7.0 percent, with 1995 benefitting largely from Transworld Snowboarding, which was acquired in August 1994, and the publications related to Ocean Planet, a Smithsonian Institution traveling exhibition which began in 1995. LIQUIDITY AND CAPITAL RESOURCES Total debt at June 30, 1995 of $247.8 million declined $644.5 million from the year-end 1994 level, as proceeds from the cable merger were used to retire the majority of the Company's short-term debt outstanding at December 31, 1994. The Company's debt-to-adjusted capitalization ratio fell to 8.5 percent at June 30, 1995 from 31.3 percent at the prior year-end. A substantial portion of the Company's 1995 cash flow from continuing operations may be used for the previously discussed cost reduction efforts. Operating cash flow in the last half of 1995 will also be impacted by the Company's recently announced repurchase program for up to 12.8 million shares of its common stock. This program will reduce interest income in the last half of 1995, compared to the first half of the year, as 15 17 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) marketable securities and other interest-bearing investments are liquidated to make the stock repurchases. Cash flow from operations in future years is expected to benefit from the cost reduction and revenue enhancement actions and significantly reduced dividend and capital expenditure requirements. YEAR-TO-DATE CASH FLOWS During the first half of 1995, the Company generated $56.8 million in net cash from continuing operations, compared with $155.1 million for the same period in 1994. The reduced cash flow in 1995 is largely attributable to the decrease in operating profit, higher inventory levels and an increase in taxes paid compared to the prior-year period. Newsprint inventory at the newspapers reflects significantly higher prices and 44 days of inventory, compared to 28 days of inventory at the same time last year. Inventory levels during the first half of 1995, which rose in anticipation of further price increases, are expected to remain at the 1995 level over the near term. Decreased cash outlays for restructuring activities and interest payments in the 1995 first half, compared to the prior-year period, as well as higher interest income from the investment of proceeds from the cable merger, partially offset these items. Net cash provided by investing activities of continuing operations during the first half of 1995 was $688.2 million, compared to $194.1 million in the 1994 first half. The 1995 period reflected proceeds of $1.225 billion from the cable merger, partially offset by investments of $368.2 million in securities and acquisitions totaling $58.4 million. The prior-year half included the approximately $300 million of proceeds from the sale of the broadcast television operations. In the 1995 first half, spending for capital projects and product development exceeded the prior-year quarter by $12.8 million. Full-year capital spending for continuing operations in 1995 is expected to be slightly below the 1994 level. Net cash used in financing activities of $644.3 million in the first half of 1995 was nearly double the net cash used in the prior-year period. During the first half of 1995 the Company repaid $588.4 million of its short-term debt outstanding at the end of 1994 using proceeds from the cable merger. Dividends to common shareholders in the first half amounted to $57.5 million in 1995 and $69.4 million in 1994. During the last half of 1995, the Company's share repurchase program is expected to reduce cash used for dividends but will significantly increase the overall cash used in financing activities. DIVIDENDS Beginning in June 1995, the Company agreed to pay an annual dividend to common shareholders of no less than 24 cents per share 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. As previously mentioned, Times Mirror issued two new series of preferred stock during the first quarter of 1995. Earnings per common share will be reduced by the dividend requirements of the preferred stock. Annual dividends on the Series A preferred stock will be approximately $28 million in 1995 and $33 million thereafter. Annual dividends on the Series B preferred stock will be approximately $19 million in 1995, $23 million in 1996 and 1997, and $4 million in 1998, assuming the Series B preferred stock is not called for redemption prior to its mandatory conversion to Series A common stock in early 1998. 16 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 THE TIMES MIRROR COMPANY COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SECOND QUARTER ENDED YEAR TO DATE ENDED ------------------------- ------------------------- JUNE 30, JUNE 26, JUNE 30, JUNE 26, 1995 1994 1995 1994 ----------- ----------- ----------- ----------- PRIMARY Average shares outstanding.................. 112,147,462 128,608,748 117,630,287 128,608,046 Dilutive stock options based on the treasury stock method using average market price... 1,044,532 127,862 755,638 262,422 ----------- ----------- ----------- ----------- Total............................. 113,191,994 128,736,610 118,385,925 128,870,468 =========== =========== =========== =========== Income from continuing operations........... $ 26,046 $ 32,090 $ 41,133 $ 39,591 Discontinued operations..................... 13,279 1,638,905 28,504 ----------- ----------- ----------- ----------- Income before cumulative effect of change in accounting principle...................... 26,046 45,369 1,680,038 68,095 Cumulative effect of change in accounting principle, net of income tax benefit of $2,861.................................... (4,511) ----------- ----------- ----------- ----------- Net income.................................. $ 26,046 $ 45,369 $ 1,675,527 $ 68,095 =========== =========== =========== =========== Preferred dividends......................... $ 13,836 $ 18,566 =========== =========== Earnings available to common shareholders... $ 12,210 $ 45,369 $ 1,656,961 $ 68,095 =========== =========== =========== =========== Primary earnings per common share: Continuing operations..................... $ .11 $ .25 $ .19 $ .31 Discontinued operations................... .10 13.84 .22 Cumulative effect of change in accounting principle.............................. (.04) ----------- ----------- ----------- ----------- Primary earnings per common share........... $ .11 $ .35 $ 13.99 $ .53 =========== =========== =========== ===========
EXHIBIT 11 PAGE 1 OF 2 19 2 THE TIMES MIRROR COMPANY COMPUTATION OF EARNINGS PER SHARE (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SECOND QUARTER ENDED YEAR TO DATE ENDED ------------------------- ------------------------- JUNE 30, JUNE 26, JUNE 30, JUNE 26, 1995 1994 1995 1994 ----------- ----------- ----------- ----------- FULLY DILUTED Average shares outstanding.................. 112,147,462 128,608,748 117,630,287 128,608,046 Common shares assumed issued upon conversion of Series B preferred stock............... 16,561,178 11,040,785 Dilutive stock options based on the treasury stock method using market price at the close of the period, if higher than average market price...................... 1,610,969 127,862 1,610,969 262,422 ----------- ----------- ----------- ----------- Total............................. 130,319,609 128,736,610 130,282,041 128,870,468 =========== =========== =========== =========== Income from continuing operations........... $ 26,046 $ 32,090 $ 41,133 $ 39,591 Discontinued operations..................... 13,279 1,638,905 28,504 ----------- ----------- ----------- ----------- Income before cumulative effect of change in accounting principle...................... 26,046 45,369 1,680,038 68,095 Cumulative effect of change in accounting principle, net of income tax benefit of $2,861.................................... (4,511) ----------- ----------- ----------- ----------- Net Income.................................. $ 26,046 $ 45,369 $ 1,675,527 $ 68,095 =========== =========== =========== =========== Preferred dividends......................... $ 8,236 $ 10,981 =========== =========== Earnings available to common shareholders... $ 17,810 $ 45,369 $ 1,664,546 $ 68,095 =========== =========== =========== =========== Fully diluted earnings per common share: Income before cumulative effect of change in accounting principle................ * $ .35 $ 12.81 $ .53 Cumulative effect of change in accounting principle.............................. (.03) ----------- ----------- ----------- ----------- Fully diluted earnings per common share..... * $ .35 $ 12.78 $ .53 =========== =========== =========== ===========
--------------- * Per share amount on a fully diluted basis has been omitted as the amount is antidilutive in relation to the primary per share amount. EXHIBIT 11 PAGE 2 OF 2 20 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) SECOND QUARTER 1995 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 176,019 292,035 558,013 58,219 185,004 1,314,157 2,175,719 876,343 4,253,608 687,378 0 112,205 0 761,738 1,799,389 4,253,608 1,617,304 1,617,304 881,897 657,298 3,223 10,787 13,816 79,868 38,735 41,133 1,638,905 0 (4,511) 1,675,527 13.99 12.78