-----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, PxZJZw+9JVkVQGlwFGn4/ObqkB+59KGdH2tCvYGdtLqcm2+iA7QiEvnhoa4VcQCf NljW7093zAlVBADlQhcu8A== 0000950150-98-001803.txt : 19981118 0000950150-98-001803.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950150-98-001803 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: SEC FILE NUMBER: 001-13492 FILM NUMBER: 98752489 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 SEPTEMBER 30, 1998 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 STATE OF INCORPORATION 95-4481525 I.R.S. EMPLOYER ID. NO.
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 November 6, 1998: 54,324,881, excluding 18,237,864 shares held by subsidiaries of the Registrant; 4,001,067 shares held by TMCT, LLC, representing 80% of the shares held by TMCT, LLC; 7,877,700 shares held by Eagle New Media Investments, LLC and 2,389,653 shares held as treasury shares. Number of shares of Series C Common Stock outstanding at November 6, 1998: 25,257,950. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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." 2 3 THE TIMES MIRROR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THIRD QUARTER ENDED YEAR TO DATE ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ------------------------ 1998 1997 1998 1997 ---------- -------- ---------- ---------- REVENUES................................... $ 729,399 $699,067 $2,199,347 $2,090,626 COSTS AND EXPENSES: Cost of sales............................ 385,249 368,139 1,157,622 1,080,077 Selling, general and administrative expenses.............................. 260,400 233,218 743,179 715,424 Restructuring and one-time charges....... 80,012 119,709 ---------- -------- ---------- ---------- 725,661 601,357 2,020,510 1,795,501 OPERATING PROFIT........................... 3,738 97,710 178,837 295,125 Interest expense........................... (20,320) (11,502) (54,680) (27,187) Interest income............................ 13,872 444 21,549 1,822 Equity income (loss)....................... 1,223 336 (5,865) (798) Other, net................................. 6,451 3,192 20,877 4,552 ---------- -------- ---------- ---------- Income from continuing operations before income tax provision..................... 4,964 90,180 160,718 273,514 Income tax provision....................... 24,536 36,118 88,488 114,087 ---------- -------- ---------- ---------- Income (loss) from continuing operations... (19,572) 54,062 72,230 159,427 Discontinued operations: Income from operations, net of income taxes................................. 11,985 12,862 14,645 18,716 Net gain on disposal, net of income taxes................................. 1,084,136 1,084,136 ---------- -------- ---------- ---------- NET INCOME................................. 1,076,549 66,924 1,171,011 178,143 Preferred dividend requirements............ 5,424 7,879 16,272 27,057 ---------- -------- ---------- ---------- Earnings applicable to common shareholders............................. $1,071,125 $ 59,045 $1,154,739 $ 151,086 ========== ======== ========== ========== Basic earnings (loss) per share: Continuing operations.................... $ (.30) $ .50 $ .64 $ 1.41 Discontinued operations.................. 13.01 .14 12.66 .20 ---------- -------- ---------- ---------- Basic earnings per share................... $ 12.71 $ .64 $ 13.30 $ 1.61 ========== ======== ========== ========== Diluted earnings per share: Continuing operations.................... $ * $ .49 $ .63 $ 1.37 Discontinued operations.................. * .13 12.33 .19 ---------- -------- ---------- ---------- Diluted earnings per share................. $ * $ .62 $ 12.96 $ 1.56 ========== ======== ========== ========== Weighted average shares outstanding: Basic.................................... 84,262 91,847 86,799 94,077 ========== ======== ========== ========== Diluted.................................. 84,262 98,320 89,068 96,886 ========== ======== ========== ==========
- --------------- * Antidilutive See notes to condensed consolidated financial statements. 3 4 THE TIMES MIRROR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) ASSETS
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Current assets Cash and cash equivalents................................. $ 995,459 $ 48,659 Marketable securities..................................... 49,509 Accounts receivable, less allowances for doubtful accounts and returns of $45,379 and $42,769..................... 347,910 363,252 Inventories............................................... 63,356 44,896 Deferred income taxes..................................... 50,153 58,018 Prepaid expenses.......................................... 38,533 22,081 Net assets of discontinued operations..................... 111,922 427,722 Other current assets...................................... 24,087 36,598 ---------- ---------- Total current assets.............................. 1,680,929 1,001,226 Property, plant and equipment, net.......................... 926,741 934,700 Goodwill.................................................... 629,601 502,886 Other intangibles........................................... 96,956 104,550 Deferred charges............................................ 125,284 133,290 Equity investments.......................................... 106,335 101,448 Prepaid pension costs....................................... 404,775 366,807 Investments and other assets................................ 163,839 93,713 ---------- ---------- Total assets...................................... $4,134,460 $3,238,620 ========== ==========
See notes to condensed consolidated financial statements. 4 5 THE TIMES MIRROR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Current liabilities Accounts payable.......................................... $ 193,189 $ 246,813 Short-term debt........................................... 254,183 139,067 Employees' compensation................................... 97,750 103,505 Unearned income........................................... 144,863 145,728 Other current liabilities................................. 128,241 105,405 ----------- ----------- Total current liabilities......................... 818,226 740,518 Long-term debt.............................................. 919,022 925,404 Deferred income taxes....................................... 350,378 175,187 Other liabilities........................................... 518,637 507,912 ----------- ----------- Total liabilities................................. 2,606,263 2,349,021 Common stock subject to put options......................... 37,150 13,600 Commitments and contingencies Shareholders' equity Preferred stock, $1 par value; stated at liquidation value; convertible to Series A common stock: Series A: 900,000 shares authorized; 824,000 shares issued and outstanding................................ 411,784 411,784 Series C-1: 381,000 shares authorized, issued and outstanding........................................... 190,486 190,486 Series C-2: 245,000 shares authorized, issued and outstanding........................................... 122,550 122,550 Preferred stock, $1 par value; 23,035,000 shares authorized; no shares issued or outstanding Common stock, $1 par value: Series A: 500,000,000 shares authorized; 86,816,000 and 86,552,000 shares issued and outstanding.............. 86,816 86,552 Series B: 100,000,000 shares authorized; no shares issued or outstanding Series C: convertible to Series A common stock; 300,000,000 shares authorized; 25,274,000 and 25,503,000 shares issued and outstanding.............. 25,274 25,503 Additional paid-in capital................................ 1,236,556 1,253,142 Retained earnings......................................... 1,435,296 384,503 Accumulated other comprehensive income.................... 6,748 12,804 ----------- ----------- 3,515,510 2,487,324 Less treasury stock at cost: Series A common stock, 30,993,000 and 24,151,000 shares; and Series A preferred stock, 735,000 shares........... (2,024,463) (1,611,325) ----------- ----------- Total shareholders' equity........................ 1,491,047 875,999 ----------- ----------- Total liabilities and shareholders' equity........ $ 4,134,460 $ 3,238,620 =========== ===========
See notes to condensed consolidated financial statements. 5 6 THE TIMES MIRROR COMPANY STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS (IN THOUSANDS) (UNAUDITED)
YEAR TO DATE ENDED SEPTEMBER 30, ------------------------- 1998 1997 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities of continuing operations............................................. $ 161,480 $ 197,119 Net cash provided by (used in) operating activities of discontinued operations................................ 45,293 (19,326) ---------- --------- Net cash provided by operating activities................. 206,773 177,793 CASH FLOWS FROM INVESTING ACTIVITIES Net proceeds from disposal of Matthew Bender/Shepard's.... 1,616,948 Notes receivable.......................................... (69,120) Investment in marketable securities....................... (49,509) Acquisitions, net of cash acquired........................ (194,373) (96,875) Proceeds from sales of other assets....................... 12,729 114,585 Capital expenditures...................................... (93,758) (71,614) Capitalization of product costs........................... (6,804) (6,367) Other, net................................................ (28,806) (2,366) ---------- --------- Net cash provided by (used in) investing activities of continuing operations................................. 1,187,307 (62,637) Net cash used in investing activities of discontinued operations............................................ (18,962) (43,115) ---------- --------- Net cash provided by (used in) investing activities.... 1,168,345 (105,752) CASH FLOWS FROM FINANCING ACTIVITIES Repurchase of common stock................................ (516,065) (400,086) Net proceeds from issuance of commercial paper and short-term borrowings............................................. 154,478 101,546 Repayments of other debt.................................. (50,356) (1,448) Dividends paid............................................ (63,585) (66,837) Proceeds from exercise of stock options................... 51,376 24,505 Exercise of put options................................... (5,800) (6,796) Net proceeds from issuance of long-term debt.............. 438,568 Contribution to TMCT, LLC................................. (249,266) Other, net................................................ 1,634 (957) ---------- --------- Net cash used in financing activities.................. (428,318) (160,771) Increase (decrease) in cash and cash equivalents............ 946,800 (88,730) Cash and cash equivalents at beginning of year.............. 48,659 140,224 ---------- --------- Cash and cash equivalents at end of period.................. $ 995,459 $ 51,494 ========== =========
See notes to condensed consolidated financial statements. 6 7 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 included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Certain amounts in previously issued financial statements have been reclassified to conform to the 1998 presentation. Financial information in the accompanying notes to Condensed Consolidated Financial Statements excludes discontinued operations, except where noted. NOTE 2 -- COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes new rules for the reporting of comprehensive income and its components; however, the adoption of SFAS 130 had no impact on the Company's net income or shareholders' equity. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments to be included in other comprehensive income. Such items were reported in shareholders' equity prior to the adoption of SFAS 130. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. Total comprehensive income amounted to $1,071,598,000 and $66,343,000 for the third quarters of 1998 and 1997, respectively, and $1,164,955,000 and $136,473,000 for the year to date periods ended September 30, 1998 and 1997, respectively. In both 1998 and 1997, comprehensive income differs from net income primarily due to realized gains recognized in net income, which were previously included as part of comprehensive income. NOTE 3 -- DISCONTINUED OPERATIONS The Company signed definitive agreements with Reed Elsevier plc on April 27, 1998 for the disposition of Matthew Bender & Company, Incorporated (Matthew Bender), the Company's legal publisher, in a tax-free reorganization and the sale of Times Mirror's 50% ownership interest in Shepard's. The two transactions were valued at $1.65 billion in the aggregate and were completed on July 31, 1998. The disposition of Matthew Bender was accomplished through the merger of an affiliate of Reed Elsevier with and into Matthew Bender with Matthew Bender as the surviving corporation in the merger. As a result of the merger, TMD, Inc., a wholly owned subsidiary of Times Mirror, received all of the issued and outstanding common stock of CBM Acquisition Parent Co. (MB Parent). MB Parent is a holding company that owns controlling voting preferred stock of Matthew Bender with a stated value of $61,616,000 and participating stock of Matthew Bender. MB Parent is also the sole member of Eagle New Media Investments, LLC (Eagle New Media) (formerly Liberty Bell I, LLC). Affiliates of Reed Elsevier own voting preferred stock of MB Parent with a stated value of $68,750,000 which affords them voting control over MB Parent, subject to certain rights held by Times Mirror with respect to Eagle New Media. Concurrently, with the closing of the merger, the Company became the sole manager of Eagle New Media and controls its operations and assets. At September 30, 1998, the assets of Eagle New Media were $949,599,000 of cash and cash equivalents, $384,812,000 (6,528,000 shares) 7 8 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) of Times Mirror stock, $49,509,000 of marketable securities and $2,697,000 of other assets. The consolidated financial statements of the Company include the accounts of Eagle New Media. The disposition of the Company's 50% interest in Shepard's was also consummated on July 31, 1998 by a transfer of the respective partnership interests owned by two subsidiaries of the Company to affiliates of Reed Elsevier for cash consideration of $274,650,000. The Company recorded a net gain on these two transactions in the amount of $1,108,452,000, net of expenses and $163,585,000 of deferred taxes. The Company signed definitive agreements with Harcourt General, Inc. on May 6, 1998, which were amended on October 8, 1998, for the disposition of Mosby, Inc. (Mosby), the Company's health science/medical publisher, in a tax-free reorganization. The transaction, which will result in a gain in the fourth quarter, was valued at $415,000,000 and was completed on October 9, 1998. The disposition of Mosby was accomplished through the merger of an affiliate of Harcourt General, Inc. with and into Mosby, with Mosby as the surviving corporation in the merger. As a result of the merger, the Company received all of the issued and outstanding common stock of Mosby Parent Corp. (Mosby Parent). Mosby Parent is a holding company that owns controlling voting preferred stock of Mosby with a stated value of $48,333,000 and participating stock of Mosby. Mosby Parent is also the sole member of Eagle Publishing Investments, LLC (Eagle Publishing). An affiliate of Harcourt General, Inc. owns voting preferred stock of Mosby Parent with a stated value of $50,000,000 which affords it voting control over Mosby Parent, subject to certain rights held by the Company with respect to Eagle Publishing. Concurrently with the closing of the merger, the Company became the sole manager of Eagle Publishing and controls its operations and assets. At the time of closing, the principal assets of Eagle Publishing were $415,000,000 of cash and cash equivalents. The consolidated financial statements of the Company will include the accounts of Eagle Publishing. On August 26, 1998, the Company determined that Apartment Search, Inc., its apartment location business, would be discontinued. The Company anticipates selling the business in the first half of 1999 and has recorded an estimated loss on disposal including a provision for operating losses during the phase-out period. The total estimated loss is included in discontinued operations in net gain on disposal, net of income taxes. Prior year financial statements have been restated for discontinued operations. Results for discontinued operations for the periods shown primarily include Matthew Bender, Mosby, the Shepard's joint venture and Apartment Search, Inc. Income from discontinued operations is summarized as follows (in thousands):
THIRD QUARTER ENDED YEAR TO DATE ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- --------------------- 1998 1997 1998 1997 ---------- -------- ---------- -------- Revenues................................... $ 88,343 $115,411 $ 278,156 $309,547 ---------- -------- ---------- -------- Income before income tax provision......... 14,328 21,584 21,331 31,401 Income tax provision....................... 2,343 8,722 6,686 12,685 ---------- -------- ---------- -------- Income from discontinued operations........ $ 11,985 $ 12,862 $ 14,645 $ 18,716 ========== ======== ========== ======== Net gain on disposal, net of income taxes.................................... $1,084,136 $1,084,136 ========== ==========
8 9 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The remaining assets and liabilities of discontinued operations, primarily relating to Mosby which was divested on October 9, 1998, have been classified in the condensed consolidated balance sheets as net assets of discontinued operations and consist of the following (in thousands):
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Accounts receivable, net.................................... $ 39,055 $138,932 Other current assets........................................ 53,732 67,039 Property, plant and equipment, net.......................... 25,406 62,730 Equity investments.......................................... 2,548 249,123 Other assets................................................ 76,521 112,655 -------- -------- Total assets........................................... 197,262 630,479 Current liabilities......................................... 81,166 196,796 Non-current liabilities..................................... 4,174 5,961 -------- -------- Total liabilities...................................... 85,340 202,757 -------- -------- Net assets of discontinued operations.................. $111,922 $427,722 ======== ========
NOTE 4 -- RESTRUCTURING AND ONE-TIME CHARGES In the second quarter of 1998, the Company, in anticipation of the expected impact of divestitures, began a comprehensive review of its business configurations, operating systems and other investments to determine economically attractive actions it could take to prepare for future growth. The 1998 third quarter restructuring, one-time and other special charges represent additional charges under this program, which will continue through the balance of the year. Total restructuring and one-time charges of $80,012,000 primarily consist of $49,727,000 of goodwill impairment which is nondeductible for tax purposes, $8,567,000 for office closures and $7,601,000 for the buyout of magazine business contracts. In aggregate, the Company expects restructuring, one-time and other special charges in 1998 to be between $200,000,000 and $225,000,000 and anticipates future annual expense reductions of approximately $25,000,000 beginning in 1999. The balance sheet classification of the remaining restructuring liabilities is as follows (in thousands):
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Other current liabilities: 1995 Restructuring....................................... $16,243 $18,534 1996 Restructuring....................................... 128 1998 Restructuring....................................... 26,681 Other liabilities: 1995 Restructuring....................................... 16,695 30,304 1998 Restructuring....................................... 11,384 ------- ------- $71,003 $48,966 ======= =======
The restructuring liabilities relate primarily to lease payments, severance costs and contract buyout costs. During the year to date ended September 30, 1998, cash spent on severance payments related to restructuring efforts totaled $3,533,000. At September 30, 1998, the remaining liability for severance costs aggregated $6,019,000. 9 10 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5 -- DEBT Debt consists of the following (in thousands):
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Short-term debt: Commercial paper at weighted average interest rates of 5.6% and 5.9%.......................................... $240,246 $ 86,448 Notes payable at 6.125% due January 2, 1998............... 39,209 Current maturities of long-term debt...................... 7,518 7,671 Other..................................................... 6,419 5,739 -------- -------- Total short-term debt.................................. $254,183 $139,067 ======== ======== Long-term debt: 6.61% Debentures due September 15, 2027, net of unamortized discount of $99 and $101................... $249,901 $249,899 4.75% Liquid Yield Option Notes due 2017, net of unamortized discount of $290,611 and $297,845.......... 209,389 202,155 7 1/4% Debentures due March 1, 2013....................... 148,215 148,215 7 1/4% Debentures due November 15, 2096, net of unamortized discount of $561 and $565.................. 147,439 147,435 7 1/2% Debentures due July 1, 2023........................ 98,750 98,750 Property financing obligation expiring on August 8, 2009, net of unamortized discount of $159,975 and $165,353, with an effective interest rate of 4.3%................ 48,986 54,743 4 1/4% Premium Equity Participating Securities due March 15, 2001; 1,088,100 securities stated at current maturity value......................................... 23,802 31,809 Others at various interest rates, maturing through 2001................................................... 58 69 -------- -------- 926,540 933,075 Less current maturities..................................... (7,518) (7,671) -------- -------- Total long-term debt................................... $919,022 $925,404 ======== ========
The Company has interest rate swap agreements on the 7 1/2% Debentures and the Liquid Yield Option Notes (LYON(TM)) for notional amounts of $100,000,000 and $170,111,000, respectively. These swaps effectively convert a portion of the Company's long-term fixed rate debt to a variable rate obligation based on LIBOR. As such, these interest rate swaps converted the weighted average interest rate for these instruments from 5.6% to 4.0% for the year to date ended September 30, 1998. The 4 1/4% Premium Equity Participating Securities (PEPS) hedge the Company's investment in the common stock of Netscape Communications Corporation (Netscape). The amount payable at maturity is determined by reference to the fair market value of the Netscape stock. Changes in the current maturity value of the PEPS are included in accumulated other comprehensive income, net of applicable income taxes. On September 28, 1998, the Company sold 216,900 shares of Netscape stock and purchased an equal proportion of its PEPS in the open market. The two transactions resulted in a gain of $7,744,000, previously recorded as a separate component of shareholders' equity. At September 30, 1998 and December 31, 1997, the fair market value of Netscape common stock was $21.875 and $24.375 per share, respectively. The PEPS are redeemable at the option of the Company, in whole or in part, at any time after December 15, 2000. 10 11 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) At September 30, 1998, the Company had a $400,000,000 long-term revolving line of credit through a group of domestic and international banks. This line of credit is used to support a commercial paper program which is available for short-term cash requirements. The Company had $240,246,000 of commercial paper outstanding at September 30, 1998 under this credit facility. At September 30, 1998, the Company had an uncommitted bank line of credit which provides for unsecured borrowings up to $250,000,000 of which there were no amounts outstanding. NOTE 6 -- EARNINGS AND DIVIDENDS PER SHARE The following table sets forth the calculation of basic and diluted earnings per share from continuing operations (in thousands, except per share amounts):
THIRD QUARTER ENDED YEAR TO DATE ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 1998 1997 1998 1997 -------- ------- ------- -------- Earnings: Income (loss) from continuing operations........ $(19,572) $54,062 $72,230 $159,427 Preferred dividends............................. 5,424 7,879 16,272 27,057 -------- ------- ------- -------- Earnings (loss) applicable to common shareholders for basic earnings per share.... (24,996) 46,183 55,958 132,370 LYONs interest expense, net of tax.............. 1,376 Convertible preferred stock, Series C-2......... 395 395 -------- ------- ------- -------- Earnings (loss) applicable to common shareholders for earnings per share.......... $(24,996) $47,954 $55,958 $132,765 ======== ======= ======= ======== Shares: Weighted average shares for basic earnings per share........................................ 84,262 91,847 86,799 94,077 Effect of dilutive securities: Stock options................................ 2,258 2,269 2,371 Convertible preferred stock, Series C-2...... 1,301 438 LYONs convertible debt....................... 2,914 -------- ------- ------- -------- Adjusted weighted average shares for diluted earnings per share.............................. 84,262 98,320 89,068 96,886 ======== ======= ======= ======== Basic earnings (loss) per share from continuing operations...................................... $ (.30) $ .50 $ .64 $ 1.41 ======== ======= ======= ======== Diluted earnings per share from continuing operations...................................... * $ .49 $ .63 $ 1.37 ======== ======= ======= ========
- --------------- * Antidilutive The Company has certain convertible securities which are not included in the calculation of diluted earnings per share because the effects are antidilutive. Cash dividends of $.18 and $.15 per share of common stock were declared for the third quarters of 1998 and 1997, respectively, and $.54 and $.40 per share for the year to date ended September 30, 1998 and 1997, respectively. NOTE 7 -- CAPITAL STOCK AND STOCK REPURCHASE PROGRAM At September 30, 1998, the Company had 650,000 put options outstanding with an average strike price of approximately $57.00. The put options, which have various expiration dates in the second half of 1998, entitle the holder to sell shares of Times Mirror common stock to the Company at the strike price on the expiration 11 12 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) date of the put option. The potential obligation under these put options has been transferred from shareholders' equity to "Common stock subject to put options." The Company's stock repurchase program, which includes the issuance of put options from time to time, is described in Note 13 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The Company and its affiliates purchased 8,720,000 shares of Series A common stock during the year to date ended September 30, 1998 for an aggregate cost of $522,157,000. Included in the 8,720,000 shares are 6,528,000 shares of Series A common stock purchased by the Company's affiliate, Eagle New Media. The Company believes that the purchase of shares of its common stock is an attractive investment for Eagle New Media which will also enhance Times Mirror shareholder value as well as offset dilution from shares of common stock issued under the Company's stock-based employee compensation and benefit programs. On July 27, 1998, the Company entered into a forward purchase contract to purchase 2,000,000 shares of Series A common stock at a price of $61.50. This contract, which is due to mature in the fourth quarter 1998, may, at the option of the Company, be physically settled with shares of Series A common stock or settled on a net cash or net share basis over a period that may continue into early 1999. Purchases by the Company and its affiliates are expected to be made in the open market or in private transactions, depending on market conditions, and may be discontinued at any time. NOTE 8 -- STOCK OPTIONS During the year to date ended September 30, 1998, the Company issued 1,881,000 shares of its common stock as a result of the exercise of stock options. NOTE 9 -- 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 its 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) an increase in expenses related to new initiatives and product improvement efforts in the flight information and consumer health information operating units; (e) unfavorable foreign currency fluctuations; and (f) 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. NOTE 10 -- CONTINGENT LIABILITIES The Company and its subsidiaries are defendants in various 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. 12 13 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 11 -- ACQUISITION On April 30, 1998, the Company acquired the Los Angeles area business of EZ Buy & EZ Sell Recycler Corporation (Recycler), consisting primarily of the Recycler publications in the Los Angeles, Orange, Riverside, San Bernardino and Ventura counties and a portion of Santa Barbara county for $188,696,000. The Company accounted for this acquisition under the purchase method with the results of operations for Recycler included in the financial statements of Times Mirror from the date of acquisition. A significant portion of the purchase price was allocated to intangible assets, primarily goodwill. The Company also invested in preferred stock and provided a term loan to Target Media Partners, a new entity which owns all of the non-Los Angeles area assets of Recycler, for a total amount of $34,800,000. NOTE 12 -- FUTURE ACCOUNTING REQUIREMENT In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133) which is required to be adopted in years beginning after June 15, 1999. Management does not anticipate that the adoption of SFAS 133 will have a significant effect on earnings or the financial position of the Company. 13 14 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL In the third quarter of 1998, Times Mirror reported net income of $1.08 billion, or $12.71 per share, compared with $66.9 million, or $.62 per share, for the prior year's third quarter. The results reflect: - A $1.11 billion gain on the disposition of the legal publishing businesses; - Pretax charges of $80.0 million, incurred in a continuation of the Company's restructuring program; - Additional pretax special charges of $14.0 million at the Company's training and consumer health businesses that did not qualify for accounting classification as restructuring charges; - A loss of $19.6 million from continuing operations; and - Income from discontinued operations of $12.0 million. On July 31, 1998, the Company completed the divestiture of Matthew Bender & Company, Incorporated and its 50% ownership in legal citation provider Shepard's to an affiliate of Reed Elsevier in a transaction valued at $1.65 billion. Subsequent to the end of the third quarter, on October 9, 1998, the Company completed the divestiture of Mosby, Inc., its health science and medical publisher, to Harcourt General, Inc. in a transaction valued at $415.0 million. On August 26, 1998, the Company determined that Apartment Search, Inc., its apartment location business, would be discontinued. The Company anticipates selling the business in the first half of 1999 and has recorded an estimated loss on disposal including a provision for operating losses during the phase-out period. The total estimated loss is included in discontinued operations in net gain on disposal, net of income taxes. Results of discontinued operations primarily include Matthew Bender, Mosby, the Shepard's joint venture and Apartment Search, Inc. For the third quarter, restructuring, one-time and other special charges totaled $94.0 million. In the fourth quarter, the Company's restructuring review will continue, with the largest steps expected to be taken at the Los Angeles Times. Overall, the Company expects total pretax charges related to the review program to be between $200 million and $225 million, and anticipates future annual expense reductions of approximately $25 million, beginning in 1999. Share repurchase activity continued with a total of 6.6 million Series A common shares acquired during the third quarter. 14 15 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS OF OPERATIONS The following table summarizes the Company's consolidated financial results (dollars in thousands, except per share amounts):
THIRD QUARTER ENDED YEAR TO DATE ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ------------------------ 1998 1997 1998 1997 ---------- -------- ---------- ---------- Revenues........................... $ 729,399 $699,067 $2,199,347 $2,090,626 Restructuring and one-time charges.......................... 80,012 119,709 Operating profit................... 3,738 97,710 178,837 295,125 Interest expense, net.............. (6,448) (11,058) (33,131) (25,365) Other, net......................... 7,674 3,528 15,012 3,754 Income (loss) from continuing operations, net of tax........... (19,572) 54,062 72,230 159,427 Discontinued operations: Income from operations, net of income taxes.................. 11,985 12,862 14,645 18,716 Net gain on disposal, net of income taxes.................. 1,084,136 1,084,136 Net income......................... 1,076,549 66,924 1,171,011 178,143 Preferred dividend requirements.... 5,424 7,879 16,272 27,057 Earnings applicable to common shareholders..................... $1,071,125 $ 59,045 $1,154,739 $ 151,086 Basic earnings (loss) per share: Continuing operations............ $ (.30) $ .50 $ .64 $ 1.41 Discontinued operations.......... 13.01 .14 12.66 .20 ---------- -------- ---------- ---------- Basic earnings per share........... $ 12.71 $ .64 $ 13.30 $ 1.61 ========== ======== ========== ========== Diluted earnings per share: Continuing operations............ $ * $ .49 $ .63 $ 1.37 Discontinued operations.......... * .13 12.33 .19 ---------- -------- ---------- ---------- Diluted earnings per share......... $ * $ .62 $ 12.96 $ 1.56 ========== ======== ========== ==========
- --------------- * Antidilutive Revenue growth continued in the third quarter of 1998, increasing by 4.3% over the same period last year. The rate of growth slowed from the second quarter, reflecting modest weakening in certain markets and advertising categories. Consolidated operating profit excluding restructuring, one-time and other special charges for the 1998 third quarter totaled $96.2 million, essentially level with the 1997 third quarter. A third quarter operating profit decline in Newspaper Publishing and Professional Information was offset by improvements in Magazine Publishing, as well as reduced expense levels in the Corporate and Other segment. Restructuring, one-time and other special charges totaled $92.5 million in the quarter, reducing operating profit from continuing operations to $3.7 million. For the year to date ended September 30, 1998, consolidated operating profit excluding restructuring, one-time and other special charges was $311.0 million, an increase of $15.9 million, or 5.4%, compared to the same prior year period. Earnings per share for 1998 benefited principally from the gain on divestitures, as well as from lower preferred dividend requirements and a reduction in average shares outstanding. Preferred dividend require- 15 16 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ments in 1998 declined due to the Company's redemption of its Series B preferred stock and a recapitalization in 1997. Net interest expense for the third quarter declined due to an increase in interest income, which is expected to continue throughout the balance of 1998. For the year to date ended September 30, 1998 net interest expense was higher than the prior year period primarily due to increased debt levels attributable to common stock repurchases, new acquisitions and the recapitalization in the third quarter of 1997. ANALYSIS BY SEGMENT The following sections discuss the revenues and operating results of the Company's principal lines of business, both including and excluding the 1998 restructuring, one-time and other special charges of $94.0 million and $133.7 million for the third quarter 1998 and year to date September 30, 1998, respectively. All comments, except where noted, apply to both the third quarter and the year to date ended September 30, 1998 compared to the same prior year periods. Newspaper Publishing Newspaper Publishing revenues and operating profit were as follows (dollars in thousands):
THIRD QUARTER ENDED YEAR TO DATE ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- -------------------------------- 1998 1997 CHANGE 1998 1997 CHANGE -------- -------- ------ ---------- ---------- ------ Revenues Advertising.................. $427,807 $403,947 5.9% $1,298,242 $1,215,025 6.8% Circulation.................. 108,290 107,694 0.6 324,452 325,695 (0.4) Other........................ 20,507 13,321 53.9 62,562 38,712 61.6 -------- -------- ---------- ---------- $556,604 $524,962 6.0% $1,685,256 $1,579,432 6.7% ======== ======== ========== ========== Operating profit............... $ 80,511 $ 90,350 (10.9)% $ 255,924 $ 300,909 (14.9)% ======== ======== ========== ========== Operating profit excluding restructuring and one-time charges...................... $ 85,236 $ 90,350 (5.7)% $ 295,499 $ 300,909 (1.8)% ======== ======== ========== ==========
For the 1998 third quarter, Newspaper Publishing operating profit, excluding restructuring and one-time charges, was $85.2 million, a decline of 5.7% from $90.4 million in the prior year's quarter. Strong operating performance at the Eastern Newspapers was more than offset by a substantial year-to-year decline in operating profit at the Los Angeles Times, reflecting increased expenses in anticipation of advertising revenue growth that did not materialize in the period. Classified help-wanted advertising at The Times has remained below last year and below expectations, particularly in the engineering and technology categories. In addition, the operating profit decline reflects higher newsprint expense and ongoing initiatives, particularly at the Los Angeles Times, to generate volume growth. Including restructuring and one-time charges of $4.7 million (including asset write-offs and severance-related costs), Newspaper Publishing operating profit was $80.5 million in the 1998 third quarter. In the 1998 third quarter, revenues for the Newspaper Publishing segment rose 6.0% to $556.6 million, compared with $525.0 million in the third quarter of 1997, reflecting advertising growth at the Eastern Newspapers as well as acquisitions. Excluding recent acquisitions, total revenues rose 1.8 %. Advertising revenues for the third quarter of 1998 increased 5.9% to $427.8 million from last year's $403.9 million. Advertising revenues rose 4.8% at the Los Angeles Times and 7.1% at the Eastern Newspapers. 16 17 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Excluding recent acquisitions, total advertising revenues rose 2.3%, with the Los Angeles Times increasing by 0.5% and the Eastern Newspapers by 4.3%. Newsprint expense rose 9.0% in the 1998 third quarter, with average newsprint prices up approximately 4.0% and circulation and advertising volume gains driving a 3.9% increase in consumption. Excluding newsprint and expenses of recently acquired operations, all other costs rose 3.0% in the 1998 third quarter -- up 4.6% at the Los Angeles Times and down 1.2% at the Eastern Newspapers. Total circulation averages for Times Mirror's Newspaper Publishing segment for the six-month period ended September 30, 1998, as reported by the Company to the Audit Bureau of Circulations, were 2,335,767 daily, an increase of 22,265, or 1.0%, and 3,043,004 Sunday, an increase of 3,550, or 0.1%. At the Los Angeles Times, average daily circulation was 1,067,540, an increase of 17,364, or 1.7%, and Sunday, 1,361,201, basically even with the level reported for the six-month period ended September 30, 1997. At Newsday, average daily circulation was 572,444, an increase of 3,603, or 0.6%, and Sunday was 671,214, an increase of 6,226, or 0.9%. For the nine months ended September 30, 1998, Newspaper Publishing operating profit excluding restructuring charges was $295.5 million, compared to $300.9 million for the prior year. Including restructuring charges of $39.6 million (including contract buyout costs, asset write-offs and severance-related costs), operating profit for the nine months ended September 30, 1998 was $255.9 million. Revenues for the nine months ended September 30, 1998, rose 6.7% to $1.69 billion compared with $1.58 billion in the prior year. Professional Information Professional Information revenues and operating profit were as follows (dollars in thousands):
THIRD QUARTER ENDED YEAR TO DATE ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 1998 1997 CHANGE 1998 1997 CHANGE -------- -------- ------ -------- -------- ------ Revenues.......................... $106,512 $104,880 1.6% $322,295 $306,821 5.0% ======== ======== ======== ======== Operating profit (loss)........... $(33,970) $ 19,137 (100+)% $ (4,808) $ 45,962 (100+)% ======== ======== ======== ======== Operating profit excluding restructuring, one-time and other special charges........... $ 18,744 $ 19,137 (2.1)% $ 52,753 $ 45,962 14.8% ======== ======== ======== ========
The Professional Information segment's 1998 third quarter results reflect the discontinuation of Matthew Bender/Shepard's and Mosby and prior year results have been restated accordingly. The segment's 1998 third quarter operating profit excluding restructuring, one-time and other special charges was $18.7 million, a decrease of 2.1% from the prior year's quarter. Including restructuring, one-time and other special charges of $54.2 million (of which $1.5 million was included in Other, net), Professional Information's operating loss was $34.0 million in the 1998 third quarter. The restructuring and one-time charges of $40.2 million primarily reflect goodwill impairment and facility closures. The special charges of $14.0 million are related to product development and other asset write-offs largely at AchieveGlobal and StayWell. The Company anticipates related future annual expense reductions of approximately $6 million, beginning in 1999, from both sets of charges. The segment's 1998 third quarter revenues from continuing operations were $106.5 million, compared with $104.9 million in the prior year. For the nine months ended September 30, 1998, operating profit excluding restructuring, one-time and other special charges was $52.8 million, an increase of $6.8 million, or 14.8%, over the results in the same period in the prior year. The increase is primarily due to a decrease in operating expenses at StayWell and an 17 18 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) increase in revenue both at StayWell and Allen Communication. Professional Information's operating loss was $4.8 million, including restructuring, one-time and other special charges of $59.1 million, of which $14.0 million represents those amounts not qualifying for accounting classification as restructuring charges. Included in this amount is $1.5 million which was reported in Other, net. For the nine months ended September 30, 1998, Professional Information's revenues from continuing operations were $322.3 million compared with $306.8 million in the prior year. Magazine Publishing Magazine Publishing revenues and operating profit were as follows (dollars in thousands):
THIRD QUARTER ENDED YEAR TO DATE ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 1998 1997 CHANGE 1998 1997 CHANGE -------- ------- ------- -------- -------- ------ Revenues......................... $ 65,828 $65,974 (0.2)% $191,096 $183,361 4.2% ======== ======= ======== ======== Operating profit (loss).......... $(21,233) $ 5,491 (100+)% $(19,503) $ 13,350 (100+)% ======== ======= ======== ======== Operating profit excluding restructuring and one-time charges........................ $ 7,839 $ 5,491 42.8% $ 9,569 $ 13,350 (28.3)% ======== ======= ======== ========
The Magazine Publishing segment reported 1998 third quarter operating profit, excluding restructuring charges, of $7.8 million, an increase of 42.8%, from $5.5 million in the prior year primarily due to a decrease in circulation costs as compared to the prior year's quarter. Including restructuring and one-time charges of $29.1 million, the 1998 third quarter operating loss was $21.2 million. The restructuring charges largely reflect goodwill impairment for two titles and the Company anticipates related future annual expense reductions of approximately $1 million, beginning in 1999. The 1998 third quarter revenues were $65.8 million, compared with $66.0 million in the prior year. For the nine months ended September 30, 1998, Magazine Publishing revenues were $191.1 million compared with $183.4 million in the prior year. Magazine Publishing operating profit for the nine months ended September 30, 1998, excluding restructuring and one-time charges, was $9.6 million. Including $29.1 million of restructuring and one-time charges, the operating loss was $19.5 million. The decrease in operating profit is due to ongoing investment in the relaunch of The Sporting News, higher paper costs and expenses related to new acquisitions. Corporate and Other Corporate and Other revenues and operating loss were as follows (dollars in thousands):
THIRD QUARTER ENDED YEAR TO DATE ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 1998 1997 CHANGE 1998 1997 CHANGE -------- -------- ------ -------- -------- ------ Revenues........................... $ 289 $ 3,323 (91.3)% $ 700 $ 21,451 (96.7)% ======== ======== ======== ======== Operating loss..................... $(21,570) $(17,268) 24.9% $(52,776) $(65,096) (18.9)% ======== ======== ======== ======== Operating loss excluding restructuring and one-time charges.......................... $(15,573) $(17,268) (9.8)% $(46,779) $(65,096) (28.1)% ======== ======== ======== ========
The Corporate and Other segment reported a 1998 third quarter operating loss of $15.6 million, excluding $6.0 million restructuring and one-time charges, compared with a loss of $17.3 million for the prior year's quarter. 18 19 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Revenues for the 1998 third quarter are lower compared to the prior year due to the divestiture of National Journal during the latter part of 1997. For year to date ended September 30, 1998, revenues declined due to the disposition of National Journal and Harry N. Abrams, Inc. Operating loss excluding restructuring and one-time charges is lower for the third quarter and year to date ended September 30, 1998 primarily due to lower employee benefit and information systems costs. OTHER INCOME On September 28, 1998, the Company sold 216,900 shares of its holdings in Netscape Communications Corporation (Netscape) stock and purchased an equal proportion of its 4 1/4% Premium Equity Participating Securities (PEPS) obligation in the open market. The PEPS hedge a significant portion of the Company's investment in Netscape. A $7.7 million gain, previously included as a separate component of shareholders' equity, was recognized on these two transactions. Such transactions may continue from time to time in the future. For the third quarter and year to date ended September 30, 1998, the Company had gains on the disposition of incidental properties which were partially offset by equity losses related to certain of its new media initiatives. LIQUIDITY AND CAPITAL RESOURCES The Company's operating cash requirements are funded primarily by its operations. For the year to date ended September 30, 1998, cash generated from operating activities and proceeds from borrowings have been used primarily to fund share repurchases and acquisitions. At September 30, 1998, the Company had a $400 million long-term revolving line of credit through a group of domestic and international banks. This line of credit is used to support a commercial paper program which is available for short-term cash requirements. The Company had approximately $240.2 million of commercial paper outstanding at September 30, 1998 under this credit facility. During the second quarter of 1998, the Company entered into an uncommitted bank line of credit which provides for unsecured borrowings up to $250 million of which there were no amounts outstanding at September 30, 1998. Acquisition and Dispositions On April 30, 1998, the Company acquired the Los Angeles area business of EZ Buy & EZ Sell Recycler Corporation (Recycler), consisting primarily of the Recycler publications in the Los Angeles, Orange, Riverside, San Bernardino and Ventura counties and a portion of Santa Barbara county for $188.7 million. The Company also invested in preferred stock and provided a term loan to Target Media Partners, a new entity that owns all of the non-Los Angeles area assets of Recycler for a total amount of $34.8 million. On July 31, 1998, the Company completed the divestiture of Matthew Bender in a tax-free reorganization and the sale of the Company's 50% ownership interest in Shepard's to Reed Elsevier plc. The two transactions were valued at $1.65 billion in the aggregate. Proceeds from the sale of Shepard's were used to pay down commercial paper and short-term borrowings of $222.4 million. Concurrently with the closing of the Matthew Bender transaction, the Company became the sole manager of Eagle New Media Investments, LLC (Eagle New Media) (formerly Liberty Bell I, LLC). At September 30, 1998, the principal assets of Eagle New Media were $949.6 million of cash and cash equivalents, $384.8 million of Times Mirror stock and $49.5 million of marketable securities. On October 9, 1998, the Company completed the divestiture of Mosby, Inc. to Harcourt General, Inc. in a transaction valued at $415.0 million and will record a gain in the fourth quarter. Concurrently with the closing of the Mosby, Inc. transaction, the Company became the sole manager 19 20 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) of Eagle Publishing Investments, LLC (Eagle Publishing) of which the principal assets were $415.0 million of cash and cash equivalents. While the Company believes that the Matthew Bender and Mosby transactions were completed on a tax-free basis, this position may be subject to review by the Internal Revenue Service. The Company intends to deploy the assets of both LLCs to finance acquisitions and investments, including purchases of the Company's common stock, and does not intend to use those funds for the Company's general working capital purposes. For financial reporting purposes, Eagle New Media and Eagle Publishing are consolidated with the financial results of the Company. Common Share Repurchases Share repurchases continued during the third quarter resulting in an additional reduction of 6.6 million Series A common shares through open market transactions, accelerated repurchases and purchases by an affiliated limited liability company. The Company and its affiliates purchased 8.7 million and 7.9 million shares of its Series A common stock during the year to date periods ended September 30, 1998 and 1997, respectively. Included in the 1998 purchases are 6.5 million shares of Series A common stock acquired by Eagle New Media. The Company believes that the purchase of shares of its common stock is an attractive investment for Eagle New Media which will also enhance Times Mirror shareholder value as well as offset dilution from shares of common stock issued under the Company's stock-based employee compensation and benefit programs. Also in the third quarter, on July 27, 1998, as part of its share repurchase efforts, the Company entered into a forward purchase agreement with respect to 2.0 million shares of Series A common stock at a price of $61.50. This contract, which is due to mature in the fourth quarter of 1998, may, at the Company's option, be physically settled with Series A common stock or settled on a net cash or net share basis over a period that may continue into early 1999. Purchases by the Company and its affiliates 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. At September 30, 1998, on a consolidated basis for financial reporting purposes, the actual shares of common stock outstanding totaled 81.1 million compared with 88.5 million at September 30, 1997. Cash Flow The following table sets forth certain items from the Statements of Condensed Consolidated Cash Flows (dollars in millions):
YEAR TO DATE ENDED SEPTEMBER 30, ------------------- 1998 1997 -------- ------- Net cash provided by operating activities of continuing operations................................................ $ 161.5 $ 197.1 Net proceeds from disposal of Matthew Bender/Shepard's...... 1,616.9 Acquisitions, net of cash acquired.......................... (194.4) (96.9) Capital expenditures........................................ (93.8) (71.6) Repurchase of common stock, including exercise of put options................................................... (521.9) (406.9) Net issuance of commercial paper, short-term borrowings and long-term debt............................................ 154.5 540.1
Cash generated by operating activities of continuing operations for the year to date ended September 30, 1998 was lower compared to the same period in 1997 due to higher interest payments and restructuring expenditures, as well as lower operating profit which was partially offset by a reduction in tax payments. Additionally, inventory levels rose with the purchase of newsprint in anticipation of fourth quarter newsprint price increases and lower consumption than originally expected. 20 21 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Capital expenditures for the year to date ended September 30, 1998 were higher compared to the same period in 1997 due primarily to investments for upgrades and enhancements in the Newspaper Publishing segment. Capital expenditures for 1998 are expected to be higher than the 1997 levels due to the Company's continuing investments for future growth, particularly in the Newspaper Publishing segment. Total debt at September 30, 1998 rose to $1.17 billion from $1.06 billion at December 31, 1997 primarily due to the issuance of commercial paper. DIVIDENDS Cash dividends of $.18 and $.15 per share of common stock were declared for the third quarter of 1998 and 1997, respectively, and $.54 and $.40 per share for the year to date ended September 30, 1998 and 1997, respectively. IMPACT OF YEAR 2000 Computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has instituted a comprehensive program to remediate potential Year 2000 impacts. This program involves the following phases: inventory, assessment/planning, remediation, contingency planning and testing. To date, the Company has substantially completed the inventory and assessment/planning phases and expects to fully complete these phases by the first quarter of 1999. The Company has commenced remediation of its critical systems and plans to complete this phase no later than mid-1999. The Company's critical systems are applications or processes that are required for the continuation of the Company's business and include both information technology and non-information technology systems. Contingency plans with respect to critical systems and critical suppliers will be developed during the second and third quarters of 1999. Completion of the testing phase for these systems is planned for third quarter 1999. The Company has identified the majority of its significant suppliers and vendors and has sent out questionnaires to such third parties. It expects to complete the process of identifying other suppliers and sending out questionnaires to other third parties by the first quarter of 1999. Risk assessment, readiness evaluation and action plans related to these third parties are planned to be completed by the second quarter of 1999. Internal and external resources have been utilized to perform all phases. Currently, total capital costs are estimated at $35 million for the purchase of systems and total expenses are estimated at $11 million. These estimates include all information technology and all non-information technology systems including costs associated with planned replacements which have been accelerated due to the Year 2000 issue. To date, the Company has capitalized $8 million and expensed $5 million. Substantially all of these costs have been identified within the Newspaper Publishing segment. These costs will be funded through operating cash flows. Although priorities have been realigned, the Company anticipates minimal negative impact to non-Year 2000 information technology projects or budgets. Management believes that it has an effective program in place to resolve the Year 2000 issue in a timely manner and the necessary modifications and replacement of critical systems will be completed by the third quarter of 1999. As a result, the Year 2000 issue is not expected to pose significant operational or financial problems for the Company. The Company's expectations about future Year 2000 related costs are subject to various uncertainties that could cause the actual results to differ materially from the Company's expectations, including the success of the Company in identifying systems that are not Year 2000 ready, the nature and amount of programming required to upgrade or replace each of the affected systems, the availability, rate and 21 22 THE TIMES MIRROR COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) magnitude of related labor and consulting costs and the success of the Company's vendors and suppliers in addressing the Year 2000 issue. If the Company or its suppliers or vendors are unable to resolve the Year 2000 issue on schedule, the Company may not be able to prepare and distribute its publications in a timely manner, which could have a material adverse effect on the Company's results of operations. FORWARD-LOOKING STATEMENTS The forward-looking statements set forth above and elsewhere in this Quarterly Report on Form 10-Q are subject to uncertainty and could be adversely affected by a number of factors. Some of these factors are described in Note 9 to the Condensed Consolidated Financial Statements. 22 23 THE TIMES MIRROR COMPANY BUSINESS SEGMENT INFORMATION (1) (IN THOUSANDS) (UNAUDITED)
THIRD QUARTER ENDED YEAR TO DATE ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------------- 1998 1997 1998 1997 -------- -------- ---------- ---------- REVENUES Newspaper Publishing.......................... $556,604 $524,962 $1,685,256 $1,579,432 Professional Information...................... 106,512 104,880 322,295 306,821 Magazine Publishing........................... 65,828 65,974 191,096 183,361 Corporate and Other........................... 289 3,323 700 21,451 Intersegment Revenues......................... 166 (72) (439) -------- -------- ---------- ---------- $729,399 $699,067 $2,199,347 $2,090,626 ======== ======== ========== ========== OPERATING PROFIT (LOSS)(2) Newspaper Publishing.......................... $ 80,511 $ 90,350 $ 255,924 $ 300,909 Professional Information...................... (33,970) 19,137 (4,808) 45,962 Magazine Publishing........................... (21,233) 5,491 (19,503) 13,350 Corporate and Other........................... (21,570) (17,268) (52,776) (65,096) -------- -------- ---------- ---------- $ 3,738 $ 97,710 $ 178,837 $ 295,125 ======== ======== ========== ========== DEPRECIATION AND AMORTIZATION Newspaper Publishing.......................... $ 29,426 $ 26,499 $ 88,008 $ 80,287 Professional Information...................... 4,397 4,419 14,499 13,622 Magazine Publishing........................... 1,883 1,828 5,846 5,223 Corporate and Other........................... 664 649 2,965 2,303 -------- -------- ---------- ---------- $ 36,370 $ 33,395 $ 111,318 $ 101,435 ======== ======== ========== ========== CAPITAL EXPENDITURES Newspaper Publishing.......................... $ 31,187 $ 20,565 $ 74,292 $ 51,616 Professional Information...................... 4,595 4,537 13,628 9,951 Magazine Publishing........................... 625 384 1,471 1,307 Corporate and Other........................... 1,056 1,564 4,367 8,740 -------- -------- ---------- ---------- $ 37,463 $ 27,050 $ 93,758 $ 71,614 ======== ======== ========== ==========
- --------------- (1) Represents activity from continuing operations. (2) Includes 1998 third quarter and year to date restructuring, one-time and other special charges as follows (in thousands):
THIRD QUARTER ENDED YEAR TO DATE ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 ------------------- ------------------ Newspaper Publishing............................. $ 4,725 $ 39,575 Professional Information......................... 52,714* 57,561* Magazine Publishing.............................. 29,072 29,072 Corporate and Other.............................. 5,997 5,997 ------- -------- $92,508 $132,205 ======= ========
- --------------- * An additional $1.5 million of other special charges is reported in Other, net. 23 24 THE TIMES MIRROR COMPANY PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material legal proceedings are pending. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12. Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Dividends. 27. Financial Data Schedules. (b) The Company filed a report on Form 8-K dated July 15, 1998, listing an additional holder of the Company's zero coupon subordinated Liquid Yield Option(TM) Notes ("LYONs") due 2017, which such owners may from time to time offer and sell pursuant to the Company's Registration Statement (No. 333-30773) under the Securities Act of 1933, as amended. The Company filed a report on Form 8-K dated July 22, 1998 announcing its earnings for the second quarter of 1998. The Company filed a report on Form 8-K dated July 31, 1998 announcing the completion of the acquisition by Reed Elsevier plc of the Company's legal publisher Matthew Bender & Company, Incorporated and its 50% ownership interest in legal citation provider Shepard's. The Company filed a report on Form 8-K dated July 31, 1998 relating to the disposition of Matthew Bender & Company, Incorporated and its 50% ownership interest in Shepard's. 24 25 SIGNATURE Pursuant to the requirements 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/ THOMAS UNTERMAN ------------------------------------ Thomas Unterman Executive Vice President and Chief Financial Officer Date: November 16, 1998 25 EX-12 2 COMPUTATION OF RATIO 1 EXHIBIT 12 THE TIMES MIRROR COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS (IN THOUSANDS, EXCEPT RATIO)
YEAR TO DATE ENDED SEPTEMBER 30, 1998 ------------------ Fixed charges: Interest expense.......................................... $ 54,744 Portion of rents deemed to be interest.................... 10,241 Amortization of debt expense.............................. 1,405 -------- Total fixed charges.................................... 66,390 Preferred dividends......................................... 36,207 -------- Fixed charges and preferred dividends..................... $102,597 ======== Earnings: Income from continuing operations before income tax provision.............................................. $160,718 Fixed charges............................................. 66,390 Amortization of capitalized interest...................... 2,953 Add: Equity loss from less than 50% owned unconsolidated affiliates............................................. 10,598 -------- Total earnings......................................... $240,659 ======== Ratio of earnings to fixed charges.......................... 3.6x Ratio of earnings to fixed charges and preferred dividends................................................. 2.3x
26 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER 30, 1998 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 995,459 49,509 393,289 45,379 63,356 1,680,929 1,928,087 1,001,346 4,134,460 818,226 919,022 0 724,820 112,090 654,137 4,134,460 2,199,347 2,199,347 1,157,622 1,157,622 119,709 16,613 54,680 160,718 88,488 72,230 1,098,781 0 0 1,171,011 13.30 12.96 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.2 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30, 1998 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 64,119 0 395,362 43,015 48,604 989,669 1,916,151 986,285 3,493,846 1,052,441 929,958 0 724,820 112,090 (31,274) 3,493,846 1,469,948 1,469,948 772,373 772,373 39,697 12,426 34,360 155,754 63,952 91,802 2,660 0 0 94,462 0.95 0.92 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.3 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31, 1998 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 41,208 0 388,952 43,736 46,453 944,327 1,888,800 960,673 3,230,865 693,868 917,822 0 724,820 112,089 72,749 3,230,865 714,130 714,130 383,603 383,603 0 7,620 15,521 79,168 33,201 45,967 (706) 0 0 45,261 .45 .44 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.4 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31, 1997 QUARTERLY REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 48,659 0 406,021 42,769 44,896 1,001,226 1,876,761 942,061 3,238,620 740,518 925,404 0 724,820 112,055 39,124 3,238,620 2,882,017 2,882,017 1,476,348 1,476,348 0 23,428 41,681 365,865 144,965 220,900 29,412 0 0 250,312 2.35 2.29 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.5 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER 30, 1997 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 51,494 0 376,371 42,124 42,624 919,551 1,865,244 941,883 3,124,589 675,785 940,132 0 724,820 112,054 (1,896) 3,124,589 2,090,626 2,090,626 1,080,077 1,080,077 0 13,527 27,187 273,514 114,087 159,427 18,716 0 0 178,143 1.61 1.56 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.6 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30, 1997 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 41,033 0 354,091 38,722 43,356 914,869 1,999,736 915,139 3,074,556 529,852 633,740 0 411,784 95,737 713,042 3,074,556 1,391,559 1,391,559 711,938 711,938 0 9,287 15,685 183,334 77,969 105,365 5,854 0 0 111,219 0.97 0.94 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.7 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31, 1997 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 43,600 14,213 356,205 42,631 60,329 939,612 1,985,220 896,414 3,105,076 636,182 433,693 0 576,379 93,620 668,873 3,105,076 677,322 677,322 352,892 352,892 0 5,034 7,738 76,488 32,978 43,510 1,723 0 0 45,233 0.37 0.36 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.8 10 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 140,224 0 387,899 42,621 60,256 1,005,312 1,978,788 876,926 3,225,409 533,387 459,007 0 576,379 96,730 825,701 3,225,409 2,775,820 2,775,820 1,495,566 1,495,566 17,348 24,187 20,153 280,167 110,964 169,203 37,241 0 0 206,444 1.59 1.54 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.9 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER 30, 1996 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 56,718 0 365,118 39,316 69,194 1,122,501 1,986,956 890,589 3,337,621 800,100 299,666 0 576,379 98,987 854,966 3,337,621 2,028,967 2,028,967 1,107,084 1,107,084 0 15,301 21,529 178,301 78,671 99,630 28,135 0 0 127,765 0.92 0.89 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.10 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30, 1996 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 54,182 10,204 334,227 34,834 67,270 1,047,337 1,965,152 871,450 3,270,363 607,455 317,685 0 576,379 102,627 981,483 3,270,363 1,349,089 1,349,089 742,536 742,536 0 10,350 12,092 121,444 52,979 68,465 3,595 0 0 72,060 .48 .47 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.11 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31, 1996 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 99,523 19,271 347,327 35,475 79,209 1,124,381 1,947,100 854,473 3,279,461 555,242 298,258 0 576,379 104,691 1,053,107 3,279,461 666,682 666,682 378,919 378,919 0 5,175 5,724 51,200 23,320 27,880 (1,843) 0 0 26,037 .14 .14 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.12 14 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31, 1995 ANNUAL REPORT ON 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 174,648 72,805 370,511 36,708 70,010 1,314,069 1,939,689 842,401 3,496,296 741,618 247,062 0 576,379 105,698 1,124,159 3,496,296 2,728,497 2,728,497 1,502,803 1,502,803 498,409 20,498 22,305 (288,638) (54,846) (233,792) 1,473,267 0 (12,724) 1,226,751 10.02 10.02 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
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