-----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, VVC5B2a2tN/ZzSQo4zqVvfrS2SEK0xyLaERyRncxLmMaXOLV4KfirKoyReyy5TlL Gvl5aDqAZt7aSBBFGrPfOw== 0000950150-99-000937.txt : 19990809 0000950150-99-000937.hdr.sgml : 19990809 ACCESSION NUMBER: 0000950150-99-000937 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990806 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: 99679772 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 FOR THE PERIOD ENDED JUNE 30,1999 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, 1999 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 I.D. 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 July 30, 1999: 46,844,505, excluding 18,237,864 shares held by subsidiaries of the Registrant and 4,001,067 shares held by TMCT, LLC, representing 80% of the shares held by TMCT, LLC 14,813,426 shares held by Eagle New Media Investments, LLC and 3,148,705 shares held as treasury shares. Number of shares of Series C Common Stock outstanding at July 30, 1999: 25,074,794. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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)
SECOND QUARTER ENDED YEAR TO DATE ENDED JUNE 30, JUNE 30, -------------------- ------------------------ 1999 1998 1999 1998 -------- -------- ---------- ---------- REVENUES..................................... $801,272 $755,818 $1,547,315 $1,469,948 COSTS AND EXPENSES: Cost of sales.............................. 435,860 388,770 844,815 772,373 Selling, general and administrative expenses................................ 230,063 242,199 474,413 482,779 Restructuring and one-time charges......... -- 39,697 -- 39,697 -------- -------- ---------- ---------- 665,923 670,666 1,319,228 1,294,849 -------- -------- ---------- ---------- OPERATING PROFIT............................. 135,349 85,152 228,087 175,099 Interest expense............................. (22,346) (18,839) (43,710) (34,360) Interest income.............................. 10,535 2,451 24,117 7,677 Other, net................................... 20,917 7,822 21,914 7,338 -------- -------- ---------- ---------- Income from continuing operations before income tax provision....................... 144,455 76,586 230,408 155,754 Income tax provision......................... 59,141 30,751 96,281 63,952 -------- -------- ---------- ---------- Income from continuing operations............ 85,314 45,835 134,127 91,802 Income from discontinued operations, net of income taxes............................... -- 3,366 -- 2,660 -------- -------- ---------- ---------- NET INCOME................................... 85,314 49,201 134,127 94,462 Preferred dividend requirements.............. 5,424 5,424 10,848 10,848 -------- -------- ---------- ---------- Earnings applicable to common shareholders... $ 79,890 $ 43,777 $ 123,279 $ 83,614 ======== ======== ========== ========== Basic earnings per common share: Continuing operations...................... $ 1.11 $ .46 $ 1.70 $ .92 Discontinued operations.................... -- .04 -- .03 -------- -------- ---------- ---------- Basic earnings per share..................... $ 1.11 $ .50 $ 1.70 $ .95 ======== ======== ========== ========== Diluted earnings per common share: Continuing operations...................... $ 1.05 $ .45 $ 1.64 $ .89 Discontinued operations.................... -- .04 -- .03 -------- -------- ---------- ---------- Diluted earnings per share................... $ 1.05 $ .49 $ 1.64 $ .92 ======== ======== ========== ========== Weighted average shares: Basic...................................... 71,970 87,844 72,520 88,088 ======== ======== ========== ========== Diluted.................................... 82,128 90,277 76,972 90,507 ======== ======== ========== ========== Dividends declared per common share.......... $ .20 $ .18 $ .40 $ .36 ======== ======== ========== ==========
See notes to condensed consolidated financial statements. 3 4 THE TIMES MIRROR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)
JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 812,697 $1,056,341 Marketable securities..................................... 34,540 49,438 Accounts receivable, less allowance for doubtful accounts and returns of $46,118 and $44,988..................... 362,077 368,740 Inventories............................................... 49,234 39,282 Deferred income taxes..................................... 44,958 44,012 Prepaid expenses.......................................... 40,439 32,763 Other current assets...................................... 17,780 38,683 ---------- ---------- Total current assets.............................. 1,361,725 1,629,259 Property, plant and equipment, net of accumulated depreciation and amortization of $1,027,170 and $976,175.................................................. 934,553 915,992 Goodwill, net of accumulated amortization of $139,847 and $131,170.................................................. 665,376 564,324 Other intangibles, net of accumulated amortization of $74,824 and $66,246....................................... 253,959 168,629 Investments................................................. 306,501 270,818 Prepaid pension costs....................................... 431,959 419,471 Other assets................................................ 269,070 249,813 ---------- ---------- Total assets...................................... $4,223,143 $4,218,306 ========== ==========
See notes to condensed consolidated financial statements. 4 5 THE TIMES MIRROR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 171,323 $ 194,224 Short-term debt........................................... 372,877 312,610 Other current liabilities................................. 391,688 466,658 ----------- ----------- Total current liabilities......................... 935,888 973,492 Long-term debt.............................................. 956,108 941,423 Deferred income taxes....................................... 418,742 374,679 Postretirement benefits..................................... 223,825 226,018 Other liabilities........................................... 371,203 337,681 ----------- ----------- Total liabilities................................. 2,905,766 2,853,293 Common stock subject to put options......................... 8,455 22,560 Commitments and contingencies SHAREHOLDERS' EQUITY Preferred stock, $1 par value; stated at liquidation value; convertible to Series A common stock: Series A: 900,000 shares authorized; 824,000 shares issued and outstanding.............................. 411,784 411,784 Series 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; 87,033,000 and 86,831,000 shares issued and outstanding........ 87,033 86,831 Series B: 100,000,000 shares authorized; no shares issued or outstanding Series C: Convertible to Series A common stock; 300,000,000 shares authorized; 25,087,000 and 25,258,000 shares issued and outstanding............ 25,087 25,258 Additional paid-in capital................................ 1,295,657 1,278,916 Retained earnings......................................... 1,709,217 1,653,736 Accumulated other comprehensive income.................... 9,662 26,491 Less treasury stock at cost: Series A common stock: 40,242,000 and 38,708,000 shares and Series A preferred stock: 735,000 shares.......... (2,542,554) (2,453,599) ----------- ----------- Total shareholders' equity........................ 1,308,922 1,342,453 ----------- ----------- Total liabilities and shareholders' equity........ $ 4,223,143 $ 4,218,306 =========== ===========
See notes to condensed consolidated financial statements. 5 6 THE TIMES MIRROR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
YEAR TO DATE ENDED JUNE 30, ----------------------- 1999 1998 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities of continuing operations............................................. $ 133,665 $ 88,658 Net cash provided by (used in) operating activities of discontinued operations................................ (2,356) 35,600 ---------- --------- Net cash provided by operating activities......... 131,309 124,258 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions, net of cash acquired........................ (154,610) (192,850) Capital expenditures...................................... (80,679) (56,295) Purchases of investments.................................. (50,996) (24,679) Proceeds from sales of assets............................. 20,945 19,259 Sale of marketable securities, net........................ 14,898 -- Decreases (increases) in notes receivable................. 12,500 (67,858) Other, net................................................ (3,455) (14,172) ---------- --------- Net cash used in investing activities of continuing operations............................................ (241,397) (336,595) Net cash used in investing activities of discontinued operations............................................ -- (15,322) ---------- --------- Net cash used in investing activities............. (241,397) (351,917) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Purchases of Times Mirror common stock.................... (152,689) (130,565) Dividends paid............................................ (39,717) (42,389) Principal repayments of debt.............................. (27,950) (46,654) Exercise of put options, net of premiums received......... (16,839) 1,347 Net proceeds of commercial paper and short-term borrowings............................................. 60,402 434,055 Proceeds from exercise of stock options................... 43,197 27,412 Other, net................................................ 40 (87) ---------- --------- Net cash provided by (used in) financing activities...................................... (133,556) 243,119 ---------- --------- Increase (decrease) in cash and cash equivalents............ (243,644) 15,460 Cash and cash equivalents at beginning of year.............. 1,056,341 48,659 ---------- --------- Cash and cash equivalents at end of period.................. $ 812,697 $ 64,119 ========== ========= NONCASH INVESTING ACTIVITIES Liabilities assumed in connection with acquisitions....... $ 49,310 $ 8,087 Stock and notes receivable received from divestiture...... $ 31,502 $ --
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 unaudited 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 Article 10 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. For financial reporting purposes, the condensed consolidated financial statements include the accounts of the Company's affiliated limited liability companies, Eagle New Media Investments, LLC (Eagle New Media) and Eagle Publishing Investments, LLC (Eagle Publishing). 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. The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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, 1998. Certain amounts in previously issued financial statements have been reclassified to conform to the 1999 presentation. NOTE 2 -- COMPREHENSIVE INCOME Total comprehensive income amounted to $77,303,000 and $47,977,000 for the second quarters of 1999 and 1998, respectively, and $117,298,000 and $93,357,000 for the year to date periods ended June 30, 1999 and 1998, respectively. Comprehensive income differs from net income primarily due to the timing of recognizing realized and unrealized gains or losses. NOTE 3 -- DISCONTINUED OPERATIONS During 1998, the Company completed the divestitures of Matthew Bender & Company, Incorporated, its 50% interest in the Shepard's joint venture and Mosby, Inc. Additionally, the Company determined that Apartment Search, Inc. would be treated as discontinued operations in 1998 and subsequently sold the business on March 31, 1999. Prior year results for discontinued operations primarily include Matthew Bender & Company, Incorporated, the Shepard's joint venture, Mosby, Inc. and Apartment Search, Inc. The major components of cash flow for discontinued operations are as follows (in thousands):
YEAR TO DATE ENDED JUNE 30, ------------------- 1999 1998 ------- -------- Income from discontinued operations......................... $ -- $ 2,660 Depreciation and amortization............................... -- 10,196 Amortization of product costs............................... -- 6,222 Other, net.................................................. (2,356) 16,522 ------- -------- Net cash provided by (used in) operating activities of discontinued operations................................ $(2,356) $ 35,600 ======= ======== Capitalization of product costs............................. $ -- $ (5,984) Capital expenditures........................................ -- (3,201) Other, net.................................................. -- (6,137) ------- -------- Net cash used in investing activities of discontinued operations............................................. $ -- $(15,322) ======= ========
7 8 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 4 -- RESTRUCTURING LIABILITY A summary of the activity in the restructuring liabilities is as follows (in thousands):
1998 1996 1995 RESTRUCTURING RESTRUCTURING RESTRUCTURING TOTAL ------------- ------------- ------------- -------- Balance at December 31, 1998............ $ 97,264 $ 19 $24,404 $121,687 Cash payments......................... (55,851) (19) (6,071) (61,941) Asset write-offs(1)................... (3,671) -- -- (3,671) -------- ---- ------- -------- Balance at June 30, 1999................ $ 37,742 $ -- $18,333 $ 56,075 ======== ==== ======= ========
- --------------- (1) During the 1999 second quarter, the Company wrote-off previously identified assets and paid certain transaction costs related to the sale and conversion of AchieveGlobal's Canadian operations to a franchise arrangement. During the year to date period ended June 30, 1999, cash spent on restructuring efforts included severance payments of $33,564,000, contract termination costs of $19,802,000, and lease payments of $7,640,000. At June 30, 1999, the remaining liability for severance costs aggregated $20,267,000. The balance sheet classification of restructuring liabilities is as follows (in thousands):
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Other current liabilities: 1995 Restructuring........................................ $11,675 $ 16,464 1996 Restructuring........................................ -- 19 1998 Restructuring........................................ 24,320 82,306 Other liabilities: 1995 Restructuring........................................ 6,658 7,940 1998 Restructuring........................................ 13,422 14,958 ------- -------- $56,075 $121,687 ======= ========
The current portion of restructuring is comprised primarily of severance and lease payments while the non-current portion is comprised primarily of contract termination and extended payout of severance arrangements, as well as lease payments which will be paid over lease periods extending to 2010. The Company periodically assesses the adequacy of its remaining restructuring liabilities and makes adjustments, if required. The net change in the restructuring liabilities as a result of these reviews was not significant. 8 9 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5 -- DEBT Debt consists of the following (dollars in thousands):
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Short-term debt: Commercial paper at a weighted average interest rate of 5.0% and 5.3%.......................................... $319,087 $298,603 Short-term borrowings at a weighted average interest rate of 5.1%................................................ 40,000 -- Current maturities of long-term debt...................... 7,305 7,440 Other notes payable at interest rates of 5.5% and 5.4%.... 6,485 6,567 -------- -------- Total short-term debt.................................. $372,877 $312,610 ======== ======== Long-term debt: 6.61% Debentures due September 15, 2027, net of unamortized discount of $96 and $98.................... $249,904 $249,902 4.75% Liquid Yield Option Notes due April 15, 2017, net of unamortized discount of $283,097 and $288,129.......... 216,903 211,871 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 $557 and $559.................. 147,443 147,441 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 $154,121 and $158,080, with an effective interest rate of 4.3%................ 43,337 47,088 4 1/4% PEPS due March 15, 2001; 653,100 and 863,100 securities stated at fair value........................ 58,861 45,596 -------- -------- 963,413 948,863 Less current maturities................................... (7,305) (7,440) -------- -------- Total long-term debt................................... $956,108 $941,423 ======== ========
Interest rate swaps outstanding at June 30, 1999 converted the weighted average interest rate on the 7 1/4% Debentures due November 15, 2096, the 6.61% Debentures, the 7 1/2% Debentures and the Liquid Yield Option Notes (LYONs(TM)) from 6.3% to 5.3% for the year to date period ended June 30, 1999. The 4 1/4% Premium Equity Participating Securities (PEPS) hedge the Company's investment in the common stock of America Online, Inc. (AOL) which acquired Netscape Communications Corporation (Netscape) in the first quarter of 1999. As a result of that acquisition, each share of Netscape common stock was converted into 0.9 of a share of AOL common stock. The amount payable at maturity with respect to each PEPS will equal 90% of the average market price of one share of AOL common stock for the ten trading days ending on the second business day prior to the maturity date, subject to adjustment as a result of certain dilution events involving AOL. Holders of the PEPS bear the full risk of a decline in the value of AOL. The Company is not obligated to hold the AOL stock for any period or sell the AOL stock prior to the PEPS maturity or redemption date. The PEPS are redeemable at the option of the Company, in whole or in part, at any time after December 15, 2000. The redemption value of each PEPS is the product of (a) the redemption ratio, as defined below, (b) 90% and (c) the average market price of one share of AOL common stock for the ten trading days ending on the second business day prior to the redemption date, plus cash in an amount equal to all unpaid interest, whether or not accrued, that would have been payable on the PEPS through the maturity 9 10 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) date. The redemption ratio will equal (a) 100%, if the market value of one share of AOL common stock is less than $43.61, or (b) a fraction, the numerator of which is $43.61 and the denominator of which is the market value of AOL common stock, if such market value is equal to or exceeds $43.61 but less than or equal to $50.16, or (c) 86.96%, if the market value of AOL common stock exceeds $50.16. The PEPS are recorded at fair market value as determined in the open market and will generally move in tandem with changes in the fair market value of AOL common stock. The net unrealized loss on the PEPS at June 30, 1999 and December 31, 1998 is $19,687,000 and $6,928,000, respectively, net of applicable income taxes, and is included in accumulated other comprehensive income. During the year to date period ended June 30, 1999, the Company sold 189,000 shares of AOL stock and purchased a proportionate share of its PEPS in the open market for a total pretax gain of $10,323,000. 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):
SECOND QUARTER ENDED YEAR TO DATE ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Earnings: Income from continuing operations....... $85,314 $45,835 $134,127 $ 91,802 Preferred dividends..................... (5,424) (5,424) (10,848) (10,848) ------- ------- -------- -------- Earnings applicable to common shareholders for basic earnings per share................................ 79,890 40,411 123,279 80,954 LYONs interest expense, net of tax...... 1,506 -- 2,982 -- Series C-1, preferred dividends......... 2,762 -- -- -- Series C-2, preferred dividends......... 1,777 -- -- -- ------- ------- -------- -------- Earnings applicable to common shareholders for diluted earnings per share................................ $85,935 $40,411 $126,261 $ 80,954 ======= ======= ======== ======== Shares: Weighted average shares for basic earnings per share................... 71,970 87,844 72,520 88,088 Effect of dilutive securities: Stock options........................ 1,633 2,433 1,538 2,419 LYONs convertible debt............... 2,914 -- 2,914 -- Series C-1, convertible preferred stock.............................. 3,414 -- -- -- Series C-2, convertible preferred stock.............................. 2,197 -- -- -- ------- ------- -------- -------- Adjusted weighted average shares for diluted earnings per share........... 82,128 90,277 76,972 90,507 ======= ======= ======== ======== Basic earnings per share from continuing operations........................... $ 1.11 $ .46 $ 1.70 $ .92 ======= ======= ======== ======== Diluted earnings per share from continuing operations................ $ 1.05 $ .45 $ 1.64 $ .89 ======= ======= ======== ========
The Company has certain convertible securities, which are not included in the calculation of diluted earnings per share, because the effects are antidilutive. 10 11 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 7 -- ISSUANCE AND PURCHASE OF SHARES The Company's stock purchase 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, 1998. Share purchases of the Company's Series A common shares continued in the first half of 1999 through a combination of a forward purchase agreement, put options and open market purchases by Eagle New Media. The Company and Eagle New Media purchased 2,877,000 shares of its Series A common stock during the year to date period ended June 30, 1999, which more than offset 1,338,000 shares issued as a result of the exercise of stock options. At June 30, 1999, the Company had 152,000 put options outstanding with an average strike price of approximately $55.63. The put options, which have expiration dates in the third quarter of 1999, entitle the holder to sell shares of Times Mirror common stock to the Company at the strike price on the expiration 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." NOTE 8 -- 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 the use of alternate media such as the Internet for classified and other advertising; (e) an increase in expenses related to new initiatives and product improvement efforts in the flight information and health information operating units; (f) unfavorable foreign currency fluctuations; (g) material changes in tax liability due to unfavorable reviews by taxing authorities; (h) the inability of the Company, its vendors, suppliers or other third parties with which the Company interacts to resolve the Year 2000 issue in a timely manner; and (i) 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 9 -- 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. NOTE 10 -- FUTURE ACCOUNTING REQUIREMENT In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133). Subsequently, the FASB issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133" which deferred the effective date of SFAS 133 for one year. This 11 12 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) standard is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Management does not anticipate that the adoption of this standard will have a significant effect on earnings or the financial position of the Company. NOTE 11 -- ACQUISITIONS AND DISPOSITIONS In February 1999, Eagle New Media acquired Newport Media, Inc., a publisher of shopper publications in the Long Island and New Jersey areas, for approximately $132,000,000. In April 1999, the Company acquired New Mass Media, Inc., a publisher of five alternative weekly newspapers in Connecticut, Massachusetts and New York, for approximately $17,500,000. These acquisitions were accounted for by the purchase method with the results of operations included in the Company's financial statements from the dates of acquisition. The purchase price of these acquisitions has been allocated primarily to goodwill and other intangible assets based on preliminary valuations. Pro forma results for the year to date periods ended June 30, 1999 and 1998, assuming the acquisitions occurred on January 1 of the respective year, would not be materially different from the results reported. The Company completed an agreement in May 1999, to merge Hollywood Online, Inc., and its Web site, hollywood.com, into Big Entertainment, Inc., in exchange for newly issued restricted stock of Big Entertainment, Inc. and a note at a then combined current value of approximately $31,500,000. The Company recorded a pre-tax gain of $17,200,000 ($10,700,000 after applicable taxes), related to this disposition. Additionally, the Company completed the sale of Apartment Search, Inc. on March 31, 1999. The estimated loss on sale of Apartment Search, including a provision for operating losses through the date of disposal, was recorded in the third quarter of 1998. 12 13 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 12 -- SEGMENT INFORMATION Financial data for the Company's segments is as follows (in thousands):
SECOND QUARTER ENDED YEAR TO DATE ENDED JUNE 30, JUNE 30, -------------------- ------------------------ 1999 1998 1999 1998 -------- -------- ---------- ---------- REVENUES Newspaper Publishing............... $633,069 $585,731 $1,206,615 $1,128,652 Professional Information........... 103,900 110,049 207,111 215,783 Magazine Publishing................ 64,221 59,623 133,060 125,268 -------- -------- ---------- ---------- Total Reportable Segments................. 801,190 755,403 1,546,786 1,469,703 Corporate and Other................ 103 210 628 411 Intersegment Revenues.............. (21) 205 (99) (166) -------- -------- ---------- ---------- $801,272 $755,818 $1,547,315 $1,469,948 ======== ======== ========== ========== OPERATING PROFIT (LOSS)(1) Newspaper Publishing............... $126,541 $ 85,259 $ 218,213 $ 175,413 Professional Information........... 18,015 12,204 34,185 29,162 Magazine Publishing................ 2,480 1,953 2,483 1,730 -------- -------- ---------- ---------- Total Reportable Segments................. 147,036 99,416 254,881 206,305 Corporate and Other................ (11,687) (14,264) (26,794) (31,206) -------- -------- ---------- ---------- $135,349 $ 85,152 $ 228,087 $ 175,099 ======== ======== ========== ========== DEPRECIATION AND AMORTIZATION Newspaper Publishing............... $ 33,967 $ 29,617 $ 65,599 $ 58,582 Professional Information........... 4,124 5,083 8,270 10,102 Magazine Publishing................ 2,104 2,018 4,096 3,963 -------- -------- ---------- ---------- Total Reportable Segments................. 40,195 36,718 77,965 72,647 Corporate and Other................ 1,002 1,247 2,163 2,301 -------- -------- ---------- ---------- $ 41,197 $ 37,965 $ 80,128 $ 74,948 ======== ======== ========== ========== CAPITAL EXPENDITURES Newspaper Publishing............... $ 36,934 $ 25,873 $ 66,980 $ 43,105 Professional Information........... 3,414 5,051 7,076 9,033 Magazine Publishing................ 1,764 413 2,610 846 -------- -------- ---------- ---------- Total Reportable Segments................. 42,112 31,337 76,666 52,984 Corporate and Other................ 2,175 1,370 4,013 3,311 -------- -------- ---------- ---------- $ 44,287 $ 32,707 $ 80,679 $ 56,295 ======== ======== ========== ==========
- --------------- (1) Includes 1998 restructuring and one-time charges as follows: Newspaper Publishing............. -- $ 34,850 -- $ 34,850 Professional Information......... -- 4,847 -- 4,847 -------- -------- ---------- ---------- -- $ 39,697 -- $ 39,697 ======== ======== ========== ==========
A reconciliation of operating profit to income from continuing operations before income taxes is set forth in the Company's Condensed Consolidated Statements of Income on page 3. 13 14 THE TIMES MIRROR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Identifiable assets of the Company's segments are as follows (in thousands):
JUNE 30, DECEMBER 31, 1999 1998 ---------- ------------ Newspaper Publishing....................................... $2,278,387 $1,999,880 Professional Information................................... 313,458 344,636 Magazine Publishing........................................ 277,700 271,457 ---------- ---------- Total Reportable Segments........................ 2,869,545 2,615,973 Corporate and Other........................................ 1,353,598 1,602,333 ---------- ---------- $4,223,143 $4,218,306 ========== ==========
14 15 THE TIMES MIRROR COMPANY ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED RESULTS OF OPERATIONS The following table summarizes the Company's consolidated financial results (dollars in thousands, except per share amounts):
SECOND QUARTER ENDED YEAR TO DATE ENDED JUNE 30, JUNE 30, -------------------- ------------------------ 1999 1998 1999 1998 -------- -------- ---------- ---------- Revenues............................. $801,272 $755,818 $1,547,315 $1,469,948 Restructuring and one-time charges... -- 39,697 -- 39,697 Operating profit..................... 135,349 85,152 228,087 175,099 Interest expense, net................ (11,811) (16,388) (19,593) (26,683) Other, net........................... 20,917 7,822 21,914 7,338 Income from continuing operations.... 85,314 45,835 134,127 91,802 Income from discontinued operations, net of income taxes................ -- 3,366 -- 2,660 Net income........................... 85,314 49,201 134,127 94,462 Preferred dividend requirements...... 5,424 5,424 10,848 10,848 Earnings applicable to common shareholders....................... 79,890 43,777 123,279 83,614 Basic earnings per common share: Continuing operations.............. $ 1.11 $ .46 $ 1.70 $ .92 Discontinued operations............ -- .04 -- .03 -------- -------- ---------- ---------- Basic earnings per share............. $ 1.11 $ .50 $ 1.70 $ .95 ======== ======== ========== ========== Diluted earnings per common share: Continuing operations.............. $ 1.05 $ .45 $ 1.64 $ .89 Discontinued operations............ -- .04 -- .03 -------- -------- ---------- ---------- Diluted earnings per share........... $ 1.05 $ .49 $ 1.64 $ .92 ======== ======== ========== ========== Weighted average shares: Basic.............................. 71,970 87,844 72,520 88,088 ======== ======== ========== ========== Diluted............................ 82,128 90,277 76,972 90,507 ======== ======== ========== ==========
Revenues for the 1999 second quarter and year to date periods ended June 30, 1999 rose 6.0% and 5.3%, respectively, compared to the prior year periods due primarily to higher advertising revenues in the Newspaper Publishing segment, including the effects of acquisitions. Operating profit for the 1999 second quarter and year to date periods ended June 30, 1999 increased 8.4% and 6.2%, respectively, compared to the prior year periods, excluding the 1998 pretax restructuring and one-time charges of $39.7 million ($24.7 million after applicable taxes). The increases were due to a modest improvement in the Newspaper Publishing segment as well as lower Corporate and Other expenses (See further discussion of segment results under the caption "Analysis by Segment"). Operating profit in 1999 was affected by lower pension income as a result of a $9.0 million reduction in amortization of the transition asset. The 1999 second quarter income from continuing operations includes a pretax gain on the sale of Hollywood Online, Inc. of $17.2 million ($10.7 million after applicable taxes), or $.13 per share on a diluted basis. Excluding this gain as well as the 1998 restructuring and one-time charges, income from continuing operations for the 1999 and 1998 second quarters was $74.7 million, or $.92 per share, compared to $70.5 million, or $.72 per share, respectively. For the year to date period ended June 30, 1999, income from 15 16 THE TIMES MIRROR COMPANY MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) continuing operations was $123.5 million, or $1.50 per share, compared with $116.5 million, or $1.17 per share, in the prior year, excluding the gain as well as the restructuring and one-time charges. Earnings per share for 1999 increased compared to 1998 due to, among other items, a significant reduction in the weighted average number of shares outstanding and higher earnings. Net interest expense for the second quarter and the year to date periods ended June 30, 1999 declined compared to the prior year periods primarily due to an increase in interest income resulting from investment activity of the Company's affiliated limited liability companies. ANALYSIS BY SEGMENT The following sections discuss the revenues and operating profit of the Company's principal lines of businesses, excluding the 1998 restructuring and one-time charges of $39.7 million, unless specifically stated otherwise. All comments, except where noted, apply to both the second quarter and the year to date periods ended June 30, 1999 compared to the prior year periods. NEWSPAPER PUBLISHING Newspaper Publishing revenues and operating profit were as follows (dollars in thousands):
SECOND QUARTER ENDED JUNE 30, YEAR TO DATE ENDED JUNE 30, ------------------------------ ---------------------------------- 1999 1998 CHANGE 1999 1998 CHANGE -------- -------- ------ ---------- ---------- ------ Revenues Advertising........ $512,040 $462,928 10.6% $ 967,891 $ 887,281 9.1% Circulation........ 107,548 109,992 (2.2) 213,053 216,845 (1.7) Other.............. 13,481 12,811 5.2 25,671 24,526 4.7 -------- -------- ---------- ---------- $633,069 $585,731 8.1% $1,206,615 $1,128,652 6.9% ======== ======== ========== ========== Operating profit..... $126,541 $ 85,259 48.4% $ 218,213 $ 175,413 24.4% ======== ======== ========== ========== Operating profit excluding restructuring and one-time charges... $126,541 $120,109 5.4% $ 218,213 $ 210,263 3.8% ======== ======== ========== ==========
Newspaper Publishing revenues rose in 1999 compared to the prior year, in part, due to the addition of the Recycler, acquired on April 30, 1998, and Newport Media, Inc., acquired on February 12, 1999. Excluding these acquisitions, revenues in the 1999 second quarter rose 4.4%, with the Los Angeles Times up 2.9% and the Eastern newspapers up 5.7% compared to the prior year quarter. Advertising revenue gains were achieved at each of the Company's newspapers, with particular strength at the Eastern newspapers. Excluding the acquisitions, advertising revenues in the 1999 second quarter rose 6.1%, with The Times up 4.8% and the Eastern newspapers up 7.4% compared to the prior year quarter. For the year to date period ended June 30, 1999, Newspaper Publishing revenues, excluding the acquisitions, rose 3.3%, with The Times up 2.1% and the Eastern newspapers up 4.4% compared to the prior year. Excluding the acquisitions, advertising revenues for the year to date period ended June 30, 1999 rose 4.8%, with The Times up 3.6% and the Eastern newspapers up 6.0% compared to the prior year period. Circulation revenues declined slightly as marketing strategies, largely at The Times, involving pricing and promotional discounts to stimulate circulation volume resulted in lower overall circulation revenues. Excluding the acquisitions, circulation revenues declined 3.0% and 3.1% for the second quarter and year to date periods ended June 30, 1999, respectively, compared to the prior year. 16 17 THE TIMES MIRROR COMPANY MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Segment operating profit for 1999 increased largely due to strong gains in national advertising and declines in newsprint expense. The Company's Eastern newspapers continued to show strong performance and The Times achieved its first year-over-year increase in quarterly operating profit after five consecutive quarters of year-over-year declines. The 1999 second quarter improvement in operating profit was aided by a reduction in newsprint expense of 11.4% on an 8.7% decline in average newsprint prices. Newsprint expense was only partially affected by newsprint price declines due to the Company's use of newsprint hedging contracts. Excluding newsprint and the impact of acquisitions, other expenses rose 8.1% in the 1999 second quarter compared to the prior year, primarily due to ongoing growth initiatives. Newsprint expense for the year to date period ended June 30, 1999 decreased 6.2% on a 5.6% decline in average newsprint prices. Non-newsprint costs rose 5.7% for the year to date period ended June 30, 1999 compared to the prior year, excluding the effects of acquisitions. Newspaper Publishing segment's restructuring and one-time charges totaled $34.9 million in the second quarter of 1998 for charges related primarily to contract buyout costs. PROFESSIONAL INFORMATION Professional Information revenues and operating profit were as follows (dollars in thousands):
SECOND QUARTER ENDED JUNE 30, YEAR TO DATE ENDED JUNE 30, ------------------------------- ------------------------------ 1999 1998 CHANGE 1999 1998 CHANGE -------- -------- ------ -------- -------- ------ Revenues............. $103,900 $110,049 (5.6)% $207,111 $215,783 (4.0)% ======== ======== ======== ======== Operating profit..... $ 18,015 $ 12,204 47.6% $ 34,185 $ 29,162 17.2% ======== ======== ======== ======== Operating profit excluding restructuring and one-time charges... $ 18,015 $ 17,051 5.7% $ 34,185 $ 34,009 0.5% ======== ======== ======== ========
The Professional Information segment achieved higher operating profit in 1999 due primarily to outstanding performance at Jeppesen Sanderson, the Company's flight information provider, which experienced double-digit increases, partially offset by reduced profitability at AchieveGlobal, the Company's training company. Professional Information segment's revenue declined in 1999 primarily due to reduced revenues at AchieveGlobal. The decline was partially offset by higher revenues at Jeppesen Sanderson. Professional Information segment's restructuring and one-time charges totaled $4.8 million in the second quarter of 1998 to write-off assets related to the termination of its direct sales business line at AchieveGlobal. MAGAZINE PUBLISHING Magazine Publishing revenues and operating profit were as follows (dollars in thousands):
SECOND QUARTER ENDED JUNE 30, YEAR TO DATE ENDED JUNE 30, ------------------------------- ------------------------------ 1999 1998 CHANGE 1999 1998 CHANGE -------- -------- ------- -------- -------- ------ Revenues: Advertising.......... $42,593 $38,964 9.3% $ 87,909 $ 81,799 7.5% Circulation.......... 17,564 17,836 (1.5) 37,604 37,437 0.4 Other................ 4,064 2,823 44.0 7,547 6,032 25.1 ------- ------- -------- -------- $64,221 $59,623 7.7% $133,060 $125,268 6.2% ======= ======= ======== ======== Operating profit....... $ 2,480 $ 1,953 27.0% $ 2,483 $ 1,730 43.5% ======= ======= ======== ========
17 18 THE TIMES MIRROR COMPANY MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Magazine Publishing achieved advertising revenue gains at most of the magazines in 1999 compared to the prior year. The acquisition of Senior Golfer in October 1998 and the special publication of The Best Things in Golf also contributed to higher revenues. Circulation revenues remained essentially even with the prior year periods. Operating profit rose compared to the prior year as a reduction in accumulated reserves to fund certain employee benefits increased operating profit by $1.1 million. CORPORATE AND OTHER Corporate and Other revenues and operating loss were as follows (dollars in thousands):
SECOND QUARTER ENDED JUNE 30, YEAR TO DATE ENDED JUNE 30, ------------------------------ ------------------------------ 1999 1998 CHANGE 1999 1998 CHANGE -------- -------- ------ -------- -------- ------ Revenues............. $ 103 $ 210 (51.0)% $ 628 $ 411 52.8% ======== ======== ======== ======== Operating loss....... $(11,687) $(14,264) (18.1)% $(26,794) $(31,206) (14.1)% ======== ======== ======== ========
Operating loss decreased in 1999 compared to the prior year due primarily to a reduction in accumulated reserves to fund certain employee benefits, which reduced operating losses by $3.1 million. OTHER INCOME In the 1999 second quarter, the Company recorded a pretax gain on the sale of Hollywood Online, Inc. of $17.2 million ($10.7 million after applicable taxes), or $.13 per share on a diluted basis. Additionally, the 1999 second quarter results included a pretax gain on the sale of America Online (AOL) shares, along with the purchase of a proportionate share of its PEPS, of $7.2 million ($4.3 million after applicable taxes), or $.05 per share. For the year to date period ended June 30, 1999, the pretax gain on the sale of AOL shares was $10.3 million ($6.1 million after applicable taxes), or $.08 per share. RESTRUCTURING LIABILITY A summary of the activity in restructuring liabilities is as follows (in thousands):
BALANCE 1999 CASH 1999 ASSET BALANCE DESCRIPTION 12/31/98 PAYMENTS WRITE-OFFS 6/30/99 ----------- -------- --------- ---------- ------- 1998 Restructuring: Termination benefits.................... $52,114 $(33,414) -- $18,700 Contract terminations................... 31,264 (19,802) -- 11,462 Lease termination costs................. 8,192 (2,224) -- 5,968 Technology asset costs.................. 671 (311) -- 360 Business exit and other costs........... 5,023 (100) $(3,671) 1,252 ------- -------- ------- ------- Total........................... $97,264 $(55,851) $(3,671) $37,742 ======= ======== ======= ======= 1995 Restructuring........................ $24,404 $ (6,071) $ -- $18,333 ======= ======== ======= =======
During the 1999 second quarter, the Company wrote-off previously identified assets and paid certain transaction costs related to the sale and conversion of AchieveGlobal's Canadian operations to a franchise arrangement. The remaining 1998 restructuring liability is expected to be substantially paid by the end of 1999. Annual expense reductions resulting from the 1998 restructuring program are in line with management's expectations. The 1995 restructuring liability relates primarily to lease payments on unoccupied properties. The Company believes that cash flows from operations will be adequate to cover future cash outflows under the restructuring programs. 18 19 THE TIMES MIRROR COMPANY MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) jLIQUIDITY AND CAPITAL RESOURCES The Company's operating cash requirements are funded primarily by its operations. Proceeds from borrowings have been used primarily to fund capital expenditures and share purchases. At June 30, 1999, the Company had a $400.0 million long-term revolving line of credit through a group of domestic and international banks. This line of credit is used to support a commercial paper program that is available for short-term cash requirements. The Company had $319.1 million and $311.1 million of commercial paper outstanding at June 30, 1999 and July 30, 1999, respectively. Additionally, the Company has a shelf registration statement for $300.0 million of securities, which has not been utilized. There is no assurance that the Company will be able to utilize the shelf registration on terms acceptable to the Company. The Company also has an uncommitted bank line of credit, which provides for unsecured borrowings up to $250.0 million, of which $40.0 million was outstanding at June 30, 1999. At July 30, 1999, no borrowings were outstanding under this line of credit. The Company is the sole manager of Eagle New Media Investments, LLC (Eagle New Media) and Eagle Publishing Investments, LLC (Eagle Publishing). At June 30, 1999, Eagle New Media and Eagle Publishing had cash and cash equivalents of $740.3 million, marketable securities of $34.5 million and Times Mirror stock of $842.3 million. The Company intends to deploy the cash and cash equivalents, as well as marketable securities of these companies 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. ACQUISITIONS AND DISPOSITIONS In February 1999, Eagle New Media acquired Newport Media, Inc., a publisher of shopper publications in the Long Island and New Jersey areas for approximately $132.0 million. In April 1999, the Company acquired New Mass Media, Inc., a publisher of five alternative weekly newspapers in Connecticut, Massachusetts and New York, for approximately $17.5 million. The Company completed an agreement in May 1999, to merge Hollywood Online, Inc., and its Web site, hollywood.com, into Big Entertainment, Inc., in exchange for newly issued restricted stock of Big Entertainment, Inc. and a note at a then combined current value of approximately $31.5 million. Additionally, the Company completed the sale of Apartment Search, Inc. on March 31, 1999. The estimated loss on sale of Apartment Search, including a provision for operating losses through the date of disposal, was recorded in the third quarter of 1998. COMMON SHARE PURCHASES Share purchases of the Company's Series A common shares continued during the year to date period ended June 30, 1999 through a combination of a forward purchase agreement, put options and open market purchases by Eagle New Media. The Company and Eagle New Media purchased 2.9 million shares of its Series A common stock during the year to date period ended June 30, 1999, which more than offset 1.3 million shares issued as a result of the exercise of stock options. 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. Purchases by the Company and its affiliates are expected to be made during the next two years in the open market or in private transactions, depending on market conditions, and may be discontinued at any 19 20 THE TIMES MIRROR COMPANY MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) time. In connection with this program, the Company from time to time sells put options on its common stock. As of June 30, 1999, the Company and its affiliates are authorized to purchase 4.2 million shares of Series A common stock. CASH FLOW The following table sets forth certain items from the Condensed Consolidated Statements of Cash Flows (in thousands):
YEAR TO DATE ENDED JUNE 30, ---------------------- 1999 1998 --------- --------- Net cash provided by operating activities of continuing operations................................................ $ 133,665 $ 88,658 Acquisitions, net of cash acquired.......................... (154,610) (192,850) Capital expenditures........................................ (80,679) (56,295) Purchase of Times Mirror common stock, including exercise of put options, net of premiums received..................... (169,528) (129,218) Net issuance of commercial paper and short-term borrowings................................................ 60,402 434,055
Cash generated by operating activities of continuing operations for the year to date period ended June 30, 1999 was higher compared to the prior year primarily due to higher earnings. In the first half of 1999, Eagle New Media and the Company acquired Newport Media, Inc. and New Mass Media Inc., respectively, for approximately $149.5 million. Capital expenditures for the year to date period ended June 30, 1999 were higher compared to the same period in 1998 primarily due to the Company's continuing investments for future growth which included facility renovations within the Newspaper Publishing segment and the ongoing conversion to a 50-inch web at The Times. Additionally, the Company increased capital spending related to information technology projects, including Year 2000 requirements. Capital expenditures are currently expected to reach approximately $200.0 million for 1999. Total debt at June 30, 1999 rose to $1.33 billion from $1.25 billion at December 31, 1998 primarily due to short-term borrowings. IMPACT OF YEAR 2000 The Company is preparing for the impact of the arrival of the Year 2000 on its business, as well as on the businesses of its customers, suppliers and business partners. The "Year 2000 Issue" is the result of computer programs written using two digits rather than four to define the applicable year. The Company's computer equipment and software and devices with embedded technology that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000 or process dates prior to or after the year 2000 in error. This could result in a system failure or miscalculations causing disruptions of operations including, among other things, a temporary inability to receive and process advertising orders, prepare editorial content, operate press facilities, prepare and distribute products, issue invoices, or engage in similar normal business activities. STATE OF READINESS The Company has instituted a comprehensive program to address potential Year 2000 impacts for information technology and non-information technology systems. This program involves the following phases: Inventory -- This phase entails a comprehensive inventory of all items that may be affected by the Year 2000 issue. These items include hardware and software (e.g., business and operational applications, 20 21 THE TIMES MIRROR COMPANY MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) operating systems and third-party products), production facilities that may be at risk, and key third-party services whose Year 2000 failures may significantly impact the Company. This phase was substantially complete in March 1999. Assessment/Planning -- Items identified in the inventory phase are assessed based on criticality to the Company's business operations and potential impact of failure. This phase was substantially complete in March 1999. Remediation -- This phase involves reprogramming or replacing inventoried items to ensure they are Year 2000 ready in accordance with the plans identified during the Assessment/Planning phase. This phase was substantially complete in June 1999. Testing -- This phase includes defining test plans, establishing a test environment, developing test cases, performing testing (with third parties if necessary), and certifying and documenting the results. The certification process entails having subject matter experts (users) review test results, including computer screens and printouts against pre-established criteria to ensure system compliance. Testing and production implementation is targeted to be substantially complete by September 30, 1999. Contingency Planning -- This phase focuses on reducing the risk of Year 2000-induced business disruptions to help ensure the Company's ability to produce a minimum acceptable level of products and services in the event of internal or external critical systems failures. The Company is developing and refining contingency plans aimed at ensuring the continuity of critical business functions before and after December 31, 1999. The plans include increasing levels of consumable inventory, such as newsprint, ink and printing plates, as well as preparing alternate procedures for critical internal processes and identifying alternate external resources. Except as discussed below, contingency planning is targeted to be substantially complete by September 30, 1999. To minimize the impact of disruptions in electrical power that may occur around midnight December 31, 1999, the Company is planning to print most sections of its newspapers prior to midnight. In addition, the Company's four largest newspapers either have or will have electrical generators available to print sections with late-breaking news. Testing of electrical generators used to operate the presses will be completed in November 1999. The Company's other newspaper properties, having a combined daily circulation of less than 250,000, will rely on reciprocal printing agreements. If there is a disruption in electrical power and the Company is unable to successfully use these arrangements, these properties may not be able to produce a daily newspaper until electrical power is restored. The Company's professional information and magazine publishing business segments currently have electrical generators to support critical systems and the Company does not expect these businesses to be materially impacted by a temporary disruption in electrical power. 21 22 THE TIMES MIRROR COMPANY MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company believes that its Year 2000 project is on schedule. The table below lists the percentage complete for each project phase as of June 30, 1999. The project has been designated as the highest priority of the Company's information technology departments.
PERCENT COMPLETE AS OF TARGETED DATE FOR PROJECT PHASE JUNE 30, 1999 SUBSTANTIAL COMPLETION ------------- ---------------------- ---------------------- Inventory.................................... 99% March 1999 Assessment/Planning.......................... 99% March 1999 Remediation.................................. 92% June 1999 Testing...................................... 70% September 1999 Contingency Planning*........................ 84% September 1999
- --------------- * Except for testing of electrical generators described above. EXTERNAL RELATIONSHIPS The Company also faces the risk that one or more of its significant suppliers or other third-party businesses ("external relationships") will not be able to interact with the Company due to the third party's inability to resolve its own Year 2000 issues. Beginning in October 1998, compliance questionnaires were sent to all significant suppliers and other significant third parties such as financial institutions, utility companies and content providers. As of June 30, 1999, 74% of significant suppliers have responded consisting of 39% responding that they are compliant and 35% are in the process of becoming Year 2000 compliant. Further follow-up efforts are being made for the 26% that have not replied and alternative Year 2000 compliant suppliers are being identified. The Company has received written statements from its major newsprint suppliers that they expect to be Year 2000 ready. Jeppesen Sanderson, Inc. has relationships with a large number of government regulatory agencies that supply the data Jeppesen uses to build its charts and navigation aids. Jeppesen has received limited information from these agencies with respect to their Year 2000 efforts. The Company believes that Jeppesen will be able to continue its operations even if these agencies are not Year 2000 compliant. As a result, the Company does not believe the inability of these agencies to become Year 2000 compliant will have a material adverse effect on the Company. Excluding these agencies and the Company's significant suppliers, 76% of significant third parties have responded to the Company's questionnaires consisting of 27% responding that they are compliant and 49% are in the process of becoming Year 2000 compliant. Additional follow-up efforts are being made for the 24% that have not replied and, where appropriate, contingency plans are being developed. However, the Company has no means of ensuring that such significant suppliers or significant third parties will be Year 2000 ready. The inability of these third parties to complete their Year 2000 resolution process in a timely fashion could have a material adverse effect on the Company. YEAR 2000 COSTS Internal and external resources have been utilized to perform all phases of the Year 2000 project. Excluding costs for employees working on the project, the Company has incurred costs of $30.3 million for the Year 2000 project, of which $23.5 million was capitalized and $6.8 million was expensed. These costs include first and second quarter 1999 capital expenditures of $6.6 million and expenses of $2.5 million. Total project costs are estimated to be $47.6 million, excluding costs for employees working on the project. During 1999, approximately 100 employees will work on the project with related costs estimated at $7.6 million. These estimates include both information technology and non-information technology systems, including capital costs associated with planned replacements previously budgeted for business reasons, which incidentally, 22 23 THE TIMES MIRROR COMPANY MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) include Year 2000 compliance. Year 2000 costs are funded through operating cash flows. Although priorities have been realigned, the Company has not deferred significant systems enhancements to become Year 2000 ready. YEAR 2000 RISKS Management believes that it has an effective program in place to address its Year 2000 issues in a timely manner and anticipates the necessary modifications, replacement and testing of critical systems to be substantially complete in the third quarter of 1999, subject to uncertainties as discussed below. As a result, the Year 2000 issue is not expected to pose significant operational or financial issues for the Company. The Company's expectations regarding its Year 2000 efforts are subject to various uncertainties that could cause the actual results to differ materially from the discussion above. These uncertainties include 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 magnitude of related labor and consulting costs; and the success of vendors, suppliers and other third parties with which the Company interacts in addressing the Year 2000 issue. If the Company, its vendors, suppliers or such other parties are unable to resolve the Year 2000 issue on schedule, the Company may not be able to prepare and distribute its publications and products as well as provide its services in a timely manner, which may have a material adverse effect on the Company's results of operations. CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS In 1998, the Company divested Matthew Bender & Company, Incorporated and Mosby, Inc. While the Company believes that these divestitures were completed on a tax-free basis, this position may be subject to review by the Internal Revenue Service. The Company estimated deferred taxes of $176.6 million based on its assessment of the risks inherent in a contested challenge by the Internal Revenue Service. To the extent that the estimate of such deferred taxes is adjusted in the course of resolving such a challenge, the adjustment will be recorded within discontinued operations. If it is ultimately determined that these transactions were not completed on a tax-free basis, the Company's results of operations, financial position and cash flows may be materially adversely affected. Certain statements set forth above and elsewhere in this Quarterly Report on Form 10-Q are forward-looking in nature and related to trends and events that may affect the Company's future financial position and operating results. Such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The term "expect," "anticipate," and "intend" and similar words or expressions are intended to identify forward-looking statements. These statements speak only as of the date of this report. These statements are based on current expectations, are inherently uncertain, are subject to risks, and should be viewed with caution. For example, there can be no assurances that the statements contained herein with respect to the Company's Year 2000 efforts and the satisfactory resolution of contingent liabilities will be achieved. Actual results and experience may differ materially from the forward-looking statements and could be adversely affected by a number of factors. Some of these factors are described above and in Note 8 to the Condensed Consolidated Financial Statements. It is not possible to foresee or identify all such factors. The Company makes no commitment to update any forward-looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statement. DISCUSSIONS EXCLUDING RESTRUCTURING AND ONE-TIME CHARGES Management's discussion and analysis of its results of operations presents information regarding operating profit as well as operating profit excluding the impact of restructuring and one-time charges. The Company believes that the financial information which excludes restructuring and one-time 23 24 THE TIMES MIRROR COMPANY MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) charges is necessary to an understanding of its operations and provides for a more comparable analysis of historical results as well as indications of future financial performance. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company enters into contractual agreements in the ordinary course of business to hedge its exposure to changes in interest rates, the value of foreign currencies relative to the U.S. dollar and newsprint prices. Counterparties to these agreements are major institutions. Such agreements are not entered into for trading purposes. The Company's debt portfolio is managed to maintain a balance of fixed and variable rate obligations. The Company utilizes interest rate swap agreements to help maintain the overall interest rate parameters set by management. As such, a hypothetical 10% change in interest rates would not have a material impact on the Company's results of operations or the fair values of its market risk sensitive financial instruments. The Company periodically enters into foreign exchange forward contracts or uses other hedging strategies to substantially limit its exposure to changes in foreign currency rates. As such, changes in currency rates would not have a material impact on the Company's results of operations. Newsprint expense represents a significant portion of the Company's operating costs. To manage the Company's exposure to newsprint price fluctuations, the Company periodically enters into newsprint hedging contracts not to exceed five years. These hedging arrangements have the effect of locking in for specified periods, the newsprint prices the Company will pay for the hedged volumes. As a result, while these hedging arrangements are structured to reduce the Company's exposure to increases in newsprint prices, they also limit the benefit the Company might otherwise have received from any newsprint price decreases. The Company's operating results could be adversely affected to the extent that such historically volatile newsprint prices increase materially. 24 25 THE TIMES MIRROR COMPANY PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material legal proceedings are pending. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS (a) The Company's Annual Meeting of Shareholders was held on May 6, 1999. (c) At the Annual Meeting of Shareholders, the following matters were voted upon: the election of five persons to Class I of the Board of Directors of the Company and the ratification of the appointment of Ernst & Young LLP, as independent auditors for the Company and its subsidiaries for the year ending December 31, 1999. The results of the voting on matters presented at the Company's Annual Meeting of Shareholders were as follows:
VOTES DESCRIPTION VOTES FOR WITHHELD ----------- ----------- -------- Election of Directors: Donald R. Beall........................................... 274,741,057 243,774 Sherry L. Lansing......................................... 274,714,211 270,620 Dawn Gould Lepore......................................... 274,742,315 242,516 Robert W. Schult.......................................... 274,633,093 351,739 Warren B. Williamson...................................... 274,633,048 351,783
There were no abstentions or broker non-votes on the election of Directors.
VOTES BROKER DESCRIPTION VOTES FOR AGAINST ABSTENTIONS NON-VOTES ----------- ----------- ------- ----------- --------- Ratification of the appointment of Ernst & Young LLP.......................... 274,546,008 21,987 416,836 0
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 Schedule. (b) No reports on Form 8-K were filed for the quarter ended June 30, 1999. 25 26 THE TIMES MIRROR COMPANY 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: August 6, 1999 26 EX-12 2 RATIO OF EARNINGS TO FIXED CHARGES 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 JUNE 30, 1999 ------------------ Fixed charges: Interest expense.......................................... $ 43,759 Portion of rents deemed to be interest.................... 6,774 Amortization of debt expense.............................. 976 -------- Total fixed charges............................... 51,509 Preferred dividends......................................... 18,635 -------- Fixed charges and preferred dividends..................... $ 70,144 ======== Earnings: Income from continuing operations before income tax provision.............................................. $230,408 Fixed charges............................................. 51,509 Amortization of capitalized interest...................... 1,873 Add: Equity loss from less than 50% owned unconsolidated affiliates............................................. 1,956 -------- Total earnings.................................... $285,746 ======== Ratio of earnings to fixed charges.......................... 5.5x Ratio of earnings to fixed charges and preferred dividends................................................. 4.1x
27 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30, 1999 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 812,697 34,540 408,195 46,118 49,234 1,361,725 1,961,723 1,027,170 4,223,143 935,888 956,108 0 724,820 112,120 471,982 4,223,143 1,547,315 1,547,315 844,815 844,815 0 6,984 43,710 230,408 96,281 134,127 0 0 0 134,127 1.70 1.64
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