Tribune Company and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share data) Year Ended Dec. 31, 1995 Dec. 25, 1994 Dec. 26, 1993
- ---------------------------------------------------------------------------------------------------------------
Operating Publishing
Revenues Advertising $1,010,782 $ 961,694 $ 876,327
Circulation 249,860 242,993 246,178
Other 52,125 41,690 40,611
--------------------------------------------------------------------------------------------
Total 1,312,767 1,246,377 1,163,116
Broadcasting and Entertainment 828,806 764,197 727,213
Education 103,101 102,082 21,209
--------------------------------------------------------------------------------------------
Total operating revenues 2,244,674 2,112,656 1,911,538
- ---------------------------------------------------------------------------------------------------------------
Operating Cost of sales (exclusive of items shown below) 1,164,609 1,059,306 1,007,902
Expenses Selling, general and administrative 553,868 541,350 444,471
Depreciation and amortization of intangible assets 120,986 115,375 102,762
--------------------------------------------------------------------------------------------
Total operating expenses 1,839,463 1,716,031 1,555,135
- ---------------------------------------------------------------------------------------------------------------
Operating Profit 405,211 396,625 356,403
Dispositions of subsidiary stock and investment 14,672 - -
Interest income 14,465 15,807 15,115
Interest expense (21,814) (20,585) (24,660)
- ---------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Income Taxes 412,534 391,847 346,858
Income taxes (167,076) (158,698) (142,212)
- ---------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 245,458 233,149 204,646
Income (Loss) from Discontinued Operations of QUNO 32,707 8,898 (16,040)
- ---------------------------------------------------------------------------------------------------------------
Net Income 278,165 242,047 188,606
Preferred dividends, net of tax (18,841) (18,574) (18,439)
- ---------------------------------------------------------------------------------------------------------------
Net Income Attributable to Common Shares $ 259,324 $ 223,473 $ 170,167
- ---------------------------------------------------------------------------------------------------------------
Net Income Per Share
Primary: Continuing operations $ 3.50 $ 3.19 $ 2.80
Discontinued operations .50 .13 (.24)
--------------------------------------------------------------------------------------------
Net income $ 4.00 $ 3.32 $ 2.56
--------------------------------------------------------------------------------------------
Fully Diluted: Continuing operations $ 3.22 $ 2.95 $ 2.58
Discontinued operations .46 .12 (.22)
--------------------------------------------------------------------------------------------
Net income $ 3.68 $ 3.07 $ 2.36
--------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
-1-
Tribune Company and Subsidiaries
Consolidated Balance Sheets
Assets (In thousands of dollars, except share data) Dec. 31, 1995 Dec. 25, 1994
- ---------------------------------------------------------------------------------------------------------------
Current Assets Cash and short-term investments $ 22,899 $ 21,824
Accounts receivable (less allowances of $30,154 and $33,998) 296,363 313,316
Inventories 45,348 33,488
Broadcast rights 163,339 155,754
Prepaid expenses and other 17,651 19,162
---------------------------------------------------------------------------------------------
Total current assets 545,600 543,544
- ---------------------------------------------------------------------------------------------------------------
Investment in and Advances to QUNO (see Note 2) 356,925 265,818
- ---------------------------------------------------------------------------------------------------------------
Properties Machinery, equipment and furniture 886,601 849,188
Buildings and land and leasehold improvements 355,369 361,280
---------------------------------------------------------------------------------------------
1,241,970 1,210,468
Accumulated depreciation (725,995) (675,684)
---------------------------------------------------------------------------------------------
515,975 534,784
Land 55,849 60,984
Construction in progress 68,922 45,263
---------------------------------------------------------------------------------------------
Net properties 640,746 641,031
- ---------------------------------------------------------------------------------------------------------------
Other Assets Broadcast rights 194,038 195,535
Intangible assets (less accumulated
amortization of $197,090 and $182,982) 795,856 834,596
Investments 549,735 96,412
Mortgage note receivable from affiliate 82,599 83,314
Other 122,756 125,575
---------------------------------------------------------------------------------------------
Total other assets 1,744,984 1,335,432
---------------------------------------------------------------------------------------------
Total assets $3,288,255 $2,785,825
---------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
-2-
Tribune Company and Subsidiaries
Liabilities and Shareholders' Equity Dec. 31, 1995 Dec. 25, 1994
- -------------------------------------------------------------------------------------------------------------
Current Long-term debt due within one year $ 28,665 $ 27,598
Liabilities Accounts payable 112,357 118,642
Employee compensation and benefits 107,755 101,033
Contracts payable for broadcast rights 164,443 145,026
Deferred income 43,961 35,766
Income taxes 8,401 19,291
Accrued liabilities 91,571 82,330
-----------------------------------------------------------------------------------------
Total current liabilities 557,153 529,686
- -------------------------------------------------------------------------------------------------------------
Long-Term Debt (less portion due within one year) 757,437 411,200
- -------------------------------------------------------------------------------------------------------------
Other Deferred income taxes 223,756 149,521
Non-Current Contracts payable for broadcast rights 225,771 218,102
Liabilities Compensation and other obligations 144,229 144,336
-----------------------------------------------------------------------------------------
Total other non-current liabilities 593,756 511,959
- -------------------------------------------------------------------------------------------------------------
Commitments (see Note 10) - -
- -------------------------------------------------------------------------------------------------------------
Shareholders' Series B convertible preferred stock (without par value)
Equity Authorized: 1,600,000 shares
Issued and outstanding: 1,471,795 in 1995
and 1,502,573 shares in 1994 (liquidation value
$220 per share) 322,540 329,286
Common stock (without par value)
Authorized: 400,000,000 shares; 81,771,658 shares issued 1,018 1,018
Additional paid-in capital 126,796 112,624
Retained earnings 1,930,380 1,743,417
Treasury stock (at cost)
19,219,809 shares in 1995 and 15,070,216 shares in 1994 (923,828) (636,561)
Unearned compensation related to ESOP (247,281) (274,101)
Cumulative translation adjustment (see Note 2) (19,188) (20,675)
Unrealized gain on investments 189,472 77,972
-----------------------------------------------------------------------------------------
Total shareholders' equity 1,379,909 1,332,980
-----------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $3,288,255 $2,785,825
-----------------------------------------------------------------------------------------
-3-
Tribune Company and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands of dollars) Dec. 31, 1995 Dec. 25, 1994 Dec. 26, 1993
- ---------------------------------------------------------------------------------------------------------------
Operations Net income $278,165 $242,047 $188,606
Adjustments to reconcile net income to net cash
provided by operations:
(Income) loss from discontinued operations
of QUNO, net of tax (32,707) (8,898) 16,040
Dispositions of subsidiary stock and investment (14,672) - -
Depreciation and amortization of intangible assets 120,986 115,375 102,762
(Increase) decrease in working capital items
excluding effects from acquisitions:
Accounts receivable 20,455 (18,999) (27,311)
Inventories, prepaid expenses and other
current assets (15,585) (593) (4,288)
Accounts payable, employee compensation and benefits,
deferred income and accrued liabilities 10,678 37,655 (11,166)
Income taxes (13,939) (36,457) (3,775)
Decrease in broadcast rights net of current and
long-term contracts payable 20,998 20,319 28,959
Other, net 19,288 18,338 12,131
----------------------------------------------------------------------------------------------
Net cash provided by operations 393,667 368,787 301,958
- ---------------------------------------------------------------------------------------------------------------
Investments Capital expenditures (117,863) (91,626) (75,620)
Acquisitions (excluding $18.5 million of
stock issued in 1993) (39,817) (138,477) (98,918)
Investments (271,939) (24,186) (45,908)
Proceeds from dispositions of subsidiary
stock and investment 32,729 - -
Proceeds from sale of QUNO stock - 94,936 -
Repayment of note receivable from QUNO - - 179,846
Other, net 4,291 (12,039) (13,852)
----------------------------------------------------------------------------------------------
Net cash used for investments (392,599) (171,392) (54,452)
- ---------------------------------------------------------------------------------------------------------------
Financing Proceeds from issuance of long-term debt 383,876 - 78,050
Repayments of long-term debt (12,826) (77,100) (283,968)
Sale of common stock to employees, net 40,794 20,410 46,138
Purchase of treasury stock (314,667) (49,080) -
Dividends (91,202) (88,325) (81,927)
Redemption of preferred stock (5,968) - (4,043)
----------------------------------------------------------------------------------------------
Net cash provided by (used for) financing 7 (194,095) (245,750)
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Short-Term Investments 1,075 3,300 1,756
Cash and short-term investments at the beginning of year 21,824 18,524 16,768
----------------------------------------------------------------------------------------------
Cash and short-term investments at the end of year $ 22,899 $ 21,824 $ 18,524
- ---------------------------------------------------------------------------------------------------------------
Supplemental Cash paid for:
Cash Flow Interest (net of amounts capitalized) $ 20,646 $ 20,957 $ 28,015
Information Income taxes $165,675 $175,965 $121,727
----------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
-4-
Tribune Company and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common
Series B Stock and Treasury Stock
Convertible Additional -------------- Unearned Cumulative Unrealized
(In thousands, Preferred Paid-In Retained Amount Compensation Translation Gain on
except per share data) Stock Capital (1) Earnings Shares - at cost (ESOP) Adjustment Investments Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 27, 1992 $340,634 $101,463 $1,483,016 (16,292) $(667,668) $(321,690) $(23,866) - $911,889
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 188,606 188,606
Translation adjustment (6,270) (6,270)
Redemptions of convertible
preferred stock (5,102) 228 20 831 (4,043)
Dividends declared
Common-$.96/share (63,799) (63,799)
Preferred-$17.05/share (26,104) (26,104)
Tax benefit on dividends
paid to the ESOP (2) 7,976 7,976
Repayment of ESOP debt 22,721 22,721
Shares issued under option
and stock plans 908 1,225 50,171 51,079
Stock tendered as payment
for options exercised (92) (4,941) (4,941)
Shares issued for Contemporary
Books acquisition 4,238 348 14,275 18,513
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 26, 1993 335,532 106,837 1,589,695 (14,791) (607,332) (298,969) (30,136) - 1,095,627
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 242,047 242,047
Translation adjustment (3) 9,461 9,461
Unrealized gain on investments 77,972 77,972
Redemptions of convertible
preferred stock (6,246) 1,589 114 4,657 -
Dividends declared
Common-$1.04/share (69,907) (69,907)
Preferred-$17.05/share (25,619) (25,619)
Tax benefit on dividends
paid to the ESOP (2) 7,201 7,201
Repayment of ESOP debt 24,868 24,868
Purchase of treasury stock (947) (49,080) (49,080)
Shares issued under option
and stock plans 5,216 903 36,467 41,683
Stock tendered as payment
for options exercised (349) (21,273) (21,273)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 25, 1994 329,286 113,642 1,743,417 (15,070) (636,561) (274,101) (20,675) 77,972 1,332,980
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 278,165 278,165
Translation adjustment 1,487 1,487
Unrealized gain on investments 111,500 111,500
Redemptions of convertible
preferred stock (6,746) 171 14 607 (5,968)
Dividends declared
Common-$1.12/share (72,524) (72,524)
Preferred-$17.05/share (25,094) (25,094)
Tax benefit on dividends
paid to the ESOP (2) 6,416 6,416
Repayment of ESOP debt 26,820 26,820
Purchase of treasury stock (5,189) (314,667) (314,667)
Shares issued under option and
stock plans 14,001 1,968 86,018 100,019
Stock tendered as payment
for options exercised (943) (59,225) (59,225)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $322,540 $127,814 $1,930,380 (19,220) $(923,828) $(247,281) $(19,188) $189,472 $1,379,909
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Issued shares of common stock totaled 81,771,658 for all dates presented.
(2) Excludes the tax benefit on allocated preferred shares held by the ESOP,
which is credited to income tax expense.
(3) Includes a $14.3 million write-off of the cumulative translation adjustment
related to the sale of QUNO common stock in April 1994.
See Notes to Consolidated Financial Statements.
-5-
Tribune Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant accounting policies of Tribune Company and subsidiaries (the
"Company"), as summarized below, conform with generally accepted accounting
principles and reflect practices appropriate to the businesses in which they
operate. The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates.
Certain prior year amounts have been reclassified to conform with the 1995
presentation.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
FISCAL YEAR-- The Company's fiscal year ends on the last Sunday in December.
Fiscal year 1995 comprised 53 weeks. Fiscal years 1994 and 1993 comprised 52
weeks.
PRINCIPLES OF CONSOLIDATION-- The consolidated financial statements include the
accounts of Tribune Company and all majority-owned subsidiaries. Investments
comprising 20 to 50 percent of the voting stock of companies and joint ventures
are accounted for using the equity method. All other investments are generally
accounted for using the cost method. All significant intercompany transactions
are eliminated.
SHORT-TERM INVESTMENTS-- Short-term investments are stated at cost, which
approximates market value. For purposes of the consolidated statements of cash
flows, investments with maturities of three months or less at the time of
purchase are considered to be cash equivalents.
INVENTORIES-- Inventories are stated at the lower of cost or market. Cost is
determined on the last-in, first-out ("LIFO") basis for newsprint and on the
first-in, first-out ("FIFO") or average basis for all other inventories.
BROADCAST RIGHTS-- Broadcast rights consist principally of rights to broadcast
syndicated programs, sports and feature films and are stated at the lower of
cost or estimated net realizable value. The total cost of these rights is
recorded as an asset and a liability when the program becomes available for
broadcast. Broadcast rights that have limited showings are generally amortized
using an accelerated method as programs are aired. Those with unlimited showings
are amortized on a straight-line basis over the contract period. The current
portion of broadcast rights represents those rights available for broadcast that
are expected to be amortized in the succeeding year.
PROPERTIES-- Property, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the properties' estimated useful
lives, ranging from 3 to 40 years.
INTANGIBLE ASSETS-- Intangible assets primarily represent the excess of cost
over the fair market value of tangible net assets acquired. The excess cost
related to net assets acquired since 1971 is being amortized on a straight-line
basis over various periods ranging from 3 to 40 years, with the majority being
amortized over 40 years. Intangible assets of $23.5 million related to pre-1971
acquisitions are not being amortized as the Company believes there has been no
diminution of value. The Company evaluates the carrying value of intangibles
periodically in relation to the projected future undiscounted cash flows of the
related businesses.
PENSION PLANS-- The Company contributes to pension plans that provide retirement
benefits for substantially all employees. These plans are sponsored either by
the Company or by unions. Under the Company-sponsored plans, pension benefits
are primarily a function of both the years of service and the level of
compensation for a specified number of years, depending on the plan. It is
-6-
the Company's policy to fund at least the minimum for Company-sponsored pension
plans as required by ERISA. Contributions made to union-sponsored plans are
based upon collective bargaining agreements.
INVESTMENTS-- The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115 in 1994. This standard requires that the Company record
investments in debt and equity securities at their fair value, except for debt
securities that the Company intends to hold to maturity and equity securities
that are accounted for under the equity method or have no readily determinable
fair value. All of these investments have been classified as available for sale.
The difference between cost and fair value, net of related tax effects, is
recorded in a separate component of shareholders' equity. The adoption of this
standard had no effect on net income.
NEW ACCOUNTING PRINCIPLES-- In 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The statement, effective
for fiscal year 1996, requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. The statement also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The Company plans to adopt the standard
in fiscal year 1996. Management believes that the adoption will not have a
material effect on the financial position or the results of operations of the
Company.
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement, effective for fiscal year 1996, establishes a
fair value-based method of accounting for employee stock-based compensation
plans and encourages adoption of that method. Companies may, however, continue
to apply the method currently prescribed under existing accounting rules,
provided certain pro forma disclosures are made. The Company plans to retain the
current accounting method and will provide the necessary disclosures in 1996.
NET INCOME PER SHARE-- Primary net income per share is computed by dividing net
income attributable to common shares by the weighted average number of common
shares outstanding during the period. Fully diluted net income per share is
computed based on the assumption that all of the convertible preferred shares
are converted into common shares. For purposes of calculating fully diluted net
income per share, net income is reduced by the additional Employee Stock
Ownership Plan ("ESOP") contribution that would be required for ESOP debt
service, and the weighted average number of shares outstanding is increased by
(i) the additional common shares that would be issued upon conversion of the
preferred shares based on the stated conversion rate plus any additional common
shares that would have to be issued to meet the redemption price guarantee for
all preferred shares that have been allocated to participants, and (ii) the
effect of stock options. The numbers of common shares used in the computations
of primary and fully diluted net income per share were as follows:
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Primary 64,790 67,213 66,371
Fully diluted 71,506 74,073 73,695
NOTE 2: DISCONTINUED OPERATIONS (QUNO CORPORATION)
- ---------------------------------------------------
In December 1995, the Company announced it had agreed to sell all of its
holdings in QUNO Corporation as part of QUNO's agreement to merge with Donohue
Inc. Donohue will pay approximately C$30.50 per common QUNO share. The
transaction is subject to approval by QUNO's stockholders and is scheduled to
close in March 1996. Tribune owns approximately 34% of QUNO's common stock plus
$138.8 million in convertible debt. Upon conversion of this debt, the Company's
ownership of QUNO increases to 53%, or 19.2 million of 36.2 million common
shares outstanding. The Company's gross proceeds from the sale will be
approximately US$425 million (C$585 million), consisting of US$285 million in
cash, US$75 million in short-term notes and US$65 million in Donohue common
stock (5.6 million shares valued at C$17 per share). After-tax proceeds will be
approximately US$330 million. The Company will record an after-tax gain of
approximately $85 million upon completion of the transaction. The exact amount
of the proceeds received and the gain recorded will depend on several factors at
the date the transaction is consummated, including the U.S./Canadian dollar
exchange rate and Donohue's stock price.
QUNO was a wholly owned subsidiary of the Company until February 1993, when
QUNO completed an initial public offering of 9 million shares of common stock.
This reduced the Company's ownership to 59% and its voting interest to 49%. At
closing, QUNO used
-7-
the net proceeds of approximately $100 million from the stock offering plus
proceeds from a bank financing of $80 million to repay a portion of its
intercompany borrowings owed the Company. The Company has accounted for its
investment in QUNO using the equity method since 1993. In April 1994, the
Company reduced its ownership holdings in QUNO to 34% by selling 5.5 million
shares of QUNO common stock. The sale of the shares resulted in an after-tax
gain of $13 million, or $.19 per share on a primary basis. The $138.8 million
convertible debenture is callable by QUNO after December 27, 1997, matures in
2002 and bears interest at an effective rate of 2.8%.
The Company's consolidated financial statements have been restated to
reflect equity earnings from QUNO, interest income from the QUNO convertible
debenture and the 1994 gain on the sale of QUNO common shares, net of income
tax, as discontinued operations. Income tax expense related to discontinued
operations was $5.1 million in 1995, $28.0 million in 1994 and $1.6 million in
1993.
Summarized financial information for QUNO follows:
(In thousands) 1995 1994 1993 Dec. 31, 1995 Dec. 25, 1994
- -------------------------------------------------------------------------------------------------------------------
Revenues $618,886 $410,756 $386,646 Current assets $176,133 $130,114
Operating profit (loss) 163,281 6,531 (31,110) Non-current assets 537,754 439,793
Net income (loss) 99,525 (7,458) (28,881) Current liabilities 64,909 58,906
Non-current liabilities 361,253 320,805
The financial statements and transactions of QUNO are maintained in its
functional currency (Canadian dollars) and translated into U.S. dollars. The
translation adjustments are accumulated in a separate component of shareholders'
equity and will be eliminated and reported as part of the gain on sale of QUNO.
The financial information included herein reflects U.S. accounting principles.
QUNO manufactures newsprint for sale to the Company's newspapers and other
North American and overseas customers. The Company is party to a contract with
QUNO expiring in 2007 to supply newsprint based on market prices. Under the
contract, the Company has agreed to purchase specified minimum amounts of
newsprint each year subject to certain limitations. The specified minimum annual
volume is 250,000 metric tons in years 1996 to 1999, 225,000, 200,000 and
175,000 metric tons in years 2000 to 2002, respectively, and 150,000 metric tons
in each of years 2003 to 2007. QUNO's sales to the Company's newspapers were
$161.4 million in 1995, $112.8 million in 1994 and $127.2 million in 1993, which
represented 66%, 67% and 74% of their total newsprint consumption, respectively.
NOTE 3: CHANGES IN OPERATIONS AND UNUSUAL ITEMS
- ------------------------------------------------
ACQUISITIONS-- The Company recorded acquisitions totaling $39.8 million in 1995,
$138.5 million in 1994 and $117.4 million in 1993. These acquisitions were
accounted for as purchases. The intangibles recorded on these acquisitions are
being amortized on a straight-line basis over periods from 3 to 40 years. The
results of these operations are included in the consolidated statements of
income from their respective dates of acquisition.
In January 1995, the Company acquired RELCON, Inc. for approximately $8
million in cash. RELCON publishes free apartment guides and provides apartment
rental referral services to prospective renters. In May 1995, the Company
acquired Jamestown Publishers, Inc., a publisher and distributor of
supplementary education materials for the elementary and high school market, for
approximately $6 million in cash. In August 1995, the Company acquired Everyday
Learning Corporation, a publisher of mathematics materials for grades
kindergarten through 6, for approximately $25 million in cash.
In January 1996, the Company acquired Houston television station KHTV for
approximately $102 million in cash. The Company has also announced agreements to
acquire San Diego television station KTTY for $70.5 million in cash and two
education publishers--Educational Publishing Corporation for $200 million in
cash and NTC Publishing Group for $82 million in cash. These acquisitions are
subject to various regulatory approvals and are expected to close in the first
half of 1996. In February 1996, the Company is expected to acquire the remaining
minority interest in television station WPHL-Philadelphia for approximately $23
million in cash.
In February 1994, the Company acquired The Wright Group for $96 million in
cash. In April 1994, the Company acquired Boston television station WLVI for
-8-
$25 million in cash. In June 1994, the Company acquired Farm Journal Inc. for
$17.5 million in cash.
The Company acquired two Denver radio stations, KOSI-FM and KEZW-AM, in
January 1993 for $19.9 million in cash. In July 1993, the Company acquired
Contemporary Books, Inc. for $22 million in cash and $18.5 million in common
stock. In September 1993, the Company acquired Compton's NewMedia for $57
million in cash.
INVESTMENTS-- In 1995, 1994 and 1993, respectively, the Company invested cash of
$271.9 million, $24.2 million and $45.9 million in several companies. The 1995
investments included $150 million in SoftKey International Inc. convertible
notes (see below) and $70 million in Qwest Broadcasting LLC, a company formed to
acquire and operate television and radio stations.
The Company's investment in Qwest is composed of a $7 million equity
interest (33%) and $63 million in convertible notes. The notes bear interest at
6%, are convertible into an additional 47% interest and may only be converted
when and if the Federal Communications Commission regulations permit such
conversion. In December 1995, Qwest acquired television stations in Atlanta
(WATL) and New Orleans (WNOL) for approximately $167 million.
DISPOSITIONS-- In December 1995, the Company sold Compton's NewMedia to SoftKey
International Inc. for $120.5 million of SoftKey common stock (5.1 million
shares, or 16% of common shares outstanding) and a $3 million note. In
connection with the Compton's sale, the Company also invested $150 million in
SoftKey in exchange for five-year, 5.5% notes, convertible into common stock at
$53 per share. The notes were recorded at $100 million, representing their
estimated fair value at the time of the transaction. The $50 million difference
between fair value and face value will be amortized into interest income over
the five-year term of the notes, making the effective interest rate on the notes
15.5%. These transactions resulted in a pretax gain of $6.9 million and an
after-tax gain of $4.1 million, or $.06 per share on a primary basis. Compton's
operating results included in the consolidated statements of income were
operating revenues of $26.4 million, $42.8 million and $13.3 million in 1995,
1994 and 1993, respectively, and operating losses of $12.1 million and $11.0
million in 1995 and 1994 and operating profit of $.8 million in 1993.
In July 1995, the Company sold Times Advocate Company, a California
newspaper subsidiary, for $16 million in cash. The sale resulted in a pretax
loss of $7.5 million and an after-tax loss of $4.5 million, or $.07 per share.
Times Advocate operating results included in the consolidated statements of
income were revenues of $8.5 million, $17.5 million and $16.5 million in 1995,
1994 and 1993, and operating losses of $1.4 million, $3.2 million and $3.1
million in 1995, 1994 and 1993, respectively.
In March 1995, the Company sold shares of America Online common stock for
approximately $17 million. The sale resulted in a pretax gain of $15.3 million
and an after-tax gain of $9.1 million, or $.14 per share. The Company currently
owns approximately 5% of America Online common stock.
NOTE 4: INVENTORIES
- --------------------
Inventories consisted of the following:
(In thousands) Dec. 31, 1995 Dec. 25, 1994
- --------------------------------------------------------------------------------
Finished goods $21,638 $13,893
Supplies 11,237 11,935
Newsprint (at LIFO) 12,473 7,660
- --------------------------------------------------------------------------------
Total inventories $45,348 $33,488
- --------------------------------------------------------------------------------
If newsprint inventories were valued at FIFO cost, such inventories would
have been greater by $12.8 million at December 31, 1995, $8.0 million at
December 25, 1994 and $9.3 million at December 26, 1993. Finished goods
primarily include educational publishing materials.
NOTE 5: MORTGAGE NOTE RECEIVABLE FROM AFFILIATE
- ------------------------------------------------
The Company holds a mortgage note resulting from the 1982 sale of a building to
a limited partnership in which the Company holds an equity interest. The note is
due December 31, 1997, can be prepaid beginning December 31, 1996, and bears
interest at 13% plus contingent interest based upon the building's cash flow and
appreciation.
-9-
NOTE 6: INVESTMENTS
- --------------------
Investments, excluding QUNO, consisted of the following:
(In thousands) Dec. 31, 1995 Dec. 25, 1994
- --------------------------------------------------------------------------------
Cost method investments $343,345 $90,111
Equity method investments 31,878 5,164
Debt securities 174,512 1,137
- --------------------------------------------------------------------------------
Total investments $549,735 $96,412
- --------------------------------------------------------------------------------
For investments recorded at fair value under SFAS No. 115, the aggregate
cost basis, net unrealized gain and fair value were as follows:
December 31, 1995 December 25, 1994
Cost Unrealized Fair Cost Unrealized Fair
(In thousands) Basis Gain Value Basis Gain Value
- ----------------------------------------------------------------------------------------------------------------
Marketable equity securities $146,040 $188,716 $334,756 $ 12,370 $62,711 $ 75,081
QUNO debenture 138,757 121,891 260,648 138,757 65,585 204,342
Debt securities 174,512 - 174,512 1,137 - 1,137
The net unrealized gain on marketable equity securities included an
unrealized loss on two investments of $4.6 million at December 31, 1995. The
difference between cost and fair value, net of related tax effects, is recorded
in a separate component of shareholders' equity and amounted to a net gain of
$189.5 million at December 31, 1995 and $78 million at December 25, 1994.
NOTE 7: FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
Estimated fair values and carrying amounts of the Company's financial
instruments were as follows:
December 31, 1995 December 25, 1994
Fair Carrying Fair Carrying
(In thousands) Value Amount Value Amount
- --------------------------------------------------------------------------------------------------------------
Cost method investments:
Practicable to estimate fair value $345,620 $340,766 $ 87,211 $ 87,211
Not practicable - 2,579 - 2,900
QUNO debenture 260,648 260,648 204,342 204,342
Debt securities 174,512 174,512 1,137 1,137
Mortgage note receivable 89,070 83,313 91,135 83,937
Debt 847,577 786,102 459,453 438,798
Contracts payable for broadcast rights 349,845 390,214 316,809 363,128
The following methods and assumptions were used to estimate the fair value
of each category of financial instruments.
COST METHOD INVESTMENTS, QUNO DEBENTURE AND DEBT SECURITIES-- Certain of the
cost method investments, the QUNO debenture and the debt securities have been
recorded at fair value in the consolidated balance sheets (see notes 1 and 6).
For investments for which there is no public market, fair value was estimated
based on prices recently paid for shares in that company. For several
investments, it was not practicable to estimate fair value.
MORTGAGE NOTE RECEIVABLE-- Fair value was estimated using the discounted cash
flow method.
-10-
DEBT-- Fair value was determined based on quoted market prices for similar
issues or on current rates available to the Company for debt of the same
remaining maturities and similar terms.
CONTRACTS PAYABLE FOR BROADCAST RIGHTS-- Fair value was estimated using the
discounted cash flow method.
NOTE 8: CONTRACTS PAYABLE FOR BROADCAST RIGHTS
- -----------------------------------------------
Contracts payable for broadcast rights are classified as current or long-term
liabilities in accordance with the payment terms of the contracts. Required
payments under contractual agreements for broadcast rights recorded at December
31, 1995 are: $164.4 million in 1996, $109.0 million in 1997, $67.9 million in
1998, $30.9 million in 1999, $9.3 million in 2000 and $8.7 million thereafter.
NOTE 9: LONG-TERM DEBT
- -----------------------
Long-term debt consisted of the following:
(In thousands) Dec. 31, 1995 Dec. 25, 1994
- -------------------------------------------------------------------------------------------------------------
Promissory notes, weighted average
interest rates of 5.7% and 5.6% $208,718 $ 4,992
Medium-term notes, weighted average
interest rates of 6.6% and 7.0%, due 1995-2005 307,300 135,800
8.4% guaranteed ESOP notes, due 1995-2003 235,648 259,172
8.19% guaranteed ESOP note, due 1995-1998 11,633 14,929
Other notes and obligations 22,803 23,905
- -------------------------------------------------------------------------------------------------------------
Total debt 786,102 438,798
Less portions due within one year (28,665) (27,598)
- --------------------------------------------------------------------------------------------------------------
Long-term debt $757,437 $411,200
- -------------------------------------------------------------------------------------------------------------
In 1990, the Company began offering up to $200 million of its Series B
medium-term notes, which have maturities from 2 to 10 years. All of these notes
have been issued. In 1995, the Company began offering up to $300 million of its
Series C medium-term notes, of which $180 million were issued and outstanding as
of December 31, 1995. These notes have maturities from 5 to 10 years and may not
be redeemed by the Company prior to maturity. The proceeds from the sale of the
notes have been used for general corporate purposes.
The notes issued by the Company's ESOP are unconditionally guaranteed by
the Company as to payment of principal and interest. Therefore, the unpaid
balance of these borrowings is reflected in the accompanying consolidated
balance sheets as long-term debt. An amount equivalent to the unpaid balance of
these borrowings, representing unearned employee compensation, is recorded as a
reduction of shareholders' equity.
Certain debt agreements limit the amount of secured debt the Company can
incur without equally and ratably securing additional borrowings under those
agreements.
In 1996, the Company intends to refinance $208.7 million of promissory
notes and $10.0 million of Series B medium-term notes scheduled to mature in
1996, and has the ability to do so on a long-term basis through existing
revolving credit agreements. Accordingly, these notes were classified as
long-term and treated as maturing in fiscal year 1999. The Company has revolving
credit agreements with a number of banks in an aggregate amount of $480 million,
extending to December 31, 1999, that are fully available to support the issuance
of promissory notes. These agreements contain various interest rate options and
provide for annual fees based on a percentage of the commitment. Such fees
totaled approximately $.5 million in 1995, 1994 and 1993.
Long-term debt at December 31, 1995 matures as follows: $28.7 million in
1996, $60.4 million in 1997, $34.6 million in 1998, $246.4 million in 1999,
$63.1 million in 2000 and $352.9 million thereafter.
-11-
NOTE 10: COMMITMENTS
- ---------------------
The Company has entered into commitments for broadcast rights that are not
currently available for broadcast and are therefore not included in the
financial statements. These commitments totaled $277 million at December 31,
1995. Payments for broadcast rights generally commence when the programs become
available for broadcast.
The Company had commitments totaling $70 million at December 31, 1995
related to the purchase of property, plant and equipment and to talent
contracts.
The Company leases certain equipment and office and production space under
various operating leases. Rental expense totaled $24.6 million in 1995, $24.6
million in 1994 and $26.2 million in 1993. Future minimum rental commitments
under non-cancelable operating leases are $17.5 million in 1996, $15.3 million
in 1997, $14.3 million in 1998, $12.7 million in 1999, $11.6 million in 2000 and
$63.6 million thereafter.
The Company has guaranteed certain obligations of affiliates totaling $21.2
million at December 31, 1995.
NOTE 11: CAPITAL STOCK
- -----------------------
Under the Company's Restated Certificate of Incorporation, 5 million shares of
preferred stock are authorized. In 1989, the Company established a series of 1.6
million shares of Series B Convertible Preferred Stock of which 1.59 million
shares were issued to the Company's ESOP. Each share of such preferred stock
pays a cumulative dividend of 7.75% annually, has a liquidation value of $220
per share, is convertible into four shares of the Company's common stock and is
voted with the common stock with an entitlement to 4.58 votes per preferred
share.
In December 1987, the Company adopted a Share Purchase Rights Plan and
declared a distribution of one right on each outstanding share of the Company's
common stock. Each right will entitle stockholders to buy one one-hundredth of a
share of Series A Junior Participating Preferred Stock at an exercise price of
$150. The rights have no voting rights and are not exercisable until 10 days
after the occurrence of certain triggering events, upon which the holders of the
rights are entitled to purchase either the common stock of an acquiror or
additional common stock of the Company at a discounted price. The rights are
redeemable at the option of the Company for $.01 per right. The Company has
established a series of 800,000 shares of Series A Junior Participating
Preferred Stock in connection with the plan, none of which have been issued.
The Board from time to time has authorized the repurchase of shares of the
Company's common stock in the open market or through private transactions to be
used for employee benefit programs and other purposes. In 1995, the Company
acquired 5,188,998 shares of its common stock for $314.7 million. In 1994, the
Company acquired 946,500 shares for $49.1 million. At December 31, 1995, the
Company had authorization to repurchase an additional 4.8 million shares of its
common stock.
There were approximately 4,700 holders of record of the Company's common
stock at January 31, 1996.
NOTE 12: INCENTIVE COMPENSATION AND STOCK PLANS
- ------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)-- In 1988, the Company established an ESOP
as a long-term employee benefit plan to supplement the Company's U.S. employee
pension plan. In connection therewith, the ESOP purchased, in 1988 and 1989,
approximately 800,000 common shares and 1.59 million Series B convertible
preferred shares for an aggregate of $375 million. The ESOP provides for the
awarding of shares of the Company's preferred and common stock on a
noncontributory basis to eligible non-union employees of the Company. At
December 31, 1995, 5.9 million shares of common stock were reserved for issuance
in connection with this plan.
Shares of stock held by the ESOP have been placed with the ESOP Trustee and
are allocated to eligible employees annually. These common and preferred shares
are allocated in the same proportion that the current year's principal and
interest payments bear to the total principal and interest to be paid over the
lives of the related borrowings. Each preferred share is convertible into four
shares of the Company's common stock. The ESOP Trustee must convert the
preferred shares when making distributions to participants upon their withdrawal
from the ESOP. If at the time of such conversion, the price of the Company's
common stock is below $55 per share, the Company must, at its option, either pay
the difference in cash or issue additional common stock. At December 31, 1995,
630,306 allocated preferred shares and 493,068 allocated common shares were held
by the ESOP.
-12-
The Company recognizes expense for this plan based upon cash contributions
it makes to the ESOP. The ESOP services its debt requirements with amounts
received from preferred dividends, common dividends earned on unallocated common
shares and Company contributions. The following table summarizes ESOP debt
service activity for the three years ended December 31, 1995:
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Debt Requirements:
Principal $26,820 $24,868 $22,721
Interest 22,927 25,015 26,932
- --------------------------------------------------------------------------------
Total $49,747 $49,883 $49,653
- --------------------------------------------------------------------------------
Debt Service:
Dividends $25,439 $26,019 $26,548
Company cash contributions 24,308 23,864 23,105
- --------------------------------------------------------------------------------
Total $49,747 $49,883 $49,653
- --------------------------------------------------------------------------------
1992 LONG-TERM INCENTIVE PLAN-- In 1992, the 1984 Long-Term Performance Plan was
terminated and replaced with the 1992 Long-Term Incentive Plan. The 1992 plan
provides for the granting of stock options or various other types of awards to
eligible employees. General awards available under this plan, on an annual
basis, are equal to nine-tenths of one percent (.009) of the adjusted average
number of common shares outstanding used by the Company to calculate fully
diluted net income per share for the preceding year, plus shares of stock
available for awards in previous years that have not been awarded, and any
previously forfeited or expired options. At December 31, 1995 and December 25,
1994, approximately .7 million shares were available for general awards.
An additional number of shares is available for replacement options. The
number of shares available for replacement options each year is generally equal
to four-tenths of one percent (.004) of the adjusted average number of common
shares outstanding used by the Company to calculate fully diluted net income per
share for the preceding year, plus shares of stock available for awards in
previous years that have not been awarded, and any previously forfeited or
expired replacement options. At December 31, 1995 and December 25, 1994, 3.1
million and 2.3 million shares, respectively, were available for replacement
options.
Under the 1992 plan, only 3 million of the shares available for general
awards may be used for certain outright stock awards and other stock-based
awards, and only 3 million of the shares may be used for incentive stock
options. No such awards have been granted. The option price is the market value
of the Company's common stock at the time the option is granted. Options are
exercisable not less than six months or more than 11 years after the date the
option is granted. At December 31, 1995, 2.5 million options were exercisable.
A combined summary of stock option activity and prices follows:
(Shares in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
Options Outstanding:
Beginning of year 5,045 4,893 5,261
Granted 1,475 1,050 889
Exercised (1,954) (832) (1,131)
Cancelled (113) (66) (126)
- ---------------------------------------------------------------------------------------------------------------
End of year 4,453 5,045 4,893
- ---------------------------------------------------------------------------------------------------------------
Prices of Options:
Granted $52 1/4 - 68 $49 5/8 - 63 1/8 $51 1/8 - 57 7/8
Exercised 20 1/16 - 57 3/4 16 7/8 - 57 3/4 16 7/8 - 47 3/8
Outstanding
at year end 30 - 68 20 1/16 - 63 1/8 16 7/8 - 57 7/8
EMPLOYEE STOCK PURCHASE PLAN-- This plan permits eligible employees to purchase
shares of the Company's common stock at 85% of market price. A total of 4
million shares of stock may be sold under the plan. The Company's only expense
relating to this plan is for its administration. During 1995, 1994 and 1993,
111,017, 110,925 and 99,809 shares, respectively, were sold to employees under
this plan. As of December 31, 1995, a total of 2.2 million shares were available
for sale.
SAVINGS INCENTIVE PLAN-- The Company maintains various qualified Savings
Incentive Plans, which permit eligible employees to make voluntary contributions
on a pretax basis. The plans provide for uniform employer contributions to
eligible employees of $.25 for each $1.00 contributed by participants up to 4%
of the participants' compensation. These plans allow participants to invest
their savings in various investments including the Company's common stock.
Company contributions to these plans for 1995, 1994 and 1993 were $2.6 million,
$2.3 million and $2.1 million, respectively. The Company had 400,000 shares of
common stock reserved for possible issuance under these plans at December 31,
1995.
-13-
NOTE 13: EMPLOYEE PENSION PLANS
- --------------------------------
The Company amended its Company-sponsored pension plans, effective January 1989,
for employees not covered by a collective bargaining agreement. The amendments
were made in connection with the establishment of the Company's ESOP and to
comply with the provisions of the Tax Reform Act of 1986. These pension plans
will continue to provide substantially the same pension benefits as under the
pre-amended plans until December 1998. After that date, the plans provide that
the pension benefit credits will be frozen in terms of pay and service.
Net pension expense (credit) for Company-sponsored plans in 1995, 1994 and
1993 included the following components:
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
Benefits earned during the period (service costs) $ 8,256 $ 9,038 $ 8,000
Interest cost on projected benefit obligation 20,302 17,912 17,900
Recognized return on plan assets (27,857) (27,424) (27,151)
Amortization, net (531) (380) (511)
- ---------------------------------------------------------------------------------------------------------------
Net pension expense (credit) $ 170 $ (854) $ (1,762)
- ---------------------------------------------------------------------------------------------------------------
Actual returns on plan assets were a gain of $57.9 million in 1995, a loss
of $2.0 million in 1994 and a gain of $37.1 million in 1993.
The following table sets forth the funded status of the Company-sponsored
pension plans as of year-end 1995 and 1994:
(In thousands) Dec. 31, 1995 Dec. 25, 1994
- --------------------------------------------------------------------------------------------------------------
Plans' assets at fair value $324,860 $281,515
Actuarial present value of benefit obligations:
Vested benefits 288,086 229,019
Non-vested benefits 10,872 9,024
- --------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 298,958 238,043
Projected future salary increases 8,324 12,917
- --------------------------------------------------------------------------------------------------------------
Projected benefit obligation 307,282 250,960
- --------------------------------------------------------------------------------------------------------------
Plans' assets in excess of projected benefit obligation 17,578 30,555
Unrecognized net asset at transition
being amortized through 2003 (12,120) (13,686)
Unrecognized net loss due to actual experience
varying from actuarial assumptions 27,941 15,717
Unrecognized prior service costs 131 906
- --------------------------------------------------------------------------------------------------------------
Pension asset recognized in the consolidated balance sheets $ 33,530 $ 33,492
- --------------------------------------------------------------------------------------------------------------
The plans' assets consist primarily of listed common stocks and bonds,
including 225,725 shares of the Company's common stock having an aggregate
market value of $13.8 million at December 31, 1995. In determining the projected
benefit obligation for the plans, the weighted average assumed discount rate
used was 7.25% in 1995 and 8.5% in 1994, while the assumed average rate of
increase in future salary levels was 4.5% for 1995 and 5.0% for 1994. The
weighted average expected long-term rate of return on assets used in determining
net pension expense or credit was 9.5% in 1995, 9.75% in 1994, and 10% in 1993.
Total pension expense for union-sponsored pension plans was $5.6 million in
1995, $5.8 million in 1994 and $4.9 million in 1993. The Company's portion of
assets and liabilities for multi-employer union pension plans is not
determinable.
-14-
NOTE 14: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
- -----------------------------------------------------
The Company provides postretirement health care and life insurance benefits to
eligible employees under a variety of plans. Employees become eligible for these
benefits if they meet age and service requirements. Effective January 1991, the
Company provides a fixed medical contribution to participants who retire between
the age of 55 to 65 and have 10 or more years of service. Medical coverage for
these participants ends when they reach age 65. Retirees are also eligible for
life insurance benefits, which are primarily a function of both the years of
service and the level of compensation at retirement. The cost of postretirement
medical and life benefits is accrued over the active service periods of
employees to the date they attain full eligibility for such benefits. It is the
Company's policy to fund postretirement benefits as claims are incurred.
Postretirement benefit cost for 1995, 1994 and 1993 included the following
components:
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
Service cost of benefits earned during the year $ 222 $ 350 $ 288
Interest cost on accumulated postretirement
benefit obligation ("APBO") 3,437 3,069 3,159
- ------------------------------------------------------------------------------------------------------------
Postretirement benefit cost $3,659 $3,419 $3,447
- ------------------------------------------------------------------------------------------------------------
The plans' APBO and the Company's postretirement liability were as follows:
(In thousands) Dec. 31, 1995 Dec. 25, 1994
- --------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Retirees $42,705 $35,079
Active participants, fully eligible 1,405 2,158
Active participants, not eligible 2,649 3,489
- --------------------------------------------------------------------------------------------------------------
APBO 46,759 40,726
Unrecognized net gain (loss) due to actual experience
varying from actuarial assumptions (3,699) 2,774
- --------------------------------------------------------------------------------------------------------------
Postretirement benefit liability $43,060 $43,500
- --------------------------------------------------------------------------------------------------------------
In determining the APBO, the weighted average assumed discount rate used
was 7.25% in 1995 and 8.5% in 1994. Increases of 10.0% in the cost of covered
health care benefits were assumed for fiscal 1996. These rates were assumed to
decrease ratably to 7.0% after six years and remain at that level thereafter.
The effect of a one percentage point increase in the assumed health care cost
trend rate for each future year would increase the total APBO at year-end 1995
by $3.3 million and the 1995 net benefit cost by $.2 million.
NOTE 15: CONTINGENCIES AND LEGAL PROCEEDINGS
- ---------------------------------------------
The Company and its subsidiaries are defendants from time to time in actions for
libel and other matters arising out of their business operations. In addition,
the Company and its subsidiaries are involved from time to time as parties in
various regulatory, environmental and other proceedings with governmental
authorities and administrative agencies.
The State of Florida Department of Environmental Protection ("DEP") and the
Company's subsidiary, Sentinel Communications Company (the "Sentinel"), have
entered into a consent decree under which the Sentinel will assist the DEP in
remediating certain trichloroethene groundwater contamination in downtown
Orlando, Florida. The Company currently estimates that the Sentinel's share of
the remediation costs will not be material and has provided for the costs in the
Company's consolidated financial statements.
The Company does not believe that any of the matters or proceedings
presently pending will have a material adverse effect on its consolidated
financial position or results of operations.
-15-
NOTE 16: INCOME TAXES
- ----------------------
The following is a reconciliation of income taxes computed at the U.S. federal
statutory rate to income taxes from continuing operations reported in the
consolidated statements of income:
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes $412,534 $391,847 $346,858
- ----------------------------------------------------------------------------------------------------------------
Federal income taxes at 35% $144,387 $137,146 $121,400
State and local income taxes, net of federal tax 24,344 24,000 18,502
Other (1,655) (2,448) 2,310
- ----------------------------------------------------------------------------------------------------------------
Income taxes reported $167,076 $158,698 $142,212
Effective tax rate 40.5% 40.5% 41.0%
- ----------------------------------------------------------------------------------------------------------------
Components of income tax expense charged to income from continuing
operations were as follows:
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
Currently payable: U.S. federal $137,420 $135,145 $104,446
State and local 37,389 37,390 28,307
- ---------------------------------------------------------------------------------------------------------------
174,809 172,535 132,753
- ---------------------------------------------------------------------------------------------------------------
Deferred: U.S. federal (7,617) (10,380) 9,517
State and local (116) (3,457) (58)
- ---------------------------------------------------------------------------------------------------------------
(7,733) (13,837) 9,459
- ---------------------------------------------------------------------------------------------------------------
Total $167,076 $158,698 $142,212
- ---------------------------------------------------------------------------------------------------------------
Significant components of the Company's net deferred tax liabilities were
as follows:
(In thousands) Dec. 31, 1995 Dec. 25, 1994
- ---------------------------------------------------------------------------------------------------------------
Net properties $ 87,956 $ 93,229
Net intangible assets 58,483 61,113
Pensions 9,226 12,483
Unrealized gain on investments (excluding QUNO debenture) 74,024 24,598
Investment in QUNO 59,792 36,013
Investment in nonconsolidated subsidiaries 12,146 5,422
Other future taxable items 7,102 12,288
- ---------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 308,729 245,146
- ---------------------------------------------------------------------------------------------------------------
Broadcast rights (20,211) (27,250)
Postretirement and postemployment benefits
other than pensions (19,646) (19,461)
Deferred compensation (26,733) (26,241)
Disposition of New York Daily News (6,448) (7,645)
Other accrued liabilities (23,486) (19,817)
Accrued employee compensation (13,626) (14,122)
Federal benefit on deferred state taxes (16,952) (14,748)
Accounts receivable (11,822) (10,275)
Other future deductible items (7,199) (10,442)
- ----------------------------------------------------------------------------------------------------------------
Total deferred tax assets (146,123) (150,001)
- ----------------------------------------------------------------------------------------------------------------
Net deferred tax liability $162,606 $ 95,145
- ----------------------------------------------------------------------------------------------------------------
-16-
NOTE 17: SEGMENT INFORMATION
- -----------------------------
Tribune Company is an information, entertainment and education company
comprising three business segments. As of December 31, 1995, the Company's
publishing segment consisted of four daily newspapers and other related
publications and services. The newspapers are the Chicago Tribune, the Fort
Lauderdale-based Sun-Sentinel, The Orlando Sentinel and the Newport News-based
Daily Press. The Company's broadcasting operations consisted of independent
television stations in New York, Los Angeles, Chicago, Philadelphia, Boston and
Denver, an ABC television affiliate in New Orleans, a CBS television affiliate
in Atlanta and five radio stations. The independent television stations are also
affiliated with The Warner Bros. Television Network. In entertainment, the
Company owns the Chicago Cubs baseball team, produces and syndicates television
programming and has interests in cable programming. The Company's education
segment (previously referred to as "new media/education") consisted of
Contemporary Books, The Wright Group and Everyday Learning, educational and
reference publishing operations. In 1995, the Company sold Times Advocate
Company, its California newspaper subsidiary, and Compton's NewMedia, a computer
software company (see note 3). Financial data for each of the Company's business
segments is presented on the following page.
In determining operating profit for each segment, none of the following
items have been added or deducted: interest income and expense, nonoperating
gains and losses or income taxes. Assets represent those identifiable tangible
and intangible assets used in the operations of each segment. The Company's cost
of sales by business segment was as follows:
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
Publishing $ 679,037 $ 608,327 $ 589,097
Broadcasting and Entertainment 451,749 412,704 410,007
Education 33,823 38,275 8,798
- --------------------------------------------------------------------------------------------------------------
Total cost of sales $1,164,609 $1,059,306 $1,007,902
- --------------------------------------------------------------------------------------------------------------
-17-
Tribune Company and Subsidiaires
Business Segments
(In thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
Operating Publishing $1,312,767 $1,246,377 $1,163,116
Revenues Broadcasting and Entertainment 828,806 764,197 727,213
Education 103,101 102,082 21,209
----------------------------------------------------------------------------------------
Total operating revenues $2,244,674 $2,112,656 $1,911,538
- --------------------------------------------------------------------------------------------------------------
Operating Publishing $ 270,143 $ 287,590 $ 253,050
Profit Broadcasting and Entertainment 160,616 132,413 125,684
Education 4,586 2,829 2,071
Corporate expenses (30,134) (26,207) (24,402)
----------------------------------------------------------------------------------------
Total operating profit $ 405,211 $ 396,625 $ 356,403
- --------------------------------------------------------------------------------------------------------------
Depreciation Publishing $ 68,123 $ 66,639 $ 60,689
Broadcasting and Entertainment 21,384 18,891 19,515
Education 2,818 1,554 242
Corporate 1,048 1,575 643
----------------------------------------------------------------------------------------
Total depreciation $ 93,373 $ 88,659 $ 81,089
- --------------------------------------------------------------------------------------------------------------
Amortization of Publishing $ 5,675 $ 4,990 $ 4,858
Intangible Assets Broadcasting and Entertainment 16,188 16,216 15,688
Education 5,750 5,510 1,127
----------------------------------------------------------------------------------------
Total amortization of intangible assets $ 27,613 $ 26,716 $ 21,673
- --------------------------------------------------------------------------------------------------------------
Capital Publishing $ 65,676 $ 51,205 $ 50,647
Expenditures Broadcasting and Entertainment 38,025 21,041 18,782
Education 4,883 4,905 721
Corporate 9,279 14,475 5,470
----------------------------------------------------------------------------------------
Total capital expenditures $ 117,863 $ 91,626 $ 75,620
- --------------------------------------------------------------------------------------------------------------
Assets Publishing $ 693,853 $ 757,889 $ 880,384
Broadcasting and Entertainment 1,405,213 1,321,768 1,155,331
Education 211,510 210,445 107,964
Corporate 977,679 495,723 392,731
----------------------------------------------------------------------------------------
Total assets $3,288,255 $2,785,825 $2,536,410
----------------------------------------------------------------------------------------
-18-
Report of Independent Accountants
- ---------------------------------
To the Board of Directors and Stockholders of Tribune Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of shareholders' equity
present fairly, in all material respects, the financial position of Tribune
Company and its subsidiaries at December 31, 1995 and December 25, 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Chicago, Illinois
January 31, 1996
-19-
Quarterly Results (Unaudited)
Tribune Company and Subsidiaries
(In thousands of dollars, Quarters
1995 except per share data) First Second Third Fourth Total
- ---------------------------------------------------------------------------------------------------------------------------
Operating Publishing $ 323,547 $ 327,787 $ 304,686 $ 356,747 $1,312,767
Revenues (1) Broadcasting and Entertainment 176,432 220,910 217,031 214,433 828,806
Education 21,427 28,521 30,527 22,626 103,101
---------------------------------------------------------------------------------------------------------
Total operating revenues $ 521,406 $ 577,218 $ 552,244 $ 593,806 $2,244,674
- ---------------------------------------------------------------------------------------------------------------------------
Operating Publishing $ 70,805 $ 74,991 $ 52,186 $ 72,161 $ 270,143
Profit Broadcasting and Entertainment 28,724 53,024 35,058 43,810 160,616
Education (356) 3,862 3,215 (2,135) 4,586
Corporate expenses (7,139) (7,366) (7,336) (8,293) (30,134)
---------------------------------------------------------------------------------------------------------
Total operating profit 92,034 124,511 83,123 105,543 405,211
- ---------------------------------------------------------------------------------------------------------------------------
Dispositions of subsidiary stock and investment (2) 15,272 - (7,500) 6,900 14,672
Net interest expense (923) (1,438) (1,553) (3,435) (7,349)
- ---------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Income Taxes 106,383 123,073 74,070 109,008 412,534
Income taxes (43,085) (49,845) (29,998) (44,148) (167,076)
- ---------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 63,298 73,228 44,072 64,860 245,458
Income from Discontinued Operations of QUNO (3) 4,665 8,899 11,828 7,315 32,707
- ---------------------------------------------------------------------------------------------------------------------------
Net Income 67,963 82,127 55,900 72,175 278,165
Preferred dividends, net of tax (4,621) (4,622) (4,622) (4,976) (18,841)
- ---------------------------------------------------------------------------------------------------------------------------
Net Income Attributable to Common Shares $ 63,342 $ 77,505 $ 51,278 $ 67,199 $ 259,324
- ---------------------------------------------------------------------------------------------------------------------------
Net Income Per Share (4)
Primary: Continuing operations $ .89 $ 1.05 $ .61 $ .94 $ 3.50
Discontinued operations .07 .14 .18 .12 .50
---------------------------------------------------------------------------------------------------------
Net income $ .96 $ 1.19 $ .79 $ 1.06 $ 4.00
- ---------------------------------------------------------------------------------------------------------------------------
Fully Diluted:Continuing operations $ .82 $ .97 $ .56 $ .87 $ 3.22
Discontinued operations .07 .12 .17 .10 .46
---------------------------------------------------------------------------------------------------------
Net income $ .89 $ 1.09 $ .73 $ .97 $ 3.68
- ---------------------------------------------------------------------------------------------------------------------------
Common Dividends Per Share $ .28 $ .28 $ .28 $ .28 $ 1.12
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Price (High-Low) $56 1/8-50 3/4 $60 3/4-53 3/4 $68 1/4-59 3/4 $68 7/8-59 5/8
- ----------------------------------------------------------------------------------------------------------------
Notes to Quarterly Results:
(1) Revenues have been restated to conform to revised financial statement
presentation. The restatement had no effect on net income.
(2) In March 1995, shares of America Online common stock were sold, which
resulted in a pretax gain of $15.3 million, or $9.1 million after taxes
($.14 per share on a primary basis). In July 1995, Times Advocate Company
was sold, which resulted in a pretax loss of $7.5 million, or $4.5
million after taxes ($.07 per share). In December 1995, Compton's
NewMedia was sold, which resulted in a pretax gain of $6.9 million, or
$4.1 million after taxes ($.06 per share).
(3) In December 1995, the Company announced it had agreed to sell its
holdings in QUNO as part of QUNO's planned merger with Donohue Inc. The
financial statements have been restated to reflect the Company's equity
earnings from QUNO and the interest income on the QUNO convertible
debenture, net of tax, as discontinued operations.
(4) Quarterly and full year net income per share amounts are calculated
independently based on the weighted average number of common shares
applicable for each period.
(5) In April 1994, the Company sold 5.5 million shares of QUNO common stock,
which resulted in an after-tax gain of approximately $13 million, or $.19
per share on a primary basis.
-20-
Quarterly Results (Unaudited)
Tribune Company and Subsidiaries
(In thousands of dollars, Quarters
1994 except per share data) First Second Third Fourth Total
- ---------------------------------------------------------------------------------------------------------------------------
Operating Publishing $303,949 $ 310,919 $ 296,464 $ 335,045 $1,246,377
Revenues (1) Broadcasting and Entertainment 146,948 223,085 179,986 214,178 764,197
Education 19,203 27,941 25,116 29,822 102,082
---------------------------------------------------------------------------------------------------------
Total operating revenues $470,100 $ 561,945 $ 501,566 $ 579,045 $2,112,656
- ---------------------------------------------------------------------------------------------------------------------------
Operating Publishing $ 69,237 $ 76,325 $ 60,354 $ 81,674 $ 287,590
Profit Broadcasting and Entertainment 20,375 50,247 23,699 38,092 132,413
Education 1,330 2,631 (5,311) 4,179 2,829
Corporate expenses (6,340) (6,418) (6,813) (6,636) (26,207)
---------------------------------------------------------------------------------------------------------
Total operating profit 84,602 122,785 71,929 117,309 396,625
- ---------------------------------------------------------------------------------------------------------------------------
Net interest expense (2,207) (949) (508) (1,114) (4,778)
- ---------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations
Before Income Taxes 82,395 121,836 71,421 116,195 391,847
Income taxes (33,782) (49,746) (28,111) (47,059) (158,698)
- ---------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 48,613 72,090 43,310 69,136 233,149
Income from Discontinued Operations of QUNO (3)(5) (8,544) 12,942 4,517 (17) 8,898
- ---------------------------------------------------------------------------------------------------------------------------
Net Income 40,069 85,032 47,827 69,119 242,047
Preferred dividends, net of tax (4,644) (4,643) (4,644) (4,643) (18,574)
- ---------------------------------------------------------------------------------------------------------------------------
Net Income Attributable to Common Shares $ 35,425 $ 80,389 $ 43,183 $ 64,476 $ 223,473
- ---------------------------------------------------------------------------------------------------------------------------
Net Income Per Share (4)
Primary: Continuing operations $ .66 $ 1.00 $ .57 $ .96 $ 3.19
Discontinued operations (.13) .19 .07 - .13
---------------------------------------------------------------------------------------------------------
Net income $ .53 $ 1.19 $ .64 $ .96 $ 3.32
---------------------------------------------------------------------------------------------------------
Fully Diluted:Continuing operations $ .61 $ .92 $ .54 $ .89 $ 2.95
Discontinued operations (.12) .17 .06 - .12
---------------------------------------------------------------------------------------------------------
Net income $ .49 $ 1.09 $ .60 $ .89 $ 3.07
- ---------------------------------------------------------------------------------------------------------------------------
Common Dividends Per Share $ .26 $ .26 $ .26 $ .26 $ 1.04
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Price (High-Low) $61 7/8 -55 $64 1/2 -54 $56 5/8 -50 1/4 $56 1/8 -48 7/8
- ------------------------------------------------------------------------------------------------------------------
-21-
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Tribune Company
Our audits of the consolidated financial statements referred to in our report
dated January 31, 1996 appearing in this Current Report on Form 8-K
also included an audit of the Financial Statement Schedule listed in Item 7 of
this Current Report on Form 8-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Chicago, Illinois
January 31, 1996
-22-
SCHEDULE II
TRIBUNE COMPANY AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands of dollars)
- ---------------------------------------------------------------------------------------------------------------------------
Additions
Balance at Charged to Balance
Beginning Costs and at End of
Description of Period Expenses Deductions Period
- ------------------------------------------------------------ ---------- ---------- ---------- ---------
Valuation accounts deducted from assets to which they apply:
Year ended December 31, 1995
Allowance for doubtful accounts:
Bad debts.......................................... $ 24,464 $ 19,745 $ 21,131 $ 23,078
Rebates, volume discounts and other................ 9,534 27,754 30,212 7,076
-------- -------- -------- --------
Total..................................... $ 33,998 $ 47,499 $ 51,343 (1) $ 30,154
======== ======== ======== ========
Year ended December 25, 1994
Allowance for doubtful accounts:
Bad debts.......................................... $ 17,589 $ 18,024 $ 11,149 $ 24,464
Rebates, volume discounts and other................ 7,843 18,284 16,593 9,534
-------- -------- -------- ---------
Total..................................... $ 25,432 $ 36,308 $ 27,742 $ 33,998
======== ======== ======== ========
Year ended December 26, 1993
Allowance for doubtful accounts:
Bad debts.......................................... $ 19,329 $ 12,932 $ 14,672 (1) $ 17,589
Rebates, volume discounts and other................ 4,082 19,460 15,699 7,843
-------- -------- -------- ---------
Total..................................... $ 23,411 $ 32,392 $ 30,371 $ 25,432
======== ======== ======== ========
(1) For 1995, $9,389 represents deductions pertaining to Compton's New Media
and Times Advocate Company, sold in 1995. For 1993, $4,612 represents
deductions pertaining to QUNO Corporation. As a result of an initial
public offering by QUNO in February 1993, QUNO's balance sheet was no
longer consolidated in the Company's financial statements.
- --------------------------------------------------------------------------------------------------------------------------
-23-