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- - --------------------------------------------------------------------------------
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 26, 1994
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 1-4914
THE TIMES MIRROR COMPANY
State of Incorporation: Delaware I.R.S. Employer Id. No. 95-1298980
TIMES MIRROR SQUARE
Los Angeles, California 90053
Telephone: (213) 237-3700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Number of shares of Series A Common Stock outstanding at August 1, 1994:
97,147,931
Number of shares of Series C Common Stock outstanding at August 1, 1994:
31,463,924
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THE TIMES MIRROR COMPANY AND SUBSIDIARIES
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
THE TIMES MIRROR COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SECOND
QUARTER ENDED YEAR-TO-DATE ENDED
------------------------ ------------------------
JUNE 26, JUNE 27, JUNE 26, JUNE 27,
1994 1993 1994 1993
- - --------------------------------------------------------------------------------------------
REVENUES................................ $ 807,636 $ 784,632 $ 1,541,342 $ 1,539,801
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales......................... 432,345 406,005 837,219 827,610
Selling, general and administrative
expenses............................. 309,992 317,729 605,895 607,034
----------- ----------- ----------- -----------
742,337 723,734 1,443,114 1,434,644
----------- ----------- ----------- -----------
OPERATING PROFIT........................ 65,299 60,898 98,228 105,157
Interest expense...................... (16,603) (21,095) (34,312) (43,720)
Nonrecurring gain..................... 10,227 10,227
Other, net............................ 494 1,638 1,972 3,493
----------- ----------- ----------- -----------
Income from continuing operations before
income taxes........................... 59,417 41,441 76,115 64,930
Income taxes.......................... 27,327 21,040 36,524 32,873
----------- ----------- ----------- -----------
Income from continuing operations....... 32,090 20,401 39,591 32,057
Income from discontinued operations,
net of income taxes (Note C)........... 13,279 27,461 28,504 45,589
----------- ----------- ----------- -----------
NET INCOME.............................. $ 45,369 $ 47,862 $ 68,095 $ 77,646
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Continuing operations................. $ .25 $ .16 $ .31 $ .25
Discontinued operations............... .10 .21 .22 .35
----------- ----------- ----------- -----------
Earnings per share...................... $ .35 $ .37 $ .53 $ .60
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See notes to condensed consolidated financial statements
3
THE TIMES MIRROR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER
JUNE 26, 31,
1994 1993
- - ----------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents....................... $ 55,770 $ 46,756
Accounts receivable, less allowance for doubtful
accounts
and returns of $63,447 and $70,866............ 478,275 511,347
Note and other receivables...................... 296,458
Inventories..................................... 159,954 161,251
Deferred income taxes........................... 33,345 47,305
Net assets of discontinued operations (Note
C)............................................. 612,822 606,678
Prepaid and other............................... 131,380 153,757
----------- -----------
Total Current Assets.......................... 1,471,546 1,823,552
Property, plant and equipment, at cost less
accumulated depreciation
of $785,393 and $760,609........................ 1,298,941 1,308,628
Goodwill.......................................... 705,737 714,357
Other intangibles................................. 123,146 132,690
Deferred charges and other assets................. 558,855 520,670
----------- -----------
$4,158,225 $4,499,897
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable................................ $ 342,257 $ 380,005
Accrued liabilities............................. 62,406 94,436
Short-term debt................................. 113,652 336,356
Income taxes.................................... 13,643 1,232
Other current liabilities....................... 304,862 331,137
----------- -----------
Total Current Liabilities..................... 836,820 1,143,166
Long-term debt.................................... 749,080 795,454
Deferred income taxes............................. 203,056 205,220
Other liabilities and deferrals................... 470,001 456,782
----------- -----------
Total Liabilities............................. 2,258,957 2,600,622
----------- -----------
Shareholders' Equity
Common stock
Series A, $1 par value: 300,000,000 authorized;
98,397,000 and 97,588,000 issued............... 98,397 97,588
Series B, $1 par value; 100,000,000 authorized;
no shares issued
Series C, convertible, $1 par value; 150,000,000
authorized; 31,560,000 and 32,366,000 issued... 31,560 32,366
Preferred stock, $1 par value; 4,500,000 shares
authorized;
no shares issued
Additional paid-in capital...................... 167,304 167,490
Retained earnings............................... 1,687,750 1,687,574
----------- -----------
1,985,011 1,985,018
----------- -----------
Less treasury stock, at cost; 1,345,000 Series A
shares......................................... 61,543 61,543
----------- -----------
1,923,468 1,923,475
Less guaranteed debt of ESOP.................... 24,200 24,200
----------- -----------
Total Shareholders' Equity.................... 1,899,268 1,899,275
----------- -----------
$4,158,225 $4,499,897
----------- -----------
----------- -----------
See notes to condensed consolidated financial statements
4
THE TIMES MIRROR COMPANY AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
YEAR-TO-DATE ENDED
--------------------
JUNE 26, JUNE 27,
1994 1993
- - ----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by continuing operating activities.................. $ 155,142 $ 106,580
Net cash provided by discontinued operating activities (Note C)....... 67,938 82,126
--------- ---------
Net cash provided by operating activities........................... 223,080 188,706
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of operating assets............................... 310,420 23,422
Capital expenditures.................................................. (116,813) (97,893)
Acquisitions, net of cash acquired.................................... (36,928) (23,193)
Additions to product development costs................................ (30,983) (26,721)
Other, net............................................................ (1,752) (6,176)
--------- ---------
Net cash provided by (used in) investing activities................. 123,944 (130,561)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt..................................................... (368,110) (154,984)
Proceeds from issuance of debt........................................ 99,732 148,789
Dividends paid........................................................ (69,449) (69,434)
Other, net............................................................ (183) 1,743
--------- ---------
Net cash used in financing activities............................... (338,010) (73,886)
--------- ---------
Increase (decrease) in cash and cash equivalents........................ 9,014 (15,741)
Cash and cash equivalents at beginning of year.......................... 46,756 57,881
--------- ---------
Cash and cash equivalents at end of period.............................. $ 55,770 $ 42,140
--------- ---------
--------- ---------
Cash paid during the period for:
Interest (net of amounts capitalized)................................. $ 31,212 $ 43,460
Income taxes.......................................................... 35,443 39,956
See notes to condensed consolidated financial statements
5
THE TIMES MIRROR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PREPARATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the fiscal year. For further
information, refer to the consolidated financial statements and accompanying
notes incorporated in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
Certain amounts have been reclassified to conform to the second quarter 1994
presentation.
NOTE B -- PROPOSED REORGANIZATION
In June 1994, the Company signed an agreement to merge its cable television
operations with Cox Cable Communications, Inc. (Cox Cable). Prior to the merger
the Company will borrow $1.36 billion. The Company will then transfer all of its
non-cable operations, including the $1.36 billion in cash, into a newly formed
entity, New Times Mirror, as part of a tax-free reorganization. Old Times
Mirror, then consisting of the Company's cable television operations and the
newly incurred $1.36 billion in debt, will be merged into Cox Cable. Each share
of the Company's Series A and Series C common stock outstanding prior to the
merger will be converted into one share of New Times Mirror Series A or Series C
common stock, respectively. As a result, voting interests in New Times Mirror
will remain the same as voting interests in Old Times Mirror. In addition, all
non-Chandler Trust shareholders will receive common stock of Cox Cable with an
estimated aggregate fair value of $932,000,000. Due to certain constraints
imposed by the terms of the Chandler Trusts, in lieu of common stock of Cox
Cable, the Chandler Trusts will receive non-voting, cumulative dividend,
preferred stock in New Times Mirror. The fair value of the preferred stock
received by the Chandler Trusts will be substantially equivalent to the fair
value of the Cox Cable common stock received by the other shareholders, after
giving effect to their respective proportionate interest in Old Times Mirror.
The Company expects this transaction will increase shareholders' equity by
approximately $700,000,000.
This transaction is expected to be consummated within the next six to nine
months and is subject to certain conditions, including the receipt of various
regulatory approvals and the successful tender offer (or offer to exchange New
Times Mirror debt) for at least 66 2/3% of the aggregate principal amount of the
Company's publicly-held notes. At June 26, 1994, the Company had $750,000,000 of
publicly-held notes outstanding.
As previously reported, a number of lawsuits have been filed in Delaware and
California seeking to enjoin the proposed transaction. The resolution of these
lawsuits is not expected to have a material adverse effect on the Company's
financial position or results of operations.
NOTE C -- DISCONTINUED OPERATIONS
As a result of the proposed transaction described in Note B, the Company's
cable television operations are now reported as discontinued operations.
In March 1993, the Company announced two agreements for the sale of its
broadcast television stations to Argyle Television Holdings, Inc. (Argyle). The
sale of KTVI-TV, an ABC affiliate in St. Louis, Missouri, and WVTM-TV, an NBC
affiliate in Birmingham, Alabama, was completed in July, 1993. The sale of the
Company's remaining two stations, KDFW-TV in Dallas, Texas and KTBC-TV in
Austin, Texas, both CBS affiliates, was completed near the end of 1993. The sale
of the four stations resulted in a gain of $131,702,000, net of income tax
expense of $76,928,000. Most of the $320,000,000 in proceeds were received in
January 1994 and were used to redeem commercial paper.
6
THE TIMES MIRROR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE C -- DISCONTINUED OPERATIONS (CONTINUED)
The results of operations of the Broadcast and Cable Television segments
have been reported separately as discontinued operations for all applicable
periods in the Statements of Consolidated Income. Income from discontinued
operations is summarized as follows (in thousands):
SECOND
QUARTER ENDED YEAR-TO-DATE ENDED
-------------------- --------------------
JUNE 26, JUNE 27, JUNE 26, JUNE 27,
1994 1993 1994 1993
- - ----------------------------------------------------------------------------------------------
Revenues.......................................... $ 124,193 $ 150,176 $ 247,161 $ 287,519
--------- --------- --------- ---------
Income before income taxes........................ 24,343 44,969 51,518 75,810
Income taxes...................................... 11,064 17,508 23,014 30,221
--------- --------- --------- ---------
Net income........................................ $ 13,279 $ 27,461 $ 28,504 $ 45,589
--------- --------- --------- ---------
--------- --------- --------- ---------
The net assets of the Cable Television operations which will be transferred
to Cox Cable, comprised principally of fixed assets, goodwill and other
intangibles, have been classified as net assets of discontinued operations for
all reported periods.
NOTE D -- NONRECURRING GAIN
In May, 1994, the Company sold preferred stock and warrants to purchase
common stock obtained as part of the 1992 settlement of a note receivable
related to the 1987 sale of the Denver Post. This transaction increased income
before income taxes by $10,227,000, or $6,431,000 (5 cents per share) after
applicable income taxes.
NOTE E -- INVENTORIES
Inventories are summarized as follows (in thousands):
JUNE 26, DECEMBER 31,
1994 1993
- - ---------------------------------------------------------------------------------------------
Newsprint, paper, and other raw materials........................... $ 35,959 $ 39,066
Books and other finished products................................... 98,075 94,675
Work-in-process..................................................... 25,920 27,510
--------- ------------
$ 159,954 $ 161,251
--------- ------------
--------- ------------
NOTE F -- DEBT
Short-term debt is summarized as follows (in thousands):
JUNE 26, DECEMBER 31,
1994 1993
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Commercial paper.................................................... $ 89,160 $ 312,000
Current maturities of long-term debt................................ 24,492 24,356
--------- ------------
$ 113,652 $ 336,356
--------- ------------
--------- ------------
7
THE TIMES MIRROR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE F -- DEBT (CONTINUED)
Long-term debt is summarized as follows (in thousands):
JUNE 26, DECEMBER 31,
1994 1993
- - ---------------------------------------------------------------------------------------------
Commercial paper.................................................... $ 46,231
7 1/8% Debentures due March 1, 2013................................. $ 150,000 150,000
7 3/8% Debentures due July 1, 2023.................................. 100,000 100,000
8 7/8% Notes due March 1, 2001...................................... 100,000 100,000
8.70% Notes due June 15, 1999....................................... 100,000 100,000
8.55% Notes due June 1, 2000........................................ 99,500 99,500
8 7/8% Ten-Year Notes due February 1, 1998.......................... 100,000 100,000
Medium-Term Notes due from March 20, 1997 to April 3, 2000,
with an average interest rate of 8.63%............................ 100,000 100,000
Guaranteed debt of ESOP, maturing December 15, 1994................. 24,200 24,200
Others at various interest rates, maturing through 2003............. 1,683 1,761
--------- ------------
$ 775,383 $ 821,692
Unamortized discount................................................ (1,811) (1,882)
Less current maturities............................................. (24,492) (24,356)
--------- ------------
$ 749,080 $ 795,454
--------- ------------
--------- ------------
Commercial paper borrowings of $89,160,000 at June 26, 1994 and $358,231,000 at
December 31, 1993, carried a weighted average interest rate of 4.4% and 3.3%,
respectively. The Company has agreements with several domestic and foreign banks
for unsecured short-term revolving lines of credit which support its commercial
paper borrowings. The domestic agreements expire April 27, 1995 and provide for
borrowings up to $240,000,000. The foreign agreements expire May 25, 1995 and
provide for borrowings up to $150,000,000. As of June 26, 1994, the Company had
not borrowed under these agreements. All of the commercial paper borrowings are
classified as short-term at June 26, 1994.
NOTE G -- EARNINGS AND DIVIDENDS PER SHARE
Earnings per share computations are based upon the weighted average number
of shares of common stock and common stock equivalents outstanding of
128,737,000 for both of the second quarters ended June 26, 1994 and June 27,
1993. The weighted average number of shares is 128,870,000 and 128,758,000 for
year-to-date June 26, 1994 and June 27, 1993, respectively. Fully diluted
earnings per share are the same as the earnings per share indicated.
Cash dividends of 27 cents per share of common stock were declared in the
second quarters ended June 26, 1994 and June 27, 1993, respectively.
NOTE H -- CASH MANAGEMENT SYSTEM
Under the Company's cash management system, the bank notifies the Company
daily of checks presented for payment against its primary disbursing accounts.
The Company transfers funds from other sources, such as short-term investments
or commercial paper issuance, to cover the checks presented for payment. This
program results in a book cash overdraft in the primary disbursing accounts as a
result of the checks outstanding. The book overdraft, which was reclassified to
accounts payable, was $54,154,000 and $41,733,000 at June 26, 1994 and December
31, 1993, respectively.
NOTE I -- COMMITMENTS AND CONTINGENCIES
The Company is exploring various alternative sites for its headquarters,
which includes offices of the LOS ANGELES TIMES. If the Company determines that
a move is in its best interests, the disposition of the current headquarters
property may result in a charge to earnings.
8
THE TIMES MIRROR COMPANY AND SUBSIDIARIES
FIVE-YEAR SUMMARY OF BUSINESS SEGMENT INFORMATION
(IN THOUSANDS OF DOLLARS) 1993 1992 1991 1990 1989
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REVENUES
Newspaper Publishing................... $1,980,717 $1,943,229 $1,974,351 $2,066,872 $2,065,890
Professional Information............... 992,220 935,448 851,633 757,882 654,593
Consumer Multimedia.................... 271,176 277,757 292,157 311,328 305,913
Corporate and Other.................... 391 11,412 56,487
Intersegment Revenues.................. (364) (1,004) (1,358) (1,175) (630)
---------- ---------- ---------- ---------- ----------
$3,243,749 $3,155,430 $3,117,174 $3,146,319 $3,082,253
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OPERATING PROFIT (LOSS)(1)
Newspaper Publishing................... $ 107,346 $ 19,126 $ 93,094 $ 171,257 $ 309,850
Professional Information............... 174,855 114,348 193,161 165,741 144,836
Consumer Multimedia.................... (3,785) (3,527) (7,775) (9,496) (1,180)
Corporate and Other.................... (89,374) (66,188) (69,808) (59,364) (13,106)
---------- ---------- ---------- ---------- ----------
$ 189,042 $ 63,759 $ 208,672 $ 268,138 $ 440,400
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
IDENTIFIABLE ASSETS
Newspaper Publishing................... $2,012,623 $2,036,453 $2,023,275 $2,044,545 $1,907,900
Professional Information............... 1,030,586 971,833 788,260 753,184 690,416
Consumer Multimedia.................... 288,805 338,895 338,046 412,505 430,263
Corporate and Other.................... 563,686 317,423 341,493 383,616 369,663
Discontinued Operations
Cable Television..................... 606,678 495,036 509,942 484,611 439,185
Broadcast Television................. 285 123,439 120,649 125,109 125,562
Eliminations........................... (2,766) (49,734) (115,526) (83,489) (88,691)
---------- ---------- ---------- ---------- ----------
$4,499,897 $4,233,345 $4,006,139 $4,120,081 $3,874,298
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
DEPRECIATION, AMORTIZATION AND DEPLETION
Newspaper Publishing................... $ 113,877 $ 105,939 $ 110,946 $ 100,458 $ 82,234
Professional Information............... 44,490 40,092 41,640 42,701 40,743
Consumer Multimedia.................... 10,816 10,705 14,656 23,730 24,022
Corporate and Other.................... 1,795 1,753 2,664 2,588 7,616
---------- ---------- ---------- ---------- ----------
$ 170,978 $ 158,489 $ 169,906 $ 169,477 $ 154,615
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
CAPITAL EXPENDITURES
Newspaper Publishing................... $ 66,429 $ 88,226 $ 119,963 $ 231,493 $ 312,473
Professional Information............... 33,006 19,984 19,324 26,080 19,088
Consumer Multimedia.................... 1,718 1,579 1,142 2,744 10,102
Corporate and Other.................... 940 321 494 938 785
Discontinued Operations
Cable Television..................... 116,914 82,333 60,426 66,641 70,590
Broadcast Television................. 3,464 3,141 6,803 6,189
---------- ---------- ---------- ---------- ----------
$ 219,007 $ 195,907 $ 204,490 $ 334,699 $ 419,227
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<FN>
(1) Includes restructuring charges as follows (in thousands):
1993 1992 1991
- - -----------------------------------------------------------------------------
Newspaper Publishing................... $ 33,080 $ 106,700 $ 39,690
Professional Information............... 25,300 96,000 1,160
Corporate and Other.................... 21,784 1,450
---------- ---------- ----------
$ 80,164 $ 202,700 $ 42,300
---------- ---------- ----------
---------- ---------- ----------
9
THE TIMES MIRROR COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In June 1994, Times Mirror announced a definitive agreement to merge its
cable television operations with Cox Cable Communications, Inc. (Cox Cable) in a
tax-free transaction valued at $2.3 billion. The merger, which requires various
regulatory approvals, is expected to be completed within the next six to nine
months. For further details concerning this proposed transaction, see Note B of
the condensed consolidated financial statements.
Beginning in the second quarter of 1994, Times Mirror redefined its business
segments for reporting purposes to reflect the focus of its operations after the
proposed cable merger. The Company's three business segments are now Newspaper
Publishing, which remains unchanged from past reporting periods; Professional
Information, which consists of the Company's professional publishing, college
publishing and training operations; and Consumer Multimedia, which includes
magazines, consumer book publishing, as well as the planned expansion of new
consumer multimedia software and television programming businesses. For
comparison purposes the Company's financial data have been conformed to the
newly defined segments in the Five-Year Summary of Business Segment Information.
Times Mirror's 1994 first half operating profit declined to $98.2 million
from $105.2 million in the previous year. Although the Newspaper Publishing
segment grew in both operating revenues and profit, these gains were more than
offset by declines in both of these categories at Matthew Bender, the Company's
legal publishing company. The decline at Matthew Bender was anticipated, and is
the result of reduced revenues relating to an unusually high number of product
shipments in the first quarter of 1993, and to changes in its marketing and
pricing strategies introduced in 1993. These strategies aim to stabilize
subscription volumes over the near term and to grow unit volume over the long
term.
During the second quarter, the Company's operating profit increased 7.2
percent over the prior year, as the favorable results in the Newspaper
Publishing segment more than offset the decline experienced by Matthew Bender.
Second quarter results included a minor charge for payroll related costs at
Newsday, as well as a gain on the sale of securities.
Over the past several years, the Company has provided restructuring reserves
in order to streamline the operational and administrative functions of its
businesses. The Company is continuing to pursue cost reduction and process
re-engineering opportunities, which could lead to additional restructuring or
other charges in future periods.
DISCONTINUED OPERATIONS
In March 1993, the Company announced the sale of its four broadcast
television stations, with the divestiture being completed near year-end 1993 for
$320 million in cash as well as warrants in Argyle Television Holdings.
Accordingly, the financial results of the Broadcast Television segment have been
reported separately in 1993 as discontinued operations in the Statements of
Consolidated Income. Additionally, as a result of the proposed merger with Cox
Cable, results of Cable Television have been reported separately for all periods
as discontinued operations. Income from discontinued operations was $28.5
million, or 22 cents per share, in the first half of 1994 from cable television,
compared with $45.6 million or 35 cents per share, in the prior year from both
cable and broadcast television. Additional information on these discontinued
operations is included in Note C of the condensed consolidated financial
statements.
SALE OF OTHER ASSETS
In the second quarter of 1994, a gain of $6.4 million, or $.05 per share,
was realized on the sale of preferred stock and warrants to purchase common
stock obtained as part of the 1992 settlement of a note receivable related to
the 1987 sale of the DENVER POST.
10
MATTHEW BENDER RESTRUCTURING
Over the past 18 months Matthew Bender has been executing a strategic
restructuring of its marketing strategies, product lines and business
operations. A reserve of $96 million for restructuring costs was established in
the fourth quarter of 1992. Restructuring efforts include new pricing programs,
operating productivity improvements resulting in major workforce reductions, and
a reduction in new title development in favor of enriching the value of
established product lines. The impact of these efforts depressed results in the
first half of 1994 and is expected to reduce annual operating profit
year-over-year in the range of $20 million. However, over the long term, these
actions are designed to grow unit volume and revenues, and enhance operating
efficiencies.
NEWSPAPER PUBLISHING OUTLOOK
Growth in Newspaper Publishing will depend primarily on the timing and
extent of economic recovery in Times Mirror's local newspaper markets --
particularly Southern California. In addition, structural shifts in the retail
marketplace, including retailer consolidations, changing consumer buying habits
and growth in discount stores (which use little newspaper advertising) have
depressed past results and may impact retail advertising growth in the future.
Also, the favorable trends in newsprint pricing are not expected to continue,
with increases in the average price paid per ton projected for the rest of 1994
and throughout 1995. Advertising revenues at all of the Company's newspapers,
including the LOS ANGELES TIMES, improved in the first half of 1994. Full year
results will depend largely on the strength and durability of the economic
recovery in Southern California.
PROFESSIONAL INFORMATION OUTLOOK
After several years of strong growth, the Professional Information segment
entered a period of weaker revenue and profit performance in 1993 and 1994,
impacted primarily by restructuring efforts at Matthew Bender. The major decline
in revenues at Matthew Bender over the two years, however, was largely offset by
continued growth in health science and college publishing. In addition, costs
associated with investments, extending business lines and entering related
markets in existing publishing businesses, as well as costs associated with
consolidating administrative functions, will constrain profit growth in 1994.
Despite these investments, however, the Professional Information segment should
produce favorable year-over-year operating results in the second half of 1994,
due in part to growth in college publishing. The Company hopes to resume profit
growth in this segment in 1995, based on the development of product line
extensions, international growth and continued expansion into new markets
building on existing professional information franchises.
CONSUMER MULTIMEDIA OUTLOOK
Times Mirror's magazines have historically represented the majority of the
revenues of this segment. This year's operating results of these ongoing
businesses will depend on the strength of a national recovery in the magazine
industry's advertising revenues. In the planned expansion of consumer multimedia
software and television programming, the Company will invest in businesses
concentrating on developmental projects in consumer multimedia, as well as cable
television programming. These investments are expected to show operating losses
during their initial stages of growth.
11
CONSOLIDATED RESULTS OF OPERATIONS
The following table summarizes Times Mirror's financial results (in
thousands except per share amounts):
SECOND QUARTER FIRST HALF
------------------------ ------------------------
1994 1993 1994 1993
- - --------------------------------------------------------------------------------------------
Revenues................................ $ 807,636 $ 784,632 $ 1,541,342 $ 1,539,801
Operating profit........................ 65,299 60,898 98,228 105,157
Interest expense........................ (16,603) (21,095) (34,312) (43,720)
Nonrecurring gains...................... 10,227 -- 10,227 --
Income from continuing operations....... 32,090 20,401 39,591 32,057
Income from discontinued operations..... 13,279 27,461 28,504 45,589
Net income.............................. 45,369 47,862 68,095 77,646
Earnings per share:
Continuing operations................. $ .25 $ .16 $ .31 $ .25
Discontinued operations............... .10 .21 .22 .35
----------- ----------- ----------- -----------
Earnings per share.................... $ .35 $ .37 $ .53 $ .60
The following sections discuss the revenues and operating profits of the
Company's principal lines of business. All comments, except as noted, apply to
both the second quarter and first half of 1994 compared to the same prior year
period.
Times Mirror's revenues increased 2.9 percent for the second quarter of
1994, and were largely unchanged for the first half compared to prior year
periods. Growth in newspaper and magazine advertising revenues, and incremental
acquisitions in college textbooks more than offset the revenue decline in legal
publishing revenues for both the quarter and first half.
Operating profit for the second quarter of 1994 increased 7.2 percent from
the previous year, due primarily to advertising revenue growth and cost
containment efforts in the newspaper segment. For the first half of 1994,
operating profit declined 6.6 percent, as growth in Newspaper Publishing did not
offset the expected significant declines in Professional Information.
For the second quarter, income from continuing operations rose 57.3 percent
to $32.1 million, or $.25 per share, due to revenue improvements in the
Newspaper Publishing group, as well as a gain on the sale of securities. For the
first half, income from continuing operations rose 23.5 percent due to the
strength of second quarter results. Net income for the second quarter and first
six months was down due to the absence of the discontinued broadcast television
operations which were sold near year end 1993.
Interest expense for the second quarter and the first six months declined,
as the debt level was reduced using proceeds from the sale of the broadcast
television stations.
NEWSPAPER PUBLISHING
SECOND QUARTER FIRST HALF
-------------------- --------------------
1994 1993 1994 1993
- - ----------------------------------------------------------------------------------------------
Revenues
Advertising..................................... $ 396,565 $ 376,401 $ 747,262 $ 718,060
Circulation..................................... 113,493 113,630 222,131 225,064
Other........................................... 7,256 9,231 19,042 17,794
--------- --------- --------- ---------
$ 517,314 $ 499,262 $ 988,435 $ 960,918
--------- --------- --------- ---------
--------- --------- --------- ---------
Operating Profit.................................. $ 52,856 $ 40,504 $ 89,016 $ 64,495
--------- --------- --------- ---------
--------- --------- --------- ---------
12
For the second quarter, Newspaper Publishing's advertising revenues rose 5.4
percent for the quarter and 4.1 percent for the first half, continuing the
recent gains in advertising revenues. Circulation revenues declined slightly for
the quarter and first half, due to reduced circulation outside the newspapers'
primary market areas. Advertising volume and revenues increased at the group's
largest newspaper, the LOS ANGELES TIMES, with continued gains in classified
advertising volume, particularly in the help-wanted category, as well as
increases in retail advertising volume.
Second quarter and first half operating profit rose significantly, despite a
minor payroll related charge at Newsday, reflecting the benefits of major cost
containment efforts over the past three years combined with revenue growth.
Newsprint expense in the quarter and first half was slightly lower than 1993
levels, as the average per-ton cost decreased and offset the increase in
consumption.
PROFESSIONAL INFORMATION
Professional Information group revenues and operating profit were as follows
(in thousands):
SECOND QUARTER FIRST HALF
-------------------- --------------------
1994 1993 1994 1993
- - ----------------------------------------------------------------------------------------------
Revenues.......................................... $ 222,685 $ 222,477 $ 420,782 $ 452,491
--------- --------- --------- ---------
--------- --------- --------- ---------
Operating Profit.................................. $ 30,067 $ 39,272 $ 45,361 $ 81,810
--------- --------- --------- ---------
--------- --------- --------- ---------
Professional Information revenues for the second quarter of 1994 were level
with the prior year, as revenue declines in legal publishing were less
significant than in first quarter year-over-year comparisons. For the first
half, revenues for this group declined 7.0 percent due principally to the impact
of the changes at Matthew Bender in pricing and marketing strategies, as well as
its unusually high level of first quarter sales in the prior year.
Operating profit declined 23.4 percent in the second quarter and 44.6
percent for the first half mainly as a result of the reduced revenues at Matthew
Bender. Professional Information results were also adversely affected by higher
seasonal losses at the Company's college publishing operations due to the impact
of business expansion. The Company expects full year revenue growth in this
segment due to favorable second half results compared to 1993.
CONSUMER MULTIMEDIA
Consumer Multimedia group revenues and operating profit were as follows (in
thousands):
SECOND QUARTER FIRST HALF
-------------------- --------------------
1994 1993 1994 1993
- - ------------------------------------------------------------------------------------------------
Revenues............................................ $ 67,767 $ 62,913 $ 132,404 $ 126,560
--------- --------- --------- ---------
--------- --------- --------- ---------
Operating Loss...................................... $ (1,286) $ (2,312) $ (4,638) $ (7,646)
--------- --------- --------- ---------
--------- --------- --------- ---------
Consumer Multimedia group revenues rose 7.7 percent in the second quarter of
1994 and 4.6 percent in the first half of 1994 over prior year periods, as
consumer magazines showed improving advertising revenue. For the quarter,
advertising revenues for the segment rose 13.9 percent, lifting the first half
increase to 5.7 percent. Despite this growth and the modest operating profit
generated by the magazines, development expenses in consumer multimedia and
weakness in consumer book publishing contributed to the segment's operating
losses of $1.3 million for the quarter and $4.6 million for the first half of
1994.
LIQUIDITY AND CAPITAL RESOURCES
Total debt at June 26, 1994 of $862.7 million declined $269.1 million from
the year-end 1993 level, as proceeds from the sale of the broadcast television
stations were used to reduce commercial paper borrowings during the early part
of 1994. The Company's debt-to-capitalization ratio at June 26, 1994 declined to
31.2 percent from 37.3 percent as of year-end 1993.
13
The Company's cash requirements are funded primarily by its operating
activities. If additional funds are needed, the Company obtains external
financing, primarily through the issuance of commercial paper or fixed-rate
debt. The commercial paper program is supported by unsecured short-term
revolving bank lines of credit, with commitments at June 26, 1994 totaling $390
million. If the commercial paper program requires additional support, the
Company believes that additional lines of credit would be available to it. At
June 26, 1994, the Company had registered $250 million of debt securities for
future sales.
During the first half of 1994, the Company generated $155.1 million in net
cash from continuing operations, compared with $106.6 million for the same
period in 1993. This increase primarily resulted from decreased cash outlays for
restructuring activities and interest in 1994 compared to 1993.
Net cash provided by investing activities during the first half of 1994
totaled $123.9 million compared to a use of $130.6 million, due mainly to cash
receipts of $310.4 million relating primarily to the sale of the broadcast
television properties, offset by an $18.9 million increase in capital
expenditures over the prior year. Total year spending on capital projects is
expected to be moderately higher in 1994 than 1993.
Net cash used in financing activities increased by $264.1 million over the
comparable prior period. During the first half of 1994, commercial paper was
reduced by $269.1 million primarily from cash obtained from the sale of the
broadcast television properties. Dividends to shareholders of $69.4 million were
paid during the first half of both years.
As part of the agreement to merge its cable operations, the Company has
committed $200 million to a proposed joint venture with Cox Cable. The joint
venture is expected to develop and purchase investment interests in theme-based
cable television programming operations. The $200 million is expected to be
contributed to the venture as capital calls are made. In addition, the Company
expects to borrow $1.36 billion prior to the merger and the related debt will be
assumed by Cox Cable. Part of these funds are expected to be used to redeem
approximately $500 million of the Company's fixed-rate debt.
After the completion of the cable merger, the Company expects to have
approximately $400 million in outstanding preferred stock. In addition, the
Company expects to reduce its common stock dividends by 66 2/3 to 80 percent of
its current level, providing greater resources for investment in its ongoing
businesses.
14
THE TIMES MIRROR COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following litigation arose out of the transactions described in Note B
of the condensed consolidated financial statements (referred to herein as the
"Transactions.")
DELAWARE PROCEEDINGS
As of August 1, 1994, the following putative class actions had been filed in
the Court of Chancery, New Castle County, State of Delaware with respect to the
Transactions: Bert Vladimir, on behalf of himself and all persons similarly
situated v. John E. Bryson, et al., (Civil Action No. 13550); Erab Capital Ltd.
v. Robert F. Erburu, et al. (Civil Action No. 13552); Moise Katz v. The Times
Mirror Co., et al. (Civil Action No. 13554); Gary Goldberg v. Gwendolyn G.
Babcock, et al. (Civil Action No. 13555); Joseph E. Kassoway, et al. v. The
Times Mirror Company, et al. (Civil Action No. 13556); Frederick Rand and Miriam
Sarnoff v. The Times Mirror Company, et al. (Civil Action No. 13557); and
Kathleen Pessin v. The Times Mirror Co., et al. (Civil Action No. 13558). Five
of the Delaware actions have been consolidated by the Delaware Chancery Court
under the name In re The Times Mirror Company Shareholders Litigation. Two of
the actions (Kassoway and Rand) were voluntarily dismissed by the plaintiffs.
The five consolidated actions are collectively referred to herein as the
"Delaware Stockholders' Litigation."
The Delaware Stockholders' Litigation challenges the terms of the
Transactions and names as defendants, among others, Times Mirror, present and
certain former directors of Times Mirror, the Chandler Trusts, and certain
trustees of the Chandler Trusts. Cox Enterprises, Inc. ("CEI") is also named as
a defendant in Civil Action Nos. 13550 and 13555. The Delaware Stockholders'
Litigation alleges that the defendants breach their fiduciary duties to the
non-Chandler Trust Stockholders ("Other Stockholders") by entering into the
Transactions, that the defendants failed to properly evaluate the Transactions,
that the defendants favored the interests of the Chandler Trusts over the
interests of the Other Stockholders, that the merger consideration to be paid to
the Other Stockholders is inadequate and unfair, and that the defendants have
engaged in other allegedly improper conduct.
The Delaware Stockholders' Litigation seeks to have the Transactions
enjoined or, if the Transactions are consummated, to have them rescinded and to
recover unspecified damages, fees and expenses. In addition, the Delaware
Stockholders' Litigation seeks an accounting and one complaint seeks to have a
stockholders' committee consisting of putative class members and their
representatives appointed to participate in considering any future transaction
affecting Times Mirror or its stockholders.
The defendants named in the Delaware Stockholders' Litigation answered the
consolidated complaint, denying the material allegations asserted against them.
The plaintiffs moved for certification of a class, pursuant to Court of Chancery
rules 23(b)(1) and (2), consisting of all stockholders of Times Mirror (other
than the defendants and their affiliates) who owned shares of Times Mirror
Common Stock between June 3, 1994 and the date upon which the plaintiffs' claims
for injunctive relief are entered and become final. The Chancery Court granted
the motion on August 1, 1994. Discovery is underway in the Delaware
Stockholders' Litigation and, under a scheduling order entered by the Chancery
Court, must be completed by September 30, 1994. The Chancery Court has set a
trial on the merits for October 17, 1994.
CALIFORNIA PROCEEDINGS
On June 13, 1994, the following putative class and derivative action was
filed in the Superior Court of California, County of Los Angeles: Fred Vondy,
Miriam Sarnoff, and Joseph E. Kassoway and Robert Kassoway, Trustees Under Deed
of Trust for the Benefit of Joseph E. Kassoway, On Behalf of Themselves and All
Other Similarly Situated, and Derivatively on Behalf of The Times Mirror
Company, a Delaware corporation v. John E. Bryson, et al. (Case No. BC106783).
This action is referred to herein as the "California Stockholders' Litigation."
The California Stockholders' Litigation purports to be a stockholders'
derivative action on behalf of Times Mirror, which is named as a nominal
defendant only. It also purports to be a class action on behalf of
15
the same class as in the Delaware Stockholders' Litigation. The California
Stockholders' Litigation names as defendants, among others, present and certain
former directors of Times Mirror, certain officers of Times Mirror, the Chandler
Trusts, and certain trustees of the Chandler Trusts. CEI also is named as a
defendant. The California Stockholders' Litigation asserts essentially the same
allegations concerning the Transactions as the Delaware Stockholders'
Litigation. It purports to assert claims for breach of fiduciary duty, unjust
enrichment, constructive fraud, and abusive control.
The California Stockholders' Litigation seeks a declaration that the
Transactions are unfair, unjust, and inequitable to Times Mirror and its public
stockholders; to enjoin the Transactions; to enjoin the defendants from further
alleged abuses of control; a declaration setting aside the Transactions;
unspecified damages, including unspecified punitive damages; an accounting; and
unspecified fees and expenses.
On July 24, 1994, Times Mirror filed a motion to stay the California
Stockholders' Litigation in light of the prior pendency of the Delaware
Stockholders' Litigation. The other defendants have joined in the stay motion.
The stay motion presently is set for hearing on September 21, 1994. Apart from
the stay motion, the defendants in the California Stockholders' Litigation have
not yet responded to the complaint, but they deny the allegations asserted
against them.
FEDERAL PROCEEDINGS
On July 11, 1994, the following putative class action was filed in the
United States District Court for the Central District of California: Frederick
Rand, On Behalf of Himself and All Other Similarly Situated v. John E. Bryson,
et al. (Case Number CV 94 4632 WDK (Ex)). This action is referred to herein as
the "Federal Stockholders' Litigation."
The Federal Stockholders' Litigation alleges that the proxy statement
disseminated in connection with the annual meeting of Times Mirror's
stockholders held on May 3, 1994 was materially false and misleading in that it
failed to disclose the plan of Times Mirror's Board of Directors to enter into
the Transactions. The Federal Stockholders' Litigation asserts that the
Transactions were improper for the same reasons alleged in the California
Stockholders' Litigation and names as defendants Times Mirror, present and
certain former directors of Times Mirror, certain officers of Times Mirror, and
the Chandler Trusts.
The Federal Stockholders' Litigation seeks to set aside the election at the
annual meeting of directors of John E. Bryson, Bruce Chandler, Alfred E.
Osborne, Jr., William Stinehart Jr., and Edward Zapanta; seeks a declaration
that all actions taken by the Times Mirror Board of Directors to approve and
effectuate the Transactions are null and void; seeks to enjoin the Transactions
and to impose a constructive trust on any proceeds; and seeks unspecified
punitive damages, fees and expenses. Responses to the complaint are due on
September 16, 1994. The defendants deny the allegations asserted against them.
As noted above, the resolution of these lawsuits is not expected to have a
material adverse effect on the Company's financial position or results of
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11. Computation of earnings per share.
12. Computation of the ratio of earnings to fixed charges.
(B) REPORTS ON FORM 8-K
Form 8-K for Times Mirror Cable Television, Inc., a wholly owned subsidiary
of the Company, as of December 31, 1993 and updated through March 31, 1994 was
filed on June 5, 1994.
16
THE TIMES MIRROR COMPANY AND SUBSIDIARIES
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, who is also signing in his capacity as
Registrant's chief accounting officer.
THE TIMES MIRROR COMPANY
By: /s/ STUART K. COPPENS
--------------------------------------
Stuart K. Coppens
CONTROLLER AND CHIEF ACCOUNTING
OFFICER
Date: August 10, 1994
17