Delaware |
36-1880355 |
435 North Michigan Avenue,
Chicago, Illinois |
60611 |
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 / /
At October 25, 2002 there were 304,789,937 shares outstanding of the Company's Common Stock ($.01 par value per share), excluding 83,441,765 shares held by subsidiaries and affiliates of the Company.
ITEM 1. FINANCIAL STATEMENTS.
Third Quarter Ended |
|||||||
---|---|---|---|---|---|---|---|
Actual Sept. 29, 2002 |
Adjusted * Sept. 30, 2001 |
Actual Sept. 30, 2001 | |||||
Operating Revenues | $ 1,340,494 | $ 1,275,498 | $ 1,275,498 | ||||
Operating Expenses | |||||||
Cost of sales (exclusive of items shown below) | 649,709 | 698,242 | 698,242 | ||||
Selling, general and administrative | 313,079 | 317,626 | 317,626 | ||||
Depreciation | 52,904 | 49,861 | 49,861 | ||||
Amortization of intangible assets | 2,612 | 2,598 | 61,046 | ||||
Restructuring charges (Note 2) | | 130,656 | 130,656 | ||||
Total operating expenses | 1,018,304 | 1,198,983 | 1,257,431 | ||||
Operating Profit | 322,190 | 76,515 | 18,067 | ||||
Net loss on equity investments | (27,595 | ) | (9,815 | ) | (12,555 | ) | |
Interest income | 2,255 | 2,175 | 2,175 | ||||
Interest expense | (52,367 | ) | (62,988 | ) | (62,988 | ) | |
Gain (loss) on net change in fair values of derivatives | |||||||
and related investments | 21,667 | (91,250 | ) | (91,250 | ) | ||
Gain on sales of subsidiaries and investments | 103,314 | 1,533 | 1,533 | ||||
Loss on investment write-downs | (2,334 | ) | (54,730 | ) | (54,730 | ) | |
Other non-operating gain | 5,881 | | | ||||
Income (Loss) Before Income Taxes | 373,011 | (138,560 | ) | (199,748 | ) | ||
Income taxes | (136,206 | ) | 53,505 | 60,821 | |||
Net Income (Loss) | 236,805 | (85,055 | ) | (138,927 | ) | ||
Preferred dividends, net of tax | (6,578 | ) | (6,701 | ) | (6,701 | ) | |
Net Income (Loss) Attributable to Common Shares | $ 230,227 | $ (91,756 | ) | $ (145,628 | ) | ||
Earnings (Loss) Per Share (Note 4): | |||||||
Basic | $ .76 | $ (.31 | ) | $ (.49 | ) | ||
Diluted | $ .71 | $ (.31 | ) | $ (.49 | ) | ||
Dividends per common share | $ .11 | $ .11 | $ .11 | ||||
* Adjusted results assume the provisions of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" were effective Jan. 1, 2001, instead of Dec. 31, 2001. See Note 1 for further discussion.
See Notes to Condensed Consolidated Financial Statements.
Three Quarters Ended |
|||||||
---|---|---|---|---|---|---|---|
Actual Sept. 29, 2002 |
Adjusted * Sept. 30, 2001 |
Actual Sept. 30, 2001 | |||||
Operating Revenues | $ 3,954,685 | $ 3,935,509 | $ 3,935,509 | ||||
Operating Expenses | |||||||
Cost of sales (exclusive of items shown below) | 1,924,323 | 2,032,513 | 2,032,513 | ||||
Selling, general and administrative | 947,788 | 980,813 | 980,813 | ||||
Depreciation | 157,804 | 151,665 | 151,665 | ||||
Amortization of intangible assets | 7,804 | 6,971 | 180,390 | ||||
Restructuring charges (Note 2) | 27,253 | 145,000 | 145,000 | ||||
Total operating expenses | 3,064,972 | 3,316,962 | 3,490,381 | ||||
Operating Profit | 889,713 | 618,547 | 445,128 | ||||
Net loss on equity investments | (51,903 | ) | (40,182 | ) | (48,417 | ) | |
Interest income | 6,444 | 6,176 | 6,176 | ||||
Interest expense | (161,258 | ) | (193,128 | ) | (193,128 | ) | |
Loss on net change in fair values of derivatives | |||||||
and related investments | (122,801 | ) | (49,487 | ) | (49,487 | ) | |
Gain on sales of subsidiaries and investments | 109,547 | 1,975 | 1,975 | ||||
Loss on investment write-downs | (9,869 | ) | (89,318 | ) | (89,318 | ) | |
Other non-operating gain | 5,881 | | | ||||
Income Before Income Taxes and Cumulative | |||||||
Effect of Change in Accounting Principle | 665,754 | 254,583 | 72,929 | ||||
Income taxes | (250,722 | ) | (101,458 | ) | (68,573 | ) | |
Income Before Cumulative Effect of Change in | |||||||
Accounting Principle | 415,032 | 153,125 | 4,356 | ||||
Cumulative effect of change in accounting principle, | |||||||
net of tax (Note 3) | (165,587 | ) | | | |||
Net Income | 249,445 | 153,125 | 4,356 | ||||
Preferred dividends, net of tax | (19,699 | ) | (20,100 | ) | (20,100 | ) | |
Net Income (Loss) Attributable to Common Shares | $ 229,746 | $ 133,025 | $ (15,744 | ) | |||
Earnings (Loss) Per Share (Note 4): | |||||||
Basic: | |||||||
Before cumulative effect of change in accounting principle | $ 1.31 | $ .45 | $ (.05 | ) | |||
Cumulative effect of accounting change, net | (.55 | ) | | | |||
Net income (loss) | $ .76 | $ .45 | $ (.05 | ) | |||
Diluted: | |||||||
Before cumulative effect of change in accounting principle | $ 1.23 | $ .43 | $ (.05 | ) | |||
Cumulative effect of accounting change, net | (.50 | ) | | | |||
Net income (loss) | $ .73 | $ .43 | $ (.05 | ) | |||
Dividends per common share | $ .33 | $ .33 | $ .33 | ||||
* Adjusted results assume the provisions of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" were effective Jan. 1, 2001, instead of Dec. 31, 2001. See Note 1 for further discussion.
See Notes to Condensed Consolidated Financial Statements.
Sept. 29, 2002 |
Dec. 30, 2001 | ||||
---|---|---|---|---|---|
Assets | |||||
Current Assets | |||||
Cash and cash equivalents | $ 52,979 | $ 65,836 | |||
Accounts receivable, net | 729,562 | 726,078 | |||
Inventories | 48,478 | 49,442 | |||
Broadcast rights | 340,945 | 303,845 | |||
Deferred income taxes | 162,181 | 179,841 | |||
Prepaid expenses and other | 58,744 | 38,949 | |||
Total current assets | 1,392,889 | 1,363,991 | |||
Property, plant and equipment | 3,335,695 | 3,238,366 | |||
Accumulated depreciation | (1,544,673 | ) | (1,400,042 | ) | |
Net properties | 1,791,022 | 1,838,324 | |||
Broadcast rights | 467,822 | 388,244 | |||
Intangible assets, net | 8,414,285 | 8,531,436 | |||
AOL Time Warner stock related to PHONES debt | 193,920 | 529,600 | |||
Other investments | 739,913 | 879,914 | |||
Prepaid pension costs | 851,038 | 811,232 | |||
Other assets | 153,356 | 145,318 | |||
Total assets | $ 14,004,245 | $ 14,488,059 | |||
See Notes to Condensed Consolidated Financial Statements.
Sept. 29, 2002 |
Dec. 30, 2001 | ||||
---|---|---|---|---|---|
Liabilities and Shareholders' Equity | |||||
Current liabilities | |||||
Debt due within one year | $ 44,660 | $ 410,890 | |||
Contracts payable for broadcast rights | 318,179 | 298,165 | |||
Deferred income | 70,937 | 84,167 | |||
Income taxes | 36,338 | 8,147 | |||
Accounts payable, accrued expenses and other current liabilities | 657,988 | 715,186 | |||
Total current liabilities | 1,128,102 | 1,516,555 | |||
PHONES debt related to AOL Time Warner stock | 473,600 | 684,000 | |||
Other long-term debt | 2,904,657 | 3,000,692 | |||
Deferred income taxes | 2,048,101 | 2,143,205 | |||
Contracts payable for broadcast rights | 616,047 | 522,854 | |||
Compensation and other obligations | 978,299 | 969,585 | |||
Total liabilities | 8,148,806 | 8,836,891 | |||
Shareholders' equity | |||||
Series B convertible preferred stock | 232,554 | 250,146 | |||
Series C convertible preferred stock, net of treasury stock | 44,260 | 44,260 | |||
Series D-1 convertible preferred stock, net of treasury stock | 38,097 | 38,097 | |||
Series D-2 convertible preferred stock, net of treasury stock | 24,510 | 24,510 | |||
Common stock and additional paid-in-capital | 8,260,114 | 8,183,407 | |||
Retained earnings | 4,367,163 | 4,231,467 | |||
Treasury common stock (at cost) | (7,074,017 | ) | (7,118,509 | ) | |
Treasury common stock held by Tribune Stock Compensation | |||||
Fund (at cost) | | (8,313 | ) | ||
Unearned compensation related to ESOP | (66,255 | ) | (66,255 | ) | |
Accumulated other comprehensive income | 29,013 | 72,358 | |||
Total shareholders' equity | 5,855,439 | 5,651,168 | |||
Total liabilities and shareholders' equity | $ 14,004,245 | $ 14,488,059 | |||
See Notes to Condensed Consolidated Financial Statements.
Sept. 29, 2002 |
Sept. 30, 2001 | ||||
---|---|---|---|---|---|
Operations | |||||
Net income | $ 249,445 | $ 4,356 | |||
Adjustments to reconcile net income to net cash provided by operations: | |||||
Loss on change in fair values of derivatives | |||||
and related investments | 122,801 | 49,487 | |||
Gain on sales of subsidiaries and investments | (109,547 | ) | (1,975 | ) | |
Loss on investment write-downs | 9,869 | 89,318 | |||
Other non-operating gain | (5,881 | ) | | ||
Cumulative effect of accounting change, net | 165,587 | | |||
Depreciation | 157,804 | 151,665 | |||
Amortization of intangible assets | 7,804 | 180,390 | |||
Deferred income taxes | 55,405 | (13,461 | ) | ||
Other, net | 19,921 | 57,418 | |||
Net cash provided by operations | 673,208 | 517,198 | |||
Investments | |||||
Capital expenditures | (115,675 | ) | (173,489 | ) | |
Acquisitions and investments | (58,640 | ) | (213,060 | ) | |
Proceeds from sales of investments | 13,597 | 19,267 | |||
Proceeds from sale of discontinued operations | | 22,163 | |||
Other, net | (14,929 | ) | (15,868 | ) | |
Net cash used for investments | (175,647 | ) | (360,987 | ) | |
Financing | |||||
Proceeds from issuance of long-term debt | | 180,639 | |||
Repayments of long-term debt | (477,985 | ) | (45,550 | ) | |
Sales of common stock to employees | 110,679 | 74,292 | |||
Purchases of treasury common stock related to ESOP | (28,615 | ) | (32,141 | ) | |
Purchases of treasury common stock by Tribune Stock | |||||
Compensation Fund | | (50,729 | ) | ||
Other purchases of treasury common stock | (748 | ) | (174,273 | ) | |
Dividends | (113,749 | ) | (113,402 | ) | |
Net cash used for financing | (510,418 | ) | (161,164 | ) | |
Net decrease in cash and cash equivalents | (12,857 | ) | (4,953 | ) | |
Cash and cash equivalents, beginning of year | 65,836 | 115,788 | |||
Cash and cash equivalents, end of quarter | $ 52,979 | $ 110,835 | |||
See Notes to Condensed Consolidated Financial Statements.
NOTE 1: BASIS OF PREPARATION
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for a fair statement of the financial position of Tribune Company and its subsidiaries (the Company or Tribune) as of Sept. 29, 2002 and the results of their operations for the quarters and first three quarters ended Sept. 29, 2002 and Sept. 30, 2001 and cash flows for the first three quarters ended Sept. 29, 2002 and Sept. 30, 2001. All adjustments reflected in the accompanying unaudited condensed consolidated financial statements are of a normal recurring nature. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Certain prior year amounts have been reclassified to conform with the 2002 presentation. These reclassifications had no impact on reported 2001 total revenues, operating profit or net income.
The results of operations for the quarter and first three quarters ended Sept. 30, 2001 have also been presented on an adjusted basis. Adjusted results assume the provisions of Financial Accounting Standard (FAS) No. 142, Goodwill and Other Intangible Assets were effective Jan. 1, 2001, instead of Dec. 31, 2001. FAS 142 eliminated the amortization of goodwill and certain other intangible assets. As a result, third quarter 2001 amortization was reduced from $61.0 million to an adjusted $2.6 million and the first three quarters of 2001 amortization was reduced from $180.4 million to an adjusted $7.0 million. In addition, equity losses decreased from $12.6 million to an adjusted $9.8 million in the third quarter of 2001 and decreased from $48.4 million to an adjusted $40.2 million in the first three quarters of 2001 due to the adoption of this new standard by the Companys equity method investees. Also, due to the reduced amortization expense and equity losses, the third quarter 2001 income tax benefit decreased from $60.8 million to an adjusted $53.5 million and income tax expense for the first three quarters of 2001 increased from $68.6 million to an adjusted $101.5 million. Third quarter 2001 diluted earnings per share (EPS) improved from a $.49 loss to an adjusted $.31 loss. Diluted EPS in the first three quarters of 2001 improved from a $.05 loss to an adjusted $.43 of income.
Reported third quarter 2001 amounts are reconciled to adjusted 2001 amounts as follows (in thousands, except per share amounts):
Third Quarter Ended Sept. 30, 2001 | |||||||
---|---|---|---|---|---|---|---|
Amount |
Basic EPS |
Diluted EPS | |||||
Reported net loss | $(138,927 | ) | $ (.49 | ) | $ (.49 | ) | |
Adjust: Amortization of intangible assets, net of tax | 52,212 | .17 | .17 | ||||
Adjust: Net loss on equity investments, net of tax | 1,660 | .01 | .01 | ||||
Adjusted net loss | $ (85,055 | ) | $ (.31 | ) | $ (.31 | ) | |
Reported first three quarters 2001 amounts are reconciled to adjusted 2001 amounts as follows (in thousands, except per share amounts):
Three Quarters Ended Sept. 30, 2001 | |||||||
---|---|---|---|---|---|---|---|
Amount |
Basic EPS |
Diluted EPS | |||||
Reported net income (loss) | $ 4,356 | $ (.05 | ) | $ (.05 | ) | ||
Adjust: Amortization of intangible assets, net of tax | 143,779 | .48 | .46 | ||||
Adjust: Net loss on equity investments, net of tax | 4,990 | .02 | .02 | ||||
Adjusted net income | $153,125 | $ .45 | $ .43 | ||||
The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Companys Annual Report on Form 10-K for the fiscal year ended Dec. 30, 2001.
NOTE 2: RESTRUCTURING CHARGES
In the first quarter of 2002, the Company recorded pretax restructuring charges of $27.3 million ($16.7 million after-tax, or $.05 per diluted share) for various cost reduction initiatives. Approximately 300 full-time equivalent employees have been eliminated as a result of these initiatives. Pretax restructuring charges of $24.8 million were recorded at the publishing segment, $1.1 million at the broadcasting and entertainment segment, $0.2 million at the interactive segment and $1.2 million at corporate during 2002. These restructuring charges, consisting primarily of compensation expense, are presented as a separate line item in the unaudited condensed consolidated statements of operations. As a result of these cost reduction initiatives, the Company expects annual pretax savings, principally in compensation expense, of approximately $20 million. The Company began to realize the savings in the second quarter of 2002.
A summary of the significant components of the pretax restructuring charges for the first three quarters ended Sept. 29, 2002, is as follows (in millions):
Publishing |
Broadcasting |
Interactive |
Corporate |
Total |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Severance costs | $ 20.2 | $ 0.8 | $ 0.2 | $ 0.4 | $ 21.6 | ||||||
Asset disposals | 3.0 | 0.3 | | 0.2 | 3.5 | ||||||
Lease termination costs | 1.6 | | | 0.6 | 2.2 | ||||||
Total | $ 24.8 | $ 1.1 | $ 0.2 | $ 1.2 | $ 27.3 | ||||||
During the 2001 second quarter, the Company announced a voluntary retirement program, which was offered to approximately 1,400 employees who met certain eligibility requirements. In addition, various other workforce reduction initiatives were implemented throughout the Company beginning in the second quarter. In the third quarter and the first three quarters of 2001, the Company recorded pretax restructuring charges of $130.7 million ($79.7 million after-tax, or an adjusted $.25 per diluted share) and $145.0 million ($88.4 million after-tax, or an adjusted $.27 per diluted share), respectively, for these initiatives. For the third quarter, pretax restructuring charges of $122.5 million were recorded at the publishing segment, $4.2 million at the broadcasting and entertainment segment, $2.6 million at the interactive segment and $1.4 million at corporate. For the first three quarters, pretax restructuring charges of $135.9 million were recorded at the publishing segment, $4.4 million at the broadcasting and entertainment segment, $2.9 million at the interactive segment and $1.8 million at corporate. These charges are presented as a separate line item in the unaudited condensed consolidated statements of operations.
A summary of the significant components of the pretax restructuring charges for the first three quarters ended Sept. 30, 2001, is as follows (in millions):
Publishing |
Broadcasting |
Interactive |
Corporate |
Total |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Severance costs | $ 26.0 | $ 1.1 | $ 1.5 | $ 0.2 | $ 28.8 | ||||||
Early retirement pension costs | 77.2 | 1.5 | 0.6 | | 79.3 | ||||||
Retiree medical benefit costs | 12.1 | 0.1 | | | 12.2 | ||||||
Asset disposals | 3.6 | 0.6 | 0.5 | 0.4 | 5.1 | ||||||
Lease termination costs | 7.3 | | | | 7.3 | ||||||
Other costs | 9.7 | 1.1 | 0.3 | 1.2 | 12.3 | ||||||
Total | $135.9 | $ 4.4 | $ 2.9 | $ 1.8 | $145.0 | ||||||
Accruals for the restructuring charges are included in accounts payable, accrued expenses and other current liabilities on the unaudited condensed consolidated balance sheets and amounted to $18.7 million at Sept. 29, 2002. The accruals primarily consist of costs related to severance and lease termination costs.
A summary of the activity with respect to the 2001 and 2002 restructuring accruals is as follows (in millions):
Restructuring accrual at Dec. 30, 2001 | $ 21 | .0 | ||
Restructuring charges (1) | 23 | .8 | ||
Payments (2) | (26 | .1) | ||
Restructuring accrual at Sept. 29, 2002 | $ 18 | .7 | ||
(1) Represents severance and lease termination costs included in the restructuring accrual.
(2) Third quarter 2002 payments totaled $3.1 million.
NOTE 3: NEW ACCOUNTING STANDARDS
On Dec. 31, 2001, the first day of the Companys 2002 fiscal year, the Company adopted FAS 142 which requires that goodwill and certain intangible assets no longer be amortized to earnings, but be reviewed periodically for impairment. For acquisitions completed prior to June 30, 2001, the amortization of goodwill and certain intangible assets has ceased beginning in fiscal year 2002. The adoption of this standard has substantially reduced the amount of amortization expense related to intangible assets, including goodwill. On an annual basis, the Company expects that amortization expense will be reduced from $241 million in 2001 to approximately $10 million in 2002, excluding the effects of any acquisitions or dispositions subsequent to Sept. 29, 2002. In addition, equity losses are expected to decrease by approximately $11 million from the 2001 level due to the adoption of this new standard by the Companys equity method investees.
The provisions of FAS 142 that pertain to impairment of intangible assets have superceded the impairment related provisions included in FAS 121, beginning in fiscal year 2002. Under FAS 142, the impairment review of goodwill and other intangible assets that are not being amortized must be based generally on fair values, instead of projected future undiscounted cash flows. The estimated fair values of these assets were calculated as of Dec. 31, 2001 based on projected future discounted cash flow analyses. As a result of initially applying the new impairment provisions of FAS 142, the Company recorded a pretax charge of $271 million ($166 million after taxes, or $.50 per diluted share) in the first quarter of 2002. The charge related to certain of the Companys newspaper mastheads ($226 million), a Federal Communications Commission (FCC) license ($43 million) and a television network affiliation agreement ($2 million), and is presented as the cumulative effect of a change in accounting principle in the Company's unaudited condensed consolidated statements of operations. The impairments were primarily the result of decreases in operating revenues as compared to forecasts prepared at the dates the respective companies were acquired.
Goodwill and other intangible assets at Sept. 29, 2002 consisted of the following (in thousands):
Gross Amount |
Accumulated Amortization |
Net Amount | |||||
---|---|---|---|---|---|---|---|
Intangible assets continuing to be amortized | |||||||
Subscribers (useful life of 15 to 20 years) | $ 195,644 | $ (25,576 | ) | $ 170,068 | |||
Other | 5,324 | (1,552 | ) | 3,772 | |||
Total | $ 200,968 | $ (27,128 | ) | 173,840 | |||
Goodwill and other intangibles no longer being amortized | |||
Goodwill | |||
Publishing | 3,918,193 | ||
Broadcasting and Entertainment | 1,355,512 | ||
Interactive | 92,964 | ||
Newspaper mastheads | 1,576,507 | ||
FCC licenses | 1,051,303 | ||
Network affiliation agreements | 218,921 | ||
Other | 27,045 | ||
Total | 8,240,445 | ||
Total goodwill and other intangible assets | $ 8,414,285 | ||
Estimated annual aggregate amortization expense will be approximately $10 million for 2002 and for each of the next five years, excluding the effects of any acquisitions or dispositions subsequent to Sept. 29, 2002.
In June 2002, the Financial Accounting Standards Board issued FAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement requires that a liability for costs associated with an exit or disposal activity, such as shutting down a location or facility, be recognized when the costs are incurred rather than at the date of a commitment to the exit or disposal plan. This statement will be applied prospectively to exit or disposal activities that are initiated after Dec. 31, 2002.
NOTE 4: EARNINGS PER SHARE
The computations of basic and diluted earnings per share (EPS) were as follows (in thousands, except per share data):
Third Quarter Ended | |||||||
---|---|---|---|---|---|---|---|
Actual Sept. 29, 2002 |
Adjusted Sept. 30, 2001 |
Actual Sept. 30, 2001 | |||||
Basic EPS: | |||||||
Net income (loss) | $ 236,805 | $ (85,055 | ) | $ (138,927 | ) | ||
Preferred dividends, net of tax | (6,578 | ) | (6,701 | ) | (6,701 | ) | |
Net income (loss) attributable to common shares | $ 230,227 | $ (91,756 | ) | $ (145,628 | ) | ||
Weighted average common shares outstanding | 302,343 | 297,527 | 297,527 | ||||
Basic EPS | $ .76 | $ (.31 | ) | $ (.49 | ) | ||
Diluted EPS: | |||||||
Net income (loss) | $ 236,805 | $ (85,055 | ) | $ (138,927 | ) | ||
Additional ESOP contribution required assuming Series B | |||||||
preferred shares were converted, net of tax | (2,165 | ) | | | |||
Dividends on Series B preferred stock | | (4,687 | ) | (4,687 | ) | ||
Dividends on Series C, D-1 and D-2 preferred stock | (2,112 | ) | (2,014 | ) | (2,014 | ) | |
LYONs interest expense, net of tax | 1,541 | | | ||||
Adjusted net income (loss) | $ 234,069 | $ (91,756 | ) | $ (145,628 | ) | ||
Weighted average common shares outstanding | 302,343 | 297,527 | 297,527 | ||||
Assumed conversion of Series B preferred shares into | |||||||
common shares | 16,945 | | | ||||
Assumed exercise of stock options, net of common shares | |||||||
assumed repurchased with the proceeds | 5,136 | | | ||||
Assumed conversion of LYONs debt securities | 7,014 | | | ||||
Adjusted weighted average common shares outstanding | 331,438 | 297,527 | 297,527 | ||||
Diluted EPS | $ .71 | $ (.31 | ) | $ (.49 | ) | ||
Three Quarters Ended |
|||||||
---|---|---|---|---|---|---|---|
Actual Sept. 29, 2002 |
Adjusted Sept. 30, 2001 |
Actual Sept. 30, 2001 | |||||
Basic EPS: | |||||||
Net income | $ 249,445 | $ 153,125 | $ 4,356 | ||||
Preferred dividends, net of tax | (19,699 | ) | (20,100 | ) | (20,100 | ) | |
Net income (loss) attributable to common shares | $ 229,746 | $ 133,025 | $ (15,744 | ) | |||
Weighted average common shares outstanding | 300,915 | 298,472 | 298,472 | ||||
Basic EPS | $ .76 | $ .45 | $ (.05 | ) | |||
Diluted EPS: | |||||||
Net income | $ 249,445 | $ 153,125 | $ 4,356 | ||||
Additional ESOP contribution required assuming Series B | |||||||
preferred shares were converted, net of tax | (7,123 | ) | (7,803 | ) | | ||
Dividends on Series B preferred stock | | | (14,058 | ) | |||
Dividends on Series C, D-1 and D-2 preferred stock | (6,142 | ) | (6,042 | ) | (6,042 | ) | |
LYONs interest expense, net of tax | 4,666 | | | ||||
Adjusted net income (loss) | $ 240,846 | $ 139,280 | $ (15,744 | ) | |||
Weighted average common shares outstanding | 300,915 | 298,472 | 298,472 | ||||
Assumed conversion of Series B preferred shares into | |||||||
common shares | 16,945 | 18,267 | | ||||
Assumed exercise of stock options, net of common shares | |||||||
assumed repurchased with the proceeds | 6,083 | 6,224 | | ||||
Assumed conversion of LYONs debt securities | 7,122 | | | ||||
Adjusted weighted average common shares outstanding | 331,065 | 322,963 | 298,472 | ||||
Diluted EPS | $ .73 | $ .43 | $ (.05 | ) | |||
Basic EPS was computed by dividing net income attributable to common shares by the weighted average number of common shares outstanding during the period. For the third quarter and first three quarters of 2002, diluted EPS was computed based on the assumption that the Series B convertible preferred shares and LYONs debt securities were converted into common shares. In addition, for these time periods, weighted average common shares outstanding were adjusted for the dilutive effect of stock options. For the actual and adjusted third quarter and first three quarters of 2001, the Companys stock options and convertible securities were included in the calculation of diluted EPS only when their effects were dilutive. The Companys Series C, D-1 and D-2 convertible preferred stocks were not included in the calculation of diluted EPS for any of the periods presented because their effects were anti-dilutive.
NOTE 5: CHANGES IN OPERATIONS AND NON-OPERATING ITEMS
Acquisitions On Dec. 26, 2001, Tribune signed a contract with Entercom Communications Corp. (Entercom) to manage Tribunes three Denver radio stations, KOSI-FM, KKHK-FM and KEZW-AM. On Feb. 1, 2002, under the agreement, Entercom began managing the stations for up to three years, after which, pursuant to an option agreement, Entercom would have the right to purchase the stations for $180 million. During the term of the contract, the Company has the right to identify television assets for acquisition through one or more exchange transactions with Entercom. The results of the three Denver stations are included in the unaudited condensed consolidated financial statements through Jan. 31, 2002. In February 2002, the Company began receiving from Entercom a monthly time brokerage fee, which is recorded in revenue.
On July 24, 2002, the Company transferred certain assets of the Denver radio station group (KOSI-FM and KEZW-AM) with a value of $125 million to Entercom in exchange for the assets of WTTV-TV, Indianapolis, and its satellite station, WTTK-TV in Kokomo, Indiana, which Entercom acquired from Sinclair Broadcast Group for $125 million. The transactions were structured as a like-kind asset exchange for income tax purposes. The divestiture of the Denver radio station group assets was accounted for as a sale, and the acquisition of WTTV-TV and WTTK-TV was recorded as a purchase. In the third quarter of 2002, the Company recorded a gain of $108 million ($66 million after-tax, or $.20 per diluted share) on the sale of the Denver radio station group assets. Tribune will continue to evaluate suitable television assets to acquire in exchange for the remaining assets of the Denver radio station group, which have an estimated fair value of $55 million. The monthly time brokerage fee that the Company receives from Entercom has been reduced to reflect the sale of KOSI-FM and KEZW-AM.
On August 1, 2002, the Company acquired Chicago magazine from Primedia, Inc. for $35 million in cash. Chicago magazine, a monthly publication, serves as a reference guide for entertainment, dining, shopping and real estate for the Chicagoland area.
The results of operations of Chicago magazine, WTTV-TV and WTTK-TV are included in the unaudited condensed consolidated statements of operations since their respective dates of acquisition.
Non-Operating Items The third quarter and first three quarters of 2002 included several non-operating items, summarized as follows (in thousands, except per share amounts):
Third Quarter Ended Sept. 29, 2002 |
Three Quarters Ended Sept. 29, 2002 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pretax Gain (Loss) |
After-tax Gain (Loss) |
Diluted EPS |
Pretax Gain (Loss) |
After-tax Gain (Loss) |
Diluted EPS |
|||||||||
Gain (loss) on net change in fair values | ||||||||||||||
of derivatives and related investments | $ 21,667 | $ 13,260 | $.04 | $(122,801 | ) | $(75,154 | ) | $(.23 | ) | |||||
Gain on sales of subsidiaries and | ||||||||||||||
investments | 103,314 | 63,228 | .19 | 109,547 | 67,043 | .21 | ||||||||
Loss on investments write-downs | (2,334 | ) | (1,428 | ) | | (9,869 | ) | (6,040 | ) | (.02 | ) | |||
Other non-operating gain | 5,881 | 3,599 | .01 | 5,881 | 3,599 | .01 | ||||||||
State income tax reserve adjustment | | 3,003 | .01 | | 3,003 | .01 | ||||||||
Total non-operating items | $128,528 | $ 81,662 | $.25 | $ (17,242 | ) | $ (7,549 | ) | $(.02 | ) | |||||
In the third quarter of 2002, changes in the fair values of the Companys derivatives, net of changes in the fair values of the related investments, resulted in a non-cash pretax gain of $22 million, which increased diluted EPS by $.04. This gain resulted primarily from a $65 million decrease in the fair value of the derivative component of the PHONES, which was partially offset by a $41 million decrease in the fair value of 16.0 million shares of AOL Time Warner common stock. In the first three quarters of 2002, changes in the fair values of the Companys derivatives, net of changes in the fair values of the related investments, resulted in a non-cash pretax loss of $123 million, which decreased diluted EPS by $.23. This loss resulted primarily from a $335 million decrease in the fair value of 16.0 million shares of AOL Time Warner common stock, which was partially offset by a $217 million decrease in the fair value of the derivative component of the PHONES.
In July 2002, the Company exchanged two of its Denver radio stations, KOSI-FM and KEZW-AM, for the assets of two television stations, WTTV, Indianapolis, and its satellite station WTTK, Kokomo, Indiana. The divestiture of the Denver radio station assets resulted in a pretax gain of $108 million ($.20 per diluted share).
In the third quarter of 2002, the Company reduced its state income tax liability by a total of $9 million, net of federal taxes, as a result of favorably resolving certain state income tax issues. This adjustment was recorded as a reduction of income tax expense. The portion applicable to non-operating items was $3 million.
The third quarter and first three quarters of 2001 also included several non-operating items, summarized as follows (in thousands, except per share amounts):
Third Quarter Ended Sept. 30, 2001 |
Three Quarters Ended Sept. 30, 2001 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pretax Gain (Loss) |
After-tax Gain (Loss) |
Diluted EPS |
Pretax Gain (Loss) |
After-tax Gain (Loss) |
Diluted EPS |
|||||||||
Loss on net change in fair values | ||||||||||||||
of derivatives and related investments | $ (91,250 | ) | $(55,654 | ) | $(.19 | ) | $ (49,487 | ) | $(30,182 | ) | $(.10 | ) | ||
Gain on sales of investments | 1,533 | 935 | .01 | 1,975 | 1,204 | .01 | ||||||||
Loss on investments write-downs | (54,730 | ) | (33,379 | ) | (.12 | ) | (89,318 | ) | (54,475 | ) | (.17 | ) | ||
Total non-operating items | $(144,447 | ) | $(88,098 | ) | $(.30 | ) | $(136,830 | ) | $(83,453 | ) | $(.26 | ) | ||
In the third quarter of 2001, changes in the fair values of the Companys derivatives, net of changes in the fair values of the related investments, resulted in a non-cash pretax loss of $91 million, which decreased diluted EPS by $.19. This loss resulted primarily from a $318 million decrease in the fair value of 16.0 million shares of AOL Time Warner common stock, which was partially offset by a $231 million decrease in the fair value of the derivative component of the PHONES. In the first three quarters of 2001, changes in the fair values of the Companys derivatives, net of changes in the fair values of the related investments, resulted in a non-cash pretax loss of $49 million, which decreased diluted EPS by $.10. This loss resulted primarily from a $27 million decrease in the fair value of 16.0 million shares of AOL Time Warner common stock and a $16 million increase in the fair value of the derivative component of the PHONES.
In the third quarter of 2001, the Company determined that the decline in fair value of certain investments was other than temporary and recorded a non-cash pretax loss of $55 million, which decreased diluted EPS by $.12, to write down the investments to fair value. The loss includes the write-down of an investment accounted for under the equity method. For the first three quarters of 2001, the Company recorded total non-cash pretax losses of $89 million, which decreased diluted EPS by $.17, for investment write-downs.
In the aggregate, non-operating items increased diluted EPS by $.25 in the third quarter of 2002 and decreased diluted EPS by $.02 for the first three quarters of 2002. Non-operating items decreased diluted EPS by $.30 for the 2001 third quarter and by $.26 for the first three quarters of 2001. Excluding non-operating items, restructuring charges and the cumulative effect of a change in accounting principle, diluted EPS was $.46 in the 2002 third quarter and $1.30 for the first three quarters of 2002, as compared to an adjusted $.24 and $.96 in the same periods of 2001, respectively.
NOTE 6: INVENTORIES
Inventories consisted of the following (in thousands):
Sept. 29, 2002 |
Dec. 30, 2001 |
||||
---|---|---|---|---|---|
Newsprint (at LIFO) | $36,985 | $37,607 | |||
Supplies and other | 11,493 | 11,835 | |||
Total inventories | $48,478 | $49,442 | |||
Newsprint inventories are valued under the LIFO method and were less than current cost by approximately $3.3 million at Sept. 29, 2002 and $6.0 million at Dec. 30, 2001.
NOTE 7: DEBT
Debt consisted of the following (in thousands):
Sept. 29, 2002 |
Dec. 30, 2001 | ||||
---|---|---|---|---|---|
Commercial paper, weighted average interest rate of 1.9% and 2.0% | $ 484,317 | $ 905,684 | |||
Medium-term notes, weighted average interest rate of 6.2%, | |||||
due 2002-2008 | 1,002,115 | 1,032,115 | |||
8.4% guaranteed ESOP notes, due 2002-2003 | 66,255 | 66,255 | |||
Capitalized real estate obligation, effective interest rate of | |||||
7.7%, expiring 2009 | 102,473 | 110,786 | |||
7.45% notes due 2009 | 394,911 | 394,370 | |||
7.25% debentures due 2013 | 141,755 | 141,301 | |||
LYONs due 2017 | 288,766 | 291,644 | |||
7.5% debentures due 2023 | 93,786 | 93,611 | |||
6.61% debentures due 2027 | 242,220 | 241,991 | |||
7.25% debentures due 2096 | 129,086 | 128,945 | |||
Other notes and obligations | 3,633 | 4,880 | |||
Total debt excluding PHONES | 2,949,317 | 3,411,582 | |||
Less amounts classified as due within one year | (44,660 | ) | (410,890 | ) | |
Long-term debt excluding PHONES | 2,904,657 | 3,000,692 | |||
2% PHONES debt related to AOL Time Warner stock, due 2029 | 473,600 | 684,000 | |||
Total long-term debt | $ 3,378,257 | $ 3,684,692 | |||
The discounted debt and derivative components of the PHONES were as follows (in thousands):
Sept. 29, 2002 |
Dec. 30, 2001 | ||||
---|---|---|---|---|---|
PHONES Debt | |||||
Discounted debt component (at book value) | $420,400 | $413,900 | |||
Derivative component (at fair value) | 53,200 | 270,100 | |||
Total | $473,600 | $684,000 | |||
AOL Time Warner stock related to PHONES (at fair value) | $193,920 | $529,600 | |||
The derivative component of the PHONES debt is calculated as the difference between the quoted market value of the PHONES and the estimated fair value of the discounted debt component of the PHONES. The fair value of the discounted debt component of the PHONES is calculated based on an estimate of the current interest rate available to the Company for debt of the same remaining maturity and similar terms to the PHONES. The book value of the discounted debt component is based on the prevailing interest rate (8.125%) at issuance of the PHONES. The
market value of the PHONES, which are traded on the New York Stock Exchange, was $534 million at Sept. 29, 2002.
Debt due within one year as of Sept. 29, 2002 was as follows (in thousands):
Commercial paper | $ 484,317 | ||
Medium-term notes | 83,050 | ||
ESOP notes | 32,483 | ||
Capitalized real estate obligation | 11,855 | ||
Other notes and obligations | 322 | ||
Subtotal | 612,027 | ||
Less: amounts classified as long-term | (567,367 | ) | |
Amounts classified as due within one year | $ 44,660 | ||
Through existing revolving credit agreements, the Company has both the ability and the intent to refinance $484 million of its commercial paper and $83 million of its medium-term notes on a long-term basis. Accordingly, these notes were classified as long-term as of Sept. 29, 2002. At Sept. 29, 2002, the Company had revolving credit agreements with a number of financial institutions providing for borrowings in an aggregate amount of up to $1.25 billion, of which $550 million expires in March 2003, $100 million expires in April 2003 and $600 million expires in December 2005. No amounts were borrowed under these credit agreements at Sept. 29, 2002.
NOTE 8: COMPREHENSIVE INCOME
Other comprehensive income for the quarters and first three quarters ended Sept. 29, 2002 and Sept. 30, 2001 included unrealized gains and losses on interest rate and newsprint swaps and unrealized gains and losses on marketable securities classified as available-for-sale. Approximately 3.8 million and 6.3 million AOL Time Warner shares were classified as available-for-sale during the quarters ended Sept. 29, 2002 and Sept. 30, 2001, respectively.
The Companys comprehensive income was as follows (in thousands):
Third Quarter Ended | |||||||
---|---|---|---|---|---|---|---|
Actual Sept. 29, 2002 |
Adjusted Sept. 30, 2001 |
Actual Sept. 30, 2001 | |||||
Net income (loss) | $ 236,805 | $ (85,055 | ) | $(138,927 | ) | ||
Unrealized gain on interest rate and | |||||||
newsprint swaps, net of tax | 7,974 | 7,547 | 7,547 | ||||
Unrealized holding gain (loss) on marketable | |||||||
securities classified as available for sale: | |||||||
Unrealized holding loss arising | |||||||
during the period, before tax | (11,691 | ) | (140,143 | ) | (140,143 | ) | |
Add: adjustment for loss on investment | |||||||
write-downs included in net income | | 12,588 | 12,588 | ||||
Less: adjustment for gain on sales of | |||||||
investments included in net income | | (2,475 | ) | (2,475 | ) | ||
Income taxes | 4,536 | 50,724 | 50,724 | ||||
Change in net unrealized gain on securities | (7,155 | ) | (79,306 | ) | (79,306 | ) | |
Other comprehensive income (loss) | 819 | (71,759 | ) | (71,759 | ) | ||
Comprehensive income (loss) | $ 237,624 | $(156,814 | ) | $(210,686 | ) | ||
Three Quarters Ended |
|||||||
---|---|---|---|---|---|---|---|
Actual Sept. 29, 2002 |
Adjusted Sept. 30, 2001 |
Actual Sept. 30, 2001 | |||||
Net income | $ 249,445 | $ 153,125 | $ 4,356 | ||||
Unrealized gain on interest rate and | |||||||
newsprint swaps, net of tax | 11,484 | 7,284 | 7,284 | ||||
Unrealized holding gain (loss) on marketable | |||||||
securities classified as available for sale: | |||||||
Unrealized holding loss arising | |||||||
during the period, before tax | (86,982 | ) | (36,058 | ) | (36,058 | ) | |
Add: adjustment for loss on investment | |||||||
write-downs included in net income | | 12,588 | 12,588 | ||||
Less: adjustment for gain on sales of | |||||||
investments included in net income | (2,986 | ) | (2,475 | ) | (2,475 | ) | |
Income taxes | 35,139 | 9,682 | 9,682 | ||||
Change in net unrealized gain on securities | (54,829 | ) | (16,263 | ) | (16,263 | ) | |
Other comprehensive loss | (43,345 | ) | (8,979 | ) | (8,979 | ) | |
Comprehensive income (loss) | $ 206,100 | $ 144,146 | $ (4,623 | ) | |||
NOTE 9: OTHER DEVELOPMENTS
In June 2002, the FCC announced that it is consolidating the pending television/newspaper cross-ownership rulemaking with its other media ownership rule reviews. On Sept. 23, 2002, the FCC released a Notice of Proposed Rulemaking which requested public comment on the efficiency of the cross-ownership rule. In October 2002, the FCC released 14 studies commissioned by the FCC to provide information relevant to its analysis of all media ownership rules. The Company does not expect the FCC to act on the television/newspaper cross-ownership rule before the second quarter of 2003. The Company cannot predict the outcome of the FCC cross-ownership rulemaking proceeding.
During 1998, The Times Mirror Company (Times Mirror), which was acquired by Tribune in 2000, disposed of its Matthew Bender and Mosby subsidiaries in separate tax-free reorganizations. While the Company strongly believes that these transactions were completed on a tax-free basis, the Internal Revenue Service (IRS) has audited the transactions and disagreed with the position taken by Times Mirror. In 2001, the IRS proposed an adjustment to increase 1998 taxable income by approximately $1.6 billion. If the IRS prevails, the Companys federal and state income tax liability would be approximately $600 million, plus interest. As of Sept. 29, 2002, the interest on the proposed taxes would be approximately $205 million. During the third quarter of 2002, the IRS notified the Company that its previously proposed 20% penalty will not be asserted with respect to these transactions. The IRS also notified the Company of its intent to litigate these issues. The Company intends to vigorously defend its position and file a petition in U.S. Tax Court in early November 2002 to contest the IRS position. A tax reserve of $180 million, plus interest, relating to these transactions is included in compensation and other obligations on the unaudited condensed consolidated balance sheet. The resolution of these issues is unpredictable and could result in a tax liability that is significantly higher or lower than that which has been provided by the Company.
The Company expects the IRS to complete its audits of Tribune Companys 1997, 1998 and 1999 tax returns within the next 120 days. The resolution of these tax audits could result in a tax liability that is significantly lower than that which has been recorded by the Company.
NOTE 10: SEGMENT INFORMATION
Financial data for each of the Companys business segments are as follows (in thousands):
Third Quarter Ended |
|||||||
---|---|---|---|---|---|---|---|
Actual Sept. 29, 2002 |
Adjusted Sept. 30, 2001 |
Actual Sept. 30, 2001 | |||||
Operating revenues: | |||||||
Publishing | $ 927,006 | $ 906,500 | $ 906,500 | ||||
Broadcasting and Entertainment | 393,504 | 353,886 | 353,886 | ||||
Interactive | 19,984 | 15,112 | 15,112 | ||||
Total operating revenues | $ 1,340,494 | $ 1,275,498 | $ 1,275,498 | ||||
Operating profit (loss) before restructuring charges: | |||||||
Publishing | $ 195,547 | $ 127,501 | $ 89,483 | ||||
Broadcasting and Entertainment | 136,500 | 94,789 | 76,115 | ||||
Interactive | 3,516 | (5,391 | ) | (7,147 | ) | ||
Corporate expenses | (13,373 | ) | (9,728 | ) | (9,728 | ) | |
Total operating profit before restructuring charges | $ 322,190 | $ 207,171 | $ 148,723 | ||||
Operating profit (loss) including restructuring charges: | |||||||
Publishing | $ 195,547 | $ 5,001 | $ (33,017 | ) | |||
Broadcasting and Entertainment | 136,500 | 90,599 | 71,925 | ||||
Interactive | 3,516 | (7,942 | ) | (9,698 | ) | ||
Corporate expenses | (13,373 | ) | (11,143 | ) | (11,143 | ) | |
Total operating profit including restructuring charges | $ 322,190 | $ 76,515 | $ 18,067 | ||||
Three Quarters Ended |
|||||||
---|---|---|---|---|---|---|---|
Actual Sept. 29, 2002 |
Adjusted Sept. 30, 2001 |
Actual Sept. 30, 2001 | |||||
Operating revenues: | |||||||
Publishing | $ 2,824,259 | $ 2,861,196 | $ 2,861,196 | ||||
Broadcasting and Entertainment | 1,072,770 | 1,031,133 | 1,031,133 | ||||
Interactive | 57,656 | 43,180 | 43,180 | ||||
Total operating revenues | $ 3,954,685 | $ 3,935,509 | $ 3,935,509 | ||||
Operating profit (loss) before restructuring charges: | |||||||
Publishing | $ 606,433 | $ 509,408 | $ 396,595 | ||||
Broadcasting and Entertainment | 339,024 | 307,361 | 252,029 | ||||
Interactive | 4,702 | (20,310 | ) | (25,584 | ) | ||
Corporate expenses | (33,193 | ) | (32,912 | ) | (32,912 | ) | |
Total operating profit before restructuring charges | $ 916,966 | $ 763,547 | $ 590,128 | ||||
Operating profit (loss) including restructuring charges: | |||||||
Publishing | $ 581,673 | $ 373,464 | $ 260,651 | ||||
Broadcasting and Entertainment | 337,937 | 303,004 | 247,672 | ||||
Interactive | 4,539 | (23,227 | ) | (28,501 | ) | ||
Corporate expenses | (34,436 | ) | (34,694 | ) | (34,694 | ) | |
Total operating profit including restructuring charges | $ 889,713 | $ 618,547 | $ 445,128 | ||||
Sept. 29, 2002 |
Dec. 30, 2001 | ||||
---|---|---|---|---|---|
Assets: | |||||
Publishing | $ 8,053,999 | $ 8,225,041 | |||
Broadcasting and Entertainment | 4,181,925 | 4,107,599 | |||
Interactive | 258,183 | 280,317 | |||
Corporate | 1,510,138 | 1,875,102 | |||
Total assets | $14,004,245 | $14,488,059 | |||
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion compares the results of operations of Tribune Company and its subsidiaries (the Company) for the third quarter and first three quarters of 2002 to the third quarter and first three quarters of 2001. Certain prior year amounts have been reclassified to conform with the 2002 presentation. These reclassifications had no impact on reported 2001 total revenues, operating profit or net income.
FORWARD-LOOKING STATEMENTS
This discussion (including, in particular, the discussion under Outlook), the information contained in the preceding notes to the financial statements and the information contained in Item 3, Quantitative and Qualitative Disclosures About Market Risk, contain certain forward-looking statements that are based largely on the Companys current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such risks, trends and uncertainties, which in some instances are beyond the Companys control, include: changes in advertising demand, newsprint prices, cost of broadcast rights, interest rates, competition and other economic conditions; regulatory and judicial rulings; adverse results from litigation or tax related proceedings or audits; the effect of professional sports team labor strikes, lock-outs and negotiations; the effect of acquisitions, investments, divestitures, derivative transactions and litigation on the Companys results of operations and financial condition; and the Companys reliance on third-party vendors for various services. The words believe, expect, anticipate, estimate, could, should, intend and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are being made as of the date of this filing. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
SIGNIFICANT EVENTS
ACQUISITIONS
On Dec. 26, 2001, Tribune signed a contract with Entercom Communications Corp. (Entercom) to manage Tribunes three Denver radio stations, KOSI-FM, KKHK-FM and KEZW-AM. On Feb. 1, 2002, under the agreement, Entercom began managing the stations for up to three years, after which, pursuant to an option agreement, Entercom would have the right to purchase the stations for $180 million. During the term of the contract, the Company has the right to identify television assets for acquisition through one or more exchange transactions with Entercom. The results of the three Denver stations are included in the unaudited condensed consolidated financial statements through Jan. 31, 2002. In February 2002, the Company began receiving from Entercom a monthly time brokerage fee, which is recorded in revenue.
On July 24, 2002, the Company transferred certain assets of the Denver radio station group (KOSI-FM and KEZW-AM) with a value of $125 million to Entercom in exchange for the assets of WTTV-TV, Indianapolis, and its satellite station, WTTK-TV in Kokomo, Indiana, which Entercom acquired from Sinclair Broadcast Group for $125 million. The transactions were structured as a like-kind asset exchange for income tax purposes. The divestiture of the Denver radio station group assets was accounted for as a sale, and the acquisition of WTTV-TV and WTTK-TV was recorded as a purchase. In the third quarter of 2002, the Company recorded a gain of $108 million ($66 million after-tax, or $.20 per diluted share) on the sale of the Denver radio station group assets. Tribune will continue to evaluate suitable television assets to acquire in exchange for the remaining assets of the Denver radio station group, which have an estimated fair value of $55 million. The monthly time brokerage fee that the Company receives from Entercom has been reduced to reflect the sale of KOSI-FM and KEZW-AM.
On August 1, 2002, the Company acquired Chicago magazine from Primedia, Inc. for $35 million in cash. Chicago magazine, a monthly publication, serves as a reference guide for entertainment, dining, shopping and real estate for the Chicagoland area.
The results of operations of Chicago magazine, WTTV-TV and WTTK-TV are included in the unaudited condensed consolidated statements of operations since their respective dates of acquisition.
RESTRUCTURING CHARGES
In the first quarter of 2002, the Company recorded pretax restructuring charges of $27.3 million ($16.7 million after-tax, or $.05 per diluted share). In the third quarter and first three quarters of 2001, the Company recorded pretax restructuring charges of $130.7 million ($79.7 million after-tax, or an adjusted $.25 per diluted share) and $145.0 million ($88.4 million after-tax, or an adjusted $.27 per diluted share), respectively. For further discussion of the restructuring charges, see Note 2 to the unaudited condensed consolidated financial statements in Item 1.
NEW ACCOUNTING STANDARDS
On Dec. 31, 2001, the first day of the Companys 2002 fiscal year, the Company adopted FAS 142 which requires that goodwill and certain intangible assets no longer be amortized to earnings, but be reviewed periodically for impairment. For acquisitions completed prior to June 30, 2001, the amortization of goodwill and certain intangible assets has ceased beginning in fiscal year 2002. The adoption of this standard has substantially reduced the amount of amortization expense related to intangible assets, including goodwill. On an annual basis, the Company expects that amortization expense will be reduced from $241 million in 2001 to approximately $10 million in 2002, excluding the effects of any acquisitions or dispositions subsequent to Sept. 29, 2002. In addition, equity losses are expected to decrease by approximately $11 million from the 2001 level due to the adoption of this new standard by the Companys equity method investees.
The provisions of FAS 142 that pertain to impairment of intangible assets have superceded the impairment related provisions included in FAS 121, beginning in fiscal year 2002. Under FAS 142, the impairment review of goodwill and other intangible assets that are not being amortized must be based generally on fair values, instead of projected future undiscounted cash flows. The estimated fair values of these assets were calculated as of Dec. 31, 2001 based on projected future discounted cash flow analyses. As a result of initially applying the new impairment provisions of FAS 142, the Company recorded a pretax charge of $271 million ($166 million after taxes, or $.50 per diluted share) in the first quarter of 2002. The charge related to certain of the Companys newspaper mastheads ($226 million), a Federal Communications Commission (FCC) license ($43 million) and a television network affiliation agreement ($2 million), and is presented as the cumulative effect of a change in accounting principle in the Companys unaudited condensed consolidated statement of operations. The impairments are primarily the result of decreases in operating revenues as compared to forecasts prepared at the dates the respective companies were acquired.
In June 2002, the Financial Accounting Standards Board issued FAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement requires that a liability for costs associated with an exit or disposal activity, such as shutting down a location or facility, be recognized when the costs are incurred rather than at the date of a commitment to the exit or disposal plan. This statement will be applied prospectively to exit or disposal activities that are initiated after Dec. 31, 2002.
NON-OPERATING ITEMS
The third quarter and first three quarters of 2002 included several non-operating items, summarized as follows (in millions, except per share amounts):
Third Quarter Ended Sept. 29, 2002 |
Three Quarters Ended Sept. 29, 2002 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pretax Gain (Loss) |
After-tax Gain (Loss) |
Diluted EPS |
Pretax Gain (Loss) |
After-tax Gain (Loss) |
Diluted EPS |
|||||||||||||
Gain (loss) on net change in fair values | ||||||||||||||||||
of derivatives and related investments | $ 21 | .6 | $ 13 | .3 | $.04 | $ (122 | .8) | $ (75 | .1) | $(.23 | ) | |||||||
Gain on sales of subsidiaries and | ||||||||||||||||||
investments | 103 | .3 | 63 | .2 | .19 | 109 | .5 | 67 | .0 | .21 | ||||||||
Loss on investments write-downs | (2 | .3) | (1 | .4) | | (9 | .8) | (6 | .0) | (.02 | ) | |||||||
Other non-operating gain | 5 | .9 | 3 | .6 | .01 | 5 | .9 | 3 | .6 | .01 | ||||||||
State income tax reserve adjustment | | 3 | .0 | .01 | | 3 | .0 | .01 | ||||||||||
Total non-operating items | $ 128 | .5 | $ 81 | .7 | $.25 | $ (17 | .2) | $ (7 | .5) | $(.02 | ) | |||||||
In the third quarter of 2002, changes in the fair values of the Companys derivatives, net of changes in the fair values of the related investments, resulted in a non-cash pretax gain of $22 million, which increased diluted EPS by $.04. This gain resulted primarily from a $65 million decrease in the fair value of the derivative component of the PHONES, which was partially offset by a $41 million decrease in the fair value of 16.0 million shares of AOL Time Warner common stock. In the first three quarters of 2002, changes in the fair values of the Companys derivatives, net of changes in the fair values of the related investments, resulted in a non-cash pretax loss of $123 million, which decreased diluted EPS by $.23. This loss resulted primarily from a $335 million decrease in the fair value of 16.0 million shares of AOL Time Warner common stock, which was partially offset by a $217 million decrease in the fair value of the derivative component of the PHONES.
In July 2002, the Company exchanged two of its Denver radio stations, KOSI-FM and KEZW-AM, for the assets of two television stations, WTTV, Indianapolis, and its satellite station WTTK, Kokomo, Indiana. The divestiture of the Denver radio station assets resulted in a pretax gain of $108 million ($.20 per diluted share).
In the third quarter of 2002, the Company reduced its state income tax liability by a total of $9 million, net of federal taxes, as a result of favorably resolving certain state income tax issues. This adjustment was recorded as a reduction of income tax expense. The portion applicable to non-operating items was $3 million.
The third quarter and first three quarters of 2001 also included several non-operating items, summarized as follows (in millions, except per share amounts):
Third Quarter Ended Sept. 30, 2001 |
Three Quarters Ended Sept. 30, 2001 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pretax Gain (Loss) |
After-tax Gain (Loss) |
Diluted EPS |
Pretax Gain (Loss) |
After-tax Gain (Loss) |
Diluted EPS |
|||||||||||||
Loss on net change in fair values | ||||||||||||||||||
of derivatives and related investments | $ (91 | .2) | $ (55 | .6) | $(.19 | ) | $ (49 | .5) | $ (30 | .2) | $(.10 | ) | ||||||
Gain on sales of investments | 1 | .5 | 0 | .9 | .01 | 2 | .0 | 1 | .2 | .01 | ||||||||
Loss on investments write-downs | (54 | .7) | (33 | .4) | (.12 | ) | (89 | .3) | (54 | .5) | (.17 | ) | ||||||
Total non-operating items | $ (144 | .4) | $ (88 | .1) | $(.30 | ) | $ (136 | .8) | $ (83 | .5) | $(.26 | ) | ||||||
In the third quarter of 2001, changes in the fair values of the Companys derivatives, net of changes in the fair values of the related investments, resulted in a non-cash pretax loss of $91 million, which decreased diluted EPS by $.19. This loss resulted primarily from a $318 million decrease in the fair value of 16.0 million shares of AOL Time
Warner common stock, which was partially offset by a $231 million decrease in the fair value of the derivative component of the PHONES. In the first three quarters of 2001, changes in the fair values of the Companys derivatives, net of changes in the fair values of the related investments, resulted in a non-cash pretax loss of $49 million, which decreased diluted EPS by $.10. This loss resulted primarily from a $27 million decrease in the fair value of 16.0 million shares of AOL Time Warner common stock and a $16 million increase in the fair value of the derivative component of the PHONES.
In the third quarter of 2001, the Company determined that the decline in fair value of certain investments was other than temporary and recorded a non-cash pretax loss of $55 million, which decreased diluted EPS by $.12, to write down the investments to fair value. The loss includes the write-down of an investment accounted for under the equity method. For the first three quarters of 2001, the Company recorded total non-cash pretax losses of $89 million, which decreased diluted EPS by $.17, for investment write-downs.
In the aggregate, non-operating items increased diluted EPS by $.25 in the third quarter of 2002 and decreased diluted EPS by $.02 for the first three quarters of 2002. Non-operating items decreased diluted EPS by $.30 for the 2001 third quarter and by $.26 for the first three quarters of 2001. Excluding non-operating items, restructuring charges and the cumulative effect of a change in accounting principle, diluted EPS was $.46 in the 2002 third quarter and $1.30 for the first three quarters of 2002, as compared to an adjusted $.24 and $.96 in the same periods of 2001, respectively.
OTHER DEVELOPMENTS
In June 2002, the FCC announced that it is consolidating the pending television/newspaper cross-ownership rulemaking with its other media ownership rule reviews. On Sept. 23, 2002, the FCC released a Notice of Proposed Rulemaking which requested public comment on the efficiency of the cross-ownership rule. In October 2002, the FCC released 14 studies commissioned by the FCC to provide information relevant to its analysis of all media ownership rules. The Company does not expect the FCC to act on the television/newspaper cross-ownership rule before the second quarter of 2003. The Company cannot predict the outcome of the FCC cross-ownership rulemaking proceeding.
RESULTS OF OPERATIONS
The Companys results of operations, when examined on a quarterly basis, reflect the seasonality of the Companys revenues. Second and fourth quarter advertising revenues are typically higher than first and third quarter revenues. Results for the second quarter usually reflect spring advertising, while the fourth quarter includes advertising related to the holiday season. Results for the 2002 and 2001 third quarters reflect these seasonal patterns.
CONSOLIDATED
The Companys consolidated operating results for the third quarters and first three quarters of 2002 and 2001 are shown in the table below.
Third Quarter |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In millions, except per share data) |
Actual 2002 |
Adjusted 2001 (1) |
Actual 2001 |
Adjusted Change | ||||||
Operating revenues | $1,340 | $1,275 | $1,275 | + 5 | % | |||||
Operating profit before restructuring charges | 322 | 207 | 149 | + 56 | % | |||||
Restructuring charges | | (131 | ) | (131 | ) | * | ||||
Operating profit | 322 | 76 | 18 | * | ||||||
Non-operating items, net of tax | 82 | (88 | ) | (88 | ) | * | ||||
Net income (loss): | ||||||||||
Before restructuring charges and | ||||||||||
non-operating items | $ 155 | $ 83 | $ 29 | + 88 | % | |||||
Including restructuring charges and | ||||||||||
non-operating items | $ 237 | $ (85 | ) | $ (139 | ) | * | ||||
Diluted earnings (loss) per share: | ||||||||||
Before restructuring charges and | ||||||||||
non-operating items | $ .46 | $ .24 | $ .07 | + 92 | % | |||||
Including restructuring charges and | ||||||||||
non-operating items | $ .71 | $ (.31 | ) | $ (.49 | ) | * | ||||
* Not meaningful.
Three Quarters |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(In millions, except per share data) |
Actual 2002 |
Adjusted 2001 (1) |
Actual 2001 |
Adjusted Change | |||||||
Operating revenues | $ 3,955 | $ 3,935 | $ 3,935 | | |||||||
Operating profit before restructuring charges | 917 | 764 | 590 | + 20% | |||||||
Restructuring charges | (27 | ) | (145 | ) | (145 | ) | - 81% | ||||
Operating profit | 890 | 619 | 445 | + 44% | |||||||
Non-operating items, net of tax | (8 | ) | (83 | ) | (83 | ) | - 91% | ||||
Net income: | |||||||||||
Before cumulative effect of accounting change: | |||||||||||
Before restructuring charges and | |||||||||||
non-operating items | $ 439 | $ 325 | $ 176 | + 35% | |||||||
Including restructuring charges and | |||||||||||
non-operating items | 415 | 153 | 4 | * | |||||||
Cumulative effect of accounting change, net | (166 | ) | | | * | ||||||
Net income | $ 249 | $ 153 | $ 4 | + 63% | |||||||
Diluted earnings (loss) per share: | |||||||||||
Before cumulative effect of accounting change: | |||||||||||
Before restructuring charges and | |||||||||||
non-operating items | $ 1.30 | $ .96 | $ .50 | + 35% | |||||||
Including restructuring charges and | |||||||||||
non-operating items | 1.23 | .43 | (.05 | ) | * | ||||||
Cumulative effect of accounting change, net | (.50 | ) | | | * | ||||||
Net income (loss) | $ .73 | $ .43 | $ (.05 | ) | + 70% | ||||||
* Not meaningful.
(1) Adjusted results assume the provisions of FAS No. 142 were effective Jan. 1, 2001, instead of Dec. 31, 2001. FAS 142 eliminated the amortization of goodwill and certain other intangible assets. As a result, third quarter 2001 amortization was reduced from $61.0 million to an adjusted $2.6 million and the first three quarters 2001 amortization was reduced from $180.4 million to an adjusted $7.0 million. In addition, equity losses decreased from $12.6 million to an adjusted $9.8 million in the third quarter of 2001 and decreased from $48.4 million to an adjusted $40.2 million in the first three quarters of 2001 due to the adoption of this new standard by the Companys equity method investees. Also, due to the reduced amortization expense and equity losses, the third quarter 2001 income tax benefit decreased from $60.8 million to an adjusted $53.5 million and income tax expense for the first three quarters of 2001 increased from $68.6 million to an adjusted $101.5 million. Third quarter 2001 diluted EPS improved from a $.49 loss to an adjusted $.31 loss. Diluted EPS in the first three quarters of 2001 improved from a $.05 loss to an adjusted $.43 of income. Unless otherwise specified, the discussion below of Tribunes third quarter and first three quarters operating results assume that the adoption of the new standard had been in effect at the beginning of 2001.
Earnings Per Share (EPS) Excluding non-operating items, restructuring charges and the cumulative effect of change in accounting principle, diluted EPS rose 92% to $.46 in the 2002 third quarter and was up 35% to $1.30 in the first three quarters. The increases resulted from improvements in operating profit at publishing, broadcasting and entertainment and interactive combined with reduced interest expense, partially offset by increased equity losses. Including restructuring charges and non-operating items, diluted EPS was $.71 in the 2002 third quarter, compared with a $.31 loss in the 2001 third quarter, and $1.23 in the first three quarters of 2002, compared with $.43 in the first three quarters of 2001.
Operating Revenues and Profit The Companys consolidated operating revenues, EBITDA (operating profit before depreciation, amortization, equity results and non-operating items) and operating profit by business segment for the third quarter and first three quarters were as follows:
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) |
Actual 2002 |
Adjusted 2001 |
Change |
Actual 2002 |
Adjusted 2001 |
Change |
|||||||
Operating revenues | |||||||||||||
Publishing | $ 927 | $ 906 | + 2% | $ 2,824 | $ 2,861 | - 1% | |||||||
Broadcasting and Entertainment | 393 | 354 | + 11% | 1,073 | 1,031 | + 4% | |||||||
Interactive | 20 | 15 | + 32% | 58 | 43 | + 34% | |||||||
Total operating revenues | $ 1,340 | $ 1,275 | + 5% | $ 3,955 | $ 3,935 | | |||||||
EBITDA before restructuring charges (1) | |||||||||||||
Publishing | $ 238 | $ 166 | + 43% | $ 732 | $ 628 | + 17% | |||||||
Broadcasting and Entertainment | 148 | 107 | + 39% | 373 | 341 | + 9% | |||||||
Interactive | 5 | (4 | ) | * | 9 | (16 | ) | * | |||||
Corporate expenses | (13 | ) | (9 | ) | + 39% | (31 | ) | (31 | ) | + 2% | |||
Total before restructuring charges | 378 | 260 | + 45% | 1,083 | 922 | + 17% | |||||||
Restructuring charges | | (126 | ) | * | (23 | ) | (140 | ) | - 83% | ||||
Total EBITDA | $ 378 | $ 134 | * | $ 1,060 | $ 782 | + 35% | |||||||
Operating profit (loss) before restructuring charges | |||||||||||||
Publishing | $ 195 | $ 127 | + 53% | $ 606 | $ 510 | + 19% | |||||||
Broadcasting and Entertainment | 136 | 95 | + 44% | 339 | 307 | + 10% | |||||||
Interactive | 4 | (5 | ) | * | 5 | (20 | ) | * | |||||
Corporate expenses | (13 | ) | (10 | ) | + 37% | (33 | ) | (33 | ) | + 1% | |||
Total before restructuring charges | 322 | 207 | + 56% | 917 | 764 | + 20% | |||||||
Restructuring charges | | (131 | ) | * | (27 | ) | (145 | ) | - 81% | ||||
Total operating profit | $ 322 | $ 76 | * | $ 890 | $ 619 | + 44% | |||||||
(1) EBITDA is defined as earnings before interest, taxes, depreciation, amortization, equity results and non-operating items. The Company has presented EBITDA because it is a common alternative measure of performance. The Companys definition of EBITDA may not be consistent with that of other companies. EBITDA does not represent cash provided by operating activities as reflected in the Companys consolidated statements of cash flows, is not a measure of financial performance under generally accepted accounting principles (GAAP) and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
* Not meaningful.
Consolidated operating revenues for the third quarter of 2002 were up 5% to $1.34 billion from $1.28 billion in 2001 and for the first three quarters were flat. The increase in the third quarter of 2002 resulted from improvements in publishing, broadcasting and entertainment and interactive revenues. In the first three quarters of 2002, increases in broadcasting and entertainment and interactive revenues were partially offset by a 1% decline in publishing revenue. Excluding all acquisitions and divestitures in 2002 and 2001 (on a comparable basis), consolidated revenues were up 5% in the third quarter and were flat in the first three quarters.
Excluding restructuring charges, consolidated operating profit was up 56% in the 2002 third quarter and 20% in the first three quarters and EBITDA rose 45% in the third quarter and 17% in the first three quarters of 2002. Publishing operating profit, before restructuring charges, increased 53% to $195 million in the 2002 third quarter
and 19% to $606 million in the first three quarters, primarily due to declines in operating expenses. Broadcasting and entertainment operating profit, before restructuring charges, was up 44% to $136 million in the third quarter of 2002 and increased 10% to $339 million in the first three quarters mainly due to a 42% and 9% increase in television operating profit in the 2002 third quarter and first three quarters, respectively. Interactive reported operating profit, before restructuring charges, of $4 million in the 2002 third quarter, compared with a $5 million operating loss in the third quarter of last year, and operating profit of $5 million in the first three quarters, compared with an operating loss of $20 million in the 2001 first three quarters, mainly due to increased classified revenues and continued cost controls. On a comparable basis, consolidated operating profit, before restructuring charges, was up 54%, or $112 million, in the third quarter and 19%, or $143 million, in the first three quarters, and EBITDA rose 44%, or $115 million, in the third quarter and 16%, or $149 million, in the first three quarters.
Operating Expenses Consolidated operating expenses for the third quarter and first three quarters were as follows:
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) |
Actual 2002 |
Adjusted 2001 |
Change |
Actual 2002 |
Adjusted 2001 |
Change |
|||||||
Cost of sales | $ 650 | $ 698 | - 7% | $1,924 | $2,033 | - 5% | |||||||
Selling, general & administrative | 313 | 318 | - 1% | 948 | 981 | - 3% | |||||||
Depreciation and amortization | 55 | 52 | + 6% | 166 | 158 | + 4% | |||||||
Operating expenses before | |||||||||||||
restructuring charges | 1,018 | 1,068 | - 5% | 3,038 | 3,172 | - 4% | |||||||
Restructuring charges | | 131 | * | 27 | 145 | - 81% | |||||||
Total operating expenses | $1,018 | $1,199 | - 15% | $3,065 | $3,317 | - 8% | |||||||
* Not meaningful.
Cost of sales decreased 7%, or $48 million, in the 2002 third quarter and 5%, or $109 million, in the first three quarters. On a comparable basis, cost of sales decreased 7%, or $50 million, in the third quarter and 6%, or $112 million, in the first three quarters, primarily due to lower newsprint and compensation expenses. Newsprint and ink expense, on a comparable basis, decreased 26%, or $35 million, in the third quarter and 26%, or $109 million, in the first three quarters as the average newsprint cost per ton decreased 25% and consumption declined 4% in both periods. On a comparable basis, compensation expense declined 5%, or $13 million, in the third quarter and 4%, or $32 million, in the first three quarters, primarily due to the voluntary retirement program initiated in 2001, outsourcing of certain circulation operations in Los Angeles and other reductions in force. The outsourcing of certain newspaper circulation functions and the mailing costs associated with a total market coverage product in Los Angeles increased other expenses included in cost of sales by $8 million and $25 million in the third quarter and first three quarters of 2002, respectively. Broadcast rights amortization, on a comparable basis, was flat in the 2002 third quarter compared to 2001 and increased 3%, or $7 million, in the first three quarters, primarily related to the fall 2001 launch of Everybody Loves Raymond, partially offset by the absence of Dodgers baseball at KTLA in Los Angeles.
Selling, general and administrative expenses (SG&A) were down 1%, or $5 million, in the 2002 third quarter and 3%, or $33 million, in the first three quarters. On a comparable basis, SG&A expenses fell 2%, or $6 million, in the third quarter and 4%, or $37 million, in the first three quarters largely due to continued cost control initiatives.
As discussed in Note 15 to the consolidated financial statements in the Companys 2001 Annual Report on Form 10-K, the Companys net pension credit, before a charge in 2001 related to the voluntary retirement program, is expected to decline by approximately $30 million in 2002. Third quarter and first three quarters 2002 net pension credit was $14 million and $40 million, respectively, compared to $20 million and $60 million in the third quarter and first three quarters of 2001. Net pension credit is a component of compensation expense and is allocated between cost of sales and SG&A.
The Company recorded pretax restructuring charges of $27.3 million in the first quarter of 2002 and $130.7 million and $145.0 million in the third quarter and first three quarters of 2001, respectively (see discussion in Note 2 to the unaudited condensed consolidated financial statements in Item 1).
PUBLISHING
Operating Revenues and Profit The following table presents publishing operating revenues, EBITDA and operating profit for the third quarter and first three quarters.
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) |
Actual 2002 |
Adjusted 2001 |
Change |
Actual 2002 |
Adjusted 2001 |
Change |
|||||||
Operating revenues | $ 927 | $ 906 | + 2% | $ 2,824 | $ 2,861 | - 1% | |||||||
EBITDA before restructuring charges | $ 238 | $ 166 | + 43% | $ 732 | $ 628 | + 17% | |||||||
Restructuring charges | | (119 | ) | * | (22 | ) | (132 | ) | - 84% | ||||
EBITDA | $ 238 | $ 47 | * | $ 710 | $ 496 | + 43% | |||||||
Operating profit before restructuring charges | $ 195 | $ 127 | + 53% | $ 606 | $ 510 | + 19% | |||||||
Restructuring charges | | (122 | ) | * | (24 | ) | (136 | ) | - 82% | ||||
Operating profit | $ 195 | $ 5 | * | $ 582 | $ 374 | + 56% | |||||||
* Not meaningful.
Publishing operating revenues for the 2002 third quarter were up 2%, or $21 million, and were down 1%, or $37 million, for the first three quarters of 2002 as compared to 2001. Total advertising revenues were up 3%, or $18 million, and down 2%, or $53 million, for the third quarter and first three quarters of 2002, respectively. Excluding the acquisitions of the Virginia Gazette (Feb. 2001), TV Data (May 2001) and Chicago magazine (July 2002) (on a comparable basis), publishing operating revenues were up 2%, or $17 million, for the quarter and were down 2%, or $48 million, for the first three quarters of 2002. Publishing increased its third quarter 2002 EBITDA margin from third quarter 2001 by 7 percentage points due to higher revenues and lower expenses, primarily newsprint and ink. EBITDA margins improved in the top three markets with Los Angeles up 11 percentage points, New York up 9 percentage points, and Chicago up 6 percentage points.
Publishing operating profit, before restructuring charges, for the 2002 third quarter was up 53% to $195 million, compared with $127 million in 2001 and rose 19%, or $96 million, in the first three quarters. On a comparable basis, operating profit, before restructuring charges, increased 53%, or $67 million, for the third quarter and was up 18%, or $92 million, for the first three quarters of 2002. Increases in publishing operating profit were mainly a result of a 6% decline in total operating expenses for both the third quarter and first three quarters of 2002, primarily due to lower newsprint expense.
Publishing operating revenues, by classification, for the third quarter and first three quarters were as follows:
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) |
2002 |
2001 |
Change |
2002 |
2001 |
Change |
|||||||
Advertising: | |||||||||||||
Retail | $ 293 | $ 275 | + 7% | $ 889 | $ 872 | + 2% | |||||||
National | 158 | 150 | + 5% | 504 | 500 | + 1% | |||||||
Classified | 249 | 257 | - 3% | 750 | 824 | - 9% | |||||||
Total advertising | 700 | 682 | + 3% | 2,143 | 2,196 | - 2% | |||||||
Circulation | 166 | 164 | + 1% | 501 | 495 | + 1% | |||||||
Other | 61 | 60 | + 1% | 180 | 170 | + 6% | |||||||
Total revenues | $ 927 | $ 906 | + 2% | $2,824 | $2,861 | - 1% | |||||||
Total advertising revenues increased 3% in the 2002 third quarter and declined 2% for the first three quarters. Retail advertising was up 7%, or $18 million, and 2%, or $17 million, in the 2002 third quarter and in the first three quarters, respectively. Preprint revenues, which were the primary contributor to retail advertising growth, were 15% higher in the 2002 third quarter and 10% higher for the first three quarters. Categories showing increases in the third quarter of 2002 included department stores, electronics, home furnishings and food stores. National advertising revenue for the third quarter and first three quarters of 2002 rose by 5%, or $8 million, and 1%, or $4 million, respectively. Improvements in the third quarter of 2002 were primarily due to an increase in the high tech, especially wireless, and entertainment categories, which were partially offset by a decrease in the financial category. Classified advertising revenues declined 3%, or $8 million, in the 2002 third quarter and were down 9%, or $74 million, in the first three quarters. The decreases were due to a 20% and 29% decline in help wanted advertising in the third quarter and first three quarters, respectively, partially offset by higher auto and real estate advertising.
Advertising linage for the third quarter and first three quarters was as follows:
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Inches in thousands) |
2002 |
2001 |
Change |
2002 |
2001 |
Change |
|||||||
Full run: | |||||||||||||
Retail | 1,436 | 1,468 | - 2% | 4,409 | 4,663 | - 5% | |||||||
National | 774 | 768 | + 1% | 2,434 | 2,473 | - 2% | |||||||
Classified | 2,614 | 2,657 | - 2% | 7,746 | 8,028 | - 4% | |||||||
Total full run | 4,824 | 4,893 | - 1% | 14,589 | 15,164 | - 4% | |||||||
Part run | 4,739 | 4,542 | + 4% | 14,062 | 13,770 | + 2% | |||||||
Total inches | 9,563 | 9,435 | + 1% | 28,651 | 28,934 | - 1% | |||||||
Preprint pieces (in millions) | 2,713 | 2,466 | + 10% | 8,194 | 7,624 | + 7% |
Full run advertising linage decreased 1% in the 2002 third quarter and 4% in the first three quarters, largely due to a drop in retail and classified advertising in both the third quarter and first three quarters. Retail linage fell 2% and 5% for the quarter and first three quarters, respectively, mainly due to declines at Fort Lauderdale, Newport News and Baltimore, partially offset by improvements at Chicago. Full run classified advertising linage was down 2% for the quarter and 4% for the first three quarters of 2002. The decline for the quarter was due to decreases at Los Angeles, New York and Newport News. Classified advertising linage was down for the first three quarters as a result of declines at Los Angeles, Chicago, New York and Newport News. Full run national advertising linage was up 1% in the 2002 third quarter and declined 2% in the first three quarters. National advertising linage was up for the quarter due to increases at Los Angeles, Hartford and New York, partially offset by declines at Chicago and Fort Lauderdale. The decline in national advertising for the first three quarters of 2002 was due to decreases at Orlando, Baltimore, Los Angeles and Chicago, partially offset by an increase at Hartford. Part run advertising linage was up 4% in the 2002 third quarter and 2% in the first three quarters as declines at Chicago and Baltimore
were more than offset by increases in Los Angeles and Fort Lauderdale. Preprint advertising pieces rose 10% and 7% in the 2002 third quarter and first three quarters, respectively, primarily due to increases in Chicago, Los Angeles, New York, Ft. Lauderdale and Hartford.
Circulation revenues were up 1% in both the 2002 third quarter and the first three quarters, primarily due to home delivery price increases in Los Angeles. Total average daily circulation was down 2% to 3,313,000 copies in the 2002 third quarter and was down 2% to 3,391,000 copies in the first three quarters. Total average Sunday circulation declined 2% to 4,805,000 copies and was flat at 4,868,000 for the 2002 third quarter and first three quarters, respectively.
Other revenues are derived from advertising placement services; the syndication of columns, features, information and comics to newspapers; commercial printing operations; delivery of other publications; direct mail operations; cable television news programming; distribution of entertainment listings; and other publishing-related activities. Other revenues increased 1% in the 2002 third quarter and 6% in the first three quarters mainly due to acquisitions. On a comparable basis, other revenues were flat in the 2002 third quarter and increased 1%, or $1 million, in the first three quarters compared with 2001.
Operating Expenses Publishing operating expenses, excluding restructuring charges, decreased 6%, or $48 million, for the 2002 third quarter and 6%, or $134 million, in the first three quarters. On a comparable basis, operating expenses declined 6%, or $50 million, for the third quarter and 6%, or $141 million, for the first three quarters, primarily due to decreases in newsprint, compensation and other cash expenses. On a comparable basis, newsprint and ink expense was down 26%, or $35 million, and 26%, or $109 million, for the third quarter and first three quarters, respectively, as the average newsprint cost per ton decreased 25% in the third quarter and first three quarters while consumption declined 4% for both the third quarter and first three quarters of 2002. On a comparable basis, compensation expense declined 4%, or $12 million, for the quarter and fell 3%, or $29 million, for the first three quarters of 2002 due to the voluntary retirement program, outsourcing of certain circulation operations in Los Angeles and other reductions in force, partially offset by a lower pension credit. On a comparable basis, other cash expenses fell 2%, or $6 million, in the third quarter of 2002 and declined 1%, or $10 million, for the first three quarters. Other cash expenses decreased in the 2002 third quarter and first three quarters due to continued cost controls, partially offset by the outsourcing of certain circulation functions and the mailing costs associated with a total market coverage product in Los Angeles. Publishing reported restructuring charges of $24.8 million in the first quarter of 2002 and $122.5 million and $135.9 million in the third quarter and first three quarters of 2001, respectively (see discussion in Note 2 to the unaudited condensed consolidated financial statements in Item 1).
BROADCASTING AND ENTERTAINMENT
Operating Revenues and Profit The following table presents operating revenues, EBITDA and operating profit for television and radio/entertainment for the third quarter and first three quarters. Entertainment includes Tribune Entertainment and the Chicago Cubs.
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) |
Actual 2002 |
Adjusted 2001 |
Change |
Actual 2002 |
Adjusted 2001 |
Change |
|||||||
Operating revenues | |||||||||||||
Television | $ 310 | $ 274 | + 13% | $ 882 | $ 851 | + 4% | |||||||
Radio/Entertainment | 83 | 80 | + 5% | 191 | 180 | + 6% | |||||||
Total operating revenues | $ 393 | $ 354 | + 11% | $ 1,073 | $ 1,031 | + 4% | |||||||
EBITDA before restructuring charges | |||||||||||||
Television | $ 132 | $ 97 | + 37% | $ 351 | $ 327 | + 8% | |||||||
Radio/Entertainment | 16 | 10 | + 59% | 22 | 14 | + 50% | |||||||
EBITDA before restructuring charges | 148 | 107 | + 39% | 373 | 341 | + 9% | |||||||
Restructuring charges | | (4 | ) | * | (1 | ) | (4 | ) | - 78% | ||||
Total EBITDA | $ 148 | $ 103 | + 44% | $ 372 | $ 337 | + 10% | |||||||
Operating profit before restructuring charges | |||||||||||||
Television | $ 122 | $ 86 | + 42% | $ 322 | $ 296 | + 9% | |||||||
Radio/Entertainment | 14 | 9 | + 64% | 17 | 11 | + 57% | |||||||
Operating profit before restructuring charges | 136 | 95 | + 44% | 339 | 307 | + 10% | |||||||
Restructuring charges | | (4 | ) | * | (1 | ) | (4 | ) | - 75% | ||||
Total operating profit | $ 136 | $ 91 | + 51% | $ 338 | $ 303 | + 12% | |||||||
* Not meaningful.
Broadcasting and entertainment operating revenues rose by 11%, or $39 million, for the 2002 third quarter and increased by 4%, or $42 million, for the first three quarters. The increase for the quarter and for the first three quarters was mainly due to a $36 million and $31 million increase in television revenue, respectively. Television revenues were up due to higher advertising revenues, partially offset by lower cable royalties. Excluding the acquisitions of WGN Cables distribution entity (April 2001), WTXX-Hartford (August 2001) and WTTV-Indianapolis (July 2002) (on a comparable basis), television revenues rose 12%, or $32 million, for the third quarter and 2%, or $20 million, for the first three quarters of 2002.
Operating profit, before restructuring charges, for broadcasting and entertainment was up 44%, or $41 million, and 10%, or $32 million, for the 2002 third quarter and first three quarters, respectively. The increases were mainly due to television operating profit, which increased 42%, or $36 million, in the third quarter and 9%, or $26 million, in the first three quarters. Higher profits for the quarter and for the first three quarters was due to an increase in advertising revenues, partly offset by lower copyright royalties. On a comparable basis, before restructuring charges, television operating profit was up 40%, or $34 million, for the third quarter and 7%, or $20 million, for the first three quarters of 2002.
Operating Expenses Broadcasting and entertainment operating expenses, excluding restructuring charges, decreased 1%, or $2 million, in the 2002 third quarter and increased 1%, or $10 million, for the first three quarters. On a comparable basis, before restructuring charges, broadcasting and entertainment operating expenses were down 2%, or $5 million for the quarter, and were up 1%, or $5 million, for the first three quarters of 2002. Broadcast rights amortization, on a comparable basis, was flat in the 2002 third quarter compared to 2001 and increased 3%, or $7 million, in the first three quarters, primarily related to the fall 2001 launch of Everybody Loves Raymond, partially offset by the absence of Dodgers baseball at KTLA in Los
Angeles. On a comparable basis, compensation expense was up 1%, or $1 million, and 2%, or $6 million, for the 2002 third quarter and first three quarters, respectively. Other cash expenses, on a comparable basis, decreased 9%, or $6 million, for the third quarter and 5%, or $8 million, for the first three quarters of 2002, due to cost control initiatives. Broadcasting and entertainment reported restructuring charges of $1.1 million in the first quarter of 2002 and $4.2 million and $4.4 million in the third quarter and first three quarters of 2001, respectively (see discussion in Note 2 to the unaudited condensed consolidated financial statements in Item 1).
INTERACTIVE
Operating Revenues and Profit The following table presents interactive operating revenues, EBITDA and operating profit (loss) for the third quarter and first three quarters:
Third Quarter |
Three Quarters |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) |
Actual 2002 |
Adjusted 2001 |
Change |
Actual 2002 |
Adjusted 2001 |
Change |
|||||||
Operating revenues | $ 20.0 | $ 15.1 | + 32% | $ 57.7 | $ 43.2 | + 34% | |||||||
EBITDA before restructuring charges | $ 4.9 | $ (4.1 | ) | * | $ 8.9 | $ (16.3 | ) | * | |||||
Restructuring charges | | (1.6 | ) | * | (0.2 | ) | (1.9 | ) | - 91% | ||||
EBITDA | $ 4.9 | $ (5.7 | ) | * | $ 8.7 | $ (18.2 | ) | * | |||||
Operating profit (loss) before | |||||||||||||
restructuring charges | $ 3.5 | $ (5.4 | ) | * | $ 4.7 | $ (20.3 | ) | * | |||||
Restructuring charges | | (2.6 | ) | * | (0.2 | ) | (2.9 | ) | - 94% | ||||
Operating profit (loss) | $ 3.5 | $ (8.0 | ) | * | $ 4.5 | $ (23.2 | ) | * | |||||
* Not meaningful.
Interactives operating revenues increased 32%, or $5 million, in the 2002 third quarter and 34%, or $14 million, in the first three quarters. Revenue improvements for both the 2002 third quarter and first three quarters were due primarily to higher classified revenues. Classified revenues were up in the third quarter due to a 31% increase in recruitment, 30% increase in auto and 37% increase in real estate. Classified revenues were up in the first three quarters due to a 37% increase in recruitment, 31% increase in auto and 36% increase in real estate.
Interactive reported operating profit, before restructuring charges, of $4 million for the 2002 third quarter and $5 million for the first three quarters. The improvements over prior year results were due to higher revenues and lower compensation and promotion costs.
Operating Expenses Interactive operating expenses, excluding restructuring charges, were down 20%, or $4 million, for the 2002 third quarter and 17%, or $11 million, for the first three quarters, mainly due to declines in compensation and promotional expenses. Compensation expense was down 17%, or $2 million, for the third quarter and 18%, or $6 million, for the first three quarters. Promotional expenses decreased 63%, or $1 million, during the third quarter of 2002 and decreased 22%, or $2 million, for the first three quarters of the year. Interactive reported restructuring charges of $0.2 million in the first quarter of 2002 and $2.6 million and $2.9 million in the third quarter and first three quarters of 2001, respectively (see discussion in Note 2 to the unaudited condensed consolidated financial statements in Item 1).
CORPORATE EXPENSES
Corporate expenses, excluding restructuring charges, increased 37%, or $3 million, during the 2002 third quarter and increased 1%, or $0.3 million, during the first three quarters. The increase for the quarter and for the first three quarters was mainly due to higher compensation expense resulting from the planned restoration of management bonuses. Corporate reported restructuring charges of $1.2 million in the first quarter of 2002 and $1.4 million and $1.8 million in the third quarter and first three quarters of 2001, respectively (see discussion in Note 2 to the unaudited condensed consolidated financial statements in Item 1).
EQUITY RESULTS
Net loss on equity investments totaled $28 million in the 2002 third quarter compared with an adjusted $10 million in 2001. Equity losses for the 2002 first three quarters were $52 million, up $12 million from 2001 comparable results. The higher losses reflect the Companys $18 million share of CareerBuilders one-time tax charge resulting from its conversion to a Limited Liability Company in September 2002. This conversion from a standard C Corporation will generate cash tax savings for the Company in the future. Equity losses for the first three quarters also included the Companys $7.5 million share of a nonrecurring charge at CareerBuilder, primarily due to staff reductions and asset write-downs.
On Oct. 2, 2002, Gannett Co., Inc. acquired a one-third interest in CareerBuilder, joining Knight-Ridder, Inc. and the Company as an equal owner.
INTEREST AND INCOME TAXES
Interest expense for the 2002 third quarter decreased 17% to $52 million and for the first three quarters declined 17% to $161 million due to lower outstanding debt and interest rates. Interest income for the 2002 third quarter rose 4% to $2 million and for the first three quarters increased 4% to $6 million.
The effective tax rate, excluding restructuring charges and non-operating items, was 36.5% for the third quarter of 2002 compared with a rate of 39.4% for the third quarter of 2001 and a rate of 39% in the first half of 2002. The effective income tax rate in the third quarter of 2002 was lower due to a state income tax liability reduction of $6.0 million, net of federal taxes, as a result of favorably resolving certain state income tax issues. The Company also recorded in the third quarter of 2002 a net $3 million state income tax liability reduction related to non-operating items. The effective tax rate, excluding restructuring charges and non-operating items, was 38.2% for the first three quarters of 2002 compared with a rate of 39.4% for the first three quarters of 2001.
The Company expects the Internal Revenue Service (IRS) to complete its audits of Tribune Companys 1997, 1998 and 1999 tax returns within the next 120 days. The resolution of these tax audits could result in a tax liability that is significantly lower than that which has been provided by the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operations is the Companys primary source of liquidity. Net cash provided by operations in the first three quarters of 2002 was $673 million, up from $517 million in 2001. The Company normally expects to fund dividends, capital expenditures and other operating requirements with net cash provided by operations. Funding required for share repurchases and acquisitions is financed by available cash flow from operations and, if necessary, by the issuance of debt and stock.
Net cash used for investments totaled $176 million in the first three quarters of 2002. The Company spent $116 million for capital expenditures and $59 million for acquisitions and investments. The Company received $14 million from sales of investments.
Net cash used for financing activities in the 2002 first three quarters was $510 million and included repayments of long-term debt, payments of dividends and purchases of treasury stock, partially offset by sales
of stock to employees. In the first three quarters of 2002, the Company repurchased approximately 767,000 shares of its common stock for $29 million primarily related to Employee Stock Ownership Plan withdrawals. At Sept. 29, 2002, the Company had authorization to repurchase an additional $1.7 billion of its common stock. The Company repaid $478 million of long-term debt during the first three quarters of 2002. Quarterly dividends on the Companys common stock remained flat at $.11 per share in 2002.
The Company has revolving credit agreements with a number of financial institutions providing for borrowings in an aggregate amount of up to $1.25 billion. As of Sept. 29, 2002, no amounts were borrowed under these credit agreements.
The Company regularly issues commercial paper for cash requirements and maintains revolving credit agreements equal to or in excess of any commercial paper outstanding. The Companys commercial paper is rated A-1 and F-2 by Standard & Poors and Fitch, Inc., (Fitch), respectively. The Companys senior unsecured long-term debt was rated A by Standard & Poors and A- by Fitch. On August 15, 2002, Moodys Investors Services (Moodys) downgraded the senior unsecured long-term debt rating of the Company from A2 to A3 and its subordinated debt rating from A3 to Baa1. In addition, Moodys lowered the Companys commercial paper rating from P-1 to P-2. After the downgrade, Moodys indicated that the Companys debt ratings outlook is stable.
During 1998, The Times Mirror Company (Times Mirror), which was acquired by Tribune in 2000, disposed of its Matthew Bender and Mosby subsidiaries in separate tax-free reorganizations. While the Company strongly believes that these transactions were completed on a tax-free basis, the IRS has audited the transactions and disagreed with the position taken by Times Mirror. In 2001, the IRS proposed an adjustment to increase 1998 taxable income by approximately $1.6 billion. If the IRS prevails, the Companys federal and state income tax liability would be approximately $600 million, plus interest. As of Sept. 29, 2002, the interest on the proposed taxes would be approximately $205 million. During the third quarter of 2002, the IRS notified the Company that its previously proposed 20% penalty will not be asserted with respect to these transactions. The IRS also notified the Company of its intent to litigate these issues. The Company intends to vigorously defend its position and file a petition in U.S. Tax Court in early November 2002 to contest the IRS position. A tax reserve of $180 million, plus interest, relating to these transactions is included in compensation and other obligations on the unaudited condensed consolidated balance sheet. The resolution of these issues is unpredictable and could result in a tax liability that is significantly higher or lower than that which has been provided by the Company.
OUTLOOK
Revenues for the full year 2002 are expected to be up slightly and will continue to be affected by many factors, including changes in national and local economic conditions, consumer confidence, job creation and unemployment rates. For the full year 2002, the Company expects about a 4% reduction in total operating expenses, excluding depreciation, amortization of intangible assets and restructuring charges. Expenses are expected to continue to benefit from lower newsprint prices and various cost control initiatives already in place, including savings related to the implementation of the Companys previously announced restructuring programs. Based upon these assumptions and excluding restructuring charges, EBITDA in 2002 is expected to increase in the range of 18% due to the impact of lower overall expenses and slightly higher revenues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following represents an update of the Companys market-sensitive financial information. This information contains forward-looking statements and should be read in conjunction with the Companys Annual Report on Form 10-K for the fiscal year ended Dec. 30, 2001.
EQUITY PRICE RISKS
Available-for-sale securities. The Company has common stock investments in several publicly traded companies that are subject to market price volatility. Except for 16.0 million shares of AOL Time Warner common stock (see discussion below), these investments are classified as available-for-sale securities and are recorded on the balance sheet at fair value with unrealized gains or losses, net of related tax effects, reported in the accumulated other comprehensive income component of shareholders equity.
The following analysis presents the hypothetical change in the fair value of the Companys common stock investments in publicly traded companies that are classified as available-for-sale, assuming hypothetical stock price fluctuations of plus or minus 10%, 20% and 30% in each stocks price.
Valuation of Investments Assuming Indicated Decrease in Each Stock's Price |
Sept. 29, 2002 | Valuation of Investments Assuming Indicated Increase in Each Stock's Price |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | -30% |
-20% |
-10% |
Fair Value |
+10% |
+20% |
+30% | ||||||||
Common stock | |||||||||||||||
investments in | |||||||||||||||
public companies | $37 | $42 | $48 | $53 (1) | $58 | $64 | $69 |
(1) | Includes approximately 3.8 million shares of AOL Time Warner common stock valued at $47 million. Excludes 16.0 million shares of AOL Time Warner common stock related to the Companys PHONES. See discussion below. |
During the last 12 quarters, market price movements caused the fair value of the Companys common stock investments in publicly traded companies to change by 10% or more in ten of the quarters, by 20% or more in seven of the quarters and by 30% or more in five of the quarters.
Derivatives and related trading securities. The Company has issued 8.0 million PHONES indexed to the value of its investment in 16.0 million shares of AOL Time Warner common stock (see Note 10 to the Companys consolidated financial statements in the 2001 Annual Report on Form 10-K). Beginning in the second quarter of 1999, this investment in AOL Time Warner is classified as a trading security, and changes in its fair value, net of the changes in the fair value of the related derivative component of the PHONES, are recorded in the statement of income.
At maturity, the PHONES will be redeemed at the greater of the then market value of two shares of AOL Time Warner common stock or $157 per PHONES. At Sept. 29, 2002, the PHONES carrying value was approximately $473.6 million. Since the issuance of the PHONES in April 1999, quarterly changes in the fair value of the derivative component of the PHONES have partially offset changes in the fair value of the related AOL Time Warner shares. There have been and may continue to be periods with significant non-cash increases or decreases to the Companys net income pertaining to the PHONES and the related AOL Time Warner shares.
The following analysis presents the hypothetical change in the fair value of the Companys 16.0 million shares of AOL Time Warner common stock related to the PHONES, assuming hypothetical stock price fluctuations of plus or minus 10%, 20% and 30% in the stocks price.
Valuation of Investments Assuming Indicated Decrease in Each Stock's Price |
Sept. 29, 2002 | Valuation of Investments Assuming Indicated Increase in Each Stock's Price |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | -30% |
-20% |
-10% |
Fair Value |
+10% |
+20% |
+30% | ||||||||
AOL Time Warner common stock | $136 | $155 | $175 | $194 | $213 | $233 | $252 |
During the last 12 quarters, market price movements have caused the fair value of the Companys 16.0 million shares in AOL Time Warner common stock to change by 10% or more in 11 of the quarters, by 20% or more in seven of the quarters and by 30% or more in five of the quarters.
ITEM 4. CONTROLS AND PROCEDURES.
Within the 90 days prior to the date of this report, the Companys management, including the Chairman and Chief Executive Officer and Senior Vice President of Finance and Administration (Chief Financial Officer), carried out an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Companys Chairman and Chief Executive Officer and Senior Vice President of Finance and Administration (Chief Financial Officer) concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Companys periodic SEC filings. There have been no significant changes in the Companys internal controls or in other factors which could significantly affect internal controls subsequent to the date the Companys management carried out its evaluation.
ITEM 1. LEGAL PROCEEDINGS.
The information contained in Note 9 to the unaudited condensed consolidated financial statements in Part I, Item 1 hereof is incorporated herein by reference.
ITEM 5. OTHER INFORMATION.
The computation of the ratios of earnings to fixed charges, filed herewith as Exhibit 12, is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) | Exhibits. |
12 - Computation of ratios of earnings to fixed charges. |
(b) | Reports on Form 8-K. |
During the quarter ended Sept. 29, 2002, the Company filed a Form 8-K Current Report dated August 9, 2002, pursuant to Item 7 and Item 9, and a Form 8-K Current Report dated August 15, 2002, pursuant to Item 9. No financial statements were filed as part of the reports. |
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.
|
TRIBUNE COMPANY |
Date: November 1, 2002 |
/s/ R. Mark Mallory |
I, John W. Madigan, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Tribune Company; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and |
c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weakness in internal controls; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and |
6. | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: November 1, 2002 |
/s/ John W. Madigan |
I, Donald C. Grenesko, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Tribune Company; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and |
c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weakness in internal controls; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and |
6. | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: November 1, 2002 |
/s/ Donald C. Grenesko |