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 / /
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes / X / No / /
At October 22, 2004 there were 317,708,970 shares outstanding of the registrant’s Common Stock ($.01 par value per share), excluding 83,441,765 shares held by subsidiaries and affiliates of the registrant.
| Third Quarter Ended |
Three Quarters Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Sept. 26, 2004 |
Sept. 28, 2003 |
Sept. 26, 2004 |
Sept. 28, 2003 |
||||||
| Operating Revenues | $ 1,413,851 | $ 1,385,523 | $ 4,242,099 | $ 4,125,196 | |||||
| Operating Expenses | |||||||||
| Cost of sales (exclusive of items shown below) | 700,040 | 681,811 | 2,042,523 | 1,990,858 | |||||
| Selling, general and administrative | 400,162 | 333,473 | 1,175,472 | 1,003,597 | |||||
| Depreciation | 51,190 | 53,276 | 160,504 | 161,641 | |||||
| Amortization of intangible assets | 4,805 | 2,800 | 13,914 | 9,009 | |||||
| Total operating expenses | 1,156,197 | 1,071,360 | 3,392,413 | 3,165,105 | |||||
| Operating Profit | 257,654 | 314,163 | 849,686 | 960,091 | |||||
| Net income/(loss) on equity investments | (1,586 | ) | 811 | (1,574 | ) | (6,695 | ) | ||
| Interest income | 271 | 1,093 | 2,570 | 5,074 | |||||
| Interest expense | (35,131 | ) | (48,675 | ) | (118,056 | ) | (150,273 | ) | |
| Gain/(loss) on change in fair values of derivatives | |||||||||
| and related investments | (20,839 | ) | 24,720 | (46,111 | ) | 41,457 | |||
| Loss on early debt retirement | – | – | (140,506 | ) | – | ||||
| Gain/(loss) on sales of subsidiaries and | |||||||||
| investments, net | (238 | ) | 9,844 | 18,636 | 61,782 | ||||
| Gain/(loss) on investment write-downs | |||||||||
| and other, net | 610 | (3,905 | ) | (6,466 | ) | (7,742 | ) | ||
| Income Before Income Taxes | 200,741 | 298,051 | 558,179 | 903,694 | |||||
| Income taxes | (79,085 | ) | (115,739 | ) | (219,457 | ) | (350,728 | ) | |
| Net Income | 121,656 | 182,312 | 338,722 | 552,966 | |||||
| Preferred dividends, net of tax | (2,077 | ) | (6,114 | ) | (6,231 | ) | (18,450 | ) | |
| Net Income Attributable to Common Shares | $ 119,579 | $ 176,198 | $ 332,491 | $ 534,516 | |||||
| Earnings Per Share (Note 2): | |||||||||
| Basic | $ .38 | $ .56 | $ 1.03 | $ 1.72 | |||||
| Diluted | $ .37 | $ .53 | $ 1.01 | $ 1.61 | |||||
| Dividends per common share | $ .12 | $ .11 | $ .36 | $ .33 | |||||
See Notes to Condensed Consolidated Financial Statements.
| Sept. 26, 2004 |
Dec. 28, 2003 | ||||
|---|---|---|---|---|---|
| Assets | |||||
| Current Assets | |||||
| Cash and cash equivalents | $ 126,695 | $ 247,603 | |||
| Accounts receivable, net | 798,579 | 867,145 | |||
| Inventories | 63,877 | 46,109 | |||
| Broadcast rights, net | 268,660 | 290,442 | |||
| Deferred income taxes | 121,685 | 99,921 | |||
| Prepaid expenses and other | 52,531 | 53,945 | |||
| Total current assets | 1,432,027 | 1,605,165 | |||
| Property, plant and equipment | 3,538,351 | 3,514,174 | |||
| Accumulated depreciation | (1,791,863 | ) | (1,726,271 | ) | |
| Net properties | 1,746,488 | 1,787,903 | |||
| Broadcast rights, net | 431,641 | 359,039 | |||
| Goodwill | 5,467,814 | 5,480,291 | |||
| Other intangible assets, net | 3,160,315 | 3,152,325 | |||
| Time Warner stock related to PHONES debt | 264,000 | 285,440 | |||
| Other investments | 563,882 | 555,434 | |||
| Prepaid pension costs | 887,760 | 892,414 | |||
| Other assets | 159,187 | 162,141 | |||
| Total assets | $ 14,113,114 | $ 14,280,152 | |||
See Notes to Condensed Consolidated Financial Statements.
| Sept. 26, 2004 |
Dec. 28, 2003 | ||||
|---|---|---|---|---|---|
| Liabilities and Shareholders’ Equity | |||||
| Current Liabilities | |||||
| Long-term debt due within one year | $ 156,327 | $ 193,413 | |||
| Contracts payable for broadcast rights | 322,673 | 311,841 | |||
| Deferred income | 101,797 | 91,576 | |||
| Accounts payable, accrued expenses and other current liabilities | 640,932 | 667,051 | |||
| Total current liabilities | 1,221,729 | 1,263,881 | |||
| PHONES debt related to Time Warner stock | 567,600 | 535,280 | |||
| Other long-term debt (less portions due within one year) | 1,904,345 | 1,846,337 | |||
| Deferred income taxes | 2,281,358 | 2,224,762 | |||
| Contracts payable for broadcast rights | 585,175 | 536,832 | |||
| Compensation and other obligations | 836,321 | 844,936 | |||
| Total liabilities | 7,396,528 | 7,252,028 | |||
| Shareholders’ Equity | |||||
| 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 | 6,917,377 | 6,924,484 | |||
| Retained earnings | 2,694,039 | 3,008,460 | |||
| Treasury common stock (at cost) | (3,011,283 | ) | (3,025,203 | ) | |
| Accumulated other comprehensive income | 9,586 | 13,516 | |||
| Total shareholders' equity | 6,716,586 | 7,028,124 | |||
| Total liabilities and shareholders' equity | $ 14,113,114 | $ 14,280,152 | |||
See Notes to Condensed Consolidated Financial Statements.
| Three Quarters Ended |
|||||
|---|---|---|---|---|---|
| Sept. 26, 2004 |
Sept. 28, 2003 | ||||
| Operations | |||||
| Net income | $ 338,722 | $ 552,966 | |||
| Adjustments to reconcile net income to net cash provided | |||||
| by operations: | |||||
| (Gain)/loss on change in fair values of derivatives | |||||
| and related investments | 46,111 | (41,457 | ) | ||
| Loss on early debt retirement | 140,506 | – | |||
| Gain on sales of subsidiaries and investments, net | (18,636 | ) | (61,782 | ) | |
| Loss on investment write-downs and other, net | 6,466 | 7,742 | |||
| Depreciation | 160,504 | 161,641 | |||
| Amortization of intangible assets | 13,914 | 9,009 | |||
| Deferred income taxes | 28,290 | 85,145 | |||
| Increase (decrease) in current income taxes payable | (22,044 | ) | 99,937 | ||
| Decrease in accounts receivable | 68,566 | 34,305 | |||
| Tax benefit on stock options exercised | 30,518 | 38,401 | |||
| Other, net | 26,137 | (7,171 | ) | ||
| Net cash provided by operations | 819,054 | 878,736 | |||
| Investments | |||||
| Capital expenditures | (122,656 | ) | (103,749 | ) | |
| Acquisitions and investments | (45,531 | ) | (255,915 | ) | |
| Proceeds from sales of subsidiaries and investments | 38,283 | 75,546 | |||
| Net cash used for investments | (129,904 | ) | (284,118 | ) | |
| Financing | |||||
| Proceeds from the issuance of commercial paper, net of repayments | 825,897 | – | |||
| Repayments of long-term debt | (817,997 | ) | (252,849 | ) | |
| Premium on early debt retirement | (137,331 | ) | – | ||
| Sales of common stock to employees, net | 90,212 | 124,674 | |||
| Repurchases of common stock | (648,076 | ) | (330,621 | ) | |
| Dividends | (122,763 | ) | (116,610 | ) | |
| Net cash used for financing | (810,058 | ) | (575,406 | ) | |
| Net increase (decrease) in cash and cash equivalents | (120,908 | ) | 19,212 | ||
| Cash and cash equivalents, beginning of year | 247,603 | 105,931 | |||
| Cash and cash equivalents, end of quarter | $ 126,695 | $ 125,143 | |||
See Notes to Condensed Consolidated Financial Statements.
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. 26, 2004 and the results of their operations for the third quarters and first three quarters ended Sept. 26, 2004 and Sept. 28, 2003 and cash flows for the first three quarters ended Sept. 26, 2004 and Sept. 28, 2003. 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 2004 presentation. These reclassifications had no impact on reported 2003 total revenues, operating profit or net income.
The computations of basic and diluted earnings per share (“EPS”) were as follows (in thousands, except per share data):
| Third Quarter Ended |
Three Quarters Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Sept. 26, 2004 |
Sept. 28, 2003 |
Sept. 26, 2004 |
Sept. 28, 2003 |
||||||
| Basic EPS: | |||||||||
| Net income | $ 121,656 | $ 182,312 | $ 338,722 | $ 552,966 | |||||
| Preferred dividends, net of tax | (2,077 | ) | (6,114 | ) | (6,231 | ) | (18,450 | ) | |
| Net income attributable to common shares | $ 119,579 | $ 176,198 | $ 332,491 | $ 534,516 | |||||
| Weighted average common shares outstanding | 318,364 | 313,080 | 323,988 | 310,192 | |||||
| Basic EPS | $ .38 | $ .56 | $ 1.03 | $ 1.72 | |||||
| Diluted EPS: | |||||||||
| Net income | $ 121,656 | $ 182,312 | $ 338,722 | $ 552,966 | |||||
| Additional ESOP contribution required | |||||||||
| assuming Series B preferred shares were | |||||||||
| converted, net of tax | – | (2,379 | ) | – | (7,235 | ) | |||
| Dividends on Series C, D-1, and D-2 preferred | |||||||||
| stock | (2,077 | ) | (2,063 | ) | (6,231 | ) | (6,189 | ) | |
| LYONs interest expense, net of tax | – | – | – | 2,884 | |||||
| Adjusted net income | $ 119,579 | $ 177,870 | $ 332,491 | $ 542,426 | |||||
| Weighted average common shares outstanding | 318,364 | 313,080 | 323,988 | 310,192 | |||||
| Assumed conversion of Series B preferred shares | |||||||||
| into common shares | – | 15,721 | – | 15,972 | |||||
| Assumed exercise of stock options, net of | |||||||||
| common shares assumed repurchased | |||||||||
| with the proceeds | 3,654 | 6,030 | 5,269 | 6,589 | |||||
| Assumed conversion of LYONs debt securities | – | – | – | 4,282 | |||||
| Adjusted weighted average common shares | |||||||||
| outstanding | 322,018 | 334,831 | 329,257 | 337,035 | |||||
| Diluted EPS | $ .37 | $ .53 | $ 1.01 | $ 1.61 | |||||
Basic EPS is computed by dividing net income attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted EPS for the third quarter of 2003 was computed assuming that the Series B convertible preferred shares had been converted into common shares as of the beginning of fiscal year 2003. Diluted EPS for the first three quarters of 2003 was computed assuming that the Series B convertible preferred shares and the LYONs debt securities had been converted into common shares as of the beginning of fiscal year 2003.
The Series B convertible preferred shares were converted into approximately 15.4 million shares of common stock on Dec. 16, 2003, and the LYONs were converted into approximately seven million shares of common stock during June 2003. In addition, in the third quarter and first three quarters diluted EPS calculations, for both 2004 and 2003, weighted average common shares outstanding were adjusted for the dilutive effect of stock options. The Company’s stock options and convertible securities are included in the calculation of diluted EPS only when their effects are dilutive. In the 2004 and 2003 third quarter calculations of diluted EPS, 2.5 million and 2.3 million shares, respectively, of the Company’s Series C, D-1 and D-2 convertible preferred stocks, and 21.0 million and 3.9 million, respectively, of the Company’s outstanding options, were not reflected because their effects would have been antidilutive. In the 2004 and 2003 first three quarters calculations of diluted EPS, 2.3 million shares in each year of the Company’s Series C, D-1 and D-2 convertible preferred stocks, and 9.8 million and 3.0 million, respectively, for the Company’s outstanding options, were not reflected because their effects were antidilutive.
On Feb. 11, 2004, a purported class action lawsuit was filed in New York Federal Court by certain advertisers of Newsday and Hoy, New York, alleging that they were overcharged for advertising as a result of inflated circulation numbers at these two publications. The purported class action also alleges that entities that paid a Newsday subsidiary to deliver advertising flyers were overcharged. On July 21, 2004, another lawsuit was filed in New York Federal Court by certain advertisers of Newsday alleging damages resulting from inflated Newsday circulation numbers as well as federal and state antitrust violations. On Oct. 8, 2004, a third lawsuit was filed in New York State Court by a former Newsday advertiser alleging damages resulting from inflated Newsday circulation numbers. The Company intends to vigorously defend these suits. Newsday is a morning newspaper published seven days a week and circulated primarily in Long Island, New York, and in the borough of Queens in New York City. Hoy, New York, is a Spanish language newspaper that is also published seven days a week.
On June 17, 2004, the Company publicly disclosed that it would reduce its reported September 2003 and March 2004 circulation for both Newsday and Hoy, New York. The circulation adjustments were the result of a review of reported circulation at Newsday and Hoy, New York, conducted by the Company’s internal audit staff and the Audit Bureau of Circulations (“ABC”). Since the June 17th disclosure, the Company’s continuing internal review found additional misstatements for these time periods, as well as misstatements that impact 2001 and 2002.
As a result of the circulation misstatements for 2001 through 2004, the Company recorded a pretax charge of $35 million in selling, general and administrative expenses in the second quarter of 2004 as its estimate of the probable cost to settle with Newsday and Hoy, New York, advertisers based upon facts available at July 30, 2004, the date of the Company’s second quarter 2004 Form 10-Q filing.
On Sept. 10, 2004, based on information gathered during the third quarter of 2004 from ABC’s ongoing audit and Tribune’s internal investigation, the Company publicly disclosed additional revisions to the reported circulation of Newsday and Hoy, New York, for the September 2003 and March 2004 time periods. Because the additional circulation misstatements found since July 30, 2004 will increase the cost of settlement with their advertisers, the Company recorded an additional pretax charge of $55 million in selling, general and administrative expenses in the third quarter of 2004 to increase the estimate of the probable cost to settle with Newsday and Hoy, New York, advertisers to $90 million. This new estimate is based upon facts available as of the date of this report. The Company will continue to evaluate the adequacy of this reserve on an ongoing basis.
In addition, the Securities and Exchange Commission, the United States Attorney for the Eastern District of New York and the Nassau County District Attorney are conducting inquiries into the circulation practices at Newsday and Hoy, New York. The Company is cooperating fully with these inquiries. At the date of this report, the Company cannot predict with certainty the outcome of these inquiries.
On July 12, 2004, ABC announced that it was censuring Newsday and Hoy, New York, for improper circulation practices. For the next two years, ABC will be auditing Newsday and Hoy, New York, every six months, instead of annually, and Newsday and Hoy, New York, will not be able to publish their six-month circulation statistics prior to the completion of the ABC audits. In addition, both Newsday and Hoy, New York, must submit a plan to ABC for
correcting their circulation practices. The Company intends to work with ABC to fully comply with the terms of the censure and does not believe the impact of the censure will be material. ABC’s annual circulation audits at the Company’s other newspapers are ongoing. In addition, during the third quarter of 2004, the Company’s internal auditors began a review of the circulation practices at all of the Company’s newspapers and Chicago magazine which will be completed as soon as practical.
The Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board (“APB”) Opinion No. 25 and related Interpretations. Under APB No. 25, no compensation expense is recorded because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant. Under Financial Accounting Standard (“FAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by FAS No. 148, compensation cost is measured at the grant date based on the estimated fair value of the award and is recognized as compensation expense over the vesting or service period. Had compensation cost for these plans been determined consistent with FAS No. 123, the Company’s third quarter and first three quarters net income and EPS would have been reduced to the following pro forma amounts (in thousands, except per share data):
| Third Quarter Ended |
Three Quarters Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Sept. 26, 2004 |
Sept. 28, 2003 |
Sept. 26, 2004 |
Sept. 28, 2003 |
||||||
| Net income, as reported | $ 121,656 | $ 182,312 | $ 338,722 | $ 552,966 | |||||
| Less: pro forma stock-based employee | |||||||||
| compensation expense, net of tax: | |||||||||
| General option awards | (11,742 | ) | (14,382 | ) | (37,439 | ) | (41,913 | ) | |
| Replacement option awards | (3,696 | ) | (4,691 | ) | (13,408 | ) | (12,091 | ) | |
| Merit option awards | – | – | – | (202 | ) | ||||
| Employee stock purchase plan | (1,046 | ) | (900 | ) | (2,922 | ) | (2,762 | ) | |
| Total pro forma stock-based employee | |||||||||
| compensation expense, net of tax | (16,484 | ) | (19,973 | ) | (53,769 | ) | (56,968 | ) | |
| Pro forma net income | 105,172 | 162,339 | 284,953 | 495,998 | |||||
| Preferred dividends, net of tax | (2,077 | ) | (6,114 | ) | (6,231 | ) | (18,450 | ) | |
| Pro forma net income attributable to | |||||||||
| common shares | $ 103,095 | $ 156,225 | $ 278,722 | $ 477,548 | |||||
| Weighted average common shares | |||||||||
| outstanding | 318,364 | 313,080 | 323,988 | 310,192 | |||||
| Basic EPS, as reported | $ .38 | $ .56 | $ 1.03 | $ 1.72 | |||||
| Basic EPS, pro forma | $ .32 | $ .50 | $ .86 | $ 1.54 | |||||
| Adjusted weighted average | |||||||||
| common shares outstanding | 322,018 | 334,831 | 329,257 | 337,035 | |||||
| Diluted EPS, as reported | $ .37 | $ .53 | $ 1.01 | $ 1.61 | |||||
| Diluted EPS, pro forma | $ .32 | $ .47 | $ .85 | $ 1.44 | |||||
In determining the pro forma compensation cost under the fair value method of FAS No. 123, using the Black-Scholes option pricing model, the following weighted average assumptions were used for general awards and replacement options:
| Third Quarter Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Sept. 26, 2004 |
Sept. 28, 2003 |
||||||||
| General Awards |
Replacement Options |
General Awards |
Replacement Options | ||||||
| Risk-free interest rate | 3.2% | 1.7% | 2.8% | 1.5% | |||||
| Expected dividend yield | 1.0% | 1.0% | 1.0% | 1.0% | |||||
| Expected stock price volatility | 30.4% | 20.6% | 32.7% | 27.7% | |||||
| Expected life (in years) | 5 | 2 | 5 | 2 | |||||
| Weighted average fair value | * | $ 5.01 | $ 14.13 | $ 7.26 | |||||
* No general awards were granted in the third quarter of 2004.
| Three Quarters Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Sept. 26, 2004 |
Sept. 28, 2003 |
||||||||
| General Awards |
Replacement Options |
General Awards |
Replacement Options | ||||||
| Risk-free interest rate | 3.2% | 1.7% | 2.8% | 1.5% | |||||
| Expected dividend yield | 1.0% | 1.0% | 1.0% | 1.0% | |||||
| Expected stock price volatility | 31.1% | 25.6% | 32.7% | 29.5% | |||||
| Expected life (in years) | 5 | 2 | 5 | 2 | |||||
| Weighted average fair value | $ 15.46 | $ 7.51 | $ 13.90 | $ 8.01 | |||||
The components of net periodic benefit cost (credit) for Company-sponsored plans for the third quarter were as follows (in thousands):
| Pension Benefits Third Quarter Ended |
Other Postretirement Benefits Third Quarter Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Sept. 26, 2004 |
Sept. 28, 2003 |
Sept. 26, 2004 |
Sept. 28, 2003 | ||||||
| Service cost | $ 5,215 | $ 4,568 | $ 394 | $ 649 | |||||
| Interest cost | 19,862 | 19,655 | 2,989 | 2,966 | |||||
| Expected return on plans’ assets | (32,332 | ) | (34,483 | ) | – | – | |||
| Recognized actuarial loss | 11,112 | 6,077 | – | – | |||||
| Amortization of prior service costs | (520 | ) | (465 | ) | (397 | ) | 2 | ||
| Amortization of transition asset | (1 | ) | (212 | ) | – | – | |||
| Net periodic benefit cost (credit) | $ 3,336 | $(4,860 | ) | $ 2,986 | $3,617 | ||||
The components of net periodic benefit cost (credit) for Company-sponsored plans for the first three quarters were as follows (in thousands):
| Pension Benefits Three Quarters Ended |
Other Postretirement Benefits Three Quarters Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Sept. 26, 2004 |
Sept. 28, 2003 |
Sept. 26, 2004 |
Sept. 28, 2003 | ||||||
| Service cost | $ 15,761 | $ 13,704 | $ 1,314 | $ 1,947 | |||||
| Interest cost | 60,033 | 58,965 | 7,743 | 8,898 | |||||
| Expected return on plans’ assets | (97,903 | ) | (103,449 | ) | – | – | |||
| Recognized actuarial loss | 33,345 | 18,231 | – | – | |||||
| Amortization of prior service costs | (1,437 | ) | (1,395 | ) | (986 | ) | 6 | ||
| Amortization of transition asset | (3 | ) | (636 | ) | – | – | |||
| Net periodic benefit cost (credit) | $ 9,796 | $ (14,580 | ) | $ 8,071 | $10,851 | ||||
For the year ending Dec. 26, 2004, the Company plans to contribute $7 million to certain of its union and non-qualified pension plans and $21 million to its other postretirement benefit plans. As of Sept. 26, 2004, $6 million of contributions have been made to its union and non-qualified pension plans and $16 million of contributions have been made to its other postretirement benefit plans.
The third quarter and first three quarters of 2004 included several non-operating items, summarized as follows (in thousands):
| Third Quarter Ended Sept. 26, 2004 |
Three Quarters Ended Sept. 26, 2004 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Pretax Gain (Loss) |
After-tax Gain (Loss) |
Pretax Gain (Loss) |
After-tax Gain (Loss) | ||||||
| Loss on change in fair values | |||||||||
| of derivatives and related investments | $(20,839 | ) | $(12,712 | ) | $ (46,111 | ) | $ (28,128 | ) | |
| Loss on early debt retirement | – | – | (140,506 | ) | (87,549 | ) | |||
| Gain/(loss) on sales of subsidiaries and | |||||||||
| investments, net | (238 | ) | (145 | ) | 18,636 | 11,368 | |||
| Gain/(loss) on investment write-downs | |||||||||
| and other, net | 610 | 372 | (6,466 | ) | (3,944 | ) | |||
| Total non-operating items | $(20,467 | ) | $(12,485 | ) | $(174,447 | ) | $(108,253 | ) | |
The 2004 third quarter and first three quarters change in the fair values of derivatives and related investments related entirely to the Company’s PHONES and related Time Warner investment. In the third quarter of 2004, the $21 million non-cash pretax loss resulted from a $15 million decrease in the fair value of 16.0 million shares of Time Warner common stock and a $6 million increase in the fair value of the derivative component of the Company’s PHONES. In the first three quarters of 2004, the $46 million non-cash pretax loss resulted from a $25 million increase in the fair value of the derivative component of the PHONES and a $21 million decrease in the fair value of 16.0 million shares of Time Warner common stock.
In the second quarter of 2004, the Company redeemed all of its outstanding $400 million ($396 million net of unamortized discount) 7.45% debentures due 2009 and retired $66 million ($64 million net of unamortized discount) of its 7.25% debentures due 2013 and $165 million ($160 million net of unamortized discount) of its 6.61% debentures due 2027 through cash tender offers. The Company paid approximately $760 million to retire this debt and, as a result, recorded a one-time, pretax loss of $141 million in the second quarter of 2004. The Company funded these transactions with cash and the issuance of commercial paper.
In the first three quarters of 2004, the gain on sales of subsidiaries and investments related primarily to the sale of the Company’s 50% interest in La Opinión for $20 million, resulting in a pretax gain of $18 million.
The third quarter and first three quarters of 2003 also included several non-operating items, summarized as follows (in thousands):
| Third Quarter Ended Sept. 28, 2003 |
Three Quarters Ended Sept. 28, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| Pretax Gain (Loss) |
After-tax Gain (Loss) |
Pretax Gain (Loss) |
||||||