1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 24, 2000
------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------
COMMISSION FILE NUMBER 1-14541
-----------------------------------------
PULITZER INC.
(Exact name of registrant as specified in its charter)
----------------------
DELAWARE 43-1819711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
900 NORTH TUCKER BOULEVARD, ST. LOUIS, MISSOURI 63101
(Address of principal executive offices)
(314) 340-8000
(Registrant's telephone number, including area code)
NO CHANGES
(Former name, former address and former fiscal year,
if changed since last report)
-----------------------------------------
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING 10/31/00
- ------------------------------------- ---------------------------------
COMMON STOCK 8,874,340
CLASS B COMMON STOCK 12,265,821
================================================================================
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED---IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
Third Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
2000 1999 2000 1999
----------- ----------- ---------- ----------
OPERATING REVENUES - NET:
Advertising $77,822 $64,272 $222,664 $191,053
Circulation 22,609 21,186 68,379 64,791
Other 15,152 10,849 42,736 33,514
----------- ----------- ---------- ----------
Total operating revenues 115,583 96,307 333,779 289,358
----------- ----------- ---------- ----------
OPERATING EXPENSES:
Operations 42,561 35,405 120,888 108,262
Selling, general and administrative 45,361 38,191 130,918 111,993
General corporate expense 2,024 1,882 5,611 5,618
Stock option cash-outs and bonuses 26,685
St. Louis Agency adjustment 6,110 9,363 18,381
Depreciation and amortization 9,529 3,950 23,534 11,979
----------- ----------- ---------- ----------
Total operating expenses 99,475 85,538 290,314 282,918
----------- ----------- ---------- ----------
Operating income 16,108 10,769 43,465 6,440
Interest income 4,451 7,062 15,932 17,015
Interest expense (6,168) (9,963)
Net gain (loss) on marketable securities and investments (4,773) 1,179 (1,812) 247
Equity in losses of joint venture investment (273) (1,268)
Net other expense (363) (582) (1,126) (2,366)
----------- ----------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 8,982 18,428 45,228 21,336
PROVISION FOR INCOME TAXES 3,774 8,275 18,998 10,007
MINORITY INTEREST IN NET EARNINGS OF
SUBSIDIARY 196 358
----------- ----------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 5,012 10,153 25,872 11,329
LOSS FROM DISCONTINUED OPERATIONS,
NET OF TAX (21,449)
----------- ----------- ---------- ----------
NET INCOME (LOSS) $5,012 $10,153 $25,872 ($10,120)
=========== =========== ========== ==========
BASIC EARNINGS PER SHARE OF STOCK:
Income from continuing operations $0.23 $0.45 $1.18 $0.50
Loss from discontinued operations (0.95)
----------- ----------- ---------- ----------
Earnings (loss) per share $0.23 $0.45 $1.18 ($0.45)
=========== =========== ========== ==========
Weighted average number of shares outstanding 21,634 22,638 21,962 22,630
=========== =========== ========== ==========
DILUTED EARNINGS PER SHARE OF STOCK:
Income from continuing operations $0.23 $0.45 $1.18 $0.50
Loss from discontinued operations (0.95)
----------- ----------- ---------- ----------
Earnings (loss) per share $0.23 $0.45 $1.18 ($0.45)
=========== =========== ========== ==========
Weighted average number of shares outstanding 21,669 22,675 21,987 22,648
=========== =========== ========== ==========
See notes to consolidated financial statements.
2
3
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(UNAUDITED---IN THOUSANDS)
Third Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
2000 1999 2000 1999
----------- ----------- ---------- ----------
NET INCOME (LOSS) $5,012 $10,153 $25,872 $(10,120)
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Unrealized holding gains (losses) on marketable
securities arising during the period 1,248 1,102 506 (2,434)
Reclassification adjustment 1,879 310 2,378 885
----------- ----------- ---------- ----------
Other comprehensive income (loss) 3,127 1,412 2,884 (1,549)
----------- ----------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) $8,139 $11,565 $28,756 $(11,669)
=========== =========== ========== ==========
See notes to consolidated financial statements.
3
4
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(UNAUDITED---IN THOUSANDS)
September 30, December 31,
2000 1999
---------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 61,660 $106,177
Marketable securities 138,191 451,714
Trade accounts receivable (less allowance for doubtful
accounts of $2,186 and $2,362) 54,111 42,175
Inventory 4,896 5,146
Income taxes receivable 1,809 18,279
Prepaid expenses and other 7,961 11,729
---------------- --------------
Total current assets 268,628 635,220
---------------- --------------
PROPERTIES:
Land 7,944 5,611
Buildings 53,080 45,034
Machinery and equipment 160,079 107,796
Construction in progress 3,751 7,158
---------------- --------------
Total 224,854 165,599
Less accumulated depreciation 113,447 81,995
---------------- --------------
Properties - net 111,407 83,604
---------------- --------------
INTANGIBLE AND OTHER ASSETS:
Intangible assets - net of amortization 824,561 185,492
Receivable from The Herald Company 35,901
Other 64,951 38,070
---------------- --------------
Total intangible and other assets 889,512 259,463
---------------- --------------
TOTAL $1,269,547 $978,287
================ ==============
(Continued)
4
5
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(UNAUDITED--- IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
2000 1999
-------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 12,221 $ 13,771
Salaries, wages and commissions 14,226 12,481
Interest payable 4,041
Pension obligations 477 288
Acquisition payable 9,707 9,707
Dividends payable 3,379
Other 5,368 3,443
-------------- --------------
Total current liabilities 49,419 39,690
-------------- --------------
LONG TERM DEBT 306,000
-------------- --------------
PENSION OBLIGATIONS 28,090 26,549
-------------- --------------
POSTRETIREMENT AND POSTEMPLOYMENT
BENEFIT OBLIGATIONS 86,658 86,902
-------------- --------------
OTHER LONG-TERM LIABILITIES 10,928 11,695
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; shares authorized - 100,000,000 in
2000 and 1999; issued and outstanding - none
Common stock, $.01 par value; shares authorized - 100,000,000 in
2000 and 1999; issued - 9,371,822 in 2000 and 8,513,203 in 1999 94 85
Class B common stock, convertible, $.01 par value; shares authorized
- 100,000,000 in 2000 and 1999; issued - 13,291,221
in 2000 and 14,131,814 in 1999 133 141
Additional paid-in capital 425,833 425,451
Retained earnings 425,551 413,676
Accumulated other comprehensive loss (1,312) (4,196)
-------------- --------------
Total 850,299 835,157
Treasury stock - at cost; 527,971 and 527,471 shares of common
stock in 2000 and 1999, respectively, and 1,000,000 shares of
Class B common stock in 2000 (61,847) (21,706)
-------------- --------------
Total stockholders' equity 788,452 813,451
-------------- --------------
TOTAL $1,269,547 $978,287
============== ==============
(Concluded)
See notes to consolidated financial statements.
5
6
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED---IN THOUSANDS)
Nine Months Ended
September 30,
--------------------------------
2000 1999
-------------- --------------
CONTINUING OPERATIONS
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 25,872 $ 11,329
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 10,056 6,482
Amortization 13,478 5,497
Loss on sale of assets 3,893 2,694
Changes in assets and liabilities (net of the effects of the purchase
and sale of properties) which provided (used) cash:
Trade accounts receivable (1,823) 564
Inventory 1,643 (2,197)
Other assets 13,168 19,039
Trade accounts payable and other liabilities 2,282 7,149
Income taxes 16,470 (26,899)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 85,039 23,658
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,446) (8,329)
Purchase of publishing properties, net of cash acquired (669,979)
Sale of publishing property 3,300
Purchase of newspaper circulation routes (9,894) (1,245)
Purchases of marketable securities (84,421) (844,215)
Sales of marketable securities 393,759 364,706
Investment in joint ventures and limited partnerships (8,571) (7,699)
Decrease in notes receivable 160 61
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (385,392) (493,421)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (10,618) (10,164)
Proceeds from issuance of long-term debt 306,000
Proceeds from exercise of stock options 2,280
Proceeds from employee stock purchase plan 595
Purchase of treasury stock (40,141) (7,152)
-------------- --------------
NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES 255,836 (15,036)
-------------- --------------
CASH USED IN CONTINUING OPERATIONS (44,517) (484,799)
-------------- --------------
DISCONTINUED OPERATIONS
Operating activities (21,820)
Investing activities:
Capital expenditures (1,488)
Sale of investment in limited partnership 5,000
Financing activities:
Proceeds from issuance of long-term debt 700,000
Repayments of long-term debt (172,705)
Payment of Spin-off and Merger Transaction costs (31,772)
Payment of estimated working capital adjustment related to Merger (3,010)
-------------- --------------
CASH PROVIDED BY DISCONTINUED OPERATIONS - 474,205
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (44,517) (10,594)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 106,177 110,171
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 61,660 $ 99,577
============== ==============
(Continued)
6
7
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED---IN THOUSANDS)
Nine Months Ended
September 30,
----------------------------------
2000 1999
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest paid $ 5,922 $ 8,429
Interest received (19,518) (11,163)
Income taxes 20,129 25,255
Income tax refunds (17,830) (1,200)
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Divestiture of broadcasting business--decrease in Net Liabilities of
Broadcasting Business and increase in Additional Paid-in Capital $ - $494,721
Spin-off and Merger Transaction costs--decrease in Other Assets
and decrease in Additional Paid-in Capital 4,253
Increase in Dividends Payable and decrease in Retained Earnings 3,379 3,395
Cancellation of treasury stock:
Decrease in Treasury Stock and Class B Common Stock 117
Decrease in Treasury Stock and Additional Paid-in Capital 187,966
(Concluded)
See notes to consolidated financial statements.
7
8
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
On March 18, 1999, the spin-off of the newspaper publishing and new media
businesses formerly operated by Pulitzer Publishing Company ("Old Pulitzer") was
completed with Pulitzer Inc. (the "Company") commencing operations as an
independent publicly traded publishing company (the "Spin-off"). Following the
Spin-off, Old Pulitzer with its remaining broadcasting business ("Broadcasting
Business") was merged with and into Hearst-Argyle Television, Inc.
("Hearst-Argyle") in exchange for the issuance to Old Pulitzer's stockholders of
37,096,774 shares of Hearst-Argyle's Series A common stock (the "Merger"). The
Merger and Spin-off are collectively referred to as the "Broadcast Transaction."
As a result of the Broadcast Transaction, the Company is the continuing entity
for financial reporting purposes. Old Pulitzer's historical basis in its
newspaper publishing and related new media assets and liabilities has been
carried over to the Company. The distribution of the net liabilities of the
Broadcasting Business has been recorded as a capital contribution to the
Company. The Broadcast Transaction represents a reverse-spin transaction and,
accordingly, the Company's results of operations for periods prior to the
consummation of the Broadcast Transaction are identical to the historical
results previously reported by Old Pulitzer. Results of the Company's newspaper
publishing and related new media businesses are reported as continuing
operations in the statements of consolidated operations. The results of the
Broadcasting Business prior to the Merger are reported as discontinued
operations.
2. ACCOUNTING POLICIES
Interim Adjustments - In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial position as of September 30, 2000, results of operations for the
three-month and nine-month periods ended September 30, 2000 and 1999 and cash
flows for the nine-month periods ended September 30, 2000 and 1999. These
financial statements should be read in conjunction with the audited consolidated
financial statements and related notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999. Results of
operations for interim periods are not necessarily indicative of the results to
be expected for the full year.
Fiscal Year and Fiscal Quarters - The Company's fiscal year and third fiscal
quarter end on the Sunday coincident with or prior to December 31 and September
30, respectively. For ease of presentation, the Company has used December 31 as
the year end and September 30 as the third quarter end.
Earnings Per Share of Stock - Basic earnings per share of stock is computed
using the weighted average number of common and Class B common shares
outstanding during the applicable period. Diluted earnings per share of stock is
computed using the weighted average number of common and Class B common shares
outstanding and common stock equivalents (outstanding stock options). Weighted
average shares of common and Class B common stock and common stock equivalents
used in the calculation of basic and diluted earnings per share are summarized
as follows:
Third Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
(In thousands) (In thousands)
Weighted average shares outstanding (Basic EPS) 21,634 22,638 21,962 22,630
Stock option equivalents 35 37 25 18
------ ------ ------ ------
Weighted average shares outstanding and
stock option equivalents (Diluted EPS) 21,669 22,675 21,987 22,648
======= ======= ======= =======
8
9
Stock option equivalents included in the diluted earnings per share calculation
were determined using the treasury stock method. Under the treasury stock
method, outstanding stock options are dilutive when the average market price of
the Company's common stock exceeds the option price during a period. In
addition, proceeds from the assumed exercise of dilutive options along with the
related tax benefit are assumed to be used to repurchase common shares at the
average market price of such stock during the period.
Reclassifications - Certain reclassifications have been made to the 1999
consolidated financial statements to conform with the 2000 presentation.
3. ACQUISITION OF PROPERTIES
On January 11, 2000, the Company acquired in an asset purchase The Pantagraph, a
daily and Sunday newspaper that serves the central Illinois cities of
Bloomington and Normal, and a group of seven community newspapers known as the
Illinois Valley Press, from The Chronicle Publishing Company of San Francisco
("Chronicle") for an aggregate of $180 million, excluding acquisition costs and
a separate payment for working capital (the "Pantagraph Acquisition"). The
purchase price has been allocated among the operating assets of the newspapers,
specifically identifiable intangibles and goodwill with useful lives ranging
from 3 to 40 years. The Company funded this acquisition with internal cash
generated from the sale of a portion of its marketable security investments.
On May 1, 2000, the Company, Pulitzer Technologies, Inc., a wholly-owned
subsidiary of the Company (together with the Company, the "Pulitzer Parties")
and The Herald Company, Inc. ("Herald") completed the transfer of their
respective interests in the assets and operations of the St. Louis Post-Dispatch
(the "Post-Dispatch") and certain related businesses to a new joint venture (the
"Venture"), known as St. Louis Post-Dispatch LLC ("PD LLC"). The Company
controls and manages PD LLC. Under the terms of the operating agreement
governing PD LLC (the "Operating Agreement"), the Pulitzer Parties hold a 95
percent interest in the results of operations of PD LLC and Herald holds a 5
percent interest. Previously, under the terms of the St. Louis Agency Agreement,
which had governed the operations of the Post-Dispatch since 1961, the Company
and Herald generally shared its operating profits and losses, as well as its
capital expenditures, on a 50-50 basis. Also, under the terms of the Operating
Agreement, Herald received on May 1, 2000 a cash distribution of $306 million
from PD LLC. This distribution was financed by a $306 million loan (the "Loan")
to PD LLC from a group of institutional lenders (the "Lenders") led by
Prudential Capital Group, a division of The Prudential Insurance Company of
America. The Venture and the Loan are treated as a purchase for accounting
purposes with a substantial balance recorded as goodwill based on a preliminary
allocation. The goodwill balance will be amortized over a life of 40 years.
On August 10, 2000, the Company acquired the assets of the Suburban Newspapers
of Greater St. Louis, LLC and the stock of The Ladue News, Inc. (collectively
the "Suburban Journals") for $165 million, excluding acquisition costs and a
separate payment for working capital of approximately $7 million (the "Journals
Acquisition"). The Suburban Journals are a group of 39 weekly papers and various
niche publications that serve the greater St. Louis, Missouri metropolitan area.
The purchase price has been allocated among the operating assets of the
newspapers, specifically identifiable intangibles and goodwill with useful lives
ranging from 3 to 40 years. The Company funded this acquisition with internal
cash generated from the sale of a portion of its marketable security
investments.
9
10
The following supplemental unaudited pro forma information shows the results of
operations of the Company for the three-month and nine-month periods ended
September 30, 2000 and 1999 assuming the Pantagraph Acquisition, the Venture,
the Loan and the Journals Acquisition (collectively the "Newspaper
Transactions") had been consummated at the beginning of each of the respective
periods. The unaudited pro forma financial information is not necessarily
indicative either of results of operations that would have occurred had the
Newspaper Transactions occurred at the beginning of the respective periods or
of future results of operations (in thousands, except per share amounts).
Third Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
2000 1999 2000 1999
Operating revenues - net $ 121,763 $ 117,642 $ 366,256 $ 351,001
=========== =========== ========== ==========
Operating income $ 16,678 $ 16,701 $ 52,778 $ 24,565
=========== =========== ========== ==========
Income from continuing operations $ 4,612 $ 6,913 $ 22,380 $ 2,057
=========== =========== ========== ==========
Basic earnings per share of stock:
Income from continuing operations $ 0.21 $ 0.31 $ 1.02 $ 0.09
=========== =========== ========== ==========
Weighted average number of shares outstanding 21,634 22,638 21,962 22,630
=========== =========== ========== ==========
Diluted earnings per share of stock:
Income from continuing operations $ 0.21 $ 0.30 $ 1.02 $ 0.09
=========== =========== ========== ==========
Weighted average number of shares outstanding 21,669 22,675 21,987 22,648
=========== =========== ========== ==========
4. FINANCING ARRANGEMENTS
In connection with the Venture (see Note 3), on May 1, 2000, PD LLC borrowed
$306 million from the Lenders. The aggregate principal amount of the Loan is
payable on April 28, 2009 and bears interest at an annual rate of 8.05 percent.
The Loan is guaranteed by the Company pursuant to a Guaranty Agreement dated as
of May 1, 2000 ("Guaranty Agreement") with the Lenders. In turn, pursuant to an
Indemnity Agreement dated as of May 1, 2000 ("Indemnity Agreement") entered into
between Herald and the Company, Herald agreed to indemnify the Company for any
payments that the Company may make under the Guaranty Agreement.
5. STOCKHOLDERS' EQUITY
On August 16, 2000, under its share repurchase program, the Company purchased
1,000,000 shares of Class B common stock from Michael E. Pulitzer, the Company's
Chairman of the Board. The Company paid $40.12 per share for a total purchase
price of $40.1 million. The repurchased shares have been included in treasury
stock of the Company.
6. COMMITMENTS AND CONTINGENCIES
At September 30, 2000, the Company and its subsidiaries had construction and
equipment commitments of approximately $2,816,000.
The Company is an investor in two limited partnerships requiring future capital
contributions. As of September 30, 2000, the Company's unfunded capital
contribution commitments related to these investments totaled approximately
$12,744,000.
The Company and its subsidiaries are involved, from time to time, in various
claims and lawsuits incidental to the ordinary course of their business,
including such matters as libel, slander and defamation actions and complaints
alleging discrimination. While the results of litigation cannot be predicted,
management believes the ultimate outcome of any existing litigation will not
have a material adverse effect on the consolidated financial statements of the
Company and its subsidiaries.
10
11
7. OPERATING REVENUES
The Company's operating revenues consist of the following:
Third Quarter Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2000 1999 2000 1999
(In thousands) (In thousands)
St. Louis Post-Dispatch $ 65,033 $62,574 $197,773 $187,031
Star Publishing Company 14,345 13,526 44,126 42,046
Suburban Journals of Greater St. Louis 6,721 6,721
Pulitzer Newspaper Group 28,377 19,699 82,534 58,731
Other revenue 1,107 508 2,625 1,550
----------- ------------ ------------- -------------
Total operating revenue $115,583 $96,307 $333,779 $289,358
============ ============ ============= =============
11
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this Quarterly Report on Form 10-Q concerning Pulitzer Inc.'s (the
"Company") business outlook or future economic performance, anticipated
profitability, revenues, expenses or other financial items, together with other
statements that are not historical facts, are "forward-looking statements" as
that term is defined under the Federal Securities Laws. Forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from those stated in such statements.
Such risks, uncertainties and other factors include, but are not limited to,
industry cyclicality, the seasonal nature of the business, changes in pricing or
other actions by competitors or suppliers (including newsprint), capital or
similar requirements, and general economic conditions, any of which may impact
advertising and circulation revenues and various types of expenses, as well as
other risks detailed in the Company's filings with the Securities and Exchange
Commission including this Quarterly Report on Form 10-Q. Although the Company
believes that the expectations reflected in forward-looking statements are
reasonable, it cannot guarantee future results, levels of activity, performance
or achievements.
GENERAL
The Company's operating revenues are significantly influenced by a
number of factors, including overall advertising expenditures, the appeal of
newspapers in comparison to other forms of advertising, the performance of the
Company in comparison to its competitors in specific markets, the strength of
the national economy and general economic conditions and population growth in
the markets served by the Company.
The Company's business tends to be seasonal, with peak revenues and
profits generally occurring in the fourth and, to a lesser extent, second
quarters of each year as a result of increased advertising activity during the
Christmas and spring holiday periods. The first quarter is historically the
weakest quarter for revenues and profits.
RECENT EVENTS
On January 11, 2000, the Company acquired in an asset purchase The
Pantagraph, a daily and Sunday newspaper that serves the central Illinois cities
of Bloomington and Normal, and a group of seven community newspapers known as
the Illinois Valley Press, from The Chronicle Publishing Company of San
Francisco for an aggregate of $180 million, excluding acquisition costs and a
separate payment for working capital (the "Pantagraph Acquisition"). The Company
funded this acquisition with internal cash generated from the sale of a portion
of its marketable security investments.
On May 1, 2000, the Company, Pulitzer Technologies, Inc., a
wholly-owned subsidiary of the Company (together with the Company, the "Pulitzer
Parties") and The Herald Company, Inc. ("Herald") completed the transfer of
their respective interests in the assets and operations of the St. Louis
Post-Dispatch (the "Post-Dispatch") and certain related businesses to a new
joint venture (the "Venture"), known as St. Louis Post-Dispatch LLC ("PD LLC").
The Company controls and manages PD LLC. Under the terms of the operating
agreement governing PD LLC (the "Operating Agreement"), the Pulitzer Parties
hold a 95 percent interest in the results of operations of PD LLC and Herald
holds a 5 percent interest. Previously, under the terms of the St. Louis Agency
Agreement, which had governed the operations of the Post-Dispatch since 1961,
the Company and Herald generally shared its operating profits and losses, as
well as its capital expenditures, on a 50-50 basis. Also, under the terms of the
Operating Agreement, Herald received on May 1, 2000 a cash distribution of $306
million from PD LLC. This distribution was financed by a $306 million loan (the
"Loan") to PD LLC from a group of institutional lenders (the "Lenders") led by
Prudential Capital Group, a division of The Prudential Insurance Company of
America. The Venture and the Loan are treated as a purchase for accounting
purposes.
On August 10, 2000, the Company acquired the assets of the Suburban
Newspapers of Greater St. Louis, LLC and the stock of The Ladue News, Inc.
(collectively the "Suburban Journals") for $165 million,
12
13
excluding acquisition costs and a separate payment for working capital of
approximately $7 million (the "Journals Acquisition"). The Suburban Journals are
a group of 39 weekly papers and various niche publications that serve the
greater St. Louis, Missouri metropolitan area. The Company funded this
acquisition with internal cash generated from the sale of a portion of its
marketable security investments.
The Pantagraph Acquisition, Venture, Loan and Journals Acquisition are
collectively referred to as the "Newspaper Transactions."
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH 1999
Operating revenues for the third quarter of 2000 increased 20 percent,
to $115.6 million from $96.3 million in the third quarter of 1999. The gain
primarily reflected higher advertising revenues and the contribution from The
Pantagraph, acquired in January 2000, and the Suburban Journals, acquired in
August 2000. Excluding the results of properties acquired in 2000, revenues for
the third quarter of 2000 increased 5.3 percent.
Newspaper advertising revenues increased $13.6 million, or 21.1
percent, in the third quarter of 2000. The current year increase primarily
reflected the addition of new advertising revenue from The Pantagraph and
Suburban Journals, as well as higher revenue at the Post-Dispatch. At the
Post-Dispatch, gains were driven by increases in national and classified
advertising, reflecting rate increases in January 2000. Excluding the results of
properties acquired in 2000, advertising revenues for the third quarter
increased 5.1 percent, reflecting the Post-Dispatch gains as well as solid
increases at the Arizona Daily Star (the "Star") and at many of the Pulitzer
Newspaper Group ("PN Group") locations.
Circulation revenues increased $1.4 million, or 6.7 percent, in the
third quarter of 2000. The higher circulation revenues reflected the addition of
new circulation revenue from The Pantagraph.
Other publishing revenues increased $4.3 million, or 39.7 percent, in
2000, resulting primarily from the addition of new preprint revenue from The
Pantagraph and Suburban Journals, higher preprint revenue at the Post-Dispatch,
and higher revenue from the Company's "new media" operations.
Operating expenses (including selling, general and administrative
expenses, general corporate expense and depreciation and amortization),
excluding the St. Louis Agency adjustment from the prior year, increased 25.2
percent to $99.5 million in the 2000 third quarter, reflecting the addition of
new expenses from The Pantagraph and Suburban Journals. Excluding the results of
properties acquired in 2000 and new goodwill amortization in 2000 related to the
Company's increased interest in the Post-Dispatch, operating expenses increased
$5.1 million, or 6.4 percent. The increase on a comparable basis primarily
reflected higher overall personnel costs of $2.6 million and higher newsprint
expense of $1.1 million.
For the third quarter of 2000, the Company reported an increase in
operating income of 49.6 percent to $16.1 million from $10.8 million in the
prior year quarter. The significant current year increase primarily reflected
the impact of the Company's increased interest in the results of operations of
the Post-Dispatch and contributions from The Pantagraph and Suburban Journals to
operating income in 2000.
Interest income for the third quarter of 2000 decreased to $4.5 million
from $7.1 million in the prior year quarter. The decrease reflected the lower
average balance of invested funds in the current year quarter due to the outflow
of approximately $180 million of combined cash and marketable securities on
January 11, 2000 in connection with the Pantagraph Acquisition and $165 million
on August 10, 2000 in connection with the Journals Acquisition.
The Company reported interest expense of $6.2 million in the third
quarter of 2000. The current year interest expense results from the $306 million
borrowing by PD LLC on May 1, 2000 to fund the cash distribution to Herald under
the terms of the Operating Agreement.
The Company reported a net loss on marketable securities and
investments of $4.8 million in the third quarter of 2000 compared with a gain of
$1.2 million in 1999. The current year loss of $4.8 million resulted from two
significant nonoperating items. In the third quarter of 2000, the Company
realized losses of approximately $3.1 million in connection with the sale of
marketable security investments to raise cash to fund both the Journals
Acquisition and the Company's share repurchase program. In addition, the
13
14
Company recorded a loss of $1.7 million to write down a portion of its
investment in iOwn, an internet mortgage company. The prior year gain of $1.2
million reflected the favorable performance of two limited partnership
investments.
The effective income tax rate for the third quarter of 2000 was 42
percent compared with a rate of 44.9 percent in the prior year quarter. The
higher effective tax rate in the prior year quarter resulted from the sale of
the Company's newspaper property in Hamilton, Montana that increased taxes by
approximately $500,000.
For the third quarter of 2000, the Company reported net income of $5
million, or $0.23 per diluted share, compared to $10.2 million, or $0.45 per
diluted share, in the prior year quarter. The current year decline primarily
reflected the impact of the $4.8 million nonoperating investment losses ($2.8
million, or $0.13 per diluted share, after tax) and dilution of approximately
$2.8 million, or $0.13 per diluted share, from the current year Newspaper
Transactions. The current year comparison was also impacted by the prior year
sale of the Hamilton newspaper property that reduced third-quarter 1999 net
income by approximately $500,000, or $0.02 per diluted share.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH 1999
Operating revenues for the first nine months of 2000 increased 15.4
percent, to $333.8 million from $289.4 million in the prior year nine-month
period. The gain primarily reflected higher advertising revenues and
contributions from The Pantagraph, acquired in January 2000, and the Suburban
Journals, acquired in August 2000. Excluding the results of properties acquired
in 2000, revenues for the first nine months of 2000 increased 5.6 percent.
Newspaper advertising revenues increased $31.6 million, or 16.5
percent, in the first nine months of 2000. The current year increase primarily
reflected the addition of new advertising revenue from The Pantagraph and
Suburban Journals, as well as higher revenue at the Post-Dispatch. At the
Post-Dispatch, gains were driven by increases in national and classified
advertising, reflecting rate increases in January 2000 as well as a prior
classified rate increase in mid-1999. Excluding the results of properties
acquired in 2000, advertising revenues increased 6.6 percent, reflecting the
Post-Dispatch gains as well as solid increases at the Star and at many of the PN
Group locations.
Circulation revenues increased $3.6 million, or 5.5 percent, in the
nine-month period of 2000. The higher circulation revenues reflected the
addition of new circulation revenue from The Pantagraph.
Other publishing revenues increased $9.2 million, or 27.5 percent, in
2000, resulting primarily from the addition of new preprint revenue from The
Pantagraph and Suburban Journals, higher preprint revenue at the Post-Dispatch
and higher revenue from the Company's "new media" operations.
Operating expenses (including selling, general and administrative
expenses, general corporate expense and depreciation and amortization),
excluding the St. Louis Agency adjustment, increased 6.2 percent to $281 million
for the first nine months of 2000. The prior year expense included $26.7 million
of stock option cash-out and bonus payments to publishing employees in
connection with the prior year broadcasting merger (the "Merger"). (See Note 1
to the Company's consolidated financial statements included in Item 1. of this
Quarterly Report on Form 10-Q.) Excluding these Merger costs from 1999, the
results of properties acquired in 2000 and new goodwill amortization in 2000
related to the Company's increased interest in the Post-Dispatch, operating
expenses increased 6.2 percent to $252.7 million in 2000 from $237.9 million in
the prior year. The increase on a comparable basis primarily reflected higher
overall personnel costs of $8.9 million and higher depreciation and amortization
expense of approximately $2 million. A substantial portion of the increased
expenses was related to investments in expanded sales staffs and online
capabilities at many of the Company's newspapers and enhancements to the Star.
For the first nine months of 2000, the Company reported operating
income of $43.5 million compared to $6.4 million in the prior year. Excluding
the Merger costs of $26.7 million from the prior year, operating income would
have increased 31.2 percent to $43.5 million from $33.1 million in the prior
year. The significant current year increase primarily reflected the impact of
the Company's increased interest in the results of operations of the
Post-Dispatch and contributions from The Pantagraph and Suburban Journals to
operating income in 2000.
14
15
Interest income for the first nine months of 2000 decreased to $15.9
million from $17 million in the corresponding period of the prior year. The
decrease reflected the lower average balance of invested funds in the current
year due to the outflow of approximately $180 million of combined cash and
marketable securities on January 11, 2000 in connection with the Pantagraph
Acquisition and $165 million on August 10, 2000 in connection with the Journals
Acquisition. The comparison also reflected the prior year inflow of
approximately $429 million of net cash in connection with the Broadcast
Transaction on March 18, 1999. (See Note 1 to the Company's consolidated
financial statements included in Item 1. of this Quarterly Report on Form 10-Q
for a discussion of the Broadcast Transaction.)
The Company reported interest expense of $10 million in the first nine
months of 2000. The current year interest expense results from the $306 million
borrowing by PD LLC on May 1, 2000 to fund the cash distribution to Herald under
the terms of the Operating Agreement.
The Company reported a net loss on marketable securities and
investments of $1.8 million in the first nine months of 2000 compared with a
gain of $247,000 in 1999. The current year loss resulted from marketable
security investment losses of $3.9 million and the $1.7 million iOwn
investment write-down that were partially offset by limited partnership gains of
$3.8 million. The prior year gain resulted from the favorable performance of two
limited partnership investments that generated gains of $1.9 million but were
partially offset by marketable security investment losses of $1.6 million.
During the first nine months of 2000, the Company reported its equity
in the losses of a joint venture investment of $1.3 million. As of September 30,
2000, the Company has a remaining investment balance of approximately $2.4
million in this joint venture.
Net other expense for 2000 was $1.1 million compared with $2.4 million
in the prior year. The higher expense in the prior year resulted primarily from
a loss of $1.1 million related to the sale of the Company's newspaper property
in Hamilton, Montana in May 1999.
The effective income tax rate for the first nine months of 2000 was 42
percent compared with a rate of 46.9 percent in the prior year. The higher
effective tax rate in the prior year primarily reflected the impact of the
Hamilton newspaper sale.
For the first nine months of 2000, the Company reported income from
continuing operations of $25.9 million, or $1.18 per diluted share, compared to
income of $11.3 million, or $0.50 per diluted share, in the prior year. The
current year comparison is impacted primarily by dilution from the Newspaper
Transactions that reduced current year earnings by approximately $4.8 million,
or $0.22 per diluted share, and the prior year Merger costs of $26.7 million
(pretax) that reduced 1999 earnings by $15.5 million, or $0.68 per diluted
share.
Fluctuations in the price of newsprint significantly impact the results
of the Company's newspaper operations, where newsprint expense typically
accounts for approximately 15 to 20 percent of total operating costs. The
Company's average cost for newsprint was approximately $530 per metric ton for
both the first nine months of 2000 and 1999. On September 1, 2000, the Company's
newsprint suppliers increased the price of newsprint from approximately $550 to
approximately $600 per metric ton. This price increase will begin to impact the
Company's newsprint costs in the fourth quarter of 2000. In the fourth quarter
of 1999, the Company's average cost per metric ton of newsprint was
approximately $464. Based on the Company's current level of newspaper
operations, expected annual newsprint consumption is estimated to be in the
range of 121,000 to 123,000 metric tons.
15
16
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had $306 million of outstanding
debt compared with no outstanding debt as of December 31, 1999. The new
borrowing was made on May 1, 2000 to fund a $306 million cash distribution to
Herald under the terms of the PD LLC Operating Agreement. The aggregate
principal amount of the Loan is payable on April 28, 2009 and bears interest at
an annual rate of 8.05 percent. The Loan is guaranteed by the Company pursuant
to a Guaranty Agreement with the Lenders. In turn, pursuant to an Indemnity
Agreement entered into between Herald and the Company, Herald agreed to
indemnify the Company for any payments that the Company may make under the
Guaranty Agreement.
The Loan requires the Company to maintain certain financial ratios and
prohibits new borrowings, except as permitted thereunder.
As of September 30, 2000, the Company had a combined balance of cash
and marketable securities of approximately $200 million compared with a balance
of approximately $558 million as of December 31, 1999. The decline since
December 31, 1999 primarily reflects the Company's payment of the $180 million
acquisition price for The Pantagraph on January 11, 2000 and $165 million for
the Suburban Journals on August 10, 2000.
As of September 30, 2000, commitments for capital expenditures were
approximately $2.8 million, relating to normal capital equipment replacements.
Capital expenditures to be made by the Company in fiscal 2000 are estimated to
be in the range of $8 to $10 million. In addition, as of September 30, 2000, the
Company had capital contribution commitments of approximately $12.7 million
related to limited partnership investments.
On July 16, 1999, the Company's Board of Directors approved the
repurchase of up to $50 million of its common stock in the open market. On May
1, 2000, the Company announced that its Board of Directors had authorized an
additional $50 million repurchase of its common stock. During the third quarter
of 2000, the Company's Board of Directors amended the Company's repurchase
program to provide for both the purchase of Class B shares and the purchase of
shares in privately negotiated transactions. On August 16, 2000, the Company
purchased 1,000,000 shares of Class B common stock from Michael E. Pulitzer, the
Company's Chairman of the Board, for $40.1 million. As of September 30, 2000,
the Company had repurchased 1,000,000 shares of Class B common stock and 527,300
shares of common stock for a combined purchase price of approximately $61.8
million.
The Company generally expects to generate sufficient cash from
operations to cover ordinary capital expenditures, working capital requirements,
interest payments and dividend payments.
16
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The primary raw material used in the Company's operations is newsprint,
typically representing 15 to 20 percent of operating expenses. Based on the
Company's current level of newspaper operations, expected annual newsprint
consumption is estimated to be in the range of 121,000 to 123,000 metric tons.
Historically, newsprint has been subject to significant price fluctuations from
year to year, unrelated in many cases to general economic conditions. In the
last five years, the Company's average annual cost per ton of newsprint has
varied from a low of $514 per metric ton in 1999 to a high of $675 per metric
ton in 1995. For the first nine months of 2000, the Company's average cost of
newsprint was approximately $530 per metric ton. On September 1, 2000, the
Company's newsprint suppliers increased the price of newsprint from
approximately $550 to approximately $600 per metric ton. This price increase
will begin to impact the Company's newsprint costs in the fourth quarter of
2000. The Company attempts to obtain the best price available by combining
newsprint purchases for its different newspaper locations but does not enter
into derivative contracts in an attempt to reduce the impact of year to year
price fluctuations on its consolidated newsprint expense.
The Loan bears interest at a fixed annual rate of 8.05 percent.
Consequently, if held to maturity, the Loan will not expose the Company to
market risks associated with general fluctuations in interest rates.
As of September 30, 2000, the Company had a combined balance of cash
and marketable securities of approximately $200 million. The Company anticipates
that a portion of these funds will be used in connection with its capital stock
repurchase program. In addition, the Company may fund potential newspaper
acquisitions with a portion of its available cash and marketable securities. In
the interim, the Company's investments in marketable securities include a
mixture of short to mid-term government, corporate and asset-backed debt
obligations. These investments will expose the Company to market risks that may
cause the future value of these investments to be lower than their original
cost.
17
18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
27.1 Financial Data Schedule
(b) Reports on Form 8-K. The Company filed a Current Report on Form
8-K on June 26, 2000 related to the Asset Sale and Purchase
Agreement entered into with the Journal Register Company. Also,
the Company filed a Current Report on Form 8-K on August 10, 2000
related to the completion of its acquisition of the Suburban
Journals.
All other items of this report are not applicable for the current quarter.
SIGNATURES
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.
PULITZER INC.
(Registrant)
Date: November 8, 2000 /s/ Ronald H. Ridgway
--------------------------------------
(Ronald H. Ridgway)
Director; Senior Vice-President-Finance
(on behalf of the Registrant and
as principal financial officer)
18
19
EXHIBIT INDEX
27.1 Financial Data Schedule
19