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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 30, 2001
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
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PULITZER INC.
(Exact name of registrant as specified in its charter)
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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)
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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 / /
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING 11/8/01
- ---------------------- ---------------------
COMMON STOCK 9,150,380
CLASS B COMMON STOCK 12,059,077
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
________________________________________________________________________________
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED -- IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Third Quarter Ended Nine Months Ended
------------------------- ------------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2001 2000 2001 2000
----------- ----------- ---------- ----------
OPERATING REVENUES:
Advertising
Retail $28,329 $27,005 $86,976 $75,781
National 5,494 5,383 19,304 16,266
Classified 32,996 35,730 102,823 101,209
---------- ---------- --------- ---------
Total 66,819 68,118 209,103 193,256
Preprints 10,576 10,156 33,201 28,305
---------- ---------- --------- ---------
Total advertising 77,395 78,274 242,304 221,561
Circulation 20,449 20,120 61,299 60,195
Other 2,727 2,844 8,209 7,897
---------- ---------- --------- ---------
Total operating revenues 100,571 101,238 311,812 289,653
---------- ---------- --------- ---------
OPERATING EXPENSES:
Payroll and other personnel expenses 44,647 40,482 133,560 116,928
Newsprint expense 13,986 13,960 44,564 38,094
St. Louis Agency adjustment 9,363
Depreciation 3,213 3,662 10,883 10,141
Amortization 6,699 5,918 19,904 13,478
Other expenses 28,744 26,328 84,166 73,964
---------- ---------- --------- ---------
Total operating expenses 97,289 90,350 293,077 261,968
---------- ---------- --------- ---------
Equity in earnings of Tucson newspaper partnership 3,934 5,220 13,112 15,780
Net gain (loss) on sale of properties 1,228 (2,672)
---------- ---------- --------- ---------
Operating income 8,444 16,108 29,175 43,465
Interest income 1,752 4,451 6,385 15,932
Interest expense (6,176) (6,168) (18,532) (9,963)
Net loss on marketable securities and investments (500) (4,773) (1,999) (1,812)
Equity in losses of joint venture investment (290) (273) (871) (1,268)
Net other expense (438) (363) (1,309) (1,126)
---------- ---------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,792 8,982 12,849 45,228
PROVISION FOR INCOME TAXES 1,167 3,544 4,664 18,768
MINORITY INTEREST IN NET EARNINGS OF
SUBSIDIARY 77 426 500 588
---------- ---------- --------- ---------
NET INCOME $1,548 $5,012 $7,685 $25,872
========== ========== ========= =========
BASIC EARNINGS PER SHARE OF STOCK:
Earnings per share $0.07 $0.23 $0.36 $1.18
========== ========== ========= =========
Weighted average number of shares outstanding 21,204 21,634 21,186 21,962
========== ========== ========= =========
DILUTED EARNINGS PER SHARE OF STOCK:
Earnings per share $0.07 $0.23 $0.36 $1.18
========== ========== ========= =========
Weighted average number of shares outstanding 21,348 21,669 21,367 21,987
========== ========== ========= =========
See notes to consolidated financial statements.
2
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(UNAUDITED -- IN THOUSANDS)
Third Quarter Ended Nine Months Ended
------------------------- ------------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2001 2000 2001 2000
----------- ----------- ---------- ----------
NET INCOME $1,548 $5,012 $7,685 $25,872
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Unrealized holding gains on marketable
securities arising during the period 1,248 627 506
Reclassification adjustment 1,879 (398) 2,378
---------- --------- -------- --------
Other comprehensive income 3,127 229 2,884
---------- --------- -------- --------
COMPREHENSIVE INCOME $1,548 $8,139 $7,914 $28,756
========== ========= ======== ========
See notes to consolidated financial statements.
3
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(UNAUDITED -- IN THOUSANDS)
September 30, December 31,
2001 2000
---------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $181,660 $67,447
Marketable securities 126,866
Trade accounts receivable (less allowance for doubtful
accounts of $3,147 and $2,587) 52,261 53,912
Inventory 2,606 5,468
Income taxes receivable 1,612
Prepaid expenses and other 26,226 12,888
------------ ------------
Total current assets 262,753 268,193
------------ ------------
PROPERTIES:
Land 7,536 7,959
Buildings 53,158 53,922
Machinery and equipment 141,402 139,340
Construction in progress 6,864 2,984
------------ ------------
Total 208,960 204,205
Less accumulated depreciation 102,612 93,398
------------ ------------
Properties - net 106,348 110,807
------------ ------------
INTANGIBLE AND OTHER ASSETS:
Intangible assets - net of amortization 837,252 838,012
Restricted cash 21,060 9,810
Other 60,000 56,051
------------ ------------
Total intangible and other assets 918,312 903,873
------------ ------------
TOTAL $1,287,413 $1,282,873
============ ============
(Continued)
4
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(UNAUDITED -- IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
2001 2000
--------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $12,371 $14,463
Salaries, wages and commissions 14,008 14,886
Income taxes payable 850
Interest payable 4,399 4,424
Pension obligations 4,031 611
Acquisition payable 9,707 9,707
Dividends payable 3,604
Other 5,826 5,483
----------- -----------
Total current liabilities 54,796 49,574
----------- -----------
LONG-TERM DEBT 306,000 306,000
----------- -----------
PENSION OBLIGATIONS 26,848 28,470
----------- -----------
POSTRETIREMENT AND POSTEMPLOYMENT
BENEFIT OBLIGATIONS 88,775 87,318
----------- -----------
OTHER LONG-TERM LIABILITIES 14,866 11,810
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 100,000,000 shares authorized;
issued and outstanding - none
Common stock, $.01 par value; 100,000,000 shares authorized;
issued - 9,619,236 in 2001 and 9,414,704 in 2000 96 94
Class B common stock, convertible, $.01 par value; 100,000,000
shares authorized; issued - 13,119,077 in 2001 and
13,265,521 in 2000 131 133
Additional paid-in capital 430,168 427,214
Retained earnings 427,863 434,580
Accumulated other comprehensive loss (139) (368)
----------- -----------
Total 858,119 861,653
Treasury stock - at cost; 528,895 and 527,971 shares of common
stock in 2001 and 2000, respectively, and 1,000,000 shares of
Class B common stock in 2001 and 2000 (61,991) (61,952)
----------- -----------
Total stockholders' equity 796,128 799,701
----------- -----------
TOTAL $1,287,413 $1,282,873
=========== ===========
(Concluded)
See notes to consolidated financial statements.
5
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED -- IN THOUSANDS)
Nine Months Ended
--------------------------------
Sept. 30, Sept. 24,
2001 2000
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $7,685 $25,872
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 10,883 10,141
Amortization 19,904 13,478
Loss on sale of assets, net 2,070 3,893
Equity in losses of joint venture investment 871 1,268
Changes in assets and liabilities (net of the effects of the purchase
and sale of properties) which provided (used) cash:
Trade accounts receivable 741 (1,823)
Inventory 2,727 1,643
Other assets (12,124) 11,815
Trade accounts payable and other liabilities 4,392 2,282
Income taxes receivable/payable 2,467 16,470
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 39,616 85,039
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,070) (6,446)
Purchase of properties, net of cash acquired (16,005) (669,979)
Sale of properties 19,516
Purchase of newspaper circulation routes (21,717) (9,894)
Purchases of marketable securities (19,824) (84,421)
Sales of marketable securities 145,968 393,759
Investment in joint ventures and limited partnerships (4,419) (8,571)
Increase in restricted cash (11,250) (6,060)
Decrease (increase) in notes receivable (170) 160
--------- ---------
NET CASH FROM INVESTING ACTIVITIES 83,029 (391,452)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (10,798) (10,618)
Proceeds from issuance of long-term debt 306,000
Proceeds from exercise of stock options 1,768
Proceeds from employee stock purchase plan 637 595
Purchase of treasury stock (39) (40,141)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES (8,432) 255,836
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 114,213 (50,577)
--------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 67,447 106,177
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $181,660 $55,600
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest paid $18,557 $5,922
Interest received (8,046) (19,518)
Income taxes 3,758 20,129
Income tax refunds (79) (17,830)
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Increase in Dividends Payable and decrease in Retained Earnings $3,604 $3,379
See notes to consolidated financial statements.
6
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES
Basis of Consolidation - The consolidated financial statements include the
accounts of Pulitzer Inc. (the "Company") and its subsidiary companies, all of
which are wholly-owned except for the Company's 95 percent interest in the
results of operations of the St. Louis Post-Dispatch LLC. All significant
intercompany transactions have been eliminated from the consolidated financial
statements.
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, 2001 and the results of operations for
the three-month and nine-month periods ended September 30, 2001 and September
24, 2000 and cash flows for the nine-month periods ended September 30, 2001 and
September 24, 2000. 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, 2000. Results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
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 (primarily outstanding stock options).
Weighted average shares used in the calculation of basic and diluted earnings
per share are summarized as follows:
Third Quarter Ended Nine Months Ended
------------------------- -------------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2001 2000 2001 2000
----------- ----------- ----------- ----------
(In thousands) (In thousands)
Weighted average shares outstanding (Basic EPS) 21,204 21,634 21,186 21,962
Common stock equivalents 144 35 181 25
------- ------- ------- -------
Weighted average shares outstanding and
common stock equivalents (Diluted EPS) 21,348 21,669 21,367 21,987
======= ======= ======= =======
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 exercise 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.
New Accounting Pronouncements - In July 2001, the Financial Accounting Standards
Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 141 requires that all business combinations be
accounted for under the purchase method. The statement further requires separate
recognition of intangible assets that meet certain criteria. The statement
applies to all business combinations initiated after June 30, 2001.
SFAS No. 142, which is effective for fiscal periods beginning after December 15,
2001, requires that an intangible asset that is acquired shall be initially
recognized and measured based on its fair value. The statement also provides
that goodwill and other indefinite lived intangible assets should not be
amortized, but shall be tested for impairment annually, or more frequently if
circumstances indicate potential impairment, through a comparison of fair value
to its carrying amount. Existing goodwill and other indefinite lived intangible
assets will continue to be amortized through the remainder of fiscal 2001 at
which time amortization will cease and the Company will perform a transitional
impairment test. Amortization expense related to goodwill and other indefinite
lived intangible assets for the three-month
7
and nine-month periods ended September 30, 2001 was $5.0 million and $15.2
million, respectively. The Company is evaluating the impact of this
pronouncement as it relates to the transitional and annual assessments for
impairment of recorded goodwill and other indefinite lived intangibles on the
Company's financial statements.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which
establishes a single accounting model, based on the framework established in
SFAS No. 121, for long-lived assets to be disposed of by sale and resolves
significant implementation issues related to SFAS No. 121. The statement is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and is not expected to have a material impact on the Company.
Reclassifications - Certain reclassifications have been made to the 2000
consolidated financial statements to conform with the 2001 presentation.
2. TUCSON NEWSPAPER PARTNERSHIP
In Tucson, Arizona, a separate partnership, TNI Partners ("TNI"), acting as
agent for the Arizona Daily Star (the "Star", a newspaper owned by the Company)
and the Tucson Citizen (the "Citizen", a newspaper owned by Gannett Co., Inc.),
is responsible for printing, delivery, advertising, and circulation of the Star
and the Citizen. TNI collects all of the receipts and income relating to the
Star and the Citizen and pays all operating expenses incident to the
partnership's operations and publication of the newspapers. Each newspaper is
solely responsible for its own news and editorial content. Net pre-tax income or
loss of TNI is allocated equally to the Star and the Citizen. The Company's 50
percent share of TNI's operating results is presented as a single component of
operating income in the accompanying statements of consolidated income.
Summarized financial information for TNI is as follows:
September 30, December 31,
2001 2000
------------- ------------
(In thousands)
Current assets $16,950 $16,677
Current liabilities $ 8,526 $ 7,879
Partners' equity $ 8,424 $ 8,798
Third Quarter Ended Nine Months Ended
--------------------- ---------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2001 2000 2001 2000
--------- --------- --------- ----------
(In thousands) (In thousands)
Operating revenues $25,022 $28,690 $80,240 $88,252
Operating income $ 7,868 $10,440 $26,224 $31,560
The Company's share of
operating income $ 3,934 $ 5,220 $13,112 $15,780
3. ACQUISITION AND DISPOSITION OF PROPERTIES
In the first nine months of 2001, the Company recorded a pre-tax loss of $2.7
million related to the sale of its daily newspaper located in Troy, Ohio, the
sale of its St. Louis Internet Access Provider (ISP) business and the sale of
its newspaper property in Petaluma, California (the "Sale Transactions"). These
amounts are included in 2001 operating income as a separate line, "Net gain
(loss) on sale of properties."
On February 1, 2001, the Company, through its Pulitzer Newspapers, Inc. ("PNI")
Group, acquired in an asset purchase The Lompoc Record, a daily newspaper
located in Lompoc, California. In addition, during the second half of 2000 and
the first nine months of 2001, the PNI Group acquired several weekly newspapers
(in separate transactions) that complement its daily newspapers in several
markets. These acquisitions are collectively referred to as the "PNI
Acquisitions."
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 approximately $170 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 weekly papers
and various niche
8
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.
On May 1, 2000, the Company 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"). Under the terms of the operating agreement governing PD LLC (the
"Operating Agreement"), the Company holds 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, the Company and Herald generally
shared the Post-Dispatch's 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 borrowing by PD
LLC (the "Loan") that is guaranteed by the Company pursuant to a Guaranty
Agreement dated as of May 1, 2000 ("Guaranty Agreement"). In turn, pursuant to
an Indemnity Agreement dated as of May 1, 2000 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.
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 ("The Pantagraph
Acquisition"). The Company funded this acquisition with internal cash generated
from the sale of a portion of its marketable security investments.
In connection with The Pantagraph Acquisition, the Venture and the Journals
Acquisition (collectively the "Newspaper Transactions"), the Company recorded
goodwill and mastheads of approximately $616 million.
The following supplemental unaudited pro forma information shows the results of
operations of the Company and its subsidiaries for the three-month and
nine-month periods ended September 24, 2000 assuming the Newspaper Transactions
and the Loan had been consummated at the beginning of 2000. The unaudited pro
forma financial information is not necessarily indicative either of results of
operations that would have occurred had the Newspaper Transactions and Loan
occurred at the beginning of 2000, or of future results of operations. The pro
forma impact of the Sale Transactions and PNI Acquisitions on the Company's
results of operations is not material for the three-month and nine-month periods
ended September 30, 2001 and September 24, 2000.
Third Quarter Nine Months
Ended Ended
September 24, September 24,
2000 2000
---------------- ---------------
In thousands, except earnings per share:
Operating revenues - net $107,418 $322,130
======== ========
Operating income $16,678 $52,778
======== ========
Net income $4,612 $22,380
======== ========
Basic earnings per share of stock:
Net income $0.21 $1.02
======== ========
Weighted average number of shares outstanding 21,634 21,962
======== ========
Diluted earnings per share of stock:
Net income $0.21 $1.02
======== ========
Weighted average number of shares outstanding 21,669 21,987
======== ========
9
4. COMMITMENTS AND CONTINGENCIES
At September 30, 2001, the Company and its subsidiaries had capital commitments
for building and equipment replacements of approximately $24.1 million.
The Company is an investor in one limited partnership requiring future capital
contributions. As of September 30, 2001, the Company's unfunded capital
contribution commitment related to this investment was approximately $11.1
million.
The Company and its subsidiaries are involved, from time to time, in various
claims and lawsuits incidental to the ordinary course of their businesses,
including such matters as libel 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.
As of May 25, 1998, Pulitzer Publishing Company ("Old Pulitzer"), the Company
and Hearst-Argyle Television, Inc. ("Hearst-Argyle") entered into an Amended and
Restated Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
Hearst-Argyle agreed to acquire Old Pulitzer's television and radio broadcasting
operations (collectively, the "Broadcasting Business") in exchange for the
issuance to Old Pulitzer's stockholders of 37,096,774 shares of Hearst-Argyle's
Series A common stock. On March 18, 1999, the Broadcasting Business was acquired
by Hearst-Argyle through the merger (the "Merger") of Old Pulitzer into
Hearst-Argyle. Prior to the Merger, Old Pulitzer contributed its newspaper
publishing and related new media businesses to the Company and distributed all
the then outstanding shares of stock of the Company to Old Pulitzer stockholders
in a tax-free "spin-off" (the "Spin-off").
Pursuant to the Merger Agreement, the Company is obligated to indemnify
Hearst-Argyle against losses related to: (i) on an after tax basis, certain tax
liabilities, including (A) any transfer tax liability attributable to the
Spin-off, (B) with certain exceptions, any tax liability of Old Pulitzer or any
subsidiary of Old Pulitzer attributable to any tax period (or portion thereof)
ending on or before the closing date of the Merger, including tax liabilities
resulting from the Spin-off, and (C) any tax liability of the Company or any
subsidiary of the Company; (ii) liabilities and obligations under any employee
benefit plans not assumed by Hearst-Argyle, and (iii) certain other matters as
set forth in the Merger Agreement.
In October 2001, the IRS formally proposed that the consolidated taxable income
of Old Pulitzer and its subsidiaries for the tax year ended March 18, 1999 be
increased by approximately $80.4 million. The proposed increase is based on the
assertion that Old Pulitzer was required to recognize taxable gain in that
amount as a result of the Spin-off and the Merger. The amount of such gain was
to be measured by the difference between the fair market value, on the date of
the Spin-off, of the distributed stock of the Company and Old Pulitzer's
adjusted tax basis in such stock. While the Company and the IRS agree on the
amount of Old Pulitzer's adjusted tax basis in the distributed stock of the
Company at the time of the Spin-off, they disagree on the fair market value of
the distributed Company stock at that time. The Company maintains that the
fair market value of the distributed Company stock at the time of the Spin-off
was lower than Old Pulitzer's adjusted tax basis in such stock, thus yielding
a loss, rather than a taxable gain. The IRS, on the other hand, has asserted
that the fair market value of the distributed Company stock exceeded Old
Pulitzer's adjusted tax basis in such stock by an amount yielding a taxable
gain of approximately $80.4 million.
Under the Merger Agreement, the Company is obligated to indemnify Hearst-Argyle
against any tax liability attributable to the Spin-off and has the right to
control any proceedings relating to the determination of such tax liability.
Pursuant to this authority, the Company has advised the IRS of the Company's
disagreement with the IRS' determination and intends to file a formal written
protest with the Appeals Office of the IRS in which the Company will set forth
the basis for its disagreement. The Company believes that its determination of
the fair market value of the distributed Company stock at the time of the
Spin-off was correct and intends to vigorously contest the IRS' determination.
In view of the Company's position, it has not accrued any liability in
connection with this matter. There can be no assurance, however, that the
Company will completely prevail in its assertion. If the IRS were completely
successful in its proposed adjustment of Old Pulitzer's federal income tax
liability attributable to the Spin-off, the Company's indemnification
obligation to Hearst-Argyle for federal and Missouri state income taxes would be
approximately $29.4 million, plus applicable interest, and would be recorded as
an adjustment to additional paid-in capital.
On May 1, 2000, the Company and Herald completed the transfer of their
respective interests in the assets and operations of the Post-Dispatch and
certain related businesses to a new joint venture, known as PD LLC. During the
first ten years of the Venture (see Note 3), PD LLC is restricted from making
distributions (except
10
under specified circumstances), capital expenditures and member loan repayments
unless it has set aside out of its cash flow a reserve equal to the product of
$15 million and the number of years since May 1, 2000, but not in excess of $150
million. On May 1, 2010, Herald will have a one-time right to require PD LLC to
redeem Herald's interest in PD LLC, together with Herald's interest, if any, in
another limited liability company in which the Company is the managing member
and which is engaged in the business of delivering publications and products in
the greater St. Louis metropolitan area ("DS LLC"). The redemption price for
Herald's interests will be determined pursuant to a formula yielding an amount
which will result in the present value to May 1, 2000 of the after-tax cash
flows to Herald (based on certain assumptions) from PD LLC, including the
initial distribution and the special distribution described below, if any, and
from DS LLC, being equal to $275 million. In the event that PD LLC has an
increase in the tax basis of its assets as a result of Herald's recognizing
taxable income from certain transactions effected under the agreement governing
the contributions of the Company and Herald to PD LLC and the Operating
Agreement or from the transactions effected in connection with the organization
of DS LLC, Herald generally will be entitled to receive a special distribution
from PD LLC in an amount that corresponds, approximately, to the present value
after-tax benefit to the members of PD LLC of the tax basis increase. Upon the
termination of PD LLC and DS LLC, which will be on May 1, 2015 (unless Herald
exercises the redemption right described above), Herald will be entitled to the
liquidation value of its interests in PD LLC and DS LLC. The Company may
purchase Herald's interests at that time for an amount equal to what Herald
would be entitled on liquidation. That amount will be equal to the amount of its
capital accounts, after allocating the gain or loss that would result from a
cash sale of PD LLC's and DS LLC's assets for their fair market value at that
time. Herald's share of such gain or loss generally will be 5 percent, but will
be reduced (but not below 1 percent) to the extent that the present value to May
1, 2000 of the after-tax cash flows to Herald from PD LLC and from DS LLC,
including the initial distribution, the special distribution described above, if
any, and the liquidation amount (based on certain assumptions), exceeds $325
million.
5. OPERATING REVENUES
The Company's consolidated operating revenues consist of the following:
Third Quarter Ended Nine Months Ended
---------------------------- -----------------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2001 2000 2001 2000
----------- ------------ ------------ ------------
(In thousands) (In thousands)
Combined St. Louis operations $72,263 $72,861 $225,163 $207,119
Pulitzer Newspapers, Inc. 28,308 28,377 86,649 82,534
---------- ---------- ---------- ----------
Total $100,571 $101,238 $311,812 $289,653
========== ========== ========== ==========
* * * * * *
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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.
ACQUISITION AND DISPOSITION OF PROPERTIES
In the first nine months of 2001, the Company recorded a pre-tax loss of
$2.7 million related to the sale of its daily newspaper located in Troy, Ohio,
the sale of its St. Louis Internet Access Provider (ISP) business and the sale
of its newspaper property in Petaluma, California (the "Sale Transactions").
These amounts are included in 2001 operating expenses as a separate line, "Net
gain (loss) on sale of properties."
On February 1, 2001, the Company, through its Pulitzer Newspapers, Inc.
("PNI") Group, acquired in an asset purchase The Lompoc Record, a daily
newspaper located in Lompoc, California. In addition, during the second half of
2000 and the first nine months of 2001, the PNI Group acquired several weekly
newspapers (in separate transactions) that complement its daily newspapers in
several markets. These acquisitions are collectively referred to as the "PNI
Acquisitions."
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"), a group of 36 weekly papers and various
niche publications (the "Journals Acquisition").
On May 1, 2000, the Company 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, known as St. Louis Post-Dispatch LLC
("PD LLC"). Under the terms of the operating agreement governing PD LLC (the
"Operating Agreement"), the Company holds 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, the Company and Herald generally
shared the Post-Dispatch's 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 borrowing by PD
LLC that is guaranteed by the Company pursuant to a Guaranty Agreement dated as
of May 1, 2000 ("Guaranty Agreement"). In turn, pursuant to an Indemnity
Agreement dated as of May 1, 2000 entered
12
into between Herald and the Company, Herald agreed to indemnify the Company for
any payments that the Company may make under the Guaranty Agreement.
On January 11, 2000, the Company acquired The Pantagraph, a daily and Sunday
newspaper that serves the central Illinois cities of Bloomington and Normal.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH 2000
Operating revenues for the third quarter of 2001 decreased 0.7 percent, to
$100.6 million from $101.2 million in the third quarter of 2000. On a comparable
basis, excluding the results of properties acquired and sold from both years,
revenues for the third quarter of 2001 decreased 6.3 percent. The current period
decline reflected weak advertising demand at many of the Company's newspaper
locations.
Advertising revenues decreased $0.9 million, or 1.1 percent, in the third
quarter of 2001. On a comparable basis, excluding the results of properties
acquired and sold from both years, advertising revenues for the third quarter
declined 8.1 percent, reflecting weak demand in retail and classified,
particularly help wanted, advertising. For the third quarter of 2001, help
wanted advertising revenue in St. Louis was down 30.8 percent from the prior
year period.
Circulation revenues increased $0.3 million, or 1.6 percent, in the third
quarter of 2001. The higher circulation revenues resulted primarily from
revenue increases at the Post-Dispatch.
Operating expenses increased 7.7 percent to $97.3 million for the third
quarter of 2001 from $90.4 million in the third quarter of 2000. On a comparable
basis, excluding the results of properties acquired and sold from both years as
well as incremental goodwill amortization in 2001 related to the Company's
increased interest in the results of the Post-Dispatch, expenses for the third
quarter of 2001 increased 1.9 percent. The higher expenses on a comparable basis
reflected increased postretirement medical benefit costs of $1.7 million.
Excluding this postretirement increase, all other comparable expenses were down
0.1 percent for the third quarter.
Equity in the earnings of the Tucson newspaper partnership for the third
quarter of 2001 decreased 24.6 percent to $3.9 million from $5.2 million in the
third quarter of 2000. The decrease primarily reflected weak demand in retail
and classified, particularly help wanted, advertising. For the third quarter of
2001, help wanted advertising revenue in Tucson was down 30.6 percent from the
prior year. The decrease in advertising revenue was partially offset by a
decline in expenses of 4.9 percent in the third quarter of 2001.
For the third quarter of 2001, the Company reported operating income of $8.4
million compared to $16.1 million in the prior year quarter. This decrease in
2001 third-quarter operating income primarily reflected the decline in
comparable advertising revenues and the higher postretirement costs which were
partially offset by the gain from the sale of the Petaluma newspaper property.
Interest income for the third quarter of 2001 decreased to $1.8 million
from $4.5 million in the prior year quarter. This decline resulted from the
combination of a decrease of approximately $124 million in the average balance
of invested funds in the current year quarter and lower average interest rates.
The lower average balance of invested funds reflected a combined cash outflow of
approximately $210 million for the Journals Acquisition and the repurchase of
capital stock in August of 2000.
The Company reported interest expense of $6.2 million in the third quarter
of both 2001 and 2000, related to PD LLC's $306 million of long-term debt.
The Company reported a loss on marketable securities and investments of $0.5
million in the third quarter of 2001 compared with a loss of $4.8 million in the
prior year quarter. The current quarter loss resulted from an adjustment to the
carrying value of an investment. The prior year loss was due to a loss on
marketable securities of $3.1 million and the write off of an investment in iOwn
of $1.7 million.
The effective income tax rate for the third quarter of 2001 was 41.8 percent
compared with a rate of 39.5 percent in the prior year. The higher effective tax
rate in the current year quarter resulted primarily from the sale of the
Petaluma newspaper property.
For the third quarter of 2001, the Company reported net income of $1.5
million, or $0.07 per diluted share, compared to $5.0 million, or $0.23 per
diluted share, in the prior year quarter. The decline in 2001 third-quarter net
income primarily reflected the weak advertising demand and lower interest rates
in the
13
current-year quarter. In addition, results were also affected by the impact of
interest costs and amortization of intangibles from the Journals Acquisition
that closed in August of 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH 2000
Operating revenues for first nine months of 2001 increased 7.7 percent, to
$311.8 million from $289.7 million in the prior year nine-month period. The
increase reflected the current year contributions from the Suburban Journals and
the PNI Acquisitions. On a comparable basis, excluding the results of properties
acquired and sold from both years, revenues for the first nine months of 2001
decreased 3.3 percent. The current year decline reflected weak advertising
demand at many of the Company's newspapers.
Advertising revenues increased $20.7 million, or 9.4 percent, in the first
nine months of 2001. The current year increase reflected the addition of
advertising revenue from the Suburban Journals and the PNI Acquisitions. On a
comparable basis, excluding the results of properties acquired and sold from
both years, advertising revenues for the first nine months of 2001 declined 4.0
percent, reflecting weak demand in retail and classified, particularly help
wanted, advertising.
Circulation revenues increased $1.1 million, or 1.8 percent, in the first
nine months of 2001. The higher circulation revenues primarily reflected the
addition of circulation revenue from the PNI Acquisitions and increased revenue
at the Post-Dispatch.
Other publishing revenues increased $0.3 million, or 4.0 percent, in the
first nine months of 2001, resulting primarily from the addition of commercial
printing revenue from the PNI Acquisitions which was partially offset by a
decline in revenue from the St. Louis ISP operation that was sold in the first
quarter of 2001.
Operating expenses, excluding the St. Louis Agency adjustment from the prior
year, increased 16.0 percent to $293.1 million for the first nine months of 2001
from $252.6 million in the prior year nine-month period. On a comparable basis,
excluding the results of properties acquired and sold from both years,
inducement costs resulting from early retirement inducement programs in St.
Louis and Bloomington, and incremental goodwill amortization in 2001 related to
the Company's increased interest in the results of the Post-Dispatch, expenses
for the first nine months of 2001 increased 1.5 percent. The higher expenses on
a comparable basis reflected increased newsprint cost of $1.2 million, resulting
from higher newsprint prices in the 2001 nine-month period, and higher
postretirement benefit costs.
Equity in the earnings of the Tucson newspaper partnership for the first
nine months of 2001 decreased 16.9 percent to $13.1 million from $15.8 million
in the prior year nine-month period. The decrease primarily reflected weak
demand in retail and classified, particularly help wanted, advertising. The
decrease in advertising revenue was partially offset by a decline in expenses of
4.1 percent in the first nine months of 2001.
For the first nine months of 2001, the Company reported operating income of
$29.2 million compared to $43.5 million in the prior year nine-month period. The
decrease in operating income for the first nine months of 2001 primarily
reflected the decline in comparable advertising revenues, higher postretirement,
inducement and newsprint costs, incremental goodwill amortization related to the
Company's increased interest in the operations of the Post-Dispatch, and the
loss on sale of properties, which were partially offset by the elimination of
the St. Louis Agency adjustment in 2001.
Interest income for the first nine months of 2001 decreased to $6.4 million
from $15.9 million in the prior year quarter. The decrease primarily reflected
the lower average balance of invested funds in the current year period due to
the $210 million cash outflow for the Journals Acquisition and the repurchase of
capital stock in August of 2000. In addition, lower average interest rates also
contributed to the current year decline in interest income.
The Company reported interest expense of $18.5 million in the first nine
months of 2001 compared to $10.0 million in the prior year nine-month period.
Interest expense for the first nine months of 2001 reflected a full nine-month
period for which the $306 million PD LLC borrowing was outstanding compared with
five months (twenty one weeks) in the nine-month period of 2000.
The Company reported a loss on marketable securities and investments of $2.0
million in the first nine months of 2001 compared with a loss of $1.8 million in
the prior year nine-month period. The current year loss resulted from the
write-off of the Company's investment in KOZ of $2 million and the $0.5 million
reduction in the carrying value of an investment, which were partially offset by
gains from the sale of
14
marketable security investments. The prior year loss was primarily due to the
write off of the iOwn investment of $1.7 million.
The effective income tax rate for the first nine months of 2001 was 36.3
percent compared with a rate of 41.5 percent in the prior year nine-month
period. The lower effective tax rate in the current year primarily resulted from
the tax benefit recorded in connection with the sale of the Company's newspaper
property in Troy, Ohio.
For the first nine months of 2001, the Company reported net income of $7.7
million, or $0.36 per diluted share, compared to $25.9 million, or $1.18 per
diluted share, in the prior year nine-month period. The decline in net income
for the first nine months of 2001 primarily reflected the weak advertising
demand, higher newsprint prices and lower interest rates in the current-year
nine-month period. In addition, results were affected by the impact of interest
costs and amortization of intangibles from the PD LLC venture and Journals
Acquisition that closed in the second and third quarters, respectively, of the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, the Company had a cash balance of approximately
$182 million compared with a balance of cash and marketable securities of
approximately $194 million as of December 31, 2000.
At both September 30, 2001 and December 31, 2000, the Company had $306
million of outstanding debt pursuant to a loan agreement between PD LLC and a
group of institutional lenders led by Prudential Capital Group (the "Loan"). 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 agreements with respect to the Loan (the "Loan Agreements") contain
certain covenants and conditions including the maintenance of cash flow and
various other financial ratios, minimum net worth requirements and limitations
on the incurrence of other debt. In addition, the Loan Agreements and the
Operating Agreement require that PD LLC maintain a minimum reserve balance
consisting of cash and investments in U.S. government securities, totaling
approximately $21.0 million as of September 30, 2001. The Loan Agreements and
the Operating Agreement provide for a $3.75 million quarterly increase in the
minimum reserve balance through May 1, 2010.
As of September 30, 2001, capital commitments for building and equipment
replacements were approximately $24.1 million. Capital expenditures for building
and equipment to be made by the Company in fiscal 2001 are estimated to be in
the range of $13 to $15 million, which includes an estimated $1.5 million for a
Post-Dispatch plant expansion project. The total cost of the Post-Dispatch plant
expansion project, which is expected to be completed in late 2002, is estimated
to be in the range of $15 to $20 million. In addition, as of September 30, 2001,
the Company had a capital contribution commitment of approximately $11.1 million
related to a limited partnership investment.
In order to build a stronger, more direct relationship with its readers, the
Post-Dispatch has purchased a number of circulation routes from independent
carriers and dealers over the past two years and it may continue to purchase
additional routes from time to time in the future. During the third quarter of
2001, the cost of circulation route purchases by the Post-Dispatch was
approximately $8.1 million. As of September 30, 2001, PD LLC owns
circulation routes covering more than 50 percent of the Post-Dispatch's home
delivery and single copy distribution.
The Company's Board of Directors previously authorized the repurchase
of up to $100 million of the Company's outstanding capital stock. The Company's
repurchase program provides for the purchase of both common and Class B shares
in either the open market or in privately negotiated transactions. As of
September 30, 2001, the Company had repurchased under this authority 1,000,000
shares of Class B common stock and 528,895 shares of common stock for a
combined purchase price of approximately $61.9 million.
The Company generally expects to generate sufficient cash from operations to
cover capital expenditures, working capital requirements and dividend payments.
MERGER AGREEMENT INDEMNIFICATION
As of May 25, 1998, Pulitzer Publishing Company ("Old Pulitzer"), the
Company and Hearst-Argyle Television, Inc. ("Hearst-Argyle") entered into an
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement")
pursuant to which Hearst-Argyle agreed to acquire Old Pulitzer's television and
radio broadcasting operations (collectively, the "Broadcasting Business") in
exchange for the issuance to
15
Old Pulitzer's stockholders of 37,096,774 shares of Hearst-Argyle's Series A
common stock. On March 18, 1999, the Broadcasting Business was acquired by
Hearst-Argyle through the merger (the "Merger") of Old Pulitzer into
Hearst-Argyle. Prior to the Merger, Old Pulitzer contributed its newspaper
publishing and related new media businesses to the Company and distributed all
the then outstanding shares of stock of the Company to Old Pulitzer stockholders
in a tax-free "spin-off" (the "Spin-off").
Pursuant to the Merger Agreement, the Company is obligated to indemnify
Hearst-Argyle against losses related to: (i) on an after tax basis, certain tax
liabilities, including (A) any transfer tax liability attributable to the
Spin-off, (B) with certain exceptions, any tax liability of Old Pulitzer or any
subsidiary of Old Pulitzer attributable to any tax period (or portion thereof)
ending on or before the closing date of the Merger, including tax liabilities
resulting from the Spin-off, and (C) any tax liability of the Company or any
subsidiary of the Company; (ii) liabilities and obligations under any employee
benefit plans not assumed by Hearst-Argyle, and (iii) certain other matters as
set forth in the Merger Agreement.
In October 2001, the IRS formally proposed that the consolidated taxable
income of Old Pulitzer and its subsidiaries for the tax year ended March 18,
1999 be increased by approximately $80.4 million. The proposed increase is based
on the assertion that Old Pulitzer was required to recognize taxable gain in
that amount as a result of the Spin-off and the Merger. The amount of such gain
was to be measured by the difference between the fair market value, on the date
of the Spin-off, of the distributed stock of the Company and Old Pulitzer's
adjusted tax basis in such stock. While the Company and the IRS agree on the
amount of Old Pulitzer's adjusted tax basis in the distributed stock of the
Company at the time of the Spin-off, they disagree on the fair market value of
the distributed Company stock at that time. The Company maintains that the fair
market value of the distributed Company stock at the time of the Spin-off was
lower than Old Pulitzer's adjusted tax basis in such stock, thus yielding a
loss, rather than a taxable gain. The IRS, on the other hand, has asserted that
the fair market value of the distributed Company stock exceeded Old Pulitzer's
adjusted tax basis in such stock by an amount yielding a taxable gain of
approximately $80.4 million.
Under the Merger Agreement, the Company is obligated to indemnify
Hearst-Argyle against any tax liability attributable to the Spin-off and has the
right to control any proceedings relating to the determination of such tax
liability. Pursuant to this authority, the Company has advised the IRS of the
Company's disagreement with the IRS' determination and intends to file a formal
written protest with the Appeals Office of the IRS in which the Company will set
forth the basis for its disagreement. The Company believes that its
determination of the fair market value of the distributed Company stock at the
time of the Spin-off was correct and intends to vigorously contest the IRS'
determination. In view of the Company's position, it has not accrued any
liability in connection with this matter. There can be no assurance, however,
that the Company will completely prevail in its assertion. If the IRS were
completely successful in its proposed adjustment of Old Pulitzer's federal
income tax liability attributable to the Spin-off, the Company's indemnification
obligation to Hearst-Argyle for federal and Missouri state income taxes would be
approximately $29.4 million, plus applicable interest, and would be recorded as
an adjustment to additional paid-in capital.
PD LLC OPERATING AGREEMENT
On May 1, 2000, the Company and Herald completed the transfer of their
respective interests in the assets and operations of the Post-Dispatch and
certain related businesses to a new joint venture, known as PD LLC. During the
first ten years of its term, PD LLC is restricted from making distributions
(except under specified circumstances), capital expenditures and member loan
repayments unless it has set aside out of its cash flow a reserve equal to the
product of $15 million and the number of years since May 1, 2000, but not in
excess of $150 million. On May 1, 2010, Herald will have a one-time right to
require PD LLC to redeem Herald's interest in PD LLC, together with Herald's
interest, if any, in another limited liability company in which the Company is
the managing member and which is engaged in the business of delivering
publications and products in the greater St. Louis metropolitan area ("DS LLC").
The redemption price for Herald's interests will be determined pursuant to a
formula yielding an amount which will result in the present value to May 1, 2000
of the after-tax cash flows to Herald (based on certain assumptions) from PD
LLC, including the initial distribution and the special distribution described
below, if any, and from DS LLC, being equal to $275 million. In the event that
PD LLC has an increase in the tax basis of its assets as a result of Herald's
recognizing taxable income from certain transactions effected under the
agreement governing the contributions of the Company and Herald to PD LLC and
the Operating Agreement or from the transactions effected in connection with the
organization of DS LLC, Herald generally will be entitled to receive a special
distribution from PD LLC in an amount that corresponds, approximately, to the
present value after-tax benefit to the members of PD LLC of the tax basis
increase. Upon the termination of PD LLC and DS LLC, which will be on May 1,
2015 (unless Herald exercises the redemption right described above), Herald will
be entitled to the liquidation value of its interests in PD LLC and DS LLC. The
Company may purchase Herald's interests at that time for an amount equal to what
16
Herald would be entitled on liquidation. That amount will be equal to the amount
of its capital accounts, after allocating the gain or loss that would result
from a cash sale of PD LLC's and DS LLC's assets for their fair market value at
that time. Herald's share of such gain or loss generally will be 5 percent, but
will be reduced (but not below 1 percent) to the extent that the present value
to May 1, 2000 of the after-tax cash flows to Herald from PD LLC and from DS
LLC, including the initial distribution, the special distribution described
above, if any, and the liquidation amount (based on certain assumptions),
exceeds $325 million.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that all business combinations be accounted for under the
purchase method. The statement further requires separate recognition of
intangible assets that meet certain criteria. The statement applies to all
business combinations initiated after June 30, 2001.
SFAS No. 142, which is effective for fiscal periods beginning after December
15, 2001, requires that an intangible asset that is acquired shall be initially
recognized and measured based on its fair value. The statement also provides
that goodwill and other indefinite lived intangible assets should not be
amortized, but shall be tested for impairment annually, or more frequently if
circumstances indicate potential impairment, through a comparison of fair value
to its carrying amount. Existing goodwill and other indefinite lived intangible
assets will continue to be amortized through the remainder of fiscal 2001 at
which time amortization will cease and the Company will perform a transitional
impairment test. Amortization expense related to goodwill and other indefinite
lived intangible assets for the three-month and nine-month periods ended
September 30, 2001 was $5.0 million and $15.2 million, respectively. The Company
is evaluating the impact of this pronouncement as it relates to the transitional
and annual assessments for impairment of recorded goodwill and other indefinite
lived intangibles on the Company's financial statements.
In August 2001, the Financial Accounting Standards Board issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which establishes a single accounting model, based on the framework established
in SFAS No. 121, for long-lived assets to be disposed of by sale and resolves
significant implementation issues related to SFAS No. 121. The statement is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and is not expected to have a material impact on the Company.
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. For 2000, the
Company's annual newsprint cost and metric tons consumed, including its 50
percent share related to the operations of TNI Partners, were approximately
$63.5 million and 113,200 metric tons, respectively. Based on the Company's
current level of newspaper operations, expected annual newsprint consumption
for 2001 is estimated to be in the range of 110,000 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 its peak
price by approximately 25 percent. The Company's current cost of newsprint is
approaching the low end of this five-year range following recent price
reductions by the Company's newsprint suppliers. For every one-dollar change in
the Company's average annual cost per metric ton of newsprint, pre-tax income
would change by approximately $0.1 million, assuming annual newsprint
consumption of 110,000 metric tons. 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.
At September 30, 2001, the Company had $306 million of outstanding debt
pursuant to a loan agreement between the St. Louis Post-Dispatch LLC and a group
of institutional lenders led by Prudential Capital Group (the "Loan"). 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.
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
________________________________________________________________________________
Please see Note 4 "Commitments and Contingencies" to the consolidated
financial statements included in Part I., Item 1. of this Form 10-Q.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
________________________________________________________________________________
(a) The following exhibits are filed as part of this report:
10.43 Pulitzer Inc. Executive Transition Plan
10.44 Pulitzer Inc. Annual Incentive Compensation Plan
(b) Reports on Form 8-K. The Company did not file any Reports
on Form 8-K during the quarter for which this report is
filed.
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 13, 2001 /s/ Alan G. Silverglat
---------------------------------------
(Alan G. Silverglat)
Senior Vice-President-Finance
(on behalf of the Registrant and
as principal financial officer)
19
EXHIBIT INDEX
10.43 Pulitzer Inc. Executive Transition Plan
10.44 Pulitzer Inc. Annual Incentive Compensation Plan
20