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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1999 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 1-9329
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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)
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Securities registered pursuant to Section 12(b) of the Act: Common Stock,
par value $.01 per share -- New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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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 F No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $288,988,925 as of the close of business on
March 20, 2000.
The number of shares of Common Stock, $.01 par value, outstanding as of
March 20, 2000 was 8,005,931.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held on May 17, 2000
are incorporated by reference into Part III of this Annual Report.
The registrant's fiscal year ends on the last Sunday of December of each
calendar year. For ease of presentation, the registrant has used December 31 as
the fiscal year-end in this Annual Report. Except as otherwise stated, the
information in this Annual Report on Form 10-K is as of December 31, 1999.
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ITEM 1. BUSINESS
INTRODUCTION
Pulitzer Inc. (the "Company") was capitalized on March 18, 1999 with
approximately $550 million in cash and all the other assets of Pulitzer
Publishing Company ("Old Pulitzer") (other than broadcasting assets) as a result
of the Spin-off (as defined below) and is operating the newspaper publishing and
related "new media" businesses formerly operated by Old Pulitzer. The Company
was organized as a corporation in 1998 and, prior to the Spin-off, was a
wholly-owned subsidiary of Old Pulitzer. Prior to the Transactions (as defined
below), Old Pulitzer was engaged in newspaper publishing and television and
radio broadcasting.
Pursuant to an Amended and Restated Agreement and Plan of Merger, dated as
of May 25, 1998 (the "Merger Agreement"), by and among Old Pulitzer, the Company
and Hearst-Argyle Television, Inc. ("Hearst-Argyle"), on March 18, 1999
Hearst-Argyle acquired, through the merger (the "Merger") of Old Pulitzer with
and into Hearst-Argyle, 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. Old Pulitzer's Broadcasting Business consisted of nine
network-affiliated television stations and five radio stations owned and
operated by Pulitzer Broadcasting Company and its wholly-owned subsidiaries.
Prior to the Merger, Old Pulitzer's newspaper publishing and related new media
businesses were contributed to the Company in a tax-free "spin-off" to Old
Pulitzer stockholders (the "Spin-off"). The Merger and Spin-off are collectively
referred to as the "Transactions."
Old Pulitzer's historical basis in its newspaper publishing and related new
media assets and liabilities has been carried over to the Company. The
Transactions represent a reverse-spin transaction and, accordingly, the
Company's results of operations for periods prior to the consummation of the
Transactions are identical to the historical results previously reported by Old
Pulitzer. The results of the Broadcasting Business owned by Old Pulitzer prior
to the Merger are reported as discontinued operations in the financial
statements included in Item 8 of this Annual Report on Form 10-K.
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 ("Chronicle") for an aggregate of $180 million. The purchase price
excludes acquisition costs and working capital, which will be settled with
Chronicle through a separate working capital adjustment. The Company funded this
acquisition with the proceeds from the sale of a portion of its investments in
marketable securities.
GENERAL
The Company is engaged in newspaper publishing and related "new media"
businesses. Its newspaper operations consist of two major metropolitan dailies:
the St. Louis Post-Dispatch (the "Post-Dispatch"), the only major daily
newspaper serving the St. Louis metropolitan area; and The Arizona Daily
Star(the "Star"), serving the Tucson metropolitan area. Each of these
publications also operates electronic news, information and communication web
sites on the Internet. In addition, the Company's Pulitzer Community Newspaper
group (the "PCN Group") includes 12 dailies which serve markets in the Midwest,
Southwest and West, as well as a number of weekly and bi-weekly publications.
The Company is the successor to the company founded by the first Joseph
Pulitzer in 1878 to publish the original St. Louis Post-Dispatch. The Company
and its predecessor have operated continuously since 1878 under the direction of
the Pulitzer family. Michael E. Pulitzer, a grandson of the founder, currently
serves as Chairman of the Board of the Company.
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ITEM 1. BUSINESS -- CONTINUED
The following table sets forth certain historical financial information
regarding the Company's operations for the periods and at the dates indicated.
YEARS ENDED DECEMBER 31,
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1999 1998 1997 1996(3) 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
Operating revenues -- net................. $391,383 $372,924 $357,969 $309,096 $269,388
======== ======== ======== ======== ========
Operating income (loss):
Operating locations..................... $ 77,472 $ 69,456 $ 66,994 $ 46,549 $ 37,895
Stock option cash-out and bonuses(1).... (26,685)
St. Louis Agency adjustment............. (25,029) (20,729) (19,450) (13,972) (12,502)
General corporate expense............... (6,662) (5,806) (6,007) (5,532) (4,666)
-------- -------- -------- -------- --------
Total................................ $ 19,096 $ 42,921 $ 41,537 $ 27,045 $ 20,727
======== ======== ======== ======== ========
Depreciation and amortization............. $ 17,091 $ 14,054 $ 13,007 $ 8,660 $ 4,307
======== ======== ======== ======== ========
Operating margins(2)...................... 19.8% 18.6% 18.7% 15.1% 14.1%
Assets.................................... $978,287 $546,393 $464,311 $398,416 $333,641
======== ======== ======== ======== ========
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(1) In 1999, the Company recorded expense of $26.7 million representing the cost
of stock option cash-outs and bonuses paid to publishing employees in
connection with the Transactions.
(2) Operating margins represent operating income compared to operating revenues.
Operating income used in margin calculations excludes the St. Louis Agency
adjustment (see "-- Publishing -- Agency Agreements."), stock option
cash-out and bonuses and general corporate expense (which are recorded as
operating expenses for financial reporting purposes).
(3) In 1996, the amounts included a partial year of operations for Scripps
League Newspapers, Inc. (subsequently renamed Pulitzer Community Newspapers,
Inc.) following its acquisition on July 1, 1996.
OPERATING STRATEGY
The Company's long-term operating strategy is to maximize each property's
growth and profitability through maintenance of editorial excellence, leadership
in locally-responsive news, and prudent control of costs. Management believes
that editorial excellence and leadership in locally-responsive news will, over
the long-term, allow the Company to maximize its market share in each of its
respective markets. In addition, providing a portfolio of products designed to
serve each property's broader market area as well as niche audiences, and
including both print and new media delivery, is considered a key to maintaining
and strengthening the Company's local market franchises. Experienced local
managers implement the Company's strategy in each market, with centralized
management providing oversight and guidance in all areas of planning and
operations.
The Company complements its internal growth strategies with a disciplined
and opportunistic acquisition strategy that is focused on acquiring publishing
properties that the Company believes are a good fit with its operating strategy,
possess attractive growth potential, generate strong cash flows and will offer
an attractive return on investment. Management believes that the Company's
reputation, financial position, cash flow and conservative capital structure,
among other factors, will assist the Company in pursuing acquisitions.
The Company believes that cost controls are an important tool in the
management of media properties that are subject to significant fluctuations in
advertising volume. The Company believes that prudent control of costs will
permit it to respond quickly when positive operating conditions offer
opportunities to expand market share and profitability and, alternatively, when
deteriorating operating conditions require cost reductions to protect
profitability. The Company's disciplined budgeting process is one of the key
elements in
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ITEM 1. BUSINESS -- CONTINUED
controlling costs. The Company employs production technology in all of its media
operations in order to minimize production costs and produce an attractive and
timely news product for its readers.
The Company's operations are geographically diverse, placing the Company in
the Midwest, Southwest and Western regions of the United States. Due to the
close relationship between economic activity and advertising volume, the Company
believes that geographic diversity will provide the Company with valuable
protection from regional economic variances.
PUBLISHING
The Company intends to continue the tradition of reporting and editorial
excellence that has resulted in the receipt of 17 Pulitzer Prizes* over the
years.
The Company publishes two major metropolitan daily newspapers, the
Post-Dispatch and the Star. Both daily newspapers have weekly total market
coverage sections that provide advertisers with market saturation, and both
offer alternative delivery systems that provide advertisers with either targeted
or total market coverage.
The PCN Group's 12 daily newspapers have a combined average daily
circulation of approximately 200,000. In addition, the PCN Group also publishes
more than 20 weekly newspapers associated with its dailies. The markets served
by these newspapers and their locations provide the Company with further
diversification and participation in several high growth areas of the western
United States. A strong focus on local reporting and editorial excellence is
also considered a key to long-term success in these markets.
The Company's revenues are derived primarily from advertising and
circulation, which averaged approximately 88 percent of total revenue over the
last five years. Advertising rates and rate structures and resulting revenues
vary among publications based, among other things, on circulation, type of
advertising, local market conditions and competition. The following table
provides a breakdown of the Company's revenues for the past five years.
YEARS ENDED DECEMBER 31,
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1999 1998 1997 1996(1) 1995
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(IN THOUSANDS)
Advertising:
Retail.................................. $111,050 $111,028 $107,916 $ 91,373 $ 78,362
General................................. 17,371 12,380 10,466 10,123 7,645
Classified.............................. 129,443 117,313 109,435 90,443 75,925
-------- -------- -------- -------- --------
Total.............................. 257,864 240,721 227,817 191,939 161,932
Circulation............................... 85,965 88,075 87,611 81,434 76,349
Other..................................... 47,554 44,128 42,541 35,723 31,107
-------- -------- -------- -------- --------
Total.............................. $391,383 $372,924 $357,969 $309,096 $269,388
======== ======== ======== ======== ========
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(1) Revenue amounts for 1996 included a partial year of operations of Scripps
League Newspapers, Inc. (subsequently renamed Pulitzer Community Newspapers,
Inc.) following its acquisition on July 1, 1996.
ST. LOUIS POST-DISPATCH
Founded in 1878 by the first Joseph Pulitzer, the Post-Dispatch has a long
history of reporting and editorial excellence and innovation in newspaper
publishing under the direction of the Pulitzer family. The Post-Dispatch is a
morning daily and Sunday newspaper serving primarily the greater St. Louis
metropolitan area. St. Louis is currently the 17th largest metropolitan
statistical area in the United States with a population of approximately 2.6
million.
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* Pulitzer Prizes are awarded annually at Columbia University by the Pulitzer
Prize Board, an independent entity affiliated with the Columbia University
School of Journalism, founded by the first Joseph Pulitzer.
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ITEM 1. BUSINESS -- CONTINUED
Over the past several years, the Company has taken a number of steps
designed to strengthen the market position of the Post-Dispatch. In 1997, the
Post-Dispatch completed an extensive redesign intended to make the newspaper
more accessible and relevant to readers, and the Company is continuing to make
investments to enhance its news coverage capabilities and strengthen its
circulation and advertising operations. During 1998 and 1999, the Post-Dispatch
increased its local news coverage of suburban communities in the St. Louis area
by expanding to eight zone editions. These local news and advertising zone
sections, targeted at specific geographic areas, are included in the
Post-Dispatch twice a week.
The Post-Dispatch operates under an Agency Agreement, dated March 1, 1961,
as amended (the "St. Louis Agency Agreement"), between the Company and The
Herald Company, Inc. (the "Herald Company") pursuant to which the Company
performs all activities relating to the day-to-day operations of the newspaper,
but pursuant to which it must share one-half of the agency's operating income or
one-half of the agency's operating loss with the Herald Company (the "St. Louis
Agency"). The following table sets forth for the past five years certain
circulation and advertising information for the Post-Dispatch and operating
revenues for the St. Louis Agency, all of which are included in the Company's
consolidated financial statements. See "-- Agency Agreements."
YEARS ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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Post-Dispatch:
Circulation(1):
Daily (including Saturday)........ 307,375 324,059 319,887 319,203 323,137
Sunday............................ 509,110 520,635 530,442 540,434 545,882
Advertising linage (in thousands of
inches):
Retail............................... 774 832 841 819 880
General.............................. 152 102 91 101 75
Classified........................... 1,082 1,004 1,003 1,007 1,057
-------- -------- -------- -------- --------
Total............................. 2,008 1,938 1,935 1,927 2,012
Part run(2).......................... 836 571 607 792 594
-------- -------- -------- -------- --------
Total inches...................... 2,844 2,509 2,542 2,719 2,606
======== ======== ======== ======== ========
Operating revenues (in thousands):
Advertising.......................... $167,395 $156,309 $147,770 $137,054 $130,175
Circulation.......................... 60,650 63,208 63,216 63,858 64,862
Other(3)............................. 24,357 23,423 23,269 21,530 22,871
-------- -------- -------- -------- --------
Total............................. $252,402 $242,940 $234,255 $222,442 $217,908
======== ======== ======== ======== ========
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(1) Amounts for 1999 based on internal records of the Company for the
twelve-month period ended September 30. Amounts for prior years based on ABC
Publisher's Statements for the twelve-month periods ended September 30.
(2) Part run inches represent advertisements that are published in selected
copies (i.e., less than the full press run) of a daily edition of the
newspaper to specifically target certain geographic locations. The
advertisements typically appear in a special news and advertising section
designed specifically for the targeted geographic locations.
(3) Primarily revenues from preprinted inserts.
The Post-Dispatch has consistently been a leader in technological
innovation in the newspaper industry. The Company's commitment to the ongoing
enhancement of its operating systems has enabled the Post-Dispatch to offer a
continually improving product to both readers and advertisers while also
realizing substantial savings in labor cost. The Company believes the
Post-Dispatch has adequate facilities to sustain up to at least a 35 percent
increase in daily circulation without incurring significant capital
expenditures.
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ITEM 1. BUSINESS -- CONTINUED
The Post-Dispatch is distributed primarily through independent home
delivery carriers and single copy dealers. Home delivery accounted for
approximately 75 percent of circulation for the daily Post-Dispatch and
approximately 55 percent of circulation for the Sunday edition during 1999.
THE ARIZONA DAILY STAR
Founded in 1877, the Star is published in Tucson, Arizona, by the Company's
wholly-owned subsidiary, Star Publishing Company. The Star, a morning and Sunday
newspaper, and the Tucson Citizen (the "Citizen"), an afternoon newspaper owned
by Gannett Co., Inc. ("Gannett"), are southern Arizona's leading dailies. The
Star and the Citizen are published through an agency operation (the "Tucson
Agency") pursuant to an Agency Agreement, dated March 28, 1940, as amended and
restated (the "Tucson Agency Agreement"), and have a combined weekday
circulation of approximately 140,000. Tucson is currently the 69th largest
metropolitan statistical area in the United States with a population of
approximately 800,000.
The Tucson Agency operates through TNI Partners Inc. ("TNI Partners"), an
agency partnership which is owned half by the Company and half by Gannett. TNI
Partners is responsible for all aspects of the business of the two newspapers
other than editorial opinion and gathering and reporting news. Revenues and
expenses are generally shared equally by the Star and the Citizen. Unlike the
St. Louis Agency, the Company's consolidated financial statements include only
its share of the combined operating revenues and operating expenses of the two
newspapers. See "-- Agency Agreements."
As a result of the Tucson Agency, the financial performance of the
Company's Star Publishing Company subsidiary is directly affected by the
operations and performance of both the Star and the Citizen.
The following table sets forth certain information concerning circulation
and combined advertising linage of the Star and the Citizen and the Company's
share of the operating revenues of the Star and the Citizen for the past five
years.
YEARS ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Circulation(1):
Star daily........................... 97,598 96,142 96,101 96,198 97,134
Citizen daily........................ 40,625 42,444 44,009 46,062 47,240
Star Sunday.......................... 173,082 174,173 175,659 178,820 180,170
Combined advertising linage (in
thousands of inches):
Full run (all zones)
Retail............................ 1,703 1,581 1,587 1,499 1,565
General........................... 83 81 51 45 49
Classified........................ 2,068 1,852 1,713 1,684 1,682
-------- -------- -------- -------- --------
Total........................... 3,854 3,514 3,351 3,228 3,296
Part run(2)....................... 303 314 264 201 171
-------- -------- -------- -------- --------
Total inches.................... 4,157 3,828 3,615 3,429 3,467
======== ======== ======== ======== ========
Operating revenues (in thousands):
Advertising.......................... $ 37,828 $ 36,344 $ 34,302 $ 31,765 $ 31,332
Circulation.......................... 11,117 10,928 11,023 11,194 11,487
Other(3)............................. 8,268 7,909 7,712 7,139 6,703
-------- -------- -------- -------- --------
Total........................... $ 57,213 $ 55,181 $ 53,037 $ 50,098 $ 49,522
======== ======== ======== ======== ========
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(1) Amounts for 1999 are based on the internal records of the Company. Amounts
for 1998, 1997 and 1996 are based on ABC Publisher's Statements for the 52
week period ended December 31. Amounts for 1995 are based on ABC Publisher's
Statement for the 53 week period ended December 31.
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ITEM 1. BUSINESS -- CONTINUED
(2) Part run inches represent advertisements that are published in selected
copies (i.e., less than the full press run) of a daily edition of the
newspaper to specifically target certain geographic locations. The
advertisements typically appear in a special news and advertising section
designed specifically for the targeted geographic locations.
(3) Primarily revenues from preprinted inserts.
In 1999, the Star's daily edition accounted for approximately 71 percent of
the combined daily circulation of the Tucson Agency publications. The Star's
daily and Sunday editions accounted for approximately 59 percent of the agency's
total full run advertising linage.
The Star and the Citizen are printed at TNI Partners' modern, computerized
facility equipped with two, eight-unit Metro offset presses. The writing,
editing and composing functions have been computerized, increasing efficiency
and reducing workforce requirements.
PULITZER COMMUNITY NEWSPAPERS, INC.
On July 1, 1996, the Company acquired for approximately $216 million all
the stock of Scripps League Newspapers, Inc. (subsequently renamed Pulitzer
Community Newspapers, Inc.), a privately owned publisher of community newspapers
serving markets in the Midwest, Southwest and West. The PCN Group acquired The
Pantagraph on January 11, 2000 for approximately $180 million and now includes
12 daily newspapers which publish morning or afternoon editions during the week
and, generally, morning editions on the weekend. Home delivery through
independent contract carriers accounts for the significant portion of each
newspaper's circulation.
The 12 daily newspapers in the PCN Group, ranked in order of circulation
based on ABC Publisher's Statements for the 52 week period ended September 30,
1999 (except where noted), are:
CIRCULATION
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DAILY SUNDAY
------ ------
The Pantagraph........................... Bloomington, Illinois 49,148 53,336
The Daily Herald......................... Provo, Utah 29,357 31,652
Santa Maria Times........................ Santa Maria, California 19,490 20,679
The Napa Valley Register................. Napa, California 18,598 19,050
The World................................ Coos Bay, Oregon 14,709 16,359
The Hanford Sentinel..................... Hanford, California 13,453 13,347
The Arizona Daily Sun.................... Flagstaff, Arizona 12,508 14,135
Troy Daily News.......................... Troy, Ohio 11,043 12,742
The Daily Chronicle...................... DeKalb, Illinois 9,847 10,950
The Daily Journal........................ Park Hills, Missouri 9,239 9,531
The Garden Island........................ Lihue, Hawaii 8,312 9,138
The Daily News........................... Rhinelander, Wisconsin(1) 4,547 5,248
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(1) Amounts are based on the internal records of the Company.
In addition, the PCN Group operates weekly newspapers in Petaluma,
California and Farmington and Fredericktown, Missouri and three weekly newspaper
groups in conjunction with its properties in Bloomington, Illinois and Hanford
and Santa Maria, California.
The markets served by the PCN Group are attractive because they generally
have desirable demographic characteristics and above-average growth rates.
Collectively, the PCN Group's markets exceed U.S. averages in such key measures
as annual household growth rate, median household income and median years of
school completed. In addition, the median home value in these markets exceeds
the U.S. median.
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ITEM 1. BUSINESS -- CONTINUED
Further, these markets, which often are not served by major metropolitan
media, tend to be characterized by less media competition, which gives the
Company an opportunity to sustain and expand market shares. The following table
sets forth for the past four years the operating revenues of the PCN Group.
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997 1996(1)
------- ------- ------- -------
(IN THOUSANDS)
Operating revenues:
Advertising........................................... $52,641 $48,068 $45,745 $23,120
Circulation........................................... 14,198 13,939 13,372 6,382
Other(2).............................................. 12,880 11,060 10,553 5,353
------- ------- ------- -------
Total................................................... $79,719 $73,067 $69,670 $34,855
======= ======= ======= =======
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(1) Amounts include revenues for the six month period from July 1, 1996 to
December 31, 1996, subsequent to the Company's acquisition of the PCN Group
on July 1, 1996.
(2) Primarily revenues from preprinted inserts.
The Company has recently made a significant investment in new computer
systems which handle typesetting, editing and web publishing, as well as
financial and statistical reporting, for its PCN Group properties. The
standardized systems permit centralized maintenance and support.
RELATED "NEW MEDIA" OPERATIONS
The Company has developed "new media" operations that are designed to
enhance, complement and add value to its traditional newspaper publishing
businesses by providing consumer and advertiser services through electronic
dissemination of information via the world wide web/Internet. The Company's
objective in these operations is to build audience to generate revenues in
support of its publishing franchises.
At the center of the Company's Internet strategy are the websites developed
in conjunction with the Company's newspaper properties. Each of the websites
takes full advantage of the newspapers' extensive intelligence of the
communities they serve, strong advertiser relationships and substantial
marketing expertise to produce deep, relevant, locally focused online
publications.
The Company's strategy is most fully developed at Postnet.com
(www.postnet.com) in St. Louis and Starnet (www.azstarnet.com) in Tucson. Both
websites offer on-line versions of the daily newspapers and enhanced online
advertiser services featuring the three major classified advertising categories
- -- automotive, real estate and help wanted. In addition, the websites also serve
as city portals, providing community information and acting as a community
center and marketplace, enabling businesses and individuals to build
relationships with each other and the newspaper. As the Company's websites play
these key community roles, the Company is creating revenue streams from
advertising and from service and transaction fees.
In February, 2000, Editor & Publisher, a trade magazine and research center
for the newspaper industry, awarded Postnet.com with an EPpy award for having
the best Arts & Entertainment section among 400
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ITEM 1. BUSINESS -- CONTINUED
competing websites associated with newspapers. Listed below are two key
statistics for both the Postnet and Starnet websites.
FOURTH QUARTER
--------------
1999 1998 % CHANGE
----- ----- --------
(IN THOUSANDS)
Postnet.com (Launched 1/96):
Average page views per day (1)............................ 279.7 218.4 28.1%
Average sessions per day (2).............................. 75.7 65.4 15.7%
Starnet.com (Launched 6/95):
Average page views per day (1)............................ 143 132 8.3%
Average sessions per day (2).............................. 41 36 13.9%
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(1) A "page view" occurs when a web server is asked to provide an HTML page to a
website visitor.
(2) A "session" is a collection of "page views" seen by a particular visitor at
one time.
ACQUISITION STRATEGY
One of the Company's primary growth strategies has been a disciplined and
opportunistic acquisition program. In evaluating acquisition opportunities, the
Company requires that candidates must: (i) be in businesses related to the
Company's core publishing competencies; (ii) have strong cash flows; (iii)
possess good growth or economic characteristics and, where possible, offer a
clustering opportunity with respect to present or future properties; (iv)
provide an opportunity for its disciplined management approach to add value; and
(v) offer an attractive return on investment.
AGENCY AGREEMENTS
Newspapers in approximately 12 cities operate under joint operating or
agency agreements. Agency agreements generally provide for newspapers servicing
the same market to share certain printing and other facilities and to pool
certain revenues and expenses in order to decrease aggregate expenses and
thereby allow the continuing operation of multiple newspapers serving the same
market. The Newspaper Preservation Act of 1970 permits joint operating
agreements between newspapers under certain circumstances without violation of
the Federal antitrust laws.
St. Louis Agency. An agency operation between the Company and the Herald
Company is conducted under the provisions of the St. Louis Agency Agreement. For
many years, the Post-Dispatch was the afternoon and Sunday newspaper serving St.
Louis, and the St. Louis Globe-Democrat (the "Globe Democrat") was the morning
paper and also published a weekend edition. Although separately owned, from 1961
through February 1984, the publication of both the Post-Dispatch and the
Globe-Democrat was governed by the St. Louis Agency Agreement. From 1961 to
1979, the two newspapers controlled their own news, editorial, advertising,
circulation, accounting and promotion departments and Old Pulitzer managed the
production and printing of both newspapers. In 1979, Old Pulitzer assumed full
responsibility for advertising, circulation, accounting and promotion for both
newspapers. In February 1984, after a number of years of unfavorable financial
results at the St. Louis Agency, the Globe-Democrat was sold by the Herald
Company and the St. Louis Agency Agreement was revised to eliminate any
continuing relationship between the two newspapers and to permit the
repositioning of the daily Post-Dispatch as a morning newspaper.
Following the renegotiation of the St. Louis Agency Agreement at the time
of the sale of the Globe-Democrat, the Herald Company retained the contractual
right to half the profits or losses (as defined) of the operations of the St.
Louis Agency, which from February 1984 forward consisted solely of the
publication of the Post-Dispatch. The St. Louis Agency Agreement generally
provides for the Herald Company to share half the cost of, and to share in a
portion of the proceeds from the sale of, capital assets used in the production
of the Post-Dispatch. Under the St. Louis Agency Agreement, the Company
supervises, manages and performs
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ITEM 1. BUSINESS -- CONTINUED
all activities relating to the day-to-day publication of the Post-Dispatch and
is solely responsible for the news and editorial policies of the newspaper.
The consolidated financial statements of the Company include all the
operating revenues and expenses of the St. Louis Agency. An agency adjustment is
provided as an operating expense which reflects that portion of the operating
income of the St. Louis Agency allocated to the Herald Company. Under the St.
Louis Agency Agreement, for fiscal 1999, 1998, 1997, 1996, and 1995, the Company
paid the Herald Company $25,029,000, $20,729,000 $19,450,000, $13,972,000, and
$12,502,000, respectively, for the Herald Company's share of the operating
income of the St. Louis Agency. As a result of this agency adjustment, the
Company is, and during the term of the St. Louis Agency will continue to be,
entitled to half the profits (as defined) from the operations of the St. Louis
Agency.
The current term of the St. Louis Agency Agreement runs through December
31, 2034, following which either party may elect to renew the agreement for
successive periods of 30 years each.
Tucson Agency. The Tucson Agency Agreement has, since 1940, governed the
joint operations of the Star and Citizen. For financial reporting purposes, the
operations of the Tucson Agency are reflected in the Company's consolidated
financial statements differently from the operations of the St. Louis Agency.
The consolidated financial statements of the Company include only the Company's
share of the combined revenues, operating expenses and income of the Star and
Citizen. TNI Partners, as agent for the Company and Gannett, is responsible for
advertising and circulation, printing and delivery and collection of all
revenues of the Star and the Citizen. The Board of Directors of TNI Partners
presently consists of three directors chosen by the Company and three chosen by
Gannett. Budgetary, personnel and other non-news and editorial policy matters,
such as advertising and circulation policies and rates or prices, are determined
by the Board of Directors of TNI Partners. Each newspaper is responsible for its
own news and editorial content. Revenues and expenses are recorded by TNI
Partners, and the resulting profit is generally split 50-50 between the Company
and Gannett. Both partners have certain administrative costs which are borne
separately. As a result of the Tucson Agency, the Star and the Citizen benefit
from increases and can be adversely affected by decreases in each other's
circulation.
The Tucson Agency Agreement runs through June 1, 2015, and contains renewal
provisions for successive periods of 25 years each.
COMPETITION
The Company's publications compete for readership and advertising revenues
in varying degrees with other metropolitan, suburban, neighborhood and national
newspapers and other publications as well as with direct mail, television,
radio, cable, Internet, online services and other new media technologies, yellow
page directories, billboards and other news and advertising media. Competition
for advertising is based upon circulation levels, readership demographics, price
and advertiser results. Competition for circulation is generally based upon the
content, journalistic quality and price of the publication. In St. Louis and its
surrounding suburban communities, the Post-Dispatch's print competition for
circulation and advertising revenues includes paid suburban daily newspapers, a
chain of weekly community newspapers and shoppers, independently owned community
newspapers and shoppers and direct mail advertisers. These community newspapers
and shoppers and direct mail companies target selected geographic markets
throughout the St. Louis metropolitan area.
Due to the agency relationship existing in Tucson, the Star and the Citizen
cannot be viewed as competitors for advertising or circulation revenues. The
Star and the Citizen compete against other Tucson-area news and advertising
media and against Phoenix-area and national newspapers and other publications.
EMPLOYEE RELATIONS
The Post-Dispatch has contracts with substantially all of its production
unions, with expiration dates ranging from February 2002 through February 2010.
In addition, the Post-Dispatch has a multi-year contract
10
11
ITEM 1. BUSINESS -- CONTINUED
with the St. Louis Newspaper Guild which expires in January 2003. All of the
Post-Dispatch labor contracts contain no strike provisions.
TNI Partners' contract with Tucson Graphic Communications Union Local No.
212, covering certain pressroom employees, expires on June 30, 2000. In each of
the last several years, this contract has been renegotiated for a one-year term.
RAW MATERIALS
The Company's newspaper operations are significantly impacted by the cost
of newsprint which accounted for approximately 16 percent of the total 1999
operating expenses. During 1999, the Company used approximately 102,000 metric
tons of newsprint in its production process at a total cost of approximately $52
million. Consumption at the Post-Dispatch represented approximately 71,600
metric tons of the Company's total newsprint usage in 1999. In the last five
years, the Company's average cost per ton of newsprint has varied from a low of
$510 per metric ton in 1999 to a high of $675 per metric ton in 1995. During the
first quarter of 2000, the Company's average cost per metric ton for newsprint
has been approximately $510. In addition, the Company has been informed by its
suppliers of a plan to increase the price of newsprint by $50 per metric ton on
April 1, 2000.
The Post-Dispatch obtains the newsprint necessary for its operations from
five separate mills, three of which are located in Canada and two in the United
States. The Post-Dispatch has guaranteed the future supply of certain volume
levels through long-term agreements with two of its newsprint suppliers. The
Company believes that the absence of long-term agreements with the remaining
three newsprint suppliers will not affect the Company's ability to obtain
newsprint at competitive prices.
The Company acquired five newsprint contracts with the purchase of the PCN
Group in 1996. Combined with the tonnage purchased for the Post-Dispatch, the
Company has been able to leverage its pricing power to obtain the best price
available for the PCN Group, and to assure adequate supplies for all locations.
TNI Partners obtains the newsprint necessary for the Tucson Agency's
operations pursuant to an arrangement with Gannett, the owner of the Citizen.
Gannett purchases newsprint on behalf of TNI Partners under various contractual
arrangements and agreements. Newsprint is also purchased on the spot market.
EMPLOYEES
At December 31, 1999, the Company had approximately 2,300 full-time
employees. In St. Louis, a majority of the approximately 1,200 full-time
employees are represented by unions. The Company considers its relationship with
its employees to be good.
ITEM 2. PROPERTIES
The corporate headquarters of the Company is located at 900 North Tucker
Boulevard, St. Louis, Missouri. The general character, location and approximate
size of the principal physical properties used by the Company for its newspaper
publishing and related new media businesses at December 31, 1999, are set forth
below. Leases on the properties indicated as leased by the Company expire at
various dates through June 2007.
The Company believes that all of its owned and leased properties used in
connection with its operating activities are in good condition, well maintained
and adequate for its current and immediately foreseeable operating needs.
11
12
ITEM 2. PROPERTIES -- CONTINUED
APPROXIMATE AREA IN
SQUARE FEET
--------------------
GENERAL CHARACTER OF PROPERTY OWNED LEASED
- ----------------------------- -------- --------
Printing plants, business and editorial offices, and
warehouse space located in:
St. Louis, Missouri(1).................................... 598,200 147,100
St. Louis, Missouri....................................... 3,200
Tucson, Arizona(2)........................................ 265,000 51,900
Washington, D.C........................................... 2,250
Provo, Utah............................................... 26,400 11,000
Santa Maria, California................................... 20,800 4,400
Napa, California.......................................... 21,000
Coos Bay, Oregon.......................................... 15,200
Hanford, California....................................... 16,500 3,500
Flagstaff, Arizona........................................ 23,200
Troy, Ohio................................................ 36,600 100
DeKalb, Illinois.......................................... 15,900
Park Hills, Missouri...................................... 9,100
Lihue, Hawaii............................................. 8,500 20,900
Rhinelander, Wisconsin.................................... 6,400
Petaluma, California...................................... 9,000
Farmington, Missouri...................................... 11,800
Fredericktown, Missouri................................... 1,800
- ---------------
(1) Property is subject to the provisions of the St. Louis Agency Agreement.
(2) The 265,000 square foot facility in Tucson, Arizona is used in the
production of the Star and the Citizen and is jointly owned with Gannett
pursuant to the Tucson Agency.
ITEM 3. LEGAL PROCEEDINGS
Subsequent to the acquisition of Scripps League Newspapers, Inc. ("Scripps
League"), Barry H. Scripps commenced an action against Edward W. Scripps, Betty
Knight Scripps and Pulitzer Community Newspapers, Inc. Barry H. Scripps is the
child of Edward W. Scripps and Betty Knight Scripps. Barry Scripps, a former
minority shareholder and executive employee of Scripps League, alleges that the
defendant Betty Knight Scripps formed and implemented a wrongful scheme to
transfer the ownership of Scripps League outside the Scripps family in violation
of the Scripps League corporate mission by (i) inducing the defendant Edward W.
Scripps to breach their life-long promises to Barry Scripps to retain the
ownership of Scripps League Newspapers in the family and ultimately turn over
its management and control to Barry Scripps; (ii) engineering an unlawful
freeze-out of Barry Scripps as a minority shareholder from Scripps League and
its subsidiaries; and (iii) tortiously causing Scripps League to breach its
promise to Barry Scripps of permanent employment. The claims asserted are for
breach of promise against Edward W. Scripps and Betty Knight Scripps, breach of
employment contract against Pulitzer Community Newspapers, Inc. as successor to
Scripps League, interference with contract against Betty Knight Scripps, breach
of fiduciary duty against Betty Knight Scripps, and promissory estoppel against
Edward W. and Betty Knight Scripps. Barry Scripps seeks (i) money damages,
together with interest and counsel fees in the amount to be proven at trial
against Edward and Betty Scripps; (ii) judgment rescinding each of the actions
that Betty Knight Scripps caused to be taken that allegedly froze out Barry
Scripps as a stockholder in Scripps League; and (iii) damages against Pulitzer
Community Newspapers, Inc. for loss of income plus interest and counsel fees in
an amount to be proven at trial for breach of the purported employment
agreement. Edward W. Scripps and Betty Knight Scripps, jointly and severally,
agreed to indemnify the Company and its affiliates, officers, directors,
12
13
ITEM 3. LEGAL PROCEEDINGS -- CONTINUED
stockholders, employees, agents, successors and assigns at all times after the
closing for any and all losses arising from Barry Scripps' claims. On March 26,
1998, the Court issued an order granting defendants' motion for summary judgment
and dismissed all of Barry Scripps' charges and claims against all defendants,
and on April 29, 1998, a final judgment was entered with respect to that order.
Barry Scripps filed a notice of appeal on May 21, 1998, and Barry Scripps' brief
in connection with that appeal was filed with the Appeals Court of the
Commonwealth of Massachusetts on March 18, 1999.
The Company has been involved, from time to time, in various claims and
lawsuits incidental to the ordinary course of its 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
13
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Prior to the Spin-off, the Company's common stock and Class B common stock
did not trade in a public market. Old Pulitzer's common stock was listed and
traded on the New York Stock Exchange, Inc. (the "NYSE") under the symbol "PTZ".
The separate existence of Old Pulitzer ceased on March 18, 1999 after the
completion of the Transactions. The shares of the Company's common stock are
listed on the NYSE and, as of March 19, 1999, trade under the symbol "PTZ". The
shares of the Company's Class B common stock do not trade in a public market.
At March 20, 2000, there were approximately 441 record holders of the
Company's common stock and 31 record holders of its Class B common stock.
The following table sets forth the range of high and low sales prices for
Pulitzer Inc. and Old Pulitzer common stock and dividends paid for each
quarterly period in the past two years:
HIGH(2) LOW(2) DIVIDEND(1)
------- ------ -----------
1999
First Quarter (12/28/98 -- 3/18/99)......................... $88.88 $77.50 $0.00
First Quarter (3/19/99 -- 3/28/99).......................... 43.38 41.44 0.00
Second Quarter.............................................. 45.44 39.88 0.15
Third Quarter............................................... 48.56 42.88 0.15
Fourth Quarter.............................................. 46.50 36.25 0.15
HIGH(2) LOW(2) DIVIDEND(1)
------- ------ -----------
1998
First Quarter............................................... $87.44 $57.44 $0.15
Second Quarter.............................................. 92.13 77.75 0.15
Third Quarter............................................... 89.63 74.38 0.15
Fourth Quarter.............................................. 85.69 64.38 0.30
- ---------------
(1) In 1999, the Company declared and paid cash dividends of $0.45 per share of
common stock and Class B common stock. In 1998, Old Pulitzer declared cash
dividends of $0.75 per share of common stock and Class B common stock,
including a cash dividend of $0.15 per share of common stock and Class B
common stock which was declared in December 1998 and paid to stockholders in
January 1999. The dividend declared in December 1998 represented the
acceleration of Old Pulitzer's dividend historically declared in the first
quarter of each fiscal year. As a result, the Company did not declare a
quarterly dividend in the first quarter of 1999.
(2) Share prices for all of 1998 and for the first quarter of 1999 through
3/18/99 relate to the common stock of Old Pulitzer before the Spin-off.
Share prices for 1999 subsequent to 3/18/99 relate to the common stock of
the Company.
On January 5, 2000, the Board of Directors of the Company announced a 6.7
percent increase in the dividend on its common stock and Class B common stock to
$0.16 per share from $0.15 per share. The cash dividend was paid on February 1,
2000. On March 9, 2000, the Board of Directors of the Company declared a
dividend of $0.16 payable on May 1, 2000. Future dividends will depend upon,
among other things, the Company's earnings, financial condition, cash flows,
capital requirements and other relevant considerations, including the
limitations under any credit agreement or other agreement to which the Company
may become a party in the future.
14
15
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING RESULTS
Operating Revenues -- net.............. $391,383 $372,924 $357,969 $309,096 $269,388
-------- -------- -------- -------- --------
Operating Expenses:
Operations........................... 148,578 150,266 145,730 139,259 125,811
Selling, general and
administrative.................... 148,242 139,148 132,238 114,628 101,375
General corporate expense............ 6,662 5,806 6,007 5,532 4,666
Stock option cash-outs and bonuses... 26,685
St. Louis Agency adjustment.......... 25,029 20,729 19,450 13,972 12,502
Depreciation and amortization........ 17,091 14,054 13,007 8,660 4,307
-------- -------- -------- -------- --------
Total operating expenses.......... 372,287 330,003 316,432 282,051 248,661
-------- -------- -------- -------- --------
Operating income....................... 19,096 42,921 41,537 27,045 20,727
Interest income........................ 25,377 4,967 4,391 4,509 5,196
Net gain (loss) on marketable
securities and investments........... (111) 1,322 260
Net other expense...................... (2,697) (2,139) (1,202) (5,870) (2,319)
-------- -------- -------- -------- --------
Income from continuing operations
before provision for income taxes.... 41,665 47,071 44,986 25,684 23,604
Provision for income taxes............. 18,708 20,055 19,227 10,892 9,149
-------- -------- -------- -------- --------
Income from continuing operations...... 22,957 27,016 25,759 14,792 14,455
Discontinued operations, net of tax.... (21,449) 49,268 40,269 42,708 34,867
-------- -------- -------- -------- --------
NET INCOME............................. $ 1,508 $ 76,284 $ 66,028 $ 57,500 $ 49,322
======== ======== ======== ======== ========
Basic Earnings Per Share of Stock:
Income from continuing operations.... $ 1.02 $ 1.21 $ 1.17 $ 0.67 $ 0.66
Discontinued operations.............. (0.95) 2.20 1.82 1.95 1.60
-------- -------- -------- -------- --------
Basic earnings per share............. $ 0.07 $ 3.41 $ 2.99 $ 2.62 $ 2.26
======== ======== ======== ======== ========
Weighted average number of shares
outstanding....................... 22,578 22,381 22,110 21,926 21,800
======== ======== ======== ======== ========
Diluted Earnings Per Share of Stock:
Income from continuing operations.... $ 1.02 $ 1.19 $ 1.15 $ 0.66 $ 0.65
Discontinued operations.............. (0.95) 2.16 1.79 1.92 1.58
-------- -------- -------- -------- --------
Diluted earnings per share........... $ 0.07 $ 3.35 $ 2.94 $ 2.58 $ 2.23
======== ======== ======== ======== ========
Weighted average number of shares
outstanding....................... 22,601 22,753 22,452 22,273 22,097
======== ======== ======== ======== ========
Dividends per share of common stock and
Class B common stock................. $ 0.45 $ 0.75 $ 0.52 $ 0.46 $ 0.41
======== ======== ======== ======== ========
OTHER DATA
Cash and cash equivalents.............. $557,891 $110,171 $ 62,749 $ 73,052 $100,380
Working capital........................ 595,530 124,675 75,830 78,927 112,990
Total assets........................... 978,287 546,393 464,311 398,416 333,641
Stockholders' equity................... 813,451 385,357 310,777 249,937 198,771
15
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Annual Report on Form 10-K concerning the Company's
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 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, and general economic conditions, as well as other
risks detailed in the Company's filings with the Securities and Exchange
Commission including this Annual Report on Form 10-K.
GENERAL
The Company was organized as a corporation in 1998 and is engaged in
newspaper publishing and related new media operations, operating the newspaper
properties operated by Pulitzer Publishing Company ("Old Pulitzer") prior to the
Spin-off (as defined below). Prior to the Spin-off, the Company was a
wholly-owned subsidiary of Old Pulitzer.
As of May 25, 1998, 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. The Broadcasting Business consisted of nine network-affiliated television
stations and five radio stations owned and operated by Pulitzer Broadcasting
Company and its wholly-owned subsidiaries. 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's newspaper
publishing and related new media businesses were contributed to the Company in a
tax-free "spin-off" to Old Pulitzer stockholders (the "Spin-off"). The Merger
and Spin-off are collectively referred to as the "Transactions."
Old Pulitzer's historical basis in its newspaper publishing and related new
media assets and liabilities have been carried over to the Company. The
Transactions represent a reverse-spin transaction and, accordingly, the
Company's results of operations for periods prior to the consummation of the
Transactions are identical to the historical results of operations previously
reported by Old Pulitzer. Results of the Company's newspaper publishing and
related new media businesses are reported as continuing operations, and the
results of the Broadcasting Business owned by Old Pulitzer prior to the Merger
are reported as discontinued operations, in the financial statements included in
Item 8 of this Annual Report on Form 10-K.
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 ("Chronicle") for an aggregate of $180 million. The purchase price
excludes acquisition costs and working
16
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- CONTINUED
capital, which will be settled with Chronicle through a separate working capital
adjustment. The Company funded this acquisition with the proceeds from the sale
of a portion of its investments in marketable securities.
1999 COMPARED WITH 1998
CONTINUING OPERATIONS -- PUBLISHING
Operating revenues for the year ended December 31, 1999 increased 4.9
percent to $391.4 million from $372.9 million in 1998. The gain primarily
reflected higher advertising revenues and the contribution from the Troy Daily
News, acquired in October 1998. In addition to the acquisition of the Troy Daily
News in 1998, the Company sold its daily newspapers in Hamilton, Montana and
Haverhill, Massachusetts in May 1999 and June 1998, respectively. Excluding the
results of properties acquired and sold from both 1999 and 1998, revenues for
the full year of 1999 increased 4 percent.
Newspaper advertising revenues increased $17.1 million, or 7.1 percent, in
1999. The current year increase included advertising revenue gains of 9.5
percent at the PCN Group, 7.1 percent at the Post-Dispatch and 4.1 percent at
the Star. The gains primarily reflected growth in classified advertising, and
higher national advertising revenue at the Post-Dispatch. At the PCN Group,
volume increases at most locations, along with new advertising from the Troy
Daily News, accounted for a significant portion of the higher advertising
revenue. Similarly, at the Star, higher advertising revenue reflected an
increase of approximately 9.7 percent in full run advertising volume (linage in
inches). At the Post-Dispatch, rate increases in January 1999 and higher
national, classified and part-run advertising volume accounted for the current
year advertising revenue increase. Excluding the results of properties acquired
and sold from both 1999 and 1998, advertising revenues for the full year of 1999
increased 6.5 percent.
Circulation revenues decreased approximately $2.1 million, or 2.4 percent,
in 1999. The lower circulation revenues primarily reflected declines in paid
circulation at the Post-Dispatch which were partially offset by new circulation
revenue from the Troy Daily News. The decline in circulation revenues at the
Post-Dispatch was in part related to the significantly higher revenues in the
third quarter of 1998 reflecting the positive impact on circulation related to
Mark McGwire's pursuit of the home run record.
Other publishing revenues, increased $3.4 million, or 7.8 percent, in 1999,
resulting primarily from higher preprint revenue at the PCN Group and higher
revenues 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 to $347.3 million in 1999 from $309.3 million
in 1998, an increase of 12.3 percent. The significant increase resulted from
$26.7 million of stock option cash-out and bonus payments to publishing
employees in connection with the Merger. Excluding these Merger costs, operating
expenses increased 3.7 percent to $320.6 million in 1999. The increase on a
comparable basis reflected higher overall personnel costs of $9.8 million and
higher depreciation and amortization of $3 million, due in part to the
acquisition of the Troy Daily News in October 1998. These expense increases were
partially offset by a decline in newsprint costs of $5.7 million, reflecting
lower newsprint prices in the current year. Excluding the results of properties
acquired and sold from both 1999 and 1998, as well as the St. Louis Agency
adjustment and Merger costs, expenses for 1999 increased 2.5 percent.
The Company reported operating income for fiscal 1999 of $19.1 million
compared to operating income of $42.9 million in 1998. The decrease in the
current year income resulted from the Merger costs of $26.7 million. Excluding
these Merger costs, operating income would have increased 6.7 percent to $45.8
million. The increase on a comparable basis reflected the advertising revenue
gains and lower newsprint expense in the current year.
17
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- CONTINUED
Interest income for 1999 increased to $25.4 million from $5 million in the
prior year. The increase reflected the inflow of approximately $429 million of
net cash in connection with the Spin-off and Merger on March 18, 1999 (See
"Liquidity and Capital Resources").
The Company incurred a net loss on marketable securities and investments of
$111,000 in 1999 compared to a gain of $1.3 million in the prior year. The
current year loss reflected net realized losses of approximately $2.2 million
related to the sale of marketable debt securities partially offset by the
favorable performance of two limited partnership investments that generated
gains of approximately $2.1 million. The 1998 gain of $1.3 million primarily
reflected the favorable performance of two limited partnership investments.
Net other expense for 1999 was $2.7 million compared with $2.1 in the prior
year. The 1999 expense included an approximate $1.1 million loss related to the
sale of the Company's newspaper property in Hamilton, Montana on May 21, 1999
while the prior year included a loss of approximately $869,000 related to the
sale of the Company's newspaper property in Haverhill, Massachusetts on June 1,
1998.
The effective income tax rate for 1999 was 44.9 percent compared with a
rate of 42.6 percent in the prior year. The higher rate in 1999 primarily
reflected the impact of the Hamilton newspaper sale. The Company expects its
effective tax rate for 2000 to be approximately 42 percent.
The Company reported income from continuing operations of $23 million, or
$1.02 per diluted share, for the year ended December 31, 1999, compared with $27
million, or $1.19 per diluted share, in the prior year. The decline in current
year income resulted from the Merger costs of $26.7 million ($15.5 million
after-tax). Excluding these Merger costs, income from continuing operations
would have increased 42.3 percent to $38.4 million, or $1.70 per diluted share.
The increase on a comparable basis reflected the advertising revenue gains,
lower newsprint expense and higher interest income in the current year. Earnings
per share for 1999 and 1998 reflect losses from the sales of the Hamilton (1999)
and Haverhill (1998) newspaper properties of $0.09 and $0.02 per share,
respectively.
Fluctuations in the price of newsprint significantly impact the results of
the Company's operations, where newsprint expense accounts for approximately 16
percent of total operating costs. The Company's average cost for newsprint for
the year ended December 31, 1999 was approximately $514 per metric ton, compared
to approximately $577 per metric ton in 1998. For the full year of 1999, the
Company's newsprint cost and metric tons consumed, after giving effect to the
St. Louis Agency adjustment, were approximately $34 million and 66,000 tons
respectively. During the first quarter of 2000, the Company's average cost for
newsprint has been approximately $510 per metric ton. In addition, the Company
has been informed by its suppliers of a plan to increase the price of newsprint
by $50 per metric ton on April 1, 2000.
DISCONTINUED OPERATIONS -- BROADCASTING
For 1999, the Company reported a loss from discontinued operations of $21.4
million, or $0.95 per diluted share, compared to income of $49.3 million, or
$2.16 per diluted share, in the prior year. The current year loss resulted from
a combination of $25.3 million of one-time stock option cash-out and bonus
payments to broadcasting employees in connection with the Merger and a loss on
extinguishment of debt of approximately $18 million (approximately $17.2 million
prepayment penalty and $750,000 write-off of deferred financing fees). In
addition, only the broadcasting operations through March 18, 1999, the date of
the Merger, were included in 1999, compared to a full year of normal
broadcasting operations in the prior year.
1998 COMPARED WITH 1997
CONTINUING OPERATIONS -- PUBLISHING
Operating revenues for the year ended December 31, 1998 increased 4.2
percent to $372.9 million from $358 million in 1997. The increase primarily
reflected higher advertising revenues in 1998.
Newspaper advertising revenues increased $12.9 million, or 5.7 percent, in
1998. The current year increase resulted from higher classified and national
advertising revenue at both the Post-Dispatch and the
18
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- CONTINUED
Star along with higher retail advertising at the PCN Group. Full run advertising
volume (linage in inches) increased 0.1 percent at the Post-Dispatch and 4.9
percent at the Starfor 1998. In the fourth quarter of 1997 and first quarter of
1998, varying rate increases were implemented at the Post-Dispatch, the Star and
most of the PCN Group properties.
Circulation revenues increased approximately $464,000, or 0.5 percent, in
1998. The increase reflected slight fluctuations in paid circulation and average
rates at the Post-Dispatch, Star and PCN Group in 1998 compared to the prior
year.
Other publishing revenues, increased $1.6 million, or 3.7 percent, in 1998,
resulting primarily from higher preprint revenue at the PCN Group and higher
revenues from "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 to $309.3 million in 1998 from $297 million
in 1997, an increase of 4.1 percent. Major increases in comparable expenses were
overall personnel costs of $7.8 million, depreciation and amortization expense
of $1 million, and newsprint expenses of $960,000. Partially offsetting these
increases were declines in circulation distribution costs of $664,000 and
purchased supplement costs of $208,000.
Operating income for fiscal 1998 increased 3.3 percent to $42.9 million in
1998 from $41.5 million in 1997. The 1998 increase reflected the current year
revenue gains.
The Company's net gain on marketable securities and investments was $1.3
million in 1998 compared to $260,000 in 1997 reflecting an increase in capital
gains from limited partnership investments.
Net other expense for 1998 was $2.1 million compared to $1.2 million in
1997. The 1998 increase reflected a one-time charge of approximately $869,000
related to the sale of the Haverhill Gazette on June 1, 1998.
The effective income tax rate for 1998 was 42.6 percent, compared to 42.7
percent in the prior year.
Income from continuing operations for the year ended December 31, 1998,
increased to $27 million, or $1.19 per diluted share, compared with $25.8
million, or $1.15 per diluted share, in the prior year. The 4.9 percent gain
reflected higher advertising revenues.
DISCONTINUED OPERATIONS -- BROADCASTING
Broadcasting operating revenues for 1998 increased 5.6 percent to $239.7
million from $227 million in 1997. For the year, a 6.8 percent increase in local
spot advertising and a 5.7 percent increase in national spot advertising were
partially offset by a 1.5 percent decline in network compensation. The current
year comparisons reflect the impact of increased political advertising of $15.1
million.
Broadcasting operating expenses (including selling, general and
administrative expenses and depreciation and amortization) increased 0.4 percent
to $145.4 million in 1998 from $144.8 million in 1997. The slight increase was
attributable to higher overall personnel costs of $3.1 million and program
rights expense of $236,000 which are partially offset by decreases in
depreciation and amortization expense of $2.4 million and promotion expense of
$558,000.
Broadcasting operating income increased 14.8 percent to $94.4 million for
the year ended December 31, 1998 from $82.2 million in the prior year. The
increase in 1998 reflected the advertising revenue gains and a significant
decline in depreciation and amortization expense which partially offset other
expense increases.
Interest expense declined $2.6 million in 1998 compared to 1997 due to
lower average debt levels. Old Pulitzer's average debt level for 1998 decreased
to $180.1 million from $220 million in 1997 while Old Pulitzer's average
interest rate increased to 7.5 percent in 1998 from 7.3 percent in 1997. The
lower average debt levels and higher average interest rates in 1998 reflected
the payment of variable rate credit agreement
19
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- CONTINUED
borrowings during the last three quarters of 1997 and the scheduled repayment of
$12.5 million of 6.76 percent fixed rate debt in the third quarter of 1998.
The 1998 effective income tax rate related to discontinued operations was
39.1 percent, unchanged from the prior year.
Income from discontinued operations for the year ended December 31, 1998,
increased 22.3 percent to $49.3 million, or $2.16 per diluted share, compared
with $40.3 million, or $1.79 per diluted share, in 1997. The gain reflected a
combination of higher broadcasting operating income and a decline in interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
On March 17, 1999, Old Pulitzer borrowed $700 million from Chase Manhattan
Bank pursuant to a short-term borrowing agreement (the "New Debt"). On March 18,
1999, Old Pulitzer used a portion of the proceeds from the New Debt to prepay
its existing long-term debt of approximately $172.7 million and pay a related
prepayment penalty of approximately $17.2 million. Old Pulitzer made additional
payments related to the Transactions including $47.1 million for stock option
cash-outs and bonuses (net of deferred compensation in the amount of $4.9
million), $31.8 million for professional fees related to the Transactions
(excluding $4.2 million paid prior to March 18, 1999) and a $2.9 million working
capital adjustment. The cash balance of the proceeds of the New Debt remained
with the Company following the Spin-off while the New Debt was assumed by
Hearst-Argyle at the time of the Merger. As a result, the Company has no
outstanding debt and cash and marketable securities of approximately $558
million as of December 31, 1999. In January 2000, the Company acquired the
assets of The Pantagraph in a $180 million purchase transaction. The Company
funded the Pantagraph acquisition with the proceeds from the sale of investments
in marketable securities.
As of December 31, 1999, commitments for capital expenditures were
approximately $4.3 million, relating to normal capital equipment replacements.
Capital expenditures to be made by the Company in fiscal 2000 are estimated to
be approximately $6.9 million. In addition, as of December 31, 1999, the Company
had capital contribution commitments of approximately $2.1 million related to a
limited partnership investment.
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. As of December 31,
1999, 527,300 shares had been repurchased for approximately $21.7 million.
At December 31, 1999, the Company had working capital of $595.5 million and
a current ratio of 16 to 1. This compares to working capital of $124.7 million
and a current ratio of 3.9 to 1 at December 31, 1998.
The Company generally expects to generate sufficient cash from operations
to cover ordinary capital expenditures, working capital requirements and
dividend payments.
Gross-Up Transaction
In connection with the September 1986 purchase of Old Pulitzer Class B
common stock from certain selling stockholders (the "1986 Selling
Stockholders"), Old Pulitzer agreed, under certain circumstances, to make an
additional payment to the 1986 Selling Stockholders in the event of a Gross-Up
Transaction. A "Gross-Up Transaction" was defined to mean, among other
transactions, (i) any merger, in any transaction or series of related
transactions, of more than 85 percent of the voting securities or equity of Old
Pulitzer pursuant to which holders of Old Pulitzer common stock receive
securities other than Old Pulitzer common stock and (ii) any recapitalization,
dividend or distribution, or series of related recapitalizations, dividends or
distributions, in which holders of Old Pulitzer common stock receive securities
(other than Old Pulitzer common stock) having a Fair Market Value (as defined
herein) of not less than 33 1/3 percent of the Fair Market Value of the shares
of Old Pulitzer common stock immediately prior to such transaction. The amount
of the additional payment, if any, would equal (x) the product of (i) the amount
by which the Transaction Proceeds (as defined herein) exceeds the Imputed Value
(as defined herein) multiplied by (ii) the applicable
20
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- CONTINUED
percentage (i.e., 50 percent for the period from May 13, 1996 through May 12,
2001) multiplied by (iii) the number of shares of Old Pulitzer common stock
issuable upon conversion of the shares of Old Pulitzer Class B common stock
owned by the 1986 Selling Stockholders, adjusted for, among other things, stock
dividends and stock splits; less (y) the sum of any additional payments
previously received by the 1986 Selling Stockholders; provided, however, that in
the event of any recapitalization, dividend or distribution, the amount by which
the Transaction Proceeds exceeds the Imputed Value shall not exceed the amount
paid or distributed pursuant to such recapitalization, dividend or distribution
in respect of one share of Old Pulitzer common stock.
The term "Transaction Proceeds" was defined to mean, in the case of a
merger, the aggregate Fair Market Value (as defined herein) of the consideration
received pursuant thereto by the holder of one share of Old Pulitzer common
stock, and, in the case of a recapitalization, dividend or distribution, the
aggregate Fair Market Value of the amounts paid or distributed in respect of one
share of Old Pulitzer common stock plus the aggregate Fair Market Value of one
share of Old Pulitzer common stock following such transaction. The "Imputed
Value" for one share of Old Pulitzer common stock on a given date was defined to
mean an amount equal to $28.82 compounded annually from May 12, 1986 to such
given date at the rate of 15 percent per annum, the result of which is $154.19
at May 12, 1998. There was no specific provision for adjustment of the $28.82
amount, but if it were adjusted to reflect all stock dividends and stock splits
of Old Pulitzer since September 30, 1986, it would have equaled $15.72, which if
compounded annually from May 12, 1986 at the rate of 15 percent per annum would
have equaled $84.11 at May 12, 1998.
"Fair Market Value," in the case of any consideration other than cash
received in a Gross-Up Transaction, was defined to mean the fair market value
thereof as agreed to by a valuation firm selected by Old Pulitzer and a
valuation firm selected by the 1986 Selling Stockholders, or, if the two
valuation firms do not agree on the fair market value, the fair market value of
such consideration as determined by a third valuation firm chosen by the two
previously selected valuation firms. Any such agreement or determination shall
be final and binding on the parties.
As a result of the foregoing, the amount of additional payments, if any,
that may be payable by the Company with respect to the Merger and the
distribution of the Company's common stock and Class B common stock in the
Spin-off (the "Distribution") cannot be determined at this time. However, if the
Distribution were determined to be a Gross-Up Transaction and if the Fair Market
Value of the Transaction Proceeds with respect to the Merger and the
Distribution were determined to exceed the Imputed Value, then the additional
payments to the 1986 Selling Stockholders would equal approximately $5.9 million
for each $1.00 per share by which the Transaction Proceeds exceed the Imputed
Value. Accordingly, depending on the ultimate resolution of the meaning and
application of various provisions of the Gross-Up Transaction agreements,
including the determination of Imputed Value and Fair Market Value of the
Transaction Proceeds, in the opinion of the Company's management, the amount of
an additional payment, if any, could be material to the consolidated financial
statements of the Company. The additional payment, if any, to the 1986 Selling
Stockholders would be recorded directly to additional paid-in capital as the
payment of this contingent amount would be a direct cost of the disposal of Old
Pulitzer's Broadcasting Business.
In the opinion of the Company's management, the amount of additional
payment, if any, is not likely to have a material adverse effect on the
Company's existing day-to-day newspaper publishing and related new media
properties. The amount of additional payment, if any, will reduce, however, the
amount of cash available to the Company to finance potential acquisition
opportunities in the future.
Merger Agreement Indemnification
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
21
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- CONTINUED
of the Company; (ii) liabilities and obligations under any employee benefit
plans not assumed by Hearst-Argyle; (iii) any liabilities for payments made
pursuant to a Gross-Up Transaction; and (iv) certain other matters as set forth
in the Merger Agreement.
Information Systems and the Year 2000
The Year 2000 Issue refers to information systems that use two digits
rather than four digits to define the applicable year and the resulting
inability of such systems to accurately process certain date-based information
after the year 1999. The Company adopted a Year 2000 strategy that replaced its
significant non-compliant systems with new compliant systems prior to December
31, 1999. The Company completed the installation of these new systems on a
timely basis and has not experienced any significant disruption of its business
operations due to Year 2000 system failures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary raw material used in the Company's operations is newsprint,
representing approximately 16 percent of operating expenses. The Company
consumed approximately 102,000 metric tons of newsprint during 1999 at an
average cost of approximately $514 per metric ton. 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 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. 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.
As of December 31, 1999, the Company had no outstanding debt and a combined
balance of cash and marketable securities of approximately $558 million.
Approximately $180 million of these funds was used to purchase The Pantagraph in
January 2000. The Company anticipates funding other potential newspaper
acquisitions with a portion of the available cash. 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
expose the Company to market risks that may cause the future value of these
investments to be lower than the original cost of such investments at the time
of purchase.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Pulitzer Inc. and
Subsidiaries are filed as part of this Annual Report on Form 10-K. Supplementary
unaudited data with respect to the quarterly results of operations of the
Company are set forth in the Notes to Consolidated Financial Statements.
PULITZER INC. AND SUBSIDIARIES
Independent Auditors' Report
Statements of Consolidated Income for each of the Three Years in the Period
Ended December 31, 1999
Statements of Consolidated Financial Position at December 31, 1999 and 1998
Statements of Consolidated Stockholders' Equity for each of the Three Years
in the Period Ended December 31, 1999
Statements of Consolidated Cash Flows for each of the Three Years in the
Period Ended December 31, 1999
Notes to Consolidated Financial Statements for the Three Years in the
Period Ended December 31, 1999
22
23
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PULITZER INC.:
We have audited the accompanying statements of consolidated financial
position of Pulitzer Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Saint Louis, Missouri
February 4, 2000
23
24
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
OPERATING REVENUES -- NET:
Advertising............................................ $257,864 $240,721 $227,817
Circulation............................................ 85,965 88,075 87,611
Other.................................................. 47,554 44,128 42,541
-------- -------- --------
Total operating revenues............................ 391,383 372,924 357,969
-------- -------- --------
OPERATING EXPENSES:
Operations............................................. 148,578 150,266 145,730
Selling, general and administrative.................... 148,242 139,148 132,238
General corporate expense.............................. 6,662 5,806 6,007
Stock option cash-out and bonuses (Note 13)............ 26,685
St. Louis Agency adjustment (Note 3)................... 25,029 20,729 19,450
Depreciation and amortization.......................... 17,091 14,054 13,007
-------- -------- --------
Total operating expenses............................ 372,287 330,003 316,432
-------- -------- --------
Operating income....................................... 19,096 42,921 41,537
Interest income........................................ 25,377 4,967 4,391
Net gain (loss) on marketable securities and
investments......................................... (111) 1,322 260
Net other expense...................................... (2,697) (2,139) (1,202)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR
INCOME TAXES........................................... 41,665 47,071 44,986
PROVISION FOR INCOME TAXES (Note 11)..................... 18,708 20,055 19,227
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................ 22,957 27,016 25,759
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
(Note 4)............................................... (21,449) 49,268 40,269
-------- -------- --------
NET INCOME............................................... $ 1,508 $ 76,284 $ 66,028
======== ======== ========
BASIC EARNINGS PER SHARE OF STOCK (Note 14):
Income from continuing operations...................... $ 1.02 $ 1.21 $ 1.17
Income (loss) from discontinued operations............. (0.95) 2.20 1.82
-------- -------- --------
Earnings per share..................................... $ 0.07 $ 3.41 $ 2.99
======== ======== ========
Weighted average number of shares outstanding.......... 22,578 22,381 22,110
======== ======== ========
DILUTED EARNINGS PER SHARE OF STOCK (Note 14):
Income from continuing operations...................... $ 1.02 $ 1.19 $ 1.15
Income (loss) from discontinued operations............. (0.95) 2.16 1.79
-------- -------- --------
Earnings per share..................................... $ 0.07 $ 3.35 $ 2.94
======== ======== ========
Weighted average number of shares outstanding.......... 22,601 22,753 22,452
======== ======== ========
See accompanying notes to consolidated financial statements.
24
25
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $106,177 $110,171
Marketable securities (Note 6)............................ 451,714
Trade accounts receivable (less allowance for doubtful
accounts of $2,362 and $1,722)......................... 42,175 42,658
Inventory................................................. 5,146 2,587
Income taxes receivable................................... 18,279
Prepaid expenses and other................................ 11,729 12,564
-------- --------
Total current assets................................... 635,220 167,980
-------- --------
PROPERTIES:
Land...................................................... 5,611 5,536
Buildings................................................. 45,034 43,511
Machinery and equipment................................... 107,796 98,848
Construction in progress.................................. 7,158 8,442
-------- --------
Total.................................................. 165,599 156,337
Less accumulated depreciation............................. 81,995 72,186
-------- --------
Properties -- net...................................... 83,604 84,151
-------- --------
INTANGIBLE AND OTHER ASSETS:
Intangible assets -- net of amortization (Note 7)......... 185,492 197,154
Receivable from The Herald Company (Notes 3 and 10)....... 35,901 38,683
Net assets of Broadcasting Business (Note 4).............. 35,717
Other..................................................... 38,070 22,708
-------- --------
Total intangible and other assets...................... 259,463 294,262
-------- --------
TOTAL................................................ $978,287 $546,393
======== ========
(Continued)
25
26
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
DECEMBER 31,
---------------------
1999 1998
-------- ---------
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.................................... $ 13,771 $ 12,253
Salaries, wages and commissions........................... 12,481 10,911
Income taxes payable...................................... 2,832
Pension obligations (Note 9).............................. 288 184
Acquisition payable....................................... 9,707 9,707
Other..................................................... 3,443 7,418
-------- ---------
Total current liabilities.............................. 39,690 43,305
-------- ---------
PENSION OBLIGATIONS (Note 9)................................ 26,549 23,625
-------- ---------
POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT OBLIGATIONS (Note
10)....................................................... 86,902 88,397
-------- ---------
OTHER LONG-TERM LIABILITIES................................. 11,695 5,709
-------- ---------
COMMITMENTS AND CONTINGENCIES (Note 15)
STOCKHOLDERS' EQUITY (Note 12):
Preferred stock, $.01 par value; authorized -- 100,000,000
shares in 1999 and 25,000,000 in 1998; issued and
outstanding -- none Common stock, $.01 par value;
authorized -- 100,000,000 shares in 1999 and 50,000,000
in 1998; issued -- 8,513,203 in 1999 and 7,242,974 in
1998................................................... 85 72
Class B common stock, convertible, $.01 par value;
100,000,000 shares authorized; issued -- 14,131,814 in
1999 and 27,019,880 in 1998............................ 141 270
Additional paid-in capital................................ 425,451 151,574
Retained earnings......................................... 413,676 422,329
Accumulated other comprehensive loss...................... (4,196) (915)
-------- ---------
Total.................................................. 835,157 573,330
Treasury stock -- at cost; 527,471 and 25,519 shares of
common stock in 1999 and 1998, respectively, and
11,700,850 shares of Class B common stock in 1998......... (21,706) (187,973)
-------- ---------
Total stockholders' equity............................. 813,451 385,357
-------- ---------
TOTAL................................................ $978,287 $ 546,393
======== =========
(Concluded)
See accompanying notes to consolidated financial statements.
26
27
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED
CLASS B ADDITIONAL OTHER TOTAL
COMMON COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK EQUITY
------ ------- ---------- -------- ------------- --------- -------------
(IN THOUSANDS)
BALANCES AT JANUARY 1, 1997......... $65 $272 $129,173 $308,283 $ -- $(187,856) $249,937
Issuance of common stock grants... 70 70
Common stock options exercised.... 2 3,297 3,299
Conversion of Class B common stock
to common stock................. 1 (1)
Common stock issued under Employee
Stock Purchase Plan............. 322 322
Tax benefit from stock options
exercised....................... 2,680 2,680
Net income........................ 66,028 66,028
Cash dividends declared $0.52 per
share of common and Class B
common.......................... (11,483) (11,483)
Purchase of treasury stock........ (76) (76)
--- ---- -------- -------- ------- --------- --------
BALANCES AT DECEMBER 31, 1997....... 68 271 135,542 362,828 (187,932) 310,777
Issuance of common stock grants... 68 68
Common stock options exercised.... 3 7,182 7,185
Conversion of Class B common stock
to common stock................. 1 (1)
Common stock issued under Employee
Stock Purchase Plan............. 1,370 1,370
Tax benefit from stock options
exercised....................... 7,412 7,412
Comprehensive income (loss):
Net income........................ 76,284 76,284
Other comprehensive income, net of
tax-minimum pension liability
adjustment...................... (915) (915)
--------
Comprehensive income.............. 75,369
--------
Cash dividends declared $0.75 per
share of common and Class B
common.......................... (16,783) (16,783)
Purchase of treasury stock........ (41) (41)
--- ---- -------- -------- ------- --------- --------
BALANCES AT DECEMBER 31, 1998....... 72 270 151,574 422,329 (915) (187,973) 385,357
Issuance of common stock grants... 610 610
Common stock options exercised.... 1 2,280 2,281
Conversion of Class B common stock
to common stock................. 12 (12)
Common stock issued under Employee
Stock Purchase Plan............. 191 191
Tax benefit from stock options
exercised....................... 2,318 2,318
Comprehensive income (loss):
Net income........................ 1,508 1,508
Other comprehensive income, net of
tax-minimum pension liability
adjustment...................... 894 894
Other comprehensive income, net of
tax-unrealized loss on
marketable securities........... (4,175) (4,175)
--------
Comprehensive (loss).............. (1,773)
--------
Cash dividends declared $0.45 per
share of common and Class B
common.......................... (10,161) (10,161)
Purchase of treasury stock........ (21,816) (21,816)
Cancellation of treasury stock.... (117) (187,966) 188,083
Divestiture of Broadcasting
Business, net of Transaction
costs and Working Capital
Adjustment...................... 456,444 456,444
--- ---- -------- -------- ------- --------- --------
BALANCES AT DECEMBER 31, 1999....... $85 $141 $425,451 $413,676 $(4,196) $ (21,706) $813,451
=== ==== ======== ======== ======= ========= ========
(Continued)
See accompanying notes to consolidated financial statements.
27
28
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK CLASS B COMMON STOCK
------------------ ---------------------
HELD IN HELD IN
ISSUED TREASURY ISSUED TREASURY
------ -------- -------- ---------
(IN THOUSANDS)
SHARE ACTIVITY:
BALANCES AT JANUARY 1, 1997........................... 6,498 (23) 27,215 (11,701)
Issuance of common stock grants..................... 1
Common stock options exercised...................... 202
Conversion of Class B common stock to common
stock............................................ 90 (90)
Common stock issued under Employee Stock Purchase
Plan............................................. 7
Purchase of treasury stock.......................... (2)
----- ---- ------- -------
BALANCES AT DECEMBER 31, 1997......................... 6,798 (25) 27,125 (11,701)
Issuance of common stock grants..................... 1
Common stock options exercised...................... 318
Conversion of Class B common stock to common
stock............................................ 105 (105)
Common stock issued under Employee Stock Purchase
Plan............................................. 21
Purchase of treasury stock.......................... (1)
----- ---- ------- -------
BALANCES AT DECEMBER 31, 1998......................... 7,243 (26) 27,020 (11,701)
Issuance of common stock grants..................... 8
Common stock options exercised...................... 97
Conversion of Class B common stock to common
stock............................................ 1,187 (1,187)
Common stock issued under Employee Stock Purchase
Plan............................................. 5
Purchase of treasury stock.......................... (528)
Cancellation of treasury stock...................... (27) 27 (11,701) 11,701
----- ---- ------- -------
BALANCES AT DECEMBER 31, 1999......................... 8,513 (527) 14,132 --
===== ==== ======= =======
(Concluded)
See accompanying notes to consolidated financial statements.
28
29
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
CONTINUING OPERATIONS
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations....................... $ 22,957 $ 27,016 $ 25,759
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation......................................... 9,785 7,959 7,175
Amortization......................................... 7,306 6,095 5,832
Deferred income taxes................................ (4,938) (1,400) (1,328)
Loss on sale of assets............................... 3,279
Changes in assets and liabilities (net of the effects
of the purchase and sale of properties) which
provided (used) cash:
Trade accounts receivable.......................... 483 (6,701) (2,692)
Inventory.......................................... (2,559) 2,743 (289)
Other assets....................................... 9,059 4,642 (3,652)
Trade accounts payable and other liabilities....... 11,810 2,217 3,120
Income taxes receivable/payable.................... (21,111) (238) 1,803
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 36,071 42,333 35,728
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (10,920) (15,269) (15,215)
Purchase of publishing properties, net of cash
acquired............................................. (23,055)
Sale of publishing properties........................... 3,300 2,590
Purchases of marketable securities...................... (907,636)
Sales of marketable securities.......................... 445,424
Investment in joint ventures and limited partnerships... (12,396) (3,900) (3,292)
Decrease (increase) in notes receivable................. 79 (1) 4,979
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES..................... (482,149) (39,635) (13,528)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid.......................................... (13,535) (13,409) (11,483)
Proceeds from exercise of stock options................. 2,281 7,185 3,299
Proceeds from employee stock purchase plan.............. 191 1,370 322
Purchase of treasury stock.............................. (21,816) (41) (76)
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES..................... (32,879) (4,895) (7,938)
--------- --------- ---------
CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS.......... $(478,957) $ (2,197) $ 14,262
--------- --------- ---------
(Continued)
29
30
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
DISCONTINUED OPERATIONS
Operating activities.................................... $ (21,206) $ 73,254 $ 57,757
Investing activities:
Capital expenditures................................. (1,488) (9,930) (12,976)
Purchase of broadcasting assets...................... (3,141)
Sale (purchase) of investment in limited
partnership........................................ 5,000 (1,000) (1,500)
Financing activities:
Proceeds from issuance of long-term debt............. 700,000
Repayments of long-term debt......................... (172,705) (12,705) (64,705)
Payment of Spin-off and Merger Transaction costs..... (31,763)
Payment of working capital adjustment related to
Merger............................................. (2,875)
--------- --------- ---------
CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS........ 474,963 49,619 (24,565)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (3,994) 47,422 (10,303)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............ 110,171 62,749 73,052
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................. $ 106,177 $ 110,171 $ 62,749
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest paid........................................ $ 8,429 $ 13,789 $ 17,469
Interest received.................................... (19,816) (4,898) (4,574)
Income taxes......................................... 35,550 46,653 45,110
Income tax refunds................................... (3,671) (983) (1,108)
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........................... 495,335
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............................................. 3,374
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 accompanying notes to consolidated financial statements.
30
31
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 and new media 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
"Transactions."
As a result of the Transactions, 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 (see Notes 4
and 12). The Transactions represent a reverse-spin transaction and, accordingly,
the Company's results of operations for periods prior to the consummation of the
Transactions 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 (see Note 4). The defined term
"Company" is used to refer to Pulitzer Publishing Company prior to the
Transactions and Pulitzer Inc. subsequent to the Transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation -- The consolidated financial statements include the
accounts of the Company and its subsidiary companies, all of which are
wholly-owned. All significant intercompany transactions have been eliminated
from the consolidated financial statements.
Fiscal Year -- The Company's fiscal year ends on the last Sunday of the
calendar year. For ease of presentation, the Company has used December 31 as the
year-end.
Cash Equivalents -- For purposes of reporting cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Marketable Securities -- Marketable securities consist of fixed income
securities, including but not limited to debt securities issued by the U.S.
government and related agencies, municipal securities, corporate securities and
various asset-backed securities. Marketable securities are recorded at fair
value with net unrealized gains and losses reported, net of tax, as a component
of other comprehensive income. The basis of cost used in determining realized
gains and losses is specific identification. The fair value of all securities is
determined by quoted market prices. All of the Company's marketable securities
represent "available-for-sale" securities as defined by the provisions of
Statement of Financial Accounting Standards No. 115.
Inventory Valuation -- Inventory, which consists primarily of newsprint, is
stated at the lower of cost (determined primarily using the last-in, first-out
method) or market. If the first-in, first-out cost method had been used,
inventory would have been $27,000 and $365,000 higher than reported at December
31, 1999 and 1998, respectively. Ink and other miscellaneous supplies are
expensed as purchased.
Property and Depreciation -- Property is recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
individual assets. Buildings are depreciated over 20 to 50 years and all other
property over lives ranging from 3 to 15 years.
Intangible Assets -- Intangibles consisting of goodwill, FCC licenses and
network affiliations acquired subsequent to the effective date of Accounting
Principles Board Opinion No. 17 ("Opinion No. 17") are being amortized over
lives of either 15 or 40 years while all other intangible assets are being
amortized over lives
31
32
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
ranging from 4 to 23 years. In addition, the intangible asset relating to the
Company's additional minimum pension liability under Statement of Financial
Accounting Standards No. 87 is adjusted annually, as necessary, when a new
determination of the amount of the additional minimum pension liability is made.
Long-Lived Assets -- The Company considers the possible impairment of its
properties and intangible assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Management
periodically evaluates the recoverability of long-lived assets by reviewing the
current and projected cash flows of each of its properties. If a permanent
impairment is deemed to exist, any write-down would be charged to operations.
For the periods presented, there has been no impairment.
Employee Benefit Plans -- The Company and its subsidiaries have several
noncontributory defined benefit pension plans covering a significant portion of
their employees. Benefits under the plans are generally based on salary and
years of service. The Company's liability and related expense for benefits under
the plans are recorded over the service period of active employees based upon
annual actuarial calculations. Plan funding strategies are influenced by tax
regulations. Plan assets consist primarily of government bonds and corporate
equity securities.
The Company provides retiree medical and life insurance benefits under
varying postretirement plans at several of its operating locations. In addition,
the Company provides postemployment disability benefits to certain former
employee groups prior to retirement. The significant portion of these benefits
results from plans at the St. Louis Post-Dispatch. The Company's liability and
related expense for benefits under the postretirement plans are recorded over
the service period of active employees based upon annual actuarial calculations.
The Company accrues postemployment disability benefits when it becomes probable
that such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid. All of the Company's
postretirement and postemployment benefits are funded on a pay-as-you-go basis.
Income Taxes -- Deferred tax assets and liabilities are recorded for the
expected future tax consequences of events that have been included in either the
financial statements or tax returns of the Company. Under this asset and
liability approach, deferred tax assets and liabilities are determined based on
temporary differences between the financial statement and tax bases of assets
and liabilities by applying enacted statutory tax rates applicable to future
years in which the differences are expected to reverse.
Stock-Based Compensation Plans -- The Company applies the provisions of
Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock
Issued to Employees, and related interpretations to account for its employee
stock option plans.
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. (see Note 14)
Comprehensive Income -- A calculation of comprehensive income has been
included in the statement of stockholders' equity, and an accumulated balance of
other comprehensive income has been included in the equity section of the
statement of consolidated financial position, in compliance with Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Segment Information -- During 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. Prior to the Transactions (see Note 1), the
Company's operations included both a publishing and broadcasting segment. As a
result of the Transactions, the broadcasting segment has been presented as a
discontinued operation in the consolidated financial statements with detail
segment disclosures included in Note 4. Segment disclosures
32
33
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
for the Company's remaining operating segment, publishing, are presented in the
consolidated financial statements as continuing operations. See additional
publishing segment disclosures included in Note 17.
Derivative Instruments and Hedging Activities -- In June 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. ("SFAS") 133, Accounting for Derivative Instruments and Hedging
Activities, which after being amended by SFAS 137, is effective for fiscal years
beginning after June 15, 2000. SFAS 133 establishes accounting and reporting
standards for derivative instruments including certain derivative instruments
embedded in other contracts and hedging activities. The Company is currently in
the process of assessing the effect of this statement.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
Reclassifications -- Certain reclassifications have been made to the 1998
and 1997 consolidated financial statements to conform with the 1999
presentation.
3. AGENCY AGREEMENTS
An agency operation between the Company and The Herald Company is conducted
under the provisions of an Agency Agreement, dated March 1, 1961, as amended.
For many years, the St. Louis Post-Dispatch (published by the Company) was the
afternoon and Sunday newspaper serving St. Louis, and the Globe-Democrat
(formerly published by The Herald Company) was the morning paper and also
published a weekend edition. Although separately owned, from 1961 through
February 1984, the publication of both the Post-Dispatch and the Globe-Democrat
was governed by the St. Louis Agency Agreement. From 1961 to 1979, the two
newspapers controlled their own news, editorial, advertising, circulation,
accounting and promotion departments and Old Pulitzer managed the production and
printing of both newspapers. In 1979, Old Pulitzer assumed full responsibility
for advertising, circulation, accounting and promotion for both newspapers. In
February 1984, after a number of years of unfavorable financial results at the
St. Louis Agency, the Globe-Democrat was sold by The Herald Company and the St.
Louis Agency Agreement was revised to eliminate any continuing relationship
between the two newspapers and to permit the repositioning of the daily
Post-Dispatch as a morning newspaper. Following the renegotiation of the St.
Louis Agency Agreement at the time of the sale of the Globe-Democrat, The Herald
Company retained the contractual right to receive one-half the profits (as
defined), and the obligation to share one-half the losses (as defined), of the
operations of the St. Louis Agency, which from February 1984 forward consisted
solely of the publication of the Post-Dispatch. The St. Louis Agency Agreement
also provides for The Herald Company to share one-half the cost of, and to share
in a portion of the proceeds from the sale of, capital assets used in the
production of the Post-Dispatch. Under the St. Louis Agency Agreement, the
Company supervises, manages and performs all activities relating to the
day-to-day publication of the Post-Dispatch and is solely responsible for the
news and editorial policies of the newspaper. The consolidated financial
statements of the Company include all the operating revenues and expenses of the
St. Louis Agency relating to the Post-Dispatch.
In Tucson, Arizona, a separate partnership, TNI Partners Inc. ("TNI"),
acting as agent for the Star (a newspaper owned by the Company) and 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 income or net loss of TNI is generally allocated equally
to the Star and the Citizen. The Company's consolidated financial statements
include its share of TNI's revenues and expenses.
33
34
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
4. DISCONTINUED OPERATIONS
Discontinued operations represent the Broadcasting Business owned by Old
Pulitzer prior to the Merger, including the allocation of all long-term debt
balances and related interest expense amounts of Old Pulitzer prior to the
Merger.
The net liability balance of the Broadcasting Business as of March 18,
1999, including the $700 million of New Debt (as defined in Note 8), was
contributed to "Additional Paid-in Capital" of the Company at the time of the
Merger (see Note 12). The net asset balance of the Broadcasting Business as of
December 31, 1998 is classified in the statement of consolidated financial
position as "Net Assets of Broadcasting Business". The asset and liability
balances of the Broadcasting Business as of March 18, 1999 (immediately prior to
the Merger) and as of December 31, 1998 are included below.
MARCH 18, 1999 DECEMBER 31,
(PRIOR TO MERGER) 1998
----------------- ------------
(IN THOUSANDS)
ASSETS
Trade accounts receivable (less allowance for doubtful
accounts of $558 and $597)................................ $ 40,819 $ 47,244
Program rights.............................................. 5,941 8,425
Other current assets........................................ 4,812 1,115
--------- --------
Total current assets...................................... 51,572 56,784
--------- --------
Properties:
Land...................................................... 10,431 10,254
Buildings................................................. 48,525 48,508
Machinery and equipment................................... 140,826 138,351
Construction in progress.................................. 854 2,177
--------- --------
Total.................................................. 200,636 199,290
Less accumulated depreciation............................. 117,792 115,776
--------- --------
Properties -- net...................................... 82,844 83,514
--------- --------
Intangible assets:
FCC Licenses and network affiliations..................... 114,403 114,403
Goodwill.................................................. 6,960 6,960
Other intangibles......................................... 42,491 42,491
--------- --------
Total.................................................. 163,854 163,854
Less accumulated amortization............................. 70,745 69,037
--------- --------
Intangible assets -- net............................... 93,109 94,817
--------- --------
Other assets................................................ 2,019 8,348
--------- --------
Total assets of Broadcasting Business.................. 229,544 243,463
--------- --------
34
35
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
MARCH 18, 1999 DECEMBER 31,
(PRIOR TO MERGER) 1998
----------------- ------------
(IN THOUSANDS)
LIABILITIES
Trade accounts payable and accrued expenses................. 7,848 9,255
Current portion of long-term debt (Note 8).................. 12,705
Interest payable............................................ 5,301
Program contracts payable................................... 5,599 7,955
--------- --------
Total current liabilities................................. 13,447 35,216
Long-term debt (Note 8)..................................... 700,000 160,000
Pension obligations (Note 9)................................ 3,035 6,951
Postretirement benefit obligations (Note 10)................ 2,812 2,762
Other long term liabilities................................. 5,585 2,817
Commitments and contingencies (Note 15).....................
--------- --------
Total liabilities of Broadcasting Business................ 724,879 207,746
--------- --------
NET ASSETS (LIABILITIES) OF BROADCASTING BUSINESS........... $(495,335) $ 35,717
========= ========
In connection with the Merger, the Company made a cash payment to
Hearst-Argyle in the amount of $2,875,000, representing the difference between
$41,000,000 and the working capital balance of the Broadcasting Business on the
date of the Merger ("Working Capital Adjustment"). Based upon the March 18, 1999
asset and liability balances included above, the Broadcasting Business had a
working capital balance of $38,125,000 at the time of the Merger.
35
36
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The net income/(loss) from operations of the Broadcasting Business, without
allocation of any general corporate expense, is reflected in the statements of
consolidated operations as "Income (Loss) from Discontinued Operations, Net of
Tax" and is summarized as follows:
YEARS ENDED DECEMBER 31,
------------------------------
1999(A) 1998 1997
-------- -------- --------
(IN THOUSANDS)
Operating revenues.................................. $ 45,622 $239,746 $227,016
-------- -------- --------
Operating expenses:
Operations........................................ 15,951 72,438 69,205
Selling, general and administrative............... 11,616 51,898 52,184
Stock option cash-outs and bonuses................ 25,305
Depreciation and amortization..................... 3,881 21,048 23,447
-------- -------- --------
Total operating expenses....................... 56,753 145,384 144,836
-------- -------- --------
Operating income (loss)............................. (11,131) 94,362 82,180
Interest expense.................................... 3,128 13,503 16,081
Loss on extinguishment of debt(b)................... 17,955
-------- -------- --------
Income (loss) before income taxes................... (32,214) 80,859 66,099
Income tax provision (benefit)...................... (10,765) 31,591 25,830
-------- -------- --------
Net income (loss)................................... $(21,449) $ 49,268 $ 40,269
======== ======== ========
- ---------------
(a) Broadcasting results for 1999 reflect operations only through March 18,
1999, the date of the Merger, and include approximately $25.3 million of
stock option cash-outs and bonus payments to broadcasting employees in
connection with the Merger on March 18, 1999. (see Note 13)
(b) On March 18, 1999, in connection with the Spin-off and Merger, Old Pulitzer
prepaid its existing long-term debt and incurred a prepayment penalty of
approximately $17.2 million. This prepayment penalty, along with the
write-off of deferred financing fees of approximately $750,000, has been
included in the results of discontinued operations for 1999. (see Note 8)
5. ACQUISITION OF PROPERTIES
In January 2000, the Company acquired the assets of The Pantagraph, a daily
and Sunday newspaper that serves the central Illinois cities of Bloomington and
Normal, in a $180 million purchase transaction, excluding working capital. The
Company funded the acquisition with the proceeds from the sale of a portion of
its investments in marketable securities. (see Note 6)
In October 1998, the Company acquired in a purchase transaction Troy Daily
News, Inc., the publisher of a daily afternoon and Sunday morning newspaper
located in Troy, Ohio, for approximately $20.7 million, including approximately
$700,000 of working capital. The pro forma impact of the acquisition on the
Company's results of operations was not material.
36
37
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
6. MARKETABLE SECURITIES
Investments classified as available-for-sale securities at December 31,
1999 consisted of the following:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
Debt securities issued by the U.S. government
and agencies............................... $314,027 $ 12 $(4,260) $309,779
Municipal securities......................... 11,352 (354) 10,998
Corporate securities......................... 69,646 62 (1,536) 68,172
Mortgage-backed securities................... 11,795 (279) 11,516
Other debt securities........................ 51,749 41 (541) 51,249
-------- ---- ------- --------
Total investments....................... $458,569 $115 $(6,970) $451,714
======== ==== ======= ========
For the year ended December 31, 1999, proceeds from sales of marketable
securities were $445,424,000 resulting in gross realized gains and losses of
$850,000 and $3,041,000, respectively. In addition, a net unrealized loss of
$4,175,000, after tax, is included in other comprehensive loss for the year
ended December 31, 1999.
The contractual maturity schedule of investments classified as
available-for-sale securities at December 31, 1999 was as follows:
AMORTIZED FAIR
COST VALUE
--------- --------
(IN THOUSANDS)
Due in one year or less..................................... $161,440 $160,851
Due after one year through five years....................... 226,300 221,925
Due after five years through ten years...................... 13,172 12,348
Due after ten years......................................... 45,862 45,074
Not due at a single maturity date........................... 11,795 11,516
-------- --------
Total investments...................................... $458,569 $451,714
======== ========
Actual maturities may differ from contractual maturities because some
borrowers have the right to call or prepay obligations without prepayment
penalties.
In January 2000, the Company sold $180,000,000 worth of its investments in
marketable securities to fund the acquisition of The Pantagraph. (see Note 5)
37
38
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
Goodwill.................................................... $182,766 $186,051
Intangible pension asset (Note 9)........................... 1,096 2,006
Other....................................................... 24,314 24,995
-------- --------
Total.................................................. 208,176 213,052
Less accumulated amortization............................... 22,684 15,898
-------- --------
Total intangible assets -- net.............................. $185,492 $197,154
======== ========
8. FINANCING ARRANGEMENTS
On March 17, 1999, Old Pulitzer borrowed $700 million from Chase Manhattan
Bank pursuant to a borrowing agreement (the "New Debt"). Prior to the Spin-off
and Merger, on March 18, 1999, Old Pulitzer used a portion of the proceeds from
the New Debt to prepay its existing long-term debt with The Prudential Insurance
Company of America ("Prudential"), pay a related prepayment penalty to
Prudential and pay certain transaction costs resulting from the Spin-off and
Merger. The balance of the proceeds of the New Debt, together with existing cash
balances, was contributed to the Company in the Spin-off, and the New Debt was
assumed by Hearst-Argyle at the time of the Merger. Accordingly, all long-term
debt balances and related interest expense are allocated to the Broadcasting
Business and reported as discontinued operations in the consolidated financial
statements. (see Note 4)
As a result of the Transactions, the Company has no outstanding debt as of
December 31, 1999.
Long-term debt included in "Net Assets of Broadcasting Business" in the
statements of consolidated financial position as of December 31, 1998 consisted
of Prudential senior notes totaling $172,705.
9. PENSION PLANS
The pension cost components for the Company's pension plans are as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
Service cost for benefits earned during the year............ $ 3,212 $ 4,439 $ 3,966
Interest cost on projected benefit obligation............... 7,598 8,864 8,470
Expected return on plan assets.............................. (8,715) (9,891) (8,670)
Amortization of prior service cost.......................... (18) (23) (23)
Amortization of transition obligation....................... 211 221 221
Amortization of gain........................................ (239) (376) (312)
------- ------- -------
Net periodic pension cost................................... $ 2,049 $ 3,234 $ 3,652
======= ======= =======
The Company's net periodic pension cost components disclosed above for 1998
and 1997 include amounts related to Broadcasting employees who participated in
two of the Company's defined benefit pension plans prior to the Merger. No
detailed information regarding the components of net periodic pension cost and
38
39
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
funded status of the plans, as it relates to Broadcasting, is available for 1998
and 1997. However, a portion of the Company's pension cost has been allocated to
Broadcasting's active employees and included in "Discontinued Operations" in the
statements of consolidated income. Pension cost allocated to Broadcasting, based
on payroll costs, amounted to approximately $1,408,000 and $1,395,000 for 1998
and 1997, respectively. As of the date of the Merger, Hearst-Argyle assumed the
ongoing liabilities related to Broadcasting's active employees. Future pension
costs for the Company and Broadcasting after the Spin-off are likely to be
different when compared to allocated historical amounts.
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year..................... $144,119 $128,690
Service cost................................................ 3,212 4,439
Interest cost............................................... 7,598 8,864
Actuarial (gain)/loss....................................... (15,059) 8,638
Benefits paid............................................... (6,619) (6,512)
Reduction for Broadcasting divestiture...................... (16,629)
-------- --------
Benefit obligation at end of year........................... 116,622 144,119
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year.............. 128,806 119,354
Actual return on plan assets................................ 15,871 15,196
Employer contributions...................................... 591 768
Benefits paid............................................... (6,619) (6,512)
Reduction for Broadcasting divestiture...................... (16,388)
-------- --------
Fair value of plan assets at end of year.................... 122,261 128,806
-------- --------
Funded status--benefit obligation in excess of plan assets;
(plan assets in excess of benefit obligation)............. (5,639) 15,313
Unrecognized net actuarial gain............................. 32,041 12,847
Unrecognized prior service cost............................. 39 209
Unrecognized transition obligation.......................... (735) (1,118)
-------- --------
Net amount recognized....................................... $ 25,706 $ 27,251
======== ========
Amounts recognized in the statement of financial position
consist of:
Accrued benefit liability................................. $ 26,837 $ 30,760
Intangible asset (Note 7)................................. (1,096) (2,006)
Accumulated other comprehensive income.................... (35) (1,503)
-------- --------
Net amount recognized....................................... $ 25,706 $ 27,251
======== ========
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $15,319,000, $14,546,000 and $0, respectively, at
December 31, 1999 and $16,882,000, $15,409,000 and $0, respectively, at December
31, 1998.
The portion of the Company's accrued benefit liability allocated to
Broadcasting employees and included in "Net Assets of Broadcasting Business" in
the statements of consolidated financial position amounted to $6,951,000 as of
December 31, 1998. Pursuant to the Merger Agreement, actuarial calculations were
performed to separate Broadcasting active employees from the pension plans as of
the date of the Merger. The
39
40
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
pension obligations computed for Broadcasting active employees and a
proportionate share of pension plan assets were transferred to Hearst-Argyle in
1999.
The projected benefit obligation was determined using assumed discount
rates of 7.75%, 6.5% and 7% at December 31, 1999, 1998 and 1997, respectively.
The expected long-term rate of return on plan assets was 8.5% for 1999, 1998 and
1997. For those plans that pay benefits based on final compensation levels, the
actuarial assumptions for overall annual rate of increase in future salary
levels was 5% for 1999, 4% for 1998, and 4.5% for 1997.
Certain of the Company's employees participate in multi-employer retirement
plans sponsored by their respective unions. Amounts charged to operations,
representing the Company's required contributions to these plans in 1999, 1998
and 1997, were approximately $963,000, $920,000 and $844,000, respectively.
The Company also sponsors an employee savings plan under Section 401(k) of
the Internal Revenue Code. This plan covers substantially all employees.
Contributions by the Company amounted to approximately $1,687,000, $2,121,000
and $1,899,000 for 1999, 1998 and 1997, respectively. Contributions related only
to Broadcasting employees amounted to approximately $205,000, $704,000 and
$698,000 for 1999, 1998 and 1997, respectively. Pursuant to the Merger
Agreement, Broadcasting employee savings plan balances as of the date of the
Merger were transferred to an employee savings plan sponsored by Hearst-Argyle.
10. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The net periodic postretirement benefit cost components related to
continuing operations are as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
Service cost for benefits earned during the year............ $ 1,040 $ 933 $ 839
Interest cost on projected benefit obligation............... 4,020 4,384 4,493
Amortization of prior service cost.......................... (1,287) (1,293) (1,293)
Amortization of net gain.................................... (1,131) (1,008) (1,171)
------- ------- -------
Net periodic postretirement benefit cost.................... $ 2,642 $ 3,016 $ 2,868
======= ======= =======
Postretirement benefit cost for Broadcasting's active employees and certain
retirees is included in "Discontinued Operations" in the statements of
consolidated income for 1998 and 1997 in amount of $207,000 and $196,000,
respectively.
40
41
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The Company funds its postretirement benefit obligation on a pay-as-you-go
basis and, for 1999, 1998 and 1997, made payments of $4,110,000, $3,958,000 and
$4,118,000, respectively.
CONTINUING OPERATIONS
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(IN THOUSANDS)
Benefit obligation at beginning of year..................... $70,002 $64,807
Service cost................................................ 1,040 933
Interest cost............................................... 4,020 4,384
Actuarial (gain)/loss....................................... (2,729) 3,836
Benefits paid............................................... (4,110) (3,958)
------- -------
Benefit obligation at end of year........................... 68,223 70,002
------- -------
Plan assets at beginning and end of year.................... -- --
------- -------
Funded status............................................... 68,223 70,002
Unrecognized net actuarial gain............................. 11,667 10,132
Unrecognized prior service cost............................. 3,821 5,101
------- -------
Net amount recognized -- accrued benefit cost............... $83,711 $85,235
======= =======
The preceding amounts related to continuing operations for the December 31,
1999 and 1998 accrued postretirement benefit cost and the 1999, 1998 and 1997
net periodic postretirement benefit expense have not been reduced for The Herald
Company's share of the respective amounts. However, pursuant to the St. Louis
Agency Agreement (see Note 3), the Company has recorded a receivable for The
Herald Company's share of the accrued postretirement benefit cost as of December
31, 1999 and 1998.
Accrued postretirement benefit cost of $2,762,000 related to broadcasting
active employees and certain retirees is included in "Net Assets of Broadcasting
Business" in the statements of consolidated financial position as of December
31, 1998. As of the date of the Merger, Hearst-Argyle assumed the postretirement
obligation and costs related to Broadcasting active employees and certain
retirees.
For 1999 and 1998 measurement purposes, health care cost trend rates of 9%,
8% and 6% were assumed for indemnity plans, PPO plans and HMO plans,
respectively. For 1999, these rates were assumed to decrease gradually to 5.5%
through the year 2010 and remain at that level thereafter. For 1998, the rates
were assumed to decrease gradually to 4.5% through the year 2010 and remain at
that level thereafter.
Administrative costs related to indemnity plans were assumed to increase at
a constant annual rate of 6% for 1999, 1998 and 1997. The assumed discount rate
used in estimating the accumulated postretirement benefit obligation was 7.75%,
6.5% and 7% for 1999, 1998 and 1997, respectively.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement health care plans. A
one-percentage-point change in assumed health care cost trend rates would have
the following effects on reported amounts for 1999:
CONTINUING OPERATIONS
1-PERCENTAGE-POINT
----------------------
INCREASE DECREASE
--------- ---------
(IN THOUSANDS)
Effect on net periodic postretirement benefit cost.......... $1,122 $(936)
Effect on postretirement benefit obligation................. 846 (686)
41
42
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The Company's postemployment benefit obligation, representing certain
disability benefits at the St. Louis Post-Dispatch, was $3,191,000 and
$3,162,000 at December 31, 1999 and 1998, respectively.
11. INCOME TAXES
Provisions for income taxes (benefits) consist of the following:
CONTINUING OPERATIONS DISCONTINUED OPERATIONS
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
----------------------------- -----------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- -------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
Current:
Federal............................ $20,647 $19,152 $17,841 $(12,083) $26,736 $23,548
State and local.................... 2,564 2,303 2,714 113 5,119 4,321
Deferred:
Federal............................ (4,006) (1,250) (1,155) 1,216 (222) (1,723)
State and local.................... (497) (150) (173) (11) (42) (316)
------- ------- ------- -------- ------- -------
Total........................... $18,708 $20,055 $19,227 $(10,765) $31,591 $25,830
======= ======= ======= ======== ======= =======
Factors causing effective tax rates to differ from the statutory Federal
income tax rate were:
CONTINUING OPERATIONS DISCONTINUED OPERATIONS
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ----- ----- ----
Statutory rate.................................... 35% 35% 35% (35)% 35% 35%
Amortization of intangibles....................... 4 3 3
Sale of newspaper property -- book basis goodwill
in excess of tax basis.......................... 3
State and local income taxes, net of U.S. Federal
income tax benefit.............................. 4 3 4 4 4
Other-net......................................... (1) 2 1 2
-- -- -- --- -- --
Total................................... 45% 43% 43% (33)% 39% 39%
== == == === == ==
42
43
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The Company's deferred tax assets and liabilities, net, which have been
included in other assets in the statements of consolidated financial position,
consisted of the following:
CONTINUING OPERATIONS
DECEMBER 31,
---------------------- DISCONTINUED OPERATIONS
1999 1998 DECEMBER 31, 1998
--------- --------- -----------------------
(IN THOUSANDS) (IN THOUSANDS)
Deferred tax assets:
Pensions and employee benefits.................. $13,419 $ 9,364 $ 3,650
Postretirement benefit costs.................... 17,757 18,062 1,080
Other........................................... 3,523 1,087
------- ------- -------
Total................................... 34,699 28,513 4,730
------- ------- -------
Deferred tax liabilities:
Depreciation.................................... 13,350 14,007 5,760
Amortization.................................... 6,595 7,371 335
Other........................................... 344
Total................................... 19,945 21,378 6,439
------- ------- -------
Net deferred tax asset (liability)................ $14,754 $ 7,135 $(1,709)
======= ======= =======
The Company had no valuation allowance for deferred tax assets as of
December 31, 1999, 1998 and 1997.
12. STOCKHOLDERS' EQUITY
On March 18, 1999, all common and Class B common shares of treasury stock
held by Old Pulitzer were canceled. The cancellation of the treasury shares
reduced the number of shares of common and Class B common stock issued but did
not change the number of shares of common and Class B common stock outstanding.
In addition, the cancellation did not change the total balance of stockholders'
equity. Immediately following the Spin-off, on March 18, 1999, the number of
shares of common and Class B common stock of the Company outstanding was
identical to the number of shares of common and Class B common stock of Old
Pulitzer outstanding immediately prior to the Spin-off.
The net liability balance of the Broadcasting Business as of March 18,
1999, including the $700 million of New Debt, was contributed to "Additional
Paid-in Capital" of the Company at the time of the Merger (see Notes 4 and 8).
This capital contribution has been recorded net of Transaction costs of
approximately $36 million and the Working Capital Adjustment of approximately
$2.9 million related to the Merger.
Each share of the Company's common stock is entitled to one vote and each
share of Class B common stock is entitled to ten votes on all matters. Holders
of outstanding shares of Pulitzer Inc. Class B common stock representing 94.7%
of the combined voting power of the Company have deposited their shares in a
voting trust (the "Voting Trust"). Each share of the Company's Class B common
stock is convertible into one share of the Company's common stock at the
holder's option subject to the limitations imposed by the Voting Trust on the
shares of Class B common stock deposited thereunder. The Voting Trust permits
the conversion of the Class B common stock deposited in the Voting Trust into
common stock in connection with certain permitted transfers, including, without
limitation, sales which are exempt from the registration requirements of the
Securities Act of 1933, as amended, sales which meet the volume and manner of
sale requirements of Rule 144 promulgated thereunder and sales which are made
pursuant to registered public offerings.
43
44
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The trustees generally hold all voting rights with respect to the shares of
Class B common stock subject to the Voting Trust; however, in connection with
certain matters, including any proposal for a merger, consolidation,
recapitalization or dissolution of the Company or disposition of all or
substantially all its assets, the calling of a special meeting of stockholders
and the removal of directors, the Trustees may not vote the shares deposited in
the Voting Trust except in accordance with written instructions from the holders
of the Voting Trust Certificates. The Voting Trust may be terminated with the
written consent of holders of two-thirds in interest of all outstanding Voting
Trust Certificates. Unless extended or terminated by the parties thereto, the
Voting Trust expires on March 18, 2009.
In 1999, the Company declared and paid cash dividends of $0.45 per share of
common stock and Class B common stock. In 1998, the Company declared cash
dividends of $0.75 per share of common stock and Class B common stock including
a cash dividend of $0.15 per share of common stock and Class B common stock
which was declared in December 1998 and paid to stockholders in January 1999.
The dividend declared in December represented the acceleration of the Company's
dividend historically declared in the first quarter of each fiscal year.
13. COMMON STOCK PLANS
Since 1986, Old Pulitzer maintained employee stock option plans ("Prior
Option Plans") that provided for the issuance of incentive stock options to key
employees and outside directors. On March 18, 1999, immediately prior to the
Transactions and pursuant to the Merger Agreement, the Company redeemed all
outstanding stock options, whether or not vested, and terminated the Prior
Option Plans. The Company redeemed the stock options at a cash-out value
("Cash-Out Value") equal to the difference between the option exercise price and
the average daily closing price of Old Pulitzer common stock for the 10 trading
days ending on March 16, 1999. The total Cash-Out Value amounted to
approximately $35.2 million and included $1.2 million recorded as deferred
compensation in other long-term liabilities of the Company. In addition to the
stock option cash-outs, bonus payments due as a result of the Spin-off and
Merger were also expensed in 1999. Total stock option cash-out and bonus expense
of approximately $52 million has been recorded in 1999, including approximately
$26.7 million related to publishing employees recorded in continuing operations
and approximately $25.3 million related to broadcasting employees recorded in
discontinued operations.
On May 12, 1999, the Company's stockholders approved the adoption of the
Pulitzer Inc. 1999 Stock Option Plan (the "Option Plan"). The Option Plan
provides for the issuance of stock options to key employees and outside
directors for the purchase of up to a maximum of 3,000,000 shares of common
stock. Under the Option Plan, options to purchase 3,000 shares of common stock
will be automatically granted to each non-employee director on the day following
each annual meeting of the Company's stockholders and will vest on the date of
the next annual meeting of the Company's stockholders. Total shares available
for issue to outside directors under this automatic grant feature are limited to
a maximum of 200,000. The issuance of all other options will be administered by
a committee of the Board of Directors, subject to the Option Plan's terms and
conditions. Specifically, for incentive stock option grants, the exercise price
per share may not be less than the fair market value of a share of common stock
at the date of grant. In addition, exercise periods may not exceed ten years and
the minimum vesting period is established at six months from the date of grant.
Option awards to an individual employee may not exceed 200,000 shares in a
calendar year. In general, employee option grants provide for an exercise term
of ten years from the date of grant and vest in equal installments over a
three-year period.
44
45
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
Transactions under the Option Plan and Prior Option Plans are summarized as
follows:
WEIGHTED
AVERAGE
SHARES PRICE RANGE PRICE
--------- ------------- --------
Common Stock Options:
Outstanding, January 1, 1997......................... 1,230,855 $ 9.27-$46.25 $24.11
Granted (weighted average value at grant date of
$20.23)......................................... 211,231 $45.63-$58.81 $58.41
Canceled........................................... (14,235) $21.53-$47.38 $38.91
Exercised.......................................... (201,920) $ 9.27-$46.25 $16.34
---------
Outstanding, December 31, 1997....................... 1,225,931 $ 9.27-$58.81 $31.13
Granted (weighted average value at grant date of
$38.78)......................................... 5,001 $88.28 $88.28
Canceled........................................... (3,813) $21.53-$58.81 $46.64
Exercised.......................................... (317,511) $ 9.27-$58.81 $22.63
---------
Outstanding, December 31, 1998....................... 909,608 $ 9.27-$88.28 $34.34
Granted (weighted average value at grant date of
$6.98).......................................... 1,014,559 $39.69-$46.31 $40.03
Canceled........................................... (8,265) $18.55-$88.28 $69.84
Canceled and cashed-out............................ (806,040) $ 9.27-$58.81 $35.27
Exercised.......................................... (96,553) $ 9.27-$58.81 $23.63
---------
Outstanding, December 31, 1999....................... 1,013,309 $39.69-$46.31 $40.03
---------
Shares Available for Grant at December 31, 1999...... 1,986,691
=========
Since 1986, the Old Pulitzer maintained restricted stock purchase plans
("Prior Stock Plans") that provided for the awarding to employees of a grant or
right to purchase at a particular price shares of common stock, subject to
restrictions on transferability. As of February 16, 1999, in anticipation of the
Transactions, the Compensation Committee of Old Pulitzer's Board of Directors
approved the immediate vesting of all outstanding, unvested shares of restricted
stock previously awarded under the Prior Stock Plans. On March 17, 1999,
immediately prior to the Transactions, the Prior Stock Plans were terminated.
On May 12, 1999, the Company's stockholders approved the adoption of the
Pulitzer Inc. Key Employees' Restricted Stock Purchase Plan (the "Restricted
Plan"). The Restricted Plan provides that an employee may receive, at the
discretion of a committee of the Board of Directors, a grant or right to
purchase at a particular price, shares of common stock subject to restrictions
on transferability. A maximum of 500,000 shares of common stock may be granted
and purchased by employees under the Restricted Plan. Compensation expense equal
to the fair market value of common stock awards on the date of grant is
45
46
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
recognized over the vesting period of the grants. Transactions under the
Restricted Plan and Prior Stock Plans are summarized as follows:
WEIGHTED
AVERAGE
SHARES PRICE RANGE PRICE
------- ------------- --------
Common Stock Grants:
Outstanding, January 1, 1997........................... 5,885 $20.25-$36.70 $27.78
Granted.............................................. 1,468 $47.44 $47.44
Canceled............................................. (1,393) $20.25-$47.44 $33.13
Vested............................................... (2,272) $20.25-$36.70 $25.56
-------
Outstanding, December 31, 1997......................... 3,688 $21.38-$47.44 $34.95
Granted.............................................. 1,184 $57.84 $57.84
Vested............................................... (1,594) $21.38-$47.44 $30.66
-------
Outstanding, December 31, 1998......................... 3,278 $24.53-$57.84 $45.31
Granted.............................................. 8,341 $39.88-$41.88 $40.43
Canceled............................................. (171) $41.88 $41.88
Vested............................................... (3,278) $24.53-$57.84 $45.31
Outstanding, December 31, 1999......................... 8,170 $39.88-$41.88 $40.40
=======
Shares Available for Grant at December 31, 1999...... 491,830
=======
As required by SFAS 123, the Company has estimated the fair value of its
option grants since December 31, 1994 by using the binomial options pricing
model with the following assumptions:
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
Expected life (years)....................................... 7 7 7
Risk-free interest rate..................................... 5.8% 5.7% 5.8%
Volatility.................................................. 28.2% 35.4% 23.6%
Dividend yield.............................................. 1.4% 1.0% 1.1%
As discussed in Note 2, the Company applies the provisions of APB 25 to
account for its stock option plans. If compensation expense for the Company was
determined on the estimated fair value of the options granted consistent with
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation, the Company's net income and earnings per share would have been as
follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro forma net income (loss)................................. $(1,119) $73,441 $64,487
Pro forma earnings per share:
Basic..................................................... $ (0.05) $ 3.28 $ 2.92
Diluted................................................... $ (0.05) $ 3.23 $ 2.87
On May 12, 1999, the Company's stockholders approved the adoption of the
Pulitzer Inc. 1999 Employee Stock Purchase Plan (the "Purchase Plan"). The
Purchase Plan allows eligible employees to authorize payroll deductions for the
periodic purchase of the Company's common stock at a price generally equal to 85
percent
46
47
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
of the common stock's then fair market value. In general, all employees of the
Company and its subsidiaries are eligible to participate in the Purchase Plan
after completing at least one year of service. Subject to appropriate adjustment
for stock splits and other capital changes, the Company may sell a total of
300,000 shares of its common stock under the Purchase Plan. Shares sold under
the Purchase Plan may be either authorized and unissued or held by the Company
in its treasury. The Purchase Plan began operations as of July 1, 1999.
14. EARNINGS PER SHARE
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:
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
Weighted average shares outstanding (Basic EPS)............. 22,578 22,381 22,110
Stock option equivalents.................................... 23 372 342
------ ------ ------
Weighted average shares and equivalents (Diluted EPS)....... 22,601 22,753 22,452
====== ====== ======
Stock option equivalents included in the Diluted EPS calculation were
determined using the treasury stock method. Under the treasury stock method and
Statement of Financial Accounting Standards No. 128, Earnings per Share,
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.
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company and its subsidiaries had construction and
equipment commitments of approximately $4,299,000.
The Company is an investor in one limited partnership requiring future
capital contributions. As of December 31, 1999, the Company's unfunded capital
contribution commitment related to this investment was approximately $2,116,000.
The Company and its subsidiaries are involved, from time to time, in
various claims and lawsuits incidental to the ordinary course of its 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.
In connection with the September 1986 purchase of the Company's Class B
common stock from certain selling stockholders (the "1986 Selling
Stockholders"), the Company agreed, under certain circumstances, to make an
additional payment to the 1986 Selling Stockholders in the event of a Gross-Up
Transaction. A "Gross-Up Transaction" was defined to mean, among other
transactions, (i) any merger, in any transaction or series of related
transactions, of more than 85 percent of the voting securities or equity of Old
Pulitzer pursuant to which holders of Old Pulitzer common stock receive
securities other than Old Pulitzer common stock and (ii) any recapitalization,
dividend or distribution, or series of related recapitalizations, dividends or
distributions, in which holders of Old Pulitzer common stock receive securities
(other than Old Pulitzer common stock) having a Fair Market Value (as defined
herein) of not less than 33 1/3 percent of the Fair Market Value of the shares
of Old Pulitzer common stock immediately prior to such transaction. The amount
47
48
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
of the additional payment, if any, would equal (x) the product of (i) the amount
by which the Transaction Proceeds (as defined herein) exceeds the Imputed Value
(as defined herein) multiplied by (ii) the applicable percentage (i.e., 50
percent for the period from May 13, 1996 through May 12, 2001) multiplied by
(iii) the number of shares of Old Pulitzer common stock issuable upon conversion
of the shares of Class B common stock owned by the 1986 Selling Stockholders,
adjusted for, among other things, stock dividends and stock splits; less (y) the
sum of any additional payments previously received by the 1986 Selling
Stockholders; provided, however, that in the event of any recapitalization,
dividend or distribution, the amount by which the Transaction Proceeds exceeds
the Imputed Value shall not exceed the amount paid or distributed pursuant to
such recapitalization, dividend or distribution in respect of one share of Old
Pulitzer common stock.
The term "Transaction Proceeds" was defined to mean, in the case of a
merger, the aggregate Fair Market Value (as defined herein) of the consideration
received pursuant thereto by the holder of one share of Old Pulitzer common
stock, and, in the case of a recapitalization, dividend or distribution, the
aggregate Fair Market Value of the amounts paid or distributed in respect of one
share of Old Pulitzer common stock plus the aggregate Fair Market Value of one
share of Old Pulitzer common stock following such transaction. The "Imputed
Value" for one share of Old Pulitzer common stock on a given date was defined to
mean an amount equal to $28.82 compounded annually from May 12, 1986 to such
given date at the rate of 15 percent per annum, the result of which is $154.19
at May 12, 1998. There was no specific provision for adjustment of the $28.82
amount, but if it were adjusted to reflect all stock dividends and stock splits
of Old Pulitzer since September 30, 1986, it would have equaled $15.72, which if
compounded annually from May 12, 1986 at the rate of 15 percent per annum would
have equaled $84.11 at May 12, 1998.
"Fair Market Value," in the case of any consideration other than cash
received in a Gross-Up Transaction, was defined to mean the fair market value
thereof as agreed to by a valuation firm selected by the Company and a valuation
firm selected by the 1986 Selling Stockholders, or, if the two valuation firms
do not agree on the fair market value, the fair market value of such
consideration as determined by a third valuation firm chosen by the two
previously selected valuation firms. Any such agreement or determination shall
be final and binding on the parties.
As a result of the foregoing, the amount of additional payments, if any,
which may be payable by the Company with respect to the Merger and the
distribution of the Company's common stock and Class B common stock in the
Spin-off (the "Distribution") cannot be determined at this time. However, if the
Distribution were determined to be a Gross-Up Transaction and if the Fair Market
Value of the Transaction Proceeds with respect to the Merger and the
Distribution were determined to exceed the Imputed Value, then the additional
payments to the 1986 Selling Stockholders would equal approximately $5.9 million
for each $1.00 by which the Transaction Proceeds exceed the Imputed Value.
Accordingly, depending on the ultimate resolution of the meaning and application
of various provisions of the Gross-Up Transaction agreements, including the
determination of Imputed Value and Fair Market Value of the Transaction
Proceeds, in the opinion of the Company's management, the amount of an
additional payment, if any, could be material to the consolidated financial
statements of the Company.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has estimated the following fair value amounts for its
financial instruments using available market information and appropriate
valuation methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
48
49
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
Cash and Cash Equivalents, Marketable Securities, Accounts Receivable,
Accounts Payable and Program Contracts Payable -- The carrying amounts of these
items are a reasonable estimate of their fair value.
Long-Term Debt -- Interest rates that are currently available to the
Company for issuance of debt with similar terms and remaining maturities are
used to estimate fair value. The fair value estimate of the Company's long-term
debt as of December 31, 1998 was $180,000,000.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1999 and 1998. Although
management is not aware of any facts that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and current
estimates of fair value may differ from the amounts presented herein.
17. NEWSPAPER PUBLISHING REVENUES
The Company's newspaper publishing revenues consist of the following:
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
St. Louis Post-Dispatch..................................... $252,402 $242,940 $234,255
Star Publishing Company..................................... 57,213 55,181 53,037
Pulitzer Community Newspaper Group.......................... 79,719 73,067 69,670
Other publishing revenue.................................... 2,049 1,736 1,007
-------- -------- --------
Total publishing revenue.................................. $391,383 $372,924 $357,969
======== ======== ========
49
50
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Operating results for the years ended December 31, 1999 and 1998 by
quarters are as follows:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
1999
OPERATING REVENUES -- NET................... $ 94,357 $98,694 $96,307 $102,025 $391,383
INCOME (LOSS) FROM CONTINUING OPERATIONS.... (8,516) 9,692 10,153 11,628 22,957
(LOSS) FROM DISCONTINUED OPERATIONS......... (21,449) (21,449)
NET INCOME.................................. (29,965) 9,692 10,153 11,628 1,508
BASIC EARNINGS PER SHARE OF STOCK (Note 14):
Continuing operations..................... $ (0.38) $ 0.43 $ 0.45 $ 0.52 $ 1.02
Discontinued operations................... (0.95) (0.95)
-------- ------- ------- -------- --------
Earnings per share........................ $ (1.33) $ 0.43 $ 0.45 $ 0.52 $ 0.07
======== ======= ======= ======== ========
Weighted average shares outstanding....... 22,604 22,647 22,638 22,423 22,578
======== ======= ======= ======== ========
DILUTED EARNINGS PER SHARE OF STOCK
(Note 14):
Continuing operations..................... $ (0.38) $ 0.43 $ 0.45 $ 0.52 $ 1.02
Discontinued operations................... (0.95) (0.95)
-------- ------- ------- -------- --------
Earnings Per Share........................ $ (1.33) $ 0.43 $ 0.45 $ 0.52 $ 0.07
======== ======= ======= ======== ========
Weighted Average Shares Outstanding....... 22,604 22,667 22,675 22,458 22,601
======== ======= ======= ======== ========
50
51
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
1998
OPERATING REVENUES -- NET..................... $90,229 $94,215 $90,763 $97,717 $372,924
INCOME FROM CONTINUING OPERATIONS............. 5,771 6,908 6,597 7,740 27,016
INCOME FROM DISCONTINUED OPERATIONS........... 8,194 15,793 8,810 16,471 49,268
NET INCOME.................................... 13,965 22,701 15,407 24,211 76,284
BASIC EARNINGS PER SHARE OF STOCK (Note 14):
Continuing operations....................... $ 0.26 $ 0.31 $ 0.30 $ 0.35 $ 1.21
Discontinued operations..................... 0.37 0.71 0.39 0.73 2.20
------- ------- ------- ------- --------
Earnings Per Share.......................... $ 0.63 $ 1.02 $ 0.69 $ 1.08 $ 3.41
======= ======= ======= ======= ========
Weighted Average Shares Outstanding......... 22,223 22,344 22,449 22,499 22,381
======= ======= ======= ======= ========
DILUTED EARNINGS PER SHARE OF STOCK (Note 14):
Continuing operations....................... $ 0.26 $ 0.30 $ 0.29 $ 0.34 $ 1.19
Discontinued operations..................... 0.36 0.70 0.39 0.72 2.16
------- ------- ------- ------- --------
Earnings Per Share.......................... $ 0.62 $ 1.00 $ 0.68 $ 1.06 $ 3.35
======= ======= ======= ======= ========
Weighted Average Shares Outstanding......... 22,615 22,756 22,806 22,823 22,753
======= ======= ======= ======= ========
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the total for the year.
* * * * * *
51
52
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PULITZER INC.:
We have audited the consolidated financial statements of Pulitzer Inc. and
its subsidiaries as of December 31, 1999 and 1998, and for each of the three
years in the period ended December 31, 1999, and have issued our report thereon
dated February 4, 2000; such report is included elsewhere in this Form 10-K. Our
audits also included the consolidated financial statement schedule of Pulitzer
Inc. and its subsidiaries, listed in the accompanying index at Item 14(a)2.(ii).
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Saint Louis, Missouri
February 4, 2000
52
53
SCHEDULE II
PULITZER INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION & QUALIFYING ACCOUNTS & RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 & 1997
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS & OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ---------
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999
Valuation Accounts:
Allowance for Doubtful Accounts
Continuing Operations............... $1,723 $2,840 $119(a) $2,320(b) $2,362
Discontinued Operations............. 597 365 82(a) 1,044(b)(e) --
Reserves:
Accrued Medical Plan --
Continuing Operations............... 1,077 4,762 4,533(c) 1,306
Workers Compensation
Continuing Operations............... 883 1,065 424(d) 1,524
Discontinued Operations............. 317 144 461(d) --
YEAR ENDED DECEMBER 31, 1998
Valuation Accounts:
Allowance for Doubtful Accounts
Continuing Operations............... $1,626 $2,181 $ 82(a) $2,166(b) $1,723
Discontinued Operations............. 785 211 187(a) 586(b) 597
Reserves:
Accrued Medical Plan --
Continuing Operations............... 1,043 4,719 4,685(c) 1,077
Workers Compensation
Continuing Operations............... 1,089 796 1,002 883
Discontinued Operations............. 868 314 865 317
YEAR ENDED DECEMBER 31, 1997
Valuation Accounts:
Allowance for Doubtful Accounts
Continuing Operations............... $1,585 $1,151 $ --(a) $1,110(b) $1,626
Discontinued Operations............. 991 317 178(a) 701(b) 785
Reserves:
Accrued Medical Plan --
Continuing Operations............... 389 4,714 -- 4,060(c) 1,043
Workers Compensation
Continuing Operations............... 1,085 887 -- 883 1,089
Discontinued Operations............. 1,041 312 -- 485 868
- ---------------
(a) Accounts reinstated, cash recoveries, etc.
(b) Accounts written off
(c) Amount represents:
1999 1998 1997
------ ------ ------
Claims paid...................................... $3,889 $4,118 $3,596
Service fees..................................... 662 575 473
Cash refunds..................................... (18) (8) (9)
------ ------ ------
$4,533 $4,685 $4,060
====== ====== ======
(d) Amount includes transfer of liability to Pulitzer, Inc.
(e) Amount includes a reduction of approximately $558,000 due to the Spin-off of
Broadcast operations.
53
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Management" in the Company's
definitive Proxy Statement to be used in connection with the 2000 Annual Meeting
of Stockholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement to be used in connection with the 2000
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Principal Stockholders" in the
Company's definitive Proxy Statement to be used in connection with the 2000
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Compensation Committee
Interlocks and Insider Participation" in the Company's definitive Proxy
Statement to be used in connection with the 2000 Annual Meeting of Stockholders
is incorporated herein by reference.
54
55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENT LIST
1. Financial Statements
The following financial statements are set forth in Part II, Item 8 of
this report.
PULITZER INC. AND SUBSIDIARIES:
(i) Independent Auditors' Report.
(ii) Statements of Consolidated Income for each of the Three Years in
the Period Ended December 31, 1999.
(iii) Statements of Consolidated Financial Position at December 31, 1999
and 1998.
(iv) Statements of Consolidated Stockholders' Equity for each of the
Three Years in the Period Ended December 31, 1999.
(v) Statements of Consolidated Cash Flows for each of the Three Years in
the Period Ended December 31, 1999.
(vi) Notes to Consolidated Financial Statements for the Three Years in
the Period Ended December 31, 1999.
2. Supplementary Data and Financial Statement Schedules
(i) Supplementary unaudited data with respect to quarterly results of
operations is set forth in Part II, Item 8 of this Annual Report.
(ii) Financial Statement Schedule II - Valuation and Qualifying Accounts
and Reserves and opinion thereon are set forth in Part II, Item 8
of this Annual Report.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore have
been omitted.
3. Exhibits Required by Securities and Exchange Commission Regulation S-K
(a) The following exhibits are filed as part of this Annual Report:
EXHIBIT NO.
- -----------
10.33 -- Employment and Consulting Agreement, dated as of June 1,
1999, between Pulitzer Inc. and Michael E. Pulitzer.
10.34 -- Employment Agreement, dated as of June 1, 1999, between
Pulitzer Inc. and Ronald H. Ridgway.
10.35 -- Split Dollar Life Insurance Agreement, dated as of June 16,
1999, by and among Pulitzer Inc. and James E. Elkins and
Diana K. Walsh.
10.36 -- Split Dollar Life Insurance Agreement, dated as of June 24,
1999, by and among Pulitzer Inc. and Tansy K. Ridgway and
Brian H. Ridgway.
10.37 -- Asset Purchase Agreement, as of October 4, 1999, by and
between The Chronicle Publishing Company and Pulitzer Inc.
21 -- Subsidiaries of Registrant
24 -- Power of Attorney
27 -- Financial Data Schedule
55
56
EXHIBIT NO.
- -----------
(b) The following exhibits are incorporated herein by reference:
3.1 -- Restated Certificate of Incorporation of Pulitzer
Inc.(viii)
3.2 -- Amended and Restated By-laws of Pulitzer Inc.(viii)
4.1 -- Form of Pulitzer Inc. Common Stock Certificate.(viii)
9.1 -- Pulitzer Inc. Voting Trust Agreement, dated as of March
18, 1999, between the holders of voting trust
certificates and Michael E. Pulitzer, Emily Rauh
Pulitzer, Ronald H. Ridgway, Cole C. Campbell, David E.
Moore and Robert C. Woodworth.(ix)
10.1 -- Agreement, dated March 1, 1961, effective January 1,
1961, between The Pulitzer Publishing Company, a Missouri
corporation, and the Globe-Democrat Publishing Company,
as amended on September 4, 1975, April 12, 1979 and
December 22, 1983.(viii)
10.2.1 -- Amended and Restated Joint Operating Agreement, dated
December 22, 1988, between Star Publishing Company and
Citizen Publishing Company.(viii)
10.2.2 -- Partnership Agreement, dated December 22, 1988, between
Star Publishing Company and Citizen Publishing
Company.(viii)
10.3 -- Agreement, dated as of May 12, 1986, among The Pulitzer
Publishing Company, Clement C. Moore, II, Gordon C. Weir,
William E. Weir, James R. Weir, Kenward G. Elmslie,
Stephen E. Nash and Manufacturers Hanover Trust Company,
as Trustees, and Christopher Mayer.(viii)
10.4 -- Letter Agreement, dated September 29, 1986, among The
Pulitzer Publishing Company, Trust Under Agreement Made
by David E. Moore, Frederick D. Pulitzer, Michael E.
Pulitzer, Jr., Robert S Pulitzer, Joseph Pulitzer, IV,
Joseph Pulitzer, Jr., Michael E. Pulitzer, Stephen E.
Nash and Manufacturers Hanover Trust Company, as
Trustees, Kenward G. Elmslie, Gordon C. Weir, William E.
Weir, James R. Weir, Peter W. Quesada, T. Ricardo
Quesada, Elinor P. Hempelmann, The Moore Foundation,
Inc., Mariemont Corporation, Z Press Inc. and Clement C.
Moore, II.(viii)
10.5 -- Letter Agreement, dated May 12, 1986, among The Pulitzer
Publishing Company, Peter W. Quesada, T. Ricardo Quesada,
Kate Davis Pulitzer Quesada and Elinor P.
Hempelmann.(viii)
10.6 -- Agreement, dated as of September 29, 1986, among The
Pulitzer Publishing Company, Peter W. Quesada, T. Ricardo
Quesada, Kate Davis Pulitzer Quesada and Elinor
Hempelmann.(viii)
10.7.1 -- Amendment, dated March 9, 1992, to the Pulitzer
Publishing Company Annual Incentive Compensation
Plan.(viii)
10.7.2 -- The Pulitzer Publishing Company Annual Incentive
Compensation Plan.(viii)
10.7.3 -- Pulitzer Publishing Company Newspaper Operations Annual
Incentive Plan.(viii)
10.8.1 -- Amendment, dated September 16, 1997, to Pulitzer
Retirement Savings Plan.(v)
10.8.2 -- Amendment, dated January 28, 1997, to Pulitzer Retirement
Savings Plan.(iv)
10.8.3 -- Amendment, dated October 30, 1996, to Pulitzer Retirement
Savings Plan.(iv)
10.8.4 -- Amendment, dated July 31, 1996, to Pulitzer Retirement
Savings Plan.(iv)
10.8.5 -- Amendment, dated October 25, 1995, to Pulitzer Retirement
Savings Plan.(iv)
10.8.6 -- Amendment, dated October 25, 1995, to Pulitzer Retirement
Savings Plan.(ii)
10.8.7 -- Amendment, dated January 24, 1995, to Pulitzer Retirement
Savings Plan.(i)
10.8.8 -- Amended and Restated Pulitzer Retirement Savings Plan.(i)
10.9.1 -- Amendment, dated October 25, 1995, to Pulitzer Publishing
Company Pension Plan.(iv)
10.9.2 -- Amended and Restated Pulitzer Publishing Company Pension
Plan.(i)
56
57
EXHIBIT NO.
- -----------
10.10.1 -- Amendment, dated October 29, 1997, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension
Plan.(viii)
10.10.2 -- Amendment, dated June 23, 1992, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension
Plan.(viii)
10.10.3 -- Amendment, dated January 1, 1992, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension
Plan.(viii)
10.10.4 -- Amendment, dated January 18, 1990, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension
Plan.(viii)
10.10.5 -- Amendment, dated October 26, 1989, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension
Plan.(viii)
10.10.6 -- Amendment, dated November 6, 1987, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension
Plan.(viii)
10.10.7 -- Pulitzer Publishing Company Supplemental Executive
Benefit Pension Plan dated March 18, 1986.(viii)
10.11 -- Employment Agreement, dated October 1, 1986, between the
Pulitzer Publishing Company and Joseph Pulitzer,
Jr.(viii)
10.12 -- Pulitzer Publishing Company Senior Executive Deferred
Compensation Plan.(ii)
10.13 -- Stock Purchase Agreement by and among Pulitzer Publishing
Company and Mr. Edward W. Scripps, Mrs. Betty Knight
Scripps, and the Edward W. Scripps and Betty Knight
Scripps Charitable Remainder Unitrust dated as of May 4,
1996.(iii)
10.14 -- Split Dollar Life Insurance Agreement, dated December 27,
1996, between Pulitzer Publishing Company and Richard A.
Palmer, Trustee of the Michael E. Pulitzer 1996 Life
Insurance Trust.(iv)
10.15 -- Split Dollar Life Insurance Agreement, dated December 30,
1996, between Pulitzer Publishing Company and Rebecca H.
Penniman and Nicholas G. Penniman V, Trustees of the
Nicholas G. Penniman IV Irrevocable 1996 Trust.(iv)
10.16 -- Amended and Restated Agreement and Plan of Merger by and
among Pulitzer Publishing Company, Pulitzer Inc. and
Hearst-Argyle Television, Inc., dated as of May 25,
1998.(vi)
10.17 -- Contribution and Assumption Agreements, dated as of March
18, 1999 by and between Pulitzer Publishing Company and
Pulitzer Inc.(ix)
10.18 -- Letter Agreement, dated May 25, 1998, by and among
Pulitzer Publishing Company, Pulitzer Inc. and
Hearst-Argyle Television, Inc.(viii)
10.19 -- Letter Agreement, dated March 18, 1999, between Pulitzer
Inc. and Emily Rauh Pulitzer.(ix)
10.20 -- Letter Agreement, dated March 18, 1999, between Pulitzer
Inc. and David E. Moore.(ix)
10.21 -- Pulitzer Inc. Registration Rights Agreement.(ix)
10.22 -- Pulitzer Inc. 1999 Key Employees' Restricted Stock
Purchase Plan.(viii)
10.23 -- Pulitzer Inc. 1999 Stock Option Plan.(viii)
10.24 -- Pulitzer Inc. 1999 Employee Stock Purchase Plan.(viii)
10.25 -- Employment Agreement, dated December 18, 1998, between
Pulitzer Inc. and Robert C. Woodworth.(vii)
10.26 -- Employment Agreement, dated August 26, 1998 between
Pulitzer Inc. and Terrance C.Z. Egger.(viii)
10.27 -- Participation Agreement, dated May 25, 1998, by and
between Pulitzer Publishing Company and Michael E.
Pulitzer.(viii)
57
58
EXHIBIT NO.
- -----------
10.28 -- Participation Agreement, dated May 25, 1998, by and
between Pulitzer Publishing Company and Ken J.
Elkins.(viii)
10.29 -- Participation Agreement, dated May 25, 1998, by and
between Pulitzer Publishing Company and Nicholas G.
Penniman IV.(viii)
10.30 -- Participation Agreement, dated May 25, 1998, by and
between Pulitzer Publishing Company and Ronald H.
Ridgway.(viii)
10.31 -- Participation and Severance Agreement, dated May 25,
1998, by and between Pulitzer Publishing Company and C.
Wayne Godsey.(viii)
10.32 -- Participation and Severance Agreement, dated May 25,
1998, by and between Pulitzer Publishing Company and John
Kueneke.(viii)
- ---------------
(i) Incorporated by reference to Pulitzer Publishing Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
(ii) Incorporated by reference to Pulitzer Publishing Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
(iii) Incorporated by reference to Pulitzer Publishing Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1996.
(iv) Incorporated by reference to Pulitzer Publishing Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996.
(v) Incorporated by reference to Pulitzer Publishing Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997.
(vi) Incorporated by reference to Pulitzer Publishing Company's Current Report
on Form 8-K filed on January 22, 1999.
(vii) Incorporated by reference to Pulitzer Publishing Company's Registration
Statement (File No. 333-69701) on Form S-3.
(viii) Incorporated by reference to Pulitzer Inc.'s Report on Form 10 (File No.
1-14541), as amended.
(ix) Incorporated by reference to Pulitzer Publishing Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998.
(b) REPORTS ON FORM 8-K.
On October 7, 1999, the Company filed a Current Report on Form 8-K to
disclose its execution of an agreement to purchase the assets of The Pantagraph.
(c) EXHIBITS
See Item 14.(a)3.(a) for a listing of exhibits filed as part of this Annual
Report on Form 10-K.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14.(a)2. for a listing of financial statement schedules filed as
part of this Annual Report on Form 10-K.
58
59
SIGNATURES
Pursuant to the requirements of Section 13 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, on the 23rd day of March, 2000.
PULITZER INC.
By: /s/ ROBERT C. WOODWORTH
------------------------------------
Robert C. Woodworth,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant in
the capacities indicated on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
MICHAEL E. PULITZER* Director; Chairman March 23, 2000
- ---------------------------------------------
(Michael E. Pulitzer)
/s/ ROBERT C. WOODWORTH Director; President and Chief March 23, 2000
- --------------------------------------------- Executive Officer (Principal Executive
(Robert C. Woodworth) Officer)
/s/ RONALD H. RIDGWAY Director; Senior Vice President -- March 23, 2000
- --------------------------------------------- Finance (Principal Financial and
(Ronald H. Ridgway) Accounting Officer)
KEN J. ELKINS* Director March 23, 2000
- ---------------------------------------------
(Ken J. Elkins)
DAVID E. MOORE* Director March 23, 2000
- ---------------------------------------------
(David E. Moore)
WILLIAM BUSH* Director March 23, 2000
- ---------------------------------------------
(William Bush)
EMILY RAUH PULITZER* Director March 23, 2000
- ---------------------------------------------
(Emily Rauh Pulitzer)
ALICE B. HAYES* Director March 23, 2000
- ---------------------------------------------
(Alice B. Hayes)
JAMES M. SNOWDEN, JR.* Director March 23, 2000
- ---------------------------------------------
(James M. Snowden, Jr.)
/s/ RONALD H. RIDGWAY
By:
--------------------------------------
Ronald H. Ridgway*
attorney-in-fact
59
60
PULITZER INC.
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
EXHIBIT INDEX
10.33 Employment and Consulting Agreement, dated as of June 1, 1999,
between Pulitzer Inc. and Michael E. Pulitzer.
10.34 Employment Agreement, dated as of June 1, 1999, between Pulitzer Inc.
and Ronald H. Ridgway.
10.35 Split Dollar Life Insurance Agreement, dated as of June 16, 1999, by
and among Pulitzer Inc. and James E. Elkins and Diana K. Walsh.
10.36 Split Dollar Life Insurance Agreement, dated as of June 24, 1999, by
and among Pulitzer Inc. and Tansy K. Ridgway and Brian H. Ridgway.
10.37 Asset Purchase Agreement, as of October 4, 1999, by and between The
Chronicle Publishing Company and Pulitzer Inc.
21 Subsidiaries of Registrant
23 Independent Auditors' Consent
24 Power of Attorney
27 Financial Data Schedule