<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 25, 2000
-------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ -----------------
COMMISSION FILE NUMBER 1-14541
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PULITZER INC.
(Exact name of registrant as specified in its charter)
----------------------------------
DELAWARE 43-1819711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
900 NORTH TUCKER BOULEVARD, ST. LOUIS, MISSOURI 63101
(Address of principal executive offices)
(314) 340-8000
(Registrant's telephone number, including area code)
NO CHANGES
(Former name, former address and former fiscal year, if changed since last
report)
----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
----------------------------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING 7/31/00
----------------------- -----------------------
COMMON STOCK 8,658,376
CLASS B COMMON STOCK 13,476,696
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED---IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
------------------------- ------------------------
2000 1999 2000 1999
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES - NET:
Advertising $75,120 $65,701 $144,842 $126,781
Circulation 22,571 21,563 45,770 43,605
Other 14,728 11,430 27,584 22,665
----------- ----------- ---------- ----------
Total operating revenues 112,419 98,694 218,196 193,051
----------- ----------- ---------- ----------
OPERATING EXPENSES:
Operations 39,436 35,718 78,327 72,857
Selling, general and administrative 43,925 37,607 85,557 73,802
General corporate expense 1,708 1,926 3,587 3,736
Stock option cash-outs and bonuses 26,685
St. Louis Agency adjustment 2,518 7,032 9,363 12,271
Depreciation and amortization 7,496 4,020 14,005 8,029
----------- ----------- ---------- ----------
Total operating expenses 95,083 86,303 190,839 197,380
----------- ----------- ---------- ----------
Operating income (loss) 17,336 12,391 27,357 (4,329)
Interest income 5,687 7,761 11,481 9,953
Interest expense (3,795) (3,795)
Net gain (loss) on marketable securities and investments 879 (1,043) 2,961 (932)
Equity in losses of joint venture investment (460) (995)
Net other expense (388) (1,519) (763) (1,784)
----------- ----------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 19,259 17,590 36,246 2,908
PROVISION FOR INCOME TAXES 8,110 7,898 15,224 1,732
MINORITY INTEREST IN NET EARNINGS OF
SUBSIDIARY 162 162
----------- ----------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 10,987 9,692 20,860 1,176
LOSS FROM DISCONTINUED OPERATIONS,
NET OF TAX (21,449)
----------- ----------- ---------- ----------
NET INCOME (LOSS) $10,987 $9,692 $20,860 $(20,273)
=========== =========== ========== ==========
BASIC EARNINGS PER SHARE OF STOCK:
Income from continuing operations $0.50 $0.43 $0.94 $0.05
Loss from discontinued operations (0.95)
----------- ----------- ---------- ----------
Earnings (loss) per share $0.50 $0.43 $0.94 $(0.90)
=========== =========== ========== ==========
Weighted average number of shares outstanding 22,128 22,647 22,125 22,625
=========== =========== ========== ==========
DILUTED EARNINGS PER SHARE OF STOCK:
Income from continuing operations $0.50 $0.43 $0.94 $0.05
Loss from discontinued operations (0.95)
----------- ----------- ---------- ----------
Earnings (loss) per share $0.50 $0.43 $0.94 $(0.90)
=========== =========== ========== ==========
Weighted average number of shares outstanding 22,129 22,667 22,150 22,635
=========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(UNAUDITED---IN THOUSANDS)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
------------------------- ------------------------
2000 1999 2000 1999
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $10,987 $9,692 $20,860 $(20,273)
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Unrealized holding gains (losses) on marketable
securities arising during the period 373 (3,536) (742) (3,536)
Reclassification adjustment 50 575 499 575
----------- ----------- ---------- ----------
Other comprehensive income (loss) 423 (2,961) (243) (2,961)
----------- ----------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) $11,410 $6,731 $20,617 $(23,234)
=========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(UNAUDITED---IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 95,797 $106,177
Marketable securities 315,255 451,714
Trade accounts receivable (less allowance for doubtful
accounts of $2,076 and $2,362) 44,256 42,175
Inventory 2,474 5,146
Income taxes receivable 408 18,279
Prepaid expenses and other 11,240 11,729
-------------- --------------
Total current assets 469,430 635,220
-------------- --------------
PROPERTIES:
Land 7,070 5,611
Buildings 49,359 45,034
Machinery and equipment 152,950 107,796
Construction in progress 3,248 7,158
-------------- --------------
Total 212,627 165,599
Less accumulated depreciation 109,905 81,995
-------------- --------------
Properties - net 102,722 83,604
-------------- --------------
INTANGIBLE AND OTHER ASSETS:
Intangible assets - net of amortization 669,084 185,492
Receivable from The Herald Company 35,901
Other 57,696 38,070
-------------- --------------
Total intangible and other assets 726,780 259,463
-------------- --------------
TOTAL $1,298,932 $978,287
============== ==============
</TABLE>
(Continued)
4
<PAGE> 5
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(UNAUDITED--- IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 10,252 $ 13,771
Salaries, wages and commissions 12,371 12,481
Interest payable 3,790
Pension obligations 414 288
Acquisition payable 9,707 9,707
Dividends payable 3,540
Other 5,226 3,443
-------------- --------------
Total current liabilities 45,300 39,690
-------------- --------------
LONG TERM DEBT 306,000
-------------- --------------
PENSION OBLIGATIONS 27,559 26,549
-------------- --------------
POSTRETIREMENT AND POSTEMPLOYMENT
BENEFIT OBLIGATIONS 86,884 86,902
-------------- --------------
OTHER LONG-TERM LIABILITIES 9,574 11,695
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; shares authorized - 100,000,000 in
2000 and 1999; issued and outstanding - none
Common stock, $.01 par value; shares authorized - 100,000,000 in
2000 and 1999; issued - 9,070,276 in 2000 and 8,513,203 in 1999 91 85
Class B common stock, convertible, $.01 par value; shares authorized
- 100,000,000 in 2000 and 1999; issued - 13,587,696
in 2000 and 14,131,814 in 1999 136 141
Additional paid-in capital 425,631 425,451
Retained earnings 423,918 413,676
Accumulated other comprehensive income (loss) (4,439) (4,196)
-------------- --------------
Total 845,337 835,157
Treasury stock - at cost; 527,846 and 527,471 shares of common
stock in 2000 and 1999, respectively (21,722) (21,706)
-------------- --------------
Total stockholders' equity 823,615 813,451
-------------- --------------
TOTAL $1,298,932 $ 978,287
============== ==============
</TABLE>
(Concluded)
See notes to consolidated financial statements.
5
<PAGE> 6
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED---IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
CONTINUING OPERATIONS
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 20,860 $ 1,176
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 6,445 4,340
Amortization 7,560 3,689
Loss on sale of assets 820 2,131
Changes in assets and liabilities (net of the effects of the purchase
and sale of properties) which provided (used) cash:
Trade accounts receivable 768 2,174
Inventory 2,979 (4,395)
Other assets 4,998 12,506
Trade accounts payable and other liabilities (436) 5,032
Income taxes 17,871 (15,038)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 61,865 11,615
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,904) (6,214)
Purchase of publishing properties, net of cash acquired (491,798)
Sale of publishing property 3,300
Purchase of newspaper circulation routes (2,707) (273)
Purchases of marketable securities (78,052) (695,557)
Sales of marketable securities 210,224 235,746
Investment in joint ventures and limited partnerships (4,461) (3,808)
Decrease in notes receivable 148 51
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (371,550) (466,755)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (7,078) (6,769)
Proceeds from issuance of long-term debt 306,000
Proceeds from exercise of stock options 2,280
Proceeds from employee stock purchase plan 399
Purchase of treasury stock (16) (110)
-------------- --------------
NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES 299,305 (4,599)
-------------- --------------
CASH USED IN CONTINUING OPERATIONS (10,380) (459,739)
-------------- --------------
DISCONTINUED OPERATIONS
Operating activities (21,820)
Investing activities:
Capital expenditures (1,488)
Sale of investment in limited partnership 5,000
Financing activities:
Proceeds from issuance of long-term debt 700,000
Repayments of long-term debt (172,705)
Payment of Spin-off and Merger Transaction costs (31,272)
Payment of estimated working capital adjustment related to Merger (3,010)
-------------- --------------
CASH PROVIDED BY DISCONTINUED OPERATIONS - 474,705
-------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,380) 14,966
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 106,177 110,171
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 95,797 $ 125,137
============== ==============
</TABLE>
(Continued)
6
<PAGE> 7
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED---IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
2000 1999
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest paid $ - $8,429
Interest received (13,505) (4,070)
Income taxes 14,867 5,433
Income tax refunds (17,613) (1,190)
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Divestiture of broadcasting business--decrease in Net Liabilities of
Broadcasting Business and increase in Additional Paid-in Capital $ - $494,721
Spin-off and Merger Transaction costs--decrease in Other Assets
and decrease in Additional Paid-in Capital 4,253
Increase in Dividends Payable and decrease in Retained Earnings 3,540 3,395
Cancellation of treasury stock:
Decrease in Treasury Stock and Class B Common Stock 117
Decrease in Treasury Stock and Additional Paid-in Capital 187,966
</TABLE>
(Concluded)
See notes to consolidated financial statements.
7
<PAGE> 8
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
On March 18, 1999, the spin-off of the newspaper publishing and new media
businesses formerly operated by Pulitzer Publishing Company ("Old Pulitzer") was
completed with Pulitzer Inc. (the "Company") commencing operations as an
independent publicly traded publishing company (the "Spin-off"). Following the
Spin-off, Old Pulitzer with its remaining broadcasting business ("Broadcasting
Business") was merged with and into Hearst-Argyle Television, Inc.
("Hearst-Argyle") in exchange for the issuance to Old Pulitzer's stockholders of
37,096,774 shares of Hearst-Argyle's Series A common stock (the "Merger"). The
Merger and Spin-off are collectively referred to as the "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. 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.
2. ACCOUNTING POLICIES
Interim Adjustments - In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial position as of June 30, 2000, results of operations for the
three-month and six-month periods ended June 30, 2000 and 1999 and cash flows
for the six-month periods ended June 30, 2000 and 1999. These financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999. Results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year.
Fiscal Year and Fiscal Quarters - The Company's fiscal year and second fiscal
quarter end on the Sunday coincident with or prior to December 31 and June 30,
respectively. For ease of presentation, the Company has used December 31 as the
year end and June 30 as the second quarter end.
Earnings Per Share of Stock - Basic earnings per share of stock is computed
using the weighted average number of common and Class B common shares
outstanding during the applicable period. Diluted earnings per share of stock is
computed using the weighted average number of common and Class B common shares
outstanding and common stock equivalents (outstanding stock options). Weighted
average shares of common and Class B common stock and common stock equivalents
used in the calculation of basic and diluted earnings per share are summarized
as follows:
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1998
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Weighted average shares outstanding (Basic EPS) 22,128 22,647 22,125 22,625
Stock option equivalents 1 20 25 10
----------- ----------- ----------- -----------
Weighted average shares outstanding and
stock option equivalents (Diluted EPS) 22,129 22,667 22,150 22,635
=========== =========== =========== ==========
</TABLE>
Stock option equivalents included in the diluted earnings per share calculation
were determined using the treasury stock method. Under the treasury stock
method, outstanding stock options are dilutive when the
8
<PAGE> 9
average market price of the Company's common stock exceeds the option price
during a period. In addition, proceeds from the assumed exercise of dilutive
options along with the related tax benefit are assumed to be used to repurchase
common shares at the average market price of such stock during the period.
Reclassifications - Certain reclassifications have been made to the 1999
consolidated financial statements to conform with the 2000 presentation.
3. ACQUISITION OF PROPERTIES
On January 11, 2000, the Company acquired in an asset purchase The Pantagraph, a
daily and Sunday newspaper that serves the central Illinois cities of
Bloomington and Normal, and a group of seven community newspapers known as the
Illinois Valley Press, from The Chronicle Publishing Company of San Francisco
("Chronicle") for an aggregate of $180 million, excluding acquisition costs and
a separate payment for working capital (the "Pantagraph Acquisition"). The
purchase price has been allocated among the operating assets of the newspapers,
specifically identifiable intangibles and goodwill with useful lives ranging
from 3 to 40 years. The Company funded this acquisition with the proceeds from
the sale of a portion of its investments in marketable securities.
On May 1, 2000, the Company, Pulitzer Technologies, Inc., a wholly-owned
subsidiary of the Company (together with the Company, the "Pulitzer Parties")
and The Herald Company, Inc. ("Herald") completed the transfer of their
respective interests in the assets and operations of the St. Louis Post-Dispatch
(the "Post-Dispatch") and certain related businesses to a new joint venture,
known as St. Louis Post-Dispatch LLC ("PD LLC") (the "Venture"). The Company
will control and manage PD LLC. Under the terms of the operating agreement
governing PD LLC (the "Operating Agreement"), the Pulitzer Parties hold a 95
percent interest in the results of operations of PD LLC and Herald holds a 5
percent interest. Previously, under the terms of the St. Louis Agency Agreement,
which had governed the operations of the Post-Dispatch since 1961, the Company
and Herald generally shared its operating profits and losses, as well as its
capital expenditures, on a 50-50 basis. Also, under the terms of the Operating
Agreement, Herald received on May 1, 2000 a cash distribution of $306 million
from PD LLC. This distribution was financed by a $306 million loan (the "Loan")
to PD LLC from a group of institutional lenders (the "Lenders") led by
Prudential Capital Group, a division of The Prudential Insurance Company of
America. The Venture and the Loan are treated as a purchase for accounting
purposes with a substantial balance recorded as goodwill based on a preliminary
allocation. The goodwill balance will be amortized over a life of 40 years.
The following supplemental unaudited pro forma information shows the results of
operations of the Company for the three-month and six-month periods ended June
30, 2000 and 1999 assuming the Pantagraph Acquisition, the Venture and the Loan
had been consummated at the beginning of each of the respective periods. The
unaudited pro forma financial information is not necessarily indicative either
of results of operations that would have occurred had the Pantagraph
Acquisition, Venture and Loan occurred at the beginning of the respective
periods, or of future results of operations (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Operating revenues - net $112,612 $106,586 $218,981 $208,249
=========== =========== ========== ==========
Operating income $18,988 $17,866 $33,471 $4,679
=========== =========== ========== ==========
Income from continuing operations $10,457 $7,575 $19,041 $(4,069)
=========== =========== ========== ==========
Basic earnings per share of stock:
Income from continuing operations $0.47 $0.33 $0.86 $(0.18)
=========== =========== ========== ==========
Weighted average number of shares outstanding 22,128 22,647 22,125 22,625
=========== =========== ========== ==========
Diluted earnings per share of stock:
Income from continuing operations $0.47 $0.33 $0.86 $(0.18)
=========== =========== ========== ==========
Weighted average number of shares outstanding 22,129 22,667 22,150 22,635
=========== =========== ========== ==========
</TABLE>
9
<PAGE> 10
On June 24, 2000, the Company entered into an agreement with the Journal
Register Company to acquire the assets of the Suburban Newspapers of Greater St.
Louis, a group of 39 weekly papers and various niche publications, for $165
million. The acquisition will be financed with a portion of the Company's cash
and marketable security investments and is expected to close in August of 2000.
4. FINANCING ARRANGEMENTS
In connection with the Venture (see Note 3), on May 1, 2000, PD LLC borrowed
$306 million from the Lenders. The aggregate principal amount of the Loan is
payable on April 28, 2009 and bears interest at an annual rate of 8.05 percent.
The Loan is guaranteed by the Company pursuant to a Guaranty Agreement dated as
of May 1, 2000 ("Guaranty Agreement") with the Lenders. In turn, pursuant to an
Indemnity Agreement dated as of May 1, 2000 ("Indemnity Agreement") entered into
between Herald and the Company, Herald agreed to indemnify the Company for any
payments that the Company may make under the Guaranty Agreement.
5. COMMITMENTS AND CONTINGENCIES
At June 30, 2000, the Company and its subsidiaries had construction and
equipment commitments of approximately $3,568,000.
The Company is an investor in two limited partnerships requiring future capital
contributions. As of June 30, 2000, the Company's unfunded capital contribution
commitments related to these investments totaled approximately $15,219,000.
The Company and its subsidiaries are involved, from time to time, in various
claims and lawsuits incidental to the ordinary course of their business,
including such matters as libel, slander and defamation actions and complaints
alleging discrimination. While the results of litigation cannot be predicted,
management believes the ultimate outcome of any existing litigation will not
have a material adverse effect on the consolidated financial statements of the
Company and its subsidiaries.
6. NEWSPAPER REVENUES
The Company's newspaper publishing revenues consist of the following:
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
2000 1999 2000 1999
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
St. Louis Post-Dispatch $ 67,726 $ 63,795 $132,740 $124,457
Star Publishing Company 14,915 14,087 29,781 28,520
Pulitzer Community Newspaper Group 28,865 20,251 54,157 39,032
Other publishing revenue 913 561 1,518 1,042
------------ ------------ ------------- -------------
Total publishing revenue $112,419 $ 98,694 $218,196 $193,051
============ ============ ============= =============
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this Quarterly Report on Form 10-Q 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 other factors include, but are not limited to, industry
cyclicality, the seasonal nature of the business, changes in pricing or other
actions by competitors or suppliers (including newsprint), capital or similar
requirements, and general economic conditions, any of which may impact
advertising and circulation revenues and various types of expenses, as well as
other risks detailed in the Company's filings with the Securities and Exchange
Commission including this Quarterly Report on Form 10-Q. Although the Company
believes that the expectations reflected in forward-looking statements are
reasonable, it cannot guarantee future results, levels of activity, performance
or achievements.
GENERAL
The Company's operating revenues are significantly influenced by a number of
factors, including overall advertising expenditures, the appeal of newspapers in
comparison to other forms of advertising, the performance of the Company in
comparison to its competitors in specific markets, the strength of the national
economy and general economic conditions and population growth in the markets
served by the Company.
The Company's business tends to be seasonal, with peak revenues and profits
generally occurring in the fourth and, to a lesser extent, second quarters of
each year as a result of increased advertising activity during the Christmas and
spring holiday periods. The first quarter is historically the weakest quarter
for revenues and profits.
RECENT EVENTS
On January 11, 2000, the Company acquired in an asset purchase The
Pantagraph, a daily and Sunday newspaper that serves the central Illinois cities
of Bloomington and Normal, and a group of seven community newspapers known as
the Illinois Valley Press, from The Chronicle Publishing Company of San
Francisco for an aggregate of $180 million, excluding acquisition costs and a
separate payment for working capital (the "Pantagraph Acquisition"). The Company
funded this acquisition with the proceeds from the sale of a portion of its
investments in marketable securities.
On May 1, 2000, the Company, Pulitzer Technologies, Inc., a wholly-owned
subsidiary of the Company (together with the Company, the "Pulitzer Parties")
and The Herald Company, Inc. ("Herald") completed the transfer of their
respective interests in the assets and operations of the St. Louis Post-Dispatch
(the "Post-Dispatch") and certain related businesses to a new joint venture,
known as St. Louis Post-Dispatch LLC ("PD LLC") (the "Venture"). The Company
will control and manage PD LLC. Under the terms of the operating agreement
governing PD LLC (the "Operating Agreement"), the Pulitzer Parties hold a 95
percent interest in the results of operations of PD LLC and Herald holds a 5
percent interest. Previously, under the terms of the St. Louis Agency Agreement,
which had governed the operations of the Post-Dispatch since 1961, the Company
and Herald generally shared its operating profits and losses, as well as its
capital expenditures, on a 50-50 basis. Also, under the terms of the Operating
Agreement, Herald received on May 1, 2000 a cash distribution of $306 million
from PD LLC. This distribution was financed by a $306 million loan (the "Loan")
to PD LLC from a group of institutional lenders (the "Lenders") led by
Prudential Capital Group, a division of The Prudential Insurance Company of
America. The Venture and the Loan are treated as a purchase for accounting
purposes.
11
<PAGE> 12
On June 24, 2000, the Company entered into an agreement with the Journal
Register Company to acquire the assets of the Suburban Newspapers of Greater St.
Louis, a group of 39 weekly papers and various niche publications, for $165
million. The acquisition will be financed with a portion of the Company's cash
and marketable security investments and is expected to close in August of 2000.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH 1999
Operating revenues for the second quarter of 2000 increased 13.9
percent, to $112.4 million from $98.7 million in the second quarter of 1999. The
gain primarily reflected higher advertising revenues and the contribution from
The Pantagraph, acquired in January 2000. In addition to the Pantagraph
Acquisition in 2000, the Company sold its daily newspaper in Hamilton, Montana
in May 1999. Excluding the results of properties acquired and sold from both
2000 and 1999, revenues for the second quarter of 2000 increased 6.3 percent.
Newspaper advertising revenues increased $9.4 million, or 14.3 percent,
in the second quarter of 2000. The current year increase primarily reflected the
addition of new advertising revenue from The Pantagraph and higher revenue at
the Post-Dispatch. At the Post-Dispatch, gains were driven by increases in
national and classified advertising, reflecting rate increases in January 2000
as well as a prior classified rate increase in mid-1999. Excluding the results
of properties acquired and sold from both 2000 and 1999, advertising revenues
for the second quarter increased 7.3 percent, reflecting the Post-Dispatch gains
as well as solid increases at the Arizona Daily Star (the "Star") and at many of
the Pulitzer Community Newspaper Group ("PCN Group") locations.
Circulation revenues increased $1 million, or 4.7 percent, in the
second quarter of 2000. The higher circulation revenues primarily reflected the
addition of new circulation revenue from The Pantagraph.
Other publishing revenues increased $3.3 million, or 28.9 percent, in
2000, resulting primarily from the addition of new preprint revenue from The
Pantagraph, higher preprint revenue at the Post-Dispatch, and higher revenue
from the Company's "new media" operations.
Operating expenses (including selling, general and administrative
expenses, general corporate expense and depreciation and amortization),
excluding the St. Louis Agency adjustment, increased 16.8 percent to $92.6
million in the 2000 second quarter, reflecting the addition of new expenses from
The Pantagraph. Excluding the results of properties acquired and sold from both
2000 and 1999 and new goodwill amortization in 2000 related to the Company's
increased interest in the Post-Dispatch, operating expenses increased $5.8
million, or 7.4 percent. The increase on a comparable basis primarily reflected
higher overall personnel costs of $3.8 million and higher newsprint expense of
$526,000.
For the second quarter of 2000, the Company reported an increase in
operating income of 39.9 percent, or $17.3 million, compared to $12.4 million in
the prior year quarter. The significant current year increase primarily
reflected the impact of the Company's increased interest in the results of
operations of the Post-Dispatch and The Pantagraph's contribution to operating
income in 2000.
Interest income for the second quarter of 2000 decreased to $5.7
million from $7.8 million in the prior year quarter. The decrease reflected the
lower average balance of invested funds in the current year quarter due to the
outflow of approximately $180 million of combined cash and marketable securities
on January 11, 2000 in connection with the Pantagraph Acquisition.
The Company reported interest expense of $3.8 million in the second
quarter of 2000. The current year interest expense results from the $306 million
borrowing by PD LLC on May 1, 2000 to fund the cash distribution to Herald under
the terms of the Operating Agreement.
The Company reported a net gain on marketable securities and
investments of $879,000 in the second quarter of 2000 compared with a loss of $1
million in 1999. The current year increase resulted from the favorable
performance of two limited partnership investments partially offset by losses
from the sale of marketable security investments.
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<PAGE> 13
Net other expense for the second quarter of 2000 was $388,000 compared
with $1.5 million in the prior year quarter. The significant decline from the
1999 second quarter resulted from the prior year loss of $1.1 million related to
the sale of the Company's newspaper property in Hamilton, Montana.
The effective income tax rate for the second quarter of 2000 was 42.1
percent compared with a rate of 44.9 percent in the prior year quarter. The
higher effective tax rate in the prior year quarter reflected the impact of the
Hamilton newspaper sale.
For the second quarter of 2000, the Company reported income from
continuing operations of $11 million, or $0.50 per diluted share, compared to
$9.7 million, or $0.43 per diluted share, in the prior year quarter. The
current year increase primarily reflects the improved operating results of the
Post-Dispatch and the limited partnership gains. In addition, the current year
comparison reflects the impact of dilution from the current year Pantagraph
Acquisition and PD LLC Venture, as well as the prior year loss from the sale of
the Hamilton newspaper property.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH 1999
Operating revenues for the first six months of 2000 increased 13
percent, to $218.2 million from $193.1 million in the prior year six-month
period. The gain primarily reflected higher advertising revenues and the
contribution from The Pantagraph, acquired in January 2000. In addition to the
Pantagraph Acquisition in 2000, the Company sold its daily newspaper in
Hamilton, Montana in May 1999. Excluding the results of properties acquired and
sold from both 2000 and 1999, revenues for the first half of 2000 increased 6.1
percent.
Newspaper advertising revenues increased $18.1 million, or 14.2
percent, in the first six months of 2000. The current year increase primarily
reflected the addition of new advertising revenue from The Pantagraph and higher
revenue at the Post-Dispatch. At the Post-Dispatch, gains were driven by
increases in national and classified advertising, reflecting rate increases in
January 2000 as well as a prior classified rate increase in mid-1999. Excluding
the results of properties acquired and sold from both 2000 and 1999, advertising
revenues increased 7.7 percent.
Circulation revenues increased $2.2 million, or 5 percent, in the first
half of 2000. The higher circulation revenues primarily reflected the addition
of new circulation revenue from The Pantagraph.
Other publishing revenues increased $4.9 million, or 21.7 percent, in
2000, resulting primarily from the addition of new preprint revenue from The
Pantagraph, higher preprint revenue at the Post-Dispatch and higher revenue from
the Company's "new media" operations.
Operating expenses (including selling, general and administrative
expenses, general corporate expense and depreciation and amortization),
excluding the St. Louis Agency adjustment, decreased 2 percent to $181.5 million
for the first six months of 2000. The prior year expense included $26.7 million
of stock option cash-out and bonus payments to publishing employees in
connection with the prior year broadcasting merger (the "Merger"). (See Note 1
to the Company's consolidated financial statements included in Item 1. of this
Quarterly Report on Form 10-Q.) Excluding these Merger costs from 1999, the
results of properties acquired and sold from both 2000 and 1999 and new goodwill
amortization in 2000 related to the Company's increased interest in the
Post-Dispatch, operating expenses increased 6.5 percent to $168.2 million in
2000 from $157.9 million in the prior year. The increase on a comparable basis
reflected higher overall personnel costs of $6.3 million and higher depreciation
and amortization expense of $1.8 million. A decline in newsprint expense of
$918,000, reflecting lower prices in the first quarter of the current year,
partially offset the expense increases.
For the first half of 2000, the Company reported operating income of
$27.4 million compared to operating loss of $4.3 million in the prior year
six-month period. The prior year loss resulted from the Merger costs of $26.7
million. Excluding these Merger costs from the prior year, operating income
would have increased 22.4 percent to $27.4 million from $22.4 million in the
prior year. The significant current year increase primarily reflected the impact
of the Company's increased interest in the results of operations of the
Post-Dispatch and The Pantagraph's contribution to operating income in 2000.
Interest income for the first six months of 2000 increased to $11.5
million from $10 million in the corresponding period of the prior year,
resulting from a higher average balance of cash and marketable
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<PAGE> 14
securities in 2000. The higher balance reflected the inflow of approximately
$429 million of net cash in connection with the Spin-off and Merger on March 18,
1999. This was partially offset by the outflow of approximately $180 million of
net cash on January 11, 2000 in connection with the Pantagraph Acquisition.
The Company reported interest expense of $3.8 million in the first half
of 2000. The current year interest expense results from the $306 million
borrowing by PD LLC on May 1, 2000 to fund the cash distribution to Herald under
the terms of the Operating Agreement.
The Company reported a net gain on marketable securities and
investments of $3 million in the first six months of 2000 compared with a loss
of $932,000 in 1999. The current year increase resulted from the favorable
performance of two limited partnership investments partially offset by losses
from the sale of marketable security investments.
Net other expense for the first half of 2000 was $763,000 compared with
$1.8 million in the prior year. The significant decline from the 1999 six-month
period resulted from the prior year loss of $1.1 million related to the sale of
the Company's newspaper property in Hamilton, Montana.
The effective income tax rate for the first six months of 2000 was 42
percent compared with a rate of 59.6 percent in the prior year. The higher
effective tax rate in the prior year reflected the combined impact of the tax
gain on the Hamilton newspaper sale and the Company's low 1999 pre-tax income.
For the first six months of 2000, the Company reported income from
continuing operations of $20.9 million, or $0.94 per diluted share, compared to
income of $1.2 million, or $0.05 per diluted share, in the prior year. The
increase in current year income resulted, in part, from the Merger costs of
$26.7 million in the prior year. Excluding these Merger costs, income from
continuing operations for 1999 would have been $16.7 million, or $0.74 per
diluted share, resulting in a current year increase of 25.3 percent. The
increase on a comparable basis primarily reflected the improved operating
results of the Post-Dispatch, higher interest income and the limited partnership
investment gains in the current year. In addition, the current year comparison
reflects the impact of dilution from the current year Pantagraph Acquisition and
PD LLC Venture, as well as the prior year loss from the sale of the Hamilton
newspaper property.
Fluctuations in the price of newsprint significantly impact the results
of the Company's newspaper operations, where newsprint expense typically
accounts for approximately 15 to 20 percent of total operating costs. For the
first six months of 2000, the Company's average cost for newsprint was
approximately $527 per metric ton, compared to approximately $545 per metric ton
in the first half of the prior year. The Company's current cost of newsprint is
approximately $550 per metric ton and may increase by $50 per metric ton on
September 1, 2000 if a planned price increase is implemented. In the third and
fourth quarters of 1999, the Company's average cost per metric ton of newsprint
was approximately $493 and $464, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had $306 million of outstanding debt
compared with no outstanding debt as of December 31, 1999. The new borrowing was
made on May 1, 2000 to fund a $306 million cash distribution to Herald under the
terms of the PD LLC Operating Agreement. The aggregate principal amount of the
Loan is payable on April 28, 2009 and bears interest at an annual rate of 8.05
percent. The Loan is guaranteed by the Company pursuant to a Guaranty Agreement
with the Lenders. In turn, pursuant to an Indemnity Agreement entered into
between Herald and the Company, Herald agreed to indemnify the Company for any
payments that the Company may make under the Guaranty Agreement.
The Company's Loan requires it to maintain certain financial ratios and
prohibits new borrowings, except as permitted thereunder.
As of June 30, 2000, the Company had a combined balance of cash and
marketable securities of approximately $411 million compared with a balance of
approximately $558 million as of December 31, 1999. The decline since December
31, 1999 reflects the Company's payment of the $180 million acquisition price
for The Pantagraph on January 11, 2000.
14
<PAGE> 15
On June 24, 2000, the Company entered into an agreement with the Journal
Register Company to purchase the assets of the Suburban Newspapers of Greater
St. Louis, a group of 39 weekly papers and various niche publications, for $165
million. The acquisition will be financed with a portion of the Company's cash
and marketable security investments and is expected to close in August of 2000.
As of June 30, 2000, commitments for capital expenditures were
approximately $3.6 million, relating to normal capital equipment replacements.
Capital expenditures to be made by the Company in fiscal 2000 are estimated to
be in the range of $8 to $10 million. In addition, as of June 30, 2000, the
Company had capital contribution commitments of approximately $15.2 million
related to limited partnership investments.
On July 16, 1999, the Company's Board of Directors approved the repurchase
of up to $50 million of its common stock in the open market. On May 1, 2000, the
Company announced that its Board of Directors had authorized an additional $50
million repurchase of its common stock. As of June 30, 2000, 527,300 shares of
common stock had been repurchased for approximately $21.7 million.
The Company generally expects to generate sufficient cash from operations
to cover ordinary capital expenditures, working capital requirements, interest
payments and dividend payments.
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The primary raw material used in the Company's operations is newsprint,
typically representing 15 to 20 percent of operating expenses. For the full year
of 1999, the Company consumed approximately 102,000 metric tons of newsprint 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 annual cost per ton of newsprint has varied from a low of $514
per metric ton in 1999 to a high of $675 per metric ton in 1995. For the first
half of 2000, the Company's average cost of newsprint was approximately $527 per
metric ton. The Company's current cost of newsprint is approximately $550 per
metric ton and may increase by $50 per metric ton on September 1, 2000 if a
planned price increase is implemented. The Company attempts to obtain the best
price available by combining newsprint purchases for its different newspaper
locations but does not enter into derivative contracts in an attempt to reduce
the impact of year to year price fluctuations on its consolidated newsprint
expense.
The Company's $306 million Loan bears interest at a fixed annual rate
of 8.05 percent. Consequently, if held to maturity, the Loan will not expose
the Company to market risks associated with general fluctuations in interest
rates.
As of June 30, 2000, the Company had a combined balance of cash and
marketable securities of approximately $411 million. The Company expects to
fund its pending $165 million acquisition of the assets of the Suburban
Newspapers of Greater St. Louis, as well as other potential newspaper
acquisitions, with a portion of its available cash and marketable securities.
In addition, the Company anticipates repurchasing shares of its common stock
with a portion of these funds. In the interim, the Company's investments in
marketable securities include a mixture of short to mid-term government,
corporate and asset-backed debt obligations. These investments will expose the
Company to market risks that may cause the future value of these investments to
be lower than the original cost of such investments at the time of purchase.
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<PAGE> 17
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The Annual Meeting of Stockholders was held on May 17, 2000.
(b) The following directors continued their term of office after the
Annual Meeting of Stockholders:
Emily Rauh Pulitzer
James M. Snowden, Jr.
Robert C. Woodworth
Ken J. Elkins
Alice B. Hayes
David E. Moore
(c) The following nominees for election as director received the votes
indicated:
<TABLE>
<CAPTION>
For Withheld Abstain
--- -------- -------
<S> <C> <C> <C>
William Bush 148,067,748 272,522 0
Michael E. Pulitzer 148,170,184 170,086 0
Ronald H. Ridgway 148,172,805 167,465 0
</TABLE>
The proposal to amend the Pulitzer Inc. 1999 Employee Stock
Purchase Plan was approved by the vote indicated:
<TABLE>
<S> <C>
For: 148,276,387
Against: 58,973
Broker non-votes: 0
Abstain: 4,910
</TABLE>
The selection of Deloitte & Touche LLP as the Company's
independent auditors was approved by the vote indicated:
<TABLE>
<S> <C>
For: 148,319,895
Against: 17,986
Broker non-votes: 0
Abstain: 2,389
</TABLE>
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
2.1 Asset Sale and Purchase Agreement among Journal Register
Company, Journal Register East, Inc., Suburban Newspapers of
Greater St. Louis, LLC, Journal Company, Inc. and Pulitzer
Inc. and SLSJ LLC dated as of June 24, 2000.
27.1 Financial Data Schedule
(b) Reports on Form 8-K. The Company filed a Current Report on Form 8-K on
May 2, 2000 related to the PD LLC Venture and the Loan. Also, the
Company filed a Form 8-K/A on May 15, 2000 to amend its May 2, 2000
Form 8-K filing for the inclusion of required pro forma financial
information.
All other items of this report are not applicable for the current quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PULITZER INC.
(Registrant)
Date: August 9, 2000 /s/ Ronald H. Ridgway
---------------------------------------
(Ronald H. Ridgway)
Director; Senior Vice-President-Finance
(on behalf of the Registrant and
as principal financial officer)
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<PAGE> 19
EXHIBIT INDEX
2.1 Asset Sale and Purchase Agreement among Journal Register
Company, Journal Register East, Inc., Suburban Newspapers of
Greater St. Louis, LLC, Journal Company, Inc. and Pulitzer
Inc. and SLSJ LLC dated as of June 24, 2000
27.1 Financial Data Schedule
