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EXHIBIT 99.3
PULITZER INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The following unaudited pro forma condensed consolidated financial statements
("Pro Forma Financial Statements") give effect to (1) the increased interest of
Pulitzer Inc. (the "Company") and subsidiaries in the results of operations of
the St. Louis Post-Dispatch (the "Post-Dispatch") resulting from the creation of
a new joint venture, known as St. Louis Post-Dispatch LLC ("PD LLC"), and (2)
the Company's acquisition of the assets of the Suburban Newspapers of Greater
St. Louis, LLC and the stock of The Ladue News, Inc. (collectively the "Suburban
Journals"), which were reorganized as the Suburban Journals of Greater St. Louis
LLC on August 10, 2000.
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 Post-Dispatch and
certain related businesses to PD LLC (the "Transaction"). 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. 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 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. The Transaction and the Loan are
collectively referred to as the "Transactions." The Transactions are treated as
a purchase for accounting purposes.
On August 10, 2000, the Company acquired the Suburban Journals, a group of 39
weekly papers and various niche publications that serve the greater St. Louis
area, in a purchase transaction for $165 million (the "Acquisition"). The
purchase price excludes the cost of working capital and acquisition costs. The
Company funded the Acquisition with internal cash generated from the sale of a
portion of its marketable security investments.
The Pro Forma Financial Statements have been derived from the application of pro
forma adjustments to the Company's historical consolidated financial statements.
The unaudited pro forma condensed statement of consolidated operations for the
periods presented gives effect to the Transactions and Acquisition as if they
were consummated as of the beginning of the periods presented (i.e., as of
January 1, 1999 for the fiscal year ended December 31, 1999 and as of January 1,
2000 for the six months ended June 30, 2000). The unaudited pro forma condensed
statement of consolidated financial position gives effect to the Acquisition as
if it had occurred as of June 30, 2000. The adjustments are described in the
accompanying notes.
The Pro Forma Financial Statements should not be considered indicative of actual
results that would have been achieved had the Transactions and Acquisition been
completed on the date or for the periods presented and do not purport to
indicate balance sheet data or results of operations of any future date or for
any future period. The Pro Forma Financial Statements should be read in
conjunction with the historical consolidated financial statements of the Company
and related notes thereto, included in its 1999 Annual Report on Form 10-K and
2000 First Quarter and Second Quarter Reports on Form 10-Q.
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PULITZER INC. AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
JUNE 30, 2000
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $95,797 $ - $95,797
Marketable securities 315,255 (166,000) (A) 142,300
(6,955) (B)
Trade accounts receivable--net 44,256 6,928 (B) 51,184
Other 14,122 1,889 (B) 16,011
-------------- -------------- --------------
Total current assets 469,430 (164,138) 305,292
PROPERTIES--NET 102,722 9,836 (A) 112,558
INTANGIBLES--NET 669,084 58,989 (A) 825,701
97,628 (A)
OTHER ASSETS 57,696 57,696
-------------- -------------- --------------
TOTAL $1,298,932 $2,315 $1,301,247
============== ============== ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $45,300 $1,862 (B) $47,162
-------------- -------------- --------------
LONG-TERM DEBT 306,000 306,000
-------------- --------------
POSTRETIREMENT AND POST-
EMPLOYMENT BENEFIT
OBLIGATIONS 86,884 86,884
-------------- --------------
OTHER LONG-TERM LIABILITIES 37,133 453 (A) 37,586
-------------- -------------- --------------
STOCKHOLDERS' EQUITY:
Common stock 91 91
Class B common stock 136 136
Additional paid-in capital 425,631 425,631
Retained earnings 423,918 423,918
Accumulated other comprehensive loss (4,439) (4,439)
Treasury stock (21,722) (21,722)
-------------- --------------
Total stockholders' equity 823,615 823,615
-------------- -------------- --------------
TOTAL $1,298,932 $2,315 $1,301,247
============== ============== ==============
</TABLE>
See notes to unaudited pro forma condensed statement of consolidated financial
position.
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PULITZER INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF
CONSOLIDATED FINANCIAL POSITION
JUNE 30, 2000
(A) Adjustments record the fixed assets and identifiable intangible assets of
the Suburban Journals at their estimated fair value at the acquisition date, as
well as the residual recorded to goodwill. The purchase price of $166 million,
including an estimated $1 million of acquisition costs and $453,000 of assumed
liabilities, has been allocated on a preliminary basis as follows:
<TABLE>
<S> <C>
Estimated purchase price $166,453
--------
Allocation to:
Land 793
Buildings 3,174
Machinery and equipment 5,869
----------
Total properties 9,836
Identifiable intangibles 58,989
----------
Residual to record as goodwill $97,628
==========
</TABLE>
The allocation to identifiable intangibles primarily includes amounts for
advertising client base, mastheads and noncompete agreements. The preliminary
allocation to fixed assets and identifiable intangibles is subject to change
pending the completion of all valuation procedures and the final determination
of acquisition costs. The Company expects the allocation to be finalized by the
end of 2000.
(B) Adjustment records the estimated working capital balances of the Suburban
Journals and the related payment to the seller made at closing based on balances
as of July 30, 2000. The working capital balances will be adjusted as necessary
based on the final calculation of the August 10, 2000 closing date balance sheet
for the Suburban Journals, and a final payment will be made to either the seller
or the Company.
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PULITZER INC. AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------
Suburban
PD LLC Journals
Historical Transactions Acquisition Pro Forma
----------- --------------------------------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES - NET $391,383 $1,977 (A) $51,147 (H) $444,507
----------- ---------- ----------- ----------
OPERATING EXPENSES:
Operations 148,578 460 (A) 16,275 (H) 165,313
Selling, general and administrative 154,904 2,953 (A) 23,274 (H) 178,582
(2,549) (B)
Stock option cash-out and bonuses 26,685 26,685
St. Louis Agency adjustment 25,029 (25,029) (B)
Depreciation and amortization 17,091 2,977 (C) 5,002 (I) 33,015
7,945 (D)
----------- ---------- ----------- ----------
Total operating expenses 372,287 (13,243) 44,551 403,595
----------- ---------- ----------- ----------
OPERATING INCOME 19,096 15,220 6,596 40,912
INTEREST INCOME 25,377 (9,320) (J) 16,057
INTEREST EXPENSE (24,666) (E) (24,666)
NET LOSS ON MARKETABLE
SECURITIES AND INVESTMENTS (111) (111)
NET OTHER EXPENSE (2,697) (2,697)
----------- ---------- ----------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 41,665 (9,446) (2,724) 29,495
PROVISION (BENEFIT) FOR INCOME TAXES 18,708 (4,051) (F) (1,144) (F) 13,513
MINORITY INTEREST IN NET EARNINGS
OF SUBSIDIARY 670 (G) 670
----------- ---------- ----------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS $22,957 $(6,065) $(1,580) $15,312
=========== ========== =========== ==========
BASIC EARNINGS PER SHARE OF STOCK:
Income from continuing operations $1.02 $0.68
=========== ==========
Weighted average number of shares outstanding 22,578 22,578
=========== ==========
DILUTED EARNINGS PER SHARE OF STOCK:
Income from continuing operations $1.02 $0.68
=========== ==========
Weighted average number of shares outstanding 22,601 22,601
=========== ==========
</TABLE>
See notes to unaudited pro forma condensed statement of consolidated operations.
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PULITZER INC. AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------
Suburban
PD LLC Journals
Historical Transactions Acquisition Pro Forma
----------- --------------------------------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES - NET $218,196 $785 (A) $25,512 (H) $244,493
----------- ---------- ----------- ----------
OPERATING EXPENSES:
Operations 78,327 116 (A) 8,433 (H) 86,876
Selling, general and administrative 89,144 1,017 (A) 11,949 (H) 101,244
(866) (B)
St. Louis Agency adjustment 9,363 (9,363) (B)
Depreciation and amortization 14,005 1,023 (C) 2,501 (I) 20,273
2,744 (D)
----------- ---------- ----------- ----------
Total operating expenses 190,839 (5,329) 22,883 208,393
----------- ---------- ----------- ----------
OPERATING INCOME 27,357 6,114 2,629 36,100
INTEREST INCOME 11,481 (4,824) (J) 6,657
INTEREST EXPENSE (3,795) (8,538) (E) (12,333)
NET GAIN ON MARKETABLE
SECURITIES AND INVESTMENTS 2,961 2,961
NET OTHER EXPENSE (1,758) (1,758)
----------- ---------- ----------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 36,246 (2,424) (2,195) 31,627
PROVISION (BENEFIT) FOR INCOME TAXES 15,224 (890) (F) (922) (F) 13,412
MINORITY INTEREST IN NET EARNINGS
OF SUBSIDIARY 162 285 (G) 447
----------- ---------- ----------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS $20,860 $(1,819) $(1,273) $17,768
=========== ========== =========== ==========
BASIC EARNINGS PER SHARE OF STOCK:
Income from continuing operations $0.94 $0.80
=========== ==========
Weighted average number of shares outstanding 22,125 22,125
=========== ==========
DILUTED EARNINGS PER SHARE OF STOCK:
Income from continuing operations $0.94 $0.80
=========== ==========
Weighted average number of shares outstanding 22,150 22,150
=========== ==========
</TABLE>
See notes to unaudited pro forma condensed statement of consolidated operations.
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PULITZER INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED
OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND SIX MONTHS ENDED JUNE 30, 2000
(A) Adjustments record Herald's 50 percent share of revenues and expenses of
several St. Louis area partnerships between the Company and Herald (the
"Partnerships"), reflecting the contribution of Herald's interest in the
Partnerships to the PD LCC at the time of the Transaction. Prior to the
Transaction, the Company reported only its 50 percent share of the Partnerships'
revenue and expenses in its statement of consolidated operations.
(B) Adjustments eliminate expenses representing payments to Herald for (1) the
rental of its 50 percent share of machinery and equipment used in the operations
of the Post-Dispatch and (2) its 50 percent share of the operating profit of the
Post-Dispatch represented by the St. Louis Agency adjustment.
(C) Adjustment records depreciation expense related to Herald's 50 percent share
of machinery and equipment contributed to PD LCC. The depreciation amount is
based on the estimated fair market values of the machinery and equipment.
Depreciation expense has been computed using the straight-line method based on
estimated useful lives primarily ranging from 3 to 7 years.
(D) Adjustment records amortization expense related to the goodwill recorded by
the Company in connection with the Transactions. Amortization expense has been
computed based on an estimated useful life of 40 years.
(E) Adjustment records interest expense on the $306 million Loan. Interest
expense was computed using the Loan's fixed rate of 8.05 percent. Also included
in the adjustment is the cost of financing fees related to the Loan, based on a
nine year amortization period that is equal to the term of the Loan.
(F) Adjustment records the income tax effect of the pro forma adjustments. The
effective tax rate on pro forma income before taxes differs from the Company's
statutory tax rate of 35 percent due primarily to non-deductible goodwill and
state income taxes.
(G) Adjustment record's Herald's 5 percent minority interest in the operating
profit of PD LLC after considering the pro forma adjustments included herein.
For the purpose of computing the minority interest amount, the amortization
expense amount included in Note (D) above is not included in the calculation of
the operating profit of PD LLC.
(H) Adjustments record the Suburban Journals' operating revenues and expenses,
excluding depreciation and amortization, for the applicable period. See Exhibits
99.1 and 99.2.
(I) Adjustment records depreciation and amortization expense for the Suburban
Journals based upon the preliminary purchase price allocation (see the pro forma
condensed statement of consolidated financial position). Depreciation and
amortization expense has been computed using the straight-line method based on
estimated useful lives ranging from 3 to 40 years.
(J) Adjustment records the estimated reduction in interest income resulting from
the sale of marketable security investments to finance the Acquisition of the
Suburban Journals. The adjustment was computed based on the Company's average
return on investments for the year ended December 31, 1999 and six months ended
June 30, 2000, respectively. In connection with the sale of the marketable
security investments to finance the Acquisition, the Company incurred realized
losses of approximately $2.5 million ($1.4 million after tax). The impact of
these losses has not been included in the pro forma condensed statements of
consolidated operations due to the nonrecurring nature of such losses.
6
