<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
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 PUBLISHING COMPANY
(Exact name of registrant as specified in its charter)
--------------------
DELAWARE 430496290
(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.
<TABLE>
<CAPTION>
CLASS OUTSTANDING 10/31/97
-------------------- --------------------
<S> <C>
COMMON STOCK 6,765,121
CLASS B COMMON STOCK 15,424,497
</TABLE>
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
September 30, September 30,
-------------------------------- --------------------------------
OPERATING REVENUES - NET: 1997 1996 1997 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Publishing: (Unaudited) (Unaudited)
Advertising $ 55,872 $ 53,428 $168,245 $135,882
Circulation 21,573 21,910 65,762 59,704
Other 10,061 9,479 29,639 23,941
Broadcasting 53,738 54,048 165,002 162,618
-------- -------- -------- --------
Total operating revenues 141,244 138,865 428,648 382,145
-------- -------- -------- --------
OPERATING EXPENSES:
Publishing operations 36,393 37,454 106,437 103,485
Broadcasting operations 17,513 16,653 51,502 49,396
Selling, general and administrative 46,844 45,603 140,447 125,819
St. Louis Agency adjustment 4,320 3,627 14,749 8,258
Depreciation and amortization 9,015 8,897 27,435 22,383
-------- -------- -------- --------
Total operating expenses 114,085 112,234 340,570 309,341
-------- -------- -------- --------
Operating income 27,159 26,631 88,078 72,804
Interest income 975 664 3,621 3,439
Interest expense (3,854) (4,543) (12,553) (9,086)
Net other expense (307) (821) (1,012) (1,819)
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 23,973 21,931 78,134 65,338
PROVISION FOR INCOME TAXES 9,750 8,967 31,735 25,948
-------- -------- -------- --------
NET INCOME $ 14,223 $ 12,964 $ 46,399 $ 39,390
======== ======== ======== ========
EARNINGS PER SHARE OF STOCK
(COMMON AND CLASS B COMMON) $ 0.64 $ 0.59 $ 2.10 $ 1.80
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES (COMMON AND CLASS B
COMMON STOCK OUTSTANDING) 22,151 21,949 22,088 21,908
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 61,930 $ 73,052
Trade accounts receivable (less allowance for
doubtful accounts of $2,654 and $2,576) 77,005 80,010
Inventory 5,635 4,976
Prepaid expenses and other 9,244 5,650
Program rights 10,130 8,452
-------- --------
Total current assets 163,944 172,140
-------- --------
PROPERTIES:
Land 15,723 14,692
Buildings 80,332 78,733
Machinery and equipment 216,773 209,854
Construction in progress 12,025 2,071
-------- --------
Total 324,853 305,350
Less accumulated depreciation 166,663 149,418
-------- --------
Properties - net 158,190 155,932
-------- --------
INTANGIBLE AND OTHER ASSETS:
Intangible assets - net of applicable amortization 290,459 298,305
Receivable from The Herald Company 39,670 39,955
Other 20,798 17,519
-------- --------
Total intangible and other assets 350,927 355,779
-------- --------
TOTAL $673,061 $683,851
======== ========
(Continued)
</TABLE>
3
<PAGE> 4
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- --------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Trade accounts payable $ 17,393 $ 13,355
Current portion of long-term debt 12,705 14,705
Salaries, wages and commissions 13,596 14,897
Income taxes payable 1,083 1,267
Program contracts payable 10,673 8,916
Interest payable 2,346 7,177
Pension obligations 2,123 2,123
Acquisition payable 9,804 9,804
Other 7,321 4,566
-------- --------
Total current liabilities 77,044 76,810
-------- --------
LONG-TERM DEBT 186,705 235,410
-------- --------
PENSION OBLIGATIONS 24,271 23,415
-------- --------
POSTRETIREMENT AND POSTEMPLOYMENT
BENEFIT OBLIGATIONS 91,872 92,252
-------- --------
OTHER LONG-TERM LIABILITIES 5,240 6,027
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 25,000,000 shares
authorized; issued and outstanding - none
Common stock, $.01 par value; 100,000,000 shares authorized;
issued - 6,759,663 in 1997 and 6,498,215 in 1996 67 65
Class B common stock, convertible, $.01 par value; 50,000,000
shares authorized; issued - 27,146,092 in 1997 and
27,214,842 in 1996 272 272
Additional paid-in capital 132,279 129,173
Retained earnings 343,195 308,283
-------- --------
Total 475,813 437,793
Treasury stock - at cost; 24,376 and 22,811 shares of common
stock in 1997 and 1996, respectively, and 11,700,850 shares
of Class B common stock in 1997 and 1996 (187,884) (187,856)
-------- --------
Total stockholders' equity 287,929 249,937
-------- --------
TOTAL $673,061 $683,851
======== ========
(Concluded)
</TABLE>
See notes to consolidated financial statements.
4
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PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Quarters Ended
September 30,
---------------------------------
1997 1996
------ ------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $46,399 $ 39,390
Adjustments to reconcile net income to net cash provided by
operating activities:
Non-cash items:
Depreciation 17,273 15,090
Amortization of intangibles 10,162 7,293
Changes in assets and liabilities (net of the effects of the purchase
of newspaper properties) (Note 4) which provided (used) cash:
Trade accounts receivable 3,005 (240)
Inventory (659) 1,725
Other assets (7,605) 2,203
Trade accounts payable and other liabilities (2,057) 1,678
Income taxes payable (184) (1,043)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 66,334 66,096
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (19,097) (14,853)
Purchase of newspaper properties (203,314)
Purchase of broadcast assets (2,936)
Investment in limited partnerships (4,175) (2,983)
Decrease (increase) in notes receivable 4,976 (5,052)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (21,232) (226,202)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 135,000
Repayments on long-term debt (50,705) (15,205)
Dividends paid (8,599) (7,387)
Proceeds from exercise of stock options 3,108 1,561
Purchase of treasury stock (28)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (56,224) 113,969
------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (11,122) (46,137)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 73,052 100,380
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $61,930 $ 54,243
======= ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. 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
Pulitzer Publishing Company's financial position as of September 30, 1997
and the results of operations and cash flows for the nine-month periods
ended September 30, 1997 and 1996. Results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year.
Fiscal Year and Fiscal Quarters - The Company's fiscal year and third fiscal
quarter end on the Sunday coincident with or prior to December 31 and
September 30, respectively. For ease of presentation, the Company has used
December 31 as the year end and September 30 as the third quarter end.
Earnings Per Share of Stock - Earnings per share of stock have been computed
using the weighted average number of common and Class B common shares
outstanding during the applicable period.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128").
This statement simplifies the standards for computing earnings per share
("EPS"), making them comparable to international standards, and supersedes
Accounting Principles Board Opinion No. 15, Earnings Per Share ("APB 15").
SFAS 128 replaces the presentation of primary EPS with a presentation of
basic EPS. The statement also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. This statement is effective for
the Company's financial statements to be issued for the year ending December
31, 1997. After the effective date, all prior period EPS data presented
must be restated to conform to the provisions of SFAS 128. The adoption of
SFAS 128 is not expected to have a significant impact on the Company's
earnings per share.
2. DIVIDENDS
In the first quarter of 1997, two dividends of $0.13 per share were
declared, payable on February 3, 1997 and May 1, 1997. In the second
quarter of 1997, a dividend of $0.13 per share was declared, payable on
August 1, 1997. In the third quarter of 1997, a dividend of $0.13 per share
was declared, payable on November 1, 1997.
In the first quarter of 1996, two dividends of $0.1125 per share were
declared, payable on February 1, 1996 and May 1, 1996. In the second
quarter of 1996, a dividend of $0.1125 per share was declared, payable on
August 1, 1996. In the third
6
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PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
quarter of 1996, a dividend of $0.12 per share was declared, payable on
November 1, 1996.
In addition, a four-for-three stock split (payable in the form of a 33.3
percent common and Class B common stock dividend) was declared by the
Company's Board of Directors on September 12, 1996. The dividend was
distributed on November 1, 1996 to stockholders of record on October 10,
1996. The Company's capital balances and share amounts have been adjusted
to reflect the split
3. BUSINESS SEGMENTS
The Company's operations are divided into two business segments, publishing
and broadcasting. The following is a summary of operating data by segment
(in thousands):
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
September 30, September 30,
---------------------------------- ----------------------------------
1997 1996 1997 1996
---------------- ---------------- ---------------- ----------------
Operating revenues: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Publishing (a) $ 87,506 $ 84,817 $ 263,646 $219,527
Broadcasting 53,738 54,048 165,002 162,618
-------- -------- -------- --------
Total $141,244 $138,865 $ 428,648 $382,145
======== ======== ========= ========
Operating income (loss):
Publishing (a) $ 11,119 $ 9,107 $ 35,157 $ 19,571
Broadcasting 17,494 18,850 57,131 57,236
Corporate (1,454) (1,326) (4,210) (4,003)
-------- -------- --------- --------
Total $ 27,159 $ 26,631 $ 88,078 $ 72,804
======== ======== ========= ========
Depreciation and amortization:
Publishing (a) $ 3,077 $ 3,251 $ 9,813 $ 5,498
Broadcasting 5,938 5,646 17,622 16,885
-------- -------- --------- --------
Total $ 9,015 $ 8,897 $ 27,435 $ 22,383
========= ======== ========= ========
Operating margins
(Operating income to revenues):
Publishing (a) (b) 17.6% 15.0% 18.9% 12.7%
Broadcasting 32.6% 34.9% 34.6% 35.2%
</TABLE>
(a) Publishing operations include nine months of results for
Pulitzer Community Newspapers, Inc. in 1997 and three months in
1996. See Note 4.
(b) Operating margins for publishing stated with St. Louis Agency
adjustment added back to publishing operating income.
7
<PAGE> 8
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. ACQUISITION OF PROPERTIES
On July 1, 1996, the Company acquired in a purchase transaction all of the
stock of Scripps League Newspapers, Inc. ("Scripps League"), a privately
owned publisher of community newspapers serving smaller markets, primarily
in the West and Midwest. The purchase price of approximately $216 million
(including acquisition costs) includes all of the operating assets of the
newspapers, working capital of approximately $6 million and intangibles.
The acquisition was financed by long-term borrowings of $135 million and
cash of approximately $81 million (approximately $69 million net of cash
acquired). The Company's Statements of Consolidated Income for the
nine-month periods ended September 30, 1997 and 1996 include nine months and
three months, respectively, of operations for Scripps League (subsequently
renamed Pulitzer Community Newspapers, Inc.).
The following supplemental unaudited pro forma information shows the results
of operations of the Company for the nine-month period ended September 30,
1996 adjusted for the acquisition of Scripps League, assuming such
transaction and the related debt financing had been consummated at the
beginning of the period presented. The unaudited pro forma financial
information is not necessarily indicative either of results of operations
that would have occurred had the transaction occurred at the beginning of
the period presented or of future results of operations (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Three Quarters Ended September 30, 1996 (Unaudited):
<S> <C>
Operating revenues - net $414,972
========
Operating income $ 76,173
========
Net income $ 36,409
========
Earnings per share of stock (common
and Class B common) $ 1.66
========
Weighted average number of shares (common
and Class B common stock outstanding) 21,908
========
</TABLE>
8
<PAGE> 9
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. STOCK PURCHASE PLAN
On April 24, 1997, the Company's stockholders approved the adoption of the
Pulitzer Publishing Company 1997 Employee Stock Purchase Plan (the "Plan").
The Plan allows eligible employees to authorize payroll deductions for the
quarterly purchase of the Company's Common Stock ("Common Stock") at a price
generally equal to 85 percent of the Common Stock's fair market value at the
end of each quarter. The Plan began operations as of July 1, 1997.
In general, other than Michael E. Pulitzer, all employees of the Company and
its subsidiaries are eligible to participate in the 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 500,000
shares of its Common Stock under the Plan. Shares sold under the Plan may
be authorized and unissued or held by the Company in its treasury. The
Company may purchase shares for resale under the Plan.
6. LITIGATION
The Company and its subsidiaries are defendants in a number of lawsuits,
some of which claim substantial amounts. While the results of litigation
cannot be predicted, management believes the ultimate outcome of such
litigation will not have a material adverse effect on the consolidated
financial statements of the Company and its subsidiaries.
9
<PAGE> 10
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 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 Quarterly Report on Form 10-Q.
GENERAL
The Company's operating revenues are significantly influenced by a number
of factors, including overall advertising expenditures, the appeal of
newspapers, television and radio 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.
CONSOLIDATED
Operating revenues for the third quarter and first nine months of 1997
increased 1.7 percent and 12.2 percent, respectively, compared to the
corresponding periods in the prior year. The year-to-date revenue comparison
was affected by the acquisition of Scripps League Newspapers, Inc.
(subsequently renamed Pulitzer Community Newspapers, Inc. ("PCN")) on July 1,
1996. Excluding PCN from 1997 (first six months only), consolidated revenues
would have increased 3.4 percent for the first nine months. The third quarter
increase reflected higher publishing revenue while the year-to-date increase
(on a comparable basis) included gains in both publishing and broadcasting
revenues.
Operating expenses, excluding the St. Louis Agency adjustment, for the
third quarter and first nine months of 1997 increased 1.1 percent and 8.2
percent, respectively, compared to the corresponding periods in the prior year.
Excluding PCN from 1997 (first six months only), consolidated expenses would
have decreased 1.2 percent for the first nine months. The third quarter
increase was primarily attributable to higher overall personnel costs of $3.7
million partially offset by lower newsprint costs of $1.1 million, a
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<PAGE> 11
decline in purchased supplements of $1 million and the effect of $1.2 million
of non-recurring costs (related to the PCN acquisition) in the prior year. The
decline for the nine-month period (on a comparable basis) reflected lower
newsprint costs of $8.9 million, a decline in purchased supplements of $2.4
million and the effect of the $1.2 million prior year non-recurring PCN costs.
These year-to-date decreases were partially offset by increases in overall
personnel costs of $6.3 million, promotion costs of $1 million and circulation
distribution costs of $1 million.
Operating income for the third quarter and first nine months of 1997
increased to $27.2 million (2 percent) and $88.1 million (21 percent),
respectively. Excluding PCN from 1997 (first six months only), consolidated
operating income would have increased 13.7 percent for the first nine months of
1997. The third quarter and comparable nine-month gains reflected higher
operating income in the publishing segment resulting primarily from increased
advertising revenues, lower newsprint costs and the effect of the prior year
non-recurring PCN costs.
Third quarter interest expense decreased $689,000 due to a decline in the
Company's average debt balance to $210.9 million from $251.1 million in the
prior year quarter. The Company's average interest rate increased slightly to
7.3 percent from 7.2 percent in the prior year quarter. Interest expense for
the nine-month period increased $3.5 million due to higher debt levels during
the first three quarters of 1997. The Company's average debt level increased
to $229.6 million from $165.9 million, due to new long-term borrowings related
to the July 1, 1996 acquisition of Scripps League. The Company's average
interest rate for the nine-month period was unchanged from the prior year at 7.3
percent.
Interest income for the third quarter and first nine months of 1997
increased $311,000 and $182,000, respectively. The third quarter increase
resulted from higher average interest rates while the nine-month increase was
due to a combination of higher average investment balances and interest rates.
The effective income tax rate for the third quarter and first nine months
of 1997 increased to 40.7 percent and 40.6 percent, respectively, from 40.9
percent and 39.7 percent in the prior year periods. The higher rate in the
1997 year-to-date period reflects an additional six months of nondeductible
goodwill amortization related to the July 1, 1996 Scripps League acquisition.
It is expected that, on an annual basis, the effective tax rate for 1997 will
be in the 41 percent range.
Net income in the 1997 third quarter increased 9.7 percent to $14.2
million, or $0.64 per share, compared with $13 million, or $0.59 per share, in
the third quarter of 1996. The gain in net income for the third quarter
reflected the combination of higher publishing profits and lower net interest
expense. Net income for the first nine months of 1997 increased 17.8 percent
to $46.4 million, or $2.10 per share, compared with $39.4 million, or $1.80 per
share, a year ago. The year-to-date increase in net income reflected increased
publishing profits, resulting primarily from higher advertising revenues and
lower newsprint costs.
11
<PAGE> 12
PUBLISHING
Operating revenues from the Company's publishing segment for the third
quarter and first nine months of 1997 increased 3.2 percent and 20.1 percent,
respectively, compared to the corresponding periods in the prior year.
Excluding PCN from 1997 (first six months only), publishing revenues would have
increased 4.8 percent for the first nine months. The third quarter and
comparable nine-month gains primarily reflected increases in classified and
retail advertising revenues at the St. Louis Post-Dispatch ("Post-Dispatch")
and The Arizona Daily Star ("Star").
Excluding PCN from 1997 (first six months only), newspaper advertising
revenues increased $2.4 million (4.6 percent) in the third quarter and $10.3
million (7.6 percent) in the first nine months of 1997. The significant
portion of the current year increases resulted from higher classified and
retail advertising revenue at both the Post-Dispatch and Star. Full run
advertising volume (linage in inches) decreased 2.1 percent at the
Post-Dispatch and was unchanged at Star for the third quarter of 1997. For the
first nine months of 1997, full run advertising volume increased 0.2 percent at
the Post-Dispatch and 4.5 percent at Star. In the fourth quarter of 1996 and
the first quarter of 1997, varying rate increases were implemented at the
Post-Dispatch, Star and most of the Company's new community newspaper
properties.
Excluding PCN from 1997 (first six months only), circulation revenues
decreased $337,000 (1.5 percent) in the third quarter and $509,000 (0.9
percent) in the first nine months of 1997. The decreases resulted primarily
from declines in circulation in St. Louis and Tucson.
Excluding PCN from 1997 (first six months only), other publishing revenues
increased $582,000 (6.1 percent) in the third quarter and $699,000 (2.9
percent) in the first nine months of 1997. The increases resulted primarily
from higher preprint revenue at the Post-Dispatch.
Operating expenses (including selling, general and administrative expenses
and depreciation and amortization) for the publishing segment, excluding the
St. Louis Agency adjustment, for the third quarter of 1997 were unchanged from
the prior year at approximately $72 million. In the third quarter, lower
newsprint costs of $1.1 million, a decline in purchased supplements of $1
million and the effect of $1.2 million of non-recurring costs (related to the
PCN acquisition) in the prior year were offset by increases in other expense
categories, including higher overall personnel costs of $2.8 million. For the
nine-month period operating expenses increased 11.5 percent. Excluding PCN
from 1997 (first six months only), operating expenses would have declined 3.3
percent for the first nine months. The decline for the nine-month period (on a
comparable basis) reflected the impact of lower newsprint prices, which reduced
newsprint costs by $8.9 million, a decrease in purchased supplements of $2.4
million and the effect of the $1.2 million PCN non-recurring costs in the prior
year. Partially offsetting these declines were increases in overall personnel
costs $3.9 million, promotion costs of $1.3 million and circulation
distribution costs of $1 million.
Operating income for the third quarter and first nine months of 1997
increased to $11.1 million (22.1 percent) and $35.2 million (79.6 percent),
respectively. Excluding PCN from 1997 (first six months only), operating
income would have increased 52.5
12
<PAGE> 13
percent for the first nine months of 1997. The 1997 increases primarily
reflected the combination of increased advertising revenues and lower newsprint
costs.
Fluctuations in the price of newsprint significantly impact the results of
the Company's publishing segment, where newsprint expense accounts for
approximately 20 percent of the segment's total operating costs. During the
first nine months of 1997, the publishing segment benefited from newsprint
prices below prior year levels. However, as a result of recent price increases
and declining prices in late 1996, the Company's 1997 fourth quarter newsprint
expense is expected to increase over the comparable prior year period.
BROADCASTING
Broadcasting operating revenues for the third quarter declined 0.6 percent
compared to the prior year quarter. For the quarter, a 5.9 percent decrease in
local spot advertising was partially offset by a 4.6 percent increase in
national spot advertising and a 9.7 percent increase in network compensation.
Operating revenues for the nine-month period increased 1.5 percent over the
comparable 1996 period. National and local spot advertising increased 2.1
percent and 0.5 percent, respectively, while network compensation increased 5.2
percent compared to the prior year nine-month period. The current year
comparisons reflect the impact of decreased political advertising of
approximately $2.8 million and $5.4 million, respectively, in the third quarter
and first nine months of 1997. In addition, the Company's five NBC affiliated
television stations benefited from significant Olympic related advertising in
the prior year third quarter.
Broadcasting operating expenses (including selling, general and
administrative expenses and depreciation and amortization) for the third
quarter and first nine months of 1997 increased 3 percent and 2.4 percent,
respectively, compared to the prior year periods. The increases were primarily
attributable to higher overall personnel costs of $900,000 and $2.3 million for
the third quarter and first nine months of 1997, respectively.
Operating income from the broadcasting segment in the 1997 third quarter
decreased 7.2 percent to $17.5 million from $18.9 million and in the first nine
months decreased 0.2 percent to $57.1 million from $57.2 million. The
decreases reflected the decline in local advertising revenue in the third
quarter and modest overall revenue increase in the year-to-date period,
resulting primarily from the effect of significant political and Olympic
related advertising revenue in the prior year periods.
The Company's broadcasting segment will continue to face difficult year over
year comparisons in the fourth quarter of 1997 due to impact of prior year
political advertising. The broadcasting segment's fourth quarter results in
1996 included $7 million of political advertising.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Outstanding debt, inclusive of the short-term portion of long-term debt,
as of September 30, 1997, was $199.4 million, consisting primarily of
fixed-rate senior notes with The Prudential Insurance Company of America
("Prudential") and $14 million of variable rate borrowings under a credit
agreement with The First National Bank of Chicago, as Agent, for a group of
lenders ("FNBC"). Compared to December 31, 1996, outstanding debt as of
September 30, 1997 declined approximately $50.7 million due to current year
repayments. During the second and third quarters of 1997, the Company repaid
$36 million of variable rate FNBC borrowings. In addition, on April 22, 1997,
the Company made the final scheduled repayment of $14.5 million under its 8.8
percent Senior Note Agreement with Prudential. Subsequent to the end of the
third quarter, on November 7, 1997, the Company made a $14 million debt
repayment to FNBC which reduced borrowings under the $50 million credit
agreement to $0.
The Company's Senior Note Agreements with Prudential and FNBC Credit
Agreement require it to maintain certain financial ratios, place restrictions
on the payment of dividends and prohibit new borrowings, except as permitted
thereunder.
As of September 30, 1997, commitments for capital expenditures were
approximately $14.8 million, relating to normal capital equipment replacements
and building projects for the Flagstaff, Arizona newspaper property and the
Louisville, Kentucky broadcasting property. Total capital expenditures to be
made in fiscal 1997 are estimated to be in the range of $25 to $30 million.
Commitments for film contracts and license fees as of September 30, 1997 were
approximately $25.8 million. In addition, as of September 30, 1997, the
Company had a limited partnership capital contribution commitment of
approximately $1.2 million. Subsequent to September 30, 1997, the Company
entered into a limited partnership agreement with a capital contribution
commitment of up to $12 million, to be funded over a six year period.
At September 30, 1997, the Company had working capital of $86.9 million
and a current ratio of 2.13 to 1. This compares to working capital of $95.3
million and a current ratio of 2.24 to 1 at December 31, 1996.
The Company from time to time considers acquisitions of broadcasting,
newspaper and other properties when favorable investment opportunities are
identified. Currently, the Company has no agreements to acquire additional
properties. In the event an investment opportunity is identified, management
expects that it would be able to arrange financing, if necessary, on terms and
conditions satisfactory to the Company.
The Company generally expects to generate sufficient cash from operations
to cover ordinary capital expenditures, film contract and license fees, working
capital requirements, debt installments and dividend payments.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as part of this report:
27 Financial Data Schedule
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the quarter for which this report was filed.
All other items of this report are not applicable for the current quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PULITZER PUBLISHING COMPANY
(Registrant)
Date: November 12, 1997 /s/ Ronald H. Ridgway
---------------------------------------------
(Ronald H. Ridgway)
Director; Senior Vice-President-Finance
(on behalf of the Registrant and
as principal financial officer)
15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT NUMBER TITLE OR DESCRIPTION
27 Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 61,930
<SECURITIES> 0
<RECEIVABLES> 79,659
<ALLOWANCES> 2,654
<INVENTORY> 5,635
<CURRENT-ASSETS> 163,944
<PP&E> 324,853
<DEPRECIATION> 166,663
<TOTAL-ASSETS> 673,061
<CURRENT-LIABILITIES> 77,044
<BONDS> 186,705
0
0
<COMMON> 339
<OTHER-SE> 475,474
<TOTAL-LIABILITY-AND-EQUITY> 673,061
<SALES> 428,648
<TOTAL-REVENUES> 428,648
<CGS> 157,939
<TOTAL-COSTS> 157,939
<OTHER-EXPENSES> 27,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,553
<INCOME-PRETAX> 78,134
<INCOME-TAX> 31,735
<INCOME-CONTINUING> 46,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,399
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 0
</TABLE>
